The Business Model: Challenges and Opportunities Bob Willard World Economic Center Montreal October 15, 2004

1.Terminology / Stages 2.Three First Wave Drivers 3.The “Stick” – The Perfect Storm of Risks 4.The “Carrot” – Business Benefits 5.Objection Handling Clinic 6.Drivers Mapped to Stages Agenda

Definitions Sustainable Development: Meeting the needs of the present without compromising the ability of future generations to meet their own needs. -- Brundtland Commission, Corporate Social Responsibility: The overall relationship of the corporation with its stakeholders. Elements of social responsibility include financial performance, creation and maintenance of employment, environmental stewardship, employee relations, and investment in community outreach. -- Conference Board of Canada -- Corporate Social Responsibility: The commitment of business to contribute to sustainable economic development – working with employees, their families, the local community and society at large to improve their quality of life. -- WBCSD -- Sustainability: The possibility that we all flourish forever. -- John Ehrenfeld, International Society for Industrial Ecology --

4 Systems Conditions for a Sustainable Society In a sustainable society, nature is not subject to systematically increasing … 1. concentrations of substances from the earth’s crust 2. concentrations of substances produced by society 3. degradation by physical means (unsustainable harvesting) … and … 4. people are not subject to conditions that systematically undermine their capacity to meet their needs -- The Natural Step --

Economy / Profits Sustainable business  Profits  Taxes, R&D  Jobs  Expenditures  Training  Fair trade  Core values Terminology Environment / Planet Eco-Efficiency  Manufacturing efficiencies  Operations efficiencies  Product efficiencies  Smart design  Cradle-to-cradle, take-back  Beyond compliance  Restorative to nature Equity / People Ethical business Internal employees  Human rights  Health & Safety  Empowerment  Respect, Caring Local community Rest of the world Sustainable Development (SD) Corporate Social Responsibility (CSR) Sustainability Triple Bottom Line (TBL) 3Es / 3Ps Corporate Responsibility (CR)

5 Sustainability Stages 5. Purpose / Values Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance

Ends vs. Means

1.Terminology / Stages 2.Three First Wave Drivers 3.The “Stick” – The Perfect Storm of Risks 4.The “Carrot” – Business Benefits 5.Objection Handling Clinic 6.Drivers Mapped to Stages Agenda

3 First Wave Drivers 1.Founder / CEO’s personal passion … values based 2.PR crisis … reputation / brand value / image hit 3.Regulatory pressure... actual or threatened … sufficient for next wave?

1.Terminology / Stages 2.Three First Wave Drivers 3.The “Stick” – The Perfect Storm of Risks 4.The “Carrot” – Business Benefits 5.Objection Handling Clinic 6.Drivers Mapped to Stages Agenda

The Perfect Storm Oct. 27 – Nov. 1, Hurricane Grace … near Bermuda 2.Cold front over the Great Lakes 3.Old warm front near Sable Island All were dying out Energy from the 3 systems combined Worst storm in history …100’ waves Sudden, unexpected, devastating

“Perfect Storm” of Business Risks 10 Market Forces 5 Business Risks 5 Mega-Issues5 Demanding Stakeholders Climate ChangeGreen Consumers Market Risks Balance Sheet Risks Operating Risks Capital Cost Risks Sustainability Risks + Difficult access to capital Pollution & Health Activist Shareholders Globalization Backlash Civil Society / NGOs Energy Crunch Government Regulators Erosion of TrustFinancial Sectors

10 Market Forces 5 Mega-Issues5 Demanding Stakeholders Climate ChangeGreen Consumers Pollution & Health Activist Shareholders Globalization Backlash Civil Society / NGOs Energy Crunch Government Regulators Erosion of TrustFinancial Sectors Sea Change Of Rising Expectations

A Perfect Storm … of Opportunities Innovation Productivity Growth Brand Image Competitive Advantage $aving$ Revenue Business Value 10 Market Forces 5 Mega-Issues5 Demanding Stakeholders Climate ChangeGreen Consumers Pollution & Health Activist Shareholders Globalization Backlash Civil Society / NGOs Energy CrunchGovernment Regulators Erosion of Trust Financial Sectors

1.Terminology / Stages 2.Three First Wave Drivers 3.The “Stick” – The Perfect Storm of Risks 4.The “Carrot” – Business Benefits 5.Objection Handling Clinic 6.Drivers Mapped to Stages Agenda

Business Priorities Productivity Brand Image Profit Growth Attracting & Retaining Top Talent Managing Risks Innovation Speed to Market Leadership Market Share Motivation Share Price Competitive Advantage Governance Expense Savings New Markets Complying with New Regulations Attracting & Retaining Customers Responding to Emerging Market Forces Revenue

Dow Jones Sustainability Index

Potential profit increase: 38% + Energized employees + Improved corporate image + Competitive advantage + Positioned for the future Benefits to “SD Inc.”

1.Reduced recruiting costs 2.Reduced attrition costs 3.Increased employee productivity 4.Reduced expenses in manufacturing 5.Reduced expenses at commercial sites (energy, water, consumables) 6.Increased revenue / market share 7.Reduced risk, easier financing 7 Benefit Areas Usual focus

1.Reduced recruiting costs -1% 2.Reduced attrition costs -2% 3.Increased employee productivity +10.5% 4.Reduced expenses in manufacturing -5% (-2.5%) 5.Reduced expenses at commercial sites -20% (energy, water, consumables) 6.Increased revenue / market share +5% 7.Reduced risk, easier financing -5% 7 Benefit Areas … % Improvement … yielding a Profit increase of +38%

7 Benefit Areas … Relative Sizes

1.Reduced recruiting costs -1% 2.Reduced attrition costs -2% 3.Increased employee productivity +10.5% 4.Reduced expenses in manufacturing -5% (-2.5%) 5.Reduced expenses at commercial sites -20% (energy, water, consumables) 6.Increased revenue / market share +5% 7.Reduced risk, easier financing -5% 7 Benefit Areas … % Improvement … yielding a Profit increase of +38%

1.Reduced recruiting costs -1% 2.Reduced attrition costs -2% 3.Increased employee productivity +10.5% 4.Reduced expenses in manufacturing -5% (-2.5%) 5.Reduced expenses at commercial sites -20% (energy, water, consumables) 6.Increased revenue / market share +5% 7.Reduced risk, easier financing -5% What if … … yielding a Profit increase of +38% +2% +35%

1.Reduced recruiting costs -1% 2.Reduced attrition costs -2% 3.Increased employee productivity +10.5% 4.Reduced expenses in manufacturing -5% (-2.5%) 5.Reduced expenses at commercial sites -20% (energy, water, consumables) 6.Increased revenue / market share +5% 7.Reduced risk, easier financing -5% What if … … yielding a Profit increase of +38% +4% +23%

1.Reduced recruiting costs -1% 2.Reduced attrition costs -2% 3.Increased employee productivity +10.5% 4.Reduced expenses in manufacturing -5% (-2.5%) 5.Reduced expenses at commercial sites -20% (energy, water, consumables) 6.Increased revenue / market share +5% 7.Reduced risk, easier financing -5% What if … … yielding a Profit increase of +38% +2% +4% +20%

1.Terminology / Stages 2.Three First Wave Drivers 3.The “Stick” – The Perfect Storm of Risks 4.The “Carrot” – Business Benefits 5.Objection Handling Clinic 6.Drivers Mapped to Stages Agenda

4 Inhibiters to Next Wave 1. Lack of support from senior leaders Too busy … not strategic … no pressure from important people … not our problem … too hard to change … personal credibility issue 2. Fear of backlash Don’t want to blow own horn … green-washing accusations … open the floodgates … guilt-by- association … skeletons in our closet 3. Weak business case Doing enough … WIIFM … short-term … perverse subsidies … payback criteria … insulting … too good to be true 4. Mindset What problem … anti-capitalistic … govt’s problem … -ve baggage … new idea … MBA legitimacy

Mental Models Typical business viewSustainable view

1.Terminology / Stages 2.Three First Wave Drivers 3.The “Stick” – The Perfect Storm of Risks 4.The “Carrot” – Business Benefits 5.Objection Handling Clinic 6.Drivers Mapped to Stages Agenda

5 Sustainability Drivers 3 First Wave Drivers 1.Founder / CEO’s personal passion … values based 2.PR crisis … reputation / brand value / image hit 3.Regulatory pressure... actual or threatened 2 Emerging Drivers 1.“Perfect Storm” of threats to license to operate 2.Compelling, relevant business case

First Wave Drivers 5. Purpose / Passion Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance Regulatory Threat Passionate CEO Regulatory Pressure PR Crisis

Emerging Drivers 5. Purpose / Passion Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance Regulatory Threat Business Case Passionate CEO Regulatory Pressure PR Crisis “Perfect Storm” Business Value

The Business Model: Challenges and Opportunities Bob Willard World Economic Center Montreal October 15, 2004