NON-FINANCIAL METRICS

1. NON-FINANCIAL METRICS

2. NON-FINANCIAL METRICS “NON-FINANCIAL PERFORMANCE MEASURES ARE CRITICAL IN THE GROWING MANDATE FOR BETTER OVERSIGHT OF CORPORATE GOVERNANCE” IN THE DARK.WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

3. Key “In The Dark” survey results • 73% said increasing pressure to measure non-financial metrics • 90% said number of areas of business health that can’t be measured in monetary terms are “critical” or “important” • 86% said companies are “excellent” or “good” at measuring and monitoring “traditional” financial performance measures • 40% said average and 23% said “fair” or “poor” at measuring and monitoring non-financial performance measures IN THE DARK.WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

4. DRIVING FORCES • Increased global competition • Growing customer influence • Power of the internet • “If Dell changes prices on its website, its customers’ buying patterns change literally within a minute” (The Economist April 2nd 2005) • Accelerated product innovation • Increased pressures on resources • Sarbanes Oxley • Increased interest in risk management • Increased emphasis on corporate governance

5. Financial vs. Non-Financial • “traditional” financial metrics while critical in measuring financial performance fail on many fronts • Don’t capture relationships with customers, employees, suppliers and other stakeholders • Don’t provide information on future revenues and profits • Don’t provide information on the status of product innovation • Don’t provide information on the efficacy of governance and management processes IN THE DARK.WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

6. Financial vs. Non-Financial • Non financial measurements “critical” or “important” drivers of company success • Customer satisfaction • Product/service quality • Operational performance • Employee commitment • Governance and management issues • Brand strength • Environmental issues IN THE DARK.WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

7. Barriers to Non-financial metrics • Hard to measure • Lack of data • Undeveloped tools to measure non-financial metrics • Lack of familiarity • Lack of understanding of bottom line impact • Lack of accountability • This is changing as “growing emphasis on non-financial measurements in compensation packages • Lack of time to focus on a new set of metrics IN THE DARK.WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

8. Environmental metrics • Demand for environmental responsible behavior beyond regulation • Fiduciary responsibility over society’s economic resources • Hard to quantify dillard, J. etal,(2005) An Environmentally Enlightened Accounting, Accounting Forum, (29) 77-101

9. Environmental metrics Complex ecosystem

10. Environmental Sustainability & Sustainability Reporting • What is environmental sustainability? • What is Sustainability Reporting? • Process for publicly disclosing • Economic performance • Environmental performance • Social performance • “Triple Bottom Line” • Financial metrics PLUS non-financial metrics

11. Sustainability and the bottom line – revenue generation • Potlatch Corp. sells conservation easements • Properly managed riparian areas in these easements get a premium • The easements are recorded as sales revenue • Potential for beneficial tax implications

12. Ecological Services of the Riparian Area • What is a riparian area? • Ground immediately adjacent to streams, rivers and lakes • Ecological Services Provided • ground water recharge, • pollutant trapping and nutrient cycling, • reducing soil erosion, • increasing stream flows in the summer, and • providing food and habitat for fish and other wildlife.*

13. Sustainability and the bottom line – cost savings • New York City gets its water from the Delaware/Catskills and Crosta Watersheds • In 1997 faced decision • Construct filtration plant at $6 to $8 billion with yearly expenses of $300-$500 million • Repair largely natural filtration system (add Fl and Cl at end) by protecting upstate watershed at a cost of $1.3 billion. • EPA still grants (as of 2004) filtration avoidance of New York City’s tap water Daily, G. C., Ellison, K 2002The New Economy of Nature

14. Sustainability Reports • Global Reporting Initiative • Higher standards of accountability • Rooted in inclusiveness, transparency, neutrality, auditability, and continual enhancement • Benefits of Reporting • Sharpen competitiveness in a globalizing world • Useful in linking insulated and isolated corporate functions in a more strategic manner • Privilege to list on the Dow Jones Sustainability Index • http://www.globalreporting.org/guidelines/2002/gri_2002_guidelines.pdf

15. Global Reporting Initiative • Key Trends driving the GRI • Expanding globalization • Reform of corporate governance • Global role of emerging economics • Rising visibility and expectations for organizations • Governments’ interest in sustainability reporting • Financial Markets’ interest in sustainability reporting • A few GRI Reporters in the USA • Starbucks • Weyerhaeuser • Ford Motor Company • Newport Mining