Waste Management, Inc. (WM) Earnings Call Transcript & Summary

All right. Well, hello, everyone, and thanks for joining our ESG conference for this year. I'm -- it's Walter Spracklin with RBC Capital Markets, and I'm pleased to have with me today, Tara Hemmer, who is the Senior Vice President and Chief Sustainability Officer at Waste Management. Just by means of a brief introduction, Tara joined Waste Management in 1999 and went through a number of leadership roles, including VP of Disposal Operations; Area VP of the Greater Mid-Atlantic area; SVP Operations, Safety and Environmental Compliance; and then SVP Field Operations for the southern part of North America. So as Chief Sustainability Officer of Waste Management, Tara is responsible for growing sustainable service offerings that includes recycling, renewable energy and organics. She also oversees all of the environmental social impact and government initiatives as well. She serves on the Board of the Environmental Research and Education Foundation. And so with that, welcome, Tara, to the pipeline. Thanks for -- thanks for your time.

Thanks so much for having me. Thank you, Walter.

Yes. No, this is an exciting time, and I want to dive right in. We've got a number of questions here that we'll ask from a Waste Management perspective and then from a general kind of ESG lens. So why don't we dive right in with the first question. We'll start with, I guess, circularity. I mean it's understood to be a key pillar in the transition to a low carbon economy. And so environmental management companies are increasingly being called upon by investors and regulators to help divert waste from landfills in favor of recycling or composting. So given that waste management has limited control over the amount of waste generated by our communities, what initiatives are you employing to increase circularity?

Well, you're right. I mean circularity is such a key theme today, the 2 key themes, circularity and decarbonization, in a lot of ways, they go hand-in-hand. And while we don't control how much or the types of waste that our customers generate, they clearly are looking to us to help them with solutions for a wide and vast scope of materials. And so we're looking at how we can be a broader partner to our customers. We have expanded the amount of and the type of services that we provide. So a great example of that is we do organics collection services. That's something that we've expanded over time. We're the largest residential recycler in North America, and we manage well over 15 million tons of recyclables every year, and that's a single stream, that's also yard waste, that's also fly ash as an example. And then we have an arm of our company called WM Sustainability Services that works directly with our customers and bands in, I think, large manufacturing facilities, like in the auto space or in the large utility space to help them figure out waste reduction strategies. And this is critical as we move forward. The other key piece that we're really proud of is, you can't march down this pathway related to circularity if there isn't a strong demand pull on the back end. And we worked really hard. If you think over the last 4 years, we worked really hard with off-takers for the different commodity types that we manage in our recycling facilities. So think about what's happened in the plastic space. It's one thing to collect them and put them through one of our material recovery facilities, but if no one's buying that plastic, that recycled content at the back end, it's not going to be a robust model. And so we worked really hard to drive demand for those products, including some of the work that we did ourselves. So if you think about the carts that we put out at the curb, those carts are made out of post-consumer resin. And also our employees uniform, so that's a great example of one of our drivers can show up at your house to collect your recyclables from a toter that has post-consumer recycled content. And that water bottle that you might have discarded at home can go through one of our material recovery facilities and then end up being sold to one of our partners that ultimately will make the uniform that, that employee might wear. So it's a whole host of different things when we think about what's going to happen in the circular economy.

That's a great example. It's almost the definition of circularity right there, going from the water bottle to the uniform of the person picking it up. That's fantastic. So for companies in this sector, reducing greenhouse gas emissions can be a major opportunity leading to new revenue streams and business models. I know your last quarter call touched on that. But can you tell us a little bit of some of your greenhouse gas emission reduction strategies and how you're capitalizing on this opportunity?

Well, in a lot of ways, the announcement that we made related to our renewable natural gas plants and scaling from the 4 we have today to 21 by 2026 and increasing the amount of gas that's managed over 6x through renewable natural gas plants by 2026, goes hand in hand with decarbonization and reducing greenhouse gas emissions. It's well known if you look at our sector, and WM is no different, roughly 90% of our emissions come from our landfills. And we've done a great job since 2013. We've reduced the emissions per ton of waste managed at our landfills by 17%. And we're continuing to look for opportunities to further reduce emissions at our landfills, and that includes investing in gas collection infrastructure, that includes capping strategies. And that does also include investment in renewable natural gas infrastructure. And that right there is a great example of an opportunity. We have sectors who are looking to really reduce their own greenhouse gas emissions. So our renewable natural gas plants, while we're going to monetize that through the RIN pathway and put that renewable natural gas to use in our fleet of compressed natural gas trucks, the largest in North America, we also have an opportunity to sell that renewable natural gas directly to utilities and large industrial end users as they think about how they're going to decarbonize their own operations. So it very much is something that we're working on to reduce the emissions in our own space, but also help other customers and sectors reduce their emissions and their overall greenhouse gas portfolio in their own operations.

Yes. I mean, that's fantastic, where you take an issue that you have as an organization and turn it into an opportunity that not only can reduce the amount of emissions you have, but it also helps going in into powering your own vehicles and providing energy sources to others as well. It's fantastic.

And I think, just on that point, on the powering our own vehicles, I should have mentioned that, but it's a fantastic story for WM. I mentioned we run the largest compressed natural gas vehicle fleet in North America and certainly the largest in our sector. And we're bumping up against close to 70% of our routed fleet running on compressed natural gas, a little shy of 60% in our overall fleet. But we're in a unique space because we're one of the only companies who can really complete that pathway, taking renewable natural gas and generating that RIN. But also that renewable natural gas that we're generating, close to 55% of that is being used in our compressed natural gas fleet, and that's only going to grow. So a huge opportunity on how we can continue on our own journey. I mean we've reduced our fleet emissions since 2010 by over 46%, and a great example of how we're building this network of things that can have a broader impact on our company and for our customers.

Absolutely. Yes. That's very valid. And moving now to diversity, and I know in 2021, your company set 2 new goals for diverse representation in your workforce. And the goals were, first of all, to achieve ethnic and racial diversity in each segment of the workforce, with an emphasis on leadership that is greater than or equal to the estimated available -- availability of minority talent in the marketplace by 2025. That was your first objective. And then the second one being to lead the industry in female representation at all levels by 2025. Why would you say diversity and inclusion is a core pillar in your strategy? And how are you planning to estimate availability of minority talent in the marketplace? I know you set it as a goal, but how will you measure yourself by it? And how will you estimate that aspect of the measure?

Well, first of all, inclusion, equity and diversity, it is part of our commitments and values, a cornerstone of one of our values, so very important to what we do here at WM and the fabric of what we do. But I think it's been widely documented that inclusion, equity and diversity is a business imperative, that companies that do this well drive much stronger business outcomes. And if you look at the fabric of the workforce of tomorrow, which we spend a lot of time looking at from a demographic perspective, if you look at Asian Americans and the Latinx community, rapidly growing. And certainly, people of color are going to comprise a much larger part, if not the majority, of the team members and the customers that we serve going forward. So it's important that we represent those communities. On the women's side of the equation, we have -- if you think about it today, about 6% of our driver workforce, perhaps a little bit less than that, are women. And then we can have a -- there's a -- this entire population of people that we're really not tapping into from a workforce development standpoint. So we have an opportunity to really rapidly grow and scale that. And so it's making sure that we have representation across all different segments and sectors. Millennials, if you look at the generational differences within the workforce, these are folks who really care about working for companies that lead with purpose. And they will certainly walk with their feet if they don't feel like the purpose of a company is well defined. So making sure that we have inclusion, equity and diversity as part of the fabric of what we do. And we've stood up a lot of things over the last 2 years. Employee resource groups are one example. We're doing a lot of work on tracking and measuring the talent that's available. That's something that you referenced. And there's some external entities that help us with that, one of them is Saratoga. And we're constantly looking for other ways to tap into what truly is the available workforce that's out there and how can we partner with entities who are doing great work in this space. So a great example is tapping into [ ETVUs ] and other entities like that to pipeline talent into our organization.

Yes, I think you're absolutely right. I mean in today's environment where labor is scarce, it's important to make sure that we've got the right values to attract the right people to our organizations. And that applies, I guess, to all organizations. Let me move now into the pandemic. And certainly, COVID-19 has created such a disruption that the way we operated before is probably going to be an old way. It's going to be the pre-COVID way. And as we recover from that disruption, there's the slogan to build back better. And my question to you then is, how will you change, as an organization, change your business strategy to see that opportunity build back better?

Well, there's a couple of things. If COVID has taught us one thing, it's the importance of an emphasis on people. And we certainly had -- as part of our commitments and values, we have 2 commitments: success with integrity; and people first. And we have those commitments and values in place well before COVID. And so that was something that we could pull to and really rely on that as we navigated through COVID and strengthened our workforce and our team members. And so that was critically important. And I think an emphasis on people is going to continue as we think through our broader business strategy. And certainly, I'd like to say when we think about sustainability, and sustainability is really a cornerstone of our business strategy, it's part of our business strategy, it's not separate and apart. Certainly, post-COVID, relying on our people, engaging with our people and then also being a bit more nimble, we did things during COVID, the early days of COVID, at a speed and scale that we were not accustomed to. And so how can we tap into those as we move forward because the world is rapidly evolving. And so we need to adapt with it. How can we really think about some of the things that we had to do, we're forced to do to adapt to and take those key learnings and look at that as we're building new muscles in our business moving forward.

Yes. Necessity certainly became the mother of invention in the last little while. And I know a lot of organizations found opportunities that they didn't know where they had the opportunity or the ability to operate in that way. So it was great to see. ESG is something that is important today. Arguably, it should have been important many years ago, but it wasn't. And now it is evolving into a very significant focus for many, many companies. And can you describe that evolution even over the last few years? And where has that led to you prioritizing, right? I mean as the ESG requirements evolve, how do you prioritize how your -- how you tackle the initiatives or the issues that have come about with ESG?

I think what's interesting for WM, we have been at this for a while. We produced our first environmental report in 1993, which was really the precursor to a sustainability report. But what I would say, if you think about sort of the last 5 to 10 years and then really the last 2 years, we were often -- and this is no different for any company, reporting on what we were doing and sustainability wasn't necessarily embedded into business strategy. And now any good company is really looking at their business strategy, and sustainability is a critical component of that broader business strategy. And for us, if you think about where we are in the environmental solutions space, and I really do believe we are at the epicenter of so many things that our customers are looking to tackle, again around the circularity and decarbonization themes. And the wide breadth of customers that we have, where we have large multinationals down to a residential customer like your home and my home, and that's a wide swath, over 20 million customers that we touch, and so we have the ability to really influence that, but also take some of the key learnings, some of the things that our customers are saying to us about what they want, what's important to them. A great example of that is what's happening with CPG companies. And CPG companies really are sending out bold and ambitious targets related to recycled content. And WM can play a role there. So I think the biggest change in shift, and this is only going to evolve and strengthen, is that sustainability is going to be part of pretty much any good companies' business drivers, and we'll -- the issue that helps drive improvement. And those companies that aren't focused on it, I do believe will be left behind.

Yes, I agree. And that's commendable to go back into the early '90s and that's when you started this whole initiative. And then it evolved into business strategy, as you mentioned. Can you talk about who the drivers were perhaps back then? Who were the main players that were pushing you to establish the early part of that strategy? And then how did those players evolve? And who's kind of been the pushing -- who's doing the pushing here now to get you to continue down that process you started so many years ago?

Yes, it's interesting. I think in the early days, it really was a little bit of an evolution, and it was more around corporate social responsibility rather than ESG. And so a lot of that came about through us, perhaps being influenced by NGOs. Whereas today, it really is a multifaceted approach and push from a multitude of stakeholders. Customers are key one. Investors, investors are increasingly asking us not just what does your platform look like and how are you performing against your own goals, but there's external benchmarks, and again, may want to know how our -- how is this embedded in your business strategy. If you're not able to meet some of these goals or if you're not able to adapt and meet some of the needs of your customers related to circularity, what sort of risks exist. So I would say that that's a key piece. And then finally, our employees, employees come to work for a company today because of purpose, certainly millennials do. But once they get here, they want to make sure that you're doing what you committed to do externally and that they're seeing it happen. And one framework around all of this is, I think, we're all seeing increased levels of transparency. It's something that we're really focused on. We've spent a lot of time really talking through that here. And you'll see we've tried to be very transparent around the information that we provide to our stakeholders. It's one of the reasons why we stood up the WM ESG Hub, which is externally facing. You can go on our website and look at our performance and see some of the information that we have related to greenhouse gas emissions or environmental justice or our journey on inclusion, equity and diversity.

You're actually touching on the next part of my question is measuring it and disclosing it. So you mentioned a few on your hubs and all that. But how would you -- how do you start the process of saying, okay, we've got a number of goals and objectives, but here's how we're going to measure our progress on each of those. And then as we're doing that, here's how we're going to disclose it. What's your approach there?

Well, what's really interesting here is we have sustainability goals that we announced back in 2018, and then we had some interim goals that we announced in, I believe, 2020. And even in that time frame, and it's been 4 years, the world has rapidly evolved. So we're evolving with it. And so we have an effort underway to sort of benchmark and reframe our sustainability goals. We'll be announcing something, likely in the latter part of 2022 and this includes setting science-based targets. And you raised a really important point because I think many companies really frame up their sustainability goals, but fall short with how are you measuring progress against them and what programs do you need to stand up in order to ensure that you hit them or at least have a trajectory and you're making progress on a year-over-year basis. And so the effort that we're going through right now is to make sure, not just do we have the right goal, but do we have the programs that we're going to need to stand up behind it to ensure that we can show that we're making progress over time. And the key piece of this because the world is so dynamic, is how do we bake in some scenario planning to look at a multifaceted approach. Because we know we're in a dynamic environment, we want to make sure whatever we're standing up is something that could be adaptable under a multitude of scenarios. So certainly, for some, like greenhouse gas emissions, that's pretty well defined. For us, the piece that's difficult is our emissions are modeled rather than measured, which is one of the reasons why we're focusing on that measurement metric and investing in that for our industry. But for others, it's a bit harder to measure progress. And so we're working on in the circularity space, for example, on recycling because there are differences between the weight of recyclables versus solid waste. What is the measure? Is it access? Is it access to recycling? Is it tons that are managed through our recycling facilities? Those are things we're looking at moving forward and then embedding those within our Vice Presidents, who run our businesses.

Makes sense. Yes. And I guess when we look at anything like an initiative that -- or the initiatives that come through or the goals and objectives that come through ESG, we always have to consider from a business perspective because oftentimes there are -- there is a balancing, right? I mean you've got -- you have these goals and targets, but it also -- there are the realities of business results and delivering on business results. Can you talk a bit about how that balance works and how you tailor that into investing in the future, when the outcomes and the cost may not be fully defined? How do you approach that challenge and transition more broadly for Waste Management?

Well, the first thing that we try and do is it's always easier to talk to someone about an opportunity rather than a risk. So if you can find a way to turn your risk into an opportunity and frame it that way, that's always helpful. For those where that simply is not possible, getting folks to understand the risk of doing nothing. And at WM, we're really proud of the culture that we have here, which is one of opportunity but also this familial culture that we have. And we have folks who have been here for 20-, 30-plus years. And so for me, I talk to them about the legacy, the legacy that they have of an innovator within this business and how can they help us innovate on some of our toughest challenges. We're certainly doing that with landfill emissions today. And I'm confident with that institutional knowledge and tapping into some strategic partnerships, we'll be able to tackle some of those challenges.

That's fantastic. One of the key ESG themes for 2022 that we were -- we identified was the movement beyond net zero target setting and towards the articulation of a strategy to achieve those goals. And across sectors and geographies, we expect companies to increasingly communicate well-defined transition plans to support their climate targets. Now how would you say Waste Management is approaching the push for companies to set net zero targets and then to articulate their plans to achieve those goals?

Yes. Well, as I mentioned, we're in the process of setting a science-based target, more on that later in 2022. And as a critical component of that scenario planning, we're working hard on that today. And then making sure that we have a multiyear approach, where we're not just marching to 2030, that we have some interim steps that we're taking. And I think what's critical for us is for us to be able to share the work that we're doing that's behind it to achieve those targets. So examples of that would be critical investments that we're making, critical investments that we're making in tapping and gas collection infrastructure, critical investments that we're making in fleets. We're still not done with our fleet journey. So we're continuing to invest in compressed natural gas vehicles and then also looking with an eye towards electrification or hydrogen. And so just being transparent on where we are in the journey. Candidly, where we might need some help, this is the era and power. There's power clearly in partnerships. So we want to make sure that if we need partners to help us with some of these tough challenges, that we're tapping into that ecosystem.

Okay. Well, that certainly is bringing us toward the end of our allotted time, Tara. So I really appreciate all your thoughts, your insights, your expertise, it's been valued. It's a changing environment. And certainly, ESG topics, we're all learning, and I really appreciate your time in helping us all learn better on these very important topics. So thank you very much again for your time.

It is my pleasure, Walter. Thank you so much.