COMPANY OVERVIEW

COMPANY OVERVIEWFounded in 2000 by Simon Thomas and Andrew Jacobs.

An environmental research company

Notable investors include Bob Monks, Jacob Rothschild and Ben Goldsmith.

MISSION:

To help organizations better understand their operations and supply chains environmental consequences and costs, thereby enabling investors and corporate managers make better investment decisions.Till 2011 45 employees.

Investment community, corporate managers and government agencies.

the worlds most comprehensive data on corporate environmental impacts.

Physical quantities (eg. Tons of pollution) financial costs.

While the revenue of the company increased by 9% to $2.7 million in 2010, operating loss was $3.3 million.

Highly competitive industry; 21 in 2000 to 108 in 2010.

Best-in-class in terms of comprehensiveness, robustness and usefulness.

Outcome of recent industry analysis.

The company required a strategy to secure its own financial sustainability

PRODUCTS, SERVICES AND MARKETSComprehensive Corporate Profiles.

More than 700 environmental impacts; including emissions of GHG and toxic chemicals.

The company relied on reports from corporate websites, government databases and proprietary financial databases.

Alternatively, Trucost also generated estimates from its proprietary model.

Competitors of Trucost included Dow Jones Sustainability Index, Ethical Investment Research Services (EIRIS), FTSE4Good, Sustainanalytics etc.

Unlike its competitors, the company estimated environmental damage costs.

Putting a price on environmental damage presented the information in straightforward business terms.

Trucost Service Offerings: Environmental footprint Environmental data validation Environmental impact valuation Supply chain hot spot footprint Supply chain engagement

$20 - $25 million dollar market.

Trucost market share 15%.

Clients included AXA investment managers, Calvert investments, London Pension fund investments etc.

Challenges & DecisionsNeeded to gain Market share

Trucost data was very comprehensive & robust

Strategies failed

Most investors were willing to compromise on quality to pay lower pricesStrategiesRaised Awareness of its products & services

Newsweeks Green Rankings

Developing a certification scheme

Companies primarily used environmental data for marketing purposes

No support from Trucosts successful clientsNewsweek 2010 Green Rankings: US Results

Competitors & Distribution channelsCollaborated & acquired clients

Publicly highlight data inaccuracies in company reports

Analyzing trucost data using specialized software tools

Conflicts of interestThe environmental benefit model is the compilation and evaluation of inputs, outputs and the environmental impacts associated with a product, process, or activity which includes the identification of energy, materials and substances used and emissions and wastes released to the environment, over the established life cycle of the product, process or activity.

Raw MaterialsFuels/Energy

Emissions to AirWaste

Emissions to Water

WaterEnvironmental Benefit Model The Trucost Process12Trucost Evaluation ProcessFinancial AnalysisSegmental AnalysisInitial ProfileDisclosures and Public RegistersDirect and Indirect ImpactsExternal Cost ProfileBreakdown the companys financial resultsIdentify the activities that the company performs and assign costs and percentagesProduce a modelled profile of the company with quantities of resources and emissionsAnalyze company disclosures and public registries for actual impact data and incorporate if adequateAnalyze emissions and resource usage by the company and its supply chainApply external prices to the resources and emissions to allow comparison on a variety of issuesTrucost Evaluation Process Phase 1Trucost Input-Output ModelValuation StudiesGenerate ReportSend Report to CompanyIncorporate FeedbackReview with New DisclosuresProduce one page Company Briefing as the information is entered into the calculatorSend a copy of the report to the company for their verification or enhancementAnalyze any feedback received from the company and incorporate it if comprehensive and consistentMonitor the public domain for any new environmental disclosures that the company makes throughout the periodCompany Verification Process13Trucost uses a branch of economic modelling that analyses the inputs used and outputs by over 450 business activities or sectors, and the interactions between each sector an input-output model. What Trucost has integrated into this model is the addition of environmental resource use and emissions some 700 in all.By applying a price to each environmental resource, based on the environmental impact of that resource, the model is able to analyse in financial terms, the economic and environmental performance of each sector. The prices used in the Trucost model are based on external cost principles. The external cost of using an environmental resource (e.g. timber) or emitting a pollutant, such as carbon dioxide, is the cost that is borne by society through the degradation of the environment but which is not borne by the firm that uses the resource or emits the pollutant.The first thing we do is to link to the published financial accounts looking at costs and revenues in the lastest reported financial year.Using segmental revenue data contained in a companys financial accounts, Trucost maps each company to a set of 464 sectors or business activities, as most major companies rarely operate in just one sector. Trucost has modelled the environmental impacts of these 464 sectors, and these impacts are proportionately allocated to each company in relation to the turnover derived from those activities. By re-aggregating these costs, an initial environmental profile of the company is produced. Trucost then analyses any company data that companies disclose and incorporate this if suitable.The second step is to apply a cost to the environmental impacts. Step 2 determines the size of the environmental impacts relative to the companys financial performance, and provides measures of materiality and comparisons with peer companies.External costsThe use of a given natural resource or the emission of a waste product can be measured in empirical units (tonnes, cubic metres), and traditionally have been. However if a comparison is required between the relative importance of one resource or emission to that of another, they need to be represented using a weighting factor. This weighting factor would indicate a preference as to which is impact is the more damaging.Trucost believes that pricing these resources in financial terms is the most suitable method as it allows easy comparison not only between resources but also between the external costs across companies. Expressing all impacts in financial terms enables comparison between the external costs and traditional financial performance measures. Companies are starting to pay for these costs through regulation and taxation, based on per unit of resource use or emission.This environmental performance measure incorporates both the direct impacts and the indirect, supply chain impacts by using information on the interactions between industries. External costs are incurred whenever a natural resource is used or emissions are made to air, land or water.

1. Analyse company dataTrucost initially analysesfinancial information fromsources such asFactSet or Dun & Bradstreet to establish the business activities of an organisation and then apportions its revenues to those activities.

2. Map company dataUsing this information, ourenvironmental profiling model cancalculatean organisation'sdirect and supply chain environmental impacts.

Companys Methodology - How the process works3. Incorporated reported dataAt this point, things get really interesting. Trucost enhances its data model by incorporating reported environmental data obtained frompublic sources such asannual reports and websites. Where environmental reporting is not available, Trucost draws on sources of proxy information such as fuel use or expenditure data, which can be converted into emissions data. Our analysts standardise reported figures to ensure that the data covers the total operations of a company and that the impacts are categorised according to acknowledged reporting standards.

Each analysed company is then invited to verify or refine the environmental profile Trucost has created. Trucost analysts validate and authenticate any amendments or further disclosures made by the company. These additional disclosures are exclusive to Trucost and further augment our data.

4. Prioritise environmental impactsOnce the environmental impacts have been calculated and a full understanding of the organisation has been acquired, Trucost generates reports on an organisation's impacts and assesses which areasneed to be prioritised to reduce impacts.

Environmental Impacts

Source: UK Government Environmental Reporting Guidelines16This is from the Defra Environmental Reporting guidelines and shows how supply chain impacts relate to direct impacts. Upstream and downstream.

The environment is unusual in that companies regularly report on impacts that lie outside of their normal reporting boundaries. This is necessary for comparison to be made because failing to report on upstream emissions means that vertically integrated companies cannot be compared with non-vertically integrated companies and it encourages a worrying trend to outsource or de-merge polluting activities.Reporting is a complex business as Im sure many of you would have found out.Describe slide. So there is a lack of standardised reporting leading to a lack of comparability even where companies do put information in the public domain. And the inclusive of both upstream and downstream emissions within scope 3 of the GHG Protocol (which incidentally sits behind most of the apparently competing reporting standards), means that different calculation methods result in highly variable results. BP for example, made an 800 mn tonne downward revision which is more than the total annual emissions of the UK and the Netherlands combined. Should BP be reporting on these downstream product in use emissions at all? Its very nice of them to take responsibility for the emissions of my wifes diesel car, but I think it is more logical to blame my wife (as in many other things). Actually BP prefer to report on their downstream emissions rather than their upstream emissions. Theyre actually saying, that the emissions over which they have little or NO control are more important than the considerable upstream emissions which they CAN control, via their purchasing decisions.

Total LCA is very useful in determining the whole life carbon impacts of products, but from a company reporting perspective, it is significantly less useful.

Statisticians will say that if you make everybody at each point of the global supply chain responsible for the entire supply chain then everybody becomes responsible for everything. If companies were to report in this way, it would lead to not so much as double counting, but counting to the order of infinity. At Trucost we prefer that companies look first at their upstream emissions because companies know how theyve spent their money but can never know how their products are ultimately used.

The benefits: Environmental Impact ValuationUnderstand the financial risk to your organisation from environmental externalities across your own operations and your supply chain

Systematically measure and report your organisation's use of natural capital

Access data that will allow your organisation to move towards fully integrated reporting

Enhance your reputation and brand value by demonstrating to stakeholders that you are accounting for your environmental impacts A proliferation of ratings Additional flavors Ratings go mainstream Lack of Transparency Technology is changing ratings gameKey Industry TrendsBenefitsDriving better sustainability performance or transparencyCreating healthy competitionInitiating constructive dialogueShortcomingsToo much noisePerformance vs DisclosureApples-to-Oranges ComparisonsAmbiguous sustainable futureAnalysisThe only constant is change

Based on public information

Responsiveness trumps performance

Ratings beget ratings.Uncovering Best PracticesTransperancy = Trust = ValueSimple RatingsQuality of ratingsForward looking perspectiveInvest time with companies to be ratedRatings in futureFinancially viableFewer but high quality ratingsCompeting on analysis rather than data collectionValue addingTHANK YOU