Sustainable pathways to resilient, profitable companies

1. Sustainability Pathways to
Resilient, Profitable Companies
Impact Hub, NYC
November 23, 2015
Presented By: William G. Russell, Principal
Transitioning to Green, LLC

2. Transitioning to Green, LLC
Your connection between sustainability and success.
We assist every organization we partner with to…
• Align corporate strategy and operations with financial
resources, risks and profitability.
– Adapting your Purpose for Prosperity.
• Responsibly manage supply chains, material resources,
facilities and products.
– Respecting natural systems.
• Engage employee passions for creativity, innovation
and inspired performance.
– Nurturing your people to thrive.
Introductions

3. Who’s in the Room?
Brief Introductions
• Name: ?
• Where from: ?
• Working: ? School: ?
• Industry or Company?
• Any expectations about this event?

4. Presentation Overview
Sustainability Context and Current Reality
Short Term Planning for
Profitable Fragile Companies
Longer Term Planning for
Prosperous Resilient Companies
Discussion

5. "The future is not some place we are
going to but one we are creating. The
paths are not to be found, but made, and
the activity of making them changes both
the maker and the destination."
John Schaar, Professor Emeritus, UC Santa Cruz
Sustainability Context and Current Reality

6. Systems
thinking
Core Sustainability Concepts
Intergenerational
responsibility
Socio-economic
justice
Enough … … for all … … forever.

7. Nested
Interdependencies
Sustainability Context

8. Business
Impacts
The Nests
Sustainability Context

9. Boomerang
Impacts
Sustainability Context

10. Global Consumption is not Sustainable
www.footprintnetwork.org/en/index.php/GFN/page/world_footprint/

11. No throwing away. Where do wasted materials go?
• 200 billion pounds of plastic consumed each
year.
• 10% end up in the Oceans.
• Plastics break down, but remaining a polymer.
• Plastics absorb other hazardous chemicals and
both enter into our food chain.

12. Humanity’s unsustainable environmental
footprint
http://phys.org/news/2014-06-humanity-environmental-footprint-sustainable.html
Hoekstra and Wiedmann

13. Exceeding the maximum sustainable footprint?

14. Global Risk Interconnections
World Economic Forum (WEF), “Global Risks 2015,” January 2015.

15. Precautionary Principle
“The precautionary
principle or precautionary
approach states that if an
action or policy has a
suspected risk of causing
harm to the public or to the
environment, in the
absence of scientific
consensus that the action or
policy is harmful,
the burden of proof that it
is not harmful falls on
those taking an action.”
http://en.wikipedia.org/wiki/Precautionary_principle

17. 17
Short Term Planning for
Profitable Fragile Companies

18. Company Sustainability
TRIPLE BOTTOM LINE
EnvironmentPlanet /

19. ESG
Environmental
Company Sustainability

20. ASSET MANAGEMENT
Natural Capital
Company Sustainability

21. Financial Quantification for Sustainable Planning
• Risks (Liabilities) and Opportunities (Benefits) to business
• Tangible
• Direct and indirect costs or revenues
• Low probability but high risk/returns
• Intangible (Brand risk?, Long term risks? Equity risks?)
• Externalities (Social cost shifting?, Supply chain risks?,
Societal benefits?)
• Sustainability cost approaches and boundaries
• Direct costs and benefits
• Activity-Based Costing (ABC)
• Full Cost Analysis (FCA)
• Life Cycle Costs (LCC)
• Value Chain and Global Economy Implications

22. Financial Quantification for Sustainable Planning

23. Value Driver Model
Principles of Responsible Investment (PRI) and UN Global Compact, 2013.

24. CEOs Need A Business Case
The UN Global Compact-Accenture CEO Study on Sustainability 2013.
Survey of 1,000 global CEOs, from 27 industries across 103 countries.

25. Have A Business Case?
David Kiron, Nina Kruschwitz, Holger Rubel, Martin Reeves and Sonja-Katrin Fuisz-Kehrbach,
“Sustainability’s Next Frontier,” MIT Sloan Review, December 2013.

26. Drivers of Sustainability 2014
“Corporate Social Responsibility: Beyond Financials,” Grant Thornton, August 2014.

27. CFOs: Sustainability Is Linked
To Financial Performance
Deloitte, “Sustainability: CFOs Are Coming to the Table,” December 2012.

28. Barriers To CFO Support
From a slide used by Valerie Chort, Partner at Deloitte, November 2013.

29. Profitability
Modeling
Profit could
drop by 16-36%
Profit could
increase by 51-81%

30. Revenue
PROFIT
4.Reduced materials
1. Increased revenue
2. Reduced energy
6.Reduced turnover
5.Increased productivity
7.Reducedrevenueand
increasedexpenses
3. Reduced waste
Opportunities RisksIncome Statement
10%
9%
50+%
25%
2%
20%
+51 to
+81%
-16 to
-36%Expenses
SUSTAINABILITY CAPITAL
RESERVE
Profitability Model

31. More revenue from a more sustainable brand 5%
New revenue from services and leasing
New revenue from green products 2%
2%
9%
Increased Revenue
+3.5%
in 5 yrs
+12%
in 4 yrs
20-40%
20-80%

32. Savings on energy used for lighting
Revenue from selling excess energy back to the grid
Factor four (50+%) savings
Savings on energy from renewable energy substitutions
Savings on energy used for pumps and motors
Savings on energy used for IT
Savings on energy used for heating and cooling
Savings on energy used in new green buildings
Savings on energy from employee actions / behaviors
Savings on energy used in transportation
Revenue selling carbon credits
Reduced EnergyExpenses
90%
50%
100%

33. Material Costs for Manufacturers
57%
Materials
Costs
13%
Other
5%
Depreciation,
leasing, rents
28%
Personnel
IMU Augsberg, “Flow Management for Manufacturing Companies,” 2003.

34. Waste Volume
Paul Hawken, Amory Lovins, Hunter Lovins, Natural Capitalism, 1999.
Materials
and Water
Waste
Product
93%
7%
Company

35. Waste Value
Waste
Product
30%
70%
Materials
and Water Company
“Environmental Management Accounting Procedures and Principles,”
United Nations Division for Sustainable Development, 2001.

36. Cost of materials purchased
but later wasted
Cost of waste treatment
and disposal
Cost of waste prevention and
environmental management
Cost of processing
materials before they
are wasted
Materials
and Water
Waste
Product
Company
Full Cost of Waste
Based on “Environmental Management Accounting Procedures and Principles,”
United Nations Division for Sustainable Development, 2001.

37. Recycle and reuse onsite waste
Product take-back / cradle-to-cradle / closed loop
Materials
and Water
Waste
Product
Company
Reduced Materials Expenses

38. • Companies with engaged employees
grew profits 3 X faster than competitors
(Corporate Leadership Council)
• Highly engaged organizations have 87% less staff
turnover and 20% better performance than
average (Corporate Leadership Council)
• Operating income of companies with engaged
employees improved by 19% in one year vs. a
decline of 33% for companies with low levels of
employee engagement (Global survey by Tower Perrins-ISR,
involving an 664,000 employees in 50 companies)
• 59% of engaged employees say their job brings out
their most creative ideas vs. 3% for disengaged
employees
Engagement Drives Results
WBCSD, “People Matter – Engage: Inspiring Employees about Sustainability,” August 2010.

39. Increased employee productivity / innovation 2%
Less absenteeism
Reduced business travel
Telecommuting
Green buildings
Improved collaboration
Higher engagement
Increased Productivity
More time on the job
More productive while on the job
Costs 2.6% to 9% of payroll
Usually the first expense to be cut
40% could; 2% do; 80% want to
7% to15% productivity boost
2% to 10% productivity boot
10% to 200% productivity boost

40. 25%
Percentage of departing personnel who would not leave
because they are attracted to the company's sustainability
reputation
25%
Equivalent percentage of an average salary needed to
cover direct and indirect costs incurred
• before the employee leaves,
• while the job is vacant,
• during the hiring and on-boarding process, and
• during the formal and informal training period
40%
Percentage of employees who voluntarily leave each year 12%
Reduced employee turnover expenses
Reduced Turnover

41. 7 Climate Change Risks
1. Reputation with Customers: Backlash from consumers if do not
react / help; lost revenue if rivals develop climate-friendly products
and technologies first
2. Regulatory “Price on Carbon”: Carbon caps or taxes, as
recommended by economists; supply chain accountability
3. Threat to Market Value: Viewed as “material risk” by investors
and banks; difficult to access capital
4. Loss of Top Talent: Best people walk way
5. Physical Damage: To company’s assets from severe
weather events – or to suppliers’, or to customers’
6. Access to markets: Complex, different regulations
7. Litigation: Lawsuits for GHG pollution
Jonathan Lash and Fred Wellington, “Competitive Advantage on a Warming Planet,” HBR, March 2007.

42. Climate Change Risks
“Adapting for a Green Economy,” UN Global Compact, UN Environmental Programme, Oxfam,
and World Resources Institute, 2010.

43. Revenue at risk
Risk from poor reputation on energy and carbon
management
Risk from poor reputation on water management
Risk from poor reputation on materials and waste
management
Risk from poor reputations of suppliers or customers
Risk from poor reputation on eco-system damages
Risk from less competitive prices
Risk from sudden disruptions in the value chain
5%
Potential Revenue Erosion
% Rev.
at Risk
% Probability
within 5 yrs
5%
5%
2%
5%
5%
10%
25%
25%
20%
5%
10%
1%
10%
5%
Risks To Revenue

44. Commodity Prices Rising
Text
Slide used by Stefan Heck and Matt Rogers in a Corporate Eco Forum webinar, “Capturing the Resource
Opportunity of the Century,” May 2014.

45. Potential increase in expenses
Risk of higher cost of energy
Risk of a price on carbon ($20/T x 300T/$1M Rev.)
Risk of higher cost of waste
Risk of higher cost of water and materials
Risk of higher cost of capital (Debt = 30% of Rev.)
Risk of higher employee voluntary turnover
Risk of lower employee productivity
10%
Potential Escalating Expenses %
Potential
Impact
% Probability
within 5 yrs
100%
5%
5%
0.60%
5%
75%
25%
70%
75%
75%
25%
11% to 31%
1% 10%
Impact on profit from revenue and expense risks -16% to -36%
Risk of Escalating Expenses

46. Revenue
PROFIT
4.Reduced materials
1. Increased revenue
2. Reduced energy
6.Reduced turnover
5.Increased productivity
7.Reducedrevenueand
increasedexpenses
3. Reduced waste
Opportunities RisksIncome Statement
10%
9%
50+%
25%
2%
20%
+51 to
+81%
-16 to
-36%Expenses
SUSTAINABILITY CAPITAL
RESERVE
Profitability Model Examples

47. Textile Rental Co.
47

48. Textile Rental Co.
48

49. Trucking and Warehousing Co.
49

50. Trucking and Warehousing Co.
50

52. 52
Longer Term Planning for
Prosperous Resilient Companies

53. Reporting and Disclosure Trends
“Let’s Talk: Sustainability,” EY, January 2014.
1. Disclose any conflict minerals in supply chain
Must meet Dodd-Frank Act Section 1502’s SEC disclosure filing requirements by
June 2014; report on source of origin for tin, tantalum, tungsten, and gold (3TG)
in supply chain; are in almost all electronics.
2. Report on material non-financials / intangibles
Follow GRI G4, IIRC, SASB, and INCR SSE
guidelines
3. Report on ESG in supply chains
Especially social compliance in retail supply chains
4. ESG disclosures for listing on stock exchanges
Led by INCR SSE with WFE and SASB with U.S. SEC; NASDAQ QMX and
NYSE are collaborating on these efforts; voluntary, so far

54. SASB
Developing industry-specific standards to measure and disclose
ESG performance on the top 10 material sustainability issues for
89 industries in 10 sectors. for mandatory Form 10-K SEC filings
Industry Sectors Release
Health Care 07/2013
Financials O2/2014
Technology & Communications O4/2014
Non-Renewable Resources 06/2014
Transportation 09/2014
Services 12/2014
Resource Transformation O3/2015
Consumption I 06/2015
Consumption II 09/2015
Renewable Resources & Alternative Energy 12/2015
Infrastructure 03/2016

55. Materiality

56. Resilience in a Hotter World
• The Challenge
– Global climate change and increasing constraints on resources will require
companies to fundamentally rethink their strategies, operations, and business
philosophy in order to create new value and thrive.
• The Strategy
– Firms must embrace a new vision by fighting short-termism, basing goals on
science, and pursuing radical innovation; they must place a value on natural
capital (such as clean air and water) and redefine how they measure ROI; and
they must engage in new forms of collaboration with governments, NGOs,
peers and competitors, and customers.
• The Results
– These strategies will create more resilient companies that can manage,
and profit from, extreme volatility. They will also help companies address
society’s largest challenges and create a more prosperous world for all.
By Andrew Winston. Harvard Business Review, 2014
Pivot strategy: Embrace a New Framework

58. Indirect Method (Trade-off models)
Customer
Context
POS Materials
In-home
Ethnography
Home Packaging
Lifecycle
Visual
Equities
Shapes
Icons
Colors
Financial Quantification for Sustainable Packaging

59. Direct Method (Probabilities)
Financial Quantification for Sustainable Packaging

60. Example: Johnson & Johnson
Financial Quantification for Sustainable Packaging

61. Externality Values Include Ecosystem Services
Robert Costanza et al., “Changes in the global value of ecosystem services,” Global Environmental Change 26, May 2014.
Estimated global value of 17 ecosystem services,
1997 : $33T, annually, or $46T in 2007 $USD
(1997global GDP was $46T/yr in 2007 $USD)
2011: $125T
(2011 global GDP was $75T/yr in 2007 $USD)
Between 1997 and 2011, there was
between $4.3T and $20.2T loss of
ecosystem services per year.

62. True Earnings (Including Externalities)
“A New Vision of Value: Connecting corporate and societal value creation,” KPMG, 2014..

63. Caring People - Circular Economy – Resilient Strategies
Ellen MacArthur Foundation, “Towards the Circular Economy, Vol. 1,” November 2012.

64. New Sustainable Business Models
Under development by the Strongly Sustainable
Business Model Group (SSBMG).
See www.ssbmg.com/
Today’s Canvas
Alexander Osterwalder and Yves Pigneau,
Business Model Generation, 2010.
Flourishing Business Options

65. Greener Finance at Corporate
& Economy Levels
• Corporation and Communities have no “slack”
– Positive cash flow and profits needed before pivoting
• Governments have no “will”
– Unrealistic handling of debt; ambiguous missions; burden
shifting to future generations
• Valuing nature and ecosystem services is still a fatal flaw
“blind spot” in the economy
– Unintended consequences of neglecting short- and long-
term impact of natural systems and human consciousness

66. &
Discussion?

67. Thank You.
&
Happy Thanksgiving!
William G. Russell
Principal, Transitioning to Green, LLC
Phone: 646-345-8836
Email: wgrussell@transitioningtogreen.com
Visit our website: www.transitioningtogreen.com