Environmental management system's impact on corporate social responsibility: A case study of a multinational company operating in China

Environmental management system's impact on corporate social responsibility

A case study of a multinational company operating in China

Miljöledningsystems påverkan på företags samhällsansvar En fallstudie av ett multinationellt företags verksamhet i Kina Chen Chen & Paul Torstensson

Faculty: Health, Science & Technology Subject: Industrial Economics

Points: 30 ECTS

Supervisors : Samuel Petros Sebhatu & Magnus Lestelius Examiner: Mikael Johnson

2015-02-23

i

Prologue

This master thesis represents the last and final part of our master of science in industrial engineering and management at Karlstad’s University. The thesis covers 30 ECTS and has been conducted during 2014 at a multinational company operating in China.

We would like to thank our references at the case study company, Mr. Ronnie Su, for giving us the opportunity to write our thesis at a very interesting company where we have gained many valuable experiences.

We would also like to thank our supervisors, Samuel Petros Sebhatu and Magnus Lestelius, for their guides and drive during the semester - on the verge into a career.

Lastly, we would like to thank our families for endless support during our five years of education. Without their constant love and help, these years would not have been worth doing.

Karlstad 23 Feb 2015

Chen Chen & Paul Torstensson

ii

Abstract

Today, companies face a variety of environmental challenges, especially when it comes to evaluating energy consumption and minimizing environmental impact. This thesis examines how environmental management systems affects energy efficiency, and if it could contribute to sustainable development and increase corporate social responsibility. A case study research method was conducted on a multinational company and the empirical material is collected from the company's operations in China. The theoretical framework includes sustainable development, corporate social responsibility and environmental management systems. The results provide a model of calculation, in order to evaluate how the environmental management system affects energy efficiency.

The analysis shows that the environmental management system has contributed to CSR practices in supporting the organization with guidelines toward continuous improvement of environmental impact, increased personal knowledge and some changes of production equipment. This has lead to that the case study company has managed to increase energy efficiency with respect to all energy sources, except water.

Key words: Environmental management system, Corporate social

responsibility, Sustainable development, Energy efficiency.

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Sammanfattning

Företag stöter på allt fler utmaningar inom miljöområdet och inte minst när det gäller att utvärdera energianvändning och minimera miljöpåverkan. Denna uppsats handlar om hur miljöledningssystemet påverkar energieffektivitet samt om det kan bidra till en hållbar utveckling och kan leda till ett ökat samhällsansvar. Metodiken utgörs av en fallstudie på ett multinationellt företag, och det empiriska materialet är hämtat från en av koncernens fabriker i Kina. Det teoretiska ramverket omfattar huvudsakligen följande tre konsept:

hållbar utveckling, företags samhällsansvar samt miljöledningssystem.

Uppsatsen resulterar i ett förslag på beräkningsmodell för att utvärdera hur miljöledningssystemet har påverkat energieffektiviteten. Denna modell samt vilka faktorer som ligger bakom förändringar i energieffektivitet analyseras genom det empiriska materialet. Slutsatsen är att fallstudieföretaget har, genom ökad personalträning och uppgraderad produktionsanläggning, lyckats att öka energieffektiviteten med avseende på alla energikällor förutom vatten.

Nyckelord: Miljöledningsystem, företags samhällsansvar, hållbarutveckling, energieffetivitet

总结

企业面临更多的挑战在环境领域，尤其当涉及到评估能源使用，并尽 量减少对环境的影响。这份报告是关于如何管理环境影响能源效率，

这有助于实现可持续发展，并可能导致更大的社会责任。使用的方法 是多的国际企业的案例研究和实证材料取自该公司在中国的业务。该 理论框架包括可持续发展，企业社会责任和环境管理。论文导致提出 的模型计算来评估环境管理体系影响能源效率。这种模式的背后改变 能源效率的因素是由经验材料进行分析。得出的结论是，案例研究公 司，通过增加人员培训和升级生产设施，管理，以提高能源利用效率 相对于除水以外的所有来源。

关键词：环境管理，企业社会责任，可持续发展，能源效率

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Table of contents

1. Introduction ... 1

1.1. Background ... 1

1.2. Problem discussion ... 2

1.3. Company background ... 3

1.4. Research purpose ... 4

1.5. Limitations ... 4

1.6. Disposition ... 5

2. Research methodology ... 6

2.1. Qualitative research approach ... 6

2.2. Research method ... 7

2.2.1. Case study ... 7

2.2.2. Data collection ... 8

2.3. Data analysis ... 10

2.4. Calculations ... 11

2.4.1. Welding ... 11

2.4.2. Workshop machines ... 11

2.4.3. Steam turbine test bed ... 12

2.4.4. Boiler ... 13

2.4.5. Condenser ... 14

2.4.6. Mechanical running test of compressor ... 14

2.4.7. Hydrostatical tests of casings ... 15

2.5. Trustworthiness ... 15

2.5.1. Reliability ... 15

2.5.2. Validity ... 16

3. Theory ... 17

3.1. Sustainable development ... 17

3.2. Corporate social responsibility ... 17

3.3. Triple bottom line ... 19

3.3.1. Environmental responsibility ... 20

3.3.2. Social responsibility ... 21

3.3.3. Economic responsibility ... 21

3.4. Environmental management system ... 22

3.4.1. Integrated systems ... 24

3.5. Summary of theoretical framework ... 25

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4. Empirical findings ... 27

4.1. Company X manufacturing ... 27

4.1.1. Manufacturing data ... 30

4.2. Environmental management system ... 31

4.2.1. Personnel training... 32

4.2.2. Risk identification, evaluation and prevention... 33

4.2.3. Nearmiss ... 34

4.2.4. 3i ... 35

5. Results ... 36

5.1. Measuring energy efficiency ... 36

5.2. Results of the calculations ... 36

6. Analysis and discussion ... 38

6.1. Environmental management system´s effects on energy efficiency and its measurement ... 38

6.1.1. Effects on energy efficiency... 38

6.2. Environmental management system as a means for sustainable development and CSR practices... 40

6.2.1. Environmental responsibility ... 41

6.2.2. Social responsibility ... 42

6.2.3. Economic responsibility ... 43

7. Conclusions ... 45

7.1. Implications ... 46

7.2. Further research ... 46

References ... 48

Appendix ... 54

1. Survey ... 54

2. Environmental, health and safety aspect list ... 55

3. Technical specification data of workshop machines ... 56

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List of abbreviation

CSR Corporate social responsibility EMS Environmental management system

ISO International organization of standardization OHSAS Occupational Health & Safety Advisory Services QMS quality management system

TBL Triple bottom line LPG Liquid petroleum gas

ṁ Mass flow rate kg/s

Heat flow rate (input or output) kW

Volumetric flow rate m

/s

Mechanical power (input or output) kW

ρ Density kg/m

h Specific enthalpy kJ/kg

h

Actual specific enthalpy kJ/kg

h

Isentropic specific enthalpy kJ/kg

s Specific entropy kJ/kg/K

P Pressure bar

M Molar mass g/mol

n amount of substance mol

ϰ polytropic exponent none-dimensional, equals 1,4

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1. Introduction

This chapter presents the background of the research area together with problem discussion and background information of the case study company, generating the purpose of this thesis.

1.1. Background

Considering sustainability issues in corporate operations and business decision making is a crucial and main issue in order to achieve a sustainable business.

Due to increased pressure from the market and society, the interest of business organizations to act in a sustainable way and improve operations´

impact on society, has increased in recent years (Hart, 1997; Eweje, 2011).

In the last decades the concept of corporate social responsibility (CSR) has gained attention for the reason that it embraces business operations´ impact on both society and environment. According to World Business Council for Sustainable Development (WBCSD, 2004), the concept of CSR encompasses adaptation of production activities and procedures to manage social issues through personal development training and occupational health & safety programs, improving environmental performance and supporting community organizations. Thus, organizations are responsible for their impact in a broader perspective than that covered by their economical statements. (Vogel, 2005). Hoque et al. (2014), finds that CSR is required to achieve continuous improvement of product quality, increase customer satisfaction, manage work place safety and labor rights, as well as manage environmental aspects in order to ensure sustainable development.

However, in the pursuit towards sustainability, companies face complex challenges that hinder development. Scholars and business has developed several approaches and instruments to promote business practice that address sustainability, such as several management standards and reporting systems.

Furthermore, to evaluate organizations´ sustainability efforts in a systematical way, is crucial in order to attain sustainable development in environmental, social and economic terms, which is the basis of the so called triple bottom line model by Elkington (1994).

To manage the area of environmental sustainability, a commonly used system

in companies around the world, to organize and structure environmental

efforts, is environmental management systems (EMS), (ISO, 2004). However,

2

considering the enormous environmental problems that exist, the effectiveness of environmental management systems are of great significance.

Therefore, this thesis provides more insights on the impacts of implementation of environmental management systems. The focus is to investigate the impact of environmental management system from a CSR perspective.

1.2. Problem discussion

Due to the increased interest from industries to deal with CSR-, environmental- and sustainability issues, international standardized management system have been developed based on research. These systems includes: ISO 14001 for environmental management systems, ISO 9001 for quality management systems and OHSAS 18001 for occupational health and safety management systems. According to International Organization for Standardization (ISO), identifying, monitoring and evaluating sustainability aspects in organizations are necessary to increase CSR (ISO, 2010).

Previous studies of ISO 14001 EMS implementation have had mixed results regarding its effectiveness. Sebhatu and Enquist (2007) shows that integration of stakeholders values is crucial and that ISO 14001 certification can act as a tool for promoting comprehensive organizational changes resulting in value creation and contribute to sustainable development. Contrary, Barla (2007) finds that some companies even increase emissions after being ISO certified.

Furthermore, previous research concludes that CRS practices need to be implemented throughout the entire organization in order to achieve the desired goal. (Zadek, 2004; Shahin & Zairi, 2007).

Other studies, such as Vogel (2005), question the effects of environmental

management systems and whether it really increases the energy efficiency of

companies. He states that some companies seek ISO 14001 certification in

order to “green-wash” their business and to claim good environmental

practices without improving their performance. Furthermore, Morrow and

Rodinelli (2002), argues that few firms implement ISO 14001 EMS because of

environmental concerns, or in order to improve the environmental

performance of the company. Often companies adopt EMS in order to gain

other advantages, such as market access, a greener public image or lower costs

etc. (O’Connor, 2000).

3 1.3. Company background

In order to assess environmental management systems´ impact on corporate social responsibility, this thesis is based on a single case study of a multinational company operating in China. Due to the confidentiality of the data collected, the company and the authors of this thesis have made an agreement not to reveal the name nor the specific localization of the company.

Therefore, the company will be referred to as “Company X”.

Company X is a joint venture of a multinational company and a state- controlled local company in China, located in a national patent-technology development zone. Company X has about 400 employees and produces centrifugal compressors and steam turbines for industries mainly on the Chinese market. The multinational parent company that Company X belongs to is a global actor in electronics and electrical engineering and has several different manufacturing areas. The company group has about 35 000 employees in 75 operating companies across China and in Fiscal Year 2013 the company group generated a revenue of € 6.14 billion in China.

In its current form (production facility and equipment) Company X has been operating for about 5 year and has implemented an integrated management system based on internal concern requirements and standard management systems ISO 9001, ISO 14001 and OHSAS 18001. The company delivers compression solutions to customers in industrial gases and methanol production. The portfolio encompasses small turbo compressors, both integrally geared and single-shaft, steam turbines and services. Latest success stories include the complete service package and spare parts logistics for four large air compressor trains of a coal gasification plant. (ibid)

Company X claims that the main goal in the environmental area is to increase energy efficiency. But when examining how this is done on factory level, it turns out that there is no method to analysis or evaluate how the energy efficiency is effected by the environmental management system, which therefore is one of this thesis´s area of study.

In summary, it is problematic for companies to be able to measure how their EMS activities affect the business from a sustainability perspective.

Furthermore, it is also unclear whether the EMS contributes to CSR.

4 1.4. Research purpose

The purpose of this thesis is to assess and understand how the environmental management system affects the sustainability and CSR practices.

More specifically, the following research questions will be addressed in this thesis:

RQ

- How does environmental management system affect energy efficiency and how can it be measured?

RQ

- Could environmental management system be a means for sustainable development and CSR practices, in Company X?

1.5. Limitations

The study is delimited in the environmental perspective, to examine how the energy efficiency is affected by the EMS activities. Areas that are not included are for example recycling, transportation and environmental regulations.

Furthermore, this paper focus on evaluating the energy efficiency of the resources that Company X reports in their internal environmental reporting system, including water, diesel, LPG and electricity.

In the area of social aspects, the thesis is delimited to cover employees´

education as well as health and safety aspects. Social aspects that are not

considered in this paper include salaries, insurance and working hour etc.

5 1.6. Disposition

Below show the disposition of this thesis.

Figure 1: Thesis structure outline.

Introduction

• This paper starts with a introdoctory chapter where the topic and background is presented followed by the research purpuse and research questiones. Lastly the limitations that was faced during the research is presented.

Method

• The research methodology chapter presents the research approach and the methods used in the thesis. Furthermore, it shows method used in data collection procedures and also discusses the trustworthiness of the research method.

Theory

• In the theory chapter, all theories and concept that is used as a basis for the analysis is presented.

Empirical findings

• This chapter includes the empirical material, data and other information gather at Company x that is used to answer the research questions.

Results

• The results chapter provides the results of the first research question, and describes how energy efficiency could be calculated as well as the results of the calculations.

Analysis and discussion

• The analysis and discussions chapter returns to both research questions and analyzes the empirical findings based on the theoretical framework.

Conclusions

• Lastly, the conslusions is provided based on the previous sections. It includes the

contribution of this paper and implication as well as suggestions for futher research.

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2. Research methodology

This chapter presents the methodology used in this thesis. The chapter intends to provide readers a clear understanding of the empirical study conducted at Company X and the process of data collection. The calculations made regarding Company X´s energy efficiency are also explained.

2.1. Qualitative research approach

Qualitative research is inductive, which implies in-depth analysis of single case studies that strives toward theoretically valuable interpretations (Vaivio, 2007).

According to Korzilius (2010), qualitative research generally includes an interactive and spiraling procedure that develops from more overall to more narrow observations. Data are analyzed in a cyclical process in order to form an ongoing data collection, and the researcher simultaneously performs data collection and interpretations. (ibid)

According to Zikmund (2000), qualitative research includes analysis of low- structured data, such as interviews, observations and documents. Qualitative research aims to create a deeper understanding of the attitudes and ideas that cause phenomena, people's actions and decision making, rather than identifying what is decided, done and said (Bryman & Bell, 2011).

The qualitative data used in this paper primarily consists of face-to-face interviews with employees and managers in Company X. A full description of how this information has been obtained is given in chapter 2.2.2 Data collection. The qualitative method also includes collection of internal documents.

Qualitative method ensures collection of richer data and also gains deeper

understanding of the organization. Conducting these methods also facilitates

to investigate if the implementation has been done throughout the entire

organization, for example the knowledge of the environmental management

system among all employees. In qualitative research, a theoretical framework is

used to support the empirical findings. The main theoretical framework that is

used in this thesis is based on the concept of sustainable development and

corporate social responsibility, which is analyzed through standardized

management systems, in this case environmental management system (see

chapter 3, Theory).

7 2.2. Research method

2.2.1. Case study

A case study implies that the researcher is studying a person, group or event in deeper view (Creswell, 2009). Yin (2003) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. In this thesis a case study method was chosen since deep insights of the phenomena and the organization are required in order to investigate the research questions. This is also why a theoretical framework was developed before the empirical data collection. The theoretical framework is as a foundation of the analysis of the empirical data.

One often useful way to design a case study is, according to Yin (2003), to use so-called triangulation. Triangulation implies using more than one method in order to make the analysis of a study, and may consist of several different types of triangulation, such as data source triangulation, investigator triangulation, theory or data-type triangulations. These ways of designing a case study provides a broader perspective and contributes to a deeper understanding (Korzilius, 2010).

In this thesis, data type triangulation is used. This implies that the qualitative data is analyzed in connection with quantitative data and observations. In combination with the analysis of qualitative data, quantitative data becomes part of an iteration process that strengthens the reliability of the study (Yin, 2003). This case study design is appropriate, in this thesis, since both an understanding of Company X´s management system and its production processes is necessary.

Quantitative data includes data composed of statistical or quantifiable numbers (Maylor & Blackmon, 2005). The quantitative data used in this paper consists of technical specifications and energy consumption data from Company X´s production units and a survey among factory workers. How the different sources of data have been gathered is described in chapter 2.2.2.

Since part of the purpose of the thesis is to provide a suggestion of how to

measure EMS impact on sustainability, it has been necessary to model and

calculate this impact in some way. This has been done using energy

consumption data from the case study company and by calculating how this

has changed due to production volume changes. During the collection of

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empirical data have been major obstacles to acquire information and the data needed for the calculations. This has led to that some assumption, regarding energy efficiency, has been made in the calculations. See chapter 2.3 for a full description of the calculations and assumptions.

The quantitative data were necessary in order to investigate and calculate the changes in energy efficiency. The data from Company X's production facilities and product models made it possible to estimate the energy consumption from a numerical perspective.

Using both qualitative and quantitative data in this paper, creates a deeper understanding of the concepts of corporate responsibility and the environment - and safety measures in Company X. In summary, both the qualitative and quantitative research approach has been necessary to assess the research questions of this thesis.

2.2.2. Data collection

According to Eriksson and Wiedersheim‐Paul (1997), data can be categorized into primary and secondary data. In this paper both primary data and secondary data are used. Below follows a description of how these categories are gathered and used in this thesis.

Primary data is the data collected by the researchers when not enough information is available in order to perform the study. Primary data are usually collected in interviews, experiments, questionnaires and observations (Bryman

& Bell, 2011). Colleting primary data may require a lot of resources in terms of time and money, but it has great advantages since it is aimed for the specific research subject and the outcomes of it is more reliable and relevant to the research (Ghauri & Grönhaug, 2010).

As mentioned earlier, during the collection of primary data in this thesis, the authors encountered difficulties, regarding confidentiality, at the case study company. The authors intended to obtain more detailed information, but that was not possible because of confidentiality. The primary data in this thesis is based on interviews, questionnaires, documents and observation.

A. Interviews

Interviews were conducted both with managers at headquarters in Beijing and

with managers and employees at the plant of Company X. The interviews were

conducted as face-to-face interviews and can be seen as semi-structured, which

9

implies some flexibility in the pre-decided questions. Semi-structured interviews allow the researcher to ask questions in different order and furthermore add new questions during the interview process (Williman, 2005).

In Beijing, interviews with the head of purchasing department was conducted 2014-04-21 and with the head of EMS department at 2014-04-22. Each interview lasted about 45 minutes.

At the plant, an interview with the EMS manager was conducted 2014-04-15, and with an EMS engineer in 2014-04-16. Each interview lasted about 90 minutes.

During the visit at the plant, interviews with 15 factory workers were also conducted. These interviews were not as time consuming and took about 10 minutes each.

B. Questionnaire

A questionnaire was conducted for the factory workers based on the information gathered from interviews. The questionnaire had 60 participants from different departments in the factory. See appendix 1 for complete questionnaire and results.

C. Documents

During the research, several documents were collected from Company X. The confidential content of the internal documents were not available. The documents include:

Internal documents:

 Integrated Management System Manual, 2013

 Environmental Information System Manual, 2013

 Environmental, Health and Safety Risk Sheet, 2013

 Environmental, Health and Safety And Quality Policies, 2013

 Authority Environmental Monitoring Report, 2012

 Environmental Factors Identification And Assessment Procedure Description, 2013

Official documents:

 Products energy consumption data, 2012 and 2013

 Public business description, 2007

10 D. Observations

During the research period, the authors traveled to China to visited Company X´s plant that is located outside Beijing. The visits were divided into two occasions. The first visit was for two days, between 2014-04-15 and 2014-04- 16. During these two days a deeper description of the company and its activities was received at the first visit, in the form of oral presentation and a guided tour in the factory. The second visit was on 2014-04-24, and it was conducted to collect data documents and supplementary questions were asked.

Secondary data is, according to Ghauri and Grönhaug (2010), the existing information that is gathered from previous studies in a specific research area and can be used in literature reviews, to formulate research problems, to study the contribution of previous research, as well as to develop a theoretical framework. However, it is not certain that the secondary data fits the research problem entirely, since it perhaps has been collected from previous research with unlike purposes. The advantage of using secondary data is that it requires fewer resources and is more easily available. (Bryman & Bell, 2011)

The sources of secondary data in this thesis are mainly scientific articles, but also printed books. Database resources that were used in the study are Google scholar, Business source premier, Emerald and Science direct.

2.3. Data analysis

The collected information in this thesis has been analyzed through the theoretical framework outlined in chapter 3. Ghauri and Grönhaug (2010) describes the data analysis process in qualitative research as an interaction between the scientific theories and the empericalism and that data is collected and analyzed simultaneously in order to analyze similarities and deviations between theory and empirical data.

Therefore the theoretical framework of this study was developed in advance

and in combination with the data collection processes. The theoretical

framework is based on scientific articles and theories regarding sustainable

development, CSR and the triple bottom line approach. The analysis of the

interviews, documents and survey, is conducted based on the theories and

aims on examining how environmental management affects Company X's

CSR practices.

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Therefore, the interpretation of the data also required an understanding of the ISO certifications, which is why the systems of ISO 14001, ISO 9001 and OHSAS 18000 also is included in the theoretical framework.

The scientific articles have been chosen to form a relevant basis for the study and the information has been summarized from well known publications and institutes. Furthermore, some of the collected data have been discarded to make the analysis more specific and detailed.

In order to analyze the energy efficiency, calculations have been made regarding this aspect, which are described in the next section.

2.4. Calculations

This section presents the assumptions and formulas that were made in the calculations of energy efficiency. Each production activity is presented separately.

2.4.1. Welding Assumptions

 Operating pressure of welding gas: 0,4 bar

 Welding gas operating volume flow rate: 2500 liter/hour

 Welding gas inlet temperature: 294,15 K

 Number of welders: 3

 Number of shifts: 2

 Number of hours of welding per shift and person: 2

 Working days per year: 230 Calculaction

Ideal gas law gives: n

Gas consumption per hour = n * M *

Total consumption = consumption per hour * working hours per year Note

Company X uses acetylene as welding gas. But in the resource table however, welding gas is shown under the category of LPG.

2.4.2. Workshop machines

A complete list of Company X's workshop machines are shown in appendix 3.

However, since no energy consumption data was available from the workshop

12

machines, equivalent machines has been found on the various retailers websites in order to determine the energy consumptions for each machine category.

Assumptions

 Number of shifts: 2

 Number of machine operating hours per shift: 3

 Working days per year: 230

 Number of machine operating months per year: 10,5

In order to estimate the consumption of cutting fluid for each machine category, the calculations is based on the assumption that 30 kW of machine operating power corresponds to a consumption of 100 liters of concentrated cutting fluid every month and that the cutting fluid comprises 7% concentrate and 93% water.

Calculations

Electrical energy consumption = operating power * operating hours

Cutting fluid consumption = cutting fluid consumption per month * number operating months.

2.4.3. Steam turbine test bed

Calculations of steam turbines´ energy consumptions are based on technical specification data from Company X steam turbine models.

Assumptions

 Steam turbine isentropic efficiency η = 0,8

 75% of average max values of power output was used

 75% of inlet pressure and temperature was used

 0,03 bar condensing pressure is used

 Steam turbine test bed, is assumed to be a Rankine cycle, see figure 2.

13

Figure 2: Rankine cycle, source wikipedia commons rankine cycle.

Calculations

Energitekniska formeler och tabeller (Renström & Berghel, 2010) is used as source for thermal data. Following steps were performed in order to determine steam mass flow in the steam turbine test bed.

Step 1. Determine inlet steam enthalpy Table (Pressure:temp) = h

Step 2. Determine ideal outlet specific enthalpy (isentropic process) Table (Pressure:temp) = s

= s

Diagram (entrophy:pressure) = h

Step 3. Calculate actual outlet specific enthalpy h

= h

- η

* (h

- h

)

Step 4. Calculate mass flow = /(h

– h

)

2.4.4. Boiler Assumptions

 Boiler efficiency η = 0,9

 Feed water pump work = 0 Calculations

Required boiler power =

(h

– h

)

Total boiler energy consumption oiler power Test bed running hours

14 Note

Since the boiler is the only production activity that consumes diesel fuel, the steam turbine test bed running hours is calculated using the results from the boiler energy consumption 2012.

And, the boiler fuel is changed between 2012 to 2013: from diesel fuel 2012 to diesel fuel combined with LPG 2013.

2.4.5. Condenser Assumptions

 Inlet cooling water temperature = 15 C°

 Outlet cooling water temperature = 35 C°

Calculations

= (h

– h

) *

/ (h

– h

)

Total cooling water consumption =

* test bed running hours 2.4.6. Mechanical running test of compressor

Calculations of mechanical running tests of compressors are based on technical specification data from Company X´s compressor models.

Assumptions

 Inlet pressure = 1 bar

 Average value of outlet pressure is used

 75% of average inlet volume flow is used

 Compressor test run operating hours = 400 h Calculations

Following steps are performed in order to calculate compressor test runs consumption of electrical energy.

Step 1. Calculate outlet volume flow rate (adiabatic process)

( -1 ) ( -1)* ln

+ ln

Step 2. Calculate compression power

Compression power = ( P

*

– P

*

) / ( -1)

Step 3. Calculate total energy consumption compressor test run

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Energy consumption Compressor power Compressor test run operating hours

2.4.7. Hydrostatical tests of casings Assumptions

 Average compressor and steam turbine casing volume = 10 m

 Average test repetitions = 2

 Total number of casings tested = 250 Calculations

Water consumption of hydrostatical tests = casing volumes * test repetitions * casings tested

2.5. Trustworthiness

In order to assess trustworthiness and appropriateness of the methodology in this thesis, the terms reliability and validity are evaluated with accordance to Bryman and Bell (2011).

2.5.1. Reliability

The concept of reliability concerns whether the study could be replicated with the same result or not. Reliability means that if the researcher or someone else were to conduct the same study again, they would come to the same results as the first one. This notion can be problematic when the social and practical reality in which the study is conducted is changing. (Bryman & Bell, 2011).

In this thesis, the focus of the empirical study has been to collect and analyze data that are based on actual measurements and facts, rather than individually interpretable data. For example, the study has not focused on how any particular stakeholder perceives the company's CSR aspects (whose opinions may vary), but the authors have, as far as possible tried to base the study on factual evidence (energy data and information regarding the environmental management system)

Regarding the reliability of the calculations, one obvious source of error is the

assumptions that have been made. However, the assumptions have been

overestimated, so that the effects of a fault in the assumptions imply that the

results will be as neutral as possible.

16 2.5.2. Validity

Validity is the second criteria that according to Bryman and Bell (2011) are

used to assess the quality of a study. Validity is about whether the study can be

generalized and applied to other phenomena and refers to whether the

research generates conclusion integrity or not (Bryman & Bell, 2011). In order

to provide validity to this thesis, scientific articles and credible books are used

from publications of recent years as well as of several sources. The authors

have also tried to add critical support and insight from different perspectives,

in terms of the empirical findings. The interviews with employees and

managers were also selected to get a good measure of the impact of the

environmental management system. To study several aspects of the company,

managers, factory workers and energy data adds validity to this thesis.

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3. Theory

This chapter contains the specific theoretical framework use as a basis to empirical study.

The chapter also aims to explain how the theories relate to each other.

3.1. Sustainable development

The Brundtland report (WCED, 1987) stated one of the most commonly used definitions of sustainable development: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” In the area of environmental sustainability, the report is more specific:

“sustainable development does imply limits—not absolute limits but limitations imposed by the present state of technology and social organization on environmental resources and by the ability of the biosphere to absorb the effects of human activities.” (WCED, 1987)

This highlight human activities that influence the environment and that sustainable development is dependent of minimizing there impact.

Furthermore, companies and business organizations has an important role to implement better practices toward sustainability, since it cannot be attained just via top-down approach (Roome, 1998).

According to Hart (1997), in order to achieve sustainable development, companies must move from pollution control till pollution prevention. He states that pollution control is about cleaning up waste and pollution once they have occurred, while pollution prevention implies minimizing wastes before they take place. This relies on strategies based on continuous improvement to reduce waste and energy consumption. Thus, sustainable development depends on a framework that provides guidelines for business activities to minimize waste and pollution (ibid).

3.2. Corporate social responsibility

The concept of corporate social responsibility (CSR) has emerged since 1950s

and was first introduced by Bowen (1953). Originally, the concept of CSR was

just focused to practice good things in businesses for the community. Later in

1980s, businesses and communities started to share common interests, which

is to be responsible for their stakeholders. Since 1990s, the popularity of the

CSR concept has increased significantly and is now accepted worldwide as one

of the most important concept in business strategy (Moura-Leite, 2011).

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Traditionally, CSR is based on the underlying perception that business organizations are one dimensional entities with the only responsibility to create economical profit (Friedman, 1970). Thus, the traditional view of CSR is mainly about profit, compliance and philanthropy. This is a limited perspective that does not highlight the benefits of CSR. But after the 1970's, the focus among theories of CSR shifted to a broader and more stakeholder oriented concept.

The basic idea of CSR thinking today is that business and society are interrelated and share similar interests. The modern theories of CSR, includes a more stakeholder oriented perspective. The foundation of CSR is based on the idea of a social contract between business and society where CSR is a general agreement between business and all kinds of stakeholder. In contrast to the traditional CSR concept, this perspective highlights that companies should take into account a broader set of stakeholders, not only economical shareholders. This theory goes beyond the old view of responsibility based on cost considerations, profit making and compliance (Dunfee et al., 1999).

Due to corporate responsibility, companies also have a vast influence in society, both in financial and political terms. Companies that fail to meet their responsibilities may increase the regulatory control, fines, face lost business opportunities and decreased reputation in the long run. The main potential benefits that arise from this theory, positive customer ratings and customer loyalty (Quazi, 2003).

Carroll (1991) proposed that the total responsibility that business has to

society can be summarized in four categories: economic, legal, ethical, and

philanthropic responsibility. The economic responsibility refers to being

profitable and economic sustainable. Without profit there is no driving force

for business and business ethics. The legal responsibility means the obligation

to comply with laws and regulations. Carroll (1991) states that the difference

lays between companies that follow the law because they can not afford to pay

the fine and companies that adapt because the society as a whole is served

even if the fine is very low. The ethical responsibility refers to the obligation to

do what´s right even if not required by law or other rules and calls for a

corporate culture that views the business itself as a citizen in society, with the

kind of obligations that citizenship ordinarily entails. The philanthropic

responsibility refers to how companies engages in social issues that are not

directly associated with their business activities. It involves action to improve

or support any other part of society which the organization does not have a

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connection to in their daily operations. Thus, the model of CSP by Carroll (1991) emphasizes that companies not only have a duty to create wealth, but also has responsibility for social and environmental challenges beyond the economic and legal aspects, such as ethical requirements and philanthropic actions performed by the company for the benefit of society's sake.

Though CSR is a common concept in business, there is still no generally accepted definition. According to the European Commission (2001) CRS is defined as "a concept whereby companies integrate social and environmental concerns into their business operations and In Their interaction with their stakeholders on a voluntary basis".

In summary, CSR is about considering a broad range of stakeholders and to take environmental and social aspects of the daily operations into account.

CSR is the concept where an organization is accountable for its impact on all relevant stakeholders. (Sebhatu, 2010)

3.3. Triple bottom line

The shift from the traditional view of CSR, that only encompass the economic perspective, towards involving both social and environmental aspects, has led to the evolvement of the so called triple bottom line model (TBL) (Mitchell et al., 2008). The term “triple bottom line” was first introduced by Elkington (1998) and basically expresses that organizations create value in multiple dimensions; economic, social and environmental. TBL is an approach to CSR based on organizations reports bottom line results not only in economic terms but also in what way the social surroundings and environment is affected by their business activities. In traditional business accounting, the “bottom line”

relates to the sum of profit or loss, usually noted at the bottom line on a declaration of revenue and expenses. The concept of a TBL adds two more

"bottom lines” to the reporting: social and environmental concerns. (Mitchell et al., 2008; Norman & MacDonald, 2004)

TBL-model is often referred to as a means to achieve sustainable

development, (Schaltegger et al., 2006; Sebhatu, 2010), and can be used to

structure actions with an emphasis on sustainability (Mitchell et al., 2008). A

core principal of this concept is that multiple stakeholders should benefit from

organizations’ activities, not only shareholders. The idea is that the economic,

social and environmental aspects of sustainability should be considered

together in order to achieve sustainability, see figure 3. The center of the three

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dimensions, when the environmental harm is minimized, the social conditions are good and the economic situation is optimized, is called the sustainability

“sweet spot” and illustrates the long term organizational success with an overall positive impact on society (Savitz & Weber, 2007).

Figur 3: The concept of triple bottom line

The three dimensions of TBL is sometimes referred to as profit, planet and people (Slaper & Hall, 2011; Tullberg, 2012), but in this report, the terms economic, environmental and social aspects will be used. These three dimensions are equally important for sustainability and Schaltegger et al.

(2006), argues that the challenges to corporate sustainability relates to how companies tackles each of the dimensions but also how they manage to combine them.

3.3.1. Environmental responsibility

The environmental perspective in the TBL-model is used in order to assess how successfully a company is meeting the environmental challenges and should act as a general description of the extent to which the targeted objective of minimizing environmental impact has actually been achieved Schaltegger et al. (2006).

According to Savits and Weber (2013), environmental responsibility is about

ensuring to promote the organization, its customers and subcontractors'

awareness of: how the environment is affected by business activities, how the

company uses resources efficiently, that the products are not hazardous and

that the delivery is as environmentally friendly a manner as possible.

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For a TBL approach to be successful, the integration of the three factors is essential. Schaltegger et al. (2006) emphasizes the importance of combining and simultaneously satisfy the objectives of the three aspects. Contextual integration of the three dimensions of the TBL-model requires the simultaneous accounting for and improvement of the each dimension.

Integration of the three dimensions in the TBL-model also requires acceptance of a philosophy that engages with conventional business management and at the same time focuses on environmental and social perspectives as well. (Ibid) Again, in the TBL perspective, this is not something companies do by force of laws or regulations, but it is a fundamental business responsibility to ensure sustainable development. In contrast to the pyramid of corporate social performance by Carroll (1991), the T L doesn’t grade the dimensions but rather it is about finding sustainability through balance between the dimensions.

3.3.2. Social responsibility

The goal of the social perspective is, according to Schaltegger et al. (2006), to minimize the level of negative social impacts relative to expectations and to increase valuable positive social impacts and benefits. However, the social aspects and measures are difficult to define in absolute terms. According to Savits and Weber (2013), social sustainability is based on values of employees´

lives and relates to organizations action to improve working conditions, wage proportionality and equal conditions. Furthermore, social sustainability also involves corporations´ relationship to the rest of society, and the corporate citizenship should be considered (Ibid).

3.3.3. Economic responsibility

Economic responsibility refers to long-term financial solidity and balance. In the TBL model, companies have an obligation to take long-term decisions for stable economic development, Savits and Weber (2013). Furthermore, Savits and Weber (2013) also claims that economic sustainability implies valuing business strategies that may not lead to rapidly increased profit but that avoid tremendous losses.

Schaltegger et al. (2006) argues that, just because the economic aspects mainly

are addressed in conventional business management, one should not exclude

this aspect in corporate sustainability issues since economic survival is essential

for all corporate activities. Furthermore, Schaltegger et al. (2006), also argue

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that the economic perspective in terms of responsibility also relates to dealing with the environmental and social aspects in an as economical way as possible and states that the economic perspective interrelates with the environmental and social aspects in terms of eco-efficiency and socio-efficiency.

3.4. Environmental management system

Environmental Management System (EMS) can according to Melnyk et al (2003) be defined as: “the system and database which integrates procedures and processes for the training of personnel, monitoring, summarizing, and reporting of specialized environmental performance information to internal and external stakeholders of the firm”. The internal information is mainly used for pollution control and waste minimization, design, and training while the external information are used to show sustainability efforts and to strengthen the company’s brand (Ibid).

Furthermore, according to Melnyk et al. (2003), an EMS is a framework that supports companies and organizations to develop, manage, and monitor environmental operations to achieve two main goals; waste reduction, and compliance. Compliance in an organizational perspective means to reach and maintain the lowest possible level of legal and regulatory standards in order to avoid fines. The goal of waste reduction is far more extensive and involves organization’s activities in order to reduce the overall environmental impact (Ibid). Recent studies show that the implementation of EMS provides benefits such as possible increased productivity, competitiveness, business profitability, improved environmental image (Simpson et al., 2007; Zhu et al., 2007) which is attained by minimizing the waste generated and increased the efficiency of the resources used.

ISO 14001 is one the most recognized EMS certifications worldwide. ISO

14001 is a standard developed by ISO (International Organization for

Standardization), the world’s largest developer of voluntary International

Standards. The ISO 14001 standard is a process standard, not a performance

standard. This means its´ requirements does not concern environmental

performance levels of organizations, but instead it offers a guideline that helps

organization improve their operation processes in environmental performance

(ISO, 2004). The ISO 14001 environmental standard specifies requirements

for an EMS to allow organizations to develop and establish a policy and

targets which consider legal requirements as well as information about

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significant environmental aspects. The standard is envisioned to provide organizations with the fundamentals of an effective EMS that can be integrated with other management requirements and also help organizations to meet environmental and economic goals. (Ibid)

The implementation of ISO 14001 is based on the methodology of the so called “Plan – Do – Check – Act model” (PDCA). In ISO 14001 EMS, the PDCA model is based on a, periodically repeated, cycle of phases which starting from the company's environmental policy (ISO, 2004). The role of the environmental policy is to ensure management commitment, present the organization´s goals concerning environmental issues, sustainability and the commitment for reduction, improvements, and legal compliance and pollution prevention. The policy also functions as a basis for identifying the relevant environmental impacts and the company´s efforts to reducing them.

Plan. In the plan phase, the environmental aspects of the organization and the requirements from different stakeholders are identified. Also the objectives and processes necessary to deliver the results in accordance with the environmental policy are established here.

Do. The do phase covers the implementation of the processes. The requirements includes that resources supporting the implementation are made available, training of the personnel involved, communication, documentation and document control. The organization shall also identify and plan the operations that are associated with the identified environmental aspects and implement procedures to prevent emergency situations.

Check. In the check phase, the requirements of ISO 14001 concerns that processes shall be monitored and measured based on the environmental policy, aims and objectives, and legal requirements.

Act. The act phase refers to top management review of the EMS to ensure its continuing suitability, adequacy and effectiveness in order to achieve continual improvement of its´ performance. This involves assessing the success of the EMS and to what degree the objectives have been met, making corrective action on significant differences between actual and planned results and decide on actions to improve the process.

According to ISO 14001 standard (ISO, 2004) organizations are responsible

for ensuring that employees that operates activities that could cause

environmental impact has appropriate education and training.

24 3.4.1. Integrated systems

A. Quality

It’s common that organizations have both ISO 14001 and ISO 9001 as an integrated management system. ISO 9001 certifies quality management systems (QMS) and is a set of documentations that identify business processes focused to achieve organization’s quality objectives. The purpose of QMS is to maintain and improve the product and service quality in order to meet and exceed their needs and expectations (Sousa-Poza et al., 2009). These standards are developed to enhance the compatibility of the two standards for the benefit of the user community. ISO 14001 uses the same basic structure based on the PDCA cycle as ISO 9000, with similar procedures for auditing, documentation control, operational control, management policies, statistical techniques, training, and preventive and corrective action (ISO, 2004).

The basic requirements of quality management system is determined by ISO 9001, which is a certifiable standard that is adapt worldwide in different types of enterprises, and regards requirements that aims to provide continual improved quality of products and services (Jose de Oliveira, 2013).

B. Occupational health and safety

Legal requirements cannot always sustain rapid changes such as working conditions and arising of new risks. The development of OHSMS (occupational health and safety management systems) is necessary in order to keep collaborators informed and to motivate them to act responsible and identify mechanisms that organizations are able to implement in order to monitor the development of working conditions (Jose de Oliviera, 2013).

The OHSAS 18001 standard has gained acceptance and is actively adapted

worldwide. The OHSAS 18001 provides a framework for organization in

order to identify and manage the risks in health and safety and reduce

accidents (Chang & Liang, 2009). The aim of the OHSAS 18001 standard is to

support organization to promote good practices in field of health and safety in

a manageable way in order to protect and improve the health and safety

conditions among employees (Chen et al., 2009). This standard can result in a

reduced number of accident, wastes and defects in production through

preventions and control of work-related risks. Successful implementing of

OHSAS implies a reduced accident among employees as well as reduced

financial costs. (Fernández-Muñiz et al., 2011)

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Like the previous ISO standards, OHSAS 18001 is based on PDCA methodology. Implementation of the standard aims for continuous improvement in safety and health aspects, throughout the entire organization and every employees need to be involved for the system to be effective (Fernández-Muñiz et al., 2011; Jose de Oliviera, 2013).

These systems have in common that it is no guarantee they will lead to improved result after implementation. Previously studies show that several organizations implement ISO 14001 as a “ritual” activity (Boiral, 2007;

Dahlström et al., 2003). Furthermore, other studies claim that organizations may adopt these standards in purpose to show that the company is being responsible for their corporate actions, but the improvement in the environmental performance is unsubstantiated (Dahlström et al., 2003; King et al., 2005).

3.5. Summary of theoretical framework

CSR is a term used increasingly in industry and business research since 1950 and describes that companies are responsible for how different stakeholders is affected by its activities. The triple bottom line model summarizes that CSR can be divided into three different areas of responsibility, economic, social- and environmental responsibility.

 Economic responsibility means keeping long run profitability while considering a wide range of stakeholders.

 Social responsibility concerns how employees´ and community are affected by the company´s activities such as the health condition and education.

 Environmental responsibility concerns the level of negative environmental impact from the company´s operations.

An EMS is a system of monitoring, evaluation and planning tools that aims to

improve corporate environmental work. An EMS can be certified by ISO

14001 and are often integrated with other management systems such as the

quality management system, ISO 9001 and health and safety management

system, OHSAS 18001.

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Figure 4: Graphical explanation of the theoretical framework. Source; designed by the authors

Figure 4, above shows a graphical summary of the theoretical framework.

Sustainable development is maintained with the three aspects of CSR,

environmental, social and economic responsibility. CSR in turn, is practiced in

business using management systems based on continuous improvement cycle

PDAC, such as environmental management systems.

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4. Empirical findings

The following chapter presents the empirical material collected during the study. The chapter presents Company X´s manufacturing activities and its environmental management system.

4.1. Company X manufacturing

In order to answer the first research question, below follows a description of the manufacturing at Company X. The information and data presented below is used to calculated and model the change of efficiency of energy consumption. The main activities in the production will be presented as well as the consumption of energy. Figure 5 shows a chart flow of all production activities. The consumption of energy that is related to manufacturing each activity is also presented.

Figure 5: Production activities at Company X, based on observations. Source; designed by the authors

The production activities in Company X can be divided into two production

lines: casing and rotation equipment. The casing line performs

manufacturing and processing activities of compressor casings. These activities

include milling, grinding, boring and welding. Mechanical processes are carried

out by both CNC machines and conventional controlled machines. The last

step in the casing processing is welding, where all parts of the casings are

welded together.

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The Hydrostatical test is being performed after the welding of casing. The hydrostatical test of casing is performed to ensure that sealings can withstand the operating pressure. When processing the test, the casing is pumped with water to specific pressure that is designed to simulate a running. Water is the fluid that is used to the pressure test in the casing. The tests normally last about 30-40 minutes. Hydro tests give easy detection of leakages and are more favorable than air tests since the water is incompressible. Gas under high pressure tends to expand fast in the casings, which can cause ruptures and cracks in the casings.

The second production line of Company X manufactures rotating equipment such as impellers, blades, rotors as well as gear shafts and wheels for the steam turbines and compressors. The manufacturing of these mainly consists of processing with CNC machines, which may be grouped in milling and lathing machines. To achieve the best possible performance and durability, surface treatment processes are also performed. These processes mainly consist of shot peening.

Thereafter, dynamic balancing of the complete rotating assemblies is carried out. Dynamic balancing is performed as a two-plane balancing, and is subdivided as low speed balancing and high speed balancing. The process is performed in 3- 4 steps, where each rotor is run to normal operating speed so that vibrations are measured and recorded for each plane in turn. Trial masses are mounted for each drive until the vibrations reach acceptable levels.

The final steps in the manufacturing process are assembling and packaging. In the assembly stage, the movable parts are mounted to the casing to one unit.

Painting of the casing parts is also a part of the assembly stage. The painting is done in two steps. First, a powder coating is applied as a base and then the final topcoat is applied. The packaging stage consists of installation of electrical components.

After complete assembly, the compressors and steam turbines are submitted to a mechanical running test. The mechanical running test consists of a variety of tests designed to ensure the total assembly reliability and performance.

Mechanical running test implies putting the whole machinery in operation to

carry out inspections of the equipment. These inspections are different for

compressors and steam turbines.