CAPITALISM 2.0: How Would We Recognize It If We Saw It? bobwillard@sympatico.ca TSSS February 7, 2013.

CAPITALISM 2.0:How Would We Recognize It If We Saw It?

bobwillard@sympatico.ca www.sustainabilityadvantage.com

TSSSFebruary 7, 2013

2002

2005

2012

Characteristics of a sustainable enterprise?

Most sustainable enterprises?

MY BACKBURNER QUESTIONS

2009

MIRROR MIRROR …Top 5 most sustainable companies on the

planet?

1. Patagonia - 10

2. Interface – 20

3. Toyota – 1

4. Vancity – 2

5. GE – 1

6. Seventh Generation – 7

7. AutoShare, ZipCar – 2

8. Suncor – 2

9. Arcelor Metal Dofasco – 2

10. Marks & Spencer - 1

Thoughts from our TSSS audience on Feb. 7, 2013…

SAM RANKING

• “Sustainability leaders” in 58 sectors

• Used by DJSI• Assesses over 2,000

corporations

http://www.sam-group.com/ … 2012 results

FORTUNE MAGAZINE RANKING

• “Most admired companies”

• Chosen by businessmen

http://money.cnn.com/magazines/fortune/most-admired/2012/full_list/… 2012 results

Rank Top 10

1 Apple

2 Google

3 Amazon.com

4 Coca-Cola

5 IBM

6 FedEx

7 Berkshire Hathaway

8 Starbucks

9 Procter & Gamble

10 Southwest Airlines

Reputation Attributes

Innovation

People management

Use of corporate assets

Social responsibility

Quality of management

Financial soundness

Long-term investment

Quality of products/services

Global competitiveness

NEWSWEEK RANKING

• “Green rankings”• Helped by Trucost• Look at Global 500 &

U.S. 500

http://www.thedailybeast.com/newsweek/2012/ … 2012 results

Category Wt’g

Environmental Impact 45%

Environmental Management

45%

Environmental Disclosure

10%

100%

Rank Top 10 Global

1 Santander Brasil

2 Wipro

3 Bradesco

4 IBM

5 National Bank Australia

6 BT Group

7 Munich Re

8 SAP

9 KPN

10 Marks & Spencer

GLOBAL 1003,500 global public companies

Compared to what is needed e.g. Factor Four improvements

Key Performance Indicators

1.Energy productivity2.Carbon productivity3.Water productivity4.Waste productivity5.Innovation capacity6.% Taxes paid7.CEO-to-Average-Worker

Pay8.Pension fund status9.Safety performance10.Employee turnover11.Leadership diversity12.Clean capitalism pay link

http://www.global100.org/; 2013 list

GLOBAL 100: CANADA

http://www.global100.org/; 2013 list

Top in Canada21. Teck Resources 40. Barrick Gold 57. CN Railway 60. TELUS 71. Nexen 79. Enbridge 81. Suncor Energy 85 Sun Life Financial 87. Royal Bank 88. Cenovus Energy

2002

2005

2012

Characteristics of a sustainable enterprise?

Most sustainable enterprises?

MY BACKBURNER QUESTIONS

2009

Stage 4 vs. Stage 5?

1. Pre-Compliance

2. Compliance

4. INTEGRATED STRATEGY

5. PURPOSE & PASSION

SUSTAINABILITY JOURNEY

3. Beyond Compliance

“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.” Lubin and Esty, HBR May 2010

“Expect the Unexpected: Building business value in a changing world,” KPMG, 2012

“Capitalism is under siege … The purpose of a business must be

redefined around creating shared value (CSV)…

How to reinvent capitalism—and unleash a wave of innovation and growth”

Porter and Kramer, HBR Jan-Feb 2011

CAPITALISM 2.0

Capitalism 1.0 Capitalism 2.0

Purpose of the Firm

Maximize shareholder value; ROI; Growth

Creating shared stakeholder value, including the Environment

Legitimate capitals Financial Financial, Natural, Human, Social

Bottom lines Profit -first Profit, People, Planet

Environmental and social impacts

Externalized Internalized

Accountability boundaries

The Firm The Firm’s value chain, over its products’ life cycles

Transparency As little as possible Naked

Business model Take-Make-Waste; Linear

Borrow-Use-Return; Circular

Source of financial capital

Stock market; Big financial institutions; Absentee owners

Stock market; Smaller financial institutions; Customers; Employees; Local communities

Market focus Global Local

DOWN-TO-EARTH ECONOMY

Wall Street’s Organizing Principles

Nature’s Organizing Principle

View of natural capital

Limitless free resource, to be exploited

Finite valuable resource, to be respected and restored

Resource control Monopolized Shared

Growth Infinite growth of money and consumption

A stage in life’s endless regenerative cycles

Efficiency measures Returns on financial capital

Returns on social and natural capital

Primary performance indicators

Growth in financial returns, assets

Life’s abundance, health, resilience, and creative potential

Primary dynamic Competition to maximize self-interest

Cooperation to optimize self- and community-interest

Timeframe Immediate return Sustained yield over time

Based on David Korten, “The Down-To-Earth Economy,” Yes! Magazine, Winter 2013

THE REAL WORLD

NESTED DEPENDENCIES

Human Economy

Human Society

Environment

Enough, for all, forever.

X

TRULY SUSTAINABLE ENTERPRISE

Human Economy

Human Society

Environment

A truly sustainable enterprise creates positive economic, environmental, and

social value.X

If it were to operate forever,it would not only do no harm;

it would do well by doing some good.

GOLD STANDARD FRAMEWORK

ESG

Gov

ernan

ce

Environmental

Social

ESG CRITERIA

“Mount Sustainability”

Breakout Group Discussion Question:

List 5 ESG criteriathat you would use to assess whether

or nota company is a truly sustainable

enterprise.

ESG CRITERIA

1. "Noble purpose" – but how do we measure this, what is/are the metric(s)

2. Do consumers as well as investors understand the implications of supporting the company? Criteria for this could be direct or indirect, e.g. whether company is effective in educating/communicating investors/consumers to understand these effects/implications

3. Fair wages and distribution of wealth throughout value chain – inputs/outputs

4. No waste in network/ecosystem – if there is a product with waste must have way to reuse – closed loop process/concept

Breakout Group Idea Harvesting:

ESG CRITERIA

5. Degree of community/stakeholder engagement – sliding scale from hierarchy to cooperative (includes employees and broader community)

6. Is it a ‘learning organization’ with ‘permission to fail’

7. PUMA – Is it possible to estimate what the environmental impact of all our supply chain operations are and convert that into a financial number – eg material resources, carbon, water – if these costs are considered what was seen as a profitable company can easily be seen as a losing company. Puma was a leader in assessing actual costs when by internalizing what were previously seen as externalities - they 'gave themselves a bill' for environmental costs

Breakout Group Idea Harvesting:

ESG CRITERIA

8. Need to be positive on all three legs of ESG or is there allowance to be negative/neutral on 1-2, if positive on other(s) – parallel to this is carbon trading –> can you 'buy yourself out?' of being 'bad'

9. 100% of compensation for everyone in company not simply tied to shareholder value but aligned 100% to stakeholder value

10. Equity: i.e. no one is exploited through activities/operations of company – could be evaluated on many levels including legal, living wage if we dream big, let's look at company's whole value chain, not just the company (Big question – where does accountability end? How much is enough? When is enough enough?) And, if they ‘do too much good’, and put themselves out of business, then the G leg of the stool is broken, right?

Breakout Group Idea Harvesting:

ESG GOLD STANDARD CRITERIA

Governance / FinancialFinancially sustainableEthical business practicesDiverse senior leadershipTransparent / Engaged stakeholdersSustainable business model, policies, & systemsSustainable value chain / Life-cycle accountabilitySustainability champion / Leader of transformation

Environmental Carbon positiveEnergy positiveWater positiveMaterials positiveWaste positiveProvides services (vs. products)Restorative to ecosystems

Social Fair share of taxesLabor rights & safe working conditionsFair employee remunerationFamily-friendly benefitsEngaged employeesLocal workers, purchases, & investmentsProducts & services build social capital

2002

2005

2012

Characteristics of a sustainable enterprise?

Most sustainable enterprises?

Correlation with

market value?

MY BACKBURNER QUESTIONS

2009

Stage 4 vs. Stage 5?

MARKET PERFORMANCE

Robert G. Eccles et al, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” HBS working paper 12-035, Nov. 25, 2011.

http://www.hbs.edu/research/pdf/12-035.pdf..

REPORTING COMPANIES OUTPERFORM

• 53% of S&P 500 companies are published sustainability- or CSR-type reports in 2011, up from 20% in 2010

• 63% follow the Global Reporting Initiative (GRI) framework

• Between 2007 and 2011, companies that reported on their sustainability efforts outperformed the broad S&P 500 Index

Governance and Accountability Institute, “2012 Corporate ESG / Sustainability / Responsibility Reporting: Does It Matter?” December 2012

IIRC

International Integrated Reporting Council (IIRC) http://www.theiirc.org/

Reports will include material sustainability impacts, and show how the

company creates value in the form of financial, manufactured, human, intellectual, and natural capitals.

Will create the globally accepted International <IR> Frameworkthat includes financial, governance, management commentary,

and sustainability reporting.

• December 2013: Version 1.0 of the Framework• Q1-Q4 2014: Pilot Program with the Business Network (80

companies) and the Investor Network (30 investors)

SASB

Sustainability Accounting Standards Board (SASB) http://www.sasb.org/

Will develop industry-specific standards to measure and disclose ESG performance on the top 10 material sustainability issues,

for mandatory Form 10-K filings with the SEC.

A complete set of standards covering all 10 sectors and 89 industries will be available in Q2 2015.

GISR

Global Initiative for Sustainability Ratings http://ratesustainability.org/resources/

Will create a world class corporate sustainability ratings standard,

to embed sustainability into the capital markets worldwide

CAPITALISM 2.0:How Would We Recognize It If We Saw It?

bobwillard@sympatico.ca www.sustainabilityadvantage.com

TSSSFebruary 7, 2013