Communicating the Bu$ine$$
Case for $ustainability
Strategies
Business in the Community
Plymouth, England
April 12, 2007
Bob Willard
bobwillard@sympatico.ca
www.sustainabilityadvantage.com
The Sustainability “3-Legged Stool”
Sustainable Development (SD) = Sustainability
= Corporate Social Responsibility (CSR)
= Triple Bottom Line (TBL) = Corporate Responsibility (CR)
= Environmental, Social, Governance (ESG)
Economy / Profits
Environment / Planet
Equity / People
Sustainable business Eco-Efficiency
Ethical business
 Profits
 Manufacturing efficiencies
• Internal Employees
 Taxes, R&D
 Operations efficiencies
Human Rights
 Jobs
 Product efficiencies
Health & Safety
 Expenditures
 Smart design
Respect, Caring
 Training
 Cradle-to-cradle, take-back
 Fair trade
 Beyond compliance
 Core values
 Restorative to nature
• Local Community &
Culture
• Rest of the World
The Smart Business “3-Legged Stool”
Asset Management
Financial
Natural
Human
Capital
Capital
Capital
Manufactured
Social
Capital
Capital
5 Stages and Emerging Drivers
5. Purpose / Passion
• Passionate Founder / CEO
------------------------------4. Integrated Strategy
• Business Opportunities – “Carrots”
• Risk Management – “Sticks”
3. Beyond Compliance
• Eco-efficiencies
• Regulatory Threat
• PR Crisis
2. Compliance
• Regulatory Pressure / Enforcement
1. Pre-Compliance
Ends vs. Means
Stage 5: Purpose / Values
We want to be a successful business
… so that …
we can contribute to environmental and
social well-being
------------------------------------------------------------------------Stage 4: Integrated Strategy
We want to contribute to environmental
and social well-being
… so that …
we can be a successful business
5 Stages and Emerging Drivers
5. Purpose / Passion
• Passionate Founder / CEO
------------------------------4. Integrated Strategy
• Business Opportunities – “Carrots”
• Risk Management – “Sticks”
3. Beyond Compliance
• Eco-efficiencies
• Regulatory Threat
• PR Crisis
2. Compliance
• Regulatory Pressure / Enforcement
1. Pre-Compliance
The Company Value Iceberg
Tangibles
/ Financials
/ Balance Sheet
Intangibles / Brand Image
/ Nonfinancials / Reputation /
/ Stakeholder Relationships
Company Value
The Company Value Iceberg: 1981
Tangibles / Financials
83%
Intangibles / Nonfinancials
17%
Company Value
Arthur D. Little, The Business Case for Corporate Citizenship , 2002)
The Company Value Iceberg: 1998
Tangibles / Financials
29%
Intangibles / Nonfinancials
71%
Company Value
Arthur D. Little, The Business Case for Corporate Citizenship , 2002)
The Sea of Demanding Stakeholders
Financials
Shareholders & Investors
NGOs / Civil Society
Employees
Mainstream Media
Awakened Public
Non-financials
/ Reputation
Global Markets / EU
Customers
Company Value
Competitors
Governments at all levels
Banks & Insurers
Economists
Scientists
Two-part Business Case
Financials
Shareholders & Investors
NGOs / Civil Society
Employees
Mainstream Media
Awakened Public
Non-financials
/ Reputation
Global Markets / EU
Customers
Company Value
Competitors
Governments at all levels
Banks & Insurers
Economists
Scientists
The Perfect Storm
•
•
Oct. 27 – Nov. 1, 1991
Worst storm in history …100’ waves
Cold front from
Great Lakes
(Former)
Hurricane
Grace
The
Perfect
Storm
Warm front near
Sable Island
•
•
•
All were dying out
Energy from the 3 systems combined
Sudden, unexpected, devastating
Mega-Issues + Stakeholders = New Market Forces
Pollutio
n&
Health
Climate
Climate
Crisis
Other …
Crisis
Climate
Crisis
Water
Crisis
Energy
Crisis
Pandemics
Erosion
of Trust
Financials
NGOs / Civil Society
Mainstream Media
Awakened Public
Customers
Competitors
Employees
Shareholders & Investors
Non-financials
Company Value
Governments at all levels
Global Markets / EU
Banks & Insurers
Economists
Scientists
Mainstream Media / Awakened Public
The “Goracle” Factor + Hurricane Katrina + High gas prices +
Weird weather + IPCC report + Stern Review + …
• 67% of Canadians say would switch to “green” companies
(Environics, Feb 07)
• 79% of Americans say they are Conscious Consumers; 20% are
Advocates vs. 7% in 2004 (Egg, Mar 07)
• 18% of global consumers are Mainstream Activists (Globescan CSR
Monitor, 2005)
Economists’ Warnings about Risks
• Economists’ Statement on Climate Change (Feb 1997)
Signed by 2,000 economists, including 6 Nobel Laureates
1. Humans causing CC; it presents significant environmental,
economic, social, and geopolitical risks; preventive steps
justified
2. Benefits to economy outweigh the costs
3. Market-based mechanisms are most efficient way to slow CC:
international cap-and-trade system and carbon taxes (“Great
Green Tax Shift”)
• Stern Review on Climate Change (Oct 06)
By former World Bank chief economist Nicholas Stern
1. Humans causing CC; cost of mitigation is 1% of annual global
GDP by 2050 if act now; 5-20% of annual GDP if act later
2. Benefits of $2.5T if act now; global depression if do not
3. Stabilize GHGs; deployment low-carbon technologies; remove
barriers to energy efficiency; implement regulations, carbon
taxes, and / or a cap-and-trade system
Investors Worried about Risks
Carbon Disclosure Project
Climate
Crisis
Physical Risks
Litigation Risks
Competitive Risks
Reputation Risks
2003
2006
35
225
Value of Assets Held
$4.5T
$31T
Companies Surveyed
FT500
1,800
Institutional Investors
Manufacturer impact: -40%; Bank impact: -29%
• Investor Network on Climate Risk (INCR):
65 institutional investors, $4T in assets;
•Ask SEC to require listed companies to
disclose CC risks to their financial
performance (June 06);
Investors
•Climate Watch List of worst 10 companies get
shareholder resolutions on CC (Feb 07);
•Request Congress cut GHGs 60-90% below
1990 levels by 2050 (Mar 07)
Banks and Investors Taking Action
• Citigroup: largest U.S. bank; (Jan 06) will reduce
GHGs from its 13,000 properties by 10% by 2011
• Bank of America: second largest U.S. bank; (Apr
05) $3K rebates on employee hybrids; (Mar 07)
$20B over 10 years to support growth in
environmentally friendly activities and reduce
global warming; reduced mortgage rates on energy
efficient homes
• Goldman Sachs: (Nov 06) first major investment
bank to adopt a comprehensive environmental
policy; investing $1B in clean energy projects
• JP Morgan Chase: (Apr 05) adopted Equator
Principles
• 348 shareholder resolutions on ESG issues 2005
(up 16% from 2003); 177 social resolutions
reached a vote (up 22% from 2003)
EU Market Forces
Pollution &
Health
Climate
Crisis
Regulations
Market Access
• Restriction on Hazardous Substances
(RoHS)
• Waste from Electrical and Electronic
Equipment (WEEE)
• End of Life Vehicles Directive (ELVD)
• Registration, Evaluation, Authorisation
and Restriction of Chemicals (REACH)
• Energy-using Products (EuP)
• Climate Change Plan: (Mar 07) By 2020,
cut CO2 by 20% below 1990 level; 20% of
electricity from renewable sources vs. 6%
now; 10% of vehicles on biofuels
EU Market
• Big Retailers: Tesco, Marks & Spencer,
Asda
US Position on Climate Change?
• 20 States: Renewable energy targets
Climate
Crisis
Energy
Crisis
Regulations
Carbon caps
• 9 States: Suing Feds for lax fuel efficiency
standards
• 5 West-coast States: Western Regional
Climate Action Initiative
• 7 East-coast States: Regional Greenhouse
Gas Initiative (RGGI)
• 33 States: Climate Registry of baselines
• 425 US Cities: Climate Protection Agreement:
Kyoto at city level; -7%
• Big Corporations: Wal-Mart, GE, DuPont
• US States
• US Cities
• Corporations
• Combat Climate Change (3C) Initiative: 18 US
energy corps; want carbon trading
• US Climate Action Partnership (USCAP):
10 major corps + 4 NGOs; want cap-and-trade
and 15% GHG reduction in 15 years
Unusual Co-drivers of Sustainability
National
Security
Alternative energy: Investment in the US
projected to be $6B by 2008; $167B by 2015
War for
Talent
Sustainability reputation: 70% of NA grads
would not apply to company with a poor CSR
reputation
Revenue
Pressure
Transparenc
y
Carbon trading: $29.8 B global market in
2006 and set to double in 2007; Opportunity
for additional revenue?
Environmental reporting: Sarbanes Oxley
requires material risks be identified; CICA
guidance on MD&A discussion of risks; GRI
guidelines; 64% of Global 250 do SD reports
Two-part Business Case
Financials
Shareholders & Investors
NGOs / Civil Society
Employees
Mainstream Media
Awakened Public
Non-financials
/ Reputation
Global Markets / EU
Customers
Company Value
Competitors
Governments at all levels
Banks & Insurers
Economists
Scientists
Business Priorities
Productivity
Profit
Share Price
Growth
Leadership
Revenue
Brand Image
Complying with
New Regulations
Attracting &
Retaining
Customers
Managing Risks
Governance
New Markets
Attracting &
Retaining
Top Talent
Motivation
Innovation
Competitive
Market Share
Advantage
Speed to Market
Responding to Emerging
Expense Savings
Market Forces
Benefits to “SME Ltd.”
Revenue:
$4,000,000
Profit:
$200,000
Workforce:
50
Avg. Employee Salary:
$25,000
Avg. Manager Salary:
$55,000
(5% of Revenue)
(43 + 7 Managers)
Potential profit increase: 66%
+ Energized employees
+ Improved corporate image
+ Competitive advantage
+ Positioned for the future
The Catch
1. Show senior leadership

Include SD in vision / mission / strategies

Reinforce it is a business strategy vs. a compliance
or philanthropy issue

Avoid “green-washing” hype

Visible support: speeches, questions, actions
2. Educate the whole company

Solicit employee ideas
3. Align with measurement systems

Align with measurement / management systems

Integrate into recognition / reward systems
6 Benefit Areas
1. Reduced electricity, fuel, and waste costs
2. Reduced recruiting costs
3. Reduced attrition costs
4. Increased employee productivity
5. Increased revenue / market share
6. Reduced risk, easier financing
6 Benefit Areas … % Improvement
1. Reduced electricity, fuel, and waste costs -10%
2. Reduced recruiting costs
-1%
3. Reduced attrition costs
-2%
4. Increased employee productivity
+6%
5. Increased revenue / market share
+5%
6. Reduced risk, easier financing
-5%
… yielding a profit increase of +66%
What if …
1. Reduced electricity, fuel, and waste costs -10%
2. Reduced recruiting costs
-1%
3. Reduced attrition costs
-2%
4. Increased employee productivity
+6% +3%
5. Increased revenue / market share
+5%
6. Reduced risk, easier financing
-5%
… yielding a profit increase of +66% +48%
What if …
1. Reduced electricity, fuel, and waste costs -10% -5%
2. Reduced recruiting costs
-1%
3. Reduced attrition costs
-2%
4. Increased employee productivity
+6%
5. Increased revenue / market share
+5%
6. Reduced risk, easier financing
-5%
… yielding a profit increase of +66% +56%
What if …
1. Reduced electricity, fuel, and waste costs -10%
2. Reduced recruiting costs
-1%
3. Reduced attrition costs
-2%
4. Increased employee productivity
+6%
5. Increased revenue / market share
+5% +2.5%
-5%
6. Reduced risk, easier financing
… yielding a profit increase of +66% +64%
What if …
1. Reduced electricity, fuel, and waste costs -10% -5%
2. Reduced recruiting costs
-1%
3. Reduced attrition costs
-2%
4. Increased employee productivity
5. Increased revenue / market share
+6% +3%
+5% +2.5%
6. Reduced risk, easier financing
-5%
… yielding a profit increase of +66% +35%
Tipping Point?
5. Purpose / Passion
20% at Stage 4 or 5
• Passionate Founder / CEO
------------------------------4. Integrated Strategy
• Business Opportunities – “Carrots”
• Risk Management – “Sticks”
3. Beyond Compliance
• Eco-efficiencies
• Regulatory Threat
• PR Crisis
2. Compliance
• Regulatory Pressure / Enforcement
1. Pre-Compliance
Closing Thoughts
• Sustainability is smart business
• New market forces / risks are in play
• Public expectations are rising
• Talk their language
• Show relevance to existing priorities
• You are not alone; find partners
• Opportunity for leadership
Communicating the Bu$ine$$
Case for $ustainability
Strategies
Business in the Community
Plymouth, England
April 12, 2007
Bob Willard
bobwillard@sympatico.ca
www.sustainabilityadvantage.com