Sustainability A Consulting Perspective Will change these pictures Olivier Corvez Presentation to Clark University November 2nd, 2009

Agenda Introduction Refresher on Sustainability interpretation Global panorama – Roots & trends ERM & Sustainability framework Case study Q & A Discussion and questions throughout

Defining Sustainability 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 Energy and greenhouse gas (GHG) management 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

Sustainability Value Proposition A company’s strategic goals Reduce Costs Avoid Risks Create Options Reduce human and capital costs of accidents, injuries and deaths Cost reduction through eco-efficiency Avoid fees and fines Stay in compliance Avoid supply chain risk Avoid negative press Maintain social license to operate Facilitate entry into new markets Create new products Establish partnerships to innovate and grow

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 Healthcare For some manufacturers, management and supply chain are the big drivers; expect more pressure from customers This doesn’t include industry specific topics – e.g., if this was a pharmaceutical company, access to drugs and drug pricing would be on this list.

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.

Why companies think Sustainability is important? Some Internal drivers : Cost savings add to the bottom line Product innovation/new market opportunities Catalyst for business performance Attracting/retaining people (e.g. “young high potentials”) Higher appreciation of stock value Dow Jones Sustainability Index CEO believers (Leading the movement) Increase Market Share Some External drivers : Brand image (both opportunity- and risk-driven) Influence financial sector/sustainability rating agencies Information becomes public more quickly (“CNN-world/Global Village”) International sustainability agenda (UN summit Johannesburg, Millennium development goals, etc): water, energy & climate change, health, biodiversity, population, poverty International agreements (e.g. Kyoto) and regional regulations (e.g. WEEE in the EU or REGI in the US) International competition De-regulation/absence of global governance: higher expectations of (larger) companies Regaining trust (after Enron/Worldcom etc.) Increasing influence of NGO’s and public at large More than 52% of the Global Fortune 250 are publishing an annual Corporate Responsibility performance report* * KPMG 2005 annual survey

History 1950’s 1970’s 1990’s 2010’s Local ISO 9000 ISO 14000 Health-Safety Quality Environment Sustainability History 1950’s 1970’s 1990’s 2010’s Employees Unions Drivers Regulations H&S Client needs Cost control Env. regs Public, Medias Resources Local Standard ISO 9000 ISO 14000 ? Certification OHSAS 18001 ISO 9001 ISO 14001 ? More and more scrutiny towards Corporations and transparency about their “non financial” practices & performances…

As scrutiny increases, so does the amount of annual CSR/ SD reports…. As with financial reporting rules, Countries are passing more law enacting public reporting of annual “non financial” performances… Total Output of CSR Reports Worldwide - 1992 to 2007 * Source : CorporateRegister.com

Total Output of CSR Reports per Country Total Amount of Annual CSR/ SD reports by Country…. In proportion to the total number of companies headquartered in these countries, the EU and Japan have been leading the way in generating the most Sustainability reports… Total Output of CSR Reports per Country

Evolution In content of the SD reports Evidence, Consistent Performance Anecdotal Stories Policy & Standards Systems & Governance Point – programs and reporting can make positive impact no matter what level the company is at. The point is to build and keep momentum – keep the trends positive.

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 Management

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

ERM’s Approach to Sustainability Consulting

Suite of ERM Sustainability Services Sustainability strategy Metrics, goals, and policy development Programs and projects Greening supply chain Training and awareness Product life cycle impacts Information management New product development Corporate non-financial reporting Third-party reviews …

Delivering the ERM Sustainability Framework - Overview Mindset I have a clear idea of why and where I'm going I know what I will change I can see how it will work I can see the benefits Program Phases Defining Current Profile Sustainable Business Elaboration Execution & Review performance Context Analysis Design Program Map sector specific issues (external forces) Identify and scale Stakeholders importance & issues Review overall Business growth strategy Assess Company’s products and services from a Sustainability perspective Analyze results from Sustainability Scorecard assessment High level redesign Blueprint Identify business value proposition and route to them Identify Quick wins and medium/ long term priorities Identify vision, goals and objectives. Set tangible targets, priorities and milestones Quantify resources necessary Implementing the program Review performance results (positive and negative) Analyze results Key Activities Critical Milestones Our Sustainability Framework is embedded in the Company’s Business strategy 9

Steps to developing a CSR strategy ERM’s suggested approach to defining the CSR/ SD strategy and introduce some key areas for decision-making, as follows: Defining your business case Defining your journey Defining strategic fit Embedding CSR strategy into your organisation

Defining strategic fit: What is your SD opportunity? Today’s Market Internal focus External Tomorrow’s Opportunity Product Innovation Sustainable Development Operational Excellence Stakeholder Responsiveness Adapted from S. Hart (2005), Capitalism at the Crossroads

Defining the journey: Where are you now and where do you want to be? Stage 5: Competitive Advantage Stage 4: Integrated Strategy Stage 3: Risk management Stage 2 : Coping/ Compliance Stage 1: Pre- Compliance

Two Interlinked Action Fronts Create and Implement a Sustainability Strategy Supporting Actions and Organizational Changes to Ensure Buy-in, Integration, and Implementation of the Sustainability Strategy

Foundations Reputation Emerging Risks Improving Performance Capstone. If you don’t have the bottom three, not much to support reputation Reputation Emerging Risks Both risks coming from rising expectations and risks coming from changes in the business model Improving Performance Performance as a business (cost reduction, cycle time, growth) Assuring Performance (Compliance and Assurance) Foundation, without that nothing else matters much Source: ERM 2004 Business Integration Forums

Case Study

The Wal-Mart Effect Wal-Mart’s Sustainability Strategy Be supplied 100% by renewable energy Create zero waste Sell products that sustain our resources and environment Become the access point for organic foods at a value Customers Sustainable products more relevant to selective user => $ growth Drive emotional / intangible appeal Investors Lower risk and volatility Increase profits by reducing costs Drive new customer segment growth Sustainability Profitability Increased Share Price

The Wal-Mart Effect – Energy efficiency module Wal-Mart is investing $500MM to achieve goals … Reduce greenhouse gases across network by 20% over next 7 years Design and build more “Experimental Stores” that are 25-30% more efficient emits up to 30% less greenhouse gas within the next 4 years Increase fleet efficiency by 25% in the next 3 years Share technology learning with “the world,” including competitors Reengineer all 14 Value Networks to be environmentally sustainable … and have initiated a program over the next 18 months that will show preference to suppliers who set their own goals and aggressively reduce their own emissions Light bulb goal: 100 million CFBs per year by 2008. All kinds of supply chain issues. Fewer bulbs sold, mfg jobs lost, mercury into waste stream. BUT, a company that creates it’s own economic ecosystem is getting in front of it’s customers/consumers on the issue.

Conclusion - Sustainability Best Practice Effective Sustainability Championed at the highest levels Cross functional, high level steering committee Innovative public/private partnerships Focused on engaging stakeholders, not managing critics Effective use of resources and influence Strategically focused philanthropy Not corporate activism

Environmental Resource Management Email : olivier.corvez@erm.com Q & A Olivier Corvez Environmental Resource Management 399 Boylston Street Boston MA 02116 Tel: 617 646 7800 Email : olivier.corvez@erm.com