Sustainability Advantage: The Busine$$ Ca$e for Sustainability PPPC Convention Toronto January 16, 2012 Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com

Sustainable Promotional Products Cause-related promotional products Donation to charity of person’s choice Carbon offsets Matching grants

Definitions of Sustainability Sustainable Development (SD) Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. – Brundtland Commission, 1987 – Sustainability The possibility that human and other forms of life on earth will flourish forever. – John Ehrenfeld, Professor Emeritus, MIT – Enough - for all – forever. – African Delegate to Johannesburg (Rio+10) –

Core Concepts of Sustainability Futures Thinking Intergenerational responsibility (Eco-)Systems Thinking Carrying capacity of the planet to absorb waste and support life Social Justice Equity, Dignity, Basic services, Human rights, Stakeholder voices Economic, Environmental, Social/Cultural responsibilities

3-Legged Sustainability Stool Environmental Leg No Pollution & Waste Renewable Energy Conservation Restoration Economic Leg Good Jobs Fair wages Security Infrastructure Fair Trade Social Leg Working conditions Health services Education services Community & Culture Social justice Quality of Life / Genuine Wealth / Genuine Progress

Corporate Sustainability 3-Legged Stool Triple Bottom Line (TBL) = 3Es = 3Ps = Sustainability = Sustainable Development (SD) = Corporate Responsibility (CR) = Environmental, Social, Governance (ESG) = Corporate Social Responsibility (CSR) = Green Environment - Planet Eco-efficiencies Eco-effectiveness Economy - Profits Growth Jobs, Taxes Products Services Equity - People Employees Community / Culture World

Smart Business 3-Legged Stool Sustainable Value Creation Asset Management Natural Capital Economic / Financial Capital Built / Manufactured Human Capital Social Capital Sustainable Value Creation

5-Stage Sustainability Journey 5. Purpose/Passion Align with founder’s / CEO’s values 4. Integrated Strategy Enhance company value / prosperity 3. Beyond Compliance Save on eco-efficiencies Avoid PR crisis Avoid threat of new regulations Animated version. See slide below for Notes. 2. Compliance Avoid fines, prosecution, bad PR 1. Pre-Compliance

The “Sustainability Imperative” Megatrend: “A fundamental shift in the competitive landscape that creates inescapable threats and game-changing opportunities ... profoundly affects companies’ competitiveness and even their survival.” Over the last 10 years, the “Sustainability Imperative” has emerged, magnified by escalating public and governmental concern about climate change, industrial pollution, food safety, and natural resource depletion, among other issues.” David A. Lubin and Daniel C. Esty, “The Sustainability Imperative,” HBR May 2010

Significant CEO Mindset Shift 2010 Increase Over 2007 CEOs Agree /Strongly Agree that sustainability should be …. … fully embedded into company strategy and operations … discussed and acted on by boards … fully embedded into subsidiaries’ strategies and operations … embedded throughout the global supply chain … the basis for industry collaborations and multi-stakeholder partnerships … incorporated into discussions with financial analysts Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

Stakeholders Driving Sustainability Stakeholders who CEOs believe will have the greatest impact on the way they manage societal expectations Consumers Employees Governments Communities Regulators Media Investment Community Suppliers NGOs Boards Organized Labor Other Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

CEOs: Sustainability Drivers Top 3 drivers of CEOs’ action on sustainability issues Brand, trust, and reputation Potential for revenue / growth / cost reduction Personal motivation Consumer / customer demand Employee engagement and recruitment Impact of development gaps on business Governmental / regulatory environment Pressure from investors / shareholders Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

The “Iceberg” of Company Value 1978 1981 1998 2009 25% Tangibles / Financials 29% 83% 95% Intangibles / Non-Financials / Reputation / Goodwill 5% 17% 71% 75% Market Value / Capitalization Sources: For 2009, Hollender, Orgain, and Nunez, “The Business Case for Sustainability” [accessed July 30, 2011], Kaplan Eduneering/Seventh Generation Sustainability Institute, February 2010; for 1998 and 1981, Roberts, Keeble, and Brown, “The Business Case for Corporate Citizenship,” Arthur D. Little, 2002, p. 1; for 1978, Stewart, “Accounting Gets Radical,” Fortune, April 16, 2001.

The “Perfect Storm” Threatens Financial and Social Capitals Species Extinction and Overharvesting Climate Change and Energy Crisis Waste, Toxicity, and Health 25% Tangibles / Financials Food and Water Crises Poverty and Social Injustice (NGOs) (Scientists) Intangibles / Non-Financials / Reputation / Goodwill Governments Global Markets Social license to operate Media Banks The Public Competitors Employees Communities Investors Customers Insurers Market Value / Capitalization Boards Economists

CEOs: Sustainability Drivers Top 3 drivers of CEOs’ action on sustainability issues Brand, trust, and reputation Potential for revenue / growth / cost reduction Personal motivation Consumer / customer demand Employee engagement and recruitment Impact of development gaps on business Governmental / regulatory environment Pressure from investors / shareholders Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

Top 10 Business Priorities for 2011 Forrester's survey of 2,691 executives in Europe, North America, and Asia, “Forrsights Business Decision-Makers Survey, Q4 2010.”

One More Goal … or an Enabling Strategy? Profit Share price Growth Revenue Market share New markets Customer care Expenses Talent wars Productivity Innovation Brand image Quality Risks Compliance Governance Supply security “Sustainability” Enabling Strategies

Income / Profit & Loss Statement Revenue / Sales Expenses Cost of goods sold (COGS) Selling, general, and administrative (SG&A) Interest, taxes, depreciation, and amortization (ITDA) Profit / Net Income 18

Wouldn’t it be nice if someone … …determined what real companies have achieved from their sustainability-related revenue enhancement and expense saving initiatives, by researching books, articles, press releases, surveys, research papers, case studies, etc. …sorted the benefits into generic categories …monetized the benefits and normalized them to revenue …projected profit improvements for typical companies, if they were to simply do what leading companies have already done, within the next 3 to 5 years 5. …made it easy to tailor the business case for a particular company with an open source simulator 19

7 Business Case Benefits Sustainability Capital Reserve Opportunities Income Statement Risks 1. Increased Revenue 9% Revenue 2. Reduced energy expenses 75% 3. Reduced waste expenses 20% Reduced risks to revenue and expenses Reduced material and water expenses 10% Expenses Increased employee productivity / innovation 2% Reduced employee turnover expenses 25% Sustainability Capital Reserve +51 to +81% Profit -16 to -36% 20

Two Sample Typical Companies Company Data Profile Small Professional Services Company % of Revenue Large Manufacturing & Distribution Corporation Revenue $1,000,000 $500,000,000 Energy expense $20,000 2% $10,000,000 Materials and water expense $50,000 5% $150,000,000 30% Total salary / payroll expense $300,000 Profit $70,000 7% $35,000,000 Average salary, including benefits $40,000 Number of employees 6 3,750 Potential Profit Increase 51% 81% Potential Profit at Risk -16% -36% 21

5 Sources of Funds Existing budgets: maintenance, advertizing, marketing, communications, education Government grants and incentives, especially for early movers Sustainability Capital Reserve Other internal capital or external capital markets Treat as an investment, rather than as a cost: high yield, low risk Benefits are only counted after their 1 to 5 year payback period 22

The “Tipping Point” 5. Purpose & Passion Align with founder’s / CEO’s values 20% 4. Integrated Strategy Enhance company value / prosperity 3.3: Embed sustainable governance 3.2: Create new eco-effective products, services, leases 3.1: Improve supply chain conditions and footprints 3.0: Improve company eco-efficiencies and sustainability brand 3. Beyond Compliance Capture eco-efficiencies; Avoid PR and regulatory risks Animated to do a gradual build, when clicked. ***************************************** Excerpt from “The Next Sustainability Wave,” as context for the discussion. The Stage 3 to Stage 4 Transformation and the Stage 5 Difference The leap from Stage 3 to Stage 4 on the sustainability journey requires linking market opportunities with corporate responsibilities: creating positives like innovative products and services for the world’s poor while eliminating negatives like pollution, waste, and child labor; creating new value like sanitation, health, safe food, clean water, and new jobs while eliminating non-value; seeing partnerships with diverse stakeholders in the market as a source of innovative solutions; seeing sustainability as an engine for growth as well as risk mitigation. Stage 3 is about incremental, continuous improvements in eco-efficiency. Stage 4 is about discontinuous, leapfrogging breakthroughs. It is about creative destruction of existing manufacturing process and product design, and breakthroughs in new products, services, markets, and processes. It is a transformation from Stage 3, not a transition. Transformations are not trivial. Moving from Stage 3 to Stage 4 requires internalizing sustainability notions in profound ways, both personally and organizationally. Environmental considerations move from the Environmental Affairs or Environment, Health, and Safety (EHS) department into the boardroom. Social considerations move from the Community Relations or Corporate Donations department into the strategy function. Sustainability-based thinking, perspectives, and behaviors are integrated into everyday operating procedures and the culture of the organization.36 When these migrations happen, the metamorphosis is underway. The payoff is tapping into the revenue, innovation, and productivity side of the sustainability business case rather than just the risk mitigation and cost-savings side. What about Stage 5? Stage 5 is very different, but simultaneously very similar. About 90% of what Stage 4 and Stage 5 companies do looks the same. They both deploy business strategies that respect the environment, the community, and the ongoing business health of the firm. Motivations differ. Stage 4 companies “do the right things” so that they are successful businesses. Stage 5 companies are successful businesses so that they can continue to “do the right things.” The line between Stage 4 and Stage 5 in [the slide] denotes this significant difference. The distinction is not meant to be a value judgment. Frankly, if we got to the tipping point of companies using sustainability as a management discipline at Stage 4, I would be delighted. I am less concerned with the righteousness of motivations than I am with results. ********************************************* Except from “The Sustainability Champion’s Guidebook,” with more context Transforming From a Stage 3 Company to a Stage 4 Company [The slide] depicts the sustainability journey for large, publically-traded companies. Corporate sustainability champions usually focus on leading their companies through the intermediary stages between Stages 3 and 4. Stage 3.0: Improving working conditions and capturing eco-efficiencies within the company’s internal operations and processes, especially energy efficiencies and carbon footprint reductions. Stage 3.1: Working with suppliers to improve working conditions and capture eco-efficiencies within suppliers’ operations and processes. Stage 3.2: Working with stakeholders to create innovative sustainable products and services that creatively replace today’s unsustainable ones and strategically position the company to capture new markets. Stage 3.3: Revamping the company’s governance system to ensure it aligns with sustainability principles. Stage 4: Rebranding the company as a sustainable enterprise, with sustainability deeply integrated into its business strategies and culture. This guidebook shows how to progress through those stages in a way that works for the company’s executives, employees, and important stakeholders. The change process transforms resource-depleting, pollution-spewing, unsustainable companies that are pushing nature ever closer to collapse and generating a gaping divide between the rich and poor that increasingly defies all conceptions of fairness. It enables companies to adopt an exciting, sustainable, winning, and circular, cradle-to-cradle model of commerce. Sustainability marries philanthropic and ecological motivations with bottom-line motivations. It is smart business. 2. Compliance 1. Pre-Compliance

Question 0-5 years 5-10 years 10-15 years More than 15 years Never How long do you think it will be before we reach the sustainability tipping point in the business community? 0-5 years 5-10 years 10-15 years More than 15 years Never

Time Until Sustainability Tipping Point 3% 10% 17% 44% 26% Source: Environmental Leader, “Time Until Sustainability Tipping Point is Reached, View of Global CEOs (% of respondents)” in Environmental and Energy Data Book Q2 2011, July 2011, p. 26. Based on survey of 1,251 companies, in UN Global Compact Annual Review 2010.

Corps Are Investing in Sustainability The growth of investment in sustainable business programs will be between 50-100% higher in 2013 than in 2011. Spending on sustainability programs by Australian, Canadian, U.K. and U.S. companies with over $1B in sales will hit $60B in 2013. (Verdantix, based on spending patterns of 2,500 global firms, March 2011) MIT Sloan and the Boston Consulting Group winter 2011 research report, “Sustainability: The ‘Embracers’ Seize Advantage,” Feb. 2011

Sustainable Promotional Products Cause-related promotional products Donation to charity of person’s choice Carbon offsets Matching grants

In Summary … Sustainability is smart business Relevant to current organizational priorities Important stakeholders’ expectations are rising New market forces & risks are in play Large companies have a ripple effect on suppliers Promotional products are symbolic gestures Opportunity for leadership … by example Many willing, helpful, unusual partners

Sustainability Advantage: The Busine$$ Ca$e for Sustainability PPPC Convention Toronto January 16, 2012 Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com