Sustainability Advantage:The Busine$$ Ca$e for Sustainability

Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com

PPPC ConventionToronto

January 16, 2012

Sustainable Promotional Products

Cause-related promotional products• Donation to charity of person’s choice• Carbon offsets• Matching grants

Definitions of Sustainability

Sustainable Development (SD)Meeting the needs of the present generation

without compromising the ability of future generations to meet their own needs.

– Brundtland Commission, 1987 –

SustainabilityThe possibility that human and other forms of life on

earth will flourish forever. – John Ehrenfeld, Professor Emeritus, MIT –

Sustainable Development (SD)Enough - for all – forever.

– African Delegate to Johannesburg (Rio+10) –

Core Concepts of Sustainability

Futures ThinkingIntergenerational responsibility

(Eco-)Systems ThinkingCarrying capacity of the planet

to absorb waste and support life

Social JusticeEquity, Dignity, Basic services, Human rights,

Stakeholder voices

Economic, Environmental, Social/Culturalresponsibilities

3-Legged Sustainability Stool

Sustainability

Economic LegGood JobsFair wages

SecurityInfrastructure

Fair Trade

Social Leg Working conditions

Health servicesEducation services

Community & CultureSocial justice

Environmental LegNo Pollution & WasteRenewable Energy

ConservationRestoration

Quality of Life / Genuine Wealth / Genuine Progress

Corporate Sustainability 3-Legged Stool

= Corporate Social Responsibility (CSR) = Green

Economy - ProfitsGrowth

Jobs, TaxesProductsServices

Equity - People Employees

Community / Culture World

Environment - PlanetEco-efficiencies

Eco-effectiveness

= Corporate Responsibility (CR) = Environmental, Social, Governance (ESG)

= Sustainability = Sustainable Development (SD)Triple Bottom Line (TBL) = 3Es = 3Ps

Smart Business 3-Legged Stool

Asset Management

Economic / FinancialCapital

Built / ManufacturedCapital

NaturalCapital

Human CapitalSocial Capital

Sustainable Value Creation

5-Stage Sustainability Journey

5. Purpose/Passion Align with founder’s / CEO’s values

2. Compliance Avoid fines, prosecution, bad PR

1. Pre-Compliance

3. Beyond ComplianceSave on eco-efficienciesAvoid PR crisis Avoid threat of new regulations

4. Integrated Strategy Enhance company value / prosperity

The “Sustainability Imperative”

David A. Lubin and Daniel C. Esty, “The Sustainability Imperative,” HBR May 2010

Megatrend: “A fundamental shift in the competitive landscape that creates

inescapable threats and game-changing opportunities ... profoundly affects companies’

competitiveness and even their survival.”

Over the last 10 years, the “Sustainability Imperative” has emerged,

magnified by escalating public and governmental concern about climate change, industrial pollution, food safety,

and natural resource depletion, among other issues.”

Significant CEO Mindset Shift

Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

… fully embedded into company strategy and operations

CEOs Agree /Strongly Agree that sustainability should be ….

… discussed and acted on by boards

… fully embedded into subsidiaries’ strategies and operations

… embedded throughout the global supply chain

… the basis for industry collaborations and multi-stakeholder partnerships

… incorporated into discussions with financial analysts

2010 Increase Over 2007

Stakeholders Driving Sustainability

Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

Stakeholders who CEOs believe will have the greatest impact on the way they manage societal expectations

Consumers

Employees

Governments

Communities

Regulators

Media

Investment Community

Suppliers

NGOs

Boards

Organized Labor

Other

CEOs: Sustainability Drivers

Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

Brand, trust, and reputation

Potential for revenue / growth / cost reduction

Personal motivation

Consumer / customer demand

Employee engagement and recruitment

Impact of development gapson business

Governmental / regulatory environment

Pressure from investors / shareholders

Top 3 drivers of CEOs’ action on sustainability issues

1978

95%

The “Iceberg” of Company Value2009

Sources: For 2009, Hollender, Orgain, and Nunez, “The Business Case for Sustainability” [accessed July 30, 2011], Kaplan Eduneering/Seventh Generation Sustainability Institute, February 2010; for 1998 and 1981, Roberts, Keeble, and Brown, “The Business Case for Corporate Citizenship,” Arthur D. Little, 2002, p. 1; for 1978, Stewart, “Accounting Gets Radical,” Fortune, April 16, 2001.

19981981

Intangibles / Non-Financials

/ Reputation / Goodwill

25%

Market Value / Capitalization

29% Tangibles / Financials

75%17%

83%

5%71%

The “Perfect Storm” Threatens Financial and Social Capitals

Intangibles / Non-Financials

/ Reputation / Goodwill

25%

Market Value / Capitalization

Tangibles / Financials

Waste, Toxicity, and Health

Poverty and Social Injustice

Species Extinction and Overharvesting

Food and Water Crises

Climate Change and Energy Crisis

Employees

Customers

Media

(Scientists)(NGOs)

Competitors

Global Markets Governments

Insurers

The Public

Investors

Banks

Communities

Social license

to operate

Boards Economists

CEOs: Sustainability Drivers

Survey of 766 worldwide CEOs, including 50 in-depth interviews UN Global Compact and Accenture study, “A New Era of Sustainability,” June 2010

Brand, trust, and reputation

Potential for revenue / growth / cost reduction

Personal motivation

Consumer / customer demand

Employee engagement and recruitment

Impact of development gapson business

Governmental / regulatory environment

Pressure from investors / shareholders

Top 3 drivers of CEOs’ action on sustainability issues

Top 10 Business Priorities for 2011

Forrester's survey of 2,691 executives in Europe, North America, and Asia, “Forrsights Business Decision-Makers Survey, Q4 2010.”

One More Goal … or an Enabling Strategy?

Talent wars

Productivity

Innovation

Brand image

Quality

Risks

Compliance

Governance

Supply security

Profit

Share price

Growth

Revenue

Market share

New markets

Customer care

Expenses

Enabling Strategies

“Sustainability”

Income / Profit & Loss Statement

Expenses• Cost of goods sold (COGS)• Selling, general, and administrative (SG&A)• Interest, taxes, depreciation, and amortization (ITDA)

Revenue / Sales

Profit / Net Income

Wouldn’t it be nice if someone …

1. …determined what real companies have achieved from their sustainability-related revenue enhancement and expense saving initiatives, by researching books, articles, press releases, surveys, research papers, case studies, etc.

2. …sorted the benefits into generic categories3. …monetized the benefits and normalized them

to revenue

4. …projected profit improvements for typical companies, if they were to simply do what leading companies have already done, within the next 3 to 5 years

5. …made it easy to tailor the business case for a particular company with an open source simulator

7 Business Case Benefits

Revenue

Profit

4. Reduced material and water expenses

1. Increased Revenue

2. Reduced energy expenses

6. Reduced employee turnover expenses

5. Increased employee productivity / innovation

7.R

ed

uce

d r

isk

s to

re

ven

ue

an

d e

xpe

nse

s

3. Reduced waste expenses

Opportunities RisksIncome Statement

10%

9%

75%

25%

2%

20%

+51 to +81% -16 to -36%E

xpen

ses

Sustainability Capital Reserve

Two Sample Typical Companies

Company Data Profile

Small Professional

Services Company

% of Revenue

Large Manufacturing & Distribution Corporation

% of Revenue

Revenue $1,000,000 $500,000,000

Energy expense $20,000 2% $10,000,000 2%

Materials and water expense $50,000 5% $150,000,000 30%

Total salary / payroll expense $300,000 30% $150,000,000 30%

Profit $70,000 7% $35,000,000 7%

Average salary, including benefits

$50,000 $40,000

Number of employees 6 3,750

Potential Profit Increase 51% 81%

Potential Profit at Risk -16% -36%

5 Sources of Funds

Existing budgets: maintenance, advertizing, marketing, communications, education

Government grants and incentives, especially for early movers

Treat as an investment, rather than as a cost: high yield, low risk

Other internal capital or external capital markets

Sustainability Capital Reserve

Benefits are only counted after their 1 to 5 year payback period

The “Tipping Point”

3.3: Embed sustainable governance 3.2: Create new eco-effective products, services, leases 3.1: Improve supply chain conditions and footprints3.0: Improve company eco-efficiencies and sustainability brand

1. Pre-Compliance

2. Compliance

3. Beyond Compliance Capture eco-efficiencies; Avoid PR and regulatory risks

4. Integrated Strategy Enhance company value / prosperity

5. Purpose & Passion Align with founder’s / CEO’s values

20%

Question

Time Until Sustainability Tipping Point

Source: Environmental Leader, “Time Until Sustainability Tipping Point is Reached, View of Global CEOs (% of respondents)” in Environmental and Energy Data Book Q2 2011, July 2011, p. 26. Based on survey of 1,251 companies, in UN Global Compact Annual Review 2010.

10%3%

26%44%

17%

Corps Are Investing in Sustainability

The growth of investment in sustainable business programs will be between 50-100% higher in 2013 than in 2011. Spending on sustainability programs by Australian, Canadian, U.K. and U.S. companies with over $1B in sales will hit $60B in 2013. (Verdantix, based on spending patterns of 2,500 global firms, March 2011)

MIT Sloan and the Boston Consulting Group winter 2011 research report,“Sustainability: The ‘Embracers’ Seize Advantage,” Feb. 2011

Sustainable Promotional Products

Cause-related promotional products• Donation to charity of person’s choice• Carbon offsets• Matching grants

In Summary …

Sustainability is smart businessRelevant to current organizational priorities

Important stakeholders’ expectations are risingNew market forces & risks are in play

Large companies have a ripple effect on suppliers

Promotional products are symbolic gestures

Opportunity for leadership … by exampleMany willing, helpful, unusual partners

Sustainability Advantage:The Busine$$ Ca$e for Sustainability

Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com

PPPC ConventionToronto

January 16, 2012