BSR Conference 2015: Tom Linebarger, Chairman and Chief Executive Officer, Cummins Inc.

I grew up not too far from here. I grew up in the Bay Area. My parents were divorced when I was young and my mom raised my brother and I. She was only 26 when my parents divorced, only 20 when I was born, and so she found herself with a couple of unruly children, no job, and no degree when my parents were divorced. And she figured out a way to provide for us. She bootstrapped the whole operation basically. She went back to San Jose State, a university nearby, and got an occupational therapy degree. And then we lived with another family, we moved closer and closer to better schools. She tried to make sure at all moments that we cared about school and that we knew that we'd do okay, that we'd be provided for. And I really stand here before you thanks to her hard work and really the way that she kept us going in those tough times. That's left me with a strong work ethic, and that's maybe why I had all those jobs and things like that. But it's also left me with a sense that if we have the opportunity, if we're provided with leadership responsibility or something, we should work to make the world a more fair and just place. And what that means to me is we ought to be figuring out ways to make it so that all of us can reach our potential, no matter where we started, no matter what life events hand us. We ought to figure out a way to make it more just. It's not going to be perfect, I know that, and we all have a small angle on what we can do, but we ought to do what we can do. So that's kind of where I begin. And that's really the reason I joined Cummins, because I felt like the values of the place were a place where I could do really important work but do it in a way I'm proud of. So I'm really proud to be here. I'm only the sixth CEO of Cummins in our nearly 100-year history, so it's a pretty big honor and obligation for me to be here. And so let me tell a little bit about that story. John said this already, but you know, we started nearly 100 years ago and we still have our headquarters on the site of our original factory that was in the barn in Columbus, Indiana. We're now though a big company, $20 billion in sales, 55,000 employees globally, operating in nearly 190 countries around the world. We have these four complementary businesses. I call them complementary because we mostly work together on technology solutions to provide power for a really wide range of industrial and commercial equipment. Just to give you a sense, we power the buses that are run by Beijing public transit, we do the backup power for the Taj Mahal in India, we provide engines for trucks all over the world, and we even supply the engines for the mine trucks that operate at 14,000 feet at the Timok mine in Peru. So we are all over in all kinds of applications. And we really compete on technology because we just do power, we don't do equipment. We have to differentiate our products everywhere we operate, so technology is first and foremost how we do that. And we compete to some degree on global presence. We are also everywhere. Cummins brand is everywhere, our service network is everywhere, and if you need an engine in an application pretty much in any major market, we have one that we can make there that fits local regulations and is competitive. So we're competing on availability really too. We're an entrepreneurial company, you might be surprised as a diesel engine company been around so long, but this man hanging out of the bus is Clessie Cummins, our namesake, and this is not too long after 1919 when we were founded. And Clessie wanted to build the company, so when he started, by the way, he was a driver and a mechanic for a family called the Irwin family in Columbus, Indiana. And he's also a bit of a tinkerer, an inventor, and he tried to convince his boss, W.G. Irwin, to give him venture capital to license the diesel engine from a company called MAN, a German company where Rudolf Diesel worked. Said, 'Give me some money, I'll license this engine, we'll bring it to the US, we'll make tons of money.' And W.G. Irwin, who owned the only store in town and the only bank in town, thought, 'Hey, if we get a company here that hires people, maybe that's good for business and good for the community.' He lent Clessie the money and Cummins is born. Unfortunately, when Clessie started up with this great new engine, all the truck companies had gasoline engines and they didn't need a diesel engine, no matter how good the fuel economy is or how durable it was. 'I don't need one.' So Clessie barnstormed the US trying to convince all the people who bought trucks to demand their truck builders put diesel engines inside. This is a picture from one of his barnstorming tours from New York to LA, went more than 3,000 miles without breaking down, which at that time was a big deal, and also made it on $11.22 of fuel. This is how we got people to begin to put it in. It took him a while, so just like a startup company, we didn't make money for 20 years while he convinced all the truck companies to put this engine in. But you know, by the late 30s we were off and rolling and the company was in full motion. But it really wasn't till after World War II, after the interstate road network was started to build out, that Cummins really started to appear in its modern form. And this is our second CEO, J. Irwin Miller. J. Irwin Miller was the nephew of W.G. Irwin, and after he came back from the war he took over leadership of the company. And he was a very different CEO. This is a man who studied theology and classics at Oxford and really brought a humanitarian values and sense of business to Cummins. He thought very differently than the people at his time, as you can see. And this is a man who also walked, he was CEO of Cummins, he marched with Martin Luther King. He was the first lay president of the National Council of Churches, and while he was president, really got many of the religious institutions in the US to begin to back the Civil Rights Movement as opposed to fight it. All this while he's CEO of a big public company, which is remarkable. And that's really the tradition and legacy that myself, my leadership team, and leaders at Cummins are trying to uphold today. And we do that by thinking about the values of the company and making sure that in decisions we make, people we hire, people we promote, we're living our values every day. And the sustainability story that I want to tell you is really founded in trying to live our values in our products and technology. So 1990, the Clean Air Act, you know, one of the seminal pieces of legislation with regard to environment in the US, was modified to begin to put regulations in for commercial vehicles, for commercial trucks and buses. And when those regulations went in, Cummins was doing some of the best research and technology on diesel engines, so we helped the EPA put these regulations together. But when they were promulgated, turns out they're a lot tougher than we thought to meet, and the whole industry struggled. The truth was our engines that we released on those first regulations were not very reliable. The truck owners were really struggling to keep them running and were really frustrated, and they were worse on fuel economy, so they were losing money. Fuel is really the number one cost driver for most trucking companies, so they hated the engines in every sense of the word. And the result was, you know, engine companies were struggling, truck companies were struggling. And then in 1998 the EPA made it worse because they reinterpreted the rule and said, 'You know what, you guys aren't even living by the spirit of the rule that we intended, so we're going to pull up our next regulation from 2004 to 2002 and we're going to make it harder. We're going to make you improve criteria emissions by 50% by 2002.' The industry was absolutely apoplectic at this point. Many sued the EPA, others lobbied Congress to get them to change the rule. Lots of angst and anguish. At Cummins, we were sitting here in this very tough position where our values said that actually improving emissions from vehicles is good, it's a good thing for our community, it's a good thing for our people, we want to meet these standards. On the other hand, every one of our customers hated everything about the regulations, and frankly, if we took a position to support the EPA, they were going to be pretty angry with us as a supplier. We went and thought about it a lot and decided that we were going to commit all of our resources, R&D, leadership focus, lobbying, etc., on meeting the emissions target as planned and to do it with an engine that was more reliable and more fuel efficient. And that's what we set out to do. And by 2002 we were the first company to meet the standard, to get an engine registered to the new standard. And we laid out a technology roadmap that took us through the inevitable tougher regulations that were going to come up in 2007 and 2010. In fact, in 2007 we launched an engine for the Dodge Ram pickup truck which already met the 2010 standards, three years early. And the reason we did that is we had the technology to show and we wanted to make sure the EPA stuck to their tough standards for 2010. So we helped push the industry along again, not always to the joy of our customers, but we felt like it was the right thing to do. And we've done that now in many other applications. We've got Tier 4 regulations for off-highway, so in generators, in ships, in construction equipment, the same kind of emissions technologies moving into those engines. So while this, at the same time, while we're sprinting to meet this 2002 emissions regulation, the company was revitalizing our vision, mission, and value statement. For some of you that may not sound like that fun of an exercise, kind of an exercise in corporate brochures, but as I mentioned, the values, to us, they're kind of where we started and end, so it was a big deal for us. We were involving people all over the company and we were thinking about how to make sure that we captured all the spirit and the importance of that legacy I talked about from J. Irwin Miller, but make sure it spoke to people in a modern global company. We're growing, we're big, we're global, the words have to speak to them. So we're putting it together, and in the back of our mind is this thing we just went through with the EPA on the 2002 emissions hurdle. So we put in place a new mission statement to speak directly to our commitment to the environment, and this is what we put in. We said that we want to demand that everything we do leads to a cleaner, healthier, and safer environment. So we included in there health and safety as well as environmental sustainability from an emissions point of view. And we used the word 'demand'—that was the one, as you'd guess, that was the most debated about inside the leadership team, is 'demand' the right word? The reason we chose it is because we wanted to make sure that as people are making priority decisions up and down the company, they recognize where this sits for us. It's not an optional choice, it doesn't depend on how much money we're going to make or lose, it's what we're going to do, it's what we're going to compete on as a strategic matter. So that's where we left it. And in order to fulfill that mission, you need to have processes, right? We are a company that runs by processes and runs by technology and development, so you can't just have the words, we need to have a robust capability to fulfill it. After all, this mission statement says we recognize we have a big environmental footprint. Our products today have a big environmental footprint, our operations, our supply chain, but we think we make people's lives better by driving the economy, by providing great jobs. We think we matter to the economy, so we want to continue to figure out ways to make people's lives better but do it with a lower footprint. That's a big commitment. So we need to make sure we've got a robust set of actions. So we put together these action principles. We formed a cross-functional group, a group that's committed to implementing these at every level, and which I directly get involved with. I help the group set goals, I help the group get resources, I make sure that we're actually making progress on these things. And as we publish our results, they're showing our progress. And you can see the action principles here. I won't go through them all, but they're a pretty comprehensive set. And let me just show you a few examples of things that have happened since we put those principles in. This chart is a chart of what's happened to the air emissions regulations in the US for trucks and buses over the last 25 years. This is the results of all that Clean Air Act modification. The chart on the left, by the way, is nitrides of oxygen, so NOx and hydrocarbons, really important criteria pollutant, leads to acid rain and other really bad things. And then the one on the other side is particulate, that's the black smoke you see out of old trucks. Really important things to get less of. Over the last 25 years, 50-fold reduction in these two criteria pollutants, 50-fold. And the last emissions hurdle, the 2010 level, made it so that the hardest job we have now is measuring the amount of criteria pollutant that come out of the back of a tailpipe. Very, very difficult to measure. If you walk up to a running truck today and you put a white napkin over the back of the tailpipe, you'll pull it back, it'll still be white. I can tell you it wasn't that way when I was riding my bike to Stanford back in the early 90s. It was not that way, they were blowing black smoke right in my face. Huge difference in what we were having before. And what's more is, you know, regulations on CO2 now have also driven the same kind of technology work. And our work on technology for engines is not limited, or technology for emissions is not just limited to engines or to the US border. Here's a couple of other examples. The one on your far left there is an SCR system, selective catalytic reduction system. It's an exhaust after-treatment system that's on almost every modern truck today. This technology, which we started to develop in the early 2000s, so we had no business, we just created this Emission Solutions business to build these systems, and then we put on for the first time in 2007. These guys solved that really tough problem of getting emissions levels down without harming fuel economy, the one that plagued the industry back in the 90s. A terrific invention. As I mentioned, we started from scratch, we now sell more than a billion dollars of these systems, both on engines but also to competitive engines to drive down emissions in trucks. The second product in the middle is our new heavy-duty engine called the ISG that we launched in China last year. So brand new technology engine launched in China, it meets China's NS4 standard, National Standard 4, which is about the equivalent of 2002 emissions from the US. In this case though, we were able to launch this engine, same power rating, same emissions rating as 2002, for 35% less. How do we do it? Well, we've been working on it now for a long time, more than 10 years, and so we're down the learning curve. We did new designs to make them easier to make, to use simpler materials. And so what we can do now is bring great technology for emissions to developing countries at much lower costs. Why does that matter? Because it encourages those governments to put in tighter emission standards with less impact to the economy. The one on the far right is a turbocharger, but it's not just any turbocharger, it's a remanufactured one. In our parts and service locations all over, we have more than 5,000 dealers around the world. All these dealers offer remanufactured parts and engines just as they do new ones. The difference is not only does a remanufactured part offer good cost and good quality, it takes 85% less energy to build than a new part. So last year alone we recycled, reused 50 million pounds of parts and engines returned from our customers in our remanufacturing division. So full-circle manufacturing in our service and distribution operations around the world. We're trying to impact global emission standards everywhere. You can see from this chart, we just did this from last year, all the emissions hurdles, emissions regulations are to be launched around the world. The colors, by the way, the darker the green means the more stringent it is. But none of these standards are the same. All these jurisdictions are putting in different standards, different stringencies, different details. And one of the action principles that may have surprised you was the one at the bottom that says that we talk to governments about putting in responsible regulations. And I know some of the cynics in the room probably thought 'responsible regulations' meant easier ones, but in fact for Cummins it means the exact opposite. For us, we're pushing governments to make more stringent regulations. Why? Well, back to the original comments from J. Irwin Miller, we think that actually air emissions regulations in the US, tough ones, drove good results. Air is cleaner, don't get smoke in my face when I ride my bike, all kinds of other positive effects, and the industry is still running, it's still doing fine, we're still moving things in trucks. Seems like it's better. That's one. Second reason is we have good technology. We think we can win. We think we can compete on technology when emissions hurdles are really hard and offer a cheaper, better, more reliable solution than other people. So we want to compete in that world, so we push them for harder ones. But we also mean enforceable, because one of the tough things in an industrial business about if you want to push environmental sustainability further is that the costs of technology are private and the benefits are public. Clean air is public, costs of technology are private. So one thing that tough, enforceable regulations do is they make everybody comply, which pushes up prices most of the time, which means some of those benefits at least go to private to match with the costs. That's why we're driving for those things. Enforceability is critical. If enforceability is inconsistent, basically the only loser is the one who complies. So it's a really critical element to our strategy: drive the technology, drive the emissions regulations to be stringent and enforceable. We also though have used those action principles to drive environmental sustainability work across the company. It's a really easy push, by the way. Nearly everyone in our company likes working on this. If they're under 35, they volunteer in one second. If they're over 35, it takes them a few seconds to think about it, but they all want to work on it. It's just the truth. And here we've got our supply chain efforts and materials, lower-cost and lower-weight materials, ones that have less impact in the supply chain. Lower weight is great for us because it means the engine's lower weight, gets better fuel efficiency, which is less CO2. Transportation network, same thing, trying to make it more efficient, trying to make sure we're improving packaging so we can use less fuel moving things around the world. As a global company, we move a lot of stuff around, doing that more efficiently saves fuel, better CO2, not to mention cheaper. And the one on the far right, which is a really interesting one, we have millions of engines in use today, they already own them, they're in vehicles or in equipment already. Can we do anything to reduce the CO2 of those? It turns out we can. So we can go out to those customers and do Six Sigma or other kind of improvement projects, offer software calibrations to better match their engine with what they do, also potentially improve operator and driver practices, maintenance practices, etc. We have set a target that by 2020 we think we can reduce our CO2 impact from products in use by 35 million metric tons per year just by going out to customers and trying to improve the fuel efficiency of engines they already have. And we're already 20% of the way of that in just a few years. So we are moving fast on this, and our customers like us better, so it's win-win. We're also doing a bunch on facilities, and I want to show you a few things. This is a snapshot from our sustainability report. In our facilities, we're tracking energy and converting that, of course, to greenhouse gas emissions. We're tracking waste and we're tracking water. Starting from the bottom with energy, we've been doing that for a while now. We're just about to complete our second five-year plan to reduce our energy use across the company. I think we're going to make it, we're looking pretty good so far, and that'll be the second time, and then we'll set a new goal in 2016. The thing I would just tell you about that is that we have a really broad network now of manufacturing engineers, facilities people working on projects to reduce energy because we started this, and they're all doing that while they're doing all their other work. Very little incremental effort in terms of people or money and lots of really good results. On the recycling rate, that's a relatively new one for us, but we started at 88%, we're now at 90, we're on our way to 95. And maybe the tougher one there is to get to 30 sites by 2020 which are zero disposal. That's a tough standard because it means we can't put anything out of the plant that's not useful, so nothing to an incinerator unless we can get electricity from it. So it's a tough standard, and I'm pretty much certain we're going to have to come up with some new manufacturing processes and other things to be able to make that work. But that's where the innovation starts, tough standards is where innovation goes, and we've met them before and we'll make it again. Water is the last one. It's a huge issue, of course, for the planet, and we think we got to do our part. We set our standard for water, lots of good projects came in. In fact, we set our standard at 33% and we're already at 36. Needless to say, that wasn't a perfect goal-setting process, so we're going to set a new one, make it a little bit tougher. But I feel great, I mean, people started working right away as soon as we set the standard, projects started pouring in, and we have a lot of really good work going. The one on the left is tougher again. What we're saying is we operate in some water-stressed areas in the world and we want to make sure from all those facilities, 15 of them we've listed there, we get to zero net water use. That means we either use no water or if we use any, we have to create water resources in the community that offset the water use we have. And I want to go to a story about that. I visited the Nandhal Village in India the first time in 2005. Nandhal is a very small village, it's about two and a half hours drive from Pune. It was four hours the first time I went, it's two and a half hours now, roads have improved. And it's right near Phaltan, which is again another small town that we're building a big campus, lots of manufacturing plants. But when I first visited Nandhal Village, the poverty was striking. Brown fields, no good crop yields, dry and unforgiving land, mud huts, cook stoves inside that burn dung or charcoal, smoke filling these huts with the women and children inside the huts. Really depressing. I mean, a really, really tough place. We start putting plants down and we've hired employees into Phaltan, and as we've hired people there, they've gone into the community to volunteer time. They built a school, they improved curriculum, helped hire teachers, they built restrooms—the only public restrooms in the village are at the school—and they worked on cook stoves. Our Emission Solutions group, the people that make that exhaust after-treatment device, came up with a cook stove that doesn't have as many carbon emissions, so when they cook in the huts they don't fill it with smoke. But the thing they did most that was just most impressive is they helped harness the water resources that were there and make sure they had less leakage, less waste in the water, so that they could use them to do crop irrigation and use it for the village for drinking water. I took my board there last year in 2014, we had our board trip to India, and we went back to the village. And it was one of the best moments in my career. When I went through that village, the crops were bright green, filled the fields, bright green. I'm not kidding you, it was amazing. It wasn't the same place. Mud huts replaced with reinforced concrete buildings. We went to the school, full of kids in uniforms at school, 2:30 in the afternoon, all-day school, learning just like you'd want them to. And what made the difference? Water. The village has water, so they're able to create their own wealth from crops. It was remarkable. And that's where this spirit of corporate responsibility that started all the way back at J. Irwin Miller's time and environmental sustainability came together at Cummins. Now we have people volunteering, making a difference in their communities, and focused on environmental sustainability. We have three areas of kind of focus for our corporate responsibility efforts: poverty is one, we call it social justice, the other is education, and the third is environment. And as I mentioned, the energy around the environment in our workforce is huge, and the energy for volunteerism is huge, so it's really driven an incredibly great connection. I just put these one set of numbers up here just so you could see. We have this program called 'Every Employee, Every Community' where we say to people, if you want to volunteer in your community, we'll give you four hours of work time to do it. Four hours, big deal. Three out of every four employees in our company took us up on that. 55,000 employees all over the world, three out of every four. I mean, I was just staggered by that. I mean, even the angry ones, seems like they took it up. So it just really speaks to the spirit of the company. You can see why I love to work here so much. It's a great place. And I want to go to questions, but let me just close by saying this: I think our company makes the world better. I think we offer things that move our economy, we offer good quality jobs, we help our communities. But we have a big footprint, and we're committed to making sure that we still have that great impact on the economy but we reduce our footprint. We think we can do it through technology innovation, but we also need to work on this problem about private costs and public benefits. So we think by pushing governments to enforce and make tough regulations, we help solve that contradiction and the world wins. So that's what our strategy is, that's what we're dedicated to doing. And with that, let me open up and take questions. Thank you very much.

Yeah, well, two things I would say. First is that, you know, the company is, we are in a tough cycle now, and we have been, we are a cyclical business, and so we have our ups and our downs. And frankly, it's not an easy time now, and our community is impacted by that, an issue that all of us think about really. I mean, it's really important to us because we think providing high-quality jobs is part of what we do to help the world. But the second thing I'd say is that our perspective is that global business improves our home community. That's sometimes hard for people to get, but the fact is that when we win business overseas in China or in India, we add jobs in China and India because we supply from there, but we also add jobs in the US. And if you look at our growth and employment in the US and in Indiana, when our sales grow, our employment in Indiana grows. It doesn't matter where the sales come from. And the reason is we do a lot of technology and coordination functions from there. So one of the things I've been trying to help community leaders, politicians, our own workforce understand is that overseas business for us means jobs everywhere, including at home, and nowhere more than at home.

I wish I had a better answer for that. It's an incredibly frustrating thing to me. When I go up and talk to Congressional men and women, when I talk to other CEOs about the EPA, basically, you know, it's everything they can do not to have spit come out of their mouth. They're really angry. And honestly, I don't get it. I mean, I know that not all the regulations are perfect, and they aren't, you know, they write some really complicated ones like all regulators. But I still, I just step back and look at the impact that the Clean Air Act and the Clean Water Act has had on our country, and it's hard to think of better pieces of legislation that we've ever written. And so I just feel like we're looking too close and not thinking long-run enough. And so when I go to talk to Congress, I tell them the EPA does great stuff, and they look at me like I'm cuckoo, really. They honestly think, because it's the first time any CEO ever came and told them that, and especially from industry. So again, a little bit, I think CEOs, and especially in these industries which have a big footprint, they get in a little bit of an echo chamber about how wronged they are and how people are doing them all wrong in these regulations, and they're not stepping back and saying, 'Wait, the rest of the world out here thinks you guys are big polluters and you need to fix it.' And so I think sometimes we just need to open up and see the EPA. Again, they have improvement to make, just like every agency, but I think that they're doing really important work for us. And so I'm doing my part to try to tell people it's not as bad as they say. But right now in government in Washington and in the halls where CEOs are, the EPA is really not thought of very well. And I think the EPA is backpedaling to a large degree because of that. I think the regulations are not as tough as they should be. I think they're not standing their ground as well as they should be because they're kind of backpedaling politically.

I just couldn't believe it, to be honest. It's really hard to understand the company's logic for thinking that they could get away with it, frankly. Even if you had the morals to do it, thinking that you'd get away with it is beyond me. It's really hard to understand. But that said, I would say I don't think this scandal has anything to do with diesel engines, to be fair. I think it has to do with cheating.

And again, there are lots of regulatory standards for all kinds of things. And this company, it's not that it had nothing to do with diesel, they basically wrote software that said act like I'm doing this in the test and do something else when I'm not in a test. And that's just, I mean, that's just cheating. And why I think they thought they'd get away with that is beyond me.

The EPA many years ago put, wrote something in the part of the Clean Air Act that addresses our regulations that says the one you cannot do exactly this thing that they did. And I was talking to my CTO about this, John Wall, and he said to me that in the 70s, Chrysler did something with a hood switch. They had an actual switch on their hood where because they had to do the test with the hood open, when the hood closed so you could drive like regular, then the switch would click and all the emissions equipment would go off. I mean, pretty straightforward, but pretty much what Volkswagen did. I mean, a little more sophisticated because it's using software, but not really that different. And so the EPA put the thing in the law said you can't do it, and then they did it.

I mean, I could bore you with the technology about why they maybe did it, because there's a whole bunch of us got stuck on a couple things when we got up to the latest diesel emissions. But again, I think the only thing, only role diesel plays in this is that diesel has better fuel efficiency and better durability. But from an emissions point of view, you have to do more work to clean up the exhaust than you do gasoline. So you don't get as good efficiency from gasoline, but you have less work to clean up. And they basically took some shortcuts on cleaning up and didn't make it.

In Europe, there is already. And I think it relates to the fact that regulations there are really complex matters. And there's all this question of like at what temperature do you test this and over what horizons and when do you get exceptions that take a one-page regulation and turn it into a book. And once you kind of meander through those regulations and check all those things, you find out that, you know, what you thought it was and what it is can be really different. And that's sometimes, that can really wreck people's confidence because they thought what they were getting was something different than what they're actually getting. You remember the same thing with the stickers that said what your fuel efficiency could be, and then they find out how they actually tested that and you go, it's really nothing like that. It's the same kind of problem, and it's just because the regulations are complex.

I think we can do some real improvement to making sure that what we see on the road is what we think we're going to get. And I think the EPA owns some of that to make those regulations tighter and the emissions getting emissions to represent what we want on the road. Same as a cell makes means the regulations have to be more stringent and have to be enforced more tightly, which we support. And we think we have technologies to do it. It's just a matter of whether you can stand behind it. And some people are going to complain and some people are going to sue and all those kind of things. And the question is, do the EPA have the kind of wherewithal to stick by it?

Well, one of the things that's definitely happening is that in emerging markets, where many of these countries are trying to build wealth for the first time, they are seeing concentrations of air pollutants in their cities which are just staggering. Now, they published a study in Delhi that says if you live in Delhi and you have children, your children will definitely, their lives will be shortened. So if you decide to raise your children in Delhi, you know, their lives will be shortened than if they didn't live in Delhi because of the air emissions are so bad. I mean, it's just a striking finding. So I think many of these countries are trying to figure out how do I balance the wealth effect, which is obviously, I mean, you're bringing people out of poverty at a huge rate in places like India and China, parts of Africa, Middle East. It's a huge move and it really matters. I mean, bringing people out of poverty, like the village I described, this is a big deal. On the other hand, how much am I taking away on the other side by the pollution of the air and the water and all the things we tried to solve through the Clean Air Act. So I think that struggle in these countries and how to find technology solutions that help with the environmental problem but don't have the negative economic impact on bringing people out of poverty, this is a huge trend. At least that's the one that we're kind of in the middle of, and it's a huge trend all over.

Well, we'll definitely improve fuel efficiency. We are working very hard on CO2 regulations, trying to again push the EPA and others to be a little more stringent with their standards and just enforce them tougher. But we've got technologies today, we just demonstrated for the Department of Energy on a thing called the SuperTruck, where we think we can improve the fuel efficiency of a truck by 50% with technologies we have today or will be in production two or three years. And again, if you just think about your car, so if you're getting, you know, 25 miles to the gallon, that means you're getting 40 miles a gallon on the same, with the same vehicle, same power, same everything in one generation. That's a pretty big improvement. And for as many hours and fuel burned in a truck, that would be a significant impact on CO2.

And so there's huge technologies. And I guess the diesel engine, 100 years old, you think, really, is there any, is this dog going to hunt any longer? And to see that kind of change in fuel efficiency, to see emissions come out with, you know, no particulate matter, virtually none, very few criteria pollutants, to where a gasoline engine and a diesel engine essentially are the same now out the back, and a natural gas engine, all the same. There's really no difference in emission criteria emissions between those three today given aftertreatment. It's striking. And by the way, I think there's another set of technologies coming down, fuel cells and others, they will replace internal combustion engines. I don't know when, I don't know how long it's going to take, but they will. There's no question that the internal combustion engine can't continue forever. But I just feel like while it is, we ought to wring as much out of it as we can, because I never would have guessed that at this point of development we'd be getting 50% improvement. I just would not have guessed that.

I think when we speak an environmental sustainability language to investors, pretty much, you know, they just kind of yawn. I mean, there are a few investors that maybe, you know, that's the way they're oriented and then they're excited about it. But, you know, broadly speaking, they're not that excited. But I think the challenge for us is to turn our environmental sustainability efforts into strategic efforts that we think differentiate us and therefore drive long-term revenue and profit and returns. And that's what they care about. So all of them would like us to be able to earn those returns sustainably for a long time. So if we can create advantage with our efforts, they're totally into it. So part of it is about changing our language from environmental language that would, you know, make the EPA or a social investor happy and turning it into something that makes an investor happy, which is by doing this this way, we think we live a lot longer, we think this community wants us longer. And by the way, this is the way Cummins thinks from the very beginning. This is what Irwin Miller was saying: if you want permission from your community to operate, you better not be harming it every day. If you're dumping things in the river, okay, your profits be fine for a while, but eventually they're going to say we really don't want you here anymore. And so you really can't be your play. So the idea is trying to talk to your investors about how your approach means you're going to be around longer and you're going to be making more money longer. Then I think they're interested. I mean, their time horizons are sometimes not quite aligned with yours, but that said, you know, it's our job I think to work on them and make them so.

That's a great question. And I think one of the challenges with the word sustainability is you can mean almost anything you want. You can mean that means I make a lot of money for a long time, that means I can hire a lot of people, that means the environment, the planet's alive, it means everything. And the problem with things that mean everything is that then they mean nothing, because everybody uses them however they want. And so we keep lumping things in and then we have trouble deciding what we're all talking about. So I've been kind of adding a word in front of it, like environmental, I talk about environmental sustainability when I want to talk about that, and I talk about human or community sustainability when I want to talk about that. And as you saw from our chart, we think about health, we think about safety as part of our demanding that everything we do leads to a cleaner, healthier, safer environment. And we also think about this point you made about job prospects in our social justice area. And that just came out of this fact that we just think if the community is not healthy, then we will not be able to last there. So when we want to recruit people to our communities, if the schools aren't good, if young people don't have a place to work and they're turned into crime or something else, if people aren't going to want to move there, they're not going to want to work there, we're going to spend all our time figuring out how we get more police. So these things just don't work. And it's true all over the world. It's different forms, different challenges, but it's true. So I guess the way that I've been speaking about it is to try to make sure which part of sustainability I'm talking about and make sure that each gets its own conversation and its own right, because they all have to do with this question of if our company's around, is anyone else going to be around to care? We have to care about what's going on around us if we want to continue to operate and make money over the long run. Thanks for the question.

That's a great question. We do operate in Indonesia, but I will say that we're not very successful in market share in the truck industry. We do operate in some parts of it, in mining in particular, but less in truck. But the question you're asking is a fundamental one, and it's one that we've been struggling with for a long time. So I visit each of the governments in these countries. I lobby in China, I lobby in India, I've not lobbied in Jakarta yet, but I promise I will. And it's all about trying to get them to toughen their emission standards. And the way that we do it is we try to walk in and say, look, we have technology that we put in the US in 1998 or 1995, and today it is reliable, it's inexpensive, and we can partner with local companies in your country and we'll transfer technology to them, we'll partner with them, we'll joint venture with them, they'll learn this technology. So it's not just that we're going to come in and take all the revenue as a foreign company, we'll partner, and we have joint ventures all over the world. So we'll bring it in, just make it tougher. Inevitably, what we find is there's somebody on the other side who has all the business today who is lobbying in the exact opposite way. I remember as we tried to get the standard tougher in India, the whole thing had already been written, it was promulgated, it needed a signature from one last minister's office, and it sat in that minister's desk for about six months till two weeks before the date when it was supposed to go. And we know exactly what they were waiting for, right? And we weren't going to give it. So it sat there on the desk and waited. And what finally kicked it loose, I don't know, it finally came up. But this is part of the problem. Essentially, many people are waiting for money to show up to their desk in order to move with the regulation. But I would say the broader problem is trying to convince people that tougher emissions regulations can be put in place that do not damage their economy and do not damage this opportunity to do wealth buildup. And what we try to do is say, hey, it's not as expensive as you think, and we can add jobs and technology to your community by bringing this technology here. Are you sure you don't want to do that? And then hope that that kind of wins the day over time. And they are moving. You saw the green chart. It's not that things aren't happening, but there are big swaths of the world that are moving way too slowly, and Indonesia happens to be one of them.

I would say there's movement, but profound would be an exaggeration of where it is. I think so natural gas is a pretty widespread technology in commercial vehicles and commercial equipment, but it's still a relatively low market share today. In the US, we're the only provider of natural gas engines for on-highway trucks, and we've sold quite a few into buses and bus fleets, also in Beijing public transit, by the way, also China also uses those, and in Port of LA, they use quite a few in the Port of LA. But broadly speaking, it has not been that popular yet. And part of the reason is that fuel generally is quite inexpensive in the US. And diesel fuel, of course, has gotten a lot cheaper because of the crisis in oil and gas markets where the prices dropped so much. So now the difference between natural gas and diesel has shrunk. It was quite big, now it's shrunk. And availability of natural gas is just less, and you have to carry these big tanks, cryogenic tanks and things, so there's disadvantages. That said, I believe that natural gas over time will have a larger role. And the reason is that, as I mentioned, you get the same emissions out the back end, diesel, natural gas, same emissions, because you have regulations, you get to the same spot. The difference is with natural gas, you burn cleaner and you have a smaller chemical factory at the back to clean it all up. And that chemical factory is expensive. So sometimes having a natural gas that burns cleaner and then a smaller cleanup is a much more inexpensive way to go. Sometimes having a diesel with a big cleanup factory at the back is a better way to go. And so right now it's about 98% diesel and 2% natural gas. I think probably long run more like a 70-30 split will result. But all that still, also fuels, it still has carbon. You know, natural gas has less carbon than diesel in terms of CO2, but they both have it. So I think what we've got to do is keep improving fuel efficiency to reduce CO2 impact, keep improving the criteria emissions regulations in all the developing countries, and then look for our next horizon. What's the next technology that's not going to be an internal combustion engine? And that's kind of the technology path that's going to follow. So natural gas is a nice way, but it's not a long-run solution for the problems we're trying to solve.

If I'm the villain, they haven't told me yet. So my daughter, I have Alexandra, she's 21 and she's a senior at USC. And then we have Emily who is a sophomore at Boston College. They're as far away as they can be from each other. I doubt that was on accident. But they're terrific. I mean, these are really smart, aware, capable kids. And I think they're generally proud of what I do. But they care about sustainability with or without me. I mean, the people that are in college today, they are sustainability oriented from the very first minute. It's just amazing to see. I mean, the soldiers of this revolution are already being trained. They are, and there are more people majoring in environmental science, environmental sustainability kind of majors now than, I mean, it wasn't even a major when I was in school. And these people are oriented, I think, in the right way, a practical but urgent way. And my daughters are no different. And when I speak to them about it, what I try to teach them is that this same message, that being part of solving problems in the world, contributing to community, has to be part of what you do. And then let them take that where it goes. And I try to, of course, also give them all the practical challenges so they don't get so idealistic they forget about all the practical things. But truth is, they're probably training me as much on some of the trends as I'm training them. Which, by the way, one of the most gratifying things about being a parent is the minute that your kids start teaching you things. I mean, I know it sounds kind of weird, but it is a really beautiful moment. It really is nice when they can turn around and show you something that you didn't know, makes you feel like, okay, they're delivered, they're ready to blossom.

It's a great question. It turns out it's an incredibly relevant question for me, Cummins. Fellow J. Irwin Miller that I showed, he actually was one of the first CEOs to put the stakeholder model in our annual report. In fact, he had a little argument with Milton Friedman, who was a very famous economist at the time, who said that businesses have no need to be involved in corporate responsibility. Matter of fact, that they're wasting the shareholders' money. And Irwin Miller wrote about the stakeholder model and about how he thought about business's responsibility to all stakeholders and to the community. So definitely at different poles of that discussion. I think in our era, as I mentioned, as we rewrote our mission, vision, values, what we tried to do was make clear to people, including our shareholders, that we in no way mean we think there's trade-offs. So we don't see it as a trade-off. Our view, and the whole concept of sustainability, I think, is that we think by taking care of our stakeholders, our employees, our communities, that we will in fact earn more for our shareholders. And we think the first moment that we start thinking about the trade-offs that are there, we've kind of lost already. We're looking for innovative solutions that make both win.

You know, we're a small Midwestern company originally. We're the only independent engine maker of size left in the world, and we started in a little shed in Columbus, Indiana. And I think now, how can we still be here? How can all those other companies are gone and we're still here? And I fundamentally believe it's because of these values and this view that we're not taking the trade-off between what matters to the community and what matters to the shareholders. We're going to say we're going to serve these communities, and in the end, that's going to make more good people want to work here, who are going to come up with better answers, which means we're going to make more money, and you're going to win, shareholders. So we don't have to apologize for it. In fact, we need to brag about it. And that's kind of what we do. A lot of our shareholders, they don't want to know all the details of the Nail Village, but they kind of get that we have this kind of, you know, they either think we're just kind of liberal crazies or whatever, but they get it. And they still think our company and technology is good, and so they buy the shares anyway. Or some of them, I think, maybe buy the story, who knows. But we're sticking to it, and we don't think it's a trade-off.

Yeah, we're not, well, carbon tax would be fabulous. You said we know we're going to have it. I'm not as certain, but yes, you are. But I think it'd be great. I think it's about matching those prices and costs much better. But just in terms of an interim step, you know, looking at our own environmental P&L or using some measure, we've taken a good look at that. So I'd say for the last five years, we've been looking at different companies, looking at how they're doing it. I serve on the Harley-Davidson board of directors, and there's a guy on that board who's very involved from the very beginning in this effort about environmental P&Ls. So he regularly shuffles these papers to me and shoves me and says, go, go faster, go do this. So we've been talking about that in that environmental working group that I mentioned inside the company. We are looking at all those and we're evaluating it. One of the things that we were trying to figure out is where can we have the most impact most quickly, and we thought it was on our products, you know, because they're the one with the biggest footprint, our facilities and our supply chain. And we didn't really need an environmental P&L with a carbon tax thing to figure that out. It turns out the numbers were overwhelming. And so we didn't. I think though, as you move down, as you start making progress and you're getting into tougher priority calls, having some kind of way to price which of these effects is most is a good thing to do. So I think where we've said is we're going to go work on the biggest problems first and do that, and then we'll work later on kind of getting the finer calculations done. I mean, one of the problems with it is you have to hire somebody like PwC and pay him a bunch of money, like several million dollars, to come and do a bunch of stuff, and you're like, do I really want to do that, or would I rather spend my several million dollars actually cleaning up my engine? So again, I think it's a good thing to do, and especially when your priority calls of where to give your focus are difficult to make. And so we're looking at it and we're evaluating it. We feel like we're pretty much hard shot after the things I mentioned for now, but we'll keep reconsidering. I think it's a good movement. I think getting people to be transparent about where their footprint is, one way or the other, is just going to drive people to take action, which is what we want.

Here's what I'd say. First of all, I think the values are going to be core to the company for as long as we're a company. And the reason is because they work. Just as I was saying before, the resilience of the company, the strength of the company is in those values. You know, we operate in very, very tough environments. We have a manufacturing plant and an operation in Lagos, Nigeria, and several places in Nigeria. Corruption is ever present, violence around our plants is regular. And the question is, what holds us together there, in Jamestown, New York, in Pune, India? And it's those values. Say, these are the things we think matter. But I don't think the language has to stay Eisenhower-era language. And that's why I think revitalizing the way we talk about it, the examples we use, they need to be global examples, they need to involve women as well as men. The way we talk about things has to be modern and has to be relevant to the people that are in the firm. But the values, like, these are human values. These aren't Eisenhower-era values. These are human values. The technologies, though, will be different. If the technologies aren't different, we will not be here. I mean, they will have to be different. We will have to keep moving. And that's why I say we've always got to be looking ahead as to what's going to replace the thing that we sell today. We've got this great guy on our board, Franklin Chang Diaz is his name, and he's a former astronaut, shuttle pilot, and a rocket scientist. He's the most famous man in Costa Rica, by the way. I've traveled with him in Costa Rica, and he's like Mick Jagger in Costa Rica. It's really nice to travel with him. But he is always asking me, Tom, when is the internal combustion engine dead and what are you going to replace it with? We never get through a board meeting where he doesn't ask me that question. And that kind of push from our board, that's exactly what you should have, always looking ahead to say what's going to win next time. And keeping your action on it while you're still trying to make sure that you've got good jobs and you're helping your communities and making money today so your shareholders don't run away from you. You got to keep your eyes to the future.