Communicating the Bu $ ine $$ Case for $ustainability Strategies

1. Communicating the Bu$ine$$ Case for $ustainability Strategies Business in the Community Plymouth, England April 12, 2007 Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com

2. The Sustainability “3-Legged Stool” Sustainability Sustainable Development (SD) = Corporate Social Responsibility (CSR) = Triple Bottom Line (TBL) Corporate Responsibility (CR) = = = Environmental, Social, Governance (ESG) • Economy / Profits • Sustainable business • Profits • Taxes, R&D • Jobs • Expenditures • Training • Fair trade • Core values • Environment / Planet • Eco-Efficiency • Manufacturing efficiencies • Operations efficiencies • Product efficiencies • Smart design • Cradle-to-cradle, take-back • Beyond compliance • Restorative to nature • Equity / People • Ethical business • Internal Employees • Human Rights • Health & Safety • Respect, Caring • Local Community & • Culture • Rest of the World

3. The Smart Business “3-Legged Stool” Asset Management Natural Capital Human Capital Social Capital Financial Capital Manufactured Capital

4. 5 Stages and Emerging Drivers 5. Purpose / Passion ------------------------------- 4. Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance • Passionate Founder / CEO P r o a c t I v e • Business Opportunities – “Carrots” • Risk Management – “Sticks” • Eco-efficiencies • Regulatory Threat • PR Crisis R e a c t I v e • Regulatory Pressure / Enforcement

5. Ends vs. Means ------------------------------------------------------------------------- Stage 5: Purpose / Values We want to be a successful business … so that … we can contribute to environmental and social well-being Means End Stage 4: Integrated Strategy We want to contribute to environmental and social well-being … so that … we can be a successful business Means End

6. 5 Stages and Emerging Drivers 5. Purpose / Passion ------------------------------- 4. Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance • Passionate Founder / CEO P r o a c t I v e • Business Opportunities – “Carrots” • Risk Management – “Sticks” • Eco-efficiencies • Regulatory Threat • PR Crisis R e a c t I v e • Regulatory Pressure / Enforcement

7. The Company Value Iceberg Tangibles / Financials / Balance Sheet Intangibles / Brand Image / Nonfinancials / Reputation / / Stakeholder Relationships Company Value

8. The Company Value Iceberg: 1981 Tangibles / Financials 83% Intangibles/Nonfinancials 17% Company Value Arthur D. Little, The Business Case for Corporate Citizenship , 2002)

9. The Company Value Iceberg: 1998 Tangibles / Financials 29% Intangibles/Nonfinancials 71% Company Value Arthur D. Little, The Business Case for Corporate Citizenship , 2002)

10. The Sea of Demanding Stakeholders Financials Shareholders & Investors NGOs/ Civil Society Employees GlobalMarkets / EU Mainstream Media Non-financials / Reputation Banks & Insurers AwakenedPublic Company Value Economists Customers Competitors Governments at all levels Scientists

11. Two-part Business Case OPPORTUNITIES Financials Shareholders & Investors NGOs/ Civil Society RISKS Employees GlobalMarkets / EU Mainstream Media Non-financials / Reputation Banks & Insurers AwakenedPublic Company Value Economists Customers Competitors Governments at all levels Scientists

12. The Perfect Storm • Oct. 27 – Nov. 1, 1991 • Worst storm in history …100’ waves Cold front from Great Lakes The Perfect Storm (Former) Hurricane Grace Warm front near Sable Island • All were dying out • Energy from the 3 systems combined • Sudden, unexpected, devastating

13. Mega-Issues + Stakeholders = New Market Forces Climate Crisis Climate Crisis Pollution & Health Climate Crisis Other … Energy Crisis Water Crisis Erosion of Trust Pandemics Financials NGOs/ Civil Society Shareholders & Investors Employees MainstreamMedia GlobalMarkets / EU Non-financials AwakenedPublic Banks & Insurers Company Value Customers Economists Competitors Scientists Governments at all levels

14. Mainstream Media / Awakened Public The “Goracle” Factor + Hurricane Katrina + High gas prices + Weird weather + IPCC report + Stern Review + … • 67% of Canadians say would switch to “green” companies (Environics, Feb 07) • 79% of Americans say they are Conscious Consumers; 20% are Advocatesvs. 7% in 2004 (Egg, Mar 07) • 18% of global consumers are Mainstream Activists(Globescan CSR Monitor, 2005)

15. Economists’ Warnings about Risks • Economists’ Statement on Climate Change (Feb 1997) Signed by 2,000 economists, including 6 Nobel Laureates • Humans causing CC; it presents significant environmental, economic, social, and geopolitical risks; preventive steps justified • Benefits to economy outweigh the costs • Market-based mechanisms are most efficient way to slow CC: international cap-and-trade system and carbon taxes (“Great Green Tax Shift”) • Stern Review on Climate Change (Oct 06) By former World Bank chief economist Nicholas Stern • Humans causing CC; cost of mitigation is 1% of annual global GDP by 2050 if act now; 5-20% of annual GDP if act later • Benefits of $2.5T if act now; global depression if do not • Stabilize GHGs; deployment low-carbon technologies; remove barriers to energy efficiency; implement regulations,carbon taxes, and / or a cap-and-trade system

16. Investors Worried about Risks Climate Crisis Physical Risks Litigation Risks Competitive Risks Reputation Risks • Investor Network on Climate Risk (INCR):65 institutional investors, $4T in assets; • Ask SEC to require listed companies to disclose CC risks to their financial performance (June 06); • Climate Watch List of worst 10 companies get shareholder resolutions on CC (Feb 07); • Request Congress cut GHGs 60-90% below 1990 levels by 2050 (Mar 07) Investors

17. Banks and Investors Taking Action • Citigroup: largest U.S. bank;(Jan 06) will reduce GHGs from its 13,000 properties by 10% by 2011 • Bank of America: second largest U.S. bank; (Apr 05) $3K rebates on employee hybrids; (Mar 07) $20B over 10 years to support growth in environmentally friendly activities and reduce global warming; reduced mortgage rates on energy efficient homes • Goldman Sachs: (Nov 06) first major investment bank to adopt a comprehensive environmental policy; investing $1B in clean energy projects • JP Morgan Chase: (Apr 05) adopted Equator Principles • 348 shareholder resolutions on ESG issues 2005 (up 16% from 2003); 177 social resolutions reached a vote (up 22% from 2003)

18. EU Market Forces • Restriction on Hazardous Substances(RoHS) • Waste from Electrical and Electronic Equipment (WEEE) • End of Life Vehicles Directive (ELVD) • Registration, Evaluation, Authorisation and Restriction of Chemicals(REACH) • Energy-using Products(EuP) • Climate Change Plan: (Mar 07) By 2020,cut CO2 by 20% below 1990 level; 20% of electricity from renewable sources vs. 6% now; 10% of vehicles on biofuels • Big Retailers: Tesco, Marks & Spencer, Asda Pollution & Health Climate Crisis Regulations Market Access EU Market

19. US Position on Climate Change? • 20 States: Renewable energy targets • 9 States: Suing Feds for lax fuel efficiency standards • 5 West-coast States:Western Regional Climate Action Initiative • 7 East-coast States: Regional Greenhouse Gas Initiative (RGGI) • 33 States:Climate Registry of baselines • 425 US Cities: Climate Protection Agreement: Kyoto at city level; -7% • Big Corporations: Wal-Mart, GE, DuPont • Combat Climate Change (3C) Initiative: 18 US energy corps; want carbon trading • US Climate Action Partnership (USCAP): 10 major corps + 4 NGOs; want cap-and-trade and 15% GHG reduction in 15 years Climate Crisis Energy Crisis Regulations Carbon caps • US States • US Cities • Corporations

20. Unusual Co-drivers of Sustainability National Security Alternative energy: Investment in the US projected to be $6B by 2008; $167B by 2015 Sustainability reputation: 70% of NA grads would not apply to company with a poor CSR reputation War for Talent Carbon trading: $29.8 B global market in 2006 and set to double in 2007; Opportunity for additional revenue? Revenue Pressure Environmental reporting: Sarbanes Oxley requires material risks be identified; CICA guidance on MD&A discussion of risks; GRI guidelines; 64% of Global 250 do SD reports Transparency

21. Two-part Business Case OPPORTUNITIES Financials Shareholders & Investors NGOs/ Civil Society RISKS Employees GlobalMarkets / EU Mainstream Media Non-financials / Reputation Social Licence to Operate Banks & Insurers AwakenedPublic Company Value Economists Customers Competitors Governments at all levels Scientists

22. Business Priorities Revenue Governance Brand Image Productivity New Markets Complying with New Regulations Profit Attracting & Retaining Top Talent Share Price Attracting & Retaining Customers Growth Leadership Motivation Innovation Managing Risks Competitive Advantage Market Share Speed to Market Responding to Emerging Market Forces Expense Savings

23. Benefits to “SME Ltd.” Revenue: $4,000,000 Profit: $200,000 (5% of Revenue) Workforce: 50 (43 + 7 Managers) Avg. Employee Salary: $25,000 Avg. Manager Salary: $55,000 Potential profit increase: 66% +Energized employees + Improved corporate image + Competitive advantage + Positioned for the future

24. The Catch • 1. Show senior leadership • Include SD in vision / mission / strategies • Reinforce it is a business strategy vs. a compliance or philanthropy issue • Avoid “green-washing” hype • Visible support: speeches, questions, actions • 2. Educate the whole company • Solicit employee ideas • 3. Align with measurement systems • Align with measurement / management systems • Integrate into recognition / reward systems

25. 6 Benefit Areas Usual focus • Reduced electricity, fuel, and waste costs • Reduced recruiting costs • Reduced attrition costs • Increased employee productivity • Increased revenue / market share • Reduced risk, easier financing

26. 6 Benefit Areas … % Improvement • Reduced electricity, fuel, and waste costs -10% • Reduced recruiting costs -1% • Reduced attrition costs -2% • Increased employee productivity +6% • Increased revenue / market share +5% • Reduced risk, easier financing -5% … yielding a profit increase of +66%

27. What if … • Reduced electricity, fuel, and waste costs -10% • Reduced recruiting costs -1% • Reduced attrition costs -2% • Increased employee productivity +6% • Increased revenue / market share +5% • Reduced risk, easier financing -5% +3% +48% … yielding a profit increase of +66%

28. What if … -5% • Reduced electricity, fuel, and waste costs -10% • Reduced recruiting costs -1% • Reduced attrition costs -2% • Increased employee productivity +6% • Increased revenue / market share +5% • Reduced risk, easier financing -5% +56% … yielding a profit increase of +66%

29. What if … • Reduced electricity, fuel, and waste costs -10% • Reduced recruiting costs -1% • Reduced attrition costs -2% • Increased employee productivity +6% • Increased revenue / market share +5% • Reduced risk, easier financing -5% +2.5% +64% … yielding a profit increase of +66%

30. What if … -5% • Reduced electricity, fuel, and waste costs -10% • Reduced recruiting costs -1% • Reduced attrition costs -2% • Increased employee productivity +6% • Increased revenue / market share +5% • Reduced risk, easier financing -5% +3% +2.5% +35% … yielding a profit increase of +66%

31. Tipping Point? 5. Purpose / Passion ------------------------------- 4. Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance 20% at Stage 4 or 5 • Passionate Founder / CEO P r o a c t I v e • Business Opportunities – “Carrots” • Risk Management – “Sticks” • Eco-efficiencies • Regulatory Threat • PR Crisis R e a c t I v e • Regulatory Pressure / Enforcement

32. Closing Thoughts • Sustainability is smart business • New market forces / risks are in play • Public expectations are rising • Talk their language • Show relevance to existing priorities • You are not alone; find partners • Opportunity for leadership

33. Communicating the Bu$ine$$ Case for $ustainability Strategies Business in the Community Plymouth, England April 12, 2007 Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com