Deloitte Sustainability Value Methodology Copenhagen, 28 June 2006 Preben Soerensen Sam Vaseghi

Create Sustainable Value Shareholder Value: Economic Value Leading companies understand that there is not always a trade-off between Shareholder & Stakeholder value Positive Create pure Environmental & Social Value At the expense of economic value Create Sustainable Value Stakeholder Value: Social & Environmental Value Create pure Economic Value At the expense of environmental and social value Destroy Value Negative “ “According to a recent survey of executives in 481 companies in Europe and North America, 83% of respondents see potential business value in implementing SD initiatives. Companies are finding that the benefits of pursuing a sustainable development approach range from opening new avenues to innovation in products, processes and stakeholder relationships to accelerating learning organization skills throughout a company.” Sustainable Development: The Next Generation of Business Opportunity (Hedstrom et al. 2000b) Shareholder Value: Economic Value Negative Positive Our approach aims at maximizing the benefits of converging value drivers in order to create sustainable value for both shareholders and stakeholders. Source: Adapted from Sustainable Value Partners

Our Sustainability service offerings span across all Stakeholder and Shareholder Value Drivers Revenue Growth Operating Margin Asset Efficiency Expectations Strategic Planning for Sustainable Development Environment, Health and Safety Corporate Governance & Transparency Reporting & Performance Measurement Operational Impact Products & Services Disability & Work Attendance Management S T A K E H O L D E R V A L U E Enterprise Operational Excellence Human Capital Management & Employee Productivity Production Efficiency Material Sourcing

1. Map Stakeholders’ Values 2. Define Sustainability Issues Our Sustainability service offerings span across all Stakeholder and Shareholder Value Drivers S H A R E H O L D E R V A L U E Revenue Growth Operating Margin Asset Efficiency Expectations Operational Impact 1. Map Stakeholders’ Values 4. Map Shareholder Value 2. Define Sustainability Issues 3. Design Business Case Products & Services S T A K E H O L D E R V A L U E Production Efficiency Material Sourcing

The Sustainability Value Methodology 1. Map Stakeholders’ Values 4. Map Shareholder Value Identify/reassess and characterize stakeholders Proactively identify/reassess stakeholder expectations … Apply ValueMap to map value from business cases Apply ValuePrint to evaluate/assess business cases … 2. Define Sustainability Issues 3. Design Business Case Define/Refine key issues from stakeholder perspective Translate definition of issues into shareholder perspective … Track via ValueMap Assess Risks and Opportunities Design appropriate business cases by ValueMap …

First Step Map Stakeholders’ Values and Define Sustainabilty Issues S H A R E H O L D E R V A L U E Revenue Growth Operating Margin Asset Efficiency Expectations Operational Impact 1. Map Stakeholders’ Values 4. Map Shareholder Value Products & Services S T A K E H O L D E R V A L U E 2. Define Sustainability Issues 3. Design Business Case Production Efficiency Material Sourcing

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes.

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes. Environmental Issues New markets for environment-friendly and energy-efficient products in emerging economies Social Issues New markets for emerging consumer needs in emerging economies Workplace health and safety* Labour standards* Human rights issues* Corporate governance issues Complying with local laws, while upholding global corporate governance and responsibility standards

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes. Environmental Issues Carbon constraints (climate change) Environmental liabilities Pollution prevention Reducing emissions and resource use New markets for environment-friendly and energy-efficient products

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes. Environmental Issues Product stewardship Waste and toxic release management Accident and spills management Efforts to incorporate external costs in planning and accounting

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes. Social Issues HR management (including compensation, training, etc.) Attracting and retaining employees Workforce diversity and equal opportunities

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes. Environmental Issues Environmental governance and management systems Accidents and spills management Social Issues Community and NGO relations Government relations Investor relations Management of crisis situations* Corporate governance issues Board structure and accountability Accounting and disclosure practices Audit committee structure and independence of auditors Executive compensation Management of corruption and bribery instances Business ethics policies Corporate citizenship engagement

Deloitte Generic Catalogue of Sustainability Issues Global trend: Changing demographics and the emergence of new consumer and labour markets. Boosting innovation for efficiency and reduced impact on environmental and climate systems. Preserving the natural resource base. Doing business in a globalized, interconnected economy. Earning the license to operate. Changing geopolitical risk landscapes. Social Issues Human rights, community and government relations in politically unstable countries/conflict zones Corporate governance issues Policies and systems to manage risk in politically unstable countries/conflict zones

Example: Identifying together with you your relevant and material Sustainability Issues aligned with your corporate strategy Aligned with the Strategic Planning for Sustainable Development Environmental Issues Environmental and safety management of production processes Declining capacity of eco-systems to sustain intensive harvesting and production methods Business in a carbon-constrained world Social Issues Changing consumer preferences, new needs in emerging markets Management of global workforce Labour practices and HR management Community relations, corporate citizenship engagement Corporate Governance Issues Corporate governance framework Transparency in relation to sourcing and production methods Government relations, business ethics

Second Step Design Business Case and map shareholder Value Revenue Growth Operating Margin Asset Efficiency Expectations € Operational Impact 1. Map Stakeholders’ Values 4. Map Shareholder Value Products & Services S T A K E H O L D E R V A L U E 2. Define Sustainability Issues 3. Design Business Case Production Efficiency Material Sourcing

Proposed value framework for integration of key stakeholder issues 3. Design Business Case 4. Map Shareholder Value Issue Strategy Policies Management- Systems Litigation and regulatory risks Risk premiums Issue Operational risks Reputation and brands Issue Costs WACC Operational efficiency Stakeholder value Shareholder value Innovation Access to new / Existing markets Free cash flows Revenues Access to knowledge and skills Issue Access to ressources Other (tax, reinvestment rates) Issue Others Issue

How to address Economic, Social and Environmental imperatives all together Improve materials efficiency of production processes Design products that allow in-creased use of recycled materials: use procurement deals and partnerships to assure the quality and supply Return wastes to process for recycling, reuse or remanufacturing reducing the quantity of materials purchased and the cost of disposal Improve Production Efficiency Use of Recycled Materials 1) Integrating environmental drivers into their overall business strategy Volvo, best known for pioneering ‘no-nonsense’ cars with extensive safety features is also the world’s second largest manufacturer of trucks. In 1993, when it introduced a new truck series, the FH series with the new D12 engine, it concentrated on publicizing the trucks’ lower fuel consumption and lower emissions. (As a basic design concept, these trucks have a 15- to 20- year life; only incremental changes are made from year to year.) Volvo developed and marketed these environmental drivers in addition to its focus on the more usual requirements for customer satisfaction such as price, reliability, and model flexibility. The results: 3 Volvo’s market share in the over-16-ton truck segment has grown by 35% in Europe since the introduction of the FH-series 3 Operating margins in Volvo’s truck operations are 9.9%, twice as much as its five-year average of 4.3%, and significantly above its tenyear verage of 5.9% 3 Since 1993, the contribution of truck operations to the company’s operating income rose from 30% to 56%, an 83% increase The DuPont cases (see items 5 and 8 below), likewise illustrate how the up-front integration of specific environmental drivers into the business mission can lead to better business performance. 2) Paying close attention to how consumers value environmental product qualities In the autumn of 1994, Consumenten Bond, a Dutch consumer rating magazine, conducted a test on 24-25 inch stereo TVs. The test included a review of four environmental dimensions - energy consumption, recycling, materials and use of hazardous materials. Before the test, a Sony product was ranked second, with a market share of 5.6% and generating Dfl 3.1 million in gross revenue per month. The test resulted in an overall rating of ‘reasonable’ for the Sony TV set, while Nokia and Aristona were rated ‘best buy’, partially because they outperformed the Sony product in each environmental dimension except one (where they were equal). In the month following the test, Sony’s market share in The Netherlands for this specific product fell by 12% while Nokia’s increased by 57% and Aristona’s by 100%. In terms of gross revenue, Sony stayed the same, Nokia gained 73% and Aristona 113%. This example highlights the fact environmental product qualities influence sales and thus the bottom line of a company. However, while it is fairly easy to determine the negative effect of lagging behind competitors in a product’s environmental characteristics, it is much more difficult to measure the positive effect of outstanding environmental product performance. 3) Subjecting environmental investment proposals to the same appraisal process as any other investment proposal Leading international pharmaceuticals and chemicals group Ciba used the shareholder value method of Rappaport11 to demonstrate that the financial contribution of an environmental strategy - like that of any other strategy - can be measured and communicated effectively. In a model test application, Ciba quantified the total financial value of two of its business units and then quantified the financial contribution which environmental strategies could make to them. The purpose was to evaluate, in the language of financial investors, whether environmentallyinduced cash outflows increased or decreased the financial value of the business units. It found that proactive strategies, including environmental strategies, can lead to increased financial value but do not necessarily do so. An environmental strategy, like any other strategy, can therefore be right or wrong. ‘Right’ means that it increases the financial value of a company and at the same time decreases its environmental impact. ‘Wrong’ means that it does not contribute to higher financial value. In the test case at Ciba, environmental investments, despite an initial increase in cash outflows, led to higher financial value. 4) Increasing energy efficiency per unit produced As an example that stands for many, Novo Nordisk, a Danish biotechnology company, reduced its energy consumption per unit of production by 48% between 1990 and 1995. This translates into an annual reduction of slightly more than 10%, easily beating its own internal goal of an annual per unit energy reduction of 4%. Improvements in energy and raw material productivity go straight to the bottom line because they are direct cost factors. 5) Reducing negative impacts (emissions, discharges, wastes) on eco-systems Research at the University of Michigan12 suggests that manufacturing companies have seen a significant improvement in their financial performance (returns on assets, sales and equity) as a result of having reduced their emissions.Interestingly, the financial improvement does not usually appear until one or two years after the reduction in emissions. A case in point was when Atlantic Packaging Products, a Canadian recycled fiber company, bought Kvaerner’s High-rate Compact Reactor process, a biological waste-water treatment system in 1994. Atlantic Packaging was able to cut its waste-water emissions and this in due course led to financial savings because the company had to pay lower municipal emissions surcharges. Another example is provided by DuPont’s Safety, Health and Environmental Excellence Awards. Over the past three years, the semi-finalists and winners of these awards have generated over US$200 million in annual cost savings and revenue increases at DuPont and customer facilities13, largely through reductions in emissions and wastes. 6) By recycling or using ‘waste’ material The founding idea of the Danish Steel Works was to transform scrap into steel. The company has continually developed its recovery know-how, so that scrap once considered worthless and discarded, can now be economically reused. This demonstrates that it is possible to ‘close the loop’ on the resource side while securing profits. From 1991 to 1995, the Danish Steel Works delivered an average operating profit of 8.7% - outperforming the market leaders14 and generating a better return than many companies on the Fortune 500 list. 7) By reducing the cost of credit Kværner, a leading international engineering company, secured funding for a revolving credit facility of several hundred million US dollars in 1995 at a rate that was “a few basis points” cheaper than the standard rate “in part because of its environmental performance”. The facility was arranged by Swiss Bank Corporation, Dresdner Bank, Enskilda and Chemical Bank. While the parties involved in arranging such facilities are notoriously cagey about details, no one denied that the credit was granted on preferential terms partially because of Kværner’s good environmental record. The concept of finer rates being offered to borrowers with demonstrably good environmental records is confirmed by Philip Byrne of SBC Warburg’s corporate finance department. He says emphatically that all banks nowadays routinely look at the environmental performance of a borrower. While it is still more usual to be penalized for having a shaky environmental performance than to be rewarded for having a good one, all financial institutions are working very hard at becoming better at pricing risk, and that includesenvironmental risk, more accurately. 8) Increasing raw material efficiency per unit produced Boosting energy efficiency is the classic concern of process engineers but it is seldom considered from an environmental perspective. A recent example where environmental considerations were to the fore was in DuPont’s Lycra business, where process wastes were converted into first quality product. This improvement, a result of the company’s goal of zero-waste, significantly increased production capacity (and hence revenues) in a very attractive market while reducing disposal costs15 . 9) Extending service and enhanced functionality For Bröderne Hartmann, a small to mediumsized packaging and paper company in Denmark, real growth potential lies in displacing other packaging media, first by meeting all their specifications and then by adding a critical dimension competitors cannot match. Industrial customers who themselves are under market pressure to put value on environmental performance – increasingly use the environment instead of price to break into an existing market. A customer survey conducted by Hartmann clearly documented this fact. Hartmann’s move toward separating industrial packaging from its commodity business is now under way and the first production facility for these products is being built in Malaysia.

How to address Economic, Social and Environmental Imperatives all together to create Shareholder Value Rationalize and/or realign product development efforts Increase emphasis on modular, extensible, scalable designs Improve prototyping, piloting and testing processes Ensure the use of recyclable packaging Improve recovery, reuse, and recycling of packaging Manage the entire product life cycle / products sold that are reclaimable at the end of the products’ life (recycle or reuse of the product materials or components) Improve Development & Production efficiency Improve Product & Services Cycle 1) Integrating environmental drivers into their overall business strategy Volvo, best known for pioneering ‘no-nonsense’ cars with extensive safety features is also the world’s second largest manufacturer of trucks. In 1993, when it introduced a new truck series, the FH series with the new D12 engine, it concentrated on publicizing the trucks’ lower fuel consumption and lower emissions. (As a basic design concept, these trucks have a 15- to 20- year life; only incremental changes are made from year to year.) Volvo developed and marketed these environmental drivers in addition to its focus on the more usual requirements for customer satisfaction such as price, reliability, and model flexibility. The results: 3 Volvo’s market share in the over-16-ton truck segment has grown by 35% in Europe since the introduction of the FH-series 3 Operating margins in Volvo’s truck operations are 9.9%, twice as much as its five-year average of 4.3%, and significantly above its tenyear verage of 5.9% 3 Since 1993, the contribution of truck operations to the company’s operating income rose from 30% to 56%, an 83% increase The DuPont cases (see items 5 and 8 below), likewise illustrate how the up-front integration of specific environmental drivers into the business mission can lead to better business performance. 2) Paying close attention to how consumers value environmental product qualities In the autumn of 1994, Consumenten Bond, a Dutch consumer rating magazine, conducted a test on 24-25 inch stereo TVs. The test included a review of four environmental dimensions - energy consumption, recycling, materials and use of hazardous materials. Before the test, a Sony product was ranked second, with a market share of 5.6% and generating Dfl 3.1 million in gross revenue per month. The test resulted in an overall rating of ‘reasonable’ for the Sony TV set, while Nokia and Aristona were rated ‘best buy’, partially because they outperformed the Sony product in each environmental dimension except one (where they were equal). In the month following the test, Sony’s market share in The Netherlands for this specific product fell by 12% while Nokia’s increased by 57% and Aristona’s by 100%. In terms of gross revenue, Sony stayed the same, Nokia gained 73% and Aristona 113%. This example highlights the fact environmental product qualities influence sales and thus the bottom line of a company. However, while it is fairly easy to determine the negative effect of lagging behind competitors in a product’s environmental characteristics, it is much more difficult to measure the positive effect of outstanding environmental product performance. 3) Subjecting environmental investment proposals to the same appraisal process as any other investment proposal Leading international pharmaceuticals and chemicals group Ciba used the shareholder value method of Rappaport11 to demonstrate that the financial contribution of an environmental strategy - like that of any other strategy - can be measured and communicated effectively. In a model test application, Ciba quantified the total financial value of two of its business units and then quantified the financial contribution which environmental strategies could make to them. The purpose was to evaluate, in the language of financial investors, whether environmentallyinduced cash outflows increased or decreased the financial value of the business units. It found that proactive strategies, including environmental strategies, can lead to increased financial value but do not necessarily do so. An environmental strategy, like any other strategy, can therefore be right or wrong. ‘Right’ means that it increases the financial value of a company and at the same time decreases its environmental impact. ‘Wrong’ means that it does not contribute to higher financial value. In the test case at Ciba, environmental investments, despite an initial increase in cash outflows, led to higher financial value. 4) Increasing energy efficiency per unit produced As an example that stands for many, Novo Nordisk, a Danish biotechnology company, reduced its energy consumption per unit of production by 48% between 1990 and 1995. This translates into an annual reduction of slightly more than 10%, easily beating its own internal goal of an annual per unit energy reduction of 4%. Improvements in energy and raw material productivity go straight to the bottom line because they are direct cost factors. 5) Reducing negative impacts (emissions, discharges, wastes) on eco-systems Research at the University of Michigan12 suggests that manufacturing companies have seen a significant improvement in their financial performance (returns on assets, sales and equity) as a result of having reduced their emissions.Interestingly, the financial improvement does not usually appear until one or two years after the reduction in emissions. A case in point was when Atlantic Packaging Products, a Canadian recycled fiber company, bought Kvaerner’s High-rate Compact Reactor process, a biological waste-water treatment system in 1994. Atlantic Packaging was able to cut its waste-water emissions and this in due course led to financial savings because the company had to pay lower municipal emissions surcharges. Another example is provided by DuPont’s Safety, Health and Environmental Excellence Awards. Over the past three years, the semi-finalists and winners of these awards have generated over US$200 million in annual cost savings and revenue increases at DuPont and customer facilities13, largely through reductions in emissions and wastes. 6) By recycling or using ‘waste’ material The founding idea of the Danish Steel Works was to transform scrap into steel. The company has continually developed its recovery know-how, so that scrap once considered worthless and discarded, can now be economically reused. This demonstrates that it is possible to ‘close the loop’ on the resource side while securing profits. From 1991 to 1995, the Danish Steel Works delivered an average operating profit of 8.7% - outperforming the market leaders14 and generating a better return than many companies on the Fortune 500 list. 7) By reducing the cost of credit Kværner, a leading international engineering company, secured funding for a revolving credit facility of several hundred million US dollars in 1995 at a rate that was “a few basis points” cheaper than the standard rate “in part because of its environmental performance”. The facility was arranged by Swiss Bank Corporation, Dresdner Bank, Enskilda and Chemical Bank. While the parties involved in arranging such facilities are notoriously cagey about details, no one denied that the credit was granted on preferential terms partially because of Kværner’s good environmental record. The concept of finer rates being offered to borrowers with demonstrably good environmental records is confirmed by Philip Byrne of SBC Warburg’s corporate finance department. He says emphatically that all banks nowadays routinely look at the environmental performance of a borrower. While it is still more usual to be penalized for having a shaky environmental performance than to be rewarded for having a good one, all financial institutions are working very hard at becoming better at pricing risk, and that includesenvironmental risk, more accurately. 8) Increasing raw material efficiency per unit produced Boosting energy efficiency is the classic concern of process engineers but it is seldom considered from an environmental perspective. A recent example where environmental considerations were to the fore was in DuPont’s Lycra business, where process wastes were converted into first quality product. This improvement, a result of the company’s goal of zero-waste, significantly increased production capacity (and hence revenues) in a very attractive market while reducing disposal costs15 . 9) Extending service and enhanced functionality For Bröderne Hartmann, a small to mediumsized packaging and paper company in Denmark, real growth potential lies in displacing other packaging media, first by meeting all their specifications and then by adding a critical dimension competitors cannot match. Industrial customers who themselves are under market pressure to put value on environmental performance – increasingly use the environment instead of price to break into an existing market. A customer survey conducted by Hartmann clearly documented this fact. Hartmann’s move toward separating industrial packaging from its commodity business is now under way and the first production facility for these products is being built in Malaysia.

Shareholder Value Tracking of Sustainability Issues Even if aligned with the objectives, these projects may double count benefits Many issues appear to have negative financial return The company objective is to increase Grow Constituent Base by 10% Add sensitivity analysis, if available However 70% of the portfolio is focused on Asset Efficiency Most popular view Explain analysis MapIt! 2.0 is coming - can change out underlying map, done in visio.

€ Design Business Case The ValuePrint Approach The ValuePrint Approach focuses on how to develop a business case using ValuePrint. In the broader context of Deloitte’s commitment to provide professional services that deliver measurable business value, the Path to Value method represents an approach to managing the engagement life cycle to target, identify, and deliver value-creating opportunities for our clients. The ValuePrint Approach is included in the Path to Value method Assess Client Strategies and Issues** Initiation The ValuePrint Approach 1 2 3 4 Develop Business Case Scope Statement Develop Business Case Workplan Conduct Business Case Financial Analysis Prepare Business Case Executive Report € Monitor Result Monitoring

Components of The Value Methodology Enterprise Value Map: provides a simple conceptual framework that relates client issues and activities to shareholder value; a powerful visual interface for discussing how actions and strategies align against value drivers. ValueAnalytics: provides user friendly but rigorous financial analysis, both over time and compared to client competitors, across key value drivers. ValueLink: is an on-line portal which provides access to firm thought leadership and intellectual property using the Enterprise Value Map framework as the primary navigation approach; helps match Deloitte capabilities to client issues ValuePrint: is a business case development tool which aligns to the Enterprise Value Map structure; financial impact templates (FIT’s) reside in ValueLink and are assembled into consolidated project business case MapIt (part of Portfolio Landscape): is a simple tool that provides a quick portfolio view of projects (ours or others) and illustrates how they align against client issues and strategy as they are mapped onto the Enterprise Value Map. Portfolio Landscape: is a service offering and approach that provides a rigorous portfolio view of a companies programs/projects, relating them back to the Enterprise Value Map, showing how they align against company strategy, needs and priorities. The Value Initiative e-Learning CDROM: is a multi-media learning program which provides more detailed awareness and learning related to the use of The Value Initiative enablers Value Based Billing: is a means of establishing a value-based pricing and deal structure on selected projects Value Tracking: is a means of identifying, tracking and communicating value delivered to the client Reference – explore on your own Ready to release new version of ValueAnalytics

The Path to Value