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CSRE-engine for including social responsibility in corporate sourcing/siting decisions to minimize manufacturings world environmental impact



Tens of thousands of MIT alumni in responsible corporate jobs or in consulting will be able to help the corporations reduce their environmental impact by using the free tools we are developing. The mission of the CSR Estimator (CSRE) is to reduce corporate environmental footprints by enabling companies to quantify the sustainability and profitability impacts of offshoring or reshoring (bringing back to the US) manufacturing. We will do this by building on the success of our Total Cost of Ownership Estimator® (TCOE). As recognized by the U.S. Commerce Department, TCOE assists corporations to more accurately assess the total microeconomic impact of the firm’s offshoring/reshoring decisions. The CSRE extension will quantify the societal or externality impacts, giving corporations a more accurate understanding of their decisions’ impacts on the world environment. We anticipate that such understanding will accelerate corporations’ decisions to reshore manufacturing to the US, thereby promoting environmental sustainability.

The impact of offshoring has been significant. According to the Economic Policy Institute, the growing US trade deficit with China, alone, cost 3.2 million US jobs between 2001-2013, primarily in manufacturing.

Production shifted offshore is negatively impacting the environment. A recent study entitled “Targeted opportunities to address the climate–trade dilemma in China” by Harvard’s Dr. Zhu Liu et al, is one of the many studies that reach this conclusion. According to the study, “International trade has become the fastest growing driver of global carbon emissions, with large quantities of emissions embodied in exports from emerging economies. If carbon-intensive manufacturing in emerging countries such as China entails drastically more CO2 emissions than making the same product elsewhere, then trade increases global CO2 emissions.” The CSRE project will improve manufacturing’s worldwide environmental impact through better-informed sourcing decisions.

What actions do you propose?

The combination of TCOE and CSRE will help companies see that they can be socially responsibility at the national and world level without impacting profitability.

The planet will benefit from more production occurring in the more environmentally responsible locations, and by a dramatic reduction in global freight. Furthermore, the less environmentally responsible locations will have added incentive to achieve higher environmental standards sooner.  For example, China could shift some output from exports to the U.S. to more environmentally friendly electricity production capability.

The large majority of manufacturing CEOs are concerned about good corporate citizenship. According to a PwC CEO Survey, 87% of industrial manufacturing CEOs say it is important for their company to measure and try to reduce their environmental footprint. However, a study by Loyola University’s Supply and Value Chain Center, et al, found that “North American supply chain executives consider sustainability a strategic priority but lack of funding and resources hamper efforts.” TCOE and CSRE together help to overcome that issue.

TCOE and CSRE will enable optimization of the triple bottom line concept which considers the three main areas of a firm’s sustainability; social, environmental and economic. Often referred to as the 3Ps, people, planet and profit, the triple bottom line states that firms can achieve positive outcomes for the environment, society and economic performance.

TCOE helps companies estimate thirty “hidden costs” that are typically ignored when companies make sourcing and siting decisions.  Some of these costs include the obvious, such as duty and freight, but also: carrying cost of inventory, travel cost, IP risk, opportunity cost from stocking out due to long lead times, the impact on innovation when engineering and manufacturing are separated, etc. CSRE will present the best solution to quantify the societal impacts of corporate sourcing decisions, quantifying environmental impact at both the companies’ own factories and at suppliers and contract manufacturers. The combination of TCOE and CSRE helps companies see that they can take meaningful social responsibility at the national and world level without impacting profitability.

To quote the International Institute for Sustainable Development, “Complex issues demand that multiple perspective be brought together to collaborate on strategies and actions to achieve sustainability and resilience.”

We know of no existing tools to estimate the environmental impact of sourcing decisions. The result of using TCOE with CSRE will be better decisions for the country, the world and the company. The scope of the project is global.

Projected Impact

Imports from China, alone, equal about 22% of current U.S. manufacturing output, based on value ($482 billion / $2170 billion).  Since the Chinese products are on average at least 20% lower in USD value than comparable U.S. products, the Chinese imports alone represent about 28% as much physical output as total U.S. manufacturing.  Assuming the environmental impact of Chinese manufacturing per unit of physical output is about twice that of the U.S., reshoring all Chinese imports would reduce the world environmental impact by 56% of the current U.S. manufacturing impact.  Analysis of user TCOE data shows that about 25% of what is now offshored to China could be profitably reshored if companies decided on the base of TCOE instead of price. If use of CSRE and TCOE together motivated half of that reshoring to occur, the reduction in world environmental impact would be 7% of current U.S. manufacturing impact. This % would grow as Chinese unit labor costs continue to rise faster than U.S. costs.  Additional environmental benefits would accrue from also reshoring from other more polluting countries.

Implementation, Including Actions by MIT Alumni:

TCOE is used to demonstrate that the total cost of ownership of producing or sourcing domestically is often more profitable than chasing the “cheaper” option of offshoring. There are approximately thirty inputs for each analysis. From these inputs, TCOE estimates the total cost of ownership for domestic production and offshore production.

CSRE will use the inputs to TCOE plus known data on the comparative environmental impact of transport and industrial activities in and between each country. The data will cover local transport, production, power generation, shipping, packaging, travel, warehousing, scrap/rework and disposal of obsolete inventory. We will begin by identifying parameters and formulas to show these impacts on the environment.

1.    Identify all relevant ouput factors, i.e. environmental impacts of each activity.  Invite MIT alumni input.

2.    Determine how the inputs, e.g. weight of product, drive the outputs, e.g. carbon footprint.  Much of the data is available from published sources or contacts with academia, think tanks and government offices.  Invite MIT alumni input.

3.    Start with China since it has represented about 50% of our goods trade deficit and 60% of reshoring since 2010.

4.    Spreadsheet the relationships

5.    Test

6.    Program onto our website probably in Cold Fusion language.

7.    Test the result. Invite MIT alumni help.

8.    Launch as a free online tool as is the TCOE.

9.    Promote thru national and industry media and via industry and CSR events and organizations.  Invite and encourage MIT alumni to use the tools at their corporations and to report on their usage.

The U.S. has lost three to four million jobs due to offshoring, mostly to China. Scientists are only now beginning to calculate the negative effects offshoring is having on the world environment. Many of the companies that offshored to take advantage of lower wages, fail to recognize the profitability impacts that TCOE reveals. and the environmental impacts the proposed CSRE will calculate to advance better informed sourcing decisions.  The added environmental insights from CSRE will motivate more companies to reevaluate, leading to improved sustainability of the world environment while maximizing shareholder value

As a 1966 MIT alum, I am optimistic that the MIT global alumni network could successfully help us develop and implement CSRE to minimize manufacturing’s world environmental impact.