Green machinations

FROM THE ECONOMIST INTELLIGENCE UNIT

A new study sheds light on efforts by high-tech and electronics companies to comply with new environmental regulations in Europe.

By Adam Lincoln

The European Union’s penchant for legislating and directive-making sometimes hits its mark. Take the Waste Electrical and Electronic Equipment (WEEE) directive, which came into effect in August 2005, and the Restriction of Hazardous Substances (RoHS) directive, which comes into effect on 1 July this year. With these environmental regulations, the EU has moved to clean up the deceptively dirty business of making semiconductors, computers and networking equipment, consumer electronics and small electronic appliances.

And not before time. According to a report issued by Greenpeace in 2005, the recycling of electronics in places like India is a health time-bomb. There, dust collected from the floors of workshops that recover metals from the solder in computers registered concentrations of lead hundreds of times higher than levels typically recorded for indoor dusts in developed countries. Similarly, dusts from battery dismantling workshops in contained cadmium levels 40,000 times higher than is typically found in the West, where much of this ‘e-waste’ originates.

By no means do these directives represent a first attempt at getting the high-tech realm to clean up its act, but they are arguably the most vigorous efforts to date. “We have dealt with materials restrictions in the past,” Viktor Sundberg, vice-president of environmental affairs for Electrolux Household Appliances, Europe, said in a recent study conducted by the Economist Intelligence Unit, in co-operation with Oracle*. “The difference with RoHS is that we’ve never had to deal with restrictions on six materials at once.”

The WEEE makes vendors responsible for the recycling of electronics, while the RoHS bans products containing certain levels of lead, cadmium, mercury, hexavalent chromium and two types of flame retardant – polybrominated biphenyl (PBB) and polybrominated diphenyl (PBDE). The two regulations are designed to be complementary, by cutting the amount of electronic and high-tech equipment ending up in landfills, where they leach into soils and waterways; and by keeping hazardous materials out of products in the first place.

Wake up call

The scramble for compliance affects everything from product design and component testing, to procurement and the supply chain, and corporate IT systems, wherever a company does business. A US-based company selling products only into the North American market will not be unaffected by the European regulations. And with similar measures imminent in key markets such as California, Japan and China, there truly will be nowhere to hide. As the title of the EIU report, ‘Efficient compliance with environmental rules in the high-tech industry’, implies, the key is to find competitive advantage under the new system.

But if compliance doesn’t come cheap, the costs pale in comparison to the penalties for failure. The EU reckons industry will spend up to E900m annually on measures to ensure the requirements of WEEE are met, with as much as 60% of that amount spent simply on collecting used products. Research outfit AMR Research believes the cost of mitigating risks associated with RoHS and WEEE will range between 2% and 4% of revenue from affected lines during the first year, with long-term yearly costs levelling off under 1%. Companies that ignore the directives will be ordered to stop selling an offending item. Tough luck if a bestselling technology is toxic.

Mr Sundberg has used this point to stress the urgency of compliance at Electrolux. “One thing we did with RoHS was to build alertness that, in principal, everything we sell, if we don’t change it, will be non-compliant and in the end we’ll have nothing to sell. That made some people wake up.”

Electrolux has been smart. The Swedish giant has set internal environmental standards that are not tied to any single directive, but rather encompass all worldwide requirements and voluntary standards. In other words, it is playing off the front foot. But too many companies are taking a reactive approach, believes Hardeep Gulati, senior director of product strategy for product lifecycle management (PLM) at Oracle Corporation. “Compliance has been addressed at the task-force level, less proactively and more in a fire-drill mode,” he says.

This isn’t to say that a task force isn’t useful – but tactical efforts need to be linked to larger initiatives, according to the executives who took part in the EIU survery. In part, this involves careful evaluation of the supply chain, and the creation of a platform for sustainable compliance built on strong business processes and information systems.

Engineering departments have long employed product data management (PDM) systems, but now some companies are moving to PLM systems that facilitate the sharing of information across the organisation. This is important because product data, such as bills of material, must be integrated with corporate ERP systems. Experts say that a “single instance” of item data will make compliance with environmental regulations much easier. As part of this process, many firms are instigating new part numbers to indicate RoHS-compliant equipment.

Safety in numbers

Companies also need to keep on top of what their suppliers are doing. “Even if your company doesn’t sell into Europe or your products are exempt, you might find your supply of non-RoHS compliant parts is going to dry up,” says Barbara Elise Self, environmental compliance project manager for Fujitsu Transaction Solutions. “You can’t put your head in the sand with RoHS.” The company has taken RoHS compliance as an opportunity to analyse its product roadmaps and look for opportunities to add functional enhancements. It also analysed its inventory levels for spare parts and considered broader sourcing issues.

On the face of it, redesigning products and realigning supply chains seems like the trickier task. But that’s what companies do, after all. In practice, the recycling regime wrought by WEEE poses the greater challenge. So, while Electrolux succeeded in eliminating chlorofluorocarbons (CFCs) from appliances such as refrigerators ahead of regulations, Mr Sundberg says the producer-responsibility approach to recycling “takes new skills completely”.

As the EIU report points out, compliance with WEEE is made more difficult because one size does not fit all. Companies must track when the rules go into force in each member country, and register recycling-related data with national agencies. These registries list each ‘producer’ company, as well as information concerning its product lines sold in the country specific market.

Some companies have found solace in numbers, by clubbing together in consortia. Electrolux, for example, worked with Braun, Hewlett-Packard, and Sony to establish the European Recycling Platform. The platform is described as a pan-European ‘take-back’ and recycling scheme operated with two general contractors who subcontract the actual recycling and transportation to third parties. The platform manages the contractors’ activities, but the members are invoiced directly for their share of the costs. According to Mr Sundberg, maintaining oversight over one entity – the platform – is more efficient than trying to arrange for recycling on a country-by-country basis.

*Efficient compliance with environmental rules in the high-tech industry is available free of charge at http://www.eiu.com/hazmat

For more information, please contact:

Roberto Michel, report author: +1 608 846 1951; robertomichel@charter.net

Sheila Allen, press liaison: +44 (0)20 7576 8188; sheilaallen@eiu.com

Source: Global Technology Forum