Sustainability, It’s Value and How Leading Companies and Universities Are Approaching It By William R. Blackburn 10th Annual Business Strategy and the Non-Market Environment Conference Kellogg School of Management Northwestern University May 7, 2010

Why Are Companies Going Green??

Top Reasons for Increased Focus on Sustainability* Reputation, brand Stakeholder pressure (esp. customers) Reduce waste (and costs), increase productivity Employee morale, motivation and recruitment Peer pressure (competitors, high-visibility companies) WHY? *Source: 2007 Conference Board study of 16 major corporations

Top Obstacles to Corporate Progress on Sustainability* Complexity and breadth of issues; uncertain solutions Pace of business; growing number of priorities (short-term pressures) Fear of adverse consequences from transparency; modesty about self-promotion Lack of knowledgeable, skilled leaders to drive the initiative No clear, significant impacts on the company from the marketplace Financial challenges; lack of resources *Source: 2007 Conference Board study of 16 major corporations

Sustainability Issues in Tough Economic Times Financial viability of the organization, its suppliers and key customers Waste/energy reduction (cost) Cost-efficient products Employee relations Safety Ethics Support for the less fortunate

Two Benefits for Organizations that Proactively Seek Sustainability Long-term financial viability Loyalty of key stakeholders

Organizations Need the Loyalty of Key Stakeholders to Be Successful Employees Funders Our Organization Government Communities Customers Rating Groups Activists General Public

Building Stakeholder Loyalty Transparency Credibility Stakeholder Loyalty Stakeholder Engagement Econ, Env, Soc Performance

Large corporations are beginning to see the strategic importance of sustainability. e.g., Wal-Mart vice president of strategy & sustainability, 2005; senior vp, 2007

Wal-Mart Packaging Initiatives Environmental Sustainability Packaging Summit 45 major packaging suppliers 2,000 attendees Sustainable Packaging Value Network 200 global packaging leaders from government, academia, NGOs, and industry 5% Packaging Reduction Goal 60,000 suppliers $11 billion savings ($3.5 billion to Wal-Mart)

Another Truth….. Organizations are still struggling with the operational definition of sustainability!!!

General Definition of Sustainable Development/ Sustainability Brundtland Commission, 1987 Elkington’s Triple Bottom Line, 1997

General Definition of Sustainability “The 2 Rs” (Blackburn 2007) Respect: for people and other living things Resources: the wise use of economic and natural resources —for the purpose of sustaining and promoting the long-term well-being of the organization and society.

Sustainability vs Other Terms?? Sustainable Development Sustainable Growth Social Responsibility/ CSR Corporate (Global) Citizenship Corporate Responsibility Green

Defining Sustainability Obligations and Issues for Action Going beyond Brundtland Comm, TBL and 2Rs Implied expectations of global stakeholders from Global Reporting Initiative (GRI) and sustainability reports Express expectations of global stakeholders 2008 Conference Board study Other standards (Ethos Indicators, STARS, Star Community Index, UNGC, ISO 26000, industry standards, etc.) Identified expectations of stakeholders from direct engagements

Sustainability Standards —Principles, Management Tools UN Global Compact principles: over 5000 businesses ISO 26000 Social Responsibility Guidelines (2010); ISO 14001 Environmental Management System Standard: 200,000 facilities Sustainability Tracking, Assessment and Rating System (STARS) (2010): 500 universities Star Community Index (2010?): 1000 cities Global Reporting Initiative (GRI) Sustainability Reporting Guidelines : 1300+ reporting organizations The U.S. Green Building Council is facilitating the work of cities through the creation of the STAR Community Index, a partnership with ICLEI-Local Governments for Sustainability and the Center for American Progress.

Defining Sustainability Obligations and Issues for Action—Common Topics Governance (oversight structures for legal and ethical compliance and risk control) Human Rights (civil rights, nondiscrimination, etc.) Labor Practices (wages, working conditions, etc.) Environmental Issues (pollution, energy and resource conservation, biodiversity, etc.) Fair Operating Practices (anti-corruption, fair competition, etc.) Consumer Issues (fair marketing, consumer safety, etc.) Community Involvement & Development Economic Viability of the Organization

Sustainable Products & Services Improve the efficient use of natural and economic resources along the product life cycle Provide greater respect and accommodation for the needs of people and other living things along the product life cycle

A Corporate Commitment to Sustainability (A Sample Sustainability Policy) It is within the best interests of our company and society as a whole that our company move along the path to sustainability. To that end, we will strive to achieve the following vision of performance: 1. Economic success: the wise use of financial resources a. Company Economic Prosperity Our business is positioned to survive and prosper economically. b. Community Economic Prosperity We are helping our community survive and prosper economically.

2. Social responsibility: respect for people a. Respect for Employees We treat our employees in a respectful, fair, non-exploitative way, especially with regard to compensation and benefits; promotion; training; open, constructive dialogue with management; involvement in decision-making; working conditions that are safe, healthy and non-coercive; rights of association, collective bargaining and privacy; employment-termination practices; and work-life balance. b. Diversity, Fair Hiring Practices We promote diversity and use hiring practices that are fair, responsible, non-discriminatory, and non-exploitative for our employees, board members, and suppliers. c. Responsible Governance We manage our risks properly, use our economic power responsibly and operate our business in a way that is ethical and legal. d. Respect for Stakeholders We are transparent, respectful and fair to local populations, investors, suppliers and other stakeholders outside our organization who may be affected by our operations. We work collaboratively with our communities, governments and supply chain to enhance the well-being of others. e. Fair Dealing With Customers We are honest and fair with our customers, competing fairly for their business, anticipating their needs, respecting their privacy, and providing them safe and effective products and services under the conditions we promise.

3. Environmental responsibility: respect for life; the wise management and use of natural resources a. Resource Conservation We conserve our use of natural resources to the extent practicable. b. Waste Prevention and Management We reduce to the extent practicable the volume and degree of hazard of the wastes we generate from our operations, and handle them in a safe, legal and responsible way to minimize their environmental effects. c. Environmental Risk Control and Restoration We minimize the risk of spills and other potentially harmful environmental incidents, restore the environment where damaged by us, and enhance it to better support biodiversity. d. Supply Chain Impacts We work with others in our supply chain to help assure environmental impacts and risks associated with our products and services are reduced and properly controlled. e. Collaboration With Communities We collaborate with our communities to protect and improve the environment.

Examples of Economic Topics Sales Profits Dividends Cash flow R&D investment Capital expenditures Debt and interest Wages Market share Retained earnings Liabilities Return on investment Community donations Taxes Tax subsidies Local purchasing Credit rating Brand strength

Examples of Social Topics Ethics Workplace safety Employee shared values Product usefulness Corporate governance Employee work-life balance Product quality Employee relations Human rights (security policies, etc.) Product safety Product labeling Fair advertising and labeling Union relations Board diversity Impacts on local cultures Producer responsibility Supplier diversity Employee diversity Consumer privacy Employee privacy Employee training and development Emergency preparedness Non-discrimination policies Employee wellness programs Child labor Community outreach Employee assistance programs Forced labor Employment Employee turnover Disciplinary practices Transparent public reporting Employee layoff policies Flexible work options Dependent care benefits Anti-sexual harassment policies Charitable donations Bribery and corruption Political contributions Antitrust practices Securities regulation Helping the disadvantaged Occupational health Industrial hygiene Food product nutrition Bioterrorism Worker violence Support for community services Indoor air pollution Indigenous rights Access to healthcare by the poor Legal compliance concerning the above topics

Examples of Environmental Topics Waste disposal Air pollution Water pollution Chemical spills Greenhouse gases Ozone-depleting substances Water conservation Energy conservation Natural resource usage Pollution prevention Recycling Biodiversity Packaging reduction Soil contamination Product take-back Natural habitat restoration Wetlands protection Wildlife conservation Animal rights Product energy use Customer disposal of products Precautionary Principle Spill prevention Renewable energy and materials Endangered species Soil erosion/depletion Environmentally sensitive design Compliance with environmental laws and permits

Some Observations About Sustainability Sustainability is not about one thing. The business case for sustainability is really the business case for a process that looks at sustainability trends and issues and prioritizes among the opportunities and threats to an organization to select those for action that contribute the most value.

Common Organizational Threats and Opportunities -Legal -Financial -Reputational -Competitive -Operational -Productivity, cost -Employee relations -Reputation, brand -License to operate, community appeal -Sales, new markets, customer appeal -Innovation, new products and services

Sustainability Trends: Conditions Responses Opposition to Globalization Extended Producer Responsibility Green Products Green Marketing/Labeling Green Product Certification Rise in Socially Responsible Investing Investor Concerns about Corporate Governance Increased Demands for Transparency/ Public Reporting Growing Power of NGOs/CSOs Increasing Global Terrorism Over-consumption of Resources Obesity; Poor Food Nutrition Fossil Fuel Depletion Climate Change Deforestation Threats to Biodiversity Fresh Water Depletion/Water Contamination Wetlands Destruction Fish Depletion Coral Reef Destruction Spread of Hazardous Pollutants Declining Soil Quality Ozone Depletion Declining Corporate Credibility Growth in Global Business Competition Speed of Communications/ Digital Divide Widening Prosperity Gap (Health, Income, Services) Population Growth Serious Disease Mental Health Problems Increased Immigration; Lower Fertility in Industrialized Nations Hunger and Malnutrition Child and Forced Labor Education Needs for the Disenfranchised Urbanization

Issues Addressed by the 2015 UN Millennium Development Goals Extreme poverty and hunger Universal primary education Gender equality Child mortality Maternal mortality and health HIV/AIDS, malaria and other diseases Environmental sustainability Global partnerships to help developing nations

How are organizations responding to these trends??

Sustainability Trends Drive Response of Organizations Climate Change Fossil Fuel Depletion Energy Conservation Carbon Footprinting Recycling Recycled Content Dematerialization Over Consumption of Resources Changing Population Profile Diversity Programs

The Efficient Enablers The Pathway The Evaluators The Drivers The Efficient Enablers The Pathway The Evaluators A champion/leader with mgmt support Approach for selling the organization on sustainability Accountability mechanisms Organizational structure Deployment and integration Vision and policy Operating system standards Strategic planning for aligned priorities Indicators and goals Measuring and reporting progress Stakeholder engagement and feedback ©2007 William Blackburn Consulting, Ltd.

No. of Companies with Goals on Subject Per Conf Bd. Study 7 5 4 1 3 2 11 Greenhouse Gas Red. Safety Energy Reduction Water Use Supplier Rev. Waste Red. Pkg. Reduction Product Design/ Rev. Philanthropy Mgmt. Systems Fleet Safety Diversity Renewable/ Clean Energy Air Pollution Red. Waste Recycling Process/Fac. Design Rev. Wastewater Red. Goal Subject Number of Companies No. with Metric Goals No. with Non-metric Objectives No. of Companies with Goals on Subject Per Conf Bd. Study (total=11) Source: W. Blackburn, Frameworks for Integrating Citizenship and Sustainability…, Report 1446, (2009), available at www.Conference-Board.org

Approach to Sustainability at Universities Administration (planning and leadership) Campus operations Curriculum Research; policy development Student activities Community outreach

Sustainability at Universities —Typical Social and Economic Issues Diversity, nondiscrimination Student substance abuse, mental & physical health Volunteerism Cafeteria nutrition Crime rate, safety Service learning, sustainability in curriculum Quality of education (ratings, etc.); graduation rates Economic Financial health of institution Costs of attendance; hrs at min wage for students to pay costs Salaries vs. minimum wage and vs. median household income for community Procurements from local suppliers Charitable donations

Sustainability and Environmental Rating Schemes for Universities Sustainability (econ, env, soc.) STARS (Sustainability Tracking, Assessment and Rating System) by Association for the Advancement of Sustainability in Higher Education (AASHE), http://www.aashe.org/stars/index.php Beyond Grey Pinstripes ratings of business schools by World Resources Institute (WRI), http://www.beyondgreypinstripes.org/rankings/topten.cfm Business as Unusual student rankings of graduate business schools by Net Impact, http://netimpact.org/displaycommon.cfm?an=1&subarticlenbr=2294 Environmental The College Sustainability Report Card, http://www.greenreportcard.org The Princeton Review’s Green Rating, http://www.princetonreview.com/green.aspx

7 Recommendations for Universities Top Support: Obtain support from top university officials. Team: Create multifunctional sustainability team with student, faculty, administrative and operations staff and alumni input. Policy & Goals: Build from existing commitments/statements to develop and implement a true sustainability policy (economic, social, environmental); identify priorities and supporting goals and initiatives. Evaluation: Do STARS analysis; use U of NC (Chapel Hill), UBC and other highly-ranked schools as benchmarks for progress. Report: Publish meaningful, transparent, annual sustainability report; Engage Stakeholders: Use report to engage internal and external stakeholders on the university’s sustainability issues and initiatives. Educate the public and community on the sustainability concept. Publicize Efforts: Publicize efforts with media and rating organizations.

The Sustainability Handbook— The Complete Management Guide to Achieving Social, Economic and Environmental Responsibility (See www.WBlackburnConsulting.com )

World’s Population (in Billions) 1 2 3 4 5 6 7 8 9 10 1930 1999 2050

US Consumption and Waste!! 5% of the population 25-30% of the resources and wastes Need 5-6 worlds at current production if everyone consumed at US rates! Source: Worldwatch Institute, 2003, 2004; US Geological Survey, 1998

Corporate Partnerships with NGOs and Government* Healthcare Water, climate change Employee volunteerism) Education on relevant skills EPA voluntary programs Customer-oriented partnerships Supplier-oriented partnerships Healthcare: AIDs programs Volunteerism: P sponsors employees to assist NGOs in 30 countries FP: works with colleges to prepare disadvantages people for jobs with utilities EPA: Energy Star, Green Supplier Network, Climate Leaders, SmartWay Transport Partnership Customer partnerships: JP After School Roundup, to fund after school programs for needy children Supplier: Aveda gets natural ingredients from indigenous tribes; teams w/ NGOs and others to help make their communities sustainable *Source: 2007 Conference Board study of 11 major corporations

Corporate Supply Chain Programs* Risk-based programs Approach Requirements or guidelines document (supplier codes) Evaluation process Questionnaires; self assessments Expert site evaluations Communications and networking forums and CSR awards Downstream collaboration (e.g., Aveda, Coca-Cola) Downstream: Aveda spas during Earth Month; CC, bottlers council, standards, metrics, community programs , report *Source: 2007 Conference Board study of 11 major corporations