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Sustainability:

Successful Strategies for the “New Normal”


5 November 2009
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Copyright © 2009 by Monitor Company Group, L.P.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying,
recording, or otherwise — without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
Sustainability
Sustainability Pressures Mounting
global economic shifts
climate change costs
labor markets
Geo-strategic
energy price
increased uncertainty
Factors volatility
sources of raw politics
goods state/federal/local
water international
agreements water
resource pressures climate change

Environmental Regulatory Changes


emissions
materials toxics
sourcing Degradation
internalized costs
dysfunctional Increased carbon compliance costs
ecosystems chemicals
price increases deforestation
Risks and
Opportunities environmental
accountability performance
consciousness
―eco-aware‖
Consumer Attention Supply Chain
product safety
visibility
end-of-life solutions CSR
Pressures NGOs
demands
vendors
goods & personal impact Extended Producer eco-compliance regimes
services
premium branding Responsibility suppliers
product packaging
disposal waste

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Sustainability
Changed Corporate Attitudes Toward the Environment

 Beyond Burden

– Regulations

– Costs

– Risks

 Upside Opportunity

 Critical to Strategy

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Sustainability
But What About the Economic Collapse?

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Sustainability
Long-term Drivers Behind Sustainability Have Not Changed

+ + +
Energy Government Natural World Green-Oriented
Prices Pressure Drivers Stakeholders

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Sustainability
New U.S. Policy Dynamic

 Obama’s Clean Energy Vision

 New Direction at Energy


Department

 ―Old School‖ Environmental Protection


Agency

 Reinvigorated Role for Science

 Climate Change Action

 Green Jobs and Green Economy

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Sustainability
Mainstreaming of Green Business

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Sustainability
Change Creates Opportunity

Venture Capital Invested in Cleantech


in North America ($M)

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Sustainability
Need to Be Strategic

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Sustainability:
Successful Strategies for the ―New Normal‖

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Sustainability
The Strategic Imperative

A legal and moral A competitiveness


AND
imperative issue
 Regulatory requirements  Appropriate response to
 Social, financing sustainability
expectations requirements
automatically helps or
hinders firms in trying to
grow profitably

Addressing sustainability well is a moral and legal imperative for firms, but
it also — and essentially — involves profound strategic choices about the
firm’s competitiveness.
Comprehensive diagnosis of the firm’s exposure to sustainability issues, if
combined with equally thoughtful analysis of their impact on industry
attractiveness and relative competitive position, provides the basis for a
firm to choose the most competitively valuable approach to sustainability
and to design the integrated strategy to do good and to do well
simultaneously.

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Sustainability
Impact on Firm Competitiveness

After

Cost / Before
Unit
The actions a firm takes to
address its sustainability
issues ultimately affect the
Firm relative perceived value of
its product, and/or its
relative cost position —
Before After
both of which affect its
ability to grow faster
and/or more profitably
Perceived than rivals
Value

A B C A B C
Firm Competitors Firm Competitors

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Sustainability
Impact on Industry Dynamics

 Sustainability requirements will


Regulation and the need to invest in
more sophisticated manufacturing affect an industry’s
Threat of New and recycling processes may create competitiveness relative to other
Entrants higher barriers to entry for
Erosion of cost position future would-be competitors industries
and regulation may shift – Price / performance of its
competitive advantage across
incumbents products relative to available
substitutes (including DIY and
DW)
Supplier
Power
Rivalry Buyer Power  Sustainability requirements will
also affect its intrinsic
Supplier power may Demand for category as a attractiveness (profitability)
increase sourcing inputs whole or for company’s
becomes narrower due to products specifically may – E.g., higher / lower barriers to
new pressures around shift due to preferences, new entrants due to cost of or
the disposal of materials’ prices and regulatory
byproducts during requirements (lack of) access to necessary
manufacturing
Substitutes
clean technology, inputs
– E.g., higher / lower buyer,
Substitutes may become more or less of a threat supplier power because of
as regulation and consumer preferences evolve requirement to use particular
and as raw material pricing fundamentally alters
the relative cost position of product offerings product design, etc.

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Sustainability
A Firm’s Stance on Sustainability Is a Profound Strategic Choice

 Simple ―compliance‖ is NOT


competitively neutral
Advantage
Achieved
Other Ways – so –

 Firms must (re)choose where


they gain competitive
advantage
– May mitigate sustainability
effects and seek to win via
other means, or

None – May seek to leverage


None Advantage Through
sustainability driven
Sustainability changes
Motivated Moves

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Sustainability
Making and Delivering on the Best Strategic Choice

Aspiration:
TRANSFORM
Aspiration:
ADVANCE
Aspiration:
PROTECT

1 2 3
 Ensure sustainability dealt  Strengthen some aspect of  Establish sustainability as
with so as to a) meet legal product portfolio, cost core source of advantage
requirement, and b) not position through selective and growth via
erode competitive position ―beyond the minimum‖ breakthrough innovation
sustainability investment and investment

Mitigate Sustainability
Risk Based Growth

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Sustainability:
Successful Strategies for the ―New Normal‖

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Sustainability
Analytic Tools and Frameworks

 Issue Spotting

 Stakeholder Mapping

 Trend Tracking

 Best Management Practices

 Benchmarking

 Eco-Advantage Opportunities

 Priority Setting

 Green Innovation

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Sustainability
Environmental Issue Analysis

Water Irrigation Dye, Wash, Rinse


Resource Use

Energy Fuel Electricity Fuel Electricity

Fertilizer, Pesticide, Sizing, Bleaches, Dyes, Fixers, Neutralizers, Acids,


Chemicals
Defoliant Tints, Softeners, Inks, Detergents

Packaging Pallets, Shipping Cartons, Poly Bags, Cardboard, Strapped, Taping, Shrink Wrap, Shopping Bags

Distribution
Raw Materials Manufacturing Retail
and Offices

Waste Water Runoff and Wastewater Discharge


Waste and Emissions

Carbon Carbon Dioxide (CO2) and Other Greenhouse Gases

Toxins and Air / Water / Soil Contaminants, Carcinogens, Irritants, Toxicants,


Harmfuls Mutagens, Plant and Animal Poisons

Other Emissions Air Pollutants, Such as Nitrogen Oxides and Sulpher Dioxide, Plus Solid and Sludge Wastes,
and Wastes Packaging

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Sustainability
Stakeholder Mapping

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Sustainability
Trend Tracking and Issue Prioritization

Business Results — Upside / Downside


External
Concerns
Issues Downside for Business Upside for Business

Costs to Risk to Revenue Cost Brand Growing Area


Business Business Growth Savings Building of Concern

Issue #1

Issue #2

Issue #3

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Sustainability
Environmental Management Best Practices

 CEO Commitment  Signature Initiative


 Environmental Management  Reporting and Communications
– Systems  Culture of Concern
– Metrics
 Regulatory Strategy
– Incentives
 Partnering
 Take Risks
 Advisory Board
– Learn From Mistakes
– Don’t ―Over-learn‖ past lessons  Integration and Alignment
 Employee Engagement  Execution Matters
– Personal Sustainability Plans
– Environment or sustainability workgroup
 Supply Chain Audits
 Green Design
– Buildings
– Production
– Products
 Eco-Innovation

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Sustainability
Benchmarking

62
Performance Ranked
Performance rankedby byEEP’s
EEP’s
Organizational
48 Sustainability Scorecard
Sustainability Scorecard
Commitment & 25 46
Alignment 43
41

33
32 32
Core Environmental
20 23
Perf ormance
17 16
9
12
8 11
Stakeholder 8
Communication & 17 9
5
Engagement 0
5 4

Note: All scores are based on publicly available information


except “Company: Internal Knowledge,” which uses all data
available to EEP, derived from interviews and internal documents.

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Sustainability
Eco-advantage Plays

 Cut costs

 Lower eco-risks

 Drive revenues

– Green products / services

– Green value innovation

 Promote intangible value

– Brand building

– Corporate social responsibility

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Sustainability
Initiative Prioritization

High

Longer-term Low-hanging
Investments Fruit

Benefits to
Business

Non- 2nd Tier


priorities Agenda

Low

Low Speed and Ease of High


Implementation

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Sustainability
Green Innovation

 Re-Design
– Products / services
– Processes
– Connect to customer
 Re-Imagine
– Recast goods / services
– Seek value innovation
 Solve Customers’ Environmental Challenges
 Build Intangible Green Value
– Brand and image
– Government and NGO attitudes
– Employee engagement

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Sustainability:
Successful Strategies for the ―New Normal‖

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Sustainability
Strategic Posture: Protect

Protect: Ensure sustainability issues

1 are dealt with so as to meet legal


requirements and not erode
competitive position Components

1. Audit assessment of sustainability issues and their


competitiveness consequences
Typical Client Profile
2. Effective integrated sustainability organization
 Insufficient alignment around sustainability  Clear executive responsibility
pressures or activities among key internal  Clear, specific prioritized (compliance) goals
constituencies  Good metrics, comprehensive, timely monitoring
 Wants to better understand sustainability related  Clear, established processes
shortcomings in the overall business that present
risk 3. Baseline contact with key constituents (conversation only)
 Needs a clearer understanding of the views of
key stakeholder groups as they relate to core 4. Prioritized, funded “competitive compliance” action plans
 List of “one off” moves needed to close gaps between
business activities and baseline program for
managing those constituencies current performance and compliance and maintain
relative cost, product position (including exit, innovation,
 Foresees negative impact to profits of a key etc.)
product line from a specific piece of regulation
going into effect (e.g., new emissions caps)
 Has identified select business areas as needing
greening to avoid legal or PR exposure, i.e.,
protect and avoid harm to current business.

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Sustainability
Strategic Posture: Advance

Advance: Strengthen some aspect of

2 product portfolio, cost position, industry


position through selective beyond-the-
minimum investments in sustainability
Components
1. Audit assessment of sustainability issues and their
competitiveness consequences
2. Effective integrated sustainability organization
 Clear executive responsibility

 Clear, specific prioritized (compliance) goals

 Good metrics, comprehensive, timely monitoring


Typical Client Profile  Clear, established processes

3. “Win–Win” engagement strategy to shape license to operate


 Faces a situation where being more competitive
favorably, gain endorsements and / or proprietary insight into
with existing products means being greener (e.g.,
“green needs”
due to threat of substitution)
4. Prioritized, funded “green advantage” action plans intended
 Has identified substitution threat for certain to drive revenue, lower costs in specific product line, BU,
products and seeks to not only offensively avert geography
the threat, but turn it into a positioning advantage  e.g., Build capability for continuous green innovation in
selected product lines, parts of business
 Looking to use sustainability as a new rationale  e.g., using green technology to gain entrance to an
for rethinking a core business offering adjacent market
 e.g., reconfiguring / supply chain to create substantially
 Wants to build sustainability into a particular facet
“greener” logistics platform
of operations or offering as a new way to engage
employees, suppliers, and other stakeholders

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Sustainability
Strategic Posture: Transform

Transform: Substantial acceleration

3 in rate of growth, profit due to


comprehensive “greening” of business
Components

1. Audit assessment of sustainability issues and their


competitiveness consequences

2. Effective integrated sustainability organization


Typical Client Profile
 Clear executive responsibility

 Seeks to derive significant competitive advantage  Clear, specific prioritized (compliance) goals

by positioning as the green leader in a given  Good metrics, comprehensive, timely monitoring
market  Clear, established processes

 Betting on sustainability as a core pillar of future 3. “Stretch goals for green based growth; green as a core
growth and has already successfully tackled strategic pillar
activities like those in 2a and 2b
4. Identification of adjacent, breakthrough opportunities based
 Like WalMart, seeking to green the entire on green technologies, business models
business wherever profitability can be enhanced
5. Systematic, enterprise wide change / implementation plans
 Strong senior alignment and ambition for
systemic change within the organization

 Other?

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Eamonn Kelly (eamon_kelly@monitor.com)
Daniel C. Esty (dan@estyep.com)
Bob Lurie (bob_lurie@monitor.com)
For general inquiries please contact Daniel Mausolf at daniel_mausolf@monitor.com

This presentation will be available for viewing at www.monitor.com and www.estyep.com.

Copyright © 2009 by Monitor Company Group, L.P.


No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying,
recording, or otherwise — without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL