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Sustainability Risk Management
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  1. Sustainability Risk Management

  2. Johnson Controls, Inc. John F. Vargo Director, Risk Management

  3. Agenda • Company Overview • The Path to Sustainability • Sustainability at Johnson Controls • Risks and Rewards • Results

  4. Johnson Controls Overview • Founded in 1885 • HQ: Milwaukee, Wisconsin • 67th Fortune 500 - 2007 • 136,000 employees • 500 locations in 52 countries • Credo: 5 Core Values Building 21% Power 11% Europe 41% ROW 19% 4

  5. Interior Experience Asian & NA 31% European & NA 34% AsianOEs 66% Asian & European OEs 48% European OEs 69% North American 52% Asia 8% NorthAmerica 44% Europe 48% • Global provider of seating, overhead, electronics, door and cockpit systems • More than 50% of revenues generated outside of North America • Leading presence in China through joint ventures Delivering world-class technologies that differentiate vehicle interiors and increase consumer demand North America Europe Asia Customer Diversity (2007 sales*, includes unconsolidated) *projected 2006 sales: $18.3 billion $165 billion market 275 locations in 30 countries 5

  6. Power Solutions Americas 63% Europe 31% 6% Asia 9% Providing the highest quality, lowest cost automotive batteries to help customers grow their market shares • 80% of sales to aftermarket • Hundreds of customers and dozens of brands • Geographic diversity • 25 manufacturing plants on five continents • Wide range of automotive battery technologies • Lead-acid • Nickel metal hydride, lithium-ion Asia 2006 Sales:$3.7 billion JCI Global Market Share 30% 36% 36% 6

  7. Building Efficiency Asia 17% North America 54% Europe 29% Creating quality indoor environments that are energy efficient, comfortable and safe • Non-residential buildings • Tens of thousands of customers • 125 countries • Revenues 75% aftermarket; 25% new construction • Systems, products, services and solutions offerings • Residential • Home air conditioning and heating, 65% replacement 2006 sales: $10.2 billion $200+ billion non-residential global market* 7 *HVAC/fire/security only

  8. What is Sustainability? “Sustainable development meets the needs of the present generation without compromising the ability of future generations to meet their needs." - 1987 United Nations Brundtland Report “A business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.” - Dow Jones Sustainability Index

  9. What is Sustainability? Measuring the triple bottom line Economic Social Johnson Controls provides products and services that address risks and opportunities in order to contribute to an organization's long-term social, financial and environmental success. Environmental

  10. Sustainability: Before 2000 • Sustainability a new concept • Social investing immature • Johnson Controls: • Strong commitment to Core Values and Ethics • Outstanding governance, social and environmental track record • Little press or NGO attention • Rapidly growing and not a Fortune 100 All seemed well...

  11. Sustainability: After 2000 Social investing: • Over 230 social mutual funds in U.S. today • Influence trillions of investment dollars • Growing about 30% annually NGOs: • More and better organized • Target big companies • Current focus: • Climate change • Governance • Supply chain management Customers: • Demand less risks

  12. Define it Measure it Report it (transparency) Use it (to find value) New products and services Branding Sustainability

  13. Defining Sustainability • Numerous definitions depending on stakeholder’s agenda • AKA: Sustainable Development, Corporate Social Responsibility (CSR), Environmental, Social & Corporate Governance (ESG) • “Triple Bottom Line” most accepted externally and consistent with internal policies/practices External Internal Economic Prosperity • Core Values • Ethics Policy • ESH Policies • Committed management • Performance metrics An Integrated, Balanced Strategic Approach Environmental Stewardship Social Responsibility

  14. Our Values = Sustainability • Integrity – Through annual reporting and a commitment to transparency, we demonstrate our integrity and ethics. • Customer Satisfaction – By helping our customers meet their sustainability goals we demonstrate our commitment to their success. • Our Employees – Through leadership development, and commitment to diversity and community involvement we strive to be an employer of choice. • Improvement and Innovation – Commitment to sustainability drives innovation. • Safety and the Environment – Our participation in USGBC, EPA Climate Leaders and other organizations demonstrates our leadership on meeting today’s challenges and planning for tomorrow’s.

  15. The Johnson Controls Path to Sustainability Commit To Understanding Sustainability Assess & Prioritize Your Risks and Opportunities Implement Technologies and Strategies Johnson Controls/Others Communicate Intent & Results Addressing risks and opportunities that contribute to an organization's long-term social, financial and environmental success Culture of Sustainability

  16. Johnson ControlsCorporate Commitment Assess & Prioritize Implement Commit Communicate Understand Sustainability Executive Leadership Business Group Accountability Risk/Opportunity Social Financial Environment Technologies What we sell Building Efficiency Interior Experience Power Solutions Strategies How we operate Facility Optimization Manufacturing Processes Employee Involvement Supply Chain Management Intent & Results Internal External Certification Culture of Sustainability

  17. Developing a Culture of Sustainability Executive/ Leadership Continuous Improvement Manufacturing & Operations • Asset Management • Real Estate • Transportation • Physical Assets Culture of Sustainability Products/ Services/ Programs Supply Chain Management Employee Education & Involvement Marketing & Public/Community Relations

  18. Sustainability @ Johnson Controls

  19. Transparency: Reporting • Before 2000 published only an Annual Financial Report • 2003: published ESH Report and a Financial Report • 2004:Sustainability Report and kept Financial Report • 2005 combined Financial & Sustainability Report and post additional details on Web. • 2006 and beyond: • Using programs to simplify reporting to multiple stakeholders • More NGO dialogue

  20. Sustainability Metrics—(GRI)

  21. Managing the Risk – Economics Ensure the ongoing financial viability of the business through the management of risk • Protect our employees • Protect our physical assets • Work with our suppliers to ensure they understand the risks and act appropriately • Ensure that our vendors adhere to JCI’s ethic’s policy or equivalent

  22. Managing the Risk – Environment Commitment to the environment impacts our approach to risk management programs • Accountability and Responsibility • Reduce Waste • Minimize Environmental Impact • Minimize Hazardous Substances • Mercury-Free Products • End-of-Life Regulations

  23. Managing the Risk – Social Commitment to the social responsibility • Establish written employee policies and follow them • Make employee safety an emphasis • Design safe products and monitor any issues • Support supplier diversity • Act within the law in every country we operate

  24. President Bush visits Johnson Controls Advanced Battery Lab 2/2006 Business Ethics Magazine 100 Best Corporate Citizens What’s the Payoff? 2004 WEC Gold Medal Award FTSE4Good Index 2006 EPA Climate Protection Award The TOP RANKED AUTOMOTIVE SUPPLIER in Fortune magazine’s 2006 Most-Admired Companies survey. 2005 EPA Clean Air Excellence Award

  25. Finding Value for our Customers • Competitive Advantage: • Provide customers GHG tracking tools • Provide sustainability training • Closer supplier monitoring • Market green buildings • Design products for Sustainability Value Chain Grow Business • Reduce Costs: • Waste management • Energy management Must Do • Regulatory Compliance: • Address “end of pipe” issues • Safety, permitting, auditing, pollution prevention Maturity

  26. Marketplace Factors • Technology has improved • Accountability has improved • Global access and communications have improved • Government and the marketplace are both driving change

  27. Managing Risks & Embracing Opportunity • Risk • High energy bills • High operating costs • Outdated equipment • No capital project funding • Risk • Health care issues • Poor indoor air • Productivity • Community concerns Social Economic • Opportunity • Lower energy bills • Reduced O&M/deferred maintenance • Stable energy supply • Funds capital Improvements • Opportunity • Public Health • Worker productivity • Socially responsible investors Environmental • Opportunity • Streamlined approvals • Reduced air pollution • Reduced GHG emissions • Reduced water use • Risk • Mandates/regulations • Air pollution • GHG emissions • Water quality

  28. The Path to Sustainability:Building Efficiency Offerings Understand Sustainability • Business Case Dev’t • Financial • Environment Issues • Social • Employee • Community • Life Cycle Approach • Flexible • Scalable Assess & Prioritize Implement (JCI / Third Party) Commit Communicate Risk/Opportunity • Overall Goals • Social • Financial • Environment • Project Scope • Infrastructure • Facility • Service/FM • Project Approach • Funding • Timetable • Implementation Team • Technologies/ Strategies Technologies • Infrastructure • Energy Supply • Water Supply • Wireless • Facility • Automation • Technology Systems • Energy • Water • HVAC/R • Lighting • Environmental Products Strategies • Funding • Energy & Water Services • Renewables • Design/Build • Lifecycle Program Mgmt. • Operations & Maintenance • Facility Management • Service • Supply Chain • GHG tracking and reporting Intent & Results • Internal • Evaluation • Communication • Education • External • Public Relations • Community Rel • GHG Reports • Corp Soc Resp • Certification • LEED • ENERGY STAR • GRI • MBE/DBE etc. Culture of Sustainability

  29. Sustainable Success Measuring the triple bottom line Economic Social Johnson Controls provides products and services that address risks and opportunities in order to contribute to an organization's long-term social, financial and environmental success. Environmental

  30. Thank you for your time