Sustainability Risk Management
Johnson Controls, Inc.
John F. Vargo
Director, Risk Management
Agenda
 Company Overview
 The Path to Sustainability
 Sustainability at Johnson Controls
 Risks and Rewards
 Results
Johnson Controls Overview
 Founded in 1885
 HQ: Milwaukee,
Wisconsin
Building
21%
Power
11%
 67th Fortune 500 2007
 136,000 employees
 500 locations in 52
countries
Europe
41%
ROW
19%
 Credo: 5 Core Values
4
Interior Experience
Delivering world-class technologies
that differentiate vehicle interiors
and increase consumer demand
 Global provider of seating, overhead, electronics,
door and cockpit systems
 More than 50% of revenues generated outside
of North America
 Leading presence in China through joint ventures
North America
Asian &
European
North
OEs
American
48%
52%
Customer Diversity
Europe
Asian
& NA
31%
European
OEs
69%
Asia
European
& NA
34%
(2007 sales*, includes unconsolidated)
2006 sales: $18.3 billion
$165 billion market
275 locations in 30 countries
Asian
OEs
66%
Asia
8%
*projected
Europe
48%
North
America
44%
5
Power Solutions
Providing the highest quality, lowest cost
automotive batteries to help customers
grow their market shares
 80% of sales to aftermarket
– Hundreds of customers and dozens of brands
 Geographic diversity
– 25 manufacturing plants on five continents
 Wide range of automotive battery technologies
– Lead-acid
– Nickel metal hydride, lithium-ion
JCI Global Market
Share 30%
2006 Sales:$3.7 billion
Asia
Americas
63% 9%
36%
Europe
31%
6%
Asia
6
Building Efficiency
Creating quality indoor environments
that are energy efficient, comfortable
and safe
 Non-residential buildings
–
–
–
–
Tens of thousands of customers
125 countries
Revenues 75% aftermarket; 25% new construction
Systems, products, services and solutions offerings
 Residential
– Home air conditioning and heating,
65% replacement
Asia
17%
2006 sales: $10.2 billion
$200+ billion non-residential global market*
*HVAC/fire/security only
North
Europe
America
29%
54%
7
What is Sustainability?
“Sustainable
development meets the needs of the
present generation without compromising the
ability of future generations to meet their needs."
- 1987 United Nations Brundtland Report
“A business approach that creates long-term
shareholder value by embracing opportunities and
managing risks deriving from economic,
environmental and social developments.”
- Dow Jones Sustainability Index
What is Sustainability?
Measuring the triple bottom line
Johnson Controls
provides products and services that
address risks and opportunities
in order to contribute to an organization's long-term
social, financial and environmental success.
Environmental
Sustainability: Before 2000
 Sustainability a new concept
 Social investing immature
 Johnson Controls:
– Strong commitment to Core Values and
Ethics
– Outstanding governance, social and
environmental track record
– Little press or NGO attention
– Rapidly growing and not a Fortune 100
All seemed well...
Sustainability: After 2000
Social investing:
– Over 230 social mutual funds in U.S.
today
– Influence trillions of investment dollars
– Growing about 30% annually
NGOs:
– More and better organized
– Target big companies
– Current focus:
• Climate change
• Governance
• Supply chain management
Customers:
– Demand less risks
Sustainability
 Define it
 Measure it
 Report it (transparency)
 Use it (to find value)
• New products and services
• Branding
Defining Sustainability
• Numerous definitions depending on stakeholder’s agenda
• AKA: Sustainable Development, Corporate Social Responsibility
(CSR), Environmental, Social & Corporate Governance (ESG)
• “Triple Bottom Line” most accepted externally and consistent with
internal policies/practices
External
Internal
Economic
Prosperity
• Core Values
• Ethics Policy
An
Integrated,
Balanced
Strategic
Approach
• ESH Policies
• Committed
management
• Performance metrics
Environmental
Stewardship
Social
Responsibility
Our Values = Sustainability
 Integrity – Through annual reporting and a commitment to
transparency, we demonstrate our integrity and ethics.
 Customer Satisfaction – By helping our customers meet their
sustainability goals we demonstrate our commitment to their
success.
 Our Employees – Through leadership development, and
commitment to diversity and community involvement we strive
to be an employer of choice.
 Improvement and Innovation – Commitment to sustainability
drives innovation.
 Safety and the Environment – Our participation in USGBC,
EPA Climate Leaders and other organizations demonstrates
our leadership on meeting today’s challenges and planning for
tomorrow’s.
The Johnson Controls
Path to Sustainability
Commit
To
Understanding
Sustainability
Assess &
Prioritize
Your Risks and
Opportunities
Implement
Communicate
Technologies and Strategies
Intent & Results
Johnson Controls/Others
Addressing risks and opportunities
that contribute to an organization's long-term
social, financial and environmental success
Culture of Sustainability
15
Johnson Controls
Corporate Commitment
Commit
Assess &
Prioritize
Understand
Sustainability
Risk/Opportunity
Executive
Leadership
Social
Business Group
Accountability
Financial
Environment
Implement
Technologies
What we sell
Strategies
How we operate
Communicate
Intent & Results
Internal
Building
Efficiency
Facility
Optimization
Interior
Experience
Manufacturing
Processes
Power
Solutions
Employee
Involvement
External
Certification
Supply Chain
Management
Culture of Sustainability
16
Developing a Culture
of Sustainability
Executive/
Leadership
Continuous
Improvement
Asset
Management
- Real Estate
- Transportation
- Physical Assets
Supply Chain
Management
Manufacturing
& Operations
Culture of
Sustainability
Marketing &
Public/Community
Relations
Products/
Services/
Programs
Employee
Education &
Involvement
Sustainability @ Johnson Controls
Transparency: Reporting
 Before 2000 published only an Annual
Financial Report
 2003: published ESH Report and a
Financial Report
 2004:Sustainability Report and kept
Financial Report
 2005 combined Financial & Sustainability
Report and post additional details on
Web.
 2006 and beyond:
– Using programs to simplify reporting to
multiple stakeholders
– More NGO dialogue
Sustainability Metrics—(GRI)
Direct Economic
Impacts
E
C
O
N
O
M
I
C
Labor Practices
Employment
Customers
Labor/management relations
Suppliers
Health and safety
Employees
Training and education
Providers of capital
Diversity and opportunity
Public sector
Human Rights
Strategy and management
Governance
Non-discrimination
Freedom of association
Environment
E
N
V
I
R
O
N
M
E
N
T
A
L
Materials
Energy
Water
Biodiversity
S
O
C
I
A
L
Child labor
Forced labor
Disciplinary practices
Security practices
Indigenous rights
Emissions
Effluents
Society
Community
Bribery
Waste
Political contributions
Suppliers
Competition and pricing
Products and services
Compliance
Product Responsibility
Product safety
Transport
Advertising
Overall
Respect for privacy
Managing the Risk – Economics
Ensure the ongoing financial viability of
the business through the management of
risk
 Protect our employees
 Protect our physical assets
 Work with our suppliers to ensure they understand the
risks and act appropriately
 Ensure that our vendors adhere to JCI’s ethic’s policy
or equivalent
Managing the Risk – Environment
Commitment to the environment impacts
our approach to risk management
programs
 Accountability and Responsibility
 Reduce Waste
 Minimize Environmental Impact
 Minimize Hazardous Substances
– Mercury-Free Products
– End-of-Life Regulations
Managing the Risk – Social
Commitment to the social responsibility
 Establish written employee policies and follow them
 Make employee safety an emphasis
 Design safe products and monitor any issues
 Support supplier diversity
 Act within the law in every country we operate
What’s the Payoff?
President Bush visits Johnson Controls
Advanced Battery Lab 2/2006
Business Ethics
Magazine 100 Best
Corporate Citizens
2006 EPA Climate Protection
Award
2004 WEC Gold Medal
Award
FTSE4Good Index
2005 EPA Clean Air Excellence
Award
The TOP RANKED AUTOMOTIVE SUPPLIER in Fortune
magazine’s 2006 Most-Admired Companies survey.
Finding Value for our Customers
Value Chain
Competitive Advantage:
 Provide customers GHG tracking tools




Provide sustainability training
Closer supplier monitoring
Market green buildings
Design products for Sustainability
Reduce Costs:
 Waste management
 Energy management
Regulatory Compliance:
 Address “end of pipe” issues
 Safety, permitting, auditing, pollution prevention
Maturity
Marketplace Factors
 Technology has improved
 Accountability has improved
 Global access and communications have
improved
 Government and the marketplace are both driving
change
26
Managing Risks &
Embracing Opportunity
Risk
Risk
• High energy bills
• High operating
costs
• Outdated equipment
• No capital project
funding
• Health care issues
• Poor indoor air
• Productivity
• Community
concerns
Opportunity
Opportunity
• Lower energy bills
• Reduced
O&M/deferred
maintenance
• Stable energy
supply
• Funds capital
Improvements
Environmental
Risk
• Mandates/regulations
• Air pollution
• GHG emissions
• Water quality
Opportunity
• Streamlined approvals
• Reduced air pollution
• Reduced GHG emissions
• Reduced water use
• Public Health
• Worker productivity
• Socially
responsible
investors
The Path to Sustainability:
Building Efficiency Offerings
Commit
Understand
Sustainability
• Business Case
Dev’t
– Financial
– Environment
Issues
– Social
• Employee
• Community
• Life Cycle
Approach
• Flexible
• Scalable
Assess &
Prioritize
Implement
Communicate
(JCI / Third Party)
Risk/Opportunity
• Overall Goals
– Social
– Financial
– Environment
Technologies
• Infrastructure
– Energy Supply
– Water Supply
– Wireless
• Project Scope
• Facility
– Infrastructure
– Facility
– Service/FM
• Project Approach
– Funding
– Timetable
– Implementation
Team
– Technologies/
Strategies
– Automation
– Technology
Systems
– Energy
– Water
– HVAC/R
– Lighting
• Environmental
Products
Strategies
• Funding
• Energy & Water
Services
• Renewables
• Design/Build
• Lifecycle
Program Mgmt.
• Operations &
Maintenance
• Facility
Management
• Service
• Supply Chain
• GHG tracking
and reporting
Intent & Results
• Internal
– Evaluation
– Communication
– Education
• External
– Public Relations
– Community Rel
– GHG Reports
– Corp Soc Resp
• Certification
– LEED
– ENERGY STAR
– GRI
– MBE/DBE etc.
Culture of Sustainability
28
Sustainable Success
Measuring the triple bottom line
Johnson Controls
provides products and services that
address risks and opportunities
in order to contribute to an organization's long-term
social, financial and environmental success.
Environmental
Thank you for your time