Monetizing Sustainability: Addressing the Why and How with Case Studies

Monetizing Sustainability
28 January 2016 | Chicago
Sustainability
Leadership
Forum
Monetizing Sustainability 0

“37%of CEOs said a lack of clear link to
business value was a critical factor
deterring faster action on sustainability”
-
The UN Global Compact-Accenture CEO Study on Sustainability 2013, September 2013

“It is not unreasonable for business leaders
to want a positive return on their
sustainability expenditures…for me, the
convenient analogy is advertising…”
Sustainability a CFO Can Love, Harvard Business Review, April 2014

2 Minutes On Monetization
SUSTAINABLE LEADERSHIP FORUM
4Monetizing SustainabilityLink to Video: http://us.anteagroup.com/en-us/services/sustainability-consulting/accounting-sustainability-aa4s

Our Purpose
Accelerate progress by removing obstacles to better, more sustainable
business decision-making
Our Plan
Focus on making key elements of sustainability more tangible, helping
to build a better case for investment
Our Program
Create a curriculum/tools that improve the monetization and business
case development skills of those proposing and deciding on investments
in sustainability
About The Monetization Working Group
5Monetizing Sustainability

Better Business Case; Better Decisions
Need less advocating and
more reasons to believe
sustainability investments are
the best choice for our business
Business Strategy Leader & MWG Member
“
”
Articulate
Problem
Frame the
Solution
Assess
Alignment
1
3
Quantify
Value
2
4
6
Validate
Assumptions
Articulate
Needs
Provide
Clear
Plan
Measure & Report
Success
5
7
8
6
2

Where Is The Value?
Advance Enabling Growth
Gain Market Share
Acquire New Revenue
Strengthen Saving Cash
Added Financial Flexibility
Greater Capital Productivity
Increased Employee Retention & Productivity
Protect Improved Risk & Reputation ManagementCost Avoidance

Making Intangibles More Tangible
8
DEFINITION OF
MONETIZATION
The process of converting
or expressing a result in
terms of money or
currency
DEFINITION OF
DECOMPOSITION
Breaking an uncertain
variable into constituent
parts to identify directly
observable things that
are easier to measure
DEFINITION OF
QUANTIFICATION
To find, determine,
express or calculate (i.e.,
‘measure’) the quantity
or amount of something

Decomposition
9
Question 1
What Drives Value In Sustainability?
Water Stewardship Question 2
In How Many Ways?
Workplace
Enhancements
Reducing Potential For Business
Disruption
Question 3
To What Degree?
Product Innovations
Reducing chance/duration of supply
discontinuities
Less Downtime
Etc. Providing new opportunities to gain
efficiency
No Stranded Assets
Etc. No Facility Shutdown
Can we now quantify and monetize business value
due to our investments in sustainability - water stewardship?

Decomposition – Finding The Value
In How Many Ways?
An Investment in
Water Stewardship Creates Value by:
1. Reducing the risk of business disruption
a. Downtime
b. Stranded Assets
c. Facility Shutdown
2. Providing new opportunities for efficiency
a. Reduce resource consumption
In How Many Ways?
To What Degree?

Decomposition – Finding The Value (cont.)
An Investment in
Water Stewardship Creates Value by:
a. Downtime Avoid Cost by reducing the chance/duration of facility
downtime
b. Stranded Assets Avoid Cost by averting conditions where past
investments/assets become stranded
c. Facility Shutdown Avoid Cost by averting shutdown and facility closure
2. Providing new opportunities for efficiency
a. Reduce resource
consumption
Saving Cash by reducing resource consumption and all
associated costs (treatment, moving, etc.)
Protect Strengthen Advance

Water Stewardship Decomposition
12
With support from the Monetization Working Group’s subject matter experts we identified 6
categories of business benefits associated w/investments in water stewardship:
2. Reducing chance/duration of supply discontinuities
3. Providing new opportunities to gain efficiency
4. Reducing the potential for higher costs in the future
5. Reduces the risk of business/sales loss
6. Opportunity differentiate and grow revenue/business
And 15 specific opportunities to: avoid cost; improve margins and enable revenue growth

Decompose Any Relevant Investment
Workplace Enhancements Compliance Product & Packaging Innovation
Supply Chain Resiliency Alternative Energy …more

14
DEFINITION OF
MONETIZATION
terms of money or
currency
DEFINITION OF
DECOMPOSITION
DEFINITION OF
QUANTIFICATION
To find, determine,

• Look for previous experience (tap
into the institutional knowledge
base)
• Seek out subject matter experts
(internal and external)
• Published studies
• Direct measurement,
observation, estimation, or
extrapolation are all possibilities
Quantification & Measurement

For Investments in Water Stewardship
Create Watershed Improvements Which Reduce Chance/Cost of Operational Curtailment or Downtime
Quantification Confidence
Source
Company
Data
Competitor
Data
Other
Research
Assumed
# of Days Curtailed/
5 yr. Period
5 75% Yes Yes
# of Relevant
Facilities
15 60% Yes
Reduces Chance of
Curtailment By
(Conservative
Estimate)
25% 35% Yes Yes
Days of Production
Not Lost
19 (5 days curtailed/period x 15 facilities x 25% reduction in chance of curtailment)
Credibility: Quantifying

17
DEFINITION OF
MONETIZATION
terms of money or
currency
DEFINITION OF
DECOMPOSITION
DEFINITION OF
QUANTIFICATION
To find, determine,

Monetizing: Putting It All Together
18
Less Business Continuity Risk From Watershed Improvements
Reduced Chance/Cost of Operational Curtailment
Number of Days Curtailed/Plant During 5 year period: 5
# of Relevant BEVCO Plants: 15
Reduces Chance of Curtailment By (Conservative
Estimate): 25%
Days of Production Not Lost: 19
Avg EBITA Per Day/Plant: $103,000
Potential Value Of Reduced Curtailment (USD): $1,900,000

Monetizing: Putting It All Together (cont.)
19
Reduced Potential For Higher Future Costs - Reputational Enhancement - From Proof
Of Water Stewardship
Less Frictional Costs Assoc w/Expansion Approvals
Get To 'Production' Faster (more return on capital)
Shortens Cycle by (Days): 30
Relevance (#of Facilities) Across Operations Over 5 yr Period: 10
Days of Production Gained: 300
EBITDA/Day (For All Production) $103,000
Typical % of Production Represented By Expansion: 15%
EBITDA/Day For Incremental % of Production Gained: $15,450
Potential Value of Less Frictional Cost In Approvals (USD): $4,600,000

EXAMPLE
BEVCO CORPORATION
Growth In The Andean Market
A Case For Investing In Water
Stewardship
Executive Summary

The Andean market represents an important growth opportunity for the
BEVCO company.
• The organization operates 30 beverage/bottling plants within six
important watersheds throughout the region
• In four of the six watersheds agricultural development and poor land
management practices represent an ongoing and ever expanding threat
to water supplies
• Regional impacts such as forest loss, soil erosion, nutrients loading and
siltation are already overwhelming water infrastructure systems, causing
curtailments, concerning local governments and threatening future
development
• Without change and improvements in these watersheds, increasing
negative effects on company’s operations and its long range growth plans
are imminent
Challenge
SUPPLEMENTAL MATERIALS: EXAMPLE CASE

Proposed Approach
Criteria For A Successful Solution
• Mitigates/minimizes water risks and ensures the company
maintains water-related benefits
• Addresses 4 watersheds already impacted and reduces risks
in 2 others not yet impaired
• Technically and financially feasible
Recommend Joining Existing Andean Water Fund As:
• $5 MM (US) investment over 5 years yields substantial
business benefits (exceeding normal hurdle rates)
• Involves collaboration w/several business partners and
stakeholders to deliver substantial environmental benefits in
all 6 watersheds where the company operates
• Aligns w/organization’s current strategic goals related to
investing in the region’s economic and overall potential
ALTERNATIVES CONSIDERED
• Switch To Groundwater Source
At High Risk Locations: Explored
this option, but technically
impractical at most locations
• Relocate Operations: Possible to
relocate production, but not
financially feasible (mainly due
to addition product distribution
costs)
• Company-Sponsored Source
Water Protection: Considered
applying proposed solution
concepts on our own – could
work quicker, but likely too little
impact for anticipated cost

Why Does This Make Sense For BEVCO?
Rationale
Return on Investment
(ROI) hurdle rates
typically define a ‘quality
investment’ at BEVCO
In evaluating only two (2)
potential sources of value
(likely are several more)
returns exceeded these
hurdle rates (Appendix X)
As noted, also aligns with
company’s other strategic
pillars (i.e., collaboration
w/key stakeholders and
investment in the region)
FORECASTED VALUE FOR INVESTING IN WATER FUND
1) Business Continuity From Watershed Improvements
Reduced Chance/Cost of Operational Curtailment
Number of Days Curtailed/Plant During 5 year period: 5
# of Relevant BEVCO Plants: 15
Reduces Chance of Curtailment By (Conservative Estimate): 25%
Avg EBITA Per Day/Plant: $103,000
Potential Value Of Reduced Curtailment (USD): $1,900,000
2) Reputational Enhancement - From Proof Of Water Stewardship
Less Frictional Costs Assoc w/Expansion Approvals
Get To 'Production' Faster (more return on capital)
Shortens Cycle by (Days): 30
Relevance (#of Facilities) Across Operations Over 5 yr Period: 10
EBITDA/Day (For All Production) $103,000
Typical % of Production Represented By Expansion: 15%
EBITDA/Day For Incremental % of Production Gained: $15,450
Potential Value of Less Frictional Cost In Approvals (USD): $4,600,000

Business & NGO Partners (Already Supporting The Fund)
• Current agricultural ingredient supplier relying on Fund to help improve groundwater recharge in one
watershed, with BEVCO’s commitment to fund this would likely be expanded to other watersheds
• NGO partner on other sustainability initiatives has a lead role in modeling sediment loads, nutrient
pollution and their results show that with expanded investment the Fund could achieve double digit
reductions in nitrogen pollution and sediment loads in the four challenged watersheds where BEVCO
operates
Water Utilities/Providers
• The reductions above would save ≈ $0.5MM (US) per year in treatment cost in each basin and reduce
need for substantial capital outlays for additional infrastructure, reducing government interest in
limiting growth
Local Communities
• In addition to restorative environmental benefits anticipated, local farmers and landowners that abide
by restrictions designed to protect the watershed will be compensated, further advancing economies
in the region
Benefits For BEVCO’s Key Stakeholders

Important Assumptions & Risks
Key Assumptions Associated Risks Relevant Mitigation Strategies
Environmental benefits forecasted
will be realized
Failure to reduce/reverse negative
env. impacts may affect participants
reputation as water stewards,
placing forecasted business benefits
at risk
BEVCO’s internal experts engaged/
involved with Fund technical
oversight; also requiring annual
‘health of the watershed’ status/
trend reports
Key stakeholders, especially water
suppliers will recognize and take
into account BEVCOs interest in
water stewardship
Authorities may curtail company
production or delay expansion plans
regardless of BEVCOs Water Fund
participation or stewardship efforts
Preliminary meetings indicated
support from water suppliers in all
watersheds given mutual interests
in improving env. conditions; also
annual validation meetings planned
Other investors will satisfy their
commitments to the Water Fund on
schedule for the duration of efforts
Due to unforeseen economic or
other conditions, one or more
investors default on their
commitments to the Fund
Investor Agreement includes
‘backstop default provisions’ from
multilateral financial institution
supporting the Fund
BEVCO committed to pursuing
market growth opportunities in the
region for the duration of the Water
Fund commitment (5 years)
Lack of interest in the region
reduces value of benefit realization
Confirmed market commitment at
Q2 Executive Leadership meeting;
continue monitoring via routine
engagement with BEVCO leadership

Investment Details
$5 MM Investment
• Amount correlates to corporate’s ‘cost of effective water stewardship’ model
incorporating BEVCOs 5-yr forecasted water consumption (less ‘in-kind’ labor
provided to support Fund oversight/participation)
• To be paid annually (for 5 years) in equal installments by 1 March, following
publication/presentation of the ‘health of the watershed’ status/trend report
• Legal has confirmed funds can be sourced from company Foundation
Use of Funds
• To be directed by Fund technical steering committee (BEVCO has 2 members
from EHS staff – BEVCO VP already approved) via annual workplan
• Use of funds likely similar to ongoing activities that include, but are not limited
to: reforestation; protected area management; conservation and restoration of
riparian areas; silvopastoral systems; agricultural best practices education; etc.

Deployment Plan & Roadmap
Schedule
Major
Activities
Year 1 Year 2
Beyond
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Key
Milestones
Resourced
Water Fund
($1MM)
Technical
steering
committee
meeting
Technical
steering
committee
meeting
Annual
workplan
issued
Resourced
Water Fund
($1MM)
Technical
steering
committee
meeting
Technical
steering
committee
meeting
Annual
workplan
issued
Anticipate similar activities
and cadence
Communication
Plans
Health of
the
Watershed
reports
published
Progress
reported in
BEVCO
annual
report
Foundation
BOD Update
Health of
the
Watershed
reports
published
Progress
reported in
BEVCO
annual
report
Foundation
BOD Update
and cadence
Performance
Monitoring
Annual
validation
meetings
w/Water
Suppliers
Assess Fund
progress –
risk
mitigation/
benefit
realization
Annual
validation
meetings
w/Water
Suppliers
Assess Fund
progress –
risk
mitigation/
benefit
realization
and cadence

Recap
• Without change and improvements in the watersheds where the
company operates, increasing negative effects on manufacturing
and long range growth plans should be expected
• While a number of alternatives were considered, it is
recommend BEVCO join the Andean Water Fund, requiring a $5
MM (US) investment over 5 years
• This investment is anticipated to yield substantial business
benefits (exceeding normal hurdle rates) and is aligned with
other company strategic efforts
• Several of our key partners already participate in the Fund, and
expect similar benefits as do other important stakeholders
• Assumptions, risks and plans have been analyzed, compiled and
communicated signaling organizational readiness for this effort
• First indication of commitment to the Water Fund due in 30 days
Accountable Team
Julia Ramirez
BEVCO VP of EHS & Sustainability, executive
sponsor with overall accountability for
investment performance
Ricardo Reyes
BEVCO Env. Director, initiative manager and
lead technical representative with Water
Fund
Juan Condato
BEVCO Env. Manager – Water, supports Mr.
Smith
Susan Carlos
Foundation Economist, will serve as finance
support and management

Contents
• Solution Alternative Analyses
• Recommend Solution: Technical Viability Assessment
• Investment Cash Flow Projections
• Andean Water Fund Historic Performance
Appendices

Appendix X: Investment Cash Flow Analysis
PROTECT: Relevant Cost Avoidance Benefits Category Year 1 Year 2 Year 3 Year 4 Year 5
5-Yr Proj
Benefit
1 Production Losses Averted Business Continuity $95,000 $190,000 $380,000 $380,000 $380,000 $1,425,000
2 Avoid Reputation Damage Reputational Mgt -
3 Reduced/Eliminate Response costs Risk Mgt -
4 Avoid/Minimize Collateral Damage Cost Risk Mgt -
5 Avoid Escalating/Volatile Resource Cost Business Continuity -
Total Cost Avoidance Benefit: $95,000 $190,000 $380,000 $380,000 $380,000 $1,425,000
STRENGTHEN: Relevant Cash Savings Benefits Category Year 1 Year 2 Year 3 Year 4 Year 5
5-Yr Proj
Benefit
1 Less Frictional Cost Assoc w/Expansions Capital Productivity $460,000 $920,000 $920,000 $920,000 $920,000 $4,140,000
2 Reduced Resource Consumption Capital Productivity -
3 Less Pre-Treatment Needed Capital Productivity -
4 Reduced Future Capital Cost Financial Flexibility -
5 Employee Engagement Benefits Emp. Productivity -
Total Cash Savings Benefit: $460,000 $920,000 $920,000 $920,000 $ 920,000 $4,140,000
Investment Cost Summary Category Year 1 Year 2 Year 3 Year 4 Year 5 5-Yr Proj Cost
1 Watershed Conservation Practices Inc. in Water Fund $0
2 Landowner Compensation Inc. in Water Fund $0
3 Training, Guidelines, Best Practice Sharing Inc. in Water Fund $0
4 Water Fund Participation (2 FTE @ 10%) Water Fund Element $40,000 $40,000 $40,000 $40,000 $40,000 $200,000
5 Water Fund Contributions Conservation $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $5,000,000
Total Cost: $1,040,000 $1,040,000 $1,040,000 $1,040,000 $1,040,000 $5,200,000
Cash Flow Forecast: $(485,000) $70,000 $260,000 $260,000 $260,000 $365,000
Hurdle Rate: Net Present Value > 0: $185,000 PASSED
Hurdle Rate: Internal Rate of Return >15%: 18% PASSED
Assumptions Notes
 Discount Rate: 8%; Finance Rate: 8%; Reinvestment Rate: 8%
 Gradual ramp-up of benefit realization as indicated
Gray shaded areas represent additional possible benefits not estimated at this time
 Back

Let’s Try To Quantify
SUPPLEMENTAL MATERIALS: EMPLOYEE ENGAGEMENT DECOMPOSITION, QUANTIFICATION, MONETIZATION EXAMPLE
32
Can an investment in sustainability help engage
our talent by increasing employee retention for
those aware and/or involved?
• Has it ever been measured before? Yes
• Is there little data? Actually, there’s quite a
bit available
• Is it precise enough? It’s certainly more
precise than no data
• Can I afford to collect the information? Is a
couple hours on Google too much

Past Studies Start To Answer The Question
33
To What Degree?
One study indicated that
employees who had
been engaged in a
sustainability initiative(s)
were less likely to
consider leaving the
company, in this case
≈12% less likely 3 years
after that experience
Source: Corporate Social Initiatives &
Employee Retention, C, Bode, et. al., INSEAD,
2014
Retention Effect of Participation in a Corp. Social Initiative (CSI)
≈12%
difference

Now We Are Getting Somewhere…
34
Assuming there’s reasonably comparability
and confidence in the research, we can now
say investments in certain sustainability
initiatives:
1. Should create value for the organization
2. Through workplace enhancements
3. By engaging our talent
4. Which results in increasing employee
retention
5. By ≈12% for those aware and/or involved
in such efforts
for every
100 EMPLOYEES
engaged
±12 will be less
likely to consider
leaving

Quantification To Monetization
35
Once again, some basic
research should yield a
way to translate the
quantified impact into a
monetized impact – in
this case we’ll choose
≈20% as the average
cost of replacing an
employee
Note: Some estimate this value as high as 200%,
but most use a number between 10%-30%
Source: There Are Significant Business Costs to Replacing Employees, H. Boushey, et. al.,
Center for American Progress, 2012

Putting It Altogether…
36
Decomposition
POTENTIAL RETURNS FOR INVESTING IN SUSTAINABILITY
Workplace Enhancements – From Greater Engagement of Talent
Reduced Employee Turnover/Replacement & Assoc. Costs
Quantification
# of different employees engaged by the sustainability initiative per year 500
Duration of initiative (years) 5
% of employees less likely to leave as they are aware and/or involved in the
initiative (15% annual turnover without program)
2%
# Of Employees Less Likely To Leave 50
Monetization
Cost of employee turnover (% of annual salary) 20%
Average salary of engaged employees ($) $50,000
Total Value Created Over 5 Year Period Due To Reduced Employee
Turnover/Replacement
$500,000

Sources of Business Benefits/Value
Advance Growth
Gain Market Share
Acquire New Revenue
• Improved customer trust, loyalty and satisfaction?
• More return business/repeat customers?
• Innovation leading to competitive advantage?
• Enhanced ability to enter new/changing markets?
• Improvements in pricing power?
• New or expanded sources of revenue?
Strengthen
Margin
Improvement
Added Financial Flexibility
Greater Capital Productivity
Increased Employee
Retention & Productivity
• Greater operational and supply chain efficiency?
• Reduced resource consumption?
• Improve business processes?
• Enhance product development?
• Greater ability to attract/retain employees?
• Higher employee productivity?
• Reduced cost of capital, lower risk premiums?
• New financing options?
Protect
Improved Risk & Reputation
Management
• Reduce business, legal and operational risk?
• Enhance business continuity and resilience?
• Minimize future risks?
Cost Avoidance

About Antea Group
Antea Group is an international environmental
consulting and engineering firm specializing in full-
service solutions in the fields of environment,
infrastructure, urban planning and water, with
annual revenues exceeding $2B.
With our Inogen Associates we have more than 3,500
employees in over 100 offices around the world, we
serve clients ranging from global energy companies and
manufacturers to national governments and local
municipalities.

BETTER BUSINESS,
BETTER WORLD℠
North American Operations Center
5910 Rice Creek Parkway, Suite 100
St. Paul, MN 55126, USA
800 477 7411 or +1 651 639 9443
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Rivium Westlaan 72
2909 LD Capelle aan den Ijsse
Postbus 8590
3009 AN Rotterdam, The Netherlands
+31 (0) 10 235 17 45
Latin America Operations Center
Calle 35, No. 7-25 Piso 12
Bogotá, D.C., Colombia
+57 1 327 6300
For additional information contact:
John Platko (john.platko@anteagroup.com)
Michael Maggio (mike.maggio@anteagroup.com)
www.anteagroup.com

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