Learning from Diapers – Life Cycle Assessment as an Investment Risk Mitigation Tool

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Courtesy of thinkstep

Remember the garbage barge? Back in 1987, the Mobro 4000, a barge carrying more than 3,000 tons of garbage from Islip, Long Island, famously departed from New York harbor bound for a landfill site in North Carolina because Islip’s own landfill site was nearly full.

The aim was to use the garbage as part of a landfill gas project to generate clean energy. But the barge wasn’t allowed to unload due to fears that its load was dangerous. It ended up sailing for months from port to port, traveling as far as Belize looking for somewhere that would accept the consignment while becoming a symbol of a country that was running out of landfill sites. Eventually, the garbage was incinerated close to where it had all started, in Brooklyn and the resulting ash buried in Islip.

According to the Waste360 website on the 20th anniversary of the unexpectedly eventful trip, “within three years, most states passed laws requiring some kind of municipal recycling. The United States went from about 600 cities with curbside recycling programs to almost 10,000. Our recycling rate is three times higher now than it was in 1987.”

The barge attracted a huge amount of attention and inevitably, enterprising businesses started to jump on the bandwagon. One such group was the makers of cloth diapers, who were quick to claim that their reusable products were much more environmentally friendly than disposables. At first sight, it seems an uncontroversial claim – cloth diapers are made from natural products, and they and their contents don’t get sent to landfills.

But it’s not quite that simple and the makers of disposables hit back. While disposable diapers take natural resources to make and produce more solid waste than washables, it does not mean that the latter are impact free. Cloth diapers use water and detergents – and energy to treat, transport and heat that water while washing – and they produce water-borne emissions in the use stage that disposables do not.

It is possible to come to different and equally valid interpretations depending on the impact you are examining and where it occurs. To get a true picture, you need to take a life cycle perspective, looking at multiple life cycle stages (e.g. material sourcing, manufacturing, distribution, use and disposal) to ensure that unanticipated impacts are not transferred from one stage to another. This ‘duelling diaper’ debate laid the foundation for the modern development and application of life cycle assessment (LCA).

The battle between the two types of diapers highlighted one of the key benefits of LCA. By increasing awareness of the impacts of the two products, LCA has enabled both categories to reduce their environmental impacts. For example, a study by the UK’s Environment Agency in 2008 (an update of the original in 2005), found that reusable diapers can be 40% better for the environment than their disposable counterparts – but only if parents take particular steps to minimize the impact of washing and drying them. If you wash the diapers at high temperature and dry them in a conventional dryer this significantly increases the amount of energy involved and reduces the environmental benefits. But if you use an energy-efficient washing machine and dry the diapers on a clothesline, you use much less energy. The impact is reduced still further if you buy your washable diapers second-hand and if you have some form of renewable energy, such as solar panels, on your home.

But the makers of disposables can also point to measures to make their products more sustainable. Between the 2005 and 2008 studies, the average diaper became 13.5% lighter and its global warming potential fell. During this time, a company called Knowaste started recycling disposables into plastic and cardboard products with claims to save up to 70% of the greenhouse gas emissions associated with landfill or incineration. Other companies use diapers as fuel for waste facilities, just as was planned for the garbage on the Mobro 4000.

How is this relevant to investors? Well, the diaper debate shows that when it comes to evaluating the environmental risks and opportunities in product systems the answers are rarely simple and often are counter intuitive. LCA provides a logical, structured approach to a form of due diligence on environmental issues that can highlight risks and opportunities that companies and their investors might otherwise not be aware of. These insights are critical when considering and managing likely risks and opportunities that arise from environmental, social and governance issues, for example.

By looking not just at a company’s own operations but also at its supply chain, use and disposal of its products, LCA can provide insights that will help companies to better manage their key product risks and continually innovate to improve their products. Companies that have embedded the use of life cycle information as a significant input into their enterprise risk management system can help investors to ensure stable, sustainable returns on their investments over the long term.

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