Is Sustainability Relevant to Business? -- To Employees? To Consumers? To Executives? By William R. Blackburn Sustainability Leadership Forum- Chicago Oce’ Headquarters Chicago, IL August 1, 2012 ©2012 William Blackburn Consulting, Ltd.

What do we mean by “Relevant to”? Of interest to? Actual or potential impact on? (whether or not known) Actual or perceived value to? (e.g., customer willingness to pay more for) ©2012 William Blackburn Consulting, Ltd.

Why are companies going Green, adopting sustainability practices? ©2012 William Blackburn Consulting, Ltd.

The Conference Board Study Participants Alcan, acquired by Rio Tinto Aveda part of Estee Lauder BMS didn’t participate in drivers portion of study ©2012 William Blackburn Consulting, Ltd.

Top Reasons For Increased Focus on Sustainability by Companies (Source: 2007 Conference Board study of 17 major corporations. ) WHY? Reputation, brand Stakeholder pressure (esp. customers) Reduce waste (and costs), increase productivity Employee morale, motivation and recruitment Peer pressure (competitors, high-visibility companies) 7% growth in natural food sales in Dec 09 No of sustainable product launches is 4 times faster in 2009 as last year---- (500) in Q1 is about same as for all of 2008. ©2012 William Blackburn Consulting, Ltd.

Two Benefits for Organizations in Proactively Seeking Sustainability Long-term financial viability Loyalty of key stakeholders DuPont, Dow and 3M saved $1 billion from P2 GE $50 million from safety, Intel $30 mil from contractor safety programs. Baxter $800 million cumulative over 12 years Raytheon saved $10 mil in electricity costs in 2007 from energy reduction efforts ©2012 William Blackburn Consulting, Ltd.

Business Needs the Loyalty of Key Stakeholders to Be Successful Other Companies Investors Our Company Government Communities Customers Rating Groups Carbon Disclosure Project Activists General Public ©2012 William Blackburn Consulting, Ltd.

Building Stakeholder Loyalty Transparency Credibility Stakeholder Loyalty Stakeholder Engagement Econ, Env, Soc Performance Strategic communications (reporting; engagement); no “greenwash” Working in the “discomfort zone” on the toughest issues “See ourselves as others see us” ©2012 William Blackburn Consulting, Ltd.

Large corporations are beginning to see the strategic importance of sustainability. e.g., Wal-Mart vice president of strategy & sustainability, 2005; senior vp, 2007 Some years ago a McKinsey study funded by Wal-Mart showed it had lost 8% of shoppers due to its bad social and environmental reputation Company also began to see they could drive down costs while boosting green reputation. 2007 made position senior vp. ©2012 William Blackburn Consulting, Ltd.

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) ©2012 William Blackburn Consulting, Ltd.

What general topics would you expect to be covered under an organization’s commitment to sustainability/ social responsibility? ©2012 William Blackburn Consulting, Ltd.

Defining Sustainability Obligations and Issues for Action—Common Topics* Governance (oversight structures and systems for legal and ethical compliance and risk control on below topics for organization and its supply chain) Human Rights (civil rights, nondiscrimination, etc.) Labor Practices (wages, working conditions, etc.) Fair Operating Practices (anti-corruption, fair competition, etc.) Consumer/customer Issues (fair marketing, consumer safety, product compliance, etc.) Community Involvement & Development Economic Viability of the Organization Environmental Issues (pollution, energy and resource conservation, biodiversity, etc.) *Based on the GRI reporting guidelines and ISO 26000 SR standard ©2012 William Blackburn Consulting, Ltd.

Home Depot Supplier Social & Environmental Responsibility Program Access to audit Age requirements Forced labor Wages and working conditions Discrimination Emergency planning Environment, health and safety Freedom of expression and association Fraud prevention

Walmart Supplier Sustainability Assessment Questionnaire Energy & climate Waste & water Safety, labor and human rights compliance Community development investment in source locations Sub-supplier oversight: Locations, traceability Guidelines on environmental compliance, labor practices, product safety Pre-evaluation of production quality & capacity

So in practice, what does sustainability mean? ©2012 William Blackburn Consulting, Ltd.

Emerging Meaning of Sustainability from an Organizational View “The 2 Rs” Values-driven management based on--- 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 (including the environment). ©2012 William Blackburn Consulting, Ltd.

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 ©2012 William Blackburn Consulting, Ltd.

A Corporate Commitment to Sustainability (Consensus Sustainability Policy Per Conf Bd. Study) 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 ensure 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. ©2012 William Blackburn Consulting, Ltd.

Common Organizational Threats and Opportunities (=Relevance) Threats 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

40% of the World Will Live in Water-Scarce Regions by 2025 Next 40 years ave supply of fresh water will be cut by 1/3 Threatens survival and food supply, hydro power Source: WRI, UNEP, WBCSD, Tomorrow’s Markets— Global Trends and Their Implications for Business, 2002; Jeff Seabright, Coca Cola Presentation, TCB, May 31, 2007. <0.5 0.5-1.0 1.0-1.7 1.7-4.0 4.0-10 >10 Extreme Scarcity Scarcity Stress Adequate Abundant Surplus Ocean/ Inland Water No Data 1000 m³/person/year

Sample SWOT Analysis for Sustainability Issue: Water Threat Opportunity Strength Weakness Possible Objectives Depletion of Fresh Water Resources 1. Water shortage could jeopardize operations 2. Some competitors have long-term water rights conservation projects can save money, help secure supply 2. More on-site water treatment and reuse are possible 3. May be able to secure long- term water rights in some locations 1.Some water projects underway 2. Internal engineering expertise 1. No long-term water rights secured in some growth regions 2.Some communities serving our factories have poor water supply infrastructure 1. Investigate water risks on site-by-site basis and develop actions to address them 2. Consider more aggressive water treatment, reuse and conservation programs using internal engineers 3. Explore securing long-term water supplies in high risk areas while respecting community needs

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 No of TNCs jumped 10x in 30 years 51 of world’s largest companies aren’t countries but companies 10% have access to internet; 50% haven’t used a phone Extended Producer Resp: proactively control risk; hazards info, responsible for harm; take back Light brings heat brings change; surge in reporting; stockholder resolutions 150% increase in International NGOs in 20 years

The Sustainability Handbook— The Complete Management Guide to Achieving Social, Economic and Environmental Responsibility (See www.WBlackburnConsulting.com ) ©2012 William Blackburn Consulting, Ltd.

Relevance to Which Customer? Dedicated Greens/ “Lifestyles of Health & Sustainability” (LOHAS) -- 8-20% Sympathetic, Pragmatic, Health & Wellness Greens -- 25-35% Overwhelmed/ Procrastinators -- 15-25% Unconcerned/ Other Priorities -- 15-35% Survey Sources: -Roper -National Marketing Institute -Hartman Group -Landor Associates

And Not Every Green Product is Successful…… Thomas Edison electric car Whirlpool Super Efficient Refrigerator Project (SERP); won $35 mil prize for eliminating Freon and improving energy efficiency, but size and pricing were wrong.

7 Lessons on Sustainable Products & Services Customers will pay more for (a) added safety of food and hygiene- and health-related products, (b) a more natural living environment, and (c) lower life-cycle costs. Products and services for the poor must break barriers on cost/pricing either through low volume per unit or low-cost operations. Government mandate can create markets for green products and services. 3. Energy star computers; green energy Another good example is the U.S. Environmental Protection Agency’s Comprehensive Procurement Guidelines (CPG) mandating that federal agencies and federally supported state agencies purchase office products with the highest recovered material content practicable.

7 Lessons on Sustainable Products & Services Some commercial customers may also pay more for green products if they can gain a clear reputational advantage with their own customers or other important stakeholders. A small percentage of customers will pay more for a green product or service than a comparable non- green product purely for ethical reasons. 3. Energy star computers; green energy Another good example is the U.S. Environmental Protection Agency’s Comprehensive Procurement Guidelines (CPG) mandating that federal agencies and federally supported state agencies purchase office products with the highest recovered material content practicable.

7 Lessons on Sustainable Products & Services-cont’d. Many customers will avoid products with a highly publicized social or environmental stigma. With those exceptions, a product’s social and environmental advantages and cause-based marketing are differentiating factors, not primary factors, to most consumers.

The 4 Challenges of Sustainability? To develop and produce products/services that address relevant economic, social and environmental concerns To make those products/services competitive, marketable To conduct operations in ways that are open and honest, and socially and environmentally responsible To operate PROFITABLY! ©2012 William Blackburn Consulting, Ltd.