Alcoa builds sustainability in Iceland

-- Supply Chain Management Review, 12/4/2007 6:36:00 AM

By Anita Roper

When Alcoa decided to build a new aluminum smelter and related hydroelectric facility in the remote fjords of east Iceland, the company sought to balance the environmental, social, and economic effects their facility would have on the non-industrial area and its 10,000 residents.

But through a pioneering partnership between the company and its electrical supplier Landsvirkjun, and various stakeholder groups, helped to protect the interests of the population, and served as a lesson to the company in the art of sustainability.

Alcoa’s Fjarðaál smelter, which initiated operations earlier this year at a site about three miles east of the town of Reydarfjordur, will produce up to 346,000 metric tons of aluminum annually. The nearby Kárahnjúkar hydropower facility, developed by Landsvirkjun, has an annual generating capacity of 4,600 gigawatt hours. The combined facilities represent the largest construction projects and private and public sector investments (almost $3 billion) in Icelandic history.

“I was very pleased when I first heard about the projects,” said Davíð Baldursson, a Christian minister who has lived in the area for three decades. “I have witnessed the decline of the area’s fishing and agricultural industries and saw people moving out. We either had to take the risk of putting these large plants in a mostly rural area or see the community fade away. However, I had many concerns about the projects because of the huge impact they would have on every aspect of our community.”

Addressing the Controversy Together 

Baldursson was not alone. Controversy over the two projects broke out immediately, with the focus primarily on the environmental effects such industrialization would have on the surrounding environment. Although Alcoa and Landsvirkjun publicly stated their commitment to creating some of the most environmentally friendly facilities in the world, project proponents were not appeased.

“We knew we had to address the stakeholder issues, but that effort would mean nothing if it didn’t include the hydroelectric facility due to both projects being viewed as one by stakeholders,” said Anita Roper, director of sustainability for Alcoa. “We approached Landsvirkjun to join us in creating what would be a pioneering sustainability initiative that involved substantial stakeholder input and resulted in a way to measure the long-term environmental, social, and economic performance of both projects.”

Landsvirkjun agreed, although what was proposed was new territory for the government-owned energy company.

“On earlier projects, our approach to stakeholder consultation was more simplistic and only followed the public consultation—usually public meetings—required by legislation and regulations,” said Ragnheiður Ólafsdóttir, environment manager for Landsvirkjun. “When Alcoa approached us, we were a little unsure in the beginning where such extensive consultation would lead.”

Direct Stakeholder Involvement 

Alcoa and Landsvirkjun first formed a management committee for the sustainability initiative that included representatives from both companies as well as local and international consultants from various fields. Committee members began measuring community perception and meeting with stakeholders, resulting in the formation of a 40-member stakeholder advisory group in mid-2004.

Members, consisting of both project proponents as well as opponents, represented the following stakeholder groups:
• National government
• Regional/local governments
• Non-governmental organizations (international/regional/local)
o Environmental, including Conservation International and Landvernd
o Unions
o Social
o Tourism
• National Church of Iceland
• Health organizations
• Educational institutions
• Business associations
• Concerned citizens
• Project contractors
• Alcoa
• Landsvirkjun

The group’s first meeting in June 2004 focused on introducing the sustainability initiative, defining the role of the advisory group, and compiling a list of issues associated with the smelter and hydropower projects. The advisory group decided its purpose was to look forward—not backward—and develop indicators to measure the performance of the hydro facility and smelter against sustainability objectives adopted for the project by Alcoa and Landsvirkjun.

“We were very surprised at the positive attitude displayed by all of the stakeholders, regardless if they were for or against the project,” said Ólafsdóttir. “There was broad understanding that we were doing this to monitor the effects of the projects and to address all concerns.”

Measuring Performance 

Over the course of additional meetings, the advisory group identified almost 50 indicators and more than 70 associated metrics (see accompanying chart). Alcoa and Landsvirkjun determined the targets for each due to the technical knowledge required.

Each indicator was categorized as one of the following: 

• Direct—Alcoa or Landsvirkjun has sole accountability for the respective performance (e.g., plant air emissions).
• Indirect—Alcoa or Landsvirkjun has some level of influence; however, other stakeholders also influence performance (e.g., the number and proportion of jobs in key economic sectors nationally and in the local community).
• Induced—The project will affect changes in the community; however, Alcoa and Landsvirkjun have limited ability to affect the outcome (e.g., the number of cultural events per year in east Iceland).

The advisory group approved the final metrics and indicators in late 2005. Progress against them will be reported via a website (www.sustainability.is) that is managed by Landsvirkjun and Alcoa. The advisory group remains loosely organized for possible reconvening if issues arise.

“I was very pleased how Alcoa and others came to the table to discuss the projects and focus on what we need to do to lessen the impact,” said Baldursson, who served on the advisory group. “I would have liked the industrialization to have happened a little slower, but we had no choice. The advisory group has helped us with managing the impacts, and I think the managers of Alcoa and Landsvirkjun are trying their utmost to be responsible in every aspect. These projects have given us renewed hope for the future of our community.”

Changing a Company’s Approach 

For Landsvirkjun, the project has changed its approach to both sustainability and community consultation.

“We have started to develop our own sustainability principles, and we are working with the International Hydropower Association to test the group’s new guidelines for sustainability assessment,” said Ólafsdóttir. “We are also working with communities more openly and with a broader perspective. The sustainability initiative showed us a new way to increase our engagement with stakeholders, and we’ll use the process on all future projects, starting much earlier in the process.”

The sustainability initiative also strengthened the working relationship between Alcoa and Landsvirkjun.

“Building and maintaining a strong customer/supplier relationship relies on open, effective communication,” said Patrick Grover, director of environment, health, and safety for Alcoa’s Global Primary Products Growth group. “That applies to working together on sustainability or other critical areas important to long-term business success. We became better at working through issues, even those not directly pertaining to sustainability, because of the relationship developed with Landsvirkjun through working as partners on the sustainability initiative.”

The initiative also laid the foundation for Alcoa’s integration into the community as well as the formulation of the company’s policies and goals for Iceland at the national and local levels.

“This work resulted in several focused targets where we saw opportunities for women and the more senior segment of the working population,” said Tómas Sigurdsson, managing director of Alcoa Iceland. “We were also able to help strengthen the service sector through outsourcing activities. And, we tried to form and integrate the needs of the company and our employees into something that could benefit the community as a whole, such as a fitness center, fire brigade, information center, and sports hall funded by Alcoa or Alcoa Foundation.”

For more information on the initiative, including a complete listing of the indicators and metrics, visit http://www.alcoa.com/iceland/en/info_page/landsvirkjun.asp.

Anita Roper is Director of Sustainability for Alcoa. She can be reached at anita.roper@alcoa.com.

Resource Center