Sustainability - 1 CORPORATE SUSTAINABILITY A New Frontier

Sustainability - 2 DEFINITIONS  Sustain –To give support to –Support the weight of –Keep up or prolong –To bear up under  Sustaining –Aiding in the support of an organization through a special fee (sustaining member)  Sustained yield –Production of a biological resource under management procedures which insure replacement of the part harvested by regrowth or reproduction (ca. 1905)

Sustainability - 3 What is Sustainability?  “Meeting our society’s needs in ways that don’t compromise the ability of future generations to meet theirs.”  “At its core, sustainability is about being responsible with resources – people, land, energy, water, materials and capital.” Clark S. Davis, Vice Chairman – HOK, “A Green Convergence: Linking Environmental and Organizational Sustainability,” Horizons, RubinBrown, Spring 2009.

Sustainability - 4  “The word sustainability is all too often confused with simple survival in challenging economic conditions …”  “Now is the time for the forward thinking organization to assess the market, look at competitors and evaluate its long-term plan.”  “Keys to sustainability are customer satisfaction and satisfaction of your personnel.” John F. Herber, Jr., Horizons, RubinBrown, Spring What is Sustainability?

Sustainability - 5 Drivers of Sustainability Source: KPMG Survey

Sustainability - 6  Financial –Shareholders (Institutions - -- Individuals) –Bond holders –Banks –Employees (including unions) –Other capital sources (venture capitalists)  Supply chain –Customers –Alliance partners –Direct suppliers –Upstream suppliers –Contractors  Regulatory –SEC –IRS –Occupation Health and Safety –FDA –EPA –Accounting standards (FASB, IASB, PCAOB) –FCC  Political –Federal government –State & local governments –International governments –United Nations –EU –OPEC –NATO  Social –Local communities –General public –Academia –Charitable organizations –Environmental & social organizations Stakeholders U.S. Public Organizations

Sustainability - 7 Corporate Sustainability Reporting (CSR)  Beginnings – highly unstructured –Corporate Social Responsibility reports  1997 – Global Reporting Initiative –Amsterdam-based nonprofit organization –Increased rigor and comparability Extends from crafting a CSR to specific performance indicators Primary areas  economic, environmental, social performance (labor practices) human rights, society, and product responsibility  Strongly supported and implemented in Europe –Currently in Version 3 of Global Reporting Standards for CSR

Sustainability - 8 Profile of CSR Sustainability Reporting Guidelines (Version 3)  Strategy and analysis  Organizational profile  Report parameters  Governance, commitments, and engagements  Management approach & performance indicators –Reporting on trends –Use of protocols –Presentation of data –Data aggregation –Metrics

Sustainability - 9 Sustainability Reporting Expanded Listing  Integration to strategic planning – What is “strategic management?” –External orientation –Focus on strengths –Prepare for unknown developments Business Continuity Planning Disaster Recovery Data backup –Ability to adapt  Economic/financial  Environmental  Social performance (labor rights) –Compensation and benefits –Diversity  Human rights  Products & services  Product responsibility  Society (overall impact)

Sustainability - 10 CSR ASSURANCE STANDARDS  Purpose = creditability of reports  Flexible approach –Internal systems (including internal audit) –External assurance (published conclusions on quality of the report and information contained)  Processes for preparation of report  Assess validity of quality of performance by organization Professional assurance providers (including but not limited to CPAs) Stakeholder panels Others

Sustainability - 11 Qualities of External Assurance  Competent external groups or individuals  Systematic, documented, evidence based approach  Assessment of reasonableness of CSR performance evaluation –Quality of data –Selection of items covered  Completed by individuals independent of organization or stakeholders  Report follows GRI Reporting Framework  Results in written, publicly available opinion –Also includes statement assurance provider about relationship to the organization

Sustainability - 12 Final Thoughts “… leading companies view social and environmental responsiveness as an asset and an opportunity, not as a liability or cost. They recognize that an investment in the structures and systems to ensure strong social and environmental performance often pays dividends in terms of improved process and production quality, improved production efficiency and yields, improved innovation, lower risk, improved reputation, and increased profitability.” Marc. J. Epstein, “Implementing Corporate Sustainability: Measuring and Managing Social and Environmental Impacts.” Strategic Finance, January 2009

Sustainability - 13 Final Thoughts Continued  “A lean strategy is the relentless pursuit to eliminate waste in all business processes.” –Traditionally used on the “plant” floor –Today, throughout the organization  “Companies that have implemented lean are finding sustainability initiatives an easy extension of this philosophy.” Mike Lewis, Horizons, RubinBrown, Spring 2009.

Sustainability - 14 Examples of CSR  Starbucks –Reports have been issued since 2001 –An extensive CSR report –Follows GRI guidelines (Version 3) –Includes prior goals and performance indicators –Includes independent assurance report Moss Adams, LLP (Accounting and Consulting firm)  Since 2002 –Establishes 2015 goals

Sustainability - 15 Examples of CSR  Royal Dutch Shell –Reports have been issued since 1997 –An extensive CSR report –Follows GRI guidelines (Version 3) –Includes prior goals and performance indicators –Assurance Internal controls established to validate information External review committee report included in the report (estab. in 2005)  Objective is to insure report is balanced, relevant, and responsive  Independence is not clear _reports/dir_shell_sustainability_reports.html

Sustainability - 16 Examples of CSR  Others