Business as an Engine for Creating Environmental Stewards

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Whether it's facilities or products, employees or customers, outdoor gear and apparel retailer REI is working to incorporate social and environmental goals into every element of its operations.

The company is building and renovating LEED-certified facilities across the country, creating its own line of "eco-sensitive" products, and working with suppliers and employees alike to improve the environmental impact of its entire supply chain. I sat down with Kevin Hagen, REI's director of Corporate Social Responsibility, to find out about the company's plans, and why he believes sustainability is a team sport.

Matthew Wheeland: Kevin, the first thing I wanted to ask you about was February has been a pretty busy month for news from REI. Your store in Boulder, Colorado, was given the Retail Store of the Year Award for environmental sustainability from Chain Store Age, the magazine, and Fortune magazine named REI one of the 100 best companies to work for. So let's start with the stores themselves. Will you tell me why the Boulder store was chosen for this award?

Kevin Hagen: Thanks, yeah, it's exciting to be in the news a couple times. It's great when the sound bites come together. However, I would also say that what I'm really excited about for our efforts are that they're going on all the time, and it's nice when the news comes out, but it's also great -- the real accountability in the process isn't necessarily the news stories, but really it's members and employees who notice on a regular basis.

I think the really exciting stuff on the retail magazine announcement was, and we really appreciate their recognition, it's Boulder is a great store. We've had a store in Boulder for a long time, but this was a remodel, and we renovated and expanded the building substantially and in the process used the experience to demo, test, pilot, if you will, some new technologies and new approaches to retailing and to what a co-op is in the community, which I think is really exciting, and I really appreciate their notice of it. On the one hand, that's great. There are some green features that I think are really neat, but I think there's also some real community connection pieces that are equally important.

A backup to that is we've been building green buildings for a decade. Our Seattle flagship store was [built] pre-U.S. Green Building Council LEED certification process. In fact, our work with Methune there was part of the experience that helped us understand what LEED was all about or gonna be, and we've used that lesson in stores for the last decade.

So our average store is pretty darn green already, but our test in Boulder included several different features, things like I think it's the first retail implementation of building-integrated photovoltaics, so it's actually a glass atrium in the middle of the building that uses electric glass that not only lets light into the building but produces electricity at the same time. Or another feature there is solar hot water or a lot of day lighting technologies, so over 20 percent of the lighting in the building actually comes from day lighting without electricity at all. Another bunch, about two and one-half percent of the energy used in the store is produced on-site.

At the same time, really, although there's a lot of cool "green" materials and green process around it, I think the really neat thing about the building is the connection with community. As a co-op, REI has a different relationship with communities than a retailer would, and the demonstration, I think, of that is that the center of the store, the prime real estate of the retail space, is dedicated to community space, and it's a clinic space. It's a classroom. It's a raised area that's wired, and what it's used for is local community groups who have meetings there, who have lectures and host events. It's supposed to be the community space, and I think that's a really exciting piece of how we look at retailing differently as a co-op versus another retailer.

MW: That's one of the questions I want to ask you later as far as how a cooperative, how the process is different. As far as buildings go, though, just to close that out, you mentioned that you've been building green buildings before LEED even really existed, and it sounds like there's -- you've got the Boulder prototype store. You've got a similar store in the works in Texas. How do these stores shape your plans for both new stores and facilities but also for existing facilities in terms of making them more efficient or more high-performing?

KH: And that's a great question, because on the one hand, it's all well and good to build a prototype, but if you never do anything with that experience, what was the point? I think that there have -- part of the experience is, frankly, things that don't work so well, so, you know, you need to give yourself a little bit of space to do it wrong a little bit so you know where the edges are, but the things that have worked really well I think we've been able to adopt fairly quickly.

Eventually, the idea of both Boulder and now the second version, which will be in Round Rock, Texas, is that we'll be able to really change the direction and design of the store to a next generation of look and feel, as well as a next generation of connection. But some of the technology, some of the, you know, tactics, have been adopted really quickly, so a great example is Boulder was the first store we designed to use solar hot water heating, and the solar hot water system in Boulder produces about 70 percent of all the solar hot water in the store, which is a little more than ordinary stores, because we actually provide showers for staff and, you know, facilities so that they can bike to work, et cetera.

So we use a little more hot water than a typical retailer, but now with solar hot water, that's great, but it was working so well even in the development stage that we actually adopted it for other stores, and our Fresno, California, store opened with a solar hot water system before Boulder opened. So we actually adopted that prototype element into a mainstream store before the prototype store even was open, so I think it's a great example that when we see something that's gonna work, we've been able to pick up the pieces quickly, but the idea is that the prototype will develop some new stuff for a future generation of stores.

MW: As far as existing buildings, as new technologies become available like the solar water heating, are there plans for incorporating them into existing buildings?

KH: We have a regular process of remodels and retrofits at stores, so refreshing stores. As we do that, we attempt to do our best to bring back both design elements and look-and-feel features, as well as technology. So a couple of examples on the, you know, nuts-and-bolts technology, we've been retrofitting stores with our sophisticated energy management system, something nobody will ever see, but it allows us to control the features of the store and understand energy management in that store much better. We can make it more efficient, so that's an example, or lighting improvements or lighting retrofit.

MW: As far as the company overall is concerned, REI has been on Fortune magazine's list of the best companies to work for for the last three years. How do your employees fit into the company's sustainability goals? Is that influenced or shaped at all by the fact that REI is a cooperative?

KH: Taking a step back for a second, the big picture of sustainability, we don't distinguish between environmental and social challenges around sustainability for business. In fact, all these issues intermingle. Eventually, someplace along the way, there's really no such thing as an environmental problem that doesn't have social consequences, and there's really no such thing as a social problem that doesn't really fold into or have dimensions that are environmental. So environmental and social responsibility go hand-in-hand, and they are ultimately the same thing in our view.

So addressing both the social and environmental challenges of running a business is really part of what we're all about. It's part of the authenticity of running a successful co-op. Certainly if we are going to be a mission-based business and focused on the big picture, getting people to the outdoors, creating stewards of the environment, using our business as an engine for sustainable enterprise, then treating people with respect is certainly a piece of it. Being a co-op is really exciting from that dimension.

I think one of the key differences about being a co-op versus being a publicly traded company or even being a sole proprietorship is that -- well, I guess I could say it this way. Running REI isn't making anybody rich. That's not to say that we're not a very profitable business. We are. Our members expect us to be a very profitable business and to pay out dividends, but it's not about making some remote stockholder's stock value improve, and it's not about making some individual proprietor or sole ownership more wealthy. It's about actually running a business for the benefit of our members, our employees, and our communities.

For the calendar year 2007, for the business year, we will pay out over $100 million in profits to our communities, to our employees, and to our members in the form of dividends, over $60 million of that, by the way, to members in the form of dividends. So this is a very profitable business. It's designed to be, but at the same time, it's for the benefit of those key stakeholders.

On the employee side, crucial. It's all about making this a great place to work, work-life balance, being committed to the mission. What I think is really exciting and I think a key payback of being a -- you know, trying to pursue the sustainability issue and being a mission-based business is that showing up for work every day, whether you're a part-time sales employee in a store or whether you're a headquarters person, it's about making a difference every day, about showing up and being part of the solution or at least trying to be part of the solution, matching our values with what we do every day, and that's a pretty fulfilling place to be, but if that's our vision, then we'd better make sure our employment practices really match that, so everything from compensation to employee benefits.

For example, we offer company-supported, company-paid health benefits not only to every employee who works 20 hours or more, but, in fact, to all employees. If you work one hour at REI, you have access to company-supported healthcare benefits for you and your family. So that's, I think, the kind of -- the kind of things that we look at as we want to make this a great place to work from an atmosphere and environment point of view, but at the same time, we want to make sure that we're taking care of people in the way that we want to be taken care of.

MW: My assumption is that your employees, much like your customers, are predisposed to, you know, being environmental stewards. How do their beliefs, their ideas inform the larger company strategy around this?

KH: That's the key question. You know, I would say that, well, having executive support and Board of Directors support, which we have, is very important and really enabling. Really, the engine of sustainability, the engine of running our business comes from employees. Our employees are extremely conscientious folks. They have -- you know, we advertise that we are a values-based organization, and they are every bit of that, but that's -- the other thing is they really hold us accountable to that. We hold ourselves to a very high standard.

So if on the one hand we say we want to be a waste-wise company, I get emails from employees going, "Hey, you said that on the radio, but you know what? I'm doing this in my store, or we're doing that over here, and how are we gonna fix this?" and those kinds of things. Even better, rather than just sort of, you know, throwing out the barbs or the hold us accountable, they bring the answers, and so many of the things that we're implementing across the corporation really were born of great ideas.

There's an incredible entrepreneurial spirit in the organization, or I guess some people would call it intra-preneurial spirit. It's being inside the organization and still be very entrepreneurial. They try new things. They bring us ideas. I think what's great is that REI employees feel like they get involved, and that's just part of the ethic. We get involved in our communities. We volunteer. We inspire volunteerism. We bring members outdoors. We get connected.

It's very much a "Join us" message, and in bringing that spirit onto the inside of the building, they recycle. It looks like our data says that for 2007, you know, operation waste of the business by weight, 80 percent of all the things that we threw away last year, the waste of our business, actually went to recycling instead of landfills, so an 80 percent recovery rate from a recycling point of view. That, I think, is a great testament to the fact that employees care and are driving that with their behavior.

On the social side, projects like something we call PEAK, Promoting Environmental Awareness in Kids, is a program that really was born in stores and now is a joint effort between the Leave No Trace organization and REI to bring training of, you know, outdoor ethics to kids in a really fun way, and last year, between REI employees and trainers from Leave No Trace, we reached 142,000 kids last year.

So that's, I think, an example of something that was born of individual efforts around the organization, brought up as a great idea, embraced by the organization. We went out and got partners in it and have now rolled it out, so the connection, I think, that that really makes employees feel empowered to make change, to be part of the answers, and I think that folks really come to work every day with their be-a-part-of-the-solution hat on.

MW: You mentioned some of the data about recycling and waste rates for REI. About a year ago, the company released its first Environmental Stewardship Report. What did you learn from creating that report, and how did it affect your operations in the past year, or what do you see coming for this year's report?

KH: As a practitioner in the sustainability movement, I would argue that it's all about the metrics. What we learned was that you can't trust your intuition about where your business is going and what impacts you have. You really need to go out and do the homework. That doesn't mean you have to send a thousand troops out to know, you know, every scrap of paper in the company, but it really means you need to do the homework and get the numbers, because what we discovered was in virtually every area that we thought we understood what was going on, we had surprises, all the way to, for example, when we thought we understood a little bit about where greenhouse gas emissions come from our business.

We were completely surprised by the number one source of greenhouse gas emissions from our company turned out to be the REI Adventures travel business, which is a very small piece of our total sales, but four or five thousand people a year travel all over the world to wonderful places on eco-travel vacations and experiences, human powered sports, all great stuff, but they fly there, and it turned out that those flights from their home towns through our adventures travel business turned out to be our biggest source of greenhouse gas emissions. Nobody saw that coming.

And what's worse is we're not trying to make that smaller. We're trying to make that bigger, because we think that in supporting eco-travel and eco-tourism is great for the tourist, and it's great for the places that they go. So, wow, what do we do next? We have this dichotomy, so we actually fixed that or are addressing that problem through what's now probably the nation's largest carbon-neutral travel program, where we partnered with environmental organization Bonneville Environmental Foundation, to do an offsets program, which I think is quite thoughtful, but offsets in carbon trading is our last approach to actually addressing our real greenhouse gas signature issues, and it's all about really looking for root causes, which brings me back to the numbers.

If we're really looking for root causes, and we're really looking to do business different, you've got to know the numbers, so attacking the problem from the business-based pointy pencil, spreadsheet analysis of where are our CO2 emissions coming from and what can we do about it, I think, is fundamental to the difference between what we used to be and what we are today. I think what we used to be, in Sally Jewell's words again -- she would call our earlier efforts around sustainability, our first 70 years or so of work, she would call that random acts of kindness.

We did good things when it was apparent what to do, and we made good choices whenever we could, but we didn't have a systematic, process-driven, metrics-based approach, so our priorities were hard to follow, what we did, what we didn't do, a lot of gaps. So now, I think, over the last two or three years, our approach has been much different, and it all starts with getting the metrics together, doing a report, being transparent about what we're learning, and sharing internally and externally what are the numbers, how do we get this data so we can figure out what our energy use is and where it's coming from, what our transportation impacts are.

You know, there's another one. I'll throw in another counterintuitive approach. A lot of our products come from Asia, and we move them with transportation systems from our suppliers and factories through our distribution centers and out to stores, a lot of press going on around the impacts of transportation, which cumulatively is a big deal. However, when we started doing the real numbers, what we found out was moving people, employee commuting and corporate travel combined, was double the CO2 impacts for our business than all the transportation of goods in our whole company, and that was not intuitive at all.

So I think it really comes from the numbers, knowing what's going on, and being able to address the right stuff, being able to enlist the support of our communities and, most importantly, enlist the support of our employees around creative answers to these questions. Once you see where the numbers come from, you can start working on it in a much better way. So we're -- I know I go a little long about that, but the truth is it's really -- that's the distinction, I think, between a process-based approach to sustainability, sustainable business solutions versus a do-the-right-thing sort of random approach to addressing sustainability.

MW: When you got the numbers, there are things that you can't change like shipping your goods overseas or importing your goods from overseas, but there are things that maybe you can change, like making employee commuting less carbon-intensive. Did that inform any practices, or did you guys talk about ideas for how to reduce that once you saw the numbers?

KH: Very definitely. First, I would challenge a little bit the question. Let's not assume that there's anything that we can't do something about. So, for example, in transportation, one of the things we've done is we have a -- you know, we spend tens of millions of dollars a year in transportation to logistics suppliers and carriers. So the first thing we did was our Director of Logistics started making presentations to forums where our logistics suppliers are and said things like, "In the future, we're gonna measure the performance of our suppliers, and we're gonna choose who we do business with not just on cost and not just on on-time delivery and reliability and quality, but we're gonna start measuring the CO2 content of transportation providers, and we're gonna push our business towards those who can deliver lower CO2 impact transportation solutions."

Merely saying so sent ripples around the industry. There were transportation suppliers that said, "What's CO2, and why do you care?" and all of the sudden, a new dimension is opened in the whole business-based approach. This is market-based solutions. Customers want this. Let's give it to them. So now major shipping companies are starting to figure out that it really matters, and they're starting to look at how to measure this, how to report about it, how to make it a competitive advantage for their business.

So I think that it's absolutely the case that we can start making big difference. When a more than a billion dollar company starts saying, "I want this in my proposal," a lot of people listen, and I think that the other opportunity is that maybe we're on the front edge of this a little bit so that both other customers of theirs are gonna be asking this question, and so they're trying to get ahead of that question. So I think that that's an exciting piece, and it proves to me that there's nothing we can't change. All we have to do is be more innovative, more creative, and more willing to try.

Then, meanwhile, how about changing our own behavior? So, absolutely, we've been looking at our largest concentrations of employees. We created a new job in the organization of a commuter-reduction person whose full-time role is to try to figure this out, and it's not just about trying to reduce CO2. That was the impetus for looking at this problem, but all of the sudden we realized that employee commuting is an issue on many dimensions.

It's an employee satisfaction issue. It's a recruitment and retention issue. It's a quality of life issue for employees. Nobody likes to be stuck in traffic, and, in fact, if we've got a location that somebody can't get to, maybe we can't hire somebody at that location, or maybe we're finding out that transportation solutions means that we're only hiring from certain pools of the population, and we're excluding people from opportunities in our business, because they couldn't get to our location.

It makes us think about things completely differently, and so I think that it's a great example of looking through the lens of environmental and social responsibility at our business reveals risks and opportunities that we would not have otherwise seen, and I think that's the crux of why I can say that REI believes that being an environmentally and socially responsible business isn't just about, you know, do good, which it is, but that's another issue. It's really about being a better business.

It's really about executing our business more effectively, and so this is an interesting segue into the notion that, in fact, we can use the business engine to create good, and so Sally Jewell talks a little bit about something she calls the "virtuous cycle," where she says, "What if the bigger we got, the more good we could do, and what if the more good we could do, the bigger we got?" What a great vision of what a mission-based business should be all about, and I think that's a great tenet of how that vision relates to the actual operation of our business.

MW: You mentioned earlier that you see the business as an engine for creating environmental stewards, and I wondered, when it comes to REI's actual business of selling outdoor equipment, what is the company doing on that front? I know you introduced the eco-sensitive line of products. Are there other ways you can encourage your customers to reduce their impact?

KH: Yeah, let's not pull any punches. It is not lost on us that the essence of what we do after our mission is sell gear and apparel, and so, as a retailer -- put our retailer hat on -- what's our role as being part of this answer? I mean, we're selling a -- we sell a lot of stuff. There's a lot of tractor-trailer loads of stuff that leave our distribution centers headed for stores, headed for consumers. If, in fact, we tell a great story, and we talk about this whole mission thing, but really the essence of what we do is all about consumerism and moving more stuff, is that OK? And the truth is that gives us pause, and we definitely recognize that we need to think about that in a new way.

The good news is REI's mission statement is to inspire and educate -- inspire, educate, and outfit for a lifetime of outdoor adventure and stewardship. So right from our mission statement, we get to inspire and educate before we try to really sell you something. So right off the bat, I think we're headed in the right direction.

However, what we work on, what we love -- we're gear heads. I've said that before. We love the gear, and we love to get outdoors with our stuff. So what's up with that? So I think it starts with enduring -- products that have enduring value, and if you look at my garage, there's an indicator that stuff lasts a long time, so that's a good sign, but let's not cop out. I mean, it's about the environmental impacts and social impacts of products.

So we've started looking at that in two ways. About 20 percent, round numbers, on any given year of the stuff that REI sells is REI branded gear and apparel. The other 80 percent is all the other great brands, all the other goods that we sell as retailers. So we started at home, looking at the REI gear and apparel. We have the most control there, and it's most authentic if you're actually doing it yourself.

A prerequisite was the conversation around social equity, and so we've had a decade of investment in the fair labor movement and understanding what the working conditions are in the factories that actually supply REI gear and apparel. I know enough about that process to tell you that nothing is perfect, but I think that we're doing a pretty good job of trying to make sure that our product is manufactured in the ethical way that we expect it to be.

On the other hand, how about the environmental impacts of the product? Doesn't that start from the design, and doesn't that start from material selection and the creation of raw materials, and how about stuff that's gonna end up in the landfill? What up with all that? So I think that one of the things we've done with REI gear and apparel over the years has been to look at better material choice.

We codified that in 2007 with an effort we call eco-sensitive, which is an effort to identify materials choices which are superior to conventional choices, things that are grown organically, recycled materials, rapidly renewable resources, stuff that's better than other, and identified some minimum thresholds, and then we put an identifier on it so consumers can see those products which we think meet that standard or that expectation, and then we put up a pretty extensive communications piece on the website at rei.com/ecosensitive, which is a place where we try to communicate to consumers what these choices look like, and I think one of the important pieces that's different there is that we communicated pros and cons of these choices.

You will not save the planet by buying an organic t-shirt. However, if you need a t-shirt, buying an organic t-shirt is probably a better choice than something else, and so that's our key learning and our key expectation of that process is to help folks make better choices, but we're not done. I think we really need to start looking at what the big picture is, and what we learned there is that we can't do it alone. We just, no matter how big we are, we don't have enough buying power to influence the supply chain. We can't go tell DuPont or Dow what to do, so we need help, and so a key thing there was to get our arms around the problem collectively.

So we started working with the rest of the outdoor industry in something we call the Eco-Index Working Group under the Outdoor Industry Association, and our mission there is to come up with some common definitions, some common ways to help consumers understand what these choices look like without hype, if you will, excuse me, and on the other side, how can we tell the supply chain what we want? Early on in the outdoor industry, the idea of breathable waterproof apparel was an oxymoron. You couldn't have breathable and waterproof, but we told the supply chain what we want as consumers and as retailers and as business, and guess what? Innovation happened, and now today breathable waterproof is an assumed characteristic of outdoor gear.

So why not environmentally appropriate stuff? Why not stuff with lower environmental impacts? If we're gonna do that, then we need to tell the supply chain what we want, and we need to do that all together in order to have a common standing and a common definition. So our Eco-Index effort has been very much about getting together with others to give that message.

We believe that sustainability is a team sport, and so we're definitely working together on that, and it all ties back to authenticity. How can we -- you know, if you're gonna send -- if our mission is get more kids to the outdoors, how can we do that with apparel and gear that we know is counter to the mission? So we really need to put our efforts there. We believe it's gonna take years to get there, but we clearly want to get there, and so that's a piece of what we're all about.

MW: Great. Well, Kevin, thanks very much for your time. I appreciate it.

KH: Thanks for having me.