Greening Business


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  • Greening Business

    1. 1. Grow, Profit and Reduce Risk Through Radical Resource Efficiency
    2. 2. Agenda <ul><li>Business Case </li></ul><ul><li>Cost/Benefit Comparison </li></ul><ul><li>Specific Issues </li></ul><ul><li>Solutions </li></ul><ul><li>Recommended Next Steps </li></ul>
    3. 3. Business Case: You’re in Good Company <ul><li>” The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate change is conclusively proven, but when the possibility cannot be discounted.” </li></ul><ul><ul><li>John Browne, BP Chairman </li></ul></ul><ul><li>“ I am convinced that we can build a global plan of action on climate change in ways that create more economic opportunities than risks. Actually, there is no other option.” </li></ul><ul><ul><li>Alain Belda, Alcoa Chairman and CEO </li></ul></ul><ul><li>“… climate change is a serious emerging risk…” </li></ul><ul><ul><li>Clement Booth, Allianz SE Executive Board Member </li></ul></ul>
    4. 4. Business Case: Boost Shareholder Value <ul><li>Sustainable companies have: </li></ul><ul><ul><li>4% higher ROI </li></ul></ul><ul><ul><li>9% higher sales growth </li></ul></ul><ul><ul><li>17% higher income growth </li></ul></ul><ul><li>“Social & environmental risk management has significant positive impact on long-term market value” 1 </li></ul><ul><li>73% SRI funds earned top marks </li></ul><ul><li>“Stakeholder Superstars” = 43% return vs. 19% for S&P 500 </li></ul><ul><li>FTSE 250 Co’s. w/ ethical code outperformed on economic & market value-added 3 </li></ul><ul><li>Corp. governance, share price performance / volatility, and profitability 3 linked </li></ul>
    5. 5. Business Case: Operational Benefits <ul><li>Access to capital </li></ul><ul><li>New market development </li></ul><ul><li>Resource utilization </li></ul><ul><li>Brand image / customer retention </li></ul><ul><li>Lower risk </li></ul><ul><li>Operational efficiency </li></ul><ul><li>Productivity </li></ul><ul><li>Innovation </li></ul><ul><li>Employee productivity </li></ul><ul><li>‘ Human Capital’ leverage </li></ul><ul><li>Improved decision-making </li></ul><ul><li>Enhanced leadership </li></ul><ul><li>Workforce attraction/retention </li></ul><ul><li>Organization effectiveness </li></ul><ul><li>Teamwork </li></ul>
    6. 6. Driving Forces <ul><li>Consumer concerns </li></ul><ul><li>Market-related forces </li></ul><ul><li>Reputational risk </li></ul><ul><li>Legal/Regulatory Trends </li></ul><ul><li>Investor demands </li></ul><ul><li>Call for increased transparency </li></ul><ul><li>Externalities incorporated into pricing </li></ul><ul><li>Social pressures (NGO, community and investors) </li></ul><ul><li>Technological Change </li></ul><ul><li>Long-term business strategy  </li></ul><ul><li>Company values </li></ul>
    7. 7. Financial Benefits <ul><li>$1B savings & 1B tons emissions prevented </li></ul><ul><li>$100-200 million sales required to offset anticipated electricity cost increases, saving ~ $9M/yr </li></ul><ul><li>204% ROI = $110M/yr from energy-saving projects </li></ul><ul><li>$3B energy costs  , 72% greenhouse gas emissions  </li></ul><ul><li>>$500M energy savings </li></ul><ul><li>$10M annual energy efficiency cost savings </li></ul>But Wait! There’s More… 3M
    8. 8. Benefits (cont’d) <ul><li>Interface: $400M Efficiency savings </li></ul><ul><li>Southern Co’s: $108M/yr Thermal efficiency savings </li></ul><ul><li>Greenville Tube: 15% Productivity  </li></ul><ul><li>30% Energy efficiency  </li></ul><ul><li>15% Scrap  </li></ul><ul><li>$77,000/yr saved; 5-month payback </li></ul><ul><li>Southwire: 40% Electricity use  </li></ul><ul><li>60% Gas use  </li></ul><ul><li>2-year payback </li></ul>Calculate IRR
    9. 9. Costs <ul><li>Resource Product </li></ul>94% waste before product sold 4.8% waste within 6 weeks   1.2% Source: Robert Ayres, Industrial Metabolism
    10. 10. Versus… Emissions to water Emissions to air Total incoming material Hazardous waste To landfill (non-hazardous) Material & energy recycling Finished product
    11. 11. Electricity Flow (Quadrillion BTUs) Costs (cont’d)
    12. 12. Evolving Business Behaviour on Sustainability Issues
    13. 13. Escalating Degree of Impact
    14. 14. CEO Buy-in Most important business case factors Highest value-add from sustainability
    15. 15. Risks and Opportunities <ul><li>Protecting and enhancing reputation, brand equity and trust </li></ul><ul><li>Attracting, motivating and retaining talent </li></ul><ul><li>Managing and mitigating risk </li></ul><ul><li>Improving operational and cost efficiency </li></ul><ul><li>Ensuring licence to operate </li></ul><ul><li>Developing new business opportunities – new products and services, new markets, new alliances, new business models </li></ul><ul><li>Creating a more secure and prosperous operating environment. </li></ul>VALUES AND VALUE: Communicating the Strategic Importance of Corporate Citizenship to Investors. RichardSamans , Klaus Schwab GENEVA, JANUARY 2004
    16. 16. Hierarchy of Impact Decrease energy use “ Green” the supply chain Decrease material use Reuse materials Recycle Boost efficiency
    17. 17. Specific Next Steps <ul><li>1. IDENTIFY RISKS AND OPPORTUNITIES </li></ul><ul><li>Manage social risks; maintain license to operate; increase brand value, access to capital, market share; facilitate reporting </li></ul><ul><li>2. ENGAGE 'SIGNIFICANT' STAKEHOLDERS </li></ul><ul><li>Governments; customers, communities; affected by operation; employees; minorities; others </li></ul><ul><li>3. DEFINE STRATEGY TO IMPROVE IMPACT </li></ul><ul><li>Target s pecific operations, stakeholder issue, business unit & geographic regions </li></ul><ul><li>4. DEVELOP INDICATORS & IMPLEMENT </li></ul><ul><li>Key priority areas based on stakeholder engagement </li></ul><ul><li>5. MANAGE AND IMPROVE IMPACT </li></ul><ul><li>Collect data & evaluate progress against agreed objectives </li></ul>
    18. 18. Additional Activities <ul><li>Bring top management on board </li></ul><ul><li>Customize the business case </li></ul><ul><li>Establish benchmarks and measure progress </li></ul><ul><li>Educate employees and create cross-functional teams </li></ul><ul><li>Employ life-cycle analysis </li></ul><ul><li>Develop BU-specific strategies </li></ul><ul><li>Involve suppliers and customers </li></ul><ul><li>Seek outside perspectives and expertise </li></ul><ul><li>Celebrate successes and share lessons learned </li></ul>
    19. 19. Activities (cont’d) <ul><li>Identify profitable improvements, evaluate trade-offs and select strategies </li></ul><ul><li>Catalog organizational, policy, and market barriers and act to overcome them </li></ul><ul><li>Align sustainability goals with core business objectives </li></ul><ul><li>Identify specific actions with timelines and deadlines </li></ul><ul><li>Assess client-specific regulatory issues and tailor business decisions to anticipate evolving regulations </li></ul><ul><li>Craft communications to educate, enroll and inspire </li></ul>
    20. 20. Greening Your Bottom Line Achieving Triple Bottom Line Benefits
    21. 21. External Drivers <ul><li>Legal/Regulatory Trends </li></ul><ul><li>Market-related forces </li></ul><ul><li>Externalities incorporated into pricing </li></ul><ul><li>Growing demands to consider second and third-order impacts </li></ul><ul><li>Social pressures (NGO, community and investors) </li></ul><ul><li>Technological Change </li></ul>
    22. 22. From Efficiency to Effectiveness <ul><li>Enhance recyclability & durability </li></ul><ul><li>Minimize energy, water, materials & land use </li></ul><ul><li>Minimize emissions, discharges, disposal & toxics </li></ul><ul><li>Use renewable resources </li></ul>Enhance value <ul><li>Provide product as service </li></ul><ul><li>Create new markets </li></ul>Reduce consumption Reduce impact
    23. 23. <ul><li>Enhance recyclability & durability </li></ul><ul><li>Provide product as service </li></ul><ul><li>Create new markets </li></ul>Industry Maturity Sector Sophistication Regulatory/Consumer Profile <ul><li>Minimize energy, water, materials & land use </li></ul><ul><li>Minimize emissions, discharges, disposal & toxics </li></ul><ul><li>Use renewable resources </li></ul>
    24. 24. Action Steps Assess Current State Gauge Risks & Opportunities Evaluate Options Weigh Benefits & Costs Set Targets Formulate Strategy Assess Plan Engage Manage External Relations Engage the Organization
    25. 25. Examples (cont’d) <ul><li>Xerox </li></ul><ul><li>Interface Carpet </li></ul><ul><li>Southern Company </li></ul><ul><li>Greenville Tube </li></ul><ul><li>Southwire </li></ul><ul><li>Sales exceed forecasts </li></ul><ul><li>$250M one-year savings </li></ul><ul><li>$140M 4-year savings </li></ul><ul><li>$108M/yr savings </li></ul><ul><li>productivity up 15% </li></ul><ul><li>energy effic. up 30% </li></ul><ul><li>15% scrap reduction </li></ul><ul><li>five-month payback </li></ul><ul><li>40% electricity use cut </li></ul><ul><li>60% gas use cut </li></ul>But Wait! There’s More…
    26. 26. Life Cycle Management Overview
    27. 27. LCM - Areas of Focus Ref: Wuppertal Institute
    28. 28. Stakeholder Relationships Fully Realized Minimal Ref: wuppertal <ul><li>Comply with requirements </li></ul>Deficient <ul><li>provide information </li></ul><ul><li>no feedback incorporated </li></ul>Unilateral <ul><li>exchange information and experiences </li></ul>Bilateral <ul><li>interactive dialogue with stakeholder groups to realize a common goal </li></ul>Consultative <ul><li>ongoing stakeholder discussion </li></ul><ul><li>participatory decision-making </li></ul>Collaborative
    29. 30. Measurement & Reporting <ul><li>INITIATIVES </li></ul><ul><li>UN Global Compact </li></ul><ul><li>Global Reporting Initiative </li></ul><ul><li>Sarbanes-Oxley </li></ul><ul><li>UK Ethical Trading Initiative </li></ul><ul><li>Coalition for Environmentally Responsible Economies </li></ul><ul><li>Zero Emissions Research Initiative </li></ul><ul><li>CRITERIA </li></ul><ul><li>Transparency </li></ul><ul><li>Inclusiveness </li></ul><ul><li>Auditability </li></ul><ul><li>Completeness </li></ul><ul><li>Relevance </li></ul><ul><li>Accuracy </li></ul><ul><li>Neutrality </li></ul><ul><li>Comparability </li></ul><ul><li>Clarity </li></ul><ul><li>Timeliness </li></ul>
    30. 31. $ value of Ecological Services IF you could buy them!
    31. 32. Pollution Prevention Benefits <ul><li>Environmentally proactive companies have: </li></ul><ul><ul><li>4% higher ROI </li></ul></ul><ul><ul><li>9% higher sales growth </li></ul></ul><ul><ul><li>17% higher operating-income growth </li></ul></ul><ul><li>Improve operational efficiency </li></ul><ul><li>Increase innovation </li></ul><ul><li>Improve risk management </li></ul><ul><li>Better access to information </li></ul><ul><li>Enhance reputation and credibility </li></ul><ul><li>Leverage ‘Human Capital’ </li></ul>
    32. 33. Benefits: Case Studies <ul><li>IBM - > $500 million in energy savings in the 1990s </li></ul><ul><li>Johnson & Johnson - $10 million annual energy efficiency cost savings </li></ul><ul><li>Raytheon - $100-200 million of un-forecasted sales required to offset anticipated electricity cost increases, saving ~ $9M/yr </li></ul><ul><li>Dow Chemical’s Louisiana division energy-saving projects averaged 204% audited ROI, paying Dow’s shareholders $110M/yr </li></ul><ul><li>DuPont saves ~ $31M/yr </li></ul>But Wait! There’s More…
    33. 34. Examples (cont’d) <ul><li>Xerox - first fully digitized copie, 90% remanufacturable and 97% recyclable. Sales exceeded forecasts. remanufacturing and and waste reduction saved Xerox $250 million in one year. </li></ul><ul><li>Interface Carpet - $140 million in sustainable waste reductions over 4 years </li></ul><ul><li>Southern Company’s improvements in thermal efficiency saved $108M/yr </li></ul><ul><li>Greenville Tube Corporation - boosted productivity 15% and energy efficiency 30%, reduced scrap 15%, and saved $77,000 a year with a five-month payback  </li></ul><ul><li>Southwire cut electricity use 40%, gas by 60% </li></ul>
    34. 35. SRI in the U.S. <ul><li>$2.2 trillion total U.S. SRI assets </li></ul><ul><ul><li>> one of every nine dollars under management </li></ul></ul><ul><li>SRI assets have 40% faster growth than than all U.S. managed investment assets </li></ul><ul><li>75% of SRI funds > $100 million in assets earned top scores from Morningstar and/or Lipper Analytical Services </li></ul>
    35. 36. Changing Viewpoint <ul><li>Most studies show environmental  stock market performance correlation </li></ul>Management quality  leading determinate of share performance Environmental performance: excellent proxy for management quality
    36. 37. Changing Viewpoint <ul><li>Environment and social issues are among the most complex challenges facing management </li></ul><ul><ul><li>issues, stakeholders and non-financial measures </li></ul></ul><ul><li>High level of technical, market and regulatory uncertainty </li></ul><ul><li>Success in this high complexity area implies ability to excel in other business areas, earning superior returns </li></ul>
    37. 38. Sustainability Issues Impact on the Bottom Line <ul><li>Aventis – Starlink Corn </li></ul><ul><li>Union Carbide – Bhopal </li></ul><ul><li>Exxon – Valdez </li></ul><ul><li>Sandoz – Pollution of the Rhine </li></ul><ul><li>Royal Dutch/Shell – Brent Spar, Nigeria </li></ul><ul><li>Nike – “Sweatshops” </li></ul><ul><li>Monsanto – Genetically Modified Foods </li></ul><ul><li>Ford – Bridgestone tire recall on “Explorer” </li></ul><ul><li>Norsk Hydro – Utkal Project in India </li></ul><ul><li>ABB - Bakkun dam in Malaysia </li></ul><ul><li>GE – PCB in the Hudson River </li></ul><ul><li>Elf Aquitaine – Erika tanker wreckage </li></ul>Need dollars here
    38. 39. Works for enterprises, too.
    39. 40. Corporation of the Future © Interface
    40. 41. <ul><li>Financial Institutions </li></ul><ul><li>ABN-AMRO </li></ul><ul><li>ABP Investments </li></ul><ul><li>Alliance Capital Management </li></ul><ul><li>Bank Julius Baer </li></ul><ul><li>Bank Sarasin </li></ul><ul><li>BNP Paripas </li></ul><ul><li>BP Investment Management </li></ul><ul><li>Brown Brothers Harriman </li></ul><ul><li>Capital Guardian </li></ul><ul><li>Cazenove Fund Management </li></ul><ul><li>Collins Stewart (CI) Ltd. </li></ul><ul><li>Contra Costa County Employees’ Retirement Association </li></ul><ul><li>Daiwa Securities </li></ul><ul><li>Dreyfus Investment Advisors </li></ul><ul><li>Frontier Capital Management </li></ul><ul><li>Green Cay Asset Management </li></ul><ul><li>Glenmede Trust </li></ul><ul><li>Hermes Pensions Management (British Telecom Pension) </li></ul><ul><li>IBK Capital Corp. </li></ul><ul><li>ING/Aeltus Investment Management </li></ul><ul><li>Legg Mason Funds Management </li></ul><ul><li>Lombard Odier & Cie </li></ul><ul><li>Mellon Equity </li></ul><ul><li>Neuberger Berman (Lehman Brothers) </li></ul><ul><li>Rockefeller & Co. </li></ul><ul><li>Schroders Investment Management </li></ul><ul><li>Soci é t é G é n é rale </li></ul><ul><li>SNS Asset Management </li></ul><ul><li>Swiss Re </li></ul><ul><li>State Street Global Advisors </li></ul><ul><li>T. Rowe Price </li></ul><ul><li>UBS Investment Bank </li></ul><ul><li>World Bank </li></ul>Innovest investment research has been used by: Partial Client List
    41. 42. Questions <ul><li>What are your reputation and brand image worth? </li></ul>
    42. 43. Footnotes <ul><li>1 Taylor Nelson (2001) European Survey on SRI and Financial Community (302 financial analysts and fund managers across Europe) </li></ul><ul><li>2 > $100 million assets </li></ul><ul><li>3 In place for > 5 yrs. </li></ul><ul><li>4 Beyond the Numbers Corporate Governance: Implication for Investors Deutsche Bank Research Report. April 2004 </li></ul><ul><li>5 Citizens, consumers, public authorities and investors </li></ul>