Global Drivers for Sustainable Business September 2012

• 1. Global Drivers / Trends in SustainableBusinessSeptember 2012Toby Webb, Founder, Ethical Corporation and Stakeholder [email protected] / tobywebb.blogspot.com

2. Research Background Based on interviews with more than 80 senior managers,NGO representatives and academics around the world Research conducted May-August 2012 Telephone, email and face-to-face interviews with heads ofsustainability, CSR, corporate responsibility and externalaffairs Also based on CEO interviews, including: Unilever, Coca-Cola Enterprises, Kingsfisher, Desso, O2 and others 3. A word on terminologyand attitudes CSR is Corporate Social Responsibility CR is Corporate Responsibility: Designed to incorporateenvironmental concerns Sustainable development is a global trend and concern Sustainable business is both a business contribution tosustainable development AND a holistic management approach Sustainability often seen only as Green in the USA: Less social Ethics often something companies speak about in terms ofcompliance, but its links to CR/Sustainability are strong (anti-corruption and bribery) 4. Macro political & economic trends Economic stagnation in the West: Weak politicalleadership Volatile times in BRIC nations: Growth slows & Bizexpands (retail in India) New opportunities in the CIVETS? (Colombia, Indonesia,Vietnam, Egypt, Turkey, South Africa) Rising social unrest around the world: Middle East, India,China, but also EU, Asia too Africa rising: Over 500 African companies have $100million + annual turnover. About 150 have $1 billion+ 5. What this means for business with global exposure: Populist governments in tough times demand actionfrom business Consumers and suppliers become frightened and riskaverse: seek reassurance from trusted Brands andPartners Populations and supply chains unstable: MiddleEast, Pakistan, Bangladesh (But even UK:Supermarkets carry 72 hours of food supply) Wages rise in China: Attention on Bangadesh &Burma (infrastructure, institutional challenges) 6. Macro economic and environmental trends Resource constraints more obvious (Soilerosion, rare earth elements, water shortages,agricultural commodity availability) Political populism breeds supply chain volatility(Argentina: Gas. Russia: Wheat. USA: Corn.Germany: Energy) Economic troubles mean supply uncertainty(South Africa: Mining) 7. Macro economic and environmental trends Environmental and Energy challenges affectsourcing trends (China) and future planning(Climate Change impacts) Demographic changes: Aging societies andproduct and service demand Urbanisation drives regulatory andinfrastructure change - and opportunity 8. Business trends: Why Corporate Power is a Concern 1,000 companies responsible for half of the total marketvalue of the worlds more than 60,000 publicly tradedcompanies. "They virtually control the global economy" -Professor Robert Eccles, Harvard Business School 1980: Worlds largest 1,000 companies made $2.64 trillionin revenue, or $6.99 trillion in 2010 dollars, adjusted usingthe consumer price index They employed nearly 21 million people directly A total market capitalization of close to $900 billion ($2.38trillion in 2010 dollars), or 33 percent of the world total 9. Business trends: Why Corporate Power is a Concern By 2010 the worlds largest 1000 companies made $32trillion in revenue They employed 67 million people directly Total market cap: $28 trillion Equal to 49 percent of total world market cap(down from 64 percent in 2000, at the peak of the Internetbubble and before the financial crisis of 2008) 10. Business trends: Why Corporate Power is a Concern Substantial concentration within the top 1000 Eighty-three companies account for one-third ofthe groups $32 trillion in revenue Top 172 companies account for half of annualglobal corporate revenue 172nd largest corporation, Rosneft Oil, hasrevenue equivalent to GDP of 74th largestcountry, Uruguay 11. Why Corporate Sustainability will become essentialIf companies are to continue such rapid growth indeveloping markets they might need to bring inmore than goods and services, such as civil-societyupgrades where theyre most needed: housing,health and educationMarket opportunity, peer pressure, investorpressure, and brand reputation are doing for thesecompanies what otherwise might be accomplishedonly through regulationProfessor Robert Eccles, Harvard Business School 12. Why Corporate Sustainability will become essential Many of the largest businesses now takeCorporate Sustainability very seriously Many claim to have "embedded" it: they arewrong. They are at the start of their journey But they will do so voluntarily or be forced to doso by pressure or regulation 9 billion people will mean scarcer resources.Companies will need to fight for their piece of thepie 13. The Role of Investors The top 500 fund managers have over $42 trillion in assets under management The top 10 fund managers account for one-third of this amount; the top 50 for two-thirds This means that a small number of institutional investors might wring great change from businesses. Theyre making progress: 14. The Role of Investors 8 from 10 of worlds largest pension funds have signed UNs Principles for Responsible Investment. (Assets: $30 trn) Many such investors support Integrated Reporting. Increasingly so do Governments in Europe and Emerging Markets. Integrated reporting (practice of issuing financial and ESG data in one document) helps companies understand where new initiatives might come from, and helps investors understand whether a company sees how the world is changingSource: Robert Eccles, Harvard Business School 15. Corporate Responsibility trends: Corporate reputation vulnerability: Big brands are easy targets Social Media and the rise of the empowered citizen campaigner Regulatory trends: Disclosure of biz impacts and performance (carbon, water, bribery, health & safety, risk exposure) Investor demands: Seeking surety around risk and management quality Talent retention & motivation v. related to sustainability 16. Corporate Responsibility trends: Global consumer knowledge: Consistency in behaviour, pricing and quality matters across markets Supplier power shift: Will rising demand and wages shift the balance? Sustainability and new opportunity: Build trust, drive resilience, save money, serve new markets, create new services, innovate new products, partner with others, create sustainable demand 47% of companies surveyed say increased revenues and/or their position in the current market through CR measures (KPMG 2011) 17. Seven long-term challenges and opportunities: 1. B2B collaboration on sustainability, withcompetitors, partners and suppliers 2. The business case, particularly around internal andexternal behavioural change 3. Engaging with campaign groups 4. Corporate reputation and new/evolving media 5. Company strategy and process, product, designand manufacturing innovation 6. Business contributions to tackling bribery andcorruption 7. Corporate contributions to development, policy andinstitutional frameworks 18. A VERY fast moving agendaA weeks worth of headlinesCameroon: Report raises concerns that Herakles Capitals palm oil plantation will displace local farmers, destroy livelihoodsNintendo says its partners agree not to use conflict minerals in production of consolesGoogle blocks YouTube anti-Muslim movie trailer in Egypt, Libya, India, Indonesia & Afghanistan amid criticism of censorship. Google refuses to restrict worldwide access to anti-Islam film, saying this would violate companys global free speech policyWorld Food Programme & MasterCard create new digital food delivery systems, by providing people with electronic voucher transfers to buy food from local shops & marketsUS Congress considering "Internet freedom" legislation to keep US companies from selling technology to repressive govtsAll headlines from Business-Humanrights.org newsletter 19/09/2012 19. A VERY fast moving agendaA weeks worth of headlinesCameroon: Report raises concerns that Herakles Capitals palm oil plantation will displace local farmers, destroy livelihoodsNintendo says its partners agree not to use conflict minerals in production of consolesGoogle blocks YouTube anti-Muslim movie trailer in Egypt, Libya, India, Indonesia & Afghanistan amid criticism of censorship. Google refuses to restrict worldwide access to anti-Islam film, saying this would violate companys global free speech policyWorld Food Programme & MasterCard create new digital food delivery systems, by providing people with electronic voucher transfers to buy food from local shops & marketsUS Congress considering "Internet freedom" legislation to keep US companies from selling technology to repressive govtsAll headlines from Business-Humanrights.org newsletter 19/09/2012 20. Why Mission, Vision and Values Matter Corporate purpose and values key to attracting & retaining talent CEOs are now statesmen and political operators: Their values arethe companys values. Tone from the top is vitally important: A purely commercialcorporate vision will not embed sustainability. You cant have your cake and also eat it: Two sets of values willnot work. Think about who this is for. Your people need onesimple, recurring message to drive motivation and change Lots of companies have not integrated sustainability into purpose.This is a key strategic error. You will fail if you do not correct thiseventually The opportunity is there to be taken! 21. Companies to watch: Ethical Corp advisory board picksFord, McKesson, Ingersoll-Rand, Siemens,Aviva, Puma, Wheb Partners, Triodos,Honeywell, Avalon Rare Metals, Toyota, PaxScientific, BASF, M&S, Unilever, Carillion,Reckitt Benckiser, BMW, Aerofarms, Esquel,Natura, Patagonia, Unilever, Kingfisher, O2,Bupa,Google, Mars, Wal-Mart, Interface,Coca-Cola Enterprises, Apple, Phillips, GE,Sainsburys, SAB Miller, Vodafone 22. Further resources: www.ethicalcorp.com Tobywebb.blogspot.co.uk Business-humanrights.org Harvard Business School Research /blogs Doughty Centre for CorporateResponsibility Academy of Business in SocietyResearch