The Sustainability Opportunity

2. The Sustainability Opportunity • Purpose of Presentation: Provide senior executives with background and business case for initiating sustainability strategies. • Outline: • Why is sustainability a business issue for retailers? • What is sustainability? • How to initiate a sustainability strategy in your company. 2

3. Defining sustainability: Business strategies and practices that promote the long-term well being of the environment, society and the bottom line FMI Sustainability Task Force 3

4. Sustainability Is….. • A change in mindset and the way you do business and not just a new program or two. • Very unique to every company and therefore, there is no one-sized-fits-all approach. 4

5. Why is Sustainability a Business Issue for Retailers? 5

6. Our Customers • 92% of consumers agree with the statement that it is important for the U.S. food industry, both food manufacturers and supermarkets, to be more proactive about addressing environmental concerns. • FMI-Harris Poll 2007 • 89% of consumers are interested in “eco-friendly” products and 30% actively look for them. Information Resources, Inc. 2007 • 43% of Americans think that they will be extremely green in the next five years while only 11% classify themselves as extremely green now. Wal-Mart Live Better Index 2007 • Sales of “green” cleaning products increased 52% in 2006. • Information Resources, Inc. • Organic food sales were up 109% between 2001 to 2005 and up 22% in 2006. Mintel Research/Organic Trade Association Who Cares About Sustainability? 6

7. The Public • Americans consider a company’s commitment to social issues when deciding the following: • Which companies they want to see doing business in their communities, 86% (vs. 58% in 2001) • Where to work, 77% (vs. 48% in 2001) • Which stocks or mutual funds to invest in, 66% • (vs. 40% in 2001) • 87% say they want a company to support issues based on where its business can have the most social and/or environmental impacts. • 80% of respondents listed health as the leading issue for companies to address. • 2007 Cone Cause Evolution Survey Who Cares About Sustainability? 7

8. Our Future Employees • A survey of 1,800 Gen Y-ers (people between the ages of 13 and 25) in 2006 found that: Who Cares About Sustainability? • 61% agreed they are personally responsible for making a difference in the world; • 78% think companies have the same responsibility; • 75% are more likely to pay attention to a company's messages if it has a deep commitment to a cause; and, • Nearly 90% stated they are "likely" or "very likely" to switch from one brand to another based on a strong association with a good cause. Cone and AMP Insights 8

9. Our Future Employees (2) • From a survey in October 2007 by MonsterTRAK (division of Monster Worldwide geared towards entry-level positions) of college graduates found: Who Cares About Sustainability? • College graduates are looking for more than just a first job or an internship. They are looking to work for businesses that help the environment. • 80% of those surveyed said they are interested in a job that has a positive impact on the environment • 92% would chose working for an environmentally friendly company. 9

10. Supermarkets! Green is Green….. • The average basket size is three times larger when Eco-Friendly or Green products are in the basket, and the more items purchased, the higher the average basket size. • Potential Green buyers are current Organic food buyers; recognizing that only 10% of Organic buyers are currently purchasing Green products. • Green and Organic shoppers are 59% loyal (share of grocery wallet) to their chain and more than two times loyal than the average consumer. Catalina Marketing September, 2007 Who Cares About Sustainability? 10

11. Other Companies • Of the top 100 largest retailers, 83% are involved in green practices and 62 of those have increased their green investments during the past two years. BDO Siedman Retail Compass Survey, October 2007 • 79% of S & P 100 companies have special sections on their website dedicated to social and environmental policies and performance, up from 59% in 2005.Social Investment Research Analysis Network • Green consumerism will be a huge driver of innovation and product change in the food retail sector….the biggest consumer trend of them all”. • Lucy Neville-Rolfe, Tesco Who Cares About Sustainability? 11

12. Shareholders/Investors • In 1990, there were 5 investment indexes based on sustainability in North America, Europe and Australia. In 2007, there are 21 including the Dow Jones Sustainability Index. • Most of the leading brokerages (Goldman Sachs, Citigroup, JPMorgan, Merrill Lynch, and Morgan Stanley) have published investment research on the impact of social and environmental trends on the performance of companies in key industries; and, • 51 banks from 17 countries representing an overwhelming portion of the project finance market (including Bank of America, Citigroup, JPMorgan Chase, Wachovia and Wells Fargo) have adopted the “Equator Principles” as a means of standardizing the review of social and environmental factors in lending. Who Cares About Sustainability? 12

13. Why is Sustainability an Issue for Business? 13

14. Why is Sustainabilitya Business Issue? • The world population is growing at unprecedented rates and putting greater pressure on already overstressed natural resources; • There are growing expectations on business to help solve environmental and social issues from government, employees, customers and the public broadly; and • How individual companies respond to these trends will influence their profitability and longevity. 14

15. Sustainability in the Marketplace: The New Equation Social & Environmental Issues as Market Forces + = Global Trends Magnify Market Forces Changed Operating Conditions for Retailers • Global Population Explosion • Wealthy Nation Consumption Patterns • Declining Availability of Natural Resources • Growth/Impact of Civil Society • Globalization • Role of Government • Connectedness Business Value at Stake Business Response: Seek Out Opportunities from Social and Environmental Trends Integrate Social and Environmental Trends into Business Strategy & Other Decisions Copyright Ecos Corporation 2006 15

16. Environmental & Social Issues: Business Perspectives Old School: cost to be lived with and minimized New School: can add shareholder value Next School: central to brand value Which is your school…today and in the future? 16

17. Where Are The Fish? • About half of all monitored [global fish] stocks are now fully exploited and another quarter are overexploited, depleted, or slowly recovering. 2004 Food & Agriculture Organization • Better Food Uses More Water • 70% of world freshwater use is for agriculture. Growing global populations coupled with the shifting trend in the diet to more water-intensive food such as meat and fruits will further exacerbate already stressed regional water supplies. United Nations Environment Programme • Climate: The Food Chain’s Weakest Link • The impact of climate change coupled with the efforts to mitigate climate change will have a variety of impacts on availability and price of many agricultural products, especially corn. Wall Street Journal Market Watch May 2007 Living Beyond Earth’s Capacity 17

18. A group of 284 institutional investors with assets of $41 trillion under management have requested and received detailed information from approximately 1000 companies about their greenhouse gas emissionsand plans for managing those emissions. • In a 2007 survey of consumers in the US and the UK, 60% of respondents said that they want companies to provide more product-based information at the point of sale and half would rather do business with companies that are working to reduce their contribution to global warming.AccountAbility • In response to shareholder request, The Home Depot, Lowe’s and Simon Property Group (largest shopping mall company in US) have agreed to significantly expand reporting and disclosure on energy-efficiency performance, with the two big-box retailers also agreeing to discuss greenhouse gas emissions. GreenBiz.Com Climate Change 18

19. Living BeyondEarth’s Capacity Humans are drawing on capital rather than interest, and once that is exhausted, they will find Mother Nature reluctant to make a loan. February 13, 2007   The Columbus Dispatch 19

20. Global Becoming Local:Trends in the Marketplace • The public believes retailers are responsible for the environmental and social issues associated with their supply chain (Think Home Depot) • Increasing globalization continues to cloud the source of raw materials and government food inspectors are stretched too thin (Think China) • Compliance with environmental, health and safety regulations are no longer the ceiling for the public’s expectations but the floor (Think Teflon) 20

21. Activists are BecomingIncreasingly Credible % of “yes” minus % of “no” World Economic Forum 2005 21

22. Activists are Having an Impact 22

23. World Wildlife Fund and Coca-Cola have created a partnership to conserve and enhance fresh water resources around the world. • Unilever partnered with Greenpeace to develop HFC-Free Freezers and market them to specific customers. • FedEx Express and Environmental Defense worked together to develop new generation of pickup and delivery trucks that decrease particulate emissions by 96 percent and travel 57 percent farther on a gallon of fuel, reducing fuel costs by over a third. • GreenBlue Institutecreated the Sustainable Packaging Coalition that brings together a range of stakeholders to create a more robust environmental vision for packaging. Companies Working with Environmental Groups for Sustainable Results 23

24. Globalization & Safety ofU.S. Food Supply Chain 24

25. The ChangedOperating Environment • Higher Consumer Expectations(want performance and price while being environmentally and socially responsible.) • Voluntary Actions Becoming New Standard • Sustainable Supply Chain Offerings • Shareholders/Investors Using Sustainability in Ratings and Analyses 25

26. Growth Opportunities • Grow Market Share • Build Customer Loyalty • Differentiation and Branding • Improve Employee Morale and Loyalty • Increase Efficiency/Productivity • Reduce Risk • Help Secure the Supply Chain for Future • Avoid Negative Public Opinion • Prepare for/ Be Ahead of New Regulations The Opportunities 26

27. Recycling = Revenue: Three FMI Members made close to$50 million in revenue in 2006 from recycling plastics and cardboard. • Being Green = Making Green: Several major retailers are focusing on “green” as the driving strategy behind new store development. • Seismic Shift in Supply Chain: Some of the largest retailers in the world are implementing sustainable practices throughout their supply chains resulting in major positive impacts on the bottom line, and impacts on the price and availability of environmentally and socially preferable goods and services. • Catch of the Day for Tomorrow:A small retail chain responded to consumer requests for more choice in sustainable seafood. They adopted Fishwise, a sustainable seafood education and marketing program. Results were increased customer loyalty, sales and profits and have transitioned their product offering to almost completely sustainable seafood. What Retailers are Already Doing…. 27

28. How to Initiate a Sustainability Strategy in Your Company 28

29. Impacts all aspects of business • Most effective strategies are those that deliver financial value for the company (not PR or philanthropic) • Involves Those in the Value Chain and Beyond: • - Suppliers - Producers • - Governments - NGOs • Consumers - Shareholders • Employees - Other Change in Mindset:Sustainability is More Complex Than AnyOther Market Trend Past or Present 29

30. Understands environmental and social issues as business issues • Develops business strategies around issues that generate shareholder and societal value • Continually engages with a broad network of external stakeholders within and beyond the value chain A Sustainable Company…. 30

31. Help manage complexity from environmental and social issues now impacting the marketplace • Sharpen the “over the horizon radar” and open up “insights” into the evolution of the market place • Hedge against future risks by connecting to key stakeholders and trends in society Integrating Sustainability Will… 31

32. Potential Hurdles in Implementing Sustainability • Internal Alignment: Sustainability impacts all aspects of the company and must be seen as aligning with the culture and changing the way employees think. There will be naysayers,it takes time to have this alignment. • Not Just “Feel Good” Fluff: Sustainability tends to be relegated to the philanthropic department or for external affairs to handle but it is a business issue with real value at stake. • Walk the Talk: A company that makes big promises with little delivery or one that brands itself “green” with little behind the curtain will get caught and labelled a “greenwasher.” 32

33. Framework for an EffectiveSustainability Strategy 33

34. Detail on Framework 34

35. Your Sustainability Team • Identify one person to lead the effort who has experience in developing and implementing business strategy. • Build a core-team representing areas of Operations, Sourcing, Management and Marketing/Consumer Affairs - should assist in development and implementation. • Senior Management must provide support and be included in regular updates on progress. 35

36. Where to Start:The FMI Sustainability Toolkit • A framework and guide to help you initiate and “operationalize” sustainability within your company at the strategic level • Practical tips, advice and strategies on approaching and implementing sustainability • Best practices, learnings and other examples of companies in the food retail value chain that are working on sustainability 36

37. FMI’S Sustainability Task ForceMission: To develop the tools and resources needed by the industry to help move sustainability initiatives forward. 37

38. “It is not the strongest species that survive, nor the most intelligent, but the ones who are most responsive to change.” • -Charles Darwin- 38

39. FMI recognizes the commitment and support of our sponsoring companies in the development of the soon to be releasedFMI Sustainability Starter Kit(release January 2008).We are grateful for their help in making this important resource available to help you move forward quickly with your company sustainability programs: 39

40. ADDITIONAL SLIDES ON ENVIRONMENTAL ISSUES 40

41. Science Rationale Global Population Increasing Exponentially Living Beyond the Earth’s Capacity 41

42. Science Rationale Living Beyond the Earth’s Capacity Where Will We Get Our Fish in the Future? UN Millennium Assessment 42

43. Living Beyond the Earth’s Capacity Increase in Portion of Land Cultivated Continues More land was converted to cropland in the 30 years after 1950 than in the 150 years between 1700 and 1850. Cultivated Systems in 2000 cover 25% of Earth’s terrestrial surface UN Millennium Assessment 43