CEMEX Ties Growth to Concrete Environmental Solutions

Why is a Mexican cement company attracting the attention of competitors? CEMEX is not only growing fast, but also combining business growth with a cutting-edge environmental program that may incite the envy of rivals.

When you think of hot companies or business sectors in the 1990s, cement probably doesn't come to mind. During that decade, however, CEMEX, S.A. of Monterrey, Mexico, vaulted from 28th to the third-largest cement company in the world. CEMEX is also the No. 3 U.S. producer, after its 2000 purchase of Houston-based Southdown Inc.

Nor would a Mexican cement company be top of mind when it comes to organizations likely to win prestigious international prizes for their environmental management programs. Mexico is not known for its robust enforcement of environmental rules. "The cement sector as a whole has traditionally been an 'environmentally challenged industry,'" according to environmental attorney Steven Rowe, a partner in Preston, Gates & Ellis LLP's Seattle office.

Why did CEMEX win the prestigious 2002 World Environment Center's (WEC) Gold Medal for International Corporate Environmental Achievement? Is there any connection between the company's willingness to spend millions on its environmental programs and its rapid emergence as a major player in the global marketplace?

What it Takes to Win a Gold Medal

WEC's gold medal is intended to recognize corporate excellence that goes beyond environmental performance. Called "sustainable development," the jury looks for high achievements in occupational safety and health, as well as corporate responsibility to the community where it operates. This approach fit well with CEMEX's management strategy, which integrates the protection of the environment with protecting the health and safety of its workers.

According to the jury citation, here's why CEMEX won out of a field of a dozen multinational entries:

Policy. Top-level support for environmental management began in 1993 when the board of directors and CEO Lorenzo Zembrano endorsed a formal environmental policy to ensure implementation throughout the company and its worldwide operations. In 1997, the policy was updated to include safety and health. Current policy requirements include using the newest technology in all operations to ensure energy and materials efficiency; promotion of an environmental culture with employees, suppliers, customers and shareholders; and using the most effective equipment and systems to protect employees, neighboring communities and the environment.

The company adopted internal standards and enforces them to ensure continual improvement, even in nations where regulations and enforcement are in the developmental stage. As a result, CEMEX plants not only comply with, but also exceed, all environmental regulations.

Implementation. At the heart of the company's environmental performance is CEMEX's Ecoefficiency Program (CEP). Launched in 1994, CEP has led to big energy savings, cuts in carbon dioxide emissions (a greenhouse gas believed to contribute to global warming), recycling and reuse of materials, and the use of alternative materials and fuels.

Ensuring that newly acquired plants comply with the company's environmental policy is one of the biggest challenges faced by an organization growing as rapidly as CEMEX. To address this, in 1997 CEMEX put top-level executives on an environmental, health and safety (EHS) steering committee and developed innovative tools, such as a global monitoring and tracking database system for all of its facilities. This system, unique to the cement industry, provides relevant EHS facts online from every CEMEX plant. CEMEX reduced the annual rate of accidents from 4.2 percent in 1996 to 1.7 percent in 2001.

CEMEX was the first multinational cement company to publish an annual EHS report. More than half of the company's plants are ISO 14001-certified, including many in the developing world.

Leadership. CEMEX supports a wide range of wildlife conservation activities with a variety of organizations, including almost 40 projects in 10 countries designed to protect highly biodiverse ecosystems. These efforts include reforestation, wildlife management, scientific research, reintroduction and preservation of local native species and the restoration of quarries.

The jury cited one case in particular, "El Carmen Project" along the Mexican-U.S. border, as a striking example that highlights international cooperation in the conservation of a uniquely biodiverse ecosystem.

Making Cement the Green Way

Ecoefficiency is a key to CEMEX's environmental performance, and it may even go far toward explaining the company's overall success. The company defines ecoefficiency as the effort "to optimize energy and raw material efficiency to produce an economic and ecological benefit derived from a reduction of environmental impact."

Ecoefficiency is the model the company uses to integrate economic, environmental and social concerns, noted Marc Epstein, distinguished research professor in the Jones School of Management at Rice University. Epstein specializes in research and consulting on how companies integrate environmental sustainability strategies into their daily operations.

In the course of his research on leading companies, Epstein visited CEMEX's Monterrey headquarters, where he met with people in a variety of functions. "What they have done is to drive the concept of sustainable development and CEP throughout their organization - from top to bottom," he said. "Everyone I met with was very sensitive to reducing energy consumption, waste and raw material use."

Conserving energy and cutting waste are well-known ways to save money while protecting the environment, but achieving better yield from raw material can save money in a variety of ways, Epstein explained. "If I can get 100 percent yield from my raw material, I can buy less of it, save production and labor time, save energy and have less waste disposal cost."

The economic impact from these categories can be substantial. The company believes that CEP saved $18.75 million in 2000 (see charts at left). For example, that year it reduced the use of electricity by 160,000 megawatts, roughly the same amount used by a city of 100,000 people in the course of a year. Since the origin of the program in 1994, CEMEX believes it has saved more than $60 million, while cutting carbon dioxide emissions by approximately 2.5 million metric tons.

Miguel Angel Gonzalez, CEMEX's EHS corporate vice president, said the results were achieved primarily through the following actions:

  • Developing and implementing new technology, innovative production practices and new cement plant design;
  • Selective mining techniques and optimal quarry exploitation;
  • Recycling and reuse of materials;
  • Use of alternative raw materials, such as blast-furnace slag and fly ash, byproducts of steel manufacturing and power stations; and
  • Reusing wastes as alternative fuels (petcoke, waste oils, used solvents, etc.).

Is Environmental Excellence a Growth Strategy?

The answer is yes, according to a number of cement industry experts.

Rowe, who ran the environmental affairs department at Swiss giant Holnam Inc. - it has since changed its name to Holcim (U.S.) Inc. - explained some of the reasons why cement companies see environmental performance as essential to growth.

"Beyond the cost savings, the more you stress the waste side of the formula, the harder it is to get permits, and that increases your time to market," Rowe said. "If I'm a good player, I may get the benefit of the doubt."

Obtaining permits is a problem that may even plague existing facilities. Many cement plants that were originally built in rural areas now face communities that have grown right up to their fences.

In this connection, CEMEX and the entire cement industry are watching carefully to see if the Bush administration changes the previous interpretation of New Source Review (NSR)

regulations. Under the Clinton administration, industry advocates complained they were required to install the latest pollution-control equipment whenever they made modest improvements to their plants or even after routine maintenance.

"Everybody is struggling with the fact that they have made incremental changes in cement plants, and many are sweating about what that means in terms of enforcement," said Stuart Weiss, an environmental attorney with the Detroit law firm Honigman, Miller, Schwartz and Cohn, LLP. Weiss worked as a cement plant environmental manager and a corporate environmental engineer before becoming an attorney.

Gonzalez said the company had already seen a shift regarding the enforcement and interpretation of NSR regulations and is hoping for more. "CEMEX would prefer a re-evaluation of these regulations that would allow U.S. companies to make adjustments in their manufacturing processes without the extremely lengthy permitting process," he commented. "Companies need to be able to adapt quickly to changing market demands."

Another environmental opportunity for cement plants, Rowe said, is to take on a larger role in managing municipal waste by functioning as incinerators. The core of a cement plant is the kiln, which is often a more efficient incinerator than the typical waste incinerator.

"It took some cement companies a few years to figure out the hazardous waste regulations," he said, "but now many cement companies are making so much money on the tipping fee from chemical companies that their fuels are free."

The result is the elimination of a waste product and a substantial reduction in the use of coal as a fuel. "Anything that reduces coal is a move toward sustainability," Rowe said.

As CEMEX's experience with hazardous waste suggests, however, not every move toward sustainability is a financial success.

"In all but one instance, investments in environmental management have been profitable," Gonzalez said. "Specifically, the hazardous waste fuel program for U.S. operations was environmentally very successful, but was not a profitable business."

In explaining the loss, the company cited the classic economic problem of supply and demand: too many authorized companies were chasing too little waste fuel.

The Future of "Green" Cement

Companies selling consumer products, such as DuPont or Royal Dutch/Shell, which won WEC's Gold Medal last year, have long recognized the marketing potential of achieving a good environmental reputation.

At least in the United States, cement is not a traditional consumer item, so it has not been subject to these pressures, "but we can see it coming," said Andy O'Hare, vice president of regulatory affairs for the American Portland Cement Alliance (APCA), the trade association for the industry.

How could cement consumer preferences favor companies with a green reputation? "Government procurement," O'Hare answered. Because of the ongoing need for infrastructure improvements, government is a big customer of cement and concrete companies. If government, at whatever level, feels the need to obtain materials from the most environmentally concerned companies, these companies will have a leg up on the competition.

"We're already seeing specifications that are tied to environmental performance for highways and commercial buildings," O'Hare said. The American Institute of Architects is also promoting green buildings, as the right kind of concrete can significantly reduce energy consumption in a structure.

Another factor driving the environmental performance of cement companies is the consolidation and globalization of the industry. "This is a highly competitive industry and environmental issues are one of the key categories under which multinationals are competing," O'Hare said. "They all view the green angle as a way to gain market share."

Not too long ago, 80 percent of the U.S. market was domestic and 20 percent multinational. Now, the reverse is the case, and none of that multinational 80 percent is American-based.

If social responsibility is part of this marketing equation, CEMEX's reputation may have suffered a black eye from a recent article in The Wall Street Journal. The article suggested CEMEX enjoys a quasi-monopoly in Mexico and that it exploits this market power to sell cement at inflated prices to the poor. CEMEX denies that it engages in anti-competitive behavior and points out it has been investigated, and cleared, of these allegations by the Mexican authorities. Critics note, however, that Mexico does not have a strong tradition of tough anti-trust enforcement.

Dr. Joel Abrams said the jury he chaired was unaware of the overpricing allegations when it chose CEMEX to be the WEC 2002 Gold Medal winner. Abrams, now retired, is civil engineering professor emeritus at the University of Pittsburgh. He noted that the government investigation found nothing and suggested that the problem may be partially cultural, as many things in Mexico are overpriced for poor people.

"Our award is based on the totality of behavior," Abrams said. "Nevertheless, we would have seen this as a slightly negative thing. I'd like to see some more response from the company as a role model for the industry."

For now, CEMEX pricing behavior south of the border does not appear to be much of a problem for the company while it positions itself as a sustainability leader in an industry that is in transition.

Cement companies already are addressing their possible contribution to global warming. CEMEX joined 42 other members of APCA in agreeing to a voluntary goal of reducing carbon dioxide emissions by 10 percent per ton of product manufactured by 2020. Scientists believe carbon dioxide contributes to global warming.

"Concrete consumers' preference that the product and the producers achieve high environmental performance is festering slightly below the radar screen - for now," O'Hare said. He predicted that in a few more years, however, the demand for "green" cement will burst to the surface. When it does, it appears as though CEMEX will be ready.

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