1. Baruch College April 2, 2008 Sustainability : Costly Inconvenience or New Business Paradigm? Daniel Mahler, Partner New York Office

2. 2 The challenge: billions of people globally aspire the western standard of living but resources are limited Today Five planets One planet Future, 20xx Resource prices indicate that demand already exceeds supply Regardless of environmental impact developing countries strive to increase standard of living 20% 80% Resources 20% 80% # People 7 bn.100 (indexed) 90% 98% Resources# People 10% 7 bn. +x500

3. 3 The Sustainability Challenge is re-shaping the environment for doing business Key drivers of the sustainability challenge Increasing resource prices: from 20$ to 100$ per barrel oil in 5 years Global Warming premium: pricing in of CO 2 cost in energy prices Vulnerable supply chains: 70% of iron ore in the hands of three global players Increased policy risk: - Australia bans incandescent light bulbs - San Francisco bans plastic bags … Emerging participation of developing countries Increasing material aspirations Competition for resources Migration Scarcity of natural resources Increasing demand for oil & gas Scarcity of water Business threats… Environ- mental & social problems Global warming Environmental degradation Child labor; poor social standards … and opportunities New markets: 50% of Global GDP growth will come from developing markets Growth opportunity: - UK demand for Fair Trade products growing over 40%/year - US demand for organic products up 20+% for past 10 years - strong growth of final demand from developing countries Differentiation opportunity: superior access to capital and talent for sustainability leaders …

4. 4 In recent times, major companies have engaged in a flurry of activities around “Sustainability” 2005 2006 2007 Wal-Mart commits to being more environmentally conscious McDonald’s introduces healthier menu items Michael Dell announces he will enable customers to plant a tree for every Dell PC sold Goldman Sachs commits to investing $1 billion in clean energy technologies CVS offers walk-in clinics that provide low-cost basic healthcare G.E. will invest $1.5 billion in environmental technologies by 2010 UPS truck fleet has 1500 alternative fuel vehicles Leading companies form U.S. Climate Action Partnership Wendy’s stops using trans- fats in fries and fried chicken Tesco invests $990MM to reduce carbon footprint Examples

5. 5 Sustainability is about creating competitive advantage from aligning financial, social and environmental goals A.T. Kearney’s Sustainability Framework Economic Development Financial Performance Environmental Protection Environmental Impact of Business Activities Social Wellbeing Enterprise Impact on Society "For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future." 1) Maximum Benefit Focus Area Creating a Competitive Advantage and a sustainable shareholder return Growth vs. Environment Efficiency vs. Social Definition of Sustainable Development 1) Book: Business Strategies for Sustainable Development: Leadership and Accountability Environment & Welfare

6. 6 Does Your Company Have a Corporate Sustainability Strategy? CEOs and the Boardrooms are beginning to discover sustainability as a “top line” opportunity Prominently Expressed Objectives for Corporate Sustainability Strategy (1) Improve brand Differentiate products Efficiency Compliance Risk Mgmt.. Retention Cost Notes:(1) Multiple responses allowed Total = 100% xx% Source:A.T. Kearney and Institute for Supply Management TM (ISM) Sustainability Management Survey, January 2007

7. 7 New Products (e.g., Hybrid, Solar, Organic) New Markets (e.g., Micro-Business model) Price Premium (e.g., „green features“) Carbon Tax Exploding Commodity Costs Sustainability Administration Localization of Supply Chains Declining relevance of current product portfolio (e.g., SUV) Boycott (e.g., Nike) Safety Disaster (e.g., Schering) "Revenue Threat" "Cost Peril" "Growth Platform" "Efficiency Booster" Amplifier Reputation But: sustainability is a challenge representing opportunities and risks Sustainability can be a … Revenue Costs Risk Opportunity Energy Efficiency (e.g., WalMart) Product Specification Optimization (e.g., Packaging design, material usage) Value Chain Optimization (e.g., manufacturing/network design, service levels)

8. 8 Latest research indicates that companies excelling in all three dimensions command an evaluation premium MSCI IndexGS Sustain Companies +25% GS Sustain Companies higher 72% 28% Companies good in all three dimensions… ….command a premium ….and outperform their peers more often Industry Peers higher Shareholder Value Development (2003-2007) Shareholder Increase GS Sustain vs. Industry Peers (2003-2007) Source: Goldman Sachs, GS Sustain, May 2007, includes 120 companies from Energy, Mining, Food & Beverage, Pharmaceutical Industry

9. 9 Understanding the longer term value challenge is pivotal in developing a sustainability strategy Company Sustainability Value Challenge Shareholder/ Company Value Creation Destruction “Do-Nothing Path”: Maxium Value Destruction Scenario “Sustainability Champion Path” SVC Sustainability Value Challenge “Growth Platform” “Efficiency Booster” “Cost Threat” “Revenue Threat” 2010 2015 2020 Sustainability Strategy Protect + Win “Evaluation Premium”* Source: Goldman Sachs Illustrative

10. 10 Conclusion – “Going Green”…. … should be more than a PR effort repackaging existing efforts … is more than fighting “global warming” -- the underlying issues are larger …, if done correctly, is not “another initiative” …. but the long term survival, health and fitness program of a company