Copyright 2004 by Peter A. Hess and CHANGE Partners, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the Publisher.

Grow, Profit and Reduce Risk

Through Radical Resource Efficiency

2 © 2007

AgendaAgenda

Business Case

Cost/Benefit Comparison

Specific Issues

Solutions

Recommended Next Steps

3 © 2007

Business Case: You’re in Good CompanyBusiness Case: You’re in Good Company

”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.”

John Browne, BP Chairman

“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.”

Alain Belda, Alcoa Chairman and CEO

“…climate change is a serious emerging risk…”

Clement Booth, Allianz SE Executive Board Member

4 © 2007

Business Case: Boost Shareholder ValueBusiness Case: Boost Shareholder Value

Sustainable companies have:

4% higher ROI

9% higher sales growth

17% higher income growth

“Social & environmental risk management has significant positive impact on long-term market value” 1

73% SRI funds earned top marks “Stakeholder Superstars” = 43% return vs. 19% for S&P 500 FTSE 250 Co’s. w/ ethical code outperformed on economic

& market value-added3

Corp. governance, share price performance / volatility, and profitability3 linked

5 © 2007

Operational efficiency

Productivity

Innovation

Employee productivity

‘Human Capital’ leverage

Improved decision-making

Enhanced leadership

Workforce attraction/retention

Organization effectiveness

Teamwork

Business Case: Operational BenefitsBusiness Case: Operational Benefits

Access to capital Access to capital

New market development New market development

Resource utilizationResource utilization

Brand image / customer retentionBrand image / customer retention

Lower riskLower risk

Access to capital Access to capital

New market development New market development

Resource utilizationResource utilization

Brand image / customer retentionBrand image / customer retention

Lower riskLower risk

6 © 2007

Driving ForcesDriving Forces

Consumer concerns

Market-related forces

Reputational risk

Legal/Regulatory Trends

Investor demands

Call for increased transparency

Externalities incorporated into pricing

Social pressures (NGO, community and investors)

Technological Change

Long-term business strategy 

Company values

7 © 2007

Financial BenefitsFinancial Benefits

$1B savings & 1B tons emissions prevented

$100-200 million sales required to offset anticipated electricity cost increases, saving ~ $9M/yr

204% ROI = $110M/yr from energy-saving projects

$3B energy costs , 72% greenhouse gas emissions

>$500M energy savings

$10M annual energy efficiency cost savings

But Wait! There’s More…But Wait! There’s More…

3M

8 © 2007

Benefits (cont’d)Benefits (cont’d)

Interface: $400M Efficiency savings

Southern Co’s: $108M/yr Thermal efficiency savings

Greenville Tube: 15% Productivity 30% Energy efficiency 15% Scrap $77,000/yr saved; 5-month payback

Southwire: 40% Electricity use 60% Gas use 2-year payback

Calculate IRR

9 © 2007

94% waste before product sold

4.8% waste within 6 weeks 

1.2%

Source: Robert Ayres, Industrial Metabolism

CostsCosts

Resource Product

10 © 2007

Versus…Versus…

Emissions to water

Emissions to air

Total incoming material

Hazardous waste To landfill

(non-hazardous) Material &

energy recycling

Finished product

11 © 2007

Electricity Flow (Quadrillion BTUs)

Costs (cont’d)Costs (cont’d)

12 © 2007

Evolving Business Behaviouron Sustainability Issues

13 © 2007

Escalating Degree of ImpactEscalating Degree of Impact

14 © 2007

CEO Buy-inCEO Buy-in

Most important business case factors

Highest value-add from sustainability

15 © 2007

VALUES AND VALUE: Communicating the Strategic Importance of Corporate Citizenship to Investors. RichardSamans, Klaus Schwab GENEVA, JANUARY 2004

Risks and OpportunitiesRisks and Opportunities

Protecting and enhancing reputation, brand equity and trust

Attracting, motivating and retaining talent

Managing and mitigating risk

Improving operational and cost efficiency

Ensuring licence to operate

Developing new business opportunities – new products and services, new markets, new alliances, new business models

Creating a more secure and prosperous operating environment.

16 © 2007

Hierarchy of ImpactHierarchy of Impact

Decrease energy use

“Green” the supply chain

Decrease material use

Reuse materials

Recycle

Boost efficiency

17 © 2007

Specific Next StepsSpecific Next Steps

1. IDENTIFY RISKS AND OPPORTUNITIESManage social risks; maintain license to operate; increase brand value, access to capital, market share; facilitate reporting

2. ENGAGE 'SIGNIFICANT' STAKEHOLDERSGovernments; customers, communities; affected by operation; employees; minorities; others

3. DEFINE STRATEGY TO IMPROVE IMPACTTarget specific operations, stakeholder issue, business unit & geographic regions

4. DEVELOP INDICATORS & IMPLEMENTKey priority areas based on stakeholder engagement

5. MANAGE AND IMPROVE IMPACTCollect data & evaluate progress against agreed objectives

18 © 2007

Additional ActivitiesAdditional Activities

Bring top management on board

Customize the business case

Establish benchmarks and measure progress

Educate employees and create cross-functional teams

Employ life-cycle analysis

Develop BU-specific strategies

Involve suppliers and customers

Seek outside perspectives and expertise

Celebrate successes and share lessons learned

19 © 2007

Activities (cont’d)Activities (cont’d)

Identify profitable improvements, evaluate trade-offs and select strategies

Catalog organizational, policy, and market barriers and act to overcome them

Align sustainability goals with core business objectives

Identify specific actions with timelines and deadlines

Assess client-specific regulatory issues and tailor business decisions to anticipate evolving regulations

Craft communications to educate, enroll and inspire

Copyright 2004 by Peter A. Hess and CHANGE Partners, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the Publisher.

Greening YourBottom Line

Achieving

Triple Bottom Line Benefits

21 © 2007

External DriversExternal Drivers

Legal/Regulatory Trends

Market-related forces

Externalities incorporated into pricing

Growing demands to consider second and third-order impacts

Social pressures (NGO, community and investors)

Technological Change

22 © 2007

–Enhance recyclability &

durability

From Efficiency to EffectivenessFrom Efficiency to Effectiveness

–Minimize energy, water, materials &

land use

–Minimize emissions, discharges, disposal

& toxics

–Use renewable resources

Enhance value

–Provide product as service

–Create new markets

Reduce consumption

Reduce impact

23 © 2007

–Enhance recyclability & durability

–Provide product as service

–Create new markets

Industry Maturity

Sec

tor

Sop

hist

icat

ion

Regul

ator

y/Con

sum

er

Pro

file

–Minimize energy, water,

materials & land use

–Minimize emissions, discharges,

disposal & toxics

–Use renewable resources

24 © 2007

Action StepsAction Steps

Assess Current

State

Gauge Risks &

Opportunities

Evaluate Options

Weigh Benefits & Costs

Set Targets

Formulate Strategy

Assess Plan Engage

Manage External RelationsEngage the Organization

25 © 2007

Examples (cont’d)Examples (cont’d)

Xerox

Interface Carpet

Southern Company

Greenville Tube

Southwire

• Sales exceed forecasts• $250M one-year savings

• $140M 4-year savings

• $108M/yr savings • productivity up 15% • energy effic. up 30%

• 15% scrap reduction • five-month payback

• 40% electricity use cut • 60% gas use cut

But Wait! There’s More…But Wait! There’s More…

26 © 2007

Life Cycle Management OverviewLife Cycle Management Overview

LIFE CYCLE MANAGEMENT

Objective

Concept

Strategies

Tools

SUSTAINABILITY

LIFE CYCLE THINKING

Pollution Prevention Product- and supply chain management

Systems ISO 9001, TQM , EFQMISO 14001 & POEMS

Cleaner Production , LCA , EcoDesign ,

Management Level

Social dimension Environmental dimension Economical dimension

EMA & LCC

Explanations : OHSAS = Occupational Health And Safety , POEMS = Product Oriented Environmental Management System , TQM = Total Quality Management , EFQM = European Foundation for Quality Management , LCA = Life Cycle Assessment , EMA = Environmental Management Accounting , LCC = Life Cycle Cost Analysis .

Work place assessment

Corporate social responsibility

OHSAS 18001

27 © 2007

LCM - Areas of FocusLCM - Areas of Focus

Ref: Wuppertal Institute

28 © 2007

• Comply with requirementsDeficientDeficient

• provide information• no feedback incorporatedUnilateralUnilateral

• exchange information and experiencesBilateralBilateral

• interactive dialogue with stakeholder groups to realize a common goalConsultativeConsultative

• ongoing stakeholder discussion • participatory decision-makingCollaborativeCollaborative

Fully Realized

Minimal

Stakeholder RelationshipsStakeholder Relationships

Ref: wuppertal

29 © 2007

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

30 © 2007

Measurement & ReportingMeasurement & Reporting

INITIATIVES

UN Global Compact

Global Reporting Initiative

Sarbanes-Oxley

UK Ethical Trading Initiative

Coalition for Environmentally Responsible Economies

Zero Emissions Research Initiative

CRITERIA

Transparency

Inclusiveness

Auditability

Completeness

Relevance

Accuracy

Neutrality

Comparability

Clarity

Timeliness

31 © 2007

IF you could buy them!

$ value of Ecological Services$ value of Ecological Services

32 © 2007

Pollution Prevention BenefitsPollution Prevention Benefits

Environmentally proactive companies have:

4% higher ROI

9% higher sales growth

17% higher operating-income growth

Improve operational efficiency

Increase innovation

Improve risk management

Better access to information

Enhance reputation and credibility

Leverage ‘Human Capital’

33 © 2007

Benefits: Case StudiesBenefits: Case Studies

IBM - > $500 million in energy savings in the 1990s

Johnson & Johnson - $10 million annual energy efficiency cost savings

Raytheon - $100-200 million of un-forecasted sales required to offset anticipated electricity cost increases, saving ~ $9M/yr

Dow Chemical’s Louisiana division energy-saving projects averaged 204% audited ROI, paying Dow’s shareholders $110M/yr

DuPont saves ~ $31M/yr

But Wait! There’s More…But Wait! There’s More…

34 © 2007

Examples (cont’d)Examples (cont’d)

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.

Interface Carpet - $140 million in sustainable waste reductions over 4 years

Southern Company’s improvements in thermal efficiency saved $108M/yr

Greenville Tube Corporation - boosted productivity 15% and energy efficiency 30%, reduced scrap 15%, and saved $77,000 a year with a five-month payback 

Southwire cut electricity use 40%, gas by 60%

35 © 2007

SRI in the U.S.SRI in the U.S.

$2.2 trillion total U.S. SRI assets

> one of every nine dollars under management

SRI assets have 40% faster growth than than all U.S. managed investment assets

75% of SRI funds > $100 million in assets earned top scores from Morningstar and/or Lipper Analytical Services

36 © 2007

Changing ViewpointChanging Viewpoint

Management quality leading determinate of share performance

Environmental performance: excellent proxy for management quality

Most studies show environmental stock market performance correlation

37 © 2007

Changing ViewpointChanging Viewpoint

Environment and social issues are among the most complex challenges facing management

issues, stakeholders and non-financial measures

High level of technical, market and regulatory uncertainty

Success in this high complexity area implies ability to excel in other business areas, earning superior returns

38 © 2007

Sustainability IssuesImpact on the Bottom LineSustainability IssuesImpact on the Bottom Line

Aventis – Starlink Corn

Union Carbide – Bhopal

Exxon – Valdez

Sandoz – Pollution of the Rhine

Royal Dutch/Shell – Brent Spar, Nigeria

Nike – “Sweatshops”

Monsanto – Genetically Modified Foods

Ford – Bridgestone tire recall on “Explorer”

Norsk Hydro – Utkal Project in India

ABB - Bakkun dam in Malaysia

GE – PCB in the Hudson River

Elf Aquitaine – Erika tanker wreckage

Need dollars

here

39 © 2007

Works for enterprises, too.Works for enterprises, too.

40 © 2007

Corporation of the FutureCorporation of the Future

© Interface

41 © 2007

Financial Institutions ABN-AMRO ABP Investments Alliance Capital Management Bank Julius Baer Bank Sarasin BNP Paripas BP Investment Management Brown Brothers Harriman Capital Guardian Cazenove Fund Management Collins Stewart (CI) Ltd. Contra Costa County Employees’

Retirement Association Daiwa Securities Dreyfus Investment Advisors Frontier Capital Management Green Cay Asset Management Glenmede Trust

Hermes Pensions Management (British Telecom Pension)

IBK Capital Corp. ING/Aeltus Investment Management Legg Mason Funds Management Lombard Odier & Cie Mellon Equity Neuberger Berman (Lehman

Brothers) Rockefeller & Co. Schroders Investment Management Société Générale SNS Asset Management Swiss Re State Street Global Advisors T. Rowe Price UBS Investment Bank World Bank

Innovest investment research has been used by:

Partial Client List

42 © 2007

QuestionsQuestions

What are your reputation and brand image worth?

43 © 2007

FootnotesFootnotes

1 Taylor Nelson (2001) European Survey on SRI and Financial Community (302 financial analysts and fund managers across Europe)

2 > $100 million assets

3 In place for > 5 yrs.4 Beyond the Numbers Corporate Governance: Implication for Investors Deutsche Bank Research

Report. April 20045 Citizens, consumers, public authorities and investors