Praxair, Inc. (NYSE: PX) is a Fortune 250, $12 billion global industrial gas company headquartered in Danbury, CT. It is the largest industrial gas company in the Americas and operates in more than 50 countries. Praxair consistently leads the industry in profitability and return on capital through a culture of operational excellence, capital discipline and ongoing execution of price and productivity. Over the past twenty years, Praxair has delivered compounded annual growth rates of 8% in revenues, 11% in operating cash flow, 13% in earnings per share and 16% dividend growth. In addition, Praxair is widely recognized for sustainability excellence: it has been selected for the World Dow Jones Sustainability Index for twelve consecutive years and the CDP’s S&P 500 Climate Disclosure Leadership Index for seven consecutive years, among other honors.
Praxair supplies customers with atmospheric, process and specialty gases, high-performance coatings, and related services and technologies. Its core business is taking the air, a renewable resource, and separating it into oxygen, nitrogen, and rare gases such as argon, to provide, among other benefits, environmental and resource productivity solutions to a wide variety of end markets. For instance, oxygen allows steelmakers to produce more steel with less energy and emissions and hospitals to provide respiratory care; argon is used in combination with other gases in the welding process and is an essential component in airbags; rare gases such as Krypton can be used to insulate windows. Praxair also has a process and specialty gases business in which gases are produced as byproducts of chemical production or recovered from natural gas. These include hydrogen, which allows refineries to remove sulfur from diesel fuel (therefore producing Ultra-Low Sulfur Diesel); carbon dioxide, which keeps sodas and beer carbonated and is also used in food freezing; Helium is used in several ways in including with superconducting magnets in MRIs allowing the capture of high-resolution images of internal organs and tissues.
Industrial gases are ubiquitous in developed economies, where all people use products that include them. Moreover, industrial gases provide crucial ingredients for a range of technologies that support modernization and clean technology development; so globalization and emerging environmental concerns both provide long-term growth opportunities. The gases are generally a small part of customer costs but a crucial part of their operations; so reliability is key to customer retention. Praxair’s business is defensive against economic cycles, serving diverse end-markets and geographies, with long-term customer contracts, including many with take-or-pay clauses. Praxair’s competitive advantage is driven by a high-performance culture with a disciplined strategy combining a core sale-of-gas business model and focus on building density in select geographies, with technologic resources focused customer innovation and productivity, primarily reducing the use of resources. This last element, its focus on productivity, is the theme of this article.
Praxair’s business is summarized in its Mission: Making our planet more productive. We develop technology, products and services that help sustain and protect our planet. We are committed to improving our customers’ economic and environmental performance around the globe and we are committed to improving the communities where we live and work. Consistent with its mission, Praxair’s unique culture promotes a “virtuous circle” designed to continuously deliver sustainable value. Some of these are described below with six “R’s:”
1. Reuse and recycle: Praxair’s business model of process efficiency reinvents “waste” as product. Praxair’s basic raw material for atmospheric gas production is the air. For example, oxygen is created at an on-site plant for a steel customer and delivered by pipeline; then Praxair liquefies co-products (such as nitrogen and argon which otherwise would have vented back into the atmosphere) for sale to other customers across several end markets. This concept is re-applied in its process gas business. For example, most of the CO2 Praxair sells is sourced from industrial byproducts – it is purified and sold to carbonate beverages or to provide safe and environmentally preferable alternatives to solvent cleaners, amongst other applications.
2. Revenue creation through energy and environmental efficiency. Praxair applications bring energy and environmental benefits: $3 billion, or about 27% of Praxair’s 2013 revenue, comes from applications that bring environmental benefits such as energy savings and reduced emissions from the use of oxygen in steel, or window insulation from the use of Krypton. Praxair promotes these applications and has a 2015 target to achieve 30% of revenue from its “eco-portfolio.” Moreover, energy is Praxair’s largest variable cost, so the company is incentivized to manage energy use and has a range of performance targets in this area. For example: Energy intensity per molecule of oxygen produced in newly designed Air Separation Units (ASUs) improved 6.5% from 2009–2013 and is targeted to deliver 8.5% by 2015. Sustainable productivity programs also drive eco-efficiency in operations. By 2013, sustainable productivity initiatives contributed nearly 25% of total productivity dollars – adding to operating margin expansion. Praxair also saved nearly 225 million gallons of water, 800 million kilowatt-hours of electricity and 475,000 MT CO2e. In addition, more than 10% of Praxair’s sustainable productivity savings produced incremental revenue from additional production capacity – adding to growth.
3. Replicate best practices: Best practices are replicated and deliver value as they reduce project cycle time and free up resources. Sustainable productivity delivers higher rates of replication and higher employee engagement. The rapid adoption of sustainable productivity at Praxair evidences the power of inviting employees to bring their environmental values to work, providing them with clear opportunities to help in “Making our planet more productive,” the metrics to measure this, and the recognition for so doing.
4. Re-imagine solutions that help address global challenges. Praxair’s R&D organization measures the environmental benefits of its applications as they pertain to key global challenges. For example, oxygen for steelmaking, hydrogen for ultra-low sulfur diesel, argon for welding, and Krypton for window insulation together contributed 11% of 2013 revenue. They also enabled the avoidance of 38 million MT CO2e, or a 20 million MT net benefit – a more than 2X net benefit over all Praxair greenhouse gas emissions.
5. Re-engage human capital: To maintain continuous improvement, Praxair invests in employee community and environmental engagement. Worldwide community engagement is encouraged by leadership in all businesses. In 2013, 221 Praxair sites contributed more than 60,000 volunteer hours and benefitted more than 325,000 people – twelve times more than all Praxair employees. 82% of Praxair volunteers reported more positive employee engagement from volunteering and 79% of them reported that it had improved their own management performance. Additionally, Praxair’s $6.5 million Global Giving Program supports the communities where the company’s employees live and work.
6. Regenerate corporate culture: The previous sections illustrate the myriad ways thatPraxair promotes employee actions consistent with its brand. These actions are built into Praxair’s culture and performance expectations. And they are integrated in more creative ways. One example is the company’s facility Zero Waste program, launched in 2011. By 2014 there were more than 220 sites participating, representing more than 13,000 employees — almost half of all Praxair employees. They have avoided disposing tens of millions of pounds of waste in landfills, saved Praxair money, found new ways to recycle or resell waste and even created jobs in local communities. Praxair honors employee Zero Waste efforts with Project Greenway: a commitment to plant or preserve a million trees by the end of 2015 in a range of countries where we operate. Inviting employees to bring their environmental values to work is a key ingredient in creating a Praxair culture of inclusion and engagement and total resource productivity.
Praxair’s mission and brand exemplify a unique Praxair culture that is part of its management system and intellectual property and provides Praxair confidence that it can continue to drive sustainable value creation over the long term.
Riva Krut has 25 years of experience as a sustainability and environmental management consultant to several leading multi-national companies. As Vice President and Chief Sustainability Officer at Praxair, she leads the company’s integration of sustainable development into overall corporate strategy and the development of corporate-wide metrics and targets and performance management towards these goals.