1. Michigan State University 21 st April 2014 Understanding the impact of the supply chain Dr. James Salo SENIOR VICE PRESIDENT, NORTH AMERICA TRUCOST

2. INTRODUCING TRUCOST Trucost has been helping companies, investors and cities to understand the environmental impacts of their supply chains since 2000 Trucost has analysed the environmental performance of >500,000 suppliers representing $100B expenditure Trucost wrote environmental reporting guidelines for business for the UK Government and Shanghai Stock Exchange Trucost models are supported by an International Academic Advisory Panel

3. Risks and opportunities Understanding the impact of the supply chain

4. SUPPLY CHAIN OPPORTUNITIES REDUCE THE COST OF MATERIAL INPUTS AVOID PASS THROUGH COSTS ENSURE A CONTINUED SUPPLY OF RAW MATERIALS AVOID SUPPLY CHAIN DISRUPTIONS ON AVERAGE, TRUCOST SUPPLY CHAIN SERVICES HAVE IDENTIFIED $1.8 MILLION IN POTENTIAL SUPPLY CHAIN ENERGY COST SAVINGS PER PROJECT.

5. SUPPLY CHAIN RISKS "In the next 40 years we need to produce as much food as we produced in the past 8,000." WWF 3bn more middle class consumers by 2030 40% water shortfall by 2030 >100% increase in real commodity prices since 2000 3X increase in volatility of commodity prices since 2000

6. THE BIG PICTURE l MEASURE RISKSMANAGE RISKS Natural Capital Analyzer Supplier Engagement Portal Procurement policies, programs & projects Reporting e.g. investors, customers, CDP, NGOs Annual Supplier Scorecards Set & Track Performance Targets MATERIALITY & MAPPING HOT SPOT IMPACT SPEND ANALYSIS SUPPLIER ENGAGEMENT QUANTIFY AND VALUE RISKS EEIO Model & Trucost Environmental Register

7. FOREST OR TREES YOUR COMPANY Raw material suppliers Tier 3 to n suppliers

8. “TRUCOST REGULARLY FINDS THAT JUST 10 – 20% OF SUPPLIERS ACCOUNT FOR 80 – 90 % OF SUPPLY CHAIN IMPACTS.” ‘SEE’ THE FOREST

9. WHY CARE: RISK OF PASS THROUGH COSTS Potential risk of water pass through costs (magnitude + likelihood based on regional water scarcity and regulatory scenarios) 29% of profit warnings by FTSE companies due to rising raw material prices (Ernst & Young 2011)

10. Michigan State University 2013 Assessment Understanding the impact of the supply chain

11. MICHIGAN STATE UNIVERSITY – 2013 ASSESSMENT OBJECTIVES Inform supply chain strategy development Identify greatest areas of risk and opportunity for GHGs & Water Progress since initial assessment in 2010 Expand analysis to include water consumption Include additional suppliers beyond 2010 assessment Quantify potential financial risks associated with supply chain environmental impacts Continue to involve suppliers in assessment and joint performance improvement

12. RESEARCH PROCESS Quantify Footprint Supplier Outreach and Impact Management Value Risks 30 – 45 days 2 – 3 months1 – 2 months Phase 1Phase 2Phase 3

13. Review of project findings Food services supply chain

14. SUPPLIER RESPONSE – FOOD SERVICES Supplier engagement results – data verification 6 companies completed supplier engagement: Michael Foods/Papettis Hygrade Eggs Norpac Services Ken’s Foods Northern Lakes Seafood & Meats Stone Circle Bakehouse King & Prince Seafood A further 18 companies were previously researched by Trucost

15. KEY SECTORS – FOOD SERVICES The top 3 spend categories account for 97% of the total carbon emissions across the supply chain – manufacturing alone accounts for 79% The top 3 spend categories account for 97% of the total carbon emissions across the supply chain – manufacturing alone accounts for 80% GREENHOUSE GAS EMISSIONS WATER CONSUMPTION

16. CARBON & WATER DISTRIBUTION – FOOD SERVICES The top 10 suppliers contribute to 59% of total carbon emissions and 55% of total water use The top 50 suppliers account for 95% of total carbon emissions and 96% of total water use

17. KEY FINDINGS – FOOD SERVICES Number of companies analyzed Expenditure ($mn) Total Carbon Emissions (tCO 2 e) Carbon Intensity (tCO 2 e/$mn) Total Water Use (m 3 ) Water Intensity (m 3 /$mn) FY200943 8.028,4841,058-- FY201285 26.7315,0035612,690,959100,656 Performance (% change) 98%233%77%-47% -- Supply chain carbon intensity relative to other industries Supply chain water intensity relative to other industries

18. Review of project findings Purchase ledger supply chain

19. SUPPLIER RESPONSE – PURCHASE LEDGER Supplier engagement results – data verification 6 companies completed supplier engagement: BD Biosciences NBS Douglas Steel Christman Company University of Michigan Fishbeck, Thompson, Carr & Huber Integrated Design Solutions RKA Petroleum Fisher Scientific Wesco Distribution Standard Electric A further 33 companies were previously analyzed by Trucost

20. KEY SECTORS – PURCHASE LEDGER The top 5 spend categories account for 91% of the total carbon emissions across the supply chain – the top 3 alone accounts for 72% The top 5 spend categories account for 88% of the total carbon emissions across the supply chain – the top 3 alone accounts for 77% GREENHOUSE GAS EMISSIONS WATER CONSUMPTION

21. CARBON & WATER DISTRIBUTION – PURCHASE LEDGER The top 10 suppliers contribute to 70% of total carbon emissions and 63% of total water use The top 50 suppliers account for 94% of total carbon emissions and 91% of total water use

22. KEY FINDINGS – PURCHASE LEDGER Number of companies analyzed Expenditure ($mn) Total Carbon Emissions (tCO 2 e) Carbon Intensity (tCO 2 e/$mn) Total Water Use (m 3 ) Water Intensity (m 3 /$mn) FY2009 50204103,417 508 - - FY2012 113329116,110 3537,124,24721,676 Performance (% change) 126%61%12%-30%-- Supply chain carbon intensity relative to other industries Supply chain water intensity relative to other industries

23. Assessing risk & opportunity Understanding the impact of the supply chain

24. EXAMPLES OF NATURAL CAPITAL RISK

25. METHODOLOGY: FOUR STEP PROCESS Quantify environmental impact Collect environmental data Apply natural capital costs Assess & prioritize measured risk 1234

26. GHGsWater use Water poll’n WasteTotal Impact (% of Revenue) Direct Operations 2.04M tonnes CO2 $274M 54M cubic meters $63M $59M$29M$461M8% Supply Chain 0.95 tonnes CO2 $109M 76M cubic meters $89M -- $2M$233M4% Total 2.99M tonnes CO2 $383M 130M cubic meters $152M $59M$31M$779M12% Quantitative, physical & financial metrics Environmental performance in financial context Direct operations & supply chain Environmental impacts in comparable units METHODOLOGY: FOUR STEP PROCESS Example framework

27. TRENDS IN NATURAL CAPITAL ACCOUNTING LEADERSHIP INITIATIVES CORPORATIONS SOVEREIGN INVESTORS NGOs MULTI-STAKEHOLDER GROUPS

28. CASE STUDY: PUMA EP&L

29. PRODUCT CATEGORY

30. Net benefit of new technologies Biomass Burner offers 30 - 40% natural capital savings

31. Future NET BENEFIT (WATER)

32. Why valuing natural capital? Business case for environmental initiatives: cost-benefit ROI analysis of intangible issues to support decisions that have historically been value based. Environmental context: understand business dependence on nature and identify what is material (e.g., water scarcity). Quantify the risk of pass through costs. Optimize investment portfolios or brand portfolio to manage risk. Inform sourcing decisions to ensure a stable supply of raw materials. Grow sales. Lower cost of capital for a new technology. Optimize product design.

33. THANK YOU Dr. James Salo SENIOR VICE PRESIDENT, NORTH AMERICA James.Salo@trucost.com +1 508 769-5053 @JamesSalo