Center for Business as an Agent of World Benefit

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Center for Business as an Agent of World Benefit
Rethinking the WORLD ECONOMY
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The Business Case for Sustainability

• Is There Green in Green Business?

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Yes, There Is!

• Sources of Sustainable Value
• Customers niche markets, planet-people-conscious
  consumers, BOP, traditional value-conscious
  consumers
• Other Stakeholders reputation and brand
  management, license to operate, investments in
  the supply chain
• Company internal improvements, cost/waste
  reduction, employee engagement
• Investors and Financial Industry socially
  responsible investing sustainability indexes

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 10. Investors worldwide are investing over 180
  billion in socially responsible businesses
• The of SR mutual funds in the US has gone from
  2 firms holding 66 million in assets in 1980 to
  nearly 200 funds today with assets over 150
  billion (Stanford Social Innovation Review,
  Spring 2004)
• A survey by French CR group Novethic has revealed
  a 76 increase in the French SRI market in 2004.
  The market is now worth some 600 million.
  (Ethical Corporation, August 16, 2005)
• A study by UK-based Co-operative Financial
  Services has found ethical investments in the
  country broke the 10 billion mark in 2004, an
  18 jump over 2003. (Ethical Corporation, August
  16, 2005)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong
Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 9. Customers want people- and planet-conscious
  products
• Demand for Organic Dairy Products in USA Exceeds
  Supply sales of such companies as Organic Valley
  Family of Farms went up 36 the industry now
  satisfies 85 of demand (Organic Consumers
  Association, 2005)
• In January 2004, Prius Hybrid sales were up 82
  percent from January 2003 For the 2004 model
  year, Toyota initially boosted production 50
  percent to 36,000. But demand has been strong -
  production has already been increased to 47,000.
  And that's still not enough. (Slate.msn.com,
  2005)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• The Toyota Motor Corporation plans for all its
  vehicles would eventually be run by hybrid
  gasoline-electric motors (GreenBiz, Sep 19 2005)
• 42 of all Americans are willing to spend more
  for products branded as organic, environmentally
  friendly, or fair trade (50 of 18-29 year olds,
  37 of 45-64 years olds) (Global Market
  Institute, Sep 2005)
• BOP model offers a new customer-based source of
  sustainable value creation with a market of
  12.5 trillion (Fortune at the Bottom of the
  Pyramid, 2005)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 8. Companies like Green Mountain Coffee Roasters
  show an example of company- and customer-driven
  value creation
• Input supply chain improvements fair trade and
  organic coffee, appeal to nature-conscious
  consumers, public image, environmental
  innovations
• Output stock price grew from 9.063 in Sep 2000
  to 37.100 in Sep 2005 revenue grew from 95.5
  mil in 2001 to 137.4 mil in 2004 (BAWB
  Innovation Bank, 2005)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• GMCR Company-driven value
• Going to source
• Micro-finance and innovative cash flow models
• Cost reduction and efficiency programs
• GMCR Customer-driven value
• Niche market double certified coffee
• Brand reputation
• Partnerships with Paul Newman and Wild Oats

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 7. Finance sector consider intangible aspects
  as core value drivers, suggesting that Who Cares
  Wins (2004)
• 50 to 90 of a firms market value can be
  attributed to intangibles like Environment,
  Health and Safety (GEMI Clear Advantage
  Building Shareholder Value, February 2004)
• 35 of institutional investors portfolio
  allocation decisions are based on intangibles
  like EHS performance (GEMI, 2004)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 81 of Global 500 executives rated environmental,
  health and safety issues among the top ten
  factors driving value in their businesses (Cap
  Gemini Ernst Young, 1996)
• 78 of fund managers and analysts, the management
  of environmental and social risk has a positive
  impact on a companys long-term market value (CSR
  Europe, Deloitte, Euronext Investing in
  Responsible Business, 2003)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 6. Stakeholder Approach and good Governance pay
  off
• A Harvard 11-year study of corporations that
  emphasized stakeholder management found these
  corporations had sales growth 4 times and
  employment growth 8 times that of shareholder
  first companies (KPMG, The Business Case for
  Sustainability, 2001).
• A new study which examined Governance Metrics
  International ratings on Japanese companies and
  their correlation to performance. Their key
  finding is that firms with good governance,
  significantly outperform firms with poor
  governance and have a risk adjusted
  out-performance of up to 15.12 annually (GMI,
  2005).

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Top 10 reasons why the business case for
sustainability is strong

• In studies of this nature, economic performance
  is measured by any combination of
• Revenue
• Stock price performance
• Firm value (e.g. measured by Tobins Q)
• Operating performance (measured by net profit
  margin and return on equity).

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Top 10 reasons why the business case for
sustainability is strong

• 5. Chefs Garden story shows that you do not
  always need to reduce or reuse it is all about
  innovation
• Organic sustainable agriculture with innovative
  approaches such as field temperature raising
  mechanism
• Products are niche-marketed to chefs only
  Culinary Vegetable Institute supports that

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 90 employees
• 600 varieties of herbs and veggies
• 2.5 in revenues
• Expansive facilities
• For-profit and non-profit activity - Veggie U
  (BAWB Innovation Bank, 2005)

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 4. Sustainable operations save you big
  internally
• Interface by 2004 the cumulative avoided costs
  from waste elimination activities since 1995 have
  totaled over 262 million (Interface
  Sustainability Report, 2004).
• Great Lakes Brewing Company trash removal fees
  down by 40 total savings from recycling and
  energy conservation efforts are between 15,000
  and 20,000 (The Plain Dealer Sunday Magazine,
  2005)
• Xerox estimates 2 Billion Saved Through
  Eco-Design and Manufacturing, in addition to
  keeping 1.2 billion pounds of electronic waste
  out of landfills (GreenBiz, 2002).
• CO2 Reduction Efforts Save BP 650 Million
  (GreenBiz, 2005)

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Top 10 reasons why the business case for
sustainability is strong

• Internal efficiency can be achieved through
• Closed-loop manufacturing (Xerox model)
• Energy saving practices energy efficient
  products (All companies)
• Innovative supply chain practices (TerraCycles
  negative raw materials expense)
• Employee engagement for innovation (Interfaces
  QUEST - Quality Utilizing Employee Suggestions
  and Teamwork )
• Turning waste into food by creating new
  products or services (BPs cogeneration)

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Top 10 reasons why the business case for
sustainability is strong

• 3. Herman Millers story effective transition
  process towards sustainable operations
• Zero Waste as a goal in 1991
• Bottom-up Environmental Quality Action Team
  (EQAT)
• Design for Environment (DfE) protocol, green
  buildings, etc
• Net sales of 262,000 in 1923 grew to 25 million
  in 1970, the year the company went public net
  sales in fiscal year 2004 were 1.34 billion.

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Top 10 reasons why the business case for
sustainability is strong

• Herman Millers model

Fiscal year 2005 Net Sales increased 13.2 to
1.516 millions Net Earnings increased 60.8 to
68 Million
Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 2. Good companies simply do better overall
• Over a five-year period the Dow Jones Group
  Sustainbility Index (DJGSI) performed an average
  of 36.1 better than did the traditional Dow
  Jones Group Index (DJGI)
• Energy companies in the DJGSI performed 45.3
  better than did those on the DJGI.
• Back casting the (comprised of top 10 of
  companies in terms of sustainability performance)
  shows that these companies would have continually
  outperformed their conventional counterparts
  (World Economic Forum, 2005).

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 70 out of 127 major studies found positive
  relationships between social and financial
  performance
• Only 20 found negative relationships
• A clear signal emerges from these 127 studies. A
  simple compilation of the findings suggests there
  is a positive association, and certainly very
  little evidence of a negative association,
  between a companys social performance and its
  financial performance (Margolis Walsh, 2003).

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• 1. So, sustainability can provide business
  benefit in
• Reputation management
• Risk profile and risk management
• Employee recruitment, motivation, and retention
• Investor relations and access to capital
• Learning and innovation
• Competitiveness and market positioning
• Operational efficiency
• License to operate

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

• P.S.
• There is enough evidence of economic
  attractiveness of the sustainability model
• And, at the same time, profit is not a guarantee
• As any business model, successful sustainable
  model requires
• Great Strategy
• Great Leadership
• Great Planning
• Great Management Practices

Center for Business as an Agent of World Benefit
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Top 10 reasons why the business case for
sustainability is strong

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Center for Business as an Agent of World Benefit