The Business Case for Sustainability Indicators: What’s Missing?

1. The Business Case for Sustainability Indicators: What’s Missing? Grace Barrasso, ERM 2nd National CSIN Conference Toronto, 2-3 March 2010

2. ERM is a leading global environmental consultant • ERM is one of the world’s leading providers of environmental, health and safety, and social responsibility consulting • Over 35 years of experience • Completed projects in more than 160 countries • 3,500 professional staff • Worked closely with 60% of the Global Fortune 500 companies in the past five years • 70% of our business is repeat • Annual revenue of $695m (FY09) ERM has been ratedas one of theTOP THREE all-environmental firms for the past 7 years by the Environmental Business Journal

3. Strategy & Systems Enterprise Operations Supply Chain Management Product Sustainability Assurance & Reporting ERM Sustainability Services • Energy & GHG management • Water management • Material efficiency improvements • Greening the built environment – buildings, operations, maintenance • Workplace health and safety • Product vulnerability screening • Life Cycle Assessment • Life Cycle Management; total performance strategies • Product registration (e.g., REACH) and take-back strategies • Greener packaging and packaging reduction strategies • Competitor analysis and benchmarking • Stakeholder engagement • Sustainability strategy, framework & systems • Opportunity identification and prioritization • Risk management • Metrics • Education • Third-party verification of metrics • Assessment of sustainability strategy and programs • Sustainability and Social Responsibility Reporting • Multimedia internal and external engagement and promotion strategies • Social impact analysis • Greener and more efficient transportation and distribution • Life cycle efficiency • Supplier engagement; partnerships for innovation and leadership level initiatives

4. Defining Sustainability To meet the needs of the present without compromising the ability of future generations to meet their own needs - Brundtland Commission Companies use different terms... • Sustainability • Sustainable Development • Corporate Social Responsibility • Corporate Responsibility • Corporate Citizenship Operating business in a manner that meets or exceeds ethical, legal, commercial and public expectationthat society hasfor business. - Business for Social Responsibility …that essentially mean the same thing; the “triple bottom line” of: A business approach to create long-term shareholder value by embracing opportunities and managing risks derived from economic, environmental and social developments. - DowJones Sustainability Group Index • Economic Growth • Environmental Stewardship • Social Progress

5. Sustainability as business strategy Globalization - the world is changing • Economic growth and liberalization • Technological evolution(especially in communication) • Increased transparency • Rise of the multi-nationals • Growing concerns over environmental degradation • Increased sophistication and savvy of advocates • Clash of cultures Business expansion • Wealth • Scope • Power and Influence • Expertise New roles and responsibilities for business

6. Sustainability and responsible management Increasingly seen as the management approach of the progressive, responsible company

7. Major Sustainability Issues Today • Corporate ethics and governance • Fair labor practices • Responsible use of influence • Climate change and energy security • Water – availability and conservation • Supply chain performance • Product life cycle impacts

8. Cost WASTE COST SAVINGS 50-90% WATER USE SAVINGS 30-50% CARBON SAVINGS 35% ENERGY SAVINGS 30% Average Green Building Cost Savings According to the Leadership in Energy & Environmental Design (LEED) The return on investment Reputation Risk

9. Product Innovation Resource Efficiency Business Drivers for Environmental Stewardship Investment: <$50k Annual savings: $153k Compressed Air New project delays? Facilitation Through Engagement Brand Differentiation

10. Major Sustainability Trends Today Advocacy Life Cycle Assessment Green Building

11. Major Sustainability Trends Today Holistic Approach Unilever’s extensive water strategy has addressed its own water consumption, water associated with the use of its products, and advocacy for sustainable water practices.

12. Major Sustainability Trends Today Collaboration Innovative, large scope projects; CGI is working with: • Microsoft to develop online tools for 40 of the world’s largest cities to monitor GHGs • 1,100 US mayors, Walmart, and 25 manufacturers to encourage the use of green products • The City of Chicago to green the Sears Tower and Merchandise Mart • USGBC to establish a green schools programs that drive energy performance

13. Major Sustainability Trends Today Most organizations have values – most are lofty. How does that organization assure that its values are embedded into the way it does business?

14. Metric Evaluation… • Do the metrics: • Inform business decisions, promote learning and demonstrate the business case? • Support the business strategy? • Engage employees and external stakeholders? • Respond to issues identified by stakeholders? • Change the behavior of individuals? • Help integrate sustainability thinking into the organization’s culture • Reflect business values and yield high benefits? Source - GEMI

15. Implementing a Performance Based Program 1 2 3 4 5 Identify Environmental Aspects Baseline Performance Select Indicators Establish Tracking Systems Set Targets

16. Creating a path forward Have a process – respect it x Assessment: Impacts, Opportunities, Risks Strategy: Approach and Priorities x Mobilizing action: Levers and Leaders Every company and industry has issues unique to them that also may impact reputation. Know your material issues…know your impacts. Engage internally. Implementing Change

17. Creating a path forward Where do you want to be? • Defensive • Protecting the company • License to Operate • Extended supply chains • Integrated with other efforts • Risks and expectations • Transformative • Game-changing issue for the business model • Requires relevance, timing, champions • Focus on values, culture, world view Denial/ Discovery Defensive Offensive Transformative • Offensive • Energizing the company • Create value for customers, shareholders, employees • Can focus on efficiency or on growth/innovation • Inject new content into existing business processes • Denial/ Discovery • Definitional confusion • Report > actions • Focus on Green Agenda (or just climate change) • Difficult to move beyond learning

18. Creating a path forward Determine your initial scope While companies talk about the triple bottom line, many (initially) focus on the environmental dimension Economic Prosperity Environmental Stewardship Social Responsibility • Return on equity • Stock price growth • Market share • Profitability • New market opportunities through innovative products and services • Eco-efficiency • Use of renewable resources and alternative fuels • Addressing impacts and opportunities throughout the value chain • Green technology and design • Support of conservation efforts and biodiversity • Worker and public safety • Local economic impacts (job creation, tax base, other investments) • Human rights and living wage • Stakeholder engagement and accountability • Strategic philanthropy

19. Creating a path forward Internal engagement • Start with internal engagement • Engage executives first • Engage employees • Educate • Ask, don’t tell • Customize your approach • Engage individually • Engage team functions • Always be prepared • It’s a bit backward to start with reporting, but some do…and some must Sustainability Report

20. Business Goals and Strategy Environmental Goals and Strategy E N A B L E R S D R I V E R S Environmental Management System Critical Tools (including metrics) Governance Policy, Standards, Accountability, Assurance • The alignment, systems, and accountability schemes that drive performance in other functions will drive performance in sustainability • Integrate into the business

21. Governance Policy and Positioning • Agree on a process • Involve key decision makers • Review relevant information and data • Current company impacts and associated risks • Potential scenarios (regulatory, advocates, customers)(associated risks and opportunities) • Advocacy, leading and peer company activity • Reach consensus, if not agreement • Engage externally, as appropriate • Create talking points for internal stakeholders • Communicate broadly

22. Company Value “Iceberg” Balance Sheet Market Capitalization

23. Balance Sheet Tangibles Financials Intangibles Nonfinancials - Brand Image Reputation - Stakeholder Relationships Market Capitalization

24. Company Value “Iceberg”: 1981 Balance Sheet 83% Tangibles - Financials Intangibles - Nonfinancials 17% Market Capitalization Arthur D. Little, The Business Case for Corporate Citizenship , 2002

25. Company Value “Iceberg”: 1998 29% Tangibles Financials Intangibles - Nonfinancials 71% Arthur D. Little, The Business Case for Corporate Citizenship , 2002

26. Sea of Demanding Stakeholders Financials Economists Trade Associations Employees Global Markets Media The Public Nonfinancials Investors NGOs Customers Banks Insurers Competitors Governments Scientists

27. Two-Part Business Case OPPORTUNITIES Financials Economists Trade Associations Employees Global Markets Media RISKS The Public Nonfinancials Investors NGOs Customers Banks Insurers Competitors Governments Scientists

28. Mega-Issue Storm Clouds Other … Pollution & Health Climate Crisis Water Crisis Pandemics Erosion of Trust Economists Trade Associations Employees Global Markets Media RISKS The Public Investors NGOs Customers Banks Insurers Competitors Governments Scientists

29. Awakened Public - Consumers The “Goracle factor” + Hurricane Katrina + Weird weather + Gas prices + IPCC reports + …(other awakeners) • 70-80%of consumers say they are switching to “green” companies; • 25%actually did in 2009 • LOHAS (Lifestyles of Health and Sustainability) sector: • $200B in 2007 $420B by 2010 $845B by 2015

30. Two-Part Business Case OPPORTUNITIES Financials Economists Trade Associations Employees Global Markets Media RISKS The Public Nonfinancials Investors NGOs Customers Banks Insurers Competitors Governments Scientists

31. GRI Indicators - 79 • Materials • Energy • Water • Biodiversity • Emissions • Effluents and Waste • Products and Services • Compliance • Transport • Society/Community • Labor Practices/ • Decent Work • Human Rights • Product Responsibility Social Environment Corporate Governance 40 KPIs Economic 30 KPIs • Economic Performance • Market Presence • Indirect Economic Impact 9 KPIs

32. GRI Reporting Principles

33. Characteristics of Sustainability Leaders Today • Management systemsprocesses to define, measure, monitor & assure performance • Transparencycomplete and comprehensive • Engagementstakeholders have input and influence • Global perspectivesystems are global, impacts measured locally • Performancebalanced (triple bottom line), material, detailed, easily accessible • Leadershipraise the bar for their industry; set best practice; cited by 3rd parties • Humilityno “green washing” – sustainability portrayed as a challenge and a responsibility

34. Stakeholder Engagement – “New” Media Blogs are new but this use is…Intel CSR Leadership Team talks to the public, then waits for comments • Energy • Supply Chain Management • EHS • Diversity • Reporting • Indicators and Sustainability • Strategic Philanthropy • Environment

35. Concluding Remarks • Sustainability indicators do not always provide the “whole picture” • Important to monetize the value of stakeholders in order to determine who has the influence over new dynamics • Sustainability reporting: can assist organizations to evaluate where they stand • Transparent indicators and to include both traditional EHS indicators and external risk factors • Importance of determining what is material to an organization is paramount • Top level commitment • Cross-functional team with collaborative leadership • Extensive internal engagement • Continuous benchmarking, emerging issue tracking, and sector analysis • Foundational policy or positioning • Strong alignment with business goals, values, and company culture • Clear connection between each program and its specific business benefits • Strategy built from the bottom up

36. THANK YOU FOR YOUR ATTENTION Grace Barrasso Senior Consultant Environmental Resources Management (ERM) www.erm.com +1 514 880 6663 Cell +1 416 646 3608 Telephone grace.barrasso@erm.com