Trends in ‘Sustainability’

1. Trends in ‘Sustainability’ Personal reflections based on experiences leading Deloitte’s global Sustainability and Climate Change practice and as Deloitte global Chief Sustainability Officer

2. Agenda • Topics • Climate Change • Sustainability • Business purpose and business ethics (CSR) • Dimensions • Europe • North America • China • Africa, India, South America

3. Population Density3 Population Growth Increasing demand for limited resources from population growth • Population expected to grow 28% to nearly 9 billion people by 2050. • Population growth and increasing life expectancy lead to increased resource use. • In 2008, the global per capita energy consumption was 1.96 times the natural carrying capacity, which will continue to increase with population growth.

4. Climate Change • International framework (UNFCCC) • 2009 CoP15 • 2011 CoP17 • Rio +20 • Domestic drivers (regulation, customers, competition) • Europe • US • China • Africa,India,South America

5. Sustainability • The drivers • Consumers • Politicians • NGOs • Business • The business/CEO led agenda • Customer intimacy • Cost management • Risk management / resilience • Water/food/energy • Reporting Broad Agenda

6. “Rethinking Consumption” - Consumers care • Emergence of a new consumer sector called ‘the Aspirationals’ seeking both consumption AND sustainability. • Consumers in developing markets are twice as likely to purchase products due to their social and environmental benefits (51%) • 60% of consumers in developing markets prepared to spend more on sustainable products because they perceive them as being better performance and quality • Almost all consumers would choose a sustainable product if price and quality were same as alternates • 65% of consumers say they ‘feel a sense of responsibility’ to society and 74% say that business should be working to improve their performance • 67% of consumers want to be engaged in product development Source: Rethinking Consumption Consumers and the Future of Sustainability, BBMG, GlobeScan, SustainAbility, 2012

7. So consumers do care, but how much? Despite the surveys there appears to be a significant gap between Value and Action. Consumers don’t actually do what they say they will do... Misalignment between consumer attitudes and action in Europe Misalignment between consumer attitudes and action at a global level Values Source: European Union, 2011 Action Source; Aegis Media, 2011 So who is filling the gap? What are the opportunities?

8. Impact of NGOs • Maintaining the focus • Public awareness • Issue focused • ‘Outing’ of corporates • Raising the risk • Two types of action • Work with business (e.g. WWF) • Activists (e.g. Greenpeace)

9. The impacts of CEOs - Trends in strategy Decoupling growth from impact "I say to a lot of people you have to measure success in terms of progress, not in terms of end state” Paul Polman, Unilever, Former CEO Source: The Telegraph, 2011 Source: Unilever, Sustainable Living Plan, Progress Report 2011 “What would be the impact on our business strategy and our investment decisions if we factor in the full cost of the resources that we are using?” Jean-Marc Huët, Unilever, CFO Source: The Prince’s Accounting for Sustainability Project, A4S Annual Forum Source: M&S, How we do business report 2012

10. CEO’s in reflective mode: World Economic Forum 2013 Global Risk report Water supply crisis • World Economic Forum Report on Global Risks to multiple stakeholders • The Global Risks Landscape shows how survey respondents rated, on a scale of one to five, 50 global risks in terms of both likelihood and impact over the next 10 years if they were to occur. • For businesses the risk landscape over the next 10 years is anticipated to be: • Water supply crisis • Persistent extreme events • Rising greenhouse gas emissions • Severe income disparity • How might these events affect our business? How would embedding sustainability help us? What should be prioritised? Persistent extreme events Rising greenhouse gas emissions Severe income disparity Source: World Economic Forum (2013), Global Risks 2013 available at http://reports.weforum.org/global-risks-2013

11. Reporting • Issue specific: • Carbon Disclosure Project • Water Disclosure Project • General disclosures: • GRI • Integrated reporting • Other: • UN Global Compact • PACI

12. Reporting : Globally CFO’s also care - sustainability is a key topic on their agenda Sustainability seen as key driver of financial performance Organizations are transforming themselves in response to the sustainability imperative Sustainability is becoming operationalized CFO involvement with sustainability is deepening • Authority for sustainability appears to be moving to executives with operating authority and substantial budgets. • More CFOs and COOs hold authority for sustainability efforts than in 2011 • Fewer CEOs and heads of sustainability hold this authority than in 2011 • Nearly half of CFOs (49%) saw a “significant” link between sustainability performance and financial performance • This has increased from last year • In contrast 93% of CEOs see this as a key issue • More than one-third of CFOs (34%) are implementing an organizational transformation relating to energy, environment and sustainability • Nearly one-fifth (22%) plan to do so in the next two years • Two-thirds (66%) involved “always” or “frequently” in driving execution of sustainability strategy • More than half (53%) said their involvement increased over the last year • More than three-fifths (61%) expect their involvement to increase over next 2 years

13. Business purpose and ethics • The concept • Where this came from • Principal sources of thinking • WEF • Exemplars

14. Trust in business Trust is a key element of the brand promise. The Food and beverage presently are more trusted than most. This trust must not be abused. • Corporate transparency is expected by consumers but a lack of trust in business means that consumers still rely on independent assurances • In 2012 trust in business stood at 53%, with trust in the food and beverage sector standing slightly higher than at 64% Source: Edelman Trust Barometer 2012 74% of consumers say that business should be working to improve their performance

15. What does this mean for NZ? • The picture is more complex and nuanced but increasingly you will be seen as ‘on the journey’ or not • The business reasons are often • Cost reduction • Risk management / strategic flexibility • Innovation • Customer intimacy • Reputation management • We have a lot riding on the ‘New Zealand’ Brand

16. Consumers expect their brands to do the right thing Business cannot afford to ignore sustainability challenges or green wash activities • The rise of the middle classes especially within developing markets is a key driver for change • We are seeing the emergence of a new consumer sector called ‘the Aspirationals’ seeking both consumption AND sustainability. • 65% of consumers say that the ‘feel a sense of responsibility’ to society and almost all consumers would choose a sustainable product if price and quality were same as alternates • Consumers in developing markets are twice as likely to purchase products due to their social and environmental benefits (51%) • 45% of Chinese consumers surveyed said they were willing to pay a 5-10% premium for green products (Source; WEF, More with less – scaling consumption and resource efficency) In emerging markets the ‘green consumer’ offers a potential to create enhanced brand value, and promote and encourage sustainable forms of consumption

17. Performance vs. Perception Sustainability and brand value: Best Global Green Brands Where should companies strive to be on the Performance Perception alignment map? Deloitte worked with Interbrand to develop and score an environmental performance methodology based on green performance and perception as part of the Best Global Green Brand Score Performance and perception quadrants Performance Aligned leader Governance Products & Services Improve Performance Stakeholder Engagement Operations Overvalued Supply Chain Transportation & Logistics Perception + Improve performance and perception Perception Authenticity Relevance Improve perception Undervalued Differentiation Consistency Aligned laggard Presence Understanding Performance

18. Sustainability performance & brand value - Best Green Global Brands “These two critical halves – performance and perception – make up the whole of a green company: one that operates sustainably and has build a positive image that can be leveraged to strengthen brand value.” - Jez Frampton, CEO Interbrand “Not surprisingly, sustainability is driving brand value across all sectors – from automotive, to consumer products, to financial services.” - Interbrand 2008

19. What does this mean for NZ (con’t) • Unfortunately we seem to be heading backwards: • Climate change and Kyoto • Transparency and 100% Pure and food chain issues • Ross sea fisheries and mineral extraction • The level of public debate • Business needs to take the lead! “It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that you’ll do things differently” Warren Buffet

20. Discussion