1. The Business Case for Sustainability Indicators: What’s Missing?
The Business Case for Sustainability Indicators: What’s Missing?
Grace Barrasso, ERM
2nd National CSIN Conference
Toronto, 2-3 March 2010
Delivering sustainable solutions in a more competitive world. 1

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 rated as one of the TOP THREE all-environmental firms for the past 7 years by the Environmental Business Journal

3. ERM Sustainability Services
Strategy & Systems
Enterprise Operations
Supply Chain Management
Product Sustainability
Assurance & Reporting
Energy & GHG management
Water management
Material efficiency improvements
Greening the built environment – buildings, operations, maintenance
Workplace health and safety
Competitor analysis and benchmarking
Stakeholder engagement
Sustainability strategy, framework & systems
Opportunity identification and prioritization
Risk management
Metrics
Education
Social impact analysis
Greener and more efficient transportation and distribution
Life cycle efficiency
Supplier engagement; partnerships for innovation and leadership level initiatives
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
Third-party verification of metrics
Assessment of sustainability strategy and programs
Sustainability and Social Responsibility Reporting
Multimedia internal and external engagement and promotion strategies
Distill out reporting from communications strategy
Need to separate internal vs external (market-based) reduction activities
Removed “gap analysis” – too foundational
Removed “biodiversity management” – too limited

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 expectation that society has for 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
1983

5. Sustainability as business strategy
Globalization
Business expansion
- 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
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
This is a departure from early attempts to couch environmental action and philanthropy in very promotional terms – yea, look at us and the wonderful things we’re doing. Green washing was and is a concern. The new approach is much more humble. The “we are doing this because we should” approach is a sharper dig against competitors who are doing less; and also nods to the company’s more business minded shareholders.

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. The return on investment
ENERGY
SAVINGS
30%
CARBON
35%
WATER
USE
30-50%
WASTE
COST
50-90%
Cost
Average Green Building Cost Savings According to the Leadership in Energy & Environmental Design (LEED)
Reputation
Note multiple positive impacts of reputation – goodwill, recruitment & retention, facilitation of growth, company influence in external policy & regulation
CDP – risk criteria
Considers Climate Change to represent commercial risk and/or opportunities.
Considers regulatory responses to climate change to represent potential financial risk.
Recognizes climate change as physical risk to operations.
Has developed products or services in response to climate change.
Has allocated board-level responsibility for climate change issues.
Emissions data disclosed.
Emissions data related to supply chain and/or products and services disclosed.
Implemented emission reduction programs with formalized targets.
Considers formal emission trading framework relevant to operations.
Total costs of energy consumption disclosed.
Risk

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

10. Major Sustainability Trends Today
Advocacy
Life Cycle Assessment
Volatile raw material and energy costs are adding extra incentive to redesign efforts. Wal-Mart predicted $3.5 billion in annual cost savings from its packaging redesign efforts. Cube utilization and general transportation factors account for 25% of Wal-Mart’s internal “packaging scorecard.”
Wal-Mart worked with Unilever to increase the concentration of its laundry detergent (All) and redesign its bottle. It then required all detergent suppliers to do the same. Triple concentrating the detergent has resulted in an annual savings of 1.3 million gallons of diesel. P&G followed with their own concentrated detergent product and bottle redesign.
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
Microsoft:

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 Program1 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 itx
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
Question for audience – find examples – pharma and access to health care; breweries and responsible drinking; apparel and responsible sourcing; consulting and discrimination

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
MITSloan Management Review in collaboration with Knowledge Partner BCG
Cultural Integration – Sustainability management is driven by core values; associates are encouraged to collaborate and empowered to innovate. Leadership initiatives result.

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
Some are forced to report due to stakeholder or board pressure; some report first to give key stakeholders a scope of what they are doing, and what to inspire
You’d be surprised how many people can put the cabash on your initiatives and why….
Sustainability Report

20. 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
Business Goals and Strategy
Environmental Goals and Strategy
Environmental Management System
Critical Tools (including metrics)
D R I V E R S
E N A B L E R S
These are recommendations
Table of contents shows why cross-functional cooperation is necessary
Small team – suggest leadership (e.g., not necessarily public affairs; types of skills/talents necessary

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. Market Capitalization
Balance Sheet
Tangibles
Financials
Intangibles
Nonfinancials - Brand Image
Reputation - Stakeholder Relationships
Moving forward, with a lot more time, we would like to get abetter iceburg and replace the triangle with a photo/graphic image and have the type superimposed on the ice
Market Capitalization

24. Company Value “Iceberg”: 1981 Intangibles - Nonfinancials
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 Intangibles - Nonfinancials
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 $420B by $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 Social Environment Economic 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
Materiality
Does the information in the report cover topics and indicators that reflect the organization's significant economic, environmental, and social impacts?
Stakeholder Inclusiveness
Does the report identify its stakeholders and explain how it has responded to their reasonable expectations and interests?
Sustainability Context
Does the report present the organization's performance in the wider context of sustainability?
Completeness
Is the report boundary sufficient to reflect economic, and social impacts and enable stakeholder's to assess the organization's performance?
Balance
Does the report reflect positive and negative aspects?
Comparability
Are issues presented in a manner that enables stakeholders to analyze changes in the organization's performance over time, and support analysis relative to other organizations?
Accuracy
Does the report indicate data that has been measured?
Timeliness
Is the information disclosed while it is recent and relevant?
Clarity
Is the information understandable and accessible to stakeholders?
Reliability
Information and processes used in the preparation of a report should be gathered, recorded, compiled, analyzed, and disclosed in a way that could be subject to examination and that establishes the quality and materiality of the information.
I’m just focusing on this first column

33. Characteristics of Sustainability Leaders Today
Management systems processes to define, measure, monitor & assure performance
Transparency complete and comprehensive
Engagement stakeholders have input and influence
Global perspective systems are global, impacts measured locally
Performance balanced (triple bottom line), material, detailed, easily accessible
Leadership raise the bar for their industry; set best practice; cited by 3rd parties
Humility no “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
Think YouTube, FaceBook
Reporting
Indicators and Sustainability
Strategic Philanthropy
Environment
Energy
Supply Chain Management
EHS
Diversity

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)
Cell
Telephone