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THE BUSINESS CA$E for sustainability

THE BUSINESS CA$E for sustainability. Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com. Sustainability 3-Legged Stool. Sustainable Development (SD) Corporate Social Responsibility (CSR) Corporate Responsibility (CR) Triple Bottom Line (TBL).

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THE BUSINESS CA$E for sustainability

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  1. THE BUSINESS CA$Efor sustainability Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com

  2. Sustainability 3-Legged Stool Sustainable Development (SD) Corporate Social Responsibility (CSR) Corporate Responsibility (CR) Triple Bottom Line (TBL) Environment - Planet Eco-efficiencies Eco-effectiveness Restorative Economy - Profits GrowthJobsTaxes Equity - People Employees Community World

  3. Smart Business 3-Legged Stool ASSET MANAGEMENT Natural Capital Financial Capital Manufactured Capital Human Capital Social Capital

  4. 5-Stage Sustainability Journey 5. Purpose/Passion Values-driven founder / CEO 4. Integrated Strategy Enhanced business value 3. Beyond Compliance Eco-efficiencies/ PR crisis/ Regulatory threat 2. Compliance Regulatory enforcement 1. Pre-Compliance

  5. Motivations vs. Behaviors 5. Purpose/Passion Means: Be a successful companyEnd: Contribute to better world 4. Integrated Strategy Means: Contribute to a better world End: Be a successful company

  6. 5-Stage Sustainability Journey 5. Purpose/Passion Values-driven founder / CEO 4. Integrated Strategy Enhanced business value 3. Beyond Compliance Eco-efficiencies/ PR crisis/ Regulatory threat 2. Compliance Regulatory enforcement 1. Pre-Compliance

  7. Company Value “Iceberg” Balance Sheet Market Capitalization

  8. Company Value “Iceberg” Balance Sheet Tangibles Financials Intangibles Nonfinancials - Brand Image Reputation - Stakeholder Relationships Market Capitalization

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

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

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

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

  13. The Perfect Storm Oct. 27 – Nov. 1, 1991 • 3 weakening weather fronts • 1.Hurricane Grace (former) • 2.Cold front from Great Lakes • 3.Warm front from Sable Island Fed on each other’s energies Worst storm in history …100’ waves Sudden, unexpected, deas t i n g v

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

  15. 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; 20%actually did in 2006 • LOHAS sector: • $200B in 2007 $420B by 2010 $845B by 2015

  16. Economist Warnings: Stern Review • Former World Bank chief economist, Nicholas Stern; quantifies • warnings in 1997 Economists’ Statement on Climate Change • 1. Cost of climate change mitigation is;1%2.Benefits of $2.5T;of annual global GDP if we act nowby 2050 if act now;global depression;5-20%if we act later if we do nothing • 3. Must stabilize GHGs usingcarbon taxes • and / or acap-and-trade system

  17. Carbon Disclosure Project Q. Commercial - regulatory - physical risks to value from climate change? Opportunities? Strategies? A. Carbon-intensivemanufacturerscould lose40%of their market value;Bankscould lose29%of value

  18. Investor Network on Climate Risk (INCR) • 65 institutional investors, $4T in assets; • Ask SEC to require listed companies to disclose climate change risksin their financial performance(June 06); • Climate Watch Listof worst 10 GHG emitter companiesget shareholder resolutions on climate change(Feb 07); • Capital to Capitol report: Request that Congresscut GHGs 60-90% below 1990 levels by 2050(Mar 07)

  19. European Union Leadership Pollution & health regulations 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 PlanBy 2020, reduce CO2 20% below 1990 level Big retailers taking actionTesco, Marks & Spencer, Asda

  20. US States’ Leadership Western Regional Climate Action Initiative: 5 west-coast states led by California cap-and-trade systemby mid-2008; promote renewable energy and energy efficiency; advocate for national climate policies Regional Greenhouse Gas Initiative (RGGI): 10 east-coast states;cap-and-trade system for power plants 33 States:Climate Registryof baselines 20 States:Renewable energytargets

  21. US Cities’ Leadership Climate Protection Agreement: 522 city mayors; Kyoto at city level - 7% below 1990 levels Led by Mayor Nickels of Seattle Many are members of C40 large cities, led by London’s Mayor Livingston; $5B for retrofits

  22. US Corporations’ Leadership Big CorporationsWal-Mart, GE, Home Depot, DuPont … Combat Climate Change (3C) Initiative 18 US energy corps want national cap-and-trade system US Climate Action Partnership (USCAP) 10 major corps + 4 NGOs; want cap-and-trade system and 15% GHG reduction in 15 years

  23. Unusual Drivers of Sustainability National Security Alternative energy:$6B sector in US by 2008; $167B by 2015 War for Talent Sustainability reputation: 70% of NA grads seek companies with good CSR reputations Revenue Pressure Carbon trading:$29.8B global market in 2006; set to double in 2007 Sarbanes Oxley Sustainability reporting: Global Reporting Initiative guidance on reporting risks; 64% of Global 250 do sustainability reports

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

  25. One More Goal … or an Enabling Strategy? Profit Shareprice Growth Revenue Customercare Expensesavings Competition Marketshare Leadership Governance Innovation Speedtomarket Newmarkets Talentwars Productivity Motivation Brandimage Managingrisks Compliance Supply security

  26. Sustainability Investing is Not a Sacrifice Sustainability indices equal or outperform the market: DJSI, Jantzi, FTSE4GOOD SRI Funds Growing:US SRI assets grew258%from 1995 to$2.3Tin 2005 Freshfields Report: Dispels the myth that laws prevent fiduciaries from considering CSR issues; in fact, the law sometimes requires them to DJSI Jantzi Social Index

  27. Typical Large Company Benefits Revenue $44,000,000,000 Profit $3,000,000,000 Workforce 120,000 Avg. Employee Salary $60,000 Avg. Manager Salary $70,000 Potential profit increase: +38% + Energized employees + Improved corporate image + Competitive advantage + Positioned for the future

  28. Lead It Like Any Culture Change • 1. Walk the talkas senior leaders • Integrate into vision - mission - strategies • Business strategy vs. philanthropy • Avoid “green-washing” hype • 2.Educatethe whole company • Solicit employee ideas - help • 3.Alignwith measurement & reward systems

  29. 7 Benefit Areas • 1. Reduced recruiting costs • 2. Reduced attrition costs • 3. Increased employee productivity • 4. Reduced expenses in manufacturing • 5. Reduced expenses at commercial sites • 6. Increased revenue - market share • 7. Lower insurance & borrowing costs • … yielding a profit increase of+38% Usual focus

  30. Potential Improvements -1% -2% +10% -5% -20% +5% -5% • 1. Reduced recruiting costs • 2. Reduced attrition costs • 3. Increased employee productivity • 4. Reduced expenses in manufacturing • 5. Reduced expenses at commercial sites • 6. Increased revenue - market share • 7. Lower insurance & borrowing costs • … yielding a profit increase of+38%

  31. What if … ? -1% -2% +10% -5% -20% +5% +2% -5% • 1. Reduced recruiting costs • 2. Reduced attrition costs • 3. Increased employee productivity • 4. Reduced expenses in manufacturing • 5. Reduced expenses at commercial sites • 6. Increased revenue - market share • 7. Lower insurance & borrowing costs • … yielding a profit increase of+38% • +35%

  32. What if … ? -1% -2% +10% +4% -5% -20% +5% -5% • 1. Reduced recruiting costs • 2. Reduced attrition costs • 3. Increased employee productivity • 4. Reduced expenses in manufacturing • 5. Reduced expenses at commercial sites • 6. Increased revenue - market share • 7. Lower insurance & borrowing costs • … yielding a profit increase of+38% • +23%

  33. What if … ? -1% -2% +10% +4% -5% -20% +5% +2% -5% • 1. Reduced recruiting costs • 2. Reduced attrition costs • 3. Increased employee productivity • 4. Reduced expenses in manufacturing • 5. Reduced expenses at commercial sites • 6. Increased revenue - market share • 7. Lower insurance & borrowing costs • … yielding a profit increase of+38% • +20%

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

  35. The “Tipping Point”? 5. Purpose/Passion Values-driven founder / CEO 4. Integrated Strategy Enhanced business value 3. Beyond Compliance Eco-efficiencies/ PR crisis/ Regulatory threat 2. Compliance Regulatory enforcement 1. Pre-Compliance 20%

  36. In Summary … Sustainability issmart business Newmarket forces - risksare in play Publicexpectationsare rising Talk business language Showrelevance to existing priorities You arenot alone; find partners Opportunity for leadership

  37. THE BUSINESS CA$Efor sustainability Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com

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