1. Drivers Introduction n Forces for Change n Business Drivers y Reputation & License-to-Operate y Cost reduction & Eco-efficiency y Market Growth y Market Pressures y Corporate Values & Leadership n External Drivers y Environmental Trends y Social Trends y Market Opportunities y Legal/Regulatory Trends y Technological Change pathways to sustainability Updated: April 29, 2002

2. Drivers Introduction Pathways n This presentation provides an introduction to the business, economic, social, and environmental changes that are driving businesses to adopt sustainability as a key element of competitive strategy.

3. Drivers Introduction Drivers of Business Sustainability Business Drivers Organizational Leadership External Forces Business Sustainability

4. Drivers Introduction Forces Acting to Drive Corporate Change n Business Drivers z Reputation & License-to- Operate z Cost reduction & Eco-efficiency z Market Growth z Market Pressures z Corporate Values & Leadership n External Drivers z Environmental Trends z Social Trends z Market Opportunities z Legal/Regulatory Trends z Technological Change n In almost every global trend there lies both threats and opportunities for actors in the value chain. n Aligning business strategy with the major drivers of change accelerates growth and reduces business uncertainties. n “Sustainability” provides a unifying framework to consider the business value of global trends.

5. Drivers Introduction A Business Drivers Framework n License-to-Operate z A driver threatens or enhances a company’s capacity to operate in existing or new markets. n Costs z A driver increases costs to a company or to its value chain or presents an opportunity to reduce costs. n Market Share z A driver changes the competitive position of a company and its market share. n New Markets z A driver creates opportunities for innovation and market growth.

6. Drivers Introduction Right to Operate Cost Reduction Market Share New Markets Reward Risk Reward Drivers: Threats and Opportunities What drives business to adopt sustainability? Accountability: Moving beyond compliance, building reputation, trust with stakeholders, single global standard. Access to markets and customers, reducing risks, staying ahead of global trends.

7. Drivers Introduction Right to Operate Cost Reduction Market Share New Markets Reward Risk Reward Drivers: Threats and Opportunities What drives business to adopt sustainability? Efficiency. Lower costs, lower risks, higher margins. Bottom line benefits, process improvements. elimination of waste.

8. Drivers Introduction Right to Operate Cost Reduction Market Share New Markets Reward Risk Reward Drivers: Threats and Opportunities What drives business to adopt sustainability? Product. Creating environmental benefit. Product stewardship, product modification, service models, recycling, energy efficiency, quality and safety. Customer Loyalty.

9. Drivers Introduction Right to Operate Cost Reduction Market Share New Markets Reward Risk Reward Drivers: Threats and Opportunities What drives business to adopt sustainability? Innovation. New products and new markets. Top line revenue. Market redefinition. Competitive advantage. Value from emerging social & environmental trends.

10. Drivers Introduction Drivers of Business Sustainability Business Drivers License to Operate Cost Reduction Market Growth New Markets Profitable Growth Competition Organizational Leadership Values Vision Business Models Change Measurement External Forces Environmental Change Demographic Trends Technological Change Political Pressure Business Sustainability Economic Value Social Value Environmental Value

11. Drivers Introduction Different Drivers for Different Companies n The sensitivity of a company to specific drivers will vary depending on location, growth strategy, aspirations, and industry. Ecosystem integrity Climate integrity Carrying capacity Biodiversity Growth Shareholder value Efficiency Innovation Empowerment & Equity Social mobility Social cohesion Cultural identity Institutional development Sustainable Growth social objectives environmental objectives objectives economic

12. Drivers Introduction Environmental Trends n Biodiversity loss n Ecosystem degradation n Freshwater scarcity n Climate Change n Species Extinction n Soil Erosion n Forest Loss n Material Consumption n Accumulation of Waste n The world economy depends on a base of natural resources — our “natural capital” — that is showing signs of severe degradation. Without improved environmental performance, future business operations will be exposed to risks of rising prices for water, materials, and for waste disposal. n Those businesses that reduce the environmental impacts of their operations, goods, and services will win competitive advantages. Protecting the long-term license-to-operate in existing and new markets depends on business strategies that preserve and renew natural habitats and critical environmental resources.

13. Drivers Introduction Demographic Trends n Persistence of Poverty and Economic Inequity n Global Health and Nutrition Trends n Improvements in Access to Education n Urbanization Future consumer markets and labor will be concentrated in the fast- growing, emerging markets where small and large enterprises will find profitable opportunities to help meet health, education, and nutrition needs. These markets will favor businesses that partner with government and civil society to serve basic needs, enhance human skills, increase economic capacity, help remedy inequities, and conserve the environment.

14. Drivers Introduction Social Trends n Rise of Civil Society Activism n Spread of Democracy n Values-based Leadership n Socially-Responsible Investment n Privatization of Public Goods and Services n Businesses must meet national rules and standards for commerce, and also international agreements, codes of conduct, and the standards of civil society at home and abroad. n The public and many governments will hold businesses accountable to be socially responsible — that they will promote development that meets basic human needs, support democracy, share information, and be open to the scrutiny and input of civil society.

15. Drivers Introduction Market Opportunities n Rising Global Wealth n Growing Developing Country Populations n Privatization of Public Goods and Services The rise in world affluence holds promise for better lives and also comes with significant risks to ecosystems if prevailing patterns of consumption, energy production, and waste persist. The need to reduce consumption and waste creates new opportunities for business to grow while at the same time helping people, economies, and ecosystems through the innovation of less wasteful processes, and life-enhancing goods and services.

16. Drivers Introduction Technological Change n Digital Networks and Connections n Mobility n New Materials n Genetic Engineering and Biotechnology n Urbanization n We live in a world of rapid change and a growing density of human and technological networks. People are concentrating in cities with greater access to information and transportation networks. Information and knowledge propagate at light speed, and people and goods move around the globe as never before. n In this integrated world, businesses have a crucial stake in economic development, healthy cities, efficient and accessible mobility, and in expanding the pool of educated workers and consumers.

17. Drivers Introduction Market Pressures n Business Model Innovation n Cost Containment n Competitive Strategy n Corporate Values and Leadership Values

18. Drivers Introduction Legal/Regulatory Trends n Mechanisms for Transparency n Reporting Trends n Global Regulatory Harmonization n International Agreements on Human Rights n Spread of Democracy and Legal Rights

19. Drivers Introduction Pathways World Resources Institute Sustainable Enterprise Program www.wri.org/sep We gratefully acknowledge the financial support of: The Surdna, Joyce and Olin Foundations & WRI’s Corporate Council and Partners

20. Drivers Introduction Terms of Use Pathways is provided to help foster environmentally sound and socially equitable economic development. We request your compliance with the following terms of use: n All materials contained in Pathways modules are believed to be property of World Resources Institute or to be in the public domain. n The opinions and analysis contained herein is that of the authors and editors. n Original sources are credited on the slides or in the notes to the best of our knowledge; please bring errors or omission of citation to our immediate attention. n Please credit original materials to World Resources Institute. n Materials may be copied and edited and revised for internal company use and for non- commercial, educational purposes. n For commercial or other use of materials, please contact Don S. Doering at dsd@wri.org or (202) 729-7655.