Office of Health, Safety and Security Visiting Speakers ...€¦ · (i.e., Office of Science, Office of Environmental Management, and the National Nuclear Security Administration).

Office of Health, Safety and Security

Visiting Speakers Program

October 30, 2008

U.S. Department of Energy

Washington, DC

Office of Health, Safety and Security

The Office of Health, Safety and Security (HSS) is the Department of Energy's (DOE) corporate organization responsible for health, safety, environment, and security; providing corporate leadership and strategic vision to coordinate and integrate these vital programs. HSS is responsible for policy development and technical assistance; corporate analysis; corporate safety and security programs; education and training; complex-wide independent oversight; and enforcement. The Chief Health, Safety and Security Officer advises the Secretary and the Deputy Secretary on all matters related to health, safety and security across the complex.

Through its research on sustainability and industry’s successful use of its concept, HSS has a clear idea of the types of organizations with which it would be beneficial to collaborate on sustainability. Such outreach efforts provide a cooperative advantage of sustaining an organization’s efficiency and vitality by bringing together creative thought and diverse viewpoints toward common goals while demonstrating leadership’s commitment to listening to and reflecting the concerns and issues of its shareholders and stakeholders.

As the first phase of its outreach efforts, HSS created a Focus Group forum. The HSS Focus Group forum integrates senior HSS managers from across the organization to discuss and address topics and issues of interest to DOE managers and stakeholders. The objective of the Focus Group is to establish a means for responding to questions and concerns regarding HSS initiatives and activities for improving, the health, safety, and environmental and security performance within the Department and to maintain an ongoing dialogue with involved parties supportive of these efforts. HSS believes an outcome of these continuing discussions and collaborations will be improved worker health and safety programs and the solidification of a safety culture at DOE sites.

Glenn S. Podonsky

Chief Health, Safety and Security Officer

HSS Visiting Speaker Program

The next phase of HSS outreach activities is the creation of the Visiting Speaker Program. The Visiting Speaker Program consists of presentations by leaders drawn from a variety of disciplines to include business, organizational theory, performance management, sustainability, and organizational resilience, made to HSS management and selected attendees from other interested organizations (i.e., Office of Science, Office of Environmental Management, and the National Nuclear Security Administration).

The program is intended to focus agency attention at the management level to the emerging challenges and issues threatening the national security and economic prosperity of the United States. DOE’s mission, supported by HSS and other agency organizations, requires the most efficient and resilient leadership and organizational structure for successful mission completion and the continued safety, security, and prosperity of the nation. By inviting and having presenters from the wide range of public and private sector organizations, HSS is encouraging the transformation of government and demonstrating the various stages for change. This includes understanding the depth of the global issues, need for change, tools and means for transformation, and knowing the appropriate performance measurements to determine success and implement evolving management initiatives.

The Alliance for Science and Technology Research in America

ASTRA, The Alliance for Science & Technology Research in America, is a unique collaboration of individuals drawn from industry, professional and trade associations, universities, and research centers who are united in common cause to increase federal funding for the physical and mathematical sciences and engineering.

ASTRA was founded in 2001 by a group headed by Dr. Mary Good, former Undersecretary for Technology Policy at the U.S. Department of Commerce and currently Dean of the Donaghey School of Information Science and Engineering at the University of Arkansas. Members of ASTRA include leading industries, professional societies and associations, universities, and individual scientists and researchers. ASTRA is a nonprofit, tax-exempt organization whose members conduct policy research to educate the public about the linkages between scientific R&D funding and innovation, our standard of living, national security, and economic growth.

From a core group of about 16 key corporate, university and nonprofit leaders, ASTRA has expanded its membership to nearly 60 organizations and a nationwide network of about 3,400 individual scientists, researchers and policy makers.

Dow Chemical Company

With annual sales of $54 billion and 46,000 employees worldwide, Dow1 is a diversified chemical company that combines the power of science and technology with the “ Human Element ” to constantly improve what is essential to human progress. Dow delivers a broad range of products and services to customers in around 160 countries, connecting chemistry and innovation with the principles of sustainability to help provide everything from fresh water, food and pharmaceuticals to paints, packaging and personal care products.

Dow people around the world develop solutions for society based on Dow's inherent strength in science and technology. For over a decade, Dow has embraced and advocated Responsible Care® - a voluntary industry-wide commitment to safely handle our chemicals from inception in the laboratory to ultimate disposal. This worldwide commitment helps consumers lead better lives, customers succeed, stockholders prosper, employees achieve and communities thrive. Dow's essential elements of mission, vision, values, and strategy describe why the company exists, who Dow is, what Dow intends to do, and how they intend to do it. These essential elements provide insight, offer motivation, and point the way forward as Dow seeks to grow and achieve its goals.

MissionTo constantly improve what is essential to human progress by mastering science and technology.

Dow's mission represents a greater purpose in society.

Constantly improve … This concept is and has been the bedrock of Dow's culture since H.H. Dow first said, "If you can't do it better, why do it?" It underscores Dow’s drive to continually seek the best in everything it does, and an unwillingness to settle for anything less.

1 References to “Dow” or the “Company” mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted.

The Dow Chemical Company 2007 Corporate Report

TRANSFORMING

For 110 years, Dow has been in the business of change, rearranging atoms and

reshaping molecules to create new materials and new technologies. It has been

the cornerstone of our success.

Inspired by the Human Element, we strive to constantly improve those things

essential to human progress. From the clothes we wear to the food we eat.

From the homes we live in to the furnishings, fi xtures and fi ttings that adorn

them. Equipment that purifi es water and materials that save energy. Products

that make our daily lives easier, healthier, safer or more enjoyable. Dow’s chemistry

has long played an integral role in keeping pace with society’s ever-changing

ambitions and aspirations.

Today, transformation at Dow is taking place on a far broader scale than ever

before … with new thinking and a new direction. We are changing the shape

of the Company in a way that will deliver greater long-term value for our

stockholders, while maintaining exemplary standards of social, ethical and

environmental performance. It is not an overnight process, but in 2007 we

made good progress, establishing the foundation upon which to build Dow as

an earnings-growth company, clad with a reputation second to none among

investors, customers, employees, partners, governments and the public at large.

This report provides an overview of Dow and highlights some of the Company’s

activities and achievements in 2007. For a more detailed review of the year’s

performance, please visit www.dow.com.

New Game— A Message from Dow Chairman and CEO 2

New Heights— A summary of the year 4–5

New Direction — Overview of Dow’s strategy and Performance business agenda 6–7

New Frontiers—Dow’s geographic growth and joint venture strategy 8–9

New Solutions — Research, development and innovation 10–11

New Ambitions — Dow’s environmental agenda 12–13

New Expectations — Dow’s corporate citizenship 14–15

New Achievements — A signifi cant year 16–17

TRANSFORMATION…

the process of change

®Trademark of The Dow Chemical Company (“Dow”) or an affi liated company of Dow.

TRANSFORMATION…

the process of change

Do it better.

Do it better. It is a simple philosophy, but one that has been at the very core of Dow’s culture

since it was founded by Herbert H. Dow in 1897, shaping the Company into today’s world-class

chemical industry leader—a company that is committed, through chemistry, to the betterment

of global humanity.

The Company has come a very long way in 110 years. Today, we have customers in around

160 countries. We have 150 manufacturing sites in 35 countries. We have annual sales of almost

$54 billion. And we have a powerful Human Element— 46,000 men and women from virtually

every part of the globe who set Dow apart as they drive the Company to new heights of perfor-

mance, and help us meet the expectations of all our stakeholders.

THIS IS DOW

Dow’s Performance Portfolio

Dow’s $27 billion Performance portfolio serves

customers in markets around the world with

an extensive range of differentiated plastic,

chemical and agricultural solutions. Our prod-

ucts improve lifestyles in many ways: making

cars safer, buildings more energy effi cient,

food healthier, water cleaner, electronics more

durable, computers faster, and more. The key

to our success lies in aligning our technologies

and capabilities with our customers’ specifi c

needs—and backing that with outstanding

customer support. By accelerating innovation

and growth, while sharpening market and

customer focus, the Performance portfolio is

creating businesses and brands that deliver

higher margins and more consistent profi tability

for Dow.

PERFORMANCE PLASTICSDow AutomotiveDow Building SolutionsDow EpoxyPolyurethanes and Polyurethane SystemsSpecialty Plastics and ElastomersTechnology Licensing and Catalyst

PERFORMANCE CHEMICALSDesigned PolymersDow LatexSpecialty Chemicals

AGRICULTURAL SCIENCESDow AgroSciences

Dow’s Basics Portfolio

This powerhouse $26 billion portfolio of

leading basic plastics and chemicals serves

more than 6,000 customers worldwide, and is

an integrated source of raw materials for Dow’s

Performance businesses. It meets the changing

needs of a broad spectrum of industries —

from packaging, personal care, toys, pipes and

tools to adhesives, de-icers, pharmaceuticals,

paper and construction. The Basics portfolio is

growing primarily through joint ventures that

enable Dow to reduce capital intensity, expand

globally, and improve access to advantaged

feedstocks and energy.

BASIC PLASTICSPolyethylenePolypropylenePolystyrene

BASIC CHEMICALSCore ChemicalsEthylene Oxide/Ethylene Glycol

HYDROCARBONS AND ENERGY

2007 Corporate Report • 1

Net Sales (dollars in billions)

Net Income (dollars in billions)

Earnings per Share –Diluted

Dividends Declared per Share

Energy Intensity (BTUs per pound of production)

Injury and Illness Rate (recordable incidents per 200,000 work hours)

Taxes Paid (dollars in billions)

Total Purchases (dollars in billions)

Charitable Contributions (dollars in millions)

2007 HIGHLIGHTS

2007 SALES BY OPERATING SEGMENT

2007 SALES AND EMPLOYEES BY GEOGRAPHIC AREA

North AmericaSales: $20,498Employees: 22,800

EuropeSales: $19,614Employees: 14,100

Asia Pacifi cSales: $6,186Employees: 3,900India, Middle East, Africa

Sales: $1,470Employees: 1,200

Latin AmericaSales: $5,745Employees: 3,900

The forward-looking statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed more fully elsewhere and in fi lings with the U.S. Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries, unless otherwise expressly noted.

Performance Portfolio$27,246

Performance Plastics$15,116

Performance Chemicals$8,351

Agricultural Sciences$3,779

Basic Plastics$12,878

Basic Chemicals$5,863

Hydrocarbons and Energy$7,105

Basics Portfolio$25,846

Unallocated and Other: $421

(dollars in millions)

(dollars in millions)

2007 2006

$53.5 $49.1

$2.9 $3.7

$2.99 $3.82

$1.635 $1.50

3,811 3,863

0.29 0.40

$1.3 $1.6

$42.8 $35.3

$53.5 $27.9

Andrew N. LiverisPresident, Chief Executive Offi cer and Chairman of the Board

William F. BanholzerExecutive Vice President and Chief Technology Offi cer

Carol A. DudleyCorporate Vice President, Market Facing Businesses, Licensing and New Business Development

Julie Fasone HolderCorporate Vice President, Chief Marketing, Sales and Reputation Offi cer

Gregory M. FreiwaldCorporate Vice President,Human Resources, Corporate Affairs and Aviation

Michael R. GambrellExecutive Vice President, Basic Plastics and Chemicals, Manufacturing and Engineering

Heinz HallerExecutive Vice President, Performance Plastics and Chemicals

Charles J. KalilExecutive Vice President, General Counsel and Corporate Secretary

David E. KeplerExecutive Vice President, Chief Sustainability Offi cer, Chief Information Offi cer, Corporate Director of Shared Services

Juan R. LucianoBusiness Group President, Hydrocarbons and Energy

Geoffery E. MerszeiExecutive Vice President and Chief Financial Offi cer

Back row, left to rightWilliam F. BanholzerJulie Fasone HolderGregory M. FreiwaldJuan R. LucianoDavid E. KeplerCharles J. Kalil

Seated, left to rightMichael R. GambrellHeinz HallerAndrew N. LiverisGeoffery E. MerszeiCarol A. Dudley

2 • The Dow Chemical Company

NEW GAME

Dow’s Executive Leadership Team(at March 2, 2008)

Andrew N. LiverisPresident, Chief Executive Offi cer and Chairman of the BoardFebruary 14, 2008

The past year was a notable one for Dow. We delivered solid fi nancial results. We set the ground-

work for our transformational growth agenda. And, by combining the power of science and

technology with the Human Element, we took another signifi cant stride toward our vision of

being the largest, most profi table, most respected chemical company in the world.

In creating that vision, we intentionally set the bar high … recognizing that our obligations—

to our stockholders, to our employees, to the communities in which we operate and to our

customers — are also high. At Dow, we not only accept those obligations, we use them as the

fulcrum to lift ourselves and our Company to new heights of performance, sharply focused on

the triple bottom line of people, planet and profi ts.

We well know the critical importance of addressing each of those elements. They are the pillars

on which future success rests. Take any one away— weaken any single pillar— and we risk

damaging the whole.

Our decision to sign the U.N. Global Compact in 2007 underscores our resolve to ensure those

pillars remain strong. In this case, we will expand our pacesetting sustainability efforts and

collaborate with like-minded stakeholders on some of the most pressing issues facing the planet

and its people. Dow is already making signifi cant contributions in areas such as clean water, health

care, affordable housing, alternative energy and climate change. And through our groundbreaking

2015 goals, we’ve pledged to do even more by connecting chemistry and innovation with the

principles of sustainability to create new opportunity, new promise and new hope—as well as

to bring new business opportunities for our Company.

For Dow, sustainability is not only about strengthening the pillars of people and planet, it is also

about profi ts. Which is why we’re transforming … establishing ourselves as an earnings-growth

company that is more predictable in its profi tability. We took meaningful steps toward that goal

in 2007 and we will make even greater progress through the year ahead— creating signifi cant

long-term value for our stockholders while delivering on our promise to constantly improve what

is essential to human progress.

We thank you for your continued interest in Dow and we welcome your comments on how we

can continue to improve our performance in everything we do.


“ Our obligations—to

our stockholders, to

our employees, to the

communities in which

we operate and to our

customers—are the

fulcrum to lift ourselves

and our Company to new

heights of performance.”


To realize our vision

of being the largest,

most profi table, most

respected chemical

company in the world,

Dow must do more

than keep pace…

Dow must set the pace.

NEW HEIGHTS

2007 was a signifi cant year for Dow. It was a year of record sales

and solid fi nancial results. It was a year in which we scaled new

heights in environmental stewardship and corporate citizenship,

setting new benchmarks for the entire chemical industry. And

it was a year in which we took further steps toward redefi ning

what it means to be THE world-class chemical company—a

company that surpasses its peers across every dimension of

fi nancial, social and environmental performance.

Financially, sales exceeded $50 billion for the fi rst time in

Dow’s history, climbing to $53.5 billion, 9 percent higher than

in 2006. Net income was $2.9 billion, which included the impact

of certain items with a net unfavorable impact of $735 million,

while earnings were $2.99 per share. Excluding certain items

for both periods, earnings per share for the year were $3.76,

compared with $4.25 in 2006.

Net Sales(dollars in millions)

Per Share Data(dollars)

Earnings –Diluted

Earnings –Excluding Certain Items*

Dividends Declared

*A reconciliation to the most directly comparable GAAP measure is provided on the Internet at www.dow.com in the Financial Reports page of the Investor Relations section.

03

32,6

32

05

46,3

07

07

53,5

13

04

40,1

61

06

49,1

24

03 04 0705 06

1.34

1.34

1.34 1.

50

3.82

4.25

4.62

4.37

2.93

2.71

1.87

1.39

3.76

2.99

1.63

5

05 06 07 2015

0.40

0.40

0.29

0.08

05 06 07 201504

3,96

6

3,90

9

3,86

3

3,81

1

2,97

5

03 04 05 0702 06

19,5

00

15,6

00

11,2

00

8,00

0

24,6

00

21,7

00


We achieved record equity earnings of $1.1 billion, marking the

fourth consecutive year in which this contribution has topped

$900 million and the fi rst year in which it has exceeded $1 billion.

And we ended the year with our balance sheet as strong as it has

ever been, with a debt to capital ratio of 32 percent, with our

funded pension plans fully funded and with our priorities sharply

focused on investing for growth and remunerating stockholders.

Through 2007, that agenda gathered momentum. We invested

more than $1 billion in strategic acquisitions, we increased

capital spending by 17 percent to support organic growth,

we bought back more than 32 million shares as part of our

repurchase program, and we raised our quarterly dividend for

the second time in 18 months. For 95 years, Dow’s quarterly

dividend has consistently either been maintained or raised.

In 2007, Dow experienced yet another sharp rise in feedstock

and energy costs, which increased more than 10 percent

compared with 2006 to top $24 billion for the year— three

times what we paid in 2002.

Faced with this seemingly relentless climb, our commitment

to energy effi ciency remains as strong as ever. In 2007, we

achieved a further reduction in energy intensity — the amount

of energy used for every pound of product we produce—which

is now down 4 percent from our 2004 baseline against our goal

to achieve a 25 percent reduction by 2015.

Our commitment to employee health and safety also produced

tremendous results in 2007, as we cut the Company’s injury and

illness rate by more than 25 percent year over year. But this solid

progress was sadly overshadowed by the loss of one of our

colleagues, who died in a tragic aircraft accident while traveling

on Dow business. We continue to do everything possible to

infuse an employee mindset, a leadership attitude and a

corporate culture that will ensure all employees and contractors

return safely to their homes at the end of each work day.

And fi nally, throughout the year, we focused signifi cant resources

on maintaining our leadership position in corporate citizenship,

a role that we believe should drive positive change beyond our

fence lines, into our communities and across the globe. One of

our most notable actions was to support the Blue Planet Run,

an around-the-world relay that raised awareness and funds to

address the issue of 1.2 billion people who are living without

access to safe drinking water. In total, the Company’s charitable

contributions during 2007 totaled more than $53 million, providing

support to a broad range of events and organizations worldwide.

Injury and Illness(recordable incidents per 200,000 work hours)

Energy Intensity(BTUs per pound of production)

Hydrocarbon Feedstocks and Energy Costs(dollars in millions)

Baseline

Goal

Note: Other metrics are recorded, but the results are not available in time for this report. Please visit Dow’s website (www.dow.com) for updated results.


NEW DIRECTION

Better earnings growth. Better earnings consistency. To achieve

these twin goals, we have embarked on a path to transform the

Company in ways that will deliver greater long-term value for our

stockholders. Rather than being a company predictable in

its cyclicality, we will be a company that is more predictable

in its profi tability, even in an economic downturn. It’s a new

direction —and we are well on our way.

Building on a strong foundation

Dow already bears the hallmarks of an industry leader: a drive

for fi nancial discipline and operational excellence, a balanced

portfolio with signifi cant presence in all major chemical chains,

unmatched global reach, the low-cost advantages of site and

product integration, and a depth of technological innovation

that extends to both new and improved products and manufac-

turing processes.

On this solid foundation, we are shaping the new Dow. We

are focusing our investments on projects that will signifi cantly

bolster our Performance portfolio. We are expanding our geo-

graphic presence, strengthening our position in key emerging

economies around the world. We are creating exciting growth

opportunities for our Basics businesses through strategic joint

ventures. And we are driving ahead with our innovation agenda,

building a robust pipeline of differentiated solutions … new

products and new processes.

A focus on Performance

Our Performance portfolio, with its array of higher margin

products and market-facing activities, promises faster growth

and more consistent profi tability than can be achieved within

our Basics businesses. For that reason, it is the focus of Dow’s

invest-for-growth agenda.

In 2007, we announced three new Market Facing businesses—

Dow Coating Solutions, Dow Footwear Solutions and Dow

Fabric and Surface Care — and we continued to aggressively

grow our existing Performance business portfolio, both in size

and geographic reach. Highlights from the year include:

• Dow Building Solutions successfully started up a manufac-

turing plant for the production of STYROFOAM™ brand

insulation on the outskirts of Moscow, the Company’s fi rst-

ever production facility in Russia. This plant enables Dow to

better serve its growing customer base in both Russia and

Eastern Europe — regions where demand for insulation

materials is increasing rapidly.

• Dow AgroSciences took a number of signifi cant steps

to strengthen its position in the corn seeds business,

including the acquisitions of Brazilian company Agromen

Tecnologia, The Netherlands-based Duo Maize and assets

of Maize Technologies International, an Austrian corn

seeds company.

• The Company completed its acquisition of Wolff Walsrode

from the Bayer Group and, in doing so, announced the

formation of Dow Wolff Cellulosics, a $1 billion business

serving a broad spectrum of industry sectors, including

construction, personal care, pharmaceuticals and food.

• And we made a number of other strategic, bolt-on acquisi-

tions, among them two European polyurethanes systems

businesses — Hyperlast Limited and Edulan A/S — and

three leading epoxy formulators—UPPC AG in Germany, and

POLY-CARB Inc. and GNS Technologies in the United States.

Moving forward, our Performance growth agenda will center

around strategic acquisitions that strengthen our position in

areas such as health, energy, infrastructure and consumerism

—major opportunities that we see developing across the globe.

As we pursue that growth agenda, however, we will do so with

discipline and diligence, making sure that every acquisition is

strategically aligned, properly valued and takes place in a time

frame that makes sense for Dow.


By transforming business models, refocusing innovation, strengthening our global presence and

recognizing the Human Element…

Dow is opening the door to a new era.


With production

facilities in 35

countries and

customers in 160,

with joint venture

partners in key

regions, and with

a highly talented

global workforce…

Dow is the most global of all chemical companies.

NEW FRONTIERS

Positioning ourselves in growth markets

We established our fi rst business outside the United States in 1942— the same year in which

sales surpassed $50 million for the fi rst time in Dow’s history. Sixty-fi ve years later, as we broke

through the $50 billion mark, roughly two-thirds of our revenue was generated overseas.

Our commitment to geographic growth remains strong, with a specifi c focus on emerging

economies … supplying the chemical and plastic building blocks that address a vast array

of human needs. As a result, the international reach of our businesses is having an evermore

signifi cant impact on the Company’s bottom line. And we expect this contribution to grow further

as we reap the benefi t of being the most global of all chemical companies, with assets in key

regions around the world, strong partnerships with major players in many different countries,

and highly talented, locally hired employees who have the relationships, the experience and the

knowledge to make things happen.

North AmericaDow sales: $20.5 billion38% of global total

Dow share of JV sales: $1.74 billion26% of global total

Latin AmericaDow sales: $5.7 billion11% of global total


EuropeDow sales: $19.6 billion37% of global total



DOW’S 2007 GLOBAL SALES

$53.5 BILLIONDOW’S PROPORTIONATE SHARE OF 2007 JOINT VENTURE REVENUE*

$6.6 BILLION

Collaborating for smarter growth

As Dow focuses on improving earnings growth and consistency,

joint ventures are a crucial enabler, creating opportunities

to accelerate the Company’s strategic agenda across several

different dimensions. Joint ventures can provide access to key

markets, growth geographies, new technologies and advantaged

feedstocks, while at the same time lowering capital investment

and reducing risk. During 2007, we advanced our joint venture

agenda on several fronts.

Most notable was our agreement with Petrochemical Industries

Company (PIC), a wholly owned subsidiary of Kuwait Petroleum

Corporation, to form a global petrochemicals giant. When the

deal closes toward the end of 2008, the new 50:50 joint venture

will have sales of more than $11 billion and employ around 5,000

people, manufacturing and marketing polyethylene, ethylene-

amines, ethanolamines, polypropylene and polycarbonate to

customers worldwide.

Our agreement with PIC was not the only highlight of the year.

For example:

• We signed a Memorandum of Understanding with Chevron

Phillips Chemical to form a joint venture involving polystyrene

and styrene monomer assets in North and South America.

• We announced plans to form a joint venture with the National

Oil Corporation of Libya that will operate and expand the

country’s Ras Lanuf petrochemical complex.

• We signed a Memorandum of Understanding for our

proposed joint venture with Saudi Aramco, to build a large-

scale petrochemicals complex in eastern Saudi Arabia.

• We signed a cooperation agreement with Shenhua Group

to build a world-scale coal-to-chemicals complex in the

Shaanxi Province of China.

• We signed a Memorandum of Understanding with Crystalsev,

one of Brazil’s largest ethanol producers, to form a

joint venture to design and build a world-scale facility

to manufacture polyethylene from sugar cane.

• And we signed a Memorandum of Intent with Russia’s

Gazprom and SIBUR to explore a number of joint venture

opportunities in the area of hydrocarbons processing.

India, Middle East, AfricaDow sales: $1.5 billion3% of global total


Asia Pacifi cDow sales: $6.2 billion12% of global total


*Sales of nonconsolidated affi liates, excluding sales to other Dow entities.


NEW SOLUTIONS

The roads to solutions often start as needs. The need for safer, more fuel-effi cient cars. The need

to protect crops. The basic needs that sustain us: clean drinking water, an adequate food supply

and decent housing. Our aim is to fi nd better solutions through science and technology, combin-

ing the power of chemistry with the Human Element in a way that delivers long-term value to

our stockholders.

For example, during 2007, we signed a corn technology cross-licensing agreement with Monsanto

aimed at launching SmartStax™. SmartStax will provide the broadest spectrum insect protection

and weed control technology available to farmers, through the fi rst-ever eight-gene stack

offering from Dow AgroSciences and Monsanto.

TMSmartStax is a trademark of Monsanto Company.

By aligning our innovation agenda to the areas of greatest future global need — health, energy,

transportation, infrastructure and consumerism…

Dow is ideally placed to harvest future value-growth opportunities.


Dow AgroSciences also announced Dow Herbicide Tolerance technology, an innovative new

family of traits that provides tolerance to multiple classes of herbicides in different crops and

offers farmers a wider choice of weed-fi ghting products.

Also in 2007, we launched Dow’s RENUVA™ Renewable Resource Technology, which uses

soybeans to make natural oil-based polyols that can be used to manufacture foams for furniture,

carpet and bedding applications that are virtually odor-free. The technology consumes around

60 percent less fossil fuel resources than conventional polyol technology and is greenhouse

gas neutral.

And Dow Building Solutions unveiled a next-generation foaming technology, enabling it to

manufacture STYROFOAM™ insulation products with a zero ozone-depletion factor and to

signifi cantly reduce Dow’s greenhouse gas emissions for North America.

During the past decade, our research and development (R&D) spending has increased by around

30 percent in real dollar terms. It is an investment that is paying dividends: in those same 10 years

our project pipeline has doubled from a net present value of $5 billion to about $10 billion; in

2007, 34 percent of Dow’s sales were from products introduced in the past fi ve years; since

2004, patent disclosures have more than doubled (from 411 in 2004 to almost 1,100 in 2007);

and last year Dow was ranked one of the 10 best global R&D companies by R&D magazine.

With more than 350 large projects currently in the development pipeline, and with major new

R&D facilities now being built in Shanghai, China, and Pune, India, that in-house success is set

to continue. But innovation doesn’t just occur in our own labs.

Taking the philosophy of the Human Element beyond the boundaries of our Company, we also

partner with universities, government institutions and members of the scientifi c community around

the world to develop new ideas and technologies. In 2007, for example, Dow issued a challenge to

researchers to develop an effective way to convert methane into chemical feedstocks without using

costly synthesis gas processes. To encourage this research, Dow will award grants of approximately

$1 million to $2 million annually, for three years.

TMTrademark of The Dow Chemical Company (“Dow”) or an affi liated company of Dow.

NEW AMBITIONS

Environmental stewardship and corporate citizenship have long been key priorities for Dow.

Today, they have a place at the very heart of the Company’s strategy, ranked among the most

important drivers of Dow’s long-term success.

Through 2007, we continued to make progress toward our ambitious 2015 Sustainability Goals.

Launched in 2006, these goals raise the bar signifi cantly higher for our environmental, health

and safety performance, while also addressing a broader set of challenges focused on local

communities, product stewardship and the reduction of our global environmental footprint.

In this respect, the year saw a number of signifi cant achievements by Dow, including:

• The Company continued efforts to enhance energy effi ciency through a broad range of

initiatives, including a process at Dow’s Terneuzen site in The Netherlands to re-use treated

household wastewater. The project saves energy, conserves water and reduces greenhouse

gas emissions.


05 06 07 2015

1.52

1.14

1.51

0.39

05 06 07 2015

75

464

586

730

05 06 07 2015

14

32

38

55

Severity Rate(recordable incidents, weighted for type, per 200,000 work hours)

Process Safety(number of incidents)

Leaks, Breaks and Spills(number of incidents)

Baseline

Goal

Note: Other metrics are recorded, but the results are not available in time for this report. Please visit Dow’s website (www.dow.com) for updated results.

• Dow joined with the Lawrence Berkeley National Laboratory and China’s Energy Research

Institute to develop a program aimed at supporting China’s efforts to improve energy effi ciency

and reduce energy intensity.

• Dow Building Solutions made further headway with its building-integrated photovoltaic program,

which will enable solar energy generation cells to be incorporated directly into the design of

commercial and residential building materials, such as roofi ng systems, exterior sidings and

fascias. The project received a $20 million grant from the U.S. Department of Energy as part of

the Solar America Initiative Pathways Program — bolstering Dow’s efforts to design, develop

and scale up production of building-integrated photovoltaic components that will signifi cantly

reduce the cost of solar energy.

• Dow Brazil and Jean-Michel Cousteau’s Ocean Futures Society launched the Ambassador of

the Environment Program in Guaruja, Brazil. This extension of Dow’s U.S. partnership with

Cousteau is designed to connect young people with the environment and teach them how

to live more sustainably.

• We continued to successfully introduce products and technologies to the marketplace while

demonstrating our commitment to sustainability. We launched Propylene Glycol Renewable,

a product used in a variety of industry applications that is made from glycerin generated during

the manufacture of biodiesel, a diesel-fuel alternative produced from vegetable oil. And

customers responded very positively to our announced joint venture with Crystalsev to build

the fi rst world-scale sugar cane-to-polyethylene facility, based in Brazil. As well as using a

renewable feedstock, the process will produce signifi cantly less carbon dioxide than traditional

polyethylene manufacturing processes.

• And we stepped up efforts to prepare next-generation leaders in the area of sustainability. The

Dow Chemical Company Foundation committed $2 million to establish a new Sustainable Products

and Solutions program with the University of California at Berkeley’s Haas School of Business, in

partnership with its College of Chemistry. In addition to its fi nancial contribution, Dow also loaned

an executive to facilitate the growth of the program. This multi-disciplinary research and learning

environment will lead to new thinking in the development of products that will be sustainable,

improve quality of life, and protect health and the environment.

Through its

2015 Sustainability

Goals, which set

ambitious targets

for local citizenship,

product stewardship

and standards

of environmental

performance…

Dow is scaling new heights.



By connecting

chemistry and

innovation to the

Human Element

… creating new

hope, achieving

new standards and

securing new business

opportunities…

Dow is balancing the needs of its stakeholders.

NEW EXPECTATIONS

As we press forward with our long-term growth agenda, we remain committed to understanding

the needs and expectations of the people affected by our activities … and delivering on those

expectations. That commitment extends beyond the immediate sphere of our employees, our

retirees and the communities in which we operate, to embrace the Human Element across a far

wider societal plain: the end-users of our products, the governments and municipalities that

benefi t from our presence, and people across the globe facing fundamental needs that Dow can

help to address.


2007 was a year in which we advanced that agenda on many

fronts, including:

• Conducting research to assess the quality of life in several

Dow locations around the world, to understand and priori-

tize local environmental, social and economic needs in the

communities in which we operate. The research will not only

help to ensure that we are a good neighbor and partner in

our 150 global communities, but will also help to strategically

position Dow in areas where we seek to have a presence in

the future.

• Making further strides to tackle the growing global issue of

clean water, including our sponsorship of the 15,200-mile

2007 Blue Planet Run.

• Provisionally agreeing to provide up to $30 million of loan

guarantees to WaterHealth International that would support

the installation of 2,000 community water systems in rural

India and provide a sustainable source of safe drinking water

for 11 million people in remote locations across the country.

• Launching a Sustainable Living campaign with our 46,000

employees around the globe, promoting ways that employees

and their families can reduce energy use, and encouraging

people to sign a personal commitment to the campaign.

• Building on our long-standing efforts to improve the safety

and security of chemicals transportation. In 2007, Dow joined

with the U.S. Federal Railroad Administration, Union Pacifi c

Corporation and Union Tank Car in various initiatives to

enhance the safety performance of rail tank cars, improve

shipment visibility, support community emergency response

education and design supply chains that reduce risk.

• Contributing more than $36 million to support a wide range

of programs that contribute to community success, support

sustainability, foster science in society and stimulate innova-

tion around the world. The Company also made substantive

one-time contributions to several global projects and a major

revitalization initiative in its hometown of Midland, Michigan,

U.S.A., bringing total philanthropy in 2007 to $53.5 million.

This compares with $27.9 million in 2006.

• In 2007, several of Dow’s commitments supported the

marketing activities and product development efforts of

individual businesses. For example, our continued partnership

with Habitat for Humanity not only supported the group’s

quest to eliminate substandard housing, but also served

to showcase the performance and versatility of a range

of products from Dow Building Solutions … including a

complete photovoltaic installation at Habitat’s 2007 Jimmy

Carter Work Project in Los Angeles, California, U.S.A.

Together, Dow’s environmental and societal commitments

put our Company on record as affi rming that our workplace,

community and environmental accomplishments will be among

the most important success factors for Dow’s future.

Global Business and Functionally Aligned Projects: $3.7Global Corporate Projects: $22.6 Disaster Relief: $1.1

Charitable Contributions by Geographic Area (dollars in millions)

North America $18.2

Europe $3.7

Asia Pacific $1.9

India, Middle East, Africa $1.2

Latin America $1.1

NEW ACHIEVEMENTS

First Quarter

• Dow starts up its fi rst-ever production facility in Russia, located in Kryukovo, outside Moscow. The plant will produce STYROFOAM™ Extruded Polystyrene insulation boards for Dow Building Solutions.

• Dow announces plans to increase production of CELLOSIZE™ Hydroxyethyl Cellulose at its site in Institute, West Virginia, U.S.A. The additional capacity will be used primarily in paint and oil fi eld applications.

• The Company confi rms it will begin global-scale production of its new INFUSE™ Olefi n Block Copolymers at Freeport, Texas, U.S.A., following a successful trial manufacturing run at the facility.

• Dow introduces Propylene Glycol Renewable, a propylene glycol made from the glycerin that is generated during the manufacture of biodiesel, a diesel-fuel alternative produced from vegetable oil.

• Dow’s Polyurethanes business unveils capital investment plans for two European facilities to expand capacity at its polyols plant in Terneuzen, The Netherlands, and its propylene glycol facility in Stade, Germany.

• The U.S. Department of Energy awards Dow a $20 million grant to advance integrated photovoltaics, a technology that incorporates solar power components directly into a variety of building materials.

• Dow declares a dividend of 37.5 cents per share … the Company’s 382nd consecutive cash dividend.

• A major new research program, sponsored by Dow, is announced by the Company, offering three-year grants to help develop technology that will convert methane to chemicals.

• Dow commits to being a founding sponsor of the Colorado Center for Biorefi ning and Biofuels, a research center devoted to developing new biofuels and biorefi ning technologies.

• The Company accepts a leadership role with EPCglobal, a non-profi t agency developing industry-driven standards for electronic product code technology that tracks items within a supply chain.

• Dow launches eight new grades of VERSIFY™ Plastomers and Elastomers, a highly versatile product range that delivers performance and processing benefi ts across an array of end-use applications.

Second Quarter

• Dow hosts its 110th Annual Meeting of Stockholders.

• Saudi Aramco and Dow sign a Memorandum of Understanding to move forward with their multibillion-dollar joint venture chemicals and plastics production complex near Ras Tanura, Saudi Arabia.

• Dow and Chevron Phillips Chemical announce plans for a 50:50 poly-styrene and styrene monomer joint venture in North and South America.

• Beijing-based Shenhua Group and Dow agree to a detailed feasibility study for a coal-to-chemicals joint venture in the Shaanxi Province of China.

• Dow raises its quarterly cash dividend by 12 percent to 42 cents per share. Since 1912, Dow has consistently either raised or maintained its quarterly dividend.

• Twenty-two elite runners gather in New York, U.S.A., at the start of the 2007 Blue Planet Run, an around-the-world relay sponsored by Dow to focus attention on the one billion-plus people without ready access to safe drinking water.

• The Company signs a Heads of Agreement with the National Oil Corporation of Libya to operate and expand the Ras Lanuf petrochemical complex on the country’s Mediterranean Sea coastline.

• Dow announces the completion of its acquisition of British Vita’s poly-urethane systems business, Hyperlast Limited, which includes elastomer systems facilities in the United Kingdom.

• CKE Restaurants Inc. announces that its Carl’s Jr.® and Hardee’s®

restaurant chains are converting to Dow AgroSciences’ zero trans fat Omega-9 Canola Oil.

• Dow joins the United States Climate Action Partnership, an alliance of major businesses and environmental groups calling on federal legislation to reduce greenhouse gas emissions.

• The Company opens a new polyurethane systems market development and prototyping laboratory in Egypt to help meet the growing needs of customers across the Middle East, India and Africa.

• Dow announces a partnership program with Lawrence Berkeley National Laboratory and the Chinese Energy Research Institute to support China in its efforts to improve energy effi ciency.

• Dow joins the United Nations Global Compact, the world’s largest global corporate citizenship initiative.

• At the Guaruja site in Brazil, Dow partners with its Community Advisory Panel and Jean-Michel Cousteau’s Ocean Futures Society to create Latin America’s fi rst Ambassador of the Environment program.

TMTrademark of The Dow Chemical Company (“Dow”) or an affi liated company of Dow.®Carl’s Jr. and Hardee’s are registered trademarks of CKE Restaurants Inc.


Fourth Quarter

• Gazprom, the world’s largest gas producer, signs a Memorandum of Intent with Dow and Russian petrochemical company, SIBUR, to evaluate potential chemical manufacturing opportunities using Russia’s natural gas capacity.

• Dow provides seed money to establish a new Sustainable Products and Solutions program, based at the Center for Responsible Business at the University of California at Berkeley’s Haas School of Business and in partnership with its College of Chemistry.

• Dow Wolff Cellulosics begins construction of the world’s largest methylcellulosics plant in Bitterfeld, Germany.

• Dow Wolff Cellulosics introduces an enhanced emulsion technology using METHOCEL™ Food Gums that helps eliminate trans fats in baked goods.

• The Company signs a Memorandum of Understanding with Hunton Energy relating to a potential petroleum coke gasifi cation plant in Texas, U.S.A. Hunton would build, own and operate the facility, and Dow would purchase synthetic natural gas and steam for its Texas Operations manufacturing site in Freeport.

• Dow and Petrochemical Industries Company of Kuwait announce plans to form a 50:50 joint venture petrochemicals company with revenues of more than $11 billion and 5,000 employees worldwide.

• Dow Building Solutions announces next-generation foaming agent technology that will enable the manufacture of STYROFOAM™ insulation with a zero ozone-depletion factor.

• Dow declares a dividend of 42 cents per share … the Company’s 385th consecutive cash dividend.

• The Company pledges $2 million to the Young Arab Leaders’ Global Action Program, an initiative designed to encourage dialogue among leaders across the globe.

• Dow Canada fi nalizes the sale of Dow’s caustic soda business in Western Canada to Univar Canada. This sale includes the West Coast Distribution Centre terminal assets as well as miscellaneous equipment.

• Dow completes the sale of its ETHAFOAM™ performance foam business to Sealed Air Corporation.

• Dow provisionally agrees to provide up to $30 million of loan guarantees to WaterHealth International that would support the fi nancing of 2,000 community water systems, serving 11 million people in rural India.

• Dow unveils its renewable grade polyurethane footwear soling system, VORALAST™ R.

• Dow announces plans to shut down a number of assets and make organizational changes within targeted support functions, eliminating approximately 1,000 jobs. As a consequence, the Company reports restructuring charges totaling $590 million in the fourth quarter, and expects to realize estimated savings of $180 million a year.

• Dow endorses the CEO Water Mandate and Caring for Climate, two voluntary initiatives of the U.N. Global Compact.

• Dow launches Dow Coating Solutions, a Market Facing business focused on providing materials, technology and solutions to the global coatings industry.

Third Quarter

• Dow completes the acquisition of Wolff Walsrode and forms Dow Wolff Cellulosics, a $1 billion specialty business focused on cellulosics and related chemistries and serving a broad spectrum of industry sectors.

• A corn cross-licensing agreement between Dow AgroSciences and Monsanto, aimed at launching SmartStaxTM, breaks new ground in the commercialization of gene stacking technology.

• The Company signs a Memorandum of Understanding with Brazilian ethanol producer, Crystalsev, to form a joint venture to manufacture polyethylene from sugar cane.

• Dow AgroSciences acquires Agromen Tecnologia, substantially expand-ing its Brazilian corn seeds business and strengthening the Company’s global corn seeds platform.

• Dow’s Polyurethanes Systems business announces plans to acquire Danish company Edulan A/S, an independent polyurethanes systems house specializing in rigid foam and elastomer technologies.

• Defi nitive agreements are signed by Dow to acquire three leading epoxy systems formulators: UPPC AG in Germany, and POLY-CARB Inc. and GNS Technologies in the United States.

• Dow AgroSciences unveils a new family of herbicide tolerance traits that will provide tolerance to multiple classes of herbicides in different crops. The technology should be ready to launch in corn in 2012.

• The Company introduces RENUVA™ Renewable Resource Technology, a proprietary process to produce bio-based polyols with high renew-able content.

• Singapore’s national water agency, PUB, signs an agreement to test Dow’s next-generation 16-inch FILMTEC™ membranes for use in water reclamation.

• Dow AgroSciences wins the “Best Formulation Innovation” award in the 2007 AGROW Awards for EcoZome™, an aqueous formulation technology for crop protection products that addresses issues with solvent systems.

• The Company launches SAFETOUCH™ Fiberglass-Free Insulation, a polyester fi ber batting with insulating properties of fi berglass-based materials that does not irritate skin, throat or eyes.

• Dow AgroSciences wins the United Nations’ Montreal Protocol Innovators Award at the annual Meeting of the Montreal Protocol.

• Dow Footwear Solutions announces its offi cial launch as a new Market Facing business for Dow.

• The Company declares a dividend of 42 cents per share … its 384th consecutive cash dividend.

• The Company launches Dow Fabric and Surface Care, a new Market Facing business.

• Dow FORTEFIBERTM Soluble Dietary Fiber products receive an inaugural Institute of Food Technologies Food Expo innovation award.

• Once again, Dow is included in the Dow Jones Sustainability World Index for the global chemical industry. The Company’s overall score ranks third highest across all 18 industry groups included in the Index.

TMTrademark of The Dow Chemical Company (“Dow”) or an affi liated company of Dow.TMSmartStax is a trademark of Monsanto Company.

® Trademark of The Dow Chemical Company (“Dow”) or an affi liated company of Dow. Form No. 161-00693

The Dow Chemical CompanyMidland, MI 48674 U.S.A.

2015 Sustainability Goals Update

2Q 2008

This report provides an overview of second quarter progress on Dow’s 2015 Sustainability Goals and other significant sustainability events.

Eventsk

Citizenship

Solutionsp

Footprint

1

Local Protection of Human Health and the Environment

Dow Latin America holds first ever Dow Sustainability Week

Injury and Illness Rate

1996

1997

1998

1999

2000

2001

200220

0320

0420

0520

0620

0720

0820

0920

1020

112012

2013

2014

2015

ActualYear to Date2015 Goal

Responsible Care®

Chemical Companies rate 1.2

US Manufacturing rate 6.3

0.0

0.5

1.0

1.5

2.0

2

Injury and Illness Severity Rate


0

1

2

3

4

5

1996

1997

1998

1999

2000

2001

200220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

Loss of Primary Containment Incidents

0

500

1,000

1,500

2,000

2,500

1996

1997

1998

1999

2000

2001

200220

0320

0420

0520

0620

0720

0820

0920

1020

112012

2013

2014

2015

ActualYear to Date

2015 GoalAnnualized

3

Motor Vehicle Accident Rate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1996

1997

1998

1999

2000

2001

200220

0320

0420

0520

0620

0720

0820

0920

1020

112012

2013

2014

2015


4

Process Safety Incidents

0

20

40

60

80

100

120

140

1996

1997

1998

1999

2000

2001

200220

0320

0420

0520

0620

0720

0820

0920

1020

112012

2013

2014

2015

ActualYear to Date

2015 GoalAnnualized

Hazmat Transportation LOPC Count

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Highly Hazardous LOPCs Actual

Hazmat LOPCs Actual

Hazmat LOPCs Year to DateHazmat LOPCs Annualized

2015 Goal (Hazmat LOPCs)

12

5

Highly Hazardous Material Tonne-Miles

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

ActualYear to DateTonne-Miles Annualized

Mill

ion

Tonn

e-M

iles

2015 Goal

0

400

800

1,200

1,600

Contributing to Community Success

Around Dow

Product Safety Leadership

6

0

100

200

300

400

500

600

700

Actual

2015 Goal

Product Safety Assessments

Cumulative

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

132

Sustainable ChemistryHighlights for second quarter 2008 include:

7

Breakthroughs to World Challenges

8

Addressing Climate Change Energy Efficiency and Conservation

9

Intensity of Kyoto GHG as CO2 Equivalent

0.20

0.00

0.25

0.30

0.35

0.40

0.45

0.50

0.55

0.60

2015 Goal

Direct + Indirect GHG Intensity

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Printed In U.S.A.Published August 2008

® TM The DOW Diamond Logo and Human Element and design are trademarks of The Dow Chemical Company © 2008 ™IMPAXX, SYMMATRIX, SAFETOUCH, DOWTHERM, ECOSURF, AIRSTONE, STYROFOAM and LOMAX

are trademarks of The Dow Chemical Company (“Dow”) or an affiliated company of Dow®Responsible Care is a service mark of The American Chemistry Council in the United States

10

Form No. 233-00487-0808BBI

Energy Intensity Performance

1500

2000

2500

3000

3500

4000

BaseYear2005

BTUs

/ lb

40%

50%

60%

70%

80%

90%

100%

% Im

prov

emen

t

Actual

2015 Goal

Year to Date

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Valuing Our Communities

Corporate Responsibility Officer

O u r F a c t s

CommunityInvestmentsImproving the communities where we operate has long been a part of the Dow culture. In 1936, the Herbert H. and Grace A. Dow Foundation was established as a non-profit foundation to fund worthwhile community causes. In 1979, The Dow Chemical Company Foundation was created to further enhance community outreach by improving the understanding of science through science-related education projects and programs. The foundation continues today, investing in nonprofit organizations globally to improve quality of life in communities aroundthe world.

Contributing To Community

Success

® TM The DOW Diamond Logo and Human Element and design are trademarks of The Dow Chemical Company © 2008 Form No. 233-00504-0808BBI

Dow’s Position StatementUnderstanding the needs of the communities where we have a major presence, and responding in a constructive and appropriate way is part of our role as a member of the community and one to which we are deeply committed. We believe that by focusing on quality of life needs and enabling them to be fulfilled, we can create sustainability for our communities and for Dow.

External OverviewContributing to Community Success isabout engaging with our communitiesaround the world to establish open and transparent communication channels that lead to understanding. We value the knowledge and opinion of residentsabout how Dow can become part of the social fabric of the communitieswhere we operate. Two-way dialogue allows us to proactively assess, planand implement individual Community Success Plans that address local needs.Ultimately our goal is to make a positive contribution to the quality of life within communities where we have a presenceso that the community is improvedbecause of it.

Dow’s History in the AreaCommunity relations have been anessential part of Dow’s corporatepractices since the founding of thecompany in 1897. Supporting the communities where we operate is part of the Dow culture. From the early1930s with the Herbert H. and Grace A. Dow Foundation, and then later inthe 1970s with The Dow ChemicalCompany Foundation, community engagement has been and continues to be a driving force within our company.

Balancing the impact economic growth has on society and the environment creates real challenges for global communities in attaining their desired quality of life. As the world continues to change, our attitude and approach must shift to seek innovative and collaborative solutions that will result in benefits for our communities. At Dow, Community Success has been an evolution in the way we think about our community interface. We have evolved from directing activities in local communities to an approachthat sees us participating as a partner in addressing local quality of life concerns. It is this collaboration between company andcommunity that enables us to tackle key issues in order to truly make a difference and create a sustainable community.

How Dow Participates with

Communities to Address Issues

O u r P o s i t i o n

The Benefit of a PlanCommunity Success ensures that our resources (money, people and partnerships) are applied to specific objectives that yield the greatest breakthrough improvement in quality of life as defined by the community itself.

The goal states:“By 2015, 100 percent of Dow sites where we have a major presence will have achieved their individual community acceptance ratings which measure the community’s favorability with how Dow plays a positive role in making the community a better place to live.”

Dow’s Actions and CommitmentsDow has taken or is taking the following actions:

rightful role

community input

community needs

ConclusionSustainability requires every decision be made with the future in mind. It is about our relationship with the world around us – creating economic prosperity and social value while contributing to the preservation of our planet – and it demands that we be engaged corporate citizens globally and locally. We are collaborating with local businesses and citizens to create stronger, safer and sustainable communities – establishing joint goals and plans, and taking actions for the long-term success of all involved. Together we will work to help our communities succeed, and in doing so, we will be a positive influence for change.

For More InformationTo learn more about Dow’s Contributing to Community Success visit www.dow.com/commitments/goals/community.htm.


Published August 2008 ® TM The DOW Diamond Logo and Human Element and design are trademarks of The Dow Chemical Company © 2008 Form No. 233-00503-0808BBI

Dow’s Position StatementAs one of the largest chemical companies in the world, we are uniquely positioned to address the global challenges that live at the crossroads of greatest need and most significant business opportunity. Our 2015 Sustainability Goals serve as the yardstick tomeasure our progress in providing positive value and return for all of our stakeholders, and enhancing the quality of life of current and future generations. Specifically, the Sustainable Chemistry goal integrates the innovative application of science and technologywith societal needs and challenges to identify, commercialize and deliver solutions.

Sustainable Chemistry encompasses a lifecycle view of our products and processes in using our resources efficiently to minimize our footprint and improve the quality of the environment. We will strive for improvements in greenhousegas emissions, fresh water use, recycled materials as feedstocks, waste reduction, and renewableraw materials. The company challenges anyactivities that emit persistent, bioaccumulativeand toxic substances (PBTs) that are listed in the Stockholm Convention. Dow will promotebusinesses whose products fill social needs for drinking water, affordable housing, foodproduction, personal and public health, safetyand economic development, particularly in developing countries.

Dow will use sustainable chemistry to addressrising stakeholder expectations and to educate our employees about societal trends to ensure that we are making the right choices today that will deliver future innovations, improvements andprofits for the long-term sustainability of Dow andour world.

External OverviewThe predominant resource management model of mining, manufacturing, use and disposal must change. The world’s resourcesare becoming scarce, greenhouse gases are increasing in the atmosphere, and water accessibility is a crisis in many areas. As the global population continues to grow and countries strive to improve conditions for the poor, the current model is clearly not sustainable.

Sustainable chemistry is our “cradle to cradle” concept that drives us to use resources more efficiently, to minimize our footprint, to provide value to our shareholders and stakeholders, to deliver solutions for customer needs and to enhance the quality of life of current and future generations.

Introduction to Dow’s Position

on Sustainable Chemistry


Focus on Science

Dow’s History in the Area

“Bleach Lifters Bonnet or Helmet” protective unit to protect workers from possibleexcessive exposure to chlorine vapors.

co-generation.

effects of chemicals and chemical intermediates.

methods of waste treatment.

assessing the environmental impact of products and then taking appropriate stepsto protect employees, customers, and public and environmental health.

formalize the many programs already in place in different Dow locations to reduce

facilities by not producing waste if possible or by recycling or reusing that waste

almost $2 billion.

launched in Canada. At the World Summit on Sustainable Development in 2002,

sustainable development.

policies and initiatives.

environmental releases, chemical releases, and energy and water use.

considered key to the transformation of the company.

Dow’s Commitments

These LCAs will focus on breakthrough technologies and quantify the benefits for our customers and the users of the finished products.

growth in potential new products and solutions with sustainability advantages.

intergovernmental organizations, and non-governmental organizations, to provide perspectives on our sustainable chemistryapproach and our efforts to spur sustainable chemistry innovation.

student prizes, university partnerships and programs, and Dow employee awards.


Dow’s Actions

less CO2 over the life cycle.

new chemistry provides reduced environmental impact, compared to the manufacture of conventional polyols, as it uses less than half of the petroleum-based resources (fuel and raw materials) of current technology.

can coatings, as well as many other applications. This new process uses a renewable feedstock, reduces wastewater by over

store in Aurora, Colorado, in a secondary loop refrigeration system for meat, dairy, produce and other medium temperature-chilled foods. Compared to traditional refrigeration systems, secondary loop refrigeration systems have been proven to reduce

(that would otherwise be emitted into the atmosphere) instead of natural gas, to generate steam for the production of latex carpet backing.

http://www.dow.com/commitments/studies/index.htm.

ConclusionDow believes that Sustainable Chemistry goes well beyond mitigating the unintended consequences of chemistry. The world has

homes, computer chips, and life saving medicines. Chemistry is a defining factor in meeting critical human and environmental needs that will transform economic, environmental and social sustainability. We continue to deliver breakthrough improvements to existing Dow products and processes, and the next generation of chemical solutions and technologies. However, making our sustainability vision a reality will require unprecedented innovation and collaboration.

To learn more about Dow’s position on sustainable chemistry, visit http://www.dow.com/commitments/goals/chemistry.htm.Or learn about specific examples of more sustainable chemistry at Dow by visiting Sustainability Stories at http://www.dow.com/commitments/studies.



Dow entered into a sponsorship agreement with Saginaw County, Michigan, for the local civic arena in downtown Saginaw in an effort to help breathe new life into an economically depressed area of the city. The sponsorship allowed the center tocomplete renovations that had begun a few years earlier. In the few years since, The Dow Event Center has become more of aregional, rather than local, venue. The facility now hosts about 220 events each year, bringing in more than 200,000 visitorsfrom around the state. The ongoing success of the “TheDow,” as it is more commonly known, has spurred continuedrevitalization of the area.

To promote openness and understanding with the community,Dow Terneuzen organized two evenings of “Open Night Event” for the community, which marked the beginning of theNational Day of Chemistry in the Netherlands. Government leaders, business officials and more than 2,000 communitymembers participated in the after-dark event at Dow’s secondlargest site in the world. In addition to a bus tour of thesite, production and use of chemicals were shown throughlaser projections and all plants were festively illuminated.An exhibition of Dow products and their use in consumer products followed the tours.

In support of their Community Success Plan, Dow’sPittsburg, California, site hosted an Environmental Fair for area fourth graders, which included a first-ever ScienceTeacher Appreciation Dinner featuring oceanographer andexplorer Jean-Michel Cousteau. More than 250 attendees –including 150 educators – gathered on the award-winningDow Wetlands Preserve for a tour of the wetlands, a showof exhibits used by students, dinner and a presentation byCousteau about climate change; the importance of scienceeducation; growing up with his father, Jacques Cousteau;and more. Specific features of the Community Success plan are designed to increase exposure to the wetlands and promotescience education.

Dow in Cartagena, Colombia, created an integral program impacting four key areas: quality of public education, preparation of future leaders among young people in the community, sustainability projects and employee volunteerism. The projects include:programs to motivate children’s interest in science; employee volunteerism to improve education management at schools andto carry out health journeys; nutrition programs; development of linguistic, social, cognitive, artistic and affective potentials inyoung people; and the preservation of the community’s culture through dance and other artistic expressions. Dow developsits community program together with “Fundación Mamonal,” a nonprofit association that promotes the social development of communities.

Reputation and contributing to community success are hallmarks of the Dow Sarnia legacy project. After announcing closure of the Sarnia, Ontario, Canada site, Dow committed to providing funds up to $1 million in support of a community project that would benefit a broad cross-section of the community. A multi-agency proposal to build and coordinate the delivery of servicesat a community center for youth development in the city was chosen for the project.

How Dow Improves Our

Communities

O u r R e s u l t s

Adding Qualityto LifeDow is helping improve our communities, making them moreviable economically, more vibrant culturally and more vigilant environmentally.

On behalf of Dow’s Texas Operations, The Dow Chemical Company Foundation has made a significant pledge to establish The Dow Academic Center at Brazosport College in Texas. Brazosport College is critical to educating students in theFreeport, Texas, area and qualifying them for high-paying jobs at local companies like Dow. With more than 60 percent of high school graduates in Texas attending community colleges before going on to four-year universities, institutions likeBrazosport College are essential to prepare young adults for future success. The 35,000 square-foot multi-use facility will allow

for the expansion of the college’s baccalaureate degrees and will offer flexible classrooms, state-of-the-art labs and large meeting spaces for bothcollege and community use.

Dow Malaysia sponsored and helped to build a Visitor Information Center at the Ulu Geroh ecotourism area in Perak, Malaysia. Among effortsby Dow staff and family members was the creation of murals adorningthe four walls of the center. The establishment of the ecotourism areaallowed the indigenous Semai tribe to return to their cultural roots, protect the environment and make a living in the process. It is also ecologicallyimportant because the forest around the village houses a population of twoglobally threatened entities: the Rafflesia cantleyi, the world’s largest andmost distinctive smelling flower; and the Troides brookiana albescens, or Rajah Brooke’s Birdwing butterfly.

The Kasaoka site in Japan has been contributing equipment and displayboards to protect the breeding area of helmet crabs in Ikue Beach inKasaoka City. In addition to the helmet crabs, the territory of the crabs onIkue Beach was designated a national natural treasure in 1928. Dow’scontribution program was carefully selected after a series of discussionswith local government. The helmet crabs are known as a “living fossil.” They flourished on this planet hundreds of millions of years ago. They

are now disappearing from their habitat rapidly, but still live in several parts of the world including Japan, the U.S., China andPeninsular Malaysia.

More than 65 employees from Dow’s Louisiana Operations partnered with Office of Emergency Preparednessrepresentatives, the Iberville Parish (Louisiana) Sheriff’s Office and the Iberville Fire Department, going door to door to visit about 1,400 neighbors and share information about emergency preparedness. During the visits, residents were asked if they hadconcerns about area industry and if they knew what to do when the parish Community Alert Broadcast System was activated.

Engineers and other employees from West Virginia Operations participate in an annual community event that provides foodand raises money for Covenant House, a charitable organization that provides basic needs for the needy residents. Teams of engineers, contractors and architects build sculptures from thousands of cans of food that are later donated to the organization’sfood pantry. The sculptures are entered in a contest with various categories, one of them being the nutritional value of the foodused.

O u r R e s u l t s

Published August 2008 ® TM The DOW Diamond Logo and Human Element and design are trademarks of The Dow Chemical Company © 2008

Form No. 233-00505-0808BBI

SummaryWith manufacturing sites in 37 countries, Dow is a daily presence in towns and cities around the world as a neighbor,community leader, employer and manufacturer. As a corporate citizen, Dow has a daily responsibility to operate its facilitiessafely, treat people fairly and support the well-being of the communities in which it operates. Sustainability is about extendingthis responsibility for long-term well-being to ensure future generations of the community will have environmental, economic and social health.

By listening to the community, focusing on quality of life priority needs and supporting the fulfillment of those needs, Dow alsoensures its own ability to maintain and grow operations. As Dow expands globally, we extend the knowledge and experiencefrom our established regions to new andemerging geographies, while respecting localculture and heritage.

The Big PictureEnvironmental StewardshipDow’s 2005 Global Environment, Health andSafety Goals established high performanceexpectations that significantly reduced injuriesand chemical emissions into the air, land andwater. Dow’s 2015 Sustainability Goals buildon the progress that was made through thoseearlier goals. In working toward these goals, Dowhas fostered a culture that values, above all else,the safety of people and the environment. That culture serves as a foundation on which to builda broader sense of responsibility to not only theenvironment, but also to society as a whole. Dowcontinuously works to ensure that the natural resources of the communities in which it operates are not compromised by itspresence.

Economic StrengthDow is an active participant in the global marketplace, offering goods and services that create value for our customers, and inturn, bring value to their customers. This value is borne in communities where employees and local economies support Dowmanufacturing locations, so that value is created for the community through employment opportunities and greater economicprosperity. This demonstrates the connection of Dow’s economic strength with that of the local community.

EducationAn educated population is a critical competitive component within a community and a means to maintaining economic strengthwhile attracting businesses that need skilled employees. A well-rounded education equips citizens with the confidence toengage in public issues, using their knowledge to make informed decisions that result in beneficial public policy and laws.Particularly for Dow, a scientifically literate population with a basic understanding of science and technology, and the associatedissues, can better make decisions relating to Dow and others in the chemical industry. Highly educated and trained chemistsand engineers, as well as others within the scientific community, enable Dow to drive innovative growth and establish our competitive edge in the marketplace.

Unique Community ConsiderationsIn addition to the universal priorities of environment, economy and education, Dow understands that every community has issues that are a unique priority for them. Community success is about listening and learning from the community how Dow can support those priorities in ways that are meaningful and appropriate.

O u r V i s i o n

How Dow Cares About Our

Communities

Strong ConnectionsDow is interwoven with the communities where sites are located because Dow’s people are part of those same communities. This Human Element reveals Dow and its culture to the community, while simultaneouslyrevealing the community and its culture to Dow.

O u r V i s i o n

Dow’s Stake in this IssueStrong community engagement is an important contributor to a valued corporate reputation, one that establishes credibility and builds trust to work toward mutually beneficial outcomes for both the companyand the community. For Dow, this corresponds to a license to operate within the community.

What Dow Is Doing Now

between Dow and the community

Aratu, Brazil; Zhangjiagang, China; Stade, Germany; Rhine Center (Rhinemeunster, Germany; Drusenheim, France); Terneuzen, The Netherlands; Pittsburg, California; Hahnville, Louisiana; Plaquemine, Louisiana; Midland, Michigan; Freeport, Texas

Dow’s Future Commitment

to address identified gaps

Dow’s Long-Term VisionAs part of the evolution toward sustainability, Dow isimplementing a progressive model for community success.Globally, Dow is partnering with local communities toeffectively address community quality of life issues. Theobjective of community success is for the communities wherewe operate to not just recognize Dow as a part of their town,but to agree that Dow plays a significant role in appropriatelyenhancing the local quality of life today and long into thefuture.

Applying the Human ElementOur people are not just employees or retirees from our sites,but they are the neighbors, coaches, leaders, volunteers andparents who comprise the backbone of a community. Theyare the “face” of Dow, living our corporate values daily bymaking the community a better place to live, work and raise a family. It is this Human Element that defines Dow as a welcomedand valued corporate citizen.


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The document

“Defining ‘Innovation’: A New Framework to Aid

Policymakers”

Is unavailable in this document

Document is available at

http://www.usinnovation.org/files/Defining_Innovation8

07.pdf

Perelman – Human-Centered Innovation � Page 1

Presented to the Innovation Vital Signs Workshop April 26-27, 2007

Toward Human-Centered Innovation

Lewis J. PerelmanSenior Advisor, Delmarva Strategies LLC

for Innovat ion’s Vita l S igns Workshop*, Wash ington DC, Apr i l 27, 2007

* Conduc ted by ASTRA and the Cen ter f or Accele rat ing Innovat ion on beha lf of the

Techno logy Admin is t ra t ion of the U.S . Depar tmen t of Commerce

Introduction

In regard to efforts on accelerating innovation—and particularly the project on Innovation’s Vital

Signs—there should be a greater focus on human-centered innovation, for at least two reasons.

First, change and innovation are not desirable ends in themselves; in fact, some innovation is

evidently wasteful and even destructive. Second, while further research is needed to determine the

detailed nature of the trend, current business news strongly suggests that the leading edge of

innovation today is increasingly driven by human-centered design.

This trend challenges much of the conventional wisdom underlying both public-sector and private,

philanthropic efforts to promote innovation as a general economic good. Such efforts in many cases

should be re-thought and adjusted to account for more than just the inputs to innovation, or the

gross level of resulting innovation activity. Rather, initiat ives to promote innovation need to assess

and consider the net social value of the resulting outcomes.

Defining ‘Human-Centered’ Design and Innovation

Innovation traditionally was viewed as a linear process: from basic research to technology

development and on to test/evaluation, demonstration, deployment, commercialization, and

ultimately, market penetration. And perhaps, if successful, market saturation, obsolescence, and

finally replacement. Human (and social) factors—needs, desires, demands, behavior—were

considered either not at all or intuitively, anecdotally, coincidentally, mechanically, and often

reactively. Innovation was driven, first, by hard science, engineering, and production, with

marketing and sales trailing behind like army camp followers.

Potential new products would emerge serendipitously from exploratory R&D. Marketing would

speculate on potential customers. Promising candidates for commercial products would be subjected

to test markets to see if consumers would accept and demand them. If so, full-scale production and

marketing would follow.

For well-known reasons we need not belabor here, that linear process was thrown topsy-turvy in the

past quarter century or so as information technology both empowered consumers and hugely boosted

the speed, agility, and volatility of design, production, and market processes. Two relevant artifacts

of that market revolution have been the ascendance of personalization and of ever more intimate,

nuanced, customer-supplier relationships.1

1 Government innovation—that is, R&D by government for government acquisition—continues to follow a process largely insulated from market dynamics, driven by political demands and often turgid bureaucratic



The “New Coke” fiasco of 1985 may be as good a symptom as any to mark the watershed between

the old producer-centered (production push) model of innovation and the new age of human-

centered (not just demand-pull but people-pull) form that increasingly drives the global marketplace.

An important lesson from the New Coke innovation blunder is that it did not result simply from

ignoring consumers. Indeed, the introduction of New Coke followed market research showing that

Pepsi was gaining market share from Coke because a new generation of consumers preferred the

sweeter taste of Pepsi. And blind market tests in fact indicated that a larger share of soft drink

consumers liked the greater sweetness of the New Coke formulation to the drier flavor of the old

Coke recipe.

But New Coke was rejected after its full-scale market introduction, and not just with disinterest but

with anger bordering on outrage.

What the old, mechanistic and reactive form of market research had failed so ingloriously to

anticipate was that Coca-Cola was not just something to drink but an important, almost sacred

cultural icon.

Human-centered design and innovation, in contrast, do more than replace the simple linear model of

innovation with the more elaborate web of the innovation ecosystem the Center for Accelerating

Innovation has charted—they put human and social imperatives first and foremost. Moreover, they

do not limit human factors to ergonomics and economic utility, but give acute attention to culture,

meaning, and behavior.

While human-centered design appears to be pushing the leading edge of innovation today, it has

deep historical roots. The basic conception of human-centered technical design began with the

discovery of the “learning curve” in the 1920s, and then serially evolved through the development of

“sociotechnical system design” at the Tavistock Institute in the 1950s, E.F. Schumacher’s concurrent

initiatives for “appropriate technology,” and, later, movements for “total quality management” and

“business process reengineering.” While varying in focus and application, the essential theme of

these challenges to Taylor ism’s mechanistic idiom of innovation was well expressed by the subtitle of

Schumacher’s popular book on small-scale systems: “Economics as if people mattered.”

The current expression of human-centered innovation can be observed in the work of leading

commercial design firms, which characteristically begin projects with exhaustive study of human and

social factors before any technical designs are plotted. One example is the Opti Desktop PC, which

won a gold award for China’s Lenovo Group and its American design partner ZIBA Design in the latest

annual industrial design excellence competition co-sponsored by Business Week and the Industrial

Designers Society of America.

The team’s design research, Business Week reported, was “dubbed ‘Search for the Soul’ of the

Chinese customer,” and aimed to help Lenovo compete on something more than just price. “Lenovo

and ZIBA delved deeply into Chinese consumer culture to ‘find out which design elements have

meaning and value for specific groups of Chinese consumers’…. [They] spent months immersed in

Chinese music, history, and objects of desire, such as cell phones, observing famil ies as they lived,

worked, and played.” At the end, the team had identified five distinct ‘technology tribes’ in China

and designed the Opti for the “Deep Immersers who seek escape through immersing themselves in

games online.”2

procedures that commonly are even more isolated from human user, organizational, and cultural

engagement or considerations.2 “The Best Product Design of 2006,” Business Week, July 10, 2006.



Innovation for What?

Mere boosterism may be satisfied with an agnostic notion of innovation—indifferent to innovation’s

actual consequences as long as they stimulate economic activity. But if value-free innovation is the

benchmark for Innovation’s Vital Signs, it follows that ‘clusters’ of global terror and criminal

networks, such as Iraq’s insurgents, are among the world’s leading models of ‘best practices.’ As

blogger John Robb reports:

Iraq's insurgency is a cooperative community arrangement between many diverse groups that

operates much like open source development in the software industry. As an adjunct to this

cooperative arrangement, micro-markets have formed around the arming and prosecution of

specific forms of attack. These micro-markets enhance innovation, participation, and skil l

development.

The best example of this is in the building and emplacement of IEDs3, where guerril la

entrepreneurs have formed cells for hire that specialize in certain aspects of the IED operations

chain (the IED, or homemade bomb, has become the weapon of choice for Iraqi guerril las

fighting US soldiers).4

This won’t do. The metaphor of ‘vital signs’ derives from the medical quest to save l ives and

improve health. Yet medical practice itself continues to be dogged by the nemesis of iatrogenic

illness—the cure that is more destructive than the disease it aims to treat.

Health care reformers increasingly are attempting to redirect programs and practices to focus on

tangible evidence of the actual outcomes of treatments and services, rather than just on inputs,

intentions, and acquisition of the latest technical inventions. However, generic innovation boosters

all too commonly plow ahead in blithe indifference to the ends and consequences of innovation,

ignoring such benchmarks in the morbidly rich history of innovation-gone-awry as these:

• Theodore Kaczynski (mathematician), A.Q. Khan (physicist), Ayman al-Zawahiri and Josef

Mengele (physicians), Shiro Ishii (microbiologist), Mohammed Atta (architect), Khalid Shaikh

Mohammed and Ramzi Yousef (engineers), as well as the yet-anonymous crafter of the 2001

anthrax attacks on the United States are just a few stars in the copious rogues’ gallery of

Richard Florida’s “creative class”5 who applied their innovative intellectual ski lls to malignant

ends.

• Long-Term Capital Management, a hedge fund founded In 1994 with two winners of the Nobel

Prize in Economics on its board promised affluent investors that its arcane mathematical models

would provide risk-free, extravagant returns. In 1998, the Federal Reserve had to round up a

bailout of over $3.6 billion, fearing that LTCM’s sudden collapse would spawn a global financial

disaster. Enron Corp., founded on a gusher of, if anything, even more breathless technological

hubris—promising to replace human-managed commodity markets with exotic automated trading

exchanges—blew up in 2001 with even more disruptive economic and legal impacts.

• The Careless Technology, a 1972 collect ion of papers from a symposium on the ecological effects

of international development, concluded that the great majority of projects sponsored by

development organizations over the previous three decades had done more harm than good—a

result of their narrow, technocratic specialization and lack of attendance to broad, ecosystem

impacts.6 Three decades later, Will iam Easterly, with 16 years of experience as a senior

economist at the World Bank, again concluded in two recent books that over a trillion dollars of

technocratically managed aid to ‘third world’ countries had yielded little or no improvement in

3 Improvised Explosive Devices.4 John Robb, “Journal: Iraq’s IED micro-markets,” Global Guerillas, Feb. 14, 2006 (http://globalguerrillas.typepad.com/globalguerrillas/2006/02/journal_more_in.html)5 Richard Florida, The Rise of the Creative Class (New York: Basic Books, 2002).6 M. Taghi Farvar and John P. Milton, eds., The Careless Technology: Ecology and International Development (New York: Doubleday, 1972).



the lot of the poor, often doing more harm than good—again, for lack of attention to how human

ecology actually works.

So there is something more to human-centered innovation than just attending to human factors in

production, ergonomics, or market demographics. Or even engaging the ‘lead users’ Eric Von Hippel

celebrates. Those are all good practices, maybe even necessary, but are not sufficient.

However confounding it may be to innovation planning and metrics, “human-centered” has an implicit

connotation of humaneness—which in turn demands some value standards to filter ‘good’ from ‘bad’

innovation.

Such a requirement does not fit well in the pristine framework of neoclassical economics and the arid

econometric tools contrived to inform it—with their agnostic, rationally utilitarian notion of demand.

Rather, we need to look to political economy and welfare economics to find ways to manage the

human value of innovation.

There we find that managing development according to the value of its impacts and consequences is

neither a new problem nor virgin territory. The techniques for doing so have been refined and

applied for decades in such fields as environmental protection, resource management, and

transportation, workplace, food, and drug safety.

The Trend

Anecdotal indicators suggest imminent decline of the more-of-the-same approach to accelerating

innovation, that is: more inputs of money and people to education and training and to R&D; gauging

progress by the gross volume of expense, activity, and intermediate artifacts (publications, patents,

product announcements, etc.); and a ‘land rush’ mentality to stake out and defend sprawling

haciendas of intellectual property. Among the l imitations to this conventional approach to

“innovation policy” Business Week7 and other publicat ions have noted are:

• China and India will increasingly out-compete the U.S. in sheer volume of educational output,

producing technically skilled workers who can be employed at a fraction of U.S. wages.

• Because R&D, innovation, and venture capital are all mobile, they increasingly are flowing out

toward these lower-cost centers of production.

• Incomes of U.S. college graduates with bachelor degrees actually declined some 8% in the past

three years.

• Even though the U.S. has a prominent lead in medical research, for instance, the pharmaceutical,

biotech, and medical devices industries have added only 19,000 workers in the past five years.

• With foreigners providing some 40% of the science and engineering graduate students in U.S.

universities, expanding subsidies for domestic higher education to some extent simply enhances

foreign competition.

• Since 2001, the health care sector added 1.7 mill ion jobs to the U.S. economy. The rest of the

private sector added none. The information technology sector lost more than 1.1 million jobs.

• Much of the mushrooming U.S. trade deficit may be attributed to borrowing from abroad to pay

for the growing costs of health care.8

7 Michael Mandel, “Can Anyone Steer This Economy?” Business Week (November 20, 2006).8 “What’s Really Propping Up The Economy,” Business Week (September 25, 2006).



Meanwhile, the specific quality of innovation—at the granular microeconomic, community, and even

personal levels—seems increasingly to be becoming the definitive factor of competit ive advantage.

As Fast Company recently reported:

Design, in short, is becoming an ever more important engine of corporate profit: It’s no

longer enough simply to outperform the competit ion; to thrive in a world of ceaseless and

rapid change, businesspeople have to outimagine the competition as well. They must learn

to think—to become—more l ike designers…

Corporate types, by and large, seek to fuel growth by building from bulletproof, reproducible

systems; designers generally attempt to do so by imagining something new, different,

better.9

The Challenge

The primary challenge to promulgating a more human-centered approach to managing and

accounting for innovation then is this:

• Can we encourage innovation that adds net social value? That is, whose benefits clearly

outweigh its costs?

• At the same time, can we deter—or at least not encourage—innovation that serves malicious

ends or that poses grave threats to humanity?

Certainly it is possible to posit various metrics of the social, economic, ecological, ethical, etc. value

of diverse activities aimed at fomenting innovation, and of the potential opportunities and threats

that they pose. Coming up with indicators that are demonstrably valid, reliable, and usable is a more

demanding challenge.

While good attentions alone will not suffice, waiting for—or expecting—a perfect metric solution

would be unrealistic. A practical solution is likely to be what Herbert Simon called a ‘sat isficing’ one:

not the hopelessly elusive ‘best practice’ but a program that is adequately on target and open to

further refinement.

Inevitably the cautionary lessons of Public Choice theory will come into play: in particular, that ‘rent-

seeking’ special interests invest and compete to steer public, political choices to provide parochial

benefits, often at the expense of the general welfare. Indeed, the military-industrial complex whose

distorting influence on public investment President Eisenhower warned about half a century ago has

sprawled into a broader government-industrial complex that often steers innovation subsidies toward

wasteful, anachronistic, or harmful results.

However, the same competitive, globalization trend noted earlier that is driving the imperative for

more human-centered innovation is progressively curtail ing the ability of national governments to

insulate their domestic constituents from the demands of global market forces. The growing power

of personalization and ‘crowdsourcing’—as in the forms of the blogosphere, citizen journalism, open

source systems, or globally networked consumer or civic insurgent cells—already have as much if not

more influence on the trajectory of economic development than the Congress and its lobbyist

courtiers. In this, Von Hippel’s observations of the ‘democratization’ of innovation are certainly

germane.

9 Roger Martin, “Tough Love,” Fast Company (October 2006). Emphasis added.



Towards a Strategy

One way to adapt Innovation’s Vital Signs to emphasize human-centered innovation (and perhaps to

curtail wasteful or destructive innovation) is to start with a management-by-exception approach.

That is, we may start by seeking to identify:

• Glaring barriers to human-centered innovation: policies, programs, and practices that discourage

detailed attendance to human and social requirements.

• Worst practices that drive innovation efforts toward wasteful or destructive outcomes.

• Warning signs that innovation efforts are heading toward unintended, undesirable consequences.

While it is easier to identify worst practices (which are demonstrably morbid or lethal in their effects)

than best practices (which are nearly impossible to identify unambiguously, are ever mutating, and

once codified only assure mediocrity), it may be most feasible to try to identify and track certain

essential features of human-centered innovation.

For instance, following the ZIBA example mentioned earlier: Programs that engage and invest in

ethnographers, anthropologists, and other social and behavioral analysts to study user desires,

expectations, behavior, and needs first, and then channel technical design based on the resulting

insights, would seem at least more l ikely to respond successfully to human requirements than

programs that simply engineer in a vacuum of social disinterest.

So, a positive corollary to management-by-exception may be to identify some of the essential ‘habits’

of highly effective, human-centered innovators, as in the approach taken by Jim Collins in his

research for Built to Last.10

Another instructive lesson from Collins’s work is this: He invested about a half mill ion dollars in the

research on which the book was based. A similar study of the requirements of human-centered

innovation is likely to demand at least a comparable investment of resources.

ISO ‘Good’ Innovation

Even once we agree about the need to value the outcomes of innovation efforts, we need apt terminology for what we are

aiming at. 'Human-centered' served to get our conversation going, but may not be clear enough or get traction. The

most practical terminology may just be the simplest.

Getting back to our original premise, obviously, not all innovation is good or desirable. So the essential objective is to filter

the good from the bad. That is:

• Reasonable people would prefer to invest in good innovation, and to not invest in or to even discourage bad

innovation.

• To do that, one needs standards, criteria, metrics—to discriminate the good from the bad innovations.

• Then, to actually fertilize the good and weed out the bad, one needs to know the “generative factors” in

innovation programs, practices, policies, etc. that cause either the good or bad outcomes.

I suggest then that we should describe the goal of our search as either simply “good innovation” or,

to be a bit more technical-sounding, “constructive innovation” (as opposed to destructive).

10 James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 1997).



What Is ‘Good’ Or ‘Constructive’ Innovation?

Before we get on to metrics, we need to have some defensible, philosophical definition of what we mean by ‘good’ or

‘constructive.’ At the moment, there appear to be three evident possibilities:

• Hippocratic = Do no harm.

This seems to me, literally, an ideal standard, but not a very practicable one for our purposes. Even in medical practice,

where the adherence to the principle is deeply rooted, modern practice continually (increasingly perhaps) requires making

choices between greater or lesser harm in pursuit of doing something good: e.g., using technology to prolong a life

afflicted with unbearable pain and suffering vs. assisted suicide, among numerous other examples.

• Progressive = net social benefit = [(benefits - costs) > 0].

As I noted previously, this is the subject of welfare economics, rich in theory, methodology, and experience. This is less

idealistic than the Hippocratic standard, but easier to accomplish conclusively in theory than in practice. I won't belabor

the reasons here for the distortions of social welfare regulation, but will summarize them with one word: politics.

• Satisficing = pretty good = socially (i.e., politically) acceptable.

Satisficing is Herbert Simon’s term for definitely non-ideal, practical choices between ‘better’ and ‘worse.’ (In this

framework, the ‘perfect’ is proverbially held up as ‘the enemy of the good’--a phrase that is problematical because it often

is, conveniently, misapplied to choices that really are not between perfect and good but between good and bad.)

That said, I suggest that the Progressive standard should define our practical goal—because that is how satisficing

solutions work in practice. I’m simply noticing a standard axiom of negotiating strategy: Ask for the moon and settle for a

meteorite.

Metrics

The substance of our proposed investigation then is, first, identify and evaluate metrics (‘vital signs’) that discriminate

good/bad or constructive/destructive innovations. I'm about to offer an initial list of possible candidates but must note

that, to bring the study to a valid conclusion, we need to take a double-barreled approach to distill such a list.

That is, we need to begin by considering candidate indicators—assuming that whatever information each requires actually

is available. It should be evident that there are facts about the outcomes of innovation that, if we knew them, would help

us discriminate between good and bad, but that we cannot get in practice—either because the data have not been

assembled yet, or because they are proprietary or classified or too costly or otherwise not immediately accessible.

Nevertheless, since we would hope that further research may eventually stimulate the collection of the needed data, or

open up its use for our purpose, we should not exclude potentially valuable indicators at the outset.

The second barrel then will be to assess and note which of the indicators we prefer are immediately available, which can

and should be made available in the future, and which may not be practicable for the time being.

That said, here are several possible indicators of good or bad innovation for initial consideration, in no particular order:

• Market penetration (+)—more and faster is an indication of social value.

• J.D. Power rating = customer satisfaction (+).

• Recalls (-).

• Endurance—the proposition being that really great, socially valuable innovations tend to endure in the market

for a long time because they are both essential and hard to beat (the wheel, the paper clip, Kleenex, the DC-3).

Note that I'm talking about persistence-in-use here, not individual product durability. (+)



• Generations—a corollary to Endurance, but a bit different, is number of generations or versions, an indicator of

the capacity for continual improvement to satisfy evolving demand. (+)

• Adaptations—another corollary is adaptation to different uses/applications than what the innovation was

originally intended for; more being an indicator of greater social value. (If Generations are vertical, Adaptations

are horizontal.) (+)

• Liability claims (-).

• Regulatory sanctions (-). One of these or the latter (liability) may be an anomaly; a slew of them is probably an

indicator of something really bad.

• Cost of development—other things equal, a good innovation that costs less to create is better than one that

costs more. (Even if other things are not entirely equal, it still might be better.) (+)

• Profitability—again, other things equal, a good innovation that is more profitable is better than one that is less

so. Not just because it makes investors/vendors happier but because it provides the fuel for further

(good) innovation.

• Abuse/misuse—pseudofed may be a boon for sinus sufferers, but its utility as a feedstock for illicit

methamphetamine labs is a bad thing. This is the dark side of the Adaptation force. (-)

• Appropriateness—viz. E.F. Schumacher et al. (+)

• Resource efficiency (+).

Finally, for now, we can throw in these catch-alls:

• Collateral damage (-).

• Collateral benefits (+).

This list is certainly incomplete but may be adequate for now to illustrate the types of indicators we would assess and

refine. And we don't need to get far into the second barrel to note at a glance that some of these data are evidently

easier to get than others, and some are more concrete than others that are more ambiguous and challenging to measure.

Generative Factors

As I mentioned, to study and analyze the generative factors that enable some innovation

programs/organizations/communities to produce 'good' innovations, while others spawn more or less ugly babies, I have

begun to look into the research methodology used by Collins and Porras to produce their hugely bestselling and immensely

profitable books, Built to Last and Good to Great. Broadly, they adapted the classic human psychology technique of

studying twins separated at birth.

While that seems to have worked well for them to distinguish the generative factors that distinguish great from mediocre

companies, it’s not immediately clear how well that might work to differentiate those factors between good/great

innovations and mediocre/bad innovations. However, given the success the technique has produced in their widely prized

work, it a research approach worth considering.

There are at least some aspects of their approach that make sense to emulate. First, once we have devised a list of

innovation value indicators, per above, we could copy their decision to focus on subjects that had been around long

enough to go through a full life cycle of development. Then, just as they surveyed a variety of companies across a

spectrum of different industries, we could apply our value vector to a wide variety of types of innovations in diverse

markets.



At first blush, it might well be possible to come up with paired twins of innovations ‘separated at birth,’ as they did with

companies, to compare the differentiating factors in the evolutionary paths of the ‘good’ and ‘bad’ twin respectively. If so,

it could be quite interesting to try.

Still, we must recognize that innovations are different from companies—the latter are discrete entities while innovations

are ideas that may be born and developed in several places/organizations at the same time, or at least concurrently.

Intellectual property law, of course, does tie particular innovations to particular persons/companies for some time. But not

all good/great innovations historically have been protected that way, and many at least have graduated at some point to

the public domain. (It’s not clear whether that is necessary to the criterion of a ‘full life cycle,’ since IP law lately has been

stretched in some instances to preserve protection seemingly in perpetuity.)

So, in any case, whatever may come from the twin pairs analysis, we probably also should take a broad list of notable

innovations, sort them into ‘good’ and ‘bad’ with our value vector, and then do at least a qualitative comparison,

attempting to identify one or more hypothetical patterns that differ between the good and bad. To do the latter, we might

choose some candidate innovations from each pile for which the history of their creation and development is well

documented. At the very least we would produce a valuable collection of case studies. (That might follow the path taken

by Peters and Waterman with In Search of Excellence, some 25 yrs ago.)

Beyond that, there likely are some more rigorous techniques that could differentiate some the generative factors in those

histories.

Dr. Lewis Perelman has over two decades of experience as an analyst, author, and consultant to private, public, and

nonprofit organizations. He has held senior staff positions at the Jet Propulsion Laboratory, the Hudson Institute, and the

Homeland Security Institute, and for several years has been Senior Advisor with Delmarva Strategies LLC. He lives and

works in the Washington, DC area. Contact: [email protected].

© 2007, Lewis J. Perelman

A NEW GENERATION OFAMERICAN INNOVATION

A P R I L 2 0 0 4

Executive Summary America’s economy leads the world because our system of private enterprise rewards innovation. Entrepreneurs, scientists, and skilled workers create and apply the technologies that are changing our world. President Bush believes that government must work to help create a new generation of American innovation and an atmosphere where innovation thrives. On April 26, 2004, President Bush announced a series of specific measures to inspire a new generation of American innovation – policies to encourage clean and reliable energy, assure better delivery of health care, and expand access to high-speed Internet in every part of America. By giving our workers the best technology and the best training, we will make sure that the American economy remains the most flexible, advanced, and productive in the world. 1) Providing a Cleaner and More Secure Energy Future through Hydrogen Fuel Technology: The President announced that the Department of Energy has selected partners through a competitive process to fund new hydrogen research projects totaling $350 million ($575 million with private cost share) to overcome obstacles to a hydrogen economy. This represents nearly one-third of the President’s $1.2 billion commitment in research funding to bring hydrogen and fuel cell technology from the laboratory to the showroom. The projects will include 28 awards to academia, industry, and national laboratories. The new hydrogen projects address four key areas:

o Creating effective hydrogen storage: Current hydrogen storage systems are inadequate for use in the wide range of vehicles that consumers demand. Exploratory research and development is needed to overcome the grand challenge for hydrogen storage.

o Conducting hydrogen vehicle and infrastructure “learning demonstrations”: To complement laboratory research, automakers and energy companies need to work together to develop integrated technology solutions for a national infrastructure. These demonstrations will provide important performance, cost, and durability data on fuel cell vehicle and hydrogen refueling infrastructure. This new data will allow us to refocus research priorities as progress is made.

o Developing affordable and durable hydrogen fuel cells: Currently, fuel cells are as much as ten times more expensive than internal combustion engines. New cost-shared projects will be formed with five businesses to develop fuel cells for consumer electronic devices, and auxiliary power and off-road applications.

o Developing a Hydrogen Education Campaign: A new effort will aim to build the next generation workforce, engage students in science and technology, and overcome the public education and acceptance barriers to achieving the hydrogen economy.

2) Transforming Health Care through Health Information Technology: President Bush believes that innovations in electronic medical records and the secure exchange of medical information will help transform health care in America - improving health care quality, reducing health care costs, preventing medical errors, improving administrative efficiencies, reducing paperwork, and increasing access to affordable health care. The President has set an ambitious goal of assuring that most Americans have electronic health records within the next 10 years. To achieve his 10-year goal, the President is taking the following steps to urge coordinated public and private sector efforts that will accelerate broader adoption of health information technologies:

o Adopting Health Information Standards. The President called for the completion and adoption of standards, collaboratively developed with the private sector, that will allow medical information to be stored and shared electronically while assuring privacy and security.

o Doubling Funding to $100 Million for Demonstration Projects on Health Information Technology. To build upon the progress we have already made in the area of health care standardization, the President’s

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proposed FY 2005 budget includes $100 million for demonstration projects by hospitals and health care providers that will help us test the effectiveness of health information technology and establish best practices for more widespread adoption in the health care industry.

o Fostering the Adoption of Health Information Technology. As one of the largest buyers of health care, the Federal Government can create incentives and opportunities for health care providers to use electronic records.

o Creating a New, Sub-Cabinet Level Position of National Health Information Technology Coordinator. The President will charge the National Coordinator with working with government, industry, and experts in the field to help fulfill his vision of a health care system that is patient-centered and that gives patients information they need to make clinical and economic decisions – in consultation with dedicated health care professionals.

3) Promoting Innovation and Economic Security through Broadband Technology: The President has called for universal, affordable access for broadband technology by the year 2007 and wants to make sure we give Americans plenty of technology choices when it comes to purchasing broadband. Broadband technology will enhance our Nation's economic competitiveness and will help improve education and health care for all Americans. Broadband provides Americans with high-speed Internet access connections that improve the Nation’s economic productivity and offer life-enhancing applications, such as distance learning, remote medical diagnostics, and the ability to work from home more effectively. The Bush Administration has implemented a wide range of policy directives to create economic incentives, remove regulatory barriers, and promote new technologies to help make broadband affordable. The President believes that lowering the cost of broadband will increase its use and availability.

o Making broadband access tax-free will lower the cost to consumers. The President is calling on Congress to pass legislation making access to broadband permanently tax-free.

o Working to enable the rollout of new broadband technologies. The Administration is acting aggressively to make additional spectrum available for wireless broadband and to create the technical standards needed to enable the widespread and responsible deployment of broadband over power lines.

o The Federal Government must do its part to remove hurdles that slow the deployment of broadband. Broadband providers often have to cross or use Federal lands to reach consumers. To ensure that broadband providers can get timely responses from the Federal Government, the President has directed agencies to reform their practices to simplify and standardize their rights-of-way processes.

These initiatives outlined above complement the Bush Administration’s other efforts to promote innovation and technology in America. President Bush has a proven track record of supporting America’s innovation economy, including:

o Helping Community Colleges Train 100,000 Additional Workers: The President’s Jobs for the 21st Century Initiative, announced in the State of the Union Address, includes a $250 million proposal to help America’s community colleges train 100,000 additional workers for the industries that are creating the most new jobs.

o Doubling the Number of Workers Receiving Federal Job Training Assistance: The President has proposed to give governors more flexibility to get Federal training funds into the hands of workers in the form of Innovation Training Accounts (ITAs). These accounts give workers access to a range of training options that will help them compete for high-skill, high-demand jobs.

o Increasing Federal R&D Funding: With President Bush’s FY 2005 budget proposal, total Federal R&D investment during the first term will be increased 44 percent, to a record $132 billion in FY 2005, compared to $91 billion in FY 2001. Federal R&D spending in the FY 2005 budget represents the greatest share of GDP in over ten years.

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o Supporting Nanotechnology Research: Since 2001, funding for nanotechnology R&D has more than doubled to $1 billion and funding for information technology R&D is up to $2 billion.

o Ensuring Better Health Care for All Americans: President Bush fulfilled a commitment by completing the historic doubling of the National Institutes of Health (NIH) budget by 2003, dramatically increasing medical research funded by NIH to speed cures and treatments for the diseases that plague our Nation and the world. The President’s FY 2005 budget provides $28.6 billion for NIH, a $729 million increase, which will allow NIH to support a record total of nearly 40,000 research project grants.

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Hydrogen Fuel Technology: a Cleaner and More Secure Energy Future “With a new national commitment, our scientists and engineers will overcome obstacles to taking these (hydrogen fuel cell) cars from laboratory to showroom, so that the first car driven by a child born today could be powered by hydrogen, and pollution-free.”

-- President George W. Bush, State of the Union Address, January 28, 2003

For too long, environmental policy in America has been dominated by a sterile debate between those who believe that pollution is the price of progress, and those who believe that we must limit and scale back our progress. The President believes that progress, innovation, and technology can help America leapfrog beyond these false choices – and meet the energy needs of a growing economy in environmentally responsible ways.

On April 26, 2004, President Bush announced that the Department of Energy (DOE) has selected partners

through a competitive process to fund new hydrogen research projects totaling $350 million ($575 million when private sector cost-sharing is included) to overcome obstacles to the development of hydrogen fuel technology. This represents nearly one-third of the President’s $1.2 billion commitment in research funding to bring hydrogen and fuel cell technology from the laboratory to the showroom. The projects will include 28 awards to academia, industry, and national laboratories. The new hydrogen projects address four key areas:

o Creating effective hydrogen storage: Current hydrogen storage systems are inadequate for use in the

wide range of vehicles that consumers demand. Exploratory research and development is needed to overcome the grand challenge for hydrogen storage: to store the amount of hydrogen required for a conventional driving range (more than 300 miles), within the vehicular constraints of weight, volume, efficiency, safety, and cost. The Department of Energy is working to develop three primary options (chemical hydrides, metal hydrides, and carbon materials) in addition to 15 individual projects to explore new materials for hydrogen storage. Over 45 organizations will be involved, including DOE national laboratories, universities, research institutes, and industry.

o Conducting limited hydrogen vehicle and infrastructure “learning demonstrations”: To complement

laboratory research, automakers and energy companies need to work together to develop integrated technology solutions for a national infrastructure. Eight automakers and six energy companies (under five major awards) will work together with their teams under this project to demonstrate integrated and complete system solutions operating in real world environments. Government and industry are providing matching funds. Teams also include utilities, universities, and small businesses. These demonstrations will provide important data on fuel cell vehicle and hydrogen-refueling infrastructure performance, cost, and durability and allow refocusing of research priorities as progress is made. These demonstrations are critical so that all stakeholders (including Congress) can track progress towards a commercialization decision in 2015.

o Developing affordable and durable hydrogen fuel cells: Currently, fuel cells and associated systems are

as much as ten times more expensive than internal combustion engines. New cost-shared projects will be formed with five businesses to develop fuel cells for consumer electronic devices, and auxiliary power and off-road applications.

o Developing a hydrogen education campaign: In direct response to the National Energy Policy, a hydrogen

education effort will aim to build the next generation workforce, engage students in science and technology, and overcome the public education and acceptance barriers to achieving the hydrogen economy. Middle school and high school curricula and teacher training will be developed. These projects will complement current education efforts for public and safety officials at all levels.

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Background – President Bush’s Hydrogen Fuel Initiative

In his 2003 State of the Union address, the President committed $1.2 billion over five years to accelerate research and development of hydrogen fuel cell and infrastructure technologies, including $720 million in new funding. The Hydrogen Fuel Initiative aims to help reverse America’s growing dependence on foreign oil by developing the technology for commercially viable hydrogen-powered fuel cells that power cars, trucks, homes, and businesses that emit no pollution or greenhouse gases.

Through partnerships with the private sector, the Hydrogen Fuel Initiative will make it practical and cost-

effective for large numbers of Americans to choose to use clean, hydrogen fuel cell vehicles by 2020 – so the first car driven by a child born today could be powered by fuel cells. This will dramatically improve America’s energy security by significantly reducing the need for imported oil, and help clean our air and reduce greenhouse gas emissions. The President's proposal has received broad, bipartisan support in Congress.

The Hydrogen Fuel Initiative complements the President's existing FreedomCAR partnership, which is

developing technologies needed for mass production of safe and affordable hydrogen-powered fuel cell vehicles, along with other advanced vehicle technologies. In total, President Bush has proposed $1.7 billion over five years for the Hydrogen Fuel and FreedomCAR initiatives.

Budget

The President’s FY 2005 budget proposes $228 million for the Hydrogen Fuel Initiative, a $69 million increase (43%) over the FY 2004 budget.

o The FY 05 request includes $29 million for basic science within the DOE’s Office of Science and $18 million

for safety, codes, and standards activities – consistent with the program’s needs and the recently released peer review report by the National Research Council.

o The FY 05 budget request also includes an increasing emphasis on exploratory research for hydrogen production, storage, and fuel cell technologies and continued technology validation.

o A mix of diverse energy feedstocks to produce hydrogen is needed to gradually make the transition to a secure, affordable, and environmentally safe hydrogen energy system; these include renewables, nuclear, and natural gas and coal with carbon management strategies.

Fuel Cell Technology

Fuel cells are a proven technology: America's astronauts have used fuel cells to generate electricity since the 1960s, but more work is needed to make them cost-effective for use in cars, trucks, homes, or businesses. Additional research and development is needed to spur rapid commercialization of these technologies so they can provide clean, domestically produced energy for transportation and other uses.

The President's initiatives seek to help the private sector overcome key technical and cost barriers for

fuel cells:

o Lowering the cost of hydrogen: Hydrogen is four times as expensive to produce as gasoline (when produced from its most affordable source, natural gas). The hydrogen fuel initiative seeks to lower that cost enough to make fuel cell cars cost-competitive with conventional gasoline-powered vehicles by 2015; and to advance the methods of producing hydrogen from renewable resources, nuclear energy, and even coal.

o Creating effective hydrogen storage: Current hydrogen storage systems are inadequate for use in the wide range of vehicles that consumers demand. New technology is needed.

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o Creating affordable hydrogen fuel cells: Fuel cell-based propulsion is now as much as ten times more expensive than internal combustion engines. The FreedomCAR initiative is working to reduce that cost to affordable levels.

America's dependence on foreign oil is increasing:

o America imports more than 55 percent of the oil it consumes; that is expected to grow to 70 percent by 2025. o Nearly all of our cars and trucks run on gasoline, and they are the main reason America imports so much oil.

Two-thirds of the 20 million barrels of oil Americans use each day is used for transportation. Fuel cell vehicles offer the best hope of dramatically reducing our dependence on foreign oil.

Hydrogen fuel will help reduce America's dependence on energy imports:

o Through the Hydrogen Fuel and FreedomCAR initiatives, the Federal Government, automakers and energy

companies will work together to overcome the technological and financial barriers to the successful development of commercially viable, emissions-free fuel cell vehicles that require no foreign oil.

o Hydrogen is domestically available in abundant quantities as a component of natural gas, coal, biomass, and even water.

o The Department of Energy estimates that the Hydrogen Fuel and FreedomCAR initiatives may help reduce our demand for petroleum by over 11 million barrels per day by 2040 – approximately the amount of oil America imports today.

Fuel cells will improve air quality and dramatically reduce greenhouse gas emissions:

o Vehicles are a significant source of air pollution in America. Hydrogen fuel cells create electricity to power cars without any tailpipe pollution.

o The hydrogen fuel and FreedomCAR initiatives may reduce America's greenhouse gas emissions from transportation alone by more than 500 million metric tons of carbon equivalent each year by 2040. Additional emissions reductions could be achieved by using fuel cells in applications such as generating electricity for residential or commercial uses.

Hydrogen is the key to a cleaner energy future:

o It has the highest energy content per unit of weight of any known fuel. o When burned in an engine, hydrogen can produce effectively zero emissions; when powering a fuel cell, its

only waste is water. o Hydrogen can be produced from abundant domestic resources including natural gas, coal, biomass, and

even water. o Combined with other technologies such as carbon capture and storage, renewable energy, and fusion

energy, fuel cells could help make an emissions-free energy future possible.

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Transforming Health Care: The President’s Health Information Technology Plan “By computerizing health records, we can avoid dangerous medical mistakes, reduce costs, and improve care.”

--President George W. Bush, State of the Union Address, January 20, 2004

President Bush has outlined a plan to ensure that most Americans have electronic health records within the next 10 years. The President believes that better health information technology is essential to his vision of a health care system that puts the needs and the values of the patient first and gives patients information they need to make clinical and economic decisions – in consultation with dedicated health care professionals.

The President’s Health Information Technology Plan will address longstanding problems of preventable

errors, uneven quality, and rising costs in the Nation’s health care system. The Problem: Challenges to the U.S. Health Care System

The U.S. health care system has a long and distinguished history of innovation. Discoveries move from the laboratory bench to the bedside, as basic research results are translated into new understanding of diseases, better diagnostic tools, and innovative treatments.

At the same time, our health care system faces major challenges. Health care spending and health insurance

premiums continue to rise at rates much higher than the rate of inflation. Despite spending over $1.6 trillion on health care as a Nation, there are still serious concerns about preventable errors, uneven health care quality, and poor communication among doctors, hospitals, and many other health care providers involved in the care of any one person.

o The Institute of Medicine estimates that between 44,000 and 98,000 Americans die each year from medical

errors. Many more die or have permanent disability because of inappropriate treatments, mistreatments, or missed treatments in ambulatory settings. Studies have found that as much as $300 billion is spent each year on health care that does not improve patient outcomes – treatment that is unnecessary, inappropriate, inefficient, or ineffective.

All these problems – high costs, uncertain value, medical errors, variable quality, administrative inefficiencies,

and poor coordination – are closely connected to our failure to use health information technology as an integral part of medical care. The innovation that has made our medical care the world’s best has not been applied to our health information systems. Other American industries have harnessed advanced information technologies, to the benefit of American consumers. Our air travel is safer than ever, and consumers now have ready and safe access to their financial information. Unlike these other industries, medicine still operates primarily with paper-based records. Our doctors and nurses have to manage 21st century medical technology and complex medical information with 19th century tools. America’s medical professionals are the best and brightest in the world, and set the standard for the world. It is a testament to their skill that they are able to achieve high-quality care in this antiquated system. In this outdated, paper-based system:

A patient's vital medical information is scattered across medical records kept by many different caregivers in many different locations – and all of the patient’s medical information is often unavailable at the time of care. For example, patients with medical emergencies too often are seen by doctors with no access to their critical medical information, such as allergies, current treatments or medications, and prior diagnoses.

o

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Physicians keep information about drugs, drug interactions, managed care formularies, clinical guidelines, and recent research in memory – a difficult task given the high volume of information.

o

o

o

o

Medical orders and prescriptions are handwritten and are too often misunderstood or not followed in accordance with the physician’s instructions. Consumers lack access to useful, credible health information about treatment alternatives, which hospitals and physicians are best for their needs, or their own health status. Physicians do not always have the best information to select the best treatments for their patients, resulting in an unacceptable lag time before new scientific advances are used in patient care. They also do not have ready access to complete information about their patients, do not know how other doctors are treating their same patients, or how other health care providers around the country treat patients with the same condition. These conditions set the stage for preventable medical errors.

The Solution – Health Information Technology

Today, the President announced an ambitious goal of assuring that most Americans have electronic health records within the next 10 years.

o Within the next 10 years, electronic health records will ensure that complete health care information is

available for most Americans at the time and place of care, no matter where it originates. Participation by patients will be voluntary.

o These electronic health records will be designed to share information privately and securely among and between health care providers when authorized by the patient.

President Bush believes that innovations in electronic health records and the secure exchange of medical information will help transform health care in America - improving health care quality, preventing medical errors, reducing health care costs, improving administrative efficiencies, reducing paperwork, and increasing access to affordable health care.

The steps we need to take across the Nation are already underway in some places. Health information technologies – electronic medical records, computerized ordering of prescriptions and other medical tests, clinical decision support tools, and secure exchange of authorized information – improve quality, reduce medical errors, and prevent deaths. In the past three years, some communities, hospitals, clinicians, patient groups, and information technology companies have acted to improve their health information systems. These pioneering communities are taking the initiative and showing that health care can and must be modernized.

The President envisions a dramatically changed system:

When arriving at a physician’s office, new patients do not have to enter their personal information, allergies, medications, or medical history, since it is already available. A parent, who previously had to carry the child’s medical records and x-rays in a large box when seeing a new physician, can now keep the most important medical history on a keychain, or simply authorize the new physician to retrieve the information electronically from previous health care providers. Arriving at an emergency room, a senior with a chronic illness and memory difficulties authorizes her physicians to access her medical information from a recent hospitalization at another hospital - thus avoiding a potentially fatal drug interaction between the planned treatment and the patient’s current medications. Three patients with unusual sudden-onset fever and cough that would not individually be reported, show up at separate emergency rooms, and the trend is instantly reported to public health officials, who alert authorities of a possible disease outbreak or bioterror attack.

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The President’s Health Information Technology Plan

To achieve his 10-year goal, the President is taking the following steps to urge coordinated public and private sector efforts that will accelerate broader adoption of health information technology:

o Adopting Health Information Standards. The President called for the completion and adoption of

standards that will allow medical information to be stored and shared electronically while assuring privacy and security. The necessary work is already well underway and much of it has already been completed. In the last several years, the Department of Health and Human Services (HHS) has been collaborating with the private sector and other Federal agencies to identify and endorse voluntary standards that are necessary for health information to be shared safely and securely among health care providers. Federal agencies are accelerating their use of these standards. As part of this effort, HHS has recently negotiated and licensed a comprehensive medical vocabulary and made it available to everyone in the Nation at no cost. The results of these projects include standards for: Transmitting X-Rays Over the Internet: Today, a patient’s chest x-ray can be sent electronically from a

hospital or laboratory and read by the patient’s doctor in his office. Electronic Laboratory Results: Laboratory results can be sent electronically to the physician for

immediate analysis, diagnosis and treatment, and could be automatically entered into the patient’s electronic health record if one existed. For example, a doctor could retrieve this information for a hospitalized patient from his office, assuring a prompt response and eliminating errors and duplicative testing due to lost laboratory reports.

Electronic Prescriptions: Patients will save time because prescriptions can be sent electronically to their pharmacists. By eliminating illegible handwritten prescriptions, and because the technology automatically checks for possible allergies and harmful drug interactions with other drugs, standardized electronic prescriptions help to avoid serious medical errors. The technology also can generate automatic approval from a health insurer.

o Doubling Funding to $100 Million for Demonstration Projects on Health Care Information Technology.

To build upon the progress already made in the area of health information technology standards over the last several years, the President’s proposed FY 2005 budget includes $100 million for demonstration projects that will help us test the effectiveness of health information technology and establish best practices for more widespread adoption in the health care industry. This increase builds on the President’s FY 2004 budget which included $50 million, and these new

resources will support more local and regional grants so that pioneering communities, physicians, and hospitals can show that health care can be transformed by adopting and implementing health information technology.

In April 2004, more than 600 applications for funding were received for these grants, and HHS will be awarding grants this summer, following their peer-reviewed process for selecting grantees.

o Using the Federal Government to Foster the Adoption of Health Information Technology. As one of

the largest buyers of health care – in Medicare, Medicaid, the Community Health Centers program, the Federal Health Benefits program, Veterans medical care, and programs in the Department of Defense – the Federal Government can create incentives and opportunities for health care providers to use electronic records, much like the private sector is doing today. The President will direct these agencies to review their

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policies and programs and propose modifications and new actions, and to forward the recommendations to him within 90 days.

o Creating a New, Sub-Cabinet Level Position of National Health Information Technology Coordinator.

The President announced that he is creating a new sub-Cabinet level post at HHS, to provide national leadership and coordination necessary to achieve his 10-year goal. The individual will report directly to the HHS Secretary, and will be charged by the President with:

Guiding ongoing work on health information standards and working to identify and implement the various

steps needed to support and encourage health information technology in the public and private health care delivery systems.

Coordinating partnerships between government agencies and private sector stakeholders to speed the adoption of health information technology.

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Promoting Innovation and Economic Security Through Broadband Technology “This country needs a national goal for…the spread of broadband technology. We ought to have…universal, affordable access for broadband technology by the year 2007, and then we ought to make sure as soon as possible thereafter, consumers have got plenty of choices when it comes to [their] broadband carrier.”

--- President George W. Bush, March 26, 2004

Broadband provides Americans with high-speed Internet access connections that improve the Nation’s economic productivity and offer life-enhancing applications, such as distance learning, remote medical diagnostics, and the ability to work from home more effectively.

Consistent with this vision, the Administration has a record of comprehensive and demonstrably

effective broadband initiatives that are creating an economic and regulatory climate in which broadband can flourish. Developing the most competitive broadband market in the world will provide American consumers with the most affordable and highest quality broadband service in the world.

Broadband technology will enhance our Nation’s economic competitiveness and will help improve

education and health care for all Americans. The Bush Administration has implemented a wide range of policy directives to create economic incentives, remove regulatory barriers, and promote new technologies, all of which are essential to making broadband competitively available and affordable.

Creating Economic Incentives

In an effort to spur investment, the President signed into law a jobs and growth package that allowed companies to depreciate capital expenditures more quickly, including capital equipment used for broadband deployment. Companies are more likely to make important investments in broadband technology if they can depreciate the capital costs associated with broadband rollout more quickly.

President Bush is committed to making broadband affordable. The President has signed into law a two-

year extension of the Internet Access Tax moratorium and has called on Congress to pass legislation that would explicitly extend the moratorium to broadband and make the moratorium permanent. Taxing broadband access would increase the cost of broadband for consumers.

Removing Regulatory Barriers

The Administration supports the Federal Communications Commission’s (FCC) decision to free new fiber-to-the-home investments from legacy regulations. Deregulating new ultra-fast broadband infrastructure to the home removes a significant barrier to new capital investments.

On April 26, 2004, the President signed an Executive Memorandum that implements Federal rights-of-way

reforms to streamline the process for broadband providers to get access to Federal lands to build high-speed infrastructure. The reforms will help to minimize burdens on industry by simplifying and standardizing the rights-of-way process across all relevant agencies, while allowing agencies to use their resources wisely.

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Promoting Innovation

The Administration has made unprecedented strides in balancing the commercial spectrum needs of critical government agencies (including Department of Defense, Department of Transportation, and Department of Homeland Security) and commercial interests. The Administration has identified 90 MHz of spectrum to be auctioned for next generation wireless services.

o Currently only one wireless carrier is offering wireless broadband. Once the 90 MHz is auctioned, multiple

wireless carriers will have the opportunity to become broadband carriers – stimulating vigorous competition and bringing lower prices and improved services to consumers.

o The Administration has nearly doubled the amount of spectrum available for innovative wireless broadband applications such as Wi-Fi and Wi-Max. These technologies can provide a range of new services from granting consumers broadband access in restaurants, airports and other public places, to providing an economically viable solution for providing broadband services in rural areas.

o To ensure these technologies continue to develop, the Department of Commerce’s National Institute of Standards and Technology is chairing the Wi-Max standard setting body.

o To build on this record of success, the President has launched an initiative to create a Spectrum Policy for the 21st Century. The Department of Commerce is scheduled to deliver a report to the President this summer on how to improve spectrum management.

The Administration is working to enable the rollout of broadband technology. The Department of

Commerce is developing the technical specifications necessary to enable the widespread and responsible deployment of broadband over powerlines (BPL). Having conducted 10 million measurements of BPL systems, the Department of Commerce will be able to chart the clear technical path forward for BPL to coexist with other critical uses of spectrum. Once deployed, BPL has the potential to turn every electrical outlet into a broadband pipeline.

The President supports investment in research and development and has proposed the largest Federal

R&D budget in history, $132 billion in Fiscal Year 2005. Federal research and development help lay the foundation for advances in broadband technologies. In FY 2005, the National Information Technology Research and Development (NITRD) program is budgeted for $2.0 billion and includes research directly related to broadband technology. The President proposed making permanent the Research and Experimentation Tax Credit, which promotes private sector investment in new technologies such as broadband.

Important Facts about Broadband:

Broadband is high-speed Internet access. Broadband in the United States is “always-on,” allowing a computer to remain connected to the Internet 24

hours a day. Distance learning, remote medical procedures, interactive web teleconferencing, and real-time video and

audio all require Internet speeds beyond what traditional dial-up service can offer. Broadband has grown from just over 7 million subscriber lines in December 2000 to almost 24 million in June

2003, a 230 percent increase. Consumers are adopting broadband faster than they have adopted other technologies such as color

televisions, wireless phones, VCRs, and personal computers. Approximately 90 percent of all U.S. zip codes have access to at least one form of wireline broadband

connection (cable modem or DSL), up from just over 70 percent at the end of 2000. 75 percent of zip codes in the United States have access to broadband through both cable modem and DSL.

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Better Education for Better Jobs

America’s growing economy is a changing economy, and we must respond to these changes by helping more Americans gain the skills to find good jobs in our 21st Century economy.

President Bush has announced a plan to better prepare students for success in higher education and the

job market – including $33 million for expanded Pell Grants for low-income students who complete rigorous coursework in high school and scholarships for low-income students who pursue degrees in math and science.

The President’s plan will improve the quality of education at our Nation’s high schools – including $100

million to help striving readers and $120 million to improve math education. The President’s plan also strengthens and modernizes vocational and technical education, expands math and science education for all students, encourages students to take a rigorous high school curriculum, and enables educators to determine whether high schools are graduating students with the skills they need to succeed.

No Child Left Behind

To help the youngest Americans receive a quality education and learn the basic skills they will need to succeed in the future, President Bush proposed and signed into law the No Child Left Behind Act. All skills begin with the basics of reading and math, which should be learned in the early grades. Yet for too long, for too many children, those skills were never mastered. With the bipartisan No Child Left Behind Act, we are making progress toward educational excellence for every child. o Requiring states to set clear standards for what every child should learn – and taking steps to help each child

learn. o Holding schools accountable for student progress by regularly testing in the fundamental subjects of reading

and math. o Reporting results to parents and ensuring they have better options when schools are not performing. o Providing more funding – a 49% increase in Federal support for elementary and secondary education since

2001.

The Next Steps in Helping Young Americans Get the Skills They Need to Succeed in the 21st Century

The No Child Left Behind Act is providing accountability and resources to improve the achievement of America’s elementary and secondary students. These reforms are already beginning to show results in elementary reading and math scores, but President Bush also wants to ensure that all high school students will be better prepared to pursue higher education or enter the workforce. Unfortunately, recent results from the National Assessment of Educational Progress (NAEP) demonstrate that, while achievement for our Nation’s 4th and 8th graders is on the rise, scores for twelfth graders have declined in both reading and mathematics.

o Only 24 states require at least three years of math, and only 21 states require at least three years of science. o Because their math and science education is lacking, young Americans stand to miss out on job

opportunities, will lack the necessary skills for post-secondary study, or will not complete post-secondary study in a timely manner.

o Students who fall behind in reading have a greater chance of dropping out of high school altogether. Nationally, of one-hundred ninth-graders, only 67 will graduate from high school on time, only 38 will directly enter college, only 26 are still enrolled their sophomore year, and only 18 will end up graduating from college.

o U.S. 12th graders performed among the lowest of the 21 countries assessed in both math and science on the Third International Mathematics and Science Study.

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The President’s Solution High School

Striving Readers: The Administration is proposing a new $100 million Striving Readers Initiative that would make competitive grants to develop, implement, and evaluate effective reading interventions for middle or high school students reading significantly below grade level. This program would complement the Reading First State Grants program, which provides comprehensive reading instruction for children in kindergarten through third grade that is grounded in scientifically-based reading research. The proposal would provide funds to approximately 50 to 100 school districts for reading intervention programs to help middle and high school students catch up to their peers in reading.

Math: The Administration is proposing a $120 million increase for the Mathematics and Science Partnership

program authorized in the No Child Left Behind Act. The increase would support direct Federal competitive grants to partnerships to increase achievement in mathematics for secondary students. The new 3-year competitive grants would support projects that have significant potential to accelerate the mathematics achievement of all secondary students, but especially low-achieving students. The initiative would focus on ensuring that States and school districts implement professional development projects for mathematics teachers that are strongly grounded in research and that help mathematics teachers strengthen their skills.

Advanced Placement: Advanced Placement programs not only encourage the growth of Advanced Placement

(AP) and International Baccalaureate (IB) courses, but also serve as a mechanism for upgrading the entire high school curriculum for all students. The Administration is proposing a $28 million increase for the Advanced Placement program authorized in the No Child Left Behind Act bringing spending on it to nearly $52 million a year. The increase in funds will ensure that teachers in low-income schools are well-trained to teach AP and IB courses.

Adjunct Teacher Corps: Many school districts need opportunities and the personnel to strengthen instruction in

middle and high schools in the core academic subjects, especially mathematics and science. The Adjunct Teacher Corps would help alleviate this critical situation by bringing professionals with subject-matter knowledge and experience into the classroom. The Administration is proposing a new $40 million initiative to provide competitive grants to partnerships of school districts and public or private institutions to create opportunities for professionals to teach middle and high school courses in the core academic subjects, particularly in mathematics and science.

State Scholars: The Administration proposes $12 million in funding for the State Scholars program to make

grants available nationwide. In August 2002, President Bush announced the State Scholars Initiative, modeled on the successful Texas Scholars program, to encourage high school students to take more rigorous high school courses. Under the State Scholars Initiative, 12 States have already received assistance in developing and promoting strong courses of study, as well as providing special incentives for students enrolled in these programs.

Strengthening and Modernizing Support for Vocational Education: The major federal program for

vocational education, the Perkins Vocational Education program, has remained fundamentally unchanged since its founding in 1917; President Bush proposes to modernize this pre-World War I program to better serve the needs of the 21st century worker. The President’s proposal redirects $1 billion in annual funding from the Perkins Vocational Education program into a new Secondary and Technical Education program (Sec Tech) and requires

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that schools participating in the program offer 4 years of English, 3 years of math and science, and 3½ years of social studies as part of their vocational education curriculum.

Assessing Whether High Schools Are Producing Educated Graduates: To ensure that students graduating

from high school have the skills they need to succeed in post-secondary education or careers, the President’s plan would include 12th graders in the National Assessment of Educational Progress (NAEP). Currently, states are required to participate in the NAEP in 4th and 8th grades in reading and math every two years. Extending this requirement to 12th grade will enable educators to assess whether high schools are meeting the needs of students so they can learn the skills they will need to succeed. It will also help to identify areas where they are not meeting the needs of students and to strengthen curricula to ensure improvement in those areas.

Higher Education

Enhanced Pell Grants: The Bush Administration proposes to establish a $33 million program to enhance Pell Grants to reward low-income students who participate in the State Scholars Program by taking a rigorous high school curriculum. This program would provide up to an additional $1,000 per year to students in the first two years of college who complete the rigorous State Scholars curriculum in high school, enroll in college full time, and are Pell Grant recipients. Next year, approximately 36,000 low-income graduating high school seniors would be eligible to receive an enhanced Pell Grant under this proposal.

Presidential Math and Science Scholars Fund: To ensure that America remains the world leader in the

innovation economy – and to ensure that America’s graduates have the training they need to compete for the best jobs of the 21st century – President Bush wants to expand opportunities for math and science education in colleges and universities. The President proposes establishing a new public-private partnership to provide $100 million in grants to low-income students who study math or science. Under this plan, approximately 20,000 low-income students would receive up to $5,000 each to study math or science. Students would have to be eligible for Pell Grants to receive this additional $5,000, although this new fund would be run separately from the Pell Grant program.

o The cost of this new initiative would be offset by an important reform to the Pell Grant program. Currently,

there is no limit on the number of years an individual can receive a Pell Grant to help pay for an undergraduate degree. The Administration proposes an 8-year equivalent time limit for a 4-year equivalent degree and a 4-year equivalent time limit for a 2-year equivalent degree. This reform would encourage students to finish sooner and eliminate abuse of the program where students extend their studies excessively.

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Making Federal Job Training Work Better for America’s Workers

President Bush is committed to providing America’s workers with better training for better jobs. Job training for American workers is more important than ever, and we need a new way of delivering job training in America.

America’s growing economy is a changing economy, and some workers need new skills to succeed.

Today’s economy is an innovation economy. Two-thirds of America’s economic growth in the 1990s resulted from the introduction of new technologies – and 60% of the new jobs of the 21st century require skills held by only one-third of America’s workforce. We need to close the skills gap in America. Not enough workers are being trained quickly enough to take advantage of many of the new jobs that are being created. The Federal government provides state and local governments $4 billion through the Workforce Investment Act (WIA), but only 206,000 adults were trained last year.

President Bush has proposed significant reforms to Federal worker training programs to double the

number of workers receiving job training, to ensure those programs work better for America’s workers, and to close the skills gap so we fill every high growth job with a well-trained American worker. The President has proposed reforming major Federal job training programs to put strict limits on overhead to ensure tax dollars support training for workers who need it. And, he has called for giving workers personal job training accounts called Innovation Training Accounts (ITAs).

Background on the President’s Job Training Initiative

The Problem: Currently, the Federal government spends almost $23 billion for more than 30 programs spread across 10 departments and agencies. The result is a confusing hodgepodge of programs, some of which have remained fundamentally unchanged for decades, and administrative costs that prevent too many dollars from getting to the workers who need training the most.

o Bureaucracy: The programs in place to train workers are out-of-date, overlapping, and ineffective. Too

often, red tape and administrative costs eat up job training money before it even gets to workers. For example, the Department of Labor found that one of its One-Stop Career Centers was using less than 10% of its Federal money for training displaced workers. Most of the funds went to administrative costs—not training workers. President Bush believes that every dollar spent on unnecessary bureaucracy is a dollar taken out of the pocket of a worker who needs job training.

o Complexity: Job training programs are set up with so many rules that many workers, potential employers, and local community colleges do not participate. For example, 30 states have been granted temporary relief from these requirements so they don’t lose their link with community colleges. However, there are limits to what we can do under the current law. President Bush recognizes that the best training is not filling out forms – it is learning on the job or at a community college.

o Limited Accountability: Currently, there is no clear standard or benchmark to measure the effectiveness of federal job training programs. Federal grants to states for job training have 17 different measurements of accountability. President Bush proposes to refocus these programs on the end results that matter most to America’s workers – Did you get a job? How long did you keep it? And how much are you being paid?

o Failure to teach skills in demand: Remarkably, even though the law requires it, many job training programs do not assess what skills are in demand for jobs in the worker’s area. Instead, workers are moved through the system with little regard for whether they will have a realistic chance at a job when they complete training. President Bush believes we should be training workers for jobs in sectors of the economy that are most likely to grow.

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The President’s Solution o Less Red Tape and More Help for Workers: The President’s plan establishes a clear goal that the vast

majority of job training dollars should go to the workers who need them – rather than to bureaucratic overhead. Currently, administrative expenses are capped at 15%, but regulatory loopholes allow too many of our training dollars to be spent on bureaucracy and other non-training services. The President’s goal is to double the number of workers receiving job training by maximizing the available Federal dollars going to workers and eliminating unnecessary overhead costs.

o New Innovation Training Accounts (ITAs): The President proposes new Innovation Training Accounts

to provide workers with more flexible and responsive assistance. Workers would have more job training choices – they would be able to use community colleges, private-sector training providers, local businesses, or community organizations – to get the help they need in the most effective and efficient way possible. These ITAs would give states considerable flexibility to tailor training programs to the unique economic conditions of each state. ITAs would consolidate 4 major training and employment grant programs totaling $4 billion into a single grant, eliminating unnecessary overhead costs and making Federal support more effective and efficient.

o More Accountability: Under the President’s plan, states would be given more flexibility to design their

own workforce training programs. But they would also be required to set clear goals and outcomes focused on the number of workers placed in jobs, the duration of the job placement, and the earnings of the job. The President proposes consolidating the number of state performance goals of the Federal job training system from 17 to 3. Under the new goals, accountability will be determined by asking these questions: How many people are finding work? How much are workers earning in their new jobs? How long are they staying in these jobs?

o Jobs for the 21st Century Initiative: The President’s Jobs for the 21st Century Initiative, announced in the

State of the Union Address, includes a $250 million proposal to help America’s community colleges train 100,000 additional workers for the industries that are creating the most new jobs. This expands the Department of Labor’s successful High Growth Job Training Initiative, launched under President Bush in 2001, which has provided $71 million in 38 partnerships nationwide between community colleges, public workforce agencies, and employers. These initiatives help community colleges produce graduates with the skills most in demand by local employers.

o Personal Reemployment Accounts: The President has also proposed $50 million for a pilot program of

accounts of up to $3,000 for those unemployed workers who have the most difficulty finding jobs to use toward job training, transportation, childcare, or other assistance in obtaining a new job. Workers who found a job quickly would be able to keep the balance of the account as a reemployment bonus.

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FEDERAL LABORATORY CONSORTIUM FOR TECHNOLOGY TRANSFER

STRATEGIC PLAN FOR 2009

Federal Laboratory Consortium for Technology Transfer 1001 Connecticut Ave., NW

Suite 735 Washington, DC 20036 202-296-7201 (phone)

202-296-7203 (fax) www.federallabs.org

2

FOREWORD

The Federal Laboratory Consortium for Technology Transfer (FLC) regularly reviews and updates its Strategic Plan, the purpose of which is to enhance the FLC’s role as the nation’s leader in technology transfer. The FLC Strategic Plan for 2009, which was approved by the Executive Board in July 2008, has helped the FLC accomplish this by ensuring that the Consortium provides the highest level of services to its members, as well as effective outreach to and coordination with all of its customers, including federal agencies and laboratories, industry, academia, state and local governments, and other nongovernmental technology transfer organizations.

In conjunction with the FLC Strategic Plan for 2009, the FLC, as part of an ongoing effort to improve its ability to meet the needs of its customers, developed a detailed “Execution Plan for the FLC Strategic Plan” that details how the goals and objectives identified in the Strategic Plan will be implemented. This focused approach will help the Consortium ensure that technology transfer remains a vital force in helping the U.S. economy maintain its leadership in the 21st

century global economic environment.

The FLC Strategic Plan for 2009, and the “Execution Plan for the FLC Strategic Plan,” were developed by the Planning and Policy Committee and approved for implementation by the Executive Board in July 2008.

J. Susan Sprake Planning and Policy Committee Chair

July 2008

3

OVERVIEW

This document presents the Strategic Plan for the Federal Laboratory Consortium for Technology Transfer (FLC). It sets forth the FLC’s vision, mission, goals and objectives. It includes an attached “Execution Plan for the FLC Strategic Plan,” which details the action program, including specific activities, schedules, and responsible individuals, through which the FLC will implement its Strategic Plan.

VISION

The FLC, a nationwide network of more than 700 federal laboratories representing 17 departments and agencies, will be the nationally recognized leader for technology transfer. The FLC will provide the highest quality services and products to its membership so as to:

Educate and train federal technology transfer professionals.

Link technologies with laboratory missions and the marketplace.

Enable federal laboratories to facilitate the transfer of federally funded technology to nonfederal sectors, such as U.S. business and state and local governments.

Facilitate the effective and efficient application of federal research and development (R&D) resources to federal agency missions.

Facilitate the use of incoming technology to help meet federal agency missions.

Provide opportunities for its member laboratories to collaborate with the private and public sectors.

MISSION

The FLC was formally chartered in 1986 by the Federal Technology Transfer Act (P.L. 99-502) to help implement the nation’s national technology transfer policy. In accordance with its legislative mandate, which is codified in 15 United States Code (USC) 3710, the FLC will facilitate federal technology transfer by providing the forum for education, training, and laboratory networking to enhance professional development and to encourage excellence in federal technology transfer in order to assist federal agencies, laboratories, and their partners in the private sector to accomplish the rapid integration of R&D resources into the mainstream of the U.S. economy.

The FLC activities authorized by the Federal Technology Transfer Act of 1986 and codified in 15 USC 3710(e) are:

Develop and administer technology transfer techniques, training courses, and materials to increase the awareness of federal laboratory employees regarding the commercial potential of laboratory technology and innovations.

Provide advice and assistance to federal agencies and laboratories for use in their technology transfer programs.

4

Provide a clearinghouse for requests for technical assistance from state and local governments, business, industrial development organizations, and not-for-profit organizations, including universities, federal agencies and laboratories, and other persons.

Facilitate communication and coordination between Offices of Technology Applications (ORTAs) at federal laboratories.

Utilize the expertise and services of the National Science Foundation, the Department of Commerce, NASA, and other federal agencies as necessary.

Facilitate the use of appropriate technology transfer mechanisms.

Assist laboratories with establishing programs using technical volunteers to provide technical assistance to local communities.

Facilitate communication and cooperation between federal laboratory ORTAs and regional, state, and local technology transfer organizations.

Assist colleges and universities, businesses, nonprofit organizations, state and local governments, and regional organizations with establishing programs to stimulate research and to encourage technology transfer in such areas as:

Technology program development Curriculum design Long-term research planning Personnel needs projections Productivity assessments.

Seek advice in each FLC region from representatives of state and local governments, large and small businesses, universities, and other appropriate persons on the effectiveness of the technology transfer program.

Work with the Director of the National Institute on Disability and Rehabilitation Research to compile a compendium of current and projected federal laboratory technologies and projects with an impact on assistive technology for individuals with disabilities.

GOALS AND OBJECTIVES

To realize its vision and accomplish its mission, the FLC has developed strategic goals and objectives designed to provide the necessary environment, organization, and technology transfer mechanisms to facilitate the fullest possible use of federally sponsored R&D by potential users in the public and private sectors. The FLC’s goals and objectives, which are fully detailed in the “Execution Plan for the FLC Strategic Plan,” are summarized and described as follows:

Strategic Goal 1—Develop FLC Members to Be Leaders in Technology Transfer

Strategic Objective 1-1—Provide and promote networking opportunities between FLC members and external organizations through national and regional meetings, partnering with other technology transfer organizations, and utilizing innovative networking tools. Strategic Objective 1-2—Provide technology transfer education and training opportunities for FLC members by implementing national and regional education and training events, developing onsite and Internet-based technology transfer courses, providing technology transfer resource materials, developing a professional development curriculum, and developing and maintaining databases of education and training resources and technology transfer mechanisms and procedures.

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Strategic Objective 1-3—Promote a national and regional FLC technology transfer awards program recognizing outstanding technology transfer accomplishments by individuals and member laboratories/agencies.Strategic Objective 1-4—Provide a membership and communications program that optimizes awareness of the FLC and technology transfer by providing resources and services to enable members and partners to learn about the FLC, technology transfer, and member capabilities; and enhancing new member outreach efforts.

Strategic Goal 2—Foster the Environment for Technology Transfer

Strategic Objective 2-1—Enhance access to federal technologies and facilities through participation in trade shows, publication of success stories, links to FLC contacts and resources, and promotion of laboratory events. Strategic Objective 2-2—Maintain a comprehensive system of communications through a publications program for members, potential members and partners, including industry; annual reports to Congress on the FLC’s technology transfer activities; a proactive outreach program to the communications media regarding technology transfer efforts and events; and enhancement of electronic communications activities, including the FLC website.Strategic Objective 2-3—Assist state and local governments, regional organizations, and academia to encourage technology transfer by establishing a formal mechanism for interaction between states and federal laboratories, with the explicit mission of developing funded strategic technology-based economic development initiatives.; and creating a brand for federal laboratories as a key contributor to technology-based regional economic development.Strategic Objective 2-4—Identify potential alliances by enhancing coordination/cooperation with professional organizations and trade unions and enhancing the FLC’s efforts to develop national technology initiatives in partnership with external organizations.

Strategic Goal 3—Enhance the Professional Organization Structure of the FLC

Strategic Objective 3-1—Increase FLC membership and participation through a formal membership committee structure, enhancing recordkeeping, increasing member involvement in the voting process, and increasing member participation in national and regional meetings.Strategic Objective 3-2—Plan for leadership development by establishing criteria for leadership positions, examining potential changes to the FLC bylaws, and developing an FLC Leadership Training Plan.Strategic Objective 3-3—Improve organizational structure by investigating engaging a full-time professional executive director and examining the benefits of reorganizing the Executive Board.Strategic Objective 3-4—Improve the FLC’s management process and communication by integrating strategic, operational, and financial planning activities; establishing an official calendar of regular, ongoing events, venues, and themes; and improving communication with the FLC’s constituency, including Congress, Agency

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Representatives, and laboratory directors.

EXECUTION PLAN FOR THE FLC STRATEGIC PLAN

In order to implement the Strategic Plan, the FLC developed an operational plan entitled the “Execution Plan for the FLC Strategic Plan,” which provides a detailed, coordinated approach to the tasks required to implement the goals and objectives described in the Strategic Plan. The Execution Plan identifies each strategic goal and objective described in the Strategic Plan and the FLC executive responsible for its accomplishment; describes the actions (“action statement”) required to implement the objective and identifies the responsible action leader; and spells out the detailed tasks (“execution action”), including start, due, and completion dates, required to accomplish the action statement.

GEMI1155 15th Street, NW, Suite 500 Washington, DC 20005 U.S.A.P: 202-296-7449 www.gemi.org

The Global Environmental Management Initiative (GEMI)

GEMI: A Case for Corporate Leadership – Two Decades of Environmental, Health and Safety (EHS) and Sustainability Progress

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In 1990, a group of corporate environmental leaders from The Business Roundtable recognized the need for corporate environmental leadership around the world. They had a vision that it was possible for a wide array of business sectors to: work together; learn from each other; share what they had learned; and, improve the environment and the ways their companies operated around the world while at the same time increasing the value of their businesses. Their vision led to the creation of the Global Environmental Management Initiative (GEMI).

In the early years of the environmental movement many in the NGO community were attempting to pursue regulatory agendas that would mandate codes of conduct for corporate environmental activities. At the same time, some in the business community perceived environmental issues as nothing more than a regulatory burden that added costs, which were always at the expense of business. In response to this, many companies created environmental departments to address internal and external challenges, but they still needed a forum to work with others in business to create the tools that would help those departments support their companies.

Within this atmosphere of global mistrust and skepticism, a group of CEOs from the Roundtable stepped up and asked their corporations’ environmental leaders to create an organization that could “get ahead” of the critics so that companies could effectively work together to improve the global environment, and do so in an economically and socially responsible way. The core of those leaders came from a corporate “who’s who” list of companies and included: Dorothy Bowers, Merck & Company; George Carpenter, The Procter & Gamble Company; Tom Davis, AT&T; Charles Goodman, Southern Company; and, Bill Sugar, Anheuser-Busch Companies.

Those early GEMI leaders knew that no group was better positioned and capable of outlining the most effective ways for business to address environmental, heath and safety (EHS) issues than the companies themselves. It was also evident that if business did not step forward and address ways to ensure responsible environmental management, others—including NGOs—would step forward and fill the gap created, imposing external policies and effectively “telling” business how to operate.

That knowledge, recognition and commitment laid the foundation for the vision of the organization as it is today, “To be globally recognized as a leader in providing strategies for business to achieve EHS excellence, economic success and corporate citizenship.” The mission of GEMI is: “Business helping business improve EHS performance, shareholder value and corporate citizenship.”

GEMI was created as an organization that would not advocate or lobby on policy issues. Rather, GEMI was designed as a member driven, “sweat equity” organization that would identify tools that needed to be created, develop them with member leadership and then share those tools freely with the world. The BRT corporate environmental leaders selected Lee Thomas and Susan Moore as the first management team to support the GEMI membership.

GEMI was designed to be, and has remained, a member-led and member-driven organization, using voluntary initiatives and the energy of the member companies to improve environmental management and address key corporate citizenship challenges and opportunities. Today, GEMI has 37 members from more than 22 diverse business sectors, all of whom bring unique insights to the discussion of the common challenges posed in environmental management. By working together and learning from each other, GEMI members are continually finding new ways to do their jobs better and in a way that provides value to their companies and the environment.


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GEMI is led by a Board of Directors, which is elected annually by the membership, and meets quarterly to review GEMI’s progress and to address strategies that will provide value to the members. The Board is comprised of a Chair, a Vice Chair, and the respective Chairs of the Committees, which include Finance, Tools, Membership, Communications & Marketing and Benchmarking. The Board also includes a representative from the Senior Advisory Council (SAC), and a Chair Emeritus, the former Chair of GEMI.

The majority of GEMI’s work is conducted in Work Groups, chaired by and comprised of representatives from member companies. Each Work Group develops a budget, approved by the Board of Directors, to develop a tool from inception through to the end of the project plan—either a paper publication and/or an interactive web tool. GEMI’s +28 tools, all products of the Work Groups, are discussed later in this article.

In addition to its Work Groups, GEMI has standing committees that work on procedural, administrative, and/or strategic issues, with direction from the Board of Directors. The committees include:

Benchmarking Committee: The Benchmarking Committee identifies and benchmarks key environmental, health and safety and sustainability management practices. Examples of benchmarking topics include: interaction with corporate board of directors, EHS cost accounting practices, EHS auditing practices, relationships with suppliers/contractors, sustainability and community relations. GEMI typically completes three or four benchmark surveys per year at no additional cost to members beyond their annual dues. By comparison, if each company were to independently develop a benchmarking exercise, the cost per company could range from $10,000 to $20,000 per issue benchmarked. After one year, the benchmark survey results are posted on GEMI’s web site, unless the membership requests and agrees that it should remain on the ‘Members Only’ site.

Communications & Marketing (C&M) Committee: The C&M Committee is responsible for extending GEMI's presence abroad through national and international press relations. The committee establishes well-defined guidelines for the creation and use of GEMI materials and reviews publications as they are developed. It also oversees the development of the monthly member newsletter, GEMI NEWS. In addition, the Committee focuses on creating a simple, standard marketing plan for tools and approves materials to be posted on the GEMI web site. Articles about GEMI activities have appeared in numerous newsletters and publications including, but not limited to: Business and the Environment (BATE); ECOSTATES; FinancialTimes; Greenbiz; Green@Work; Occupational Hazards; and, Sustainable Development International (SDI).

Membership Development Committee: The objective of the Membership Development Committee is to implement a strategic membership development plan, targeting environmentally responsible U.S. and non-U.S.-based companies. The Membership Development Committee also focuses on the needs of existing members to ensure that each year they will renew their membership in the organization. Despite the continuing fiscal challenges facing corporations, GEMI continues to grow and prosper; new members are consistently being brought into the Board of Directors as well as into leadership positions in the GEMI Committees, Networks and Work Groups.

Senior Advisory Council (SAC) Committee: The SAC is comprised of the Vice President or the most senior EHS/sustainability representative of member companies. The SAC assists in the development of future GEMI project topics and activities. Though GEMI uses a broad array of resources to identify issues that should be addressed by the membership, the SAC is the primary source through which leading EHS, sustainability and corporate social responsibility (CSR) issues are identified and filtered. Most GEMI tools have been the direct result of member-driven ideas that came from initial discussions of the SAC committee. The SAC meets annually to review GEMI’s progress and to identify issues or activities that are of specific interest to their companies. In 2007, the GEMI Senior Advisory Council (SAC) retained the Institute for the Future (IFTF) to develop a sustainability map for GEMI, the Map


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of Future Forces Affecting Sustainability. The map is a strategic tool for identifying and understanding future trends that will affect the EHS and sustainability landscape and incorporating this knowledge into strategies that create business value.

In addition to its Work Groups and Committees, GEMI also has a series of Networks that conduct on-going discussions on topics of interest to GEMI members. Networks can serve as a prelude to a Work Group by helping to define or clarify a topic of interest, or as a postscript to a Work Group that has completed the development of a GEMI tool by facilitating continued learning and information sharing. Direction for the Networks comes from the GEMI Board of Directors and the membership and each Network is re-evaluated annually to determine if it will continue into the following year.

GEMI’s current Networks include:

Emerging Issues Network: The GEMI Emerging Issues Network meets throughout the year to learn more and share information about the emerging EHS and sustainability issues the members are addressing.

Metrics Users Network: The Metrics User Network provides how-to knowledge in using the GEMI Metrics Navigator™, and to share best practices relative to sustainability metrics in business.

Pandemic Planning Network: The GEMI Pandemic Planning Network is in its information gathering phase and meets quarterly to share lessons learned about the topic.

The decade of the 1990s, from a development of GEMI tools perspective, focused on issues ranging from ways to self assess on EHS issues regarding total quality management, benchmarking, training, reporting and management systems.

The first GEMI tool, Environmental Self-Assessment Program (ESAP) used the 16 Environmental Management Principles of the International Chamber of Commerce (ICC) as a basis, or benchmark, against which to measure performance. The tool was designed so that businesses could pinpoint ways to increase the quality of environmental policy, planning, implementation and monitoring, and to allow them to prioritize environmental improvement opportunities. Though created in 1992, this tool remains an excellent resource for any entity that is just starting to better understand how to assess its company’s environmental performance.


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The second GEMI tool, Total Quality Environmental Management: The Primer, was created in 1993 and reflected corporate trends and activities relating to how total quality management systems could positively impact how companies operated. What GEMI leaders did in the early years of GEMI’s activities was to add environment to the total quality management business approach, thus the term Total Quality Environmental Management (TQEM). This primer was written for corporate environmental managers and takes a reader through the basic definitions and approaches of TQEM.

In 1994, as the concept of environmental management began to mature, GEMI created three tools.

The first expanded on the TQEM concept -- Environmental Reporting in a Total Quality Management Framework: A Primer was designed to help companies: identify problems before they occur; target key areas for management attention and possible expenses; provide support for needed improvements in existing management systems; and, provide a realistic basis for setting future performance expectations and holding line managers accountable.

The second tool focused on helping international companies find cost-effective pollution prevention initiatives by incorporating environmental costs into the business decision-making process. Finding Cost-Effective Pollution Prevention Initiatives: Incorporating Environmental Costs into Business Decision-Making includes topics such as identification and quantification of environmental costs and evaluating pollution prevention investments.

The third, Benchmarking for Continuous Environmental Improvement, provides a format and structure for conducting benchmarking studies. It was designed to teach the reader how to make environmental improvements based on existing or publicly available information and resources.


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Environmental, Health & Safety Training: A Primer (1995) started a process that went from only learning about an issue or set of challenges, to training others in what was beginning to be a more professional EHS function within GEMI companies. This primer was designed to assist companies in training their site EH&S personnel and it included practical how-to examples, and advanced training techniques.

In 1996, GEMI began looking at various ways to identify innovative programs and approaches that would help provide incentives for companies to improve their environmental, health and safety activities.

Incentives, Disincentives, Environmental Performance and Accountability for the 21st

Century, Idea 21 Work Group Reports included three reports that looked at management systems, industry incentives and innovative programs within the United States and Europe. Two other reports were also created that year.

ISO 14001 Environmental Management System Self-Assessment Checklist was based on the ISO 14001 standard and allowed for a rapid self-assessment of an organization or facility to determine how closely existing management practices and procedures correspond to the elements of the standard.

Environmental Reporting and Third Party Statements was designed to test whether third party attestation statements contained in voluntary corporate environmental reports added value in the eyes of external stakeholders. Other goals of the study included assessing which report elements contributed the most to communicating credibility, and evaluating the credibility of different types of organizations that perform certifications of corporate environmental reports.


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In 1997, the GEMI tools continued to expand their reach beyond just taking action on environmental activities into assessing the action being taken.

Measuring Environmental Performance: A Primer and Survey of Metrics in Use was designed to present a survey of environmental performance measurement tools and includes considerations for designing metrics programs, for selecting appropriate metrics, and for implementing, evaluating and improving such a program.

HSE Management, Information Systems Planning, Moving into the 21st

Century was designed to help EH&S managers reach new levels of performance by partnering their expertise with that of professionals in information management, manufacturing, operations, marketing, research and development, finance and legal issues from across the company.

Environment: Value to Business (EVTB) was the first primer that was designed to guide corporate environmental professionals in planning, creating, measuring and communicating the business value of environmental activities. This tool, developed in 1998, introduced the concept of Plan-Do-Check-Advance (PDCA) cycle of environmental management and offered suggestions for communicating business value to key internal and external stakeholders.

As GEMI began its journey outside the parameters of the internal EH&S activities of individual companies, there was an increasing realization that many GEMI companies were global companies that were operating in a responsible way around the globe, including the developing world.

In 1999, GEMI created a new tool, Fostering Environmental Prosperity, Multinationals in Developing Countries, which was a first of its kind report that linked economic data with case studies showing how multinational corporations are positive forces for both economic development and environmental, health and safety excellence in the developing countries in which they operate.


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In 1999, as there was increased interest by many organizations in finding creative and effective ways to provide incentives, GEMI developed a new tool, Environmental Improvement Through Business Incentives. Thisreport assessed incentives that have working in governments and the private sector to encourage companies to set environmental goals beyond compliance with existing laws.

With 10 years of experience and learning behind them, the members of GEMI began a new decade of activity and tool development in 2000 by expanding their discussions and the tools being developed to a range of general business issues that could be impacted by environmental, health and safety activities, including corporate citizenship.

The first tool in the new decade was a guidance document that was designed to help identify new processes and ways of addressing the role of environmental initiatives within broader business objectives, and how those activities can provide “top line” value to companies. Environment: Value to the Top Line (EVTL) includes case studies of companies who have implemented successful projects linking environmental and business objectives.

The second tool, published in 2001, focused on the important role that the supply chain plays in environmental, health and safety activities. NewPaths to Business Value: Strategic Sourcing – Environment, Health, and Safety was designed to address the business value of managing EH&S in key procurement issues. The tool helps companies to identify when, why, and how to pursue added business value by addressing EH&S performance of suppliers and contractors, and to understand how suppliers’ products and services can affect businesses and business planning.

In 2002, GEMI created its first water sustainability tool, Connecting the Drops Towards Creative Water Strategies: A Water Sustainability Tool. This tool and its accompanying web site (www.gemi.org/water) were designed to help businesses build a well-tailored strategy that fits the business’ needs and circumstances. Case studies are included that highlight ways that companies can create business value by pursuing the sustainable management of water resources.


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In the same year, Exploring Pathways to a Sustainable Enterprise: SD Planner

TM was created. The SD Planner

TMis a detailed and

comprehensive self-assessment tool designed to help companies evaluate, plan for and integrate sustainable development into business processes.

In 2004, GEMI reached in new external directions addressing issues that impact business often outside the fence line. Clear Advantage: Building Shareholder Value/Environment: Value to the Investor (EVI), is a tool that was designed to help provide businesses approaches on how to measure, manage and communicate EHS value to the financial community, thereby making “tangibles out of intangibles.”

Forging New Links: Enhancing Supply Chain Value Through Environmental Excellence is a tool and website (www.gemi.org/supplychain) that was designed to identify and illustrate opportunities for EHS professionals, in collaboration with other functions within their companies, to enhance supply chain performance.

Transparency: A Path to Public Trust is a tool that provides approaches that companies can consider as they address transparency related challenges and opportunities.

In 2007, GEMI launched Collecting the Drops: A Water Sustainability Planner (www.gemi.org/waterplanner). This tool guides a user through the process of taking a corporate water sustainability strategy and converting it into a site or unit strategy for water.

GEMI SD PlannerTM

and GEMI SD GatewayTM

(www.gemi.org/sd) is a detailed comprehensive planning tool that can be used to establish baseline performance, assess opportunities, set goals, develop action plans and evaluate progress towards a company’s sustainable development objectives.

The GEMI Metrics NavigatorTM

(www.gemi.org/metricsnavigator) is a tool to help organizations develop and implement metrics that provide insight into complex issues, support business strategies and contribute to business success. The tool presents a thorough, six-step process to select, implement and evaluate a set of critical few metrics that focus on an organization’s success.


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The GEMI Business and Climate Change web site (www.gemi.org/businessandclimate)describes ways that businesses can incorporate climate change objectives in their decisions and operations. The site provides information and guidance for businesses in all stages of the strategic planning lifecycle for climate change.

The GEMI HSE Web Depot (www.gemi.org/hsewebdepot) is a web-based information resource that is a framework for health, safety & environment-management information systems (HSE-MIS) and is based on a Plan, Do, Check, Advance (PDCA) lifecycle. The HSE Web Depot presents a framework for HSE-MIS planning, development, system rollout and improvement; and, organizes company experiences within these areas.

GEMI’s contribution to EHS management is evident in the reputation the organization has gained for itself over the past seventeen years, and in the caliber of the members who choose to participate and continue participation. GEMI tools have been cited by a wide range of media resources on sustainable development, supply chain management and outsourcing, corporate social responsibility, and others, in such news sources as Fortune Magazine. GEMI also participates in the annual UNEP Consultative Meeting on Business and Industry and has given several presentations over the years on the functional value of GEMI tools, and the importance of using such tools and case studies when addressing global EHS and sustainability issues.

The devotion of member companies to EHS is evident in their internal EHS management strategies, many of which are detailed as case studies in GEMI tools. For example, in a piece entitled “The Role of Sustainability at 3M” in the GEMI Metrics Navigator

TM, the

emphasis placed on environmental, social and economic sustainability by 3M was demonstrated in the descriptions of its sustainability programs. The required use of a “Life Cycle Management (LCM)” platform in the development, manufacturing and distribution of all products helps to reduce the environmental, health, safety and energy impacts throughout the entire product life cycle; the Pollution Prevention Pays (3P) platform goes back thirty years, focusing on reducing pollution at its source, and is a cornerstone for process improvements to reduce waste and improve productivity. Says the piece, “a company is only as good as its employees,” and 3M employees are devoted to responsible EHS and CSR practices. (Metrics Navigator

TM, 2007).

Bristol-Myers Squibb Company is yet another example of a GEMI company being on the cutting edge of EHS policy and helping others to learn from its experience. The MetricsNavigator

TM, also detailed how Bristol-Myers Squibb was “an early leader in reporting EHS

metrics…participated in developing the first draft of the Global Reporting Initiative (GRI) and was among the first to apply the GRI reporting standards.” The Company developed “extensive infrastructure, including procedures and databases…for EHS data collection, verification and reporting,” which has allowed it “to assess its potential impacts, to determine appropriate performance targets and to measure progress towards such targets.” Though Bristol-Myers Squibb Company began EHS metrics reporting because of external pressure, the internal system has gone above and beyond—and provided tangible, internal business benefits at the same time. (Metrics Navigator

TM, 2007).


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DuPont also exemplifies the role many GEMI companies play in leading the industry towards more sustainable business practices without sacrificing productivity or profit. As a large energy user, DuPont has both high manufacturing cost and a large environmental footprint, particularly as regards greenhouse gas emissions. By committing to increase its use of renewable energy sources—targeting 10% renewable energy by 2010, in only three years—DuPont “is taking a leadership role in changing the market landscape by increasing the demand for renewable sources, demonstrating the use of renewable sources as a practical alternative in managing energy consumption and reducing their associated environmental impacts” (Metrics Navigator

TM, 2007).

The Dow Chemical Company exemplified not only its commitment to the environment, but also to corporate citizenship in helping a client in Singapore to use water more efficiently. Using the FILMTEC system, the client implemented a system for reclaiming waste water, drastically reducing its environmental impact as regards water sustainability. Since 2000, an RO plant operation has been processing tertiary-treated wastewater effluent using FILMTEC fouling resistant elements and converting it to high-grade industrial water for Singapore’s petrochemical industry. Since start-up, the Singapore client’s reverse osmosis plant has performed well within the stringent operating conditions imposed. The high recovery of 86 percent pioneered by this project is now considered an industry benchmark in tertiary effluent wastewater reclamation. Operating costs are lower compared to older plants using membranes that are not designed to be resistant to fouling (Collecting the Drops: A Water Sustainability Planner, 2007).

In the 2003 Forging New Links: Enhancing Supply Chain Value Through Environmental Excellence, even more examples of GEMI companies excelling as business leaders in EHS can be found. A case study of Motorola’s Inbound Discrepancy Reporting (IDR) System detailed how a collaborative effort by EHS, Logistics, Quality, Finance, Packaging, and Sourcing representatives to develop a comprehensive approach to packaging and pallets allowed the company to save over $1 million in the first year alone, and over $5 million in 2004. Not only did Motorola establish new guidelines for packaging and shipping, but they further implemented the IDR system as a way to track supplier compliance, update supplier scorecard performance, and quantify the cost of non-compliance for potential recovery costs due to supplier defects. Between the years 2002-2003, IDR realized a 58% reduction in pallet-related injuries, saving $400,000 in Workmen’s Compensation cost; a 12% reduction in discarded pallets, equating to $120,000 of cost avoidance in new purchases; $400,000 savings in transportation expenses; $100,000 savings in reduced handling and storage of pallets; and a 16% improvement in recycling rate of non-hazardous wastes. Motorola took what was originally an EHS initiative—an effort to reduce injuries and decrease unnecessary waste and transportation—and developed it into an effective means of improving not only EHS and CSR practices, but also to focus on eliminating unnecessary spending and creating savings that could be passed along to consumers. (Forging New Links, 2003).

FedEx has been similarly concerned with the environmental impact of its packaging, and has been a leader in the field in minimizing that impact as much as possible. In 1998, FedEx revolutionized its packaging system, changing the overnight envelopes from 100% virgin bleached fiber to 100% recycled materials in only a year. They also redesigned their basic envelopes, releasing a new packaging made of 100% recycled whiteboard in November of 1999, with 35% of the recycled material coming from post-consumer content. Though there was a slight increase in production cost—one that could not be passed along to the consumer, as FedEx envelopes are provided for free to customers—the company felt that its environmental initiatives were important in keeping the company a leader in the field, and worked over the next few years after the envelopes’ release to reduce the unit cost back to its original level. (Forging New Links, 2003.)

These are but a few examples of the impressive advances GEMI members have been making in EHS management for nearly two decades. Each GEMI tool includes extensive reports and case studies from the GEMI membership. Almost as impressive is the overwhelming commitment of these and all


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GEMI companies to helping others in the business community achieve similar levels of EHS excellence—truly bringing to life the GEMI mission of “business helping business.”

GEMI members share their collective experience and expertise in EHS in a variety of ways. The case studies included in GEMI tools give concrete examples of how responsible environmental practices can be implemented without damaging profits, supplementing the strategic content of the tools with real-world evidence that the strategies work. GEMI held a series of conferences highlighting environmental concerns, rewarding progress and facilitating discussion of what remains to be done. Most recently, GEMI’s 15

th Year Anniversary conference in 2005, “Successes, Current Challenges,

and Future Trends,” featured a variety of keynote speakers discussing contemporary environmental issues, as well as panels discussing GEMI’s past, present and future. Prior to that conference, GEMI held events such as the 2003 “Sustainability Through Strategic Partnerships” conference, the 2002 “Securing the Future—Paths Forward” conference, the 2001 “An Odyssey in Environmental Excellence” conference, and the 2000 “Environment and Business Conference.”

GEMI and its member companies truly put into practice all aspects of their mission statement—they achieve EHS excellence and increase shareholder value themselves, and function as responsible corporate citizens helping business as a whole to share in the benefits of responsible EHS management strategies.

In addition to all of its other activities, GEMI has also entered into a number of very constructive collaborations and partnerships with external organizations.

GEMI is a founding partner of the Business Roundtable’s S.E.E. Change initiative, which was launched in 2005. Seeking to leverage the power of business as a force for good, Business Roundtable launched a sustainable growth initiative encouraging leading U.S. companies to embrace business strategies and projects that measurably improve Society, the Environment and the Economy. S.E.E. Change, encourages CEOs of the nation’s leading companies to commit to business strategies that combine traditional corporate goals of higher profit and lower cost with a strong commitment to environmental stewardship and social improvement. Roundtable companies will be asked to set challenging goals that contribute to both the bottom line and improvements to the quality of life – now and for future generations.

As a Partner of S.E.E. Change, GEMI provides its tools to Roundtable members and participates in the S.E.E. Change Steering Committee.


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GEMI has partnered with Environmental Defense Fund to develop a “Guide to Successful Corporate/NGO Partnerships,” which we anticipate will be launched to the public in the summer of 2008. As social and environmental performance becomes increasingly important to the private sector and external stakeholders alike, some companies and non-governmental organizations (NGOs) are benefiting from collaborating rather then clashing around "green issues." This guide will seek to educate the public and private sectors on the potential for positive environmental and economic success through collaboration between corporations and NGOs.

GEMI partnered with the National Council for Science and the Environment’s (NCSE) Council of Environmental Deans and Directors (CEDD) to conduct workshops to provide CEDD members with an understanding of GEMI and its tools with the intent and that they could be incorporated into course curriculum. Thirty-five schools attended the workshops. To-date, the following four schools have used the tools: Barnard College, Colleges of the Fenway, Duke University and Samford University.

In addition to the efforts of its Work Groups, Committees and Networks, GEMI is currently working on further developing the “GEMI Brand,” making the organization and the benefits it provides both better known and more widely marketed. The method for achieving this is threefold: emphasis is placed equally on education, tools and current members.

GEMI has identified three signature issues that it will be focusing its activities on for the next couple of years. GEMI is still in the discussion phase as to how best to address these issues to meet the needs of its members and the organization as a whole. The issues are: Climate and Energy; Supply Chain; and Water Sustainability.

GEMI has developed a catalogue of its tools, and continues to provide easy access to its tools, with all publications available electronically and without cost via its web site, www.gemi.org. GEMI also works cooperatively with a wide range of governmental organizations such as the United Nations, the U.S. State Department, the U.S. Environmental Protection Agency and the Department of Commerce.

GEMI is also continuing to build and develop relationships with colleges and universities, small/medium businesses and cooperative efforts with the government and NGO organizations to raise awareness of the issues in which GEMI is involved, its tools and of the organization itself.

GEMI members also participate in a wide range of international and domestic meetings and conferences, are speakers and panelists at various industry functions and are members of diverse


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industry associations—all of which demonstrate the caliber of GEMI’s members as leaders in EHS management, and promote the organization through those with whom it can be associated.

The Global Environmental Management Initiative has grown and matured since its beginning in 1990, remaining constantly on the leading edge of EHS issues and development. The organization is strong with its membership continuing to grow and to create and develop new tools and discussion forums around emerging ideas and approaches. GEMI offers members the opportunity to work with many of the world’s leading companies in developing and promoting the very best in global EHS and corporate citizenship strategies that can be applied around the world in a cost-effective manner. In addition, the cost savings and benefits derived from GEMI benchmarking further allow GEMI to share its knowledge as it continues to strive to help business help business to excel in EHS, shareholder value and corporate citizenship.

With the increased attention to a wide range of environmental, sustainability and climate-related issues, and with concerns being raised around the world by the realities of globalization, strong EHS and corporate citizenship leadership is vital if global companies’ licenses to operate are to be continually renewed and welcomed. GEMI has both the experience and commitment to take on these issues as they develop, and the organization’s continued growth and development are evidenced in the expansion of GEMI’s focus to include key sustainability and corporate citizenship issues. GEMI strategies remain environmentally friendly, socially responsible, fiscally sound and a valuable resource for the business community.

GEMI was formed almost 20 years ago as a grassroots initiative by leaders in the business community, to be a nonprofit business association of “business helping business achieve EHS excellence, shareholder value, and corporate citizenship.” GEMI has been and continues to be an organization that is member-driven, with “sweat equity” a key part of the organization’s operations. In its seventeen-year lifetime, GEMI has produced 28 interactive tools promoting responsible EHS practices, in addition to all of its other internal and external activities.

GEMI’s work is ongoing. Work Groups continue to develop creative and innovative methods for the improvement of EHS and sustainability practices. Networks continue to identify, discuss and address new emerging issues.

GEMI is comprised of environmental and sustainability professionals who are leaders and challenge solvers within their companies, striving each day to make the world a better place for the environment, for the economy and for society.

The organization, since its creation, has been committed to focusing on and merging environmental commitments, economic considerations and environmental leadership.

The results of almost 20 years of effort and commitment make it clear to all that the founders of GEMI would be pleased with how far GEMI has come, and with the important role that EHS ad sustainability issues will continue to play in a world where corporate citizenship has become a goal of all responsible global companies.

* 2008 * WRITTEN BY STEVEN B. HELLEM, EXECUTIVE DIRECTOR AND AMY M. GOLDMAN, DIRECTOR*

Clear Advantage:Building Shareholder Value

E N V I R O N M E N T : V A L U E T O T H E I N V E S T O R

I

The mission of the Global EnvironmentalManagement Initiative (GEMI) is to supportbusiness helping business improve environment,health and safety (EHS) performance, shareholdervalue, and corporate citizenship. GEMI hasproduced a series of tools that demonstrate howexcellence in EHS can add shareholder value tocompanies. The GEMI "Value" journey began withEnvironment: Value to Business published in 1998and continued with Environment: Value to the Top Line published in 2001.

The purpose of Clear Advantage: BuildingShareholder Value, GEMI's latest tool in theseries, is to enable businesses to measure,manage and communicate EHS value to thefinancial community or, in the words of BobBrady, retired fund manager at Citigroup, to "turnthe intangibles into tangibles." EHS is among theintangible value drivers that are hidden sourcesof organizational power—from regulatorycompliance that prevents liabilities, toproactively managing risk. Leveraging EHSresources can help create additional value forthe enterprise through strategy execution,enhancing brand and reputation, boostinginnovation and leadership.

This tool is a resource and guide containing avariety of data and tools to assist managers inunlocking the value contained in activities theyare required to perform but frequently regard asa cost of doing business—rather than as anopportunity to better position the enterprise withcustomers, investors and lenders, alliance

partners and current or prospective employees.Case studies from GEMI members help illustratethese opportunities.

Clear Advantage provides compelling evidenceof the link between EHS activities andshareholder value. Because an enterprise's EHSfunction cuts across many areas of business,this report covers the EHS function as well asrelated organizational activities: communityinvolvement, stakeholder relations, governance,transparency, and business continuity. In aclimate of increased focus on corporategovernance and shareholder activism, theseissues will only increase in importance.

Utilizing the value drivers identified, this reportwill demonstrate that strengths in EHS can addvalue to the enterprise. Specifically, this reportwill show how companies can measure anddisclose the strategic contributions of EHS toenhanced market valuation and identify EHS-related indicators that are linked to intangiblevalue drivers.

The intended audiences for this tool are seniorcompany executives, including CEOs, CFOs, andInvestor Relations (IR) professionals; mainstreamfinancial analysts and fund managers; and EHSand other managers. It can also provide membersof the socially responsible investment com-munities with useful data, as well as guidancefor EHS executives on how to better advisemanagements with whom they are engaged.

PrefaceFebruary 2004

John Harris, Ashland Inc.Jim Thomas, Novartis Corporation

Co-Chairs, Environment: Value to the Investor Work Group

II

The Global Environmental Management Initiative (GEMI) is a non-profit organizationof leading companies dedicated to fostering environmental, health, and safety

excellence and corporate citizenship worldwide. Through the collaborative efforts of itsmembers, GEMI also promotes a worldwide business ethic for environmental, health

and safety management and sustainable development through example and leadership.

The guidance included in this document is based on the professional judgment of theindividual collaborators listed in the acknowledgements. The ideas in this document

are those of the individual collaborators and not necessarily their organizations.Neither GEMI nor its consultants are responsible for any form of damage that may

result from the application of the guidance contained in this document.

This document has been produced by the Global Environmental Management Initiative(GEMI) and is solely the property of the organization. This document may not be

reproduced nor translated without the express written permission of GEMI, exceptfor use by member companies or for strictly educational purposes.

3MAbbott LaboratoriesAltriaAnheuser-Busch Inc.Ashland Inc.Aventis Pharmaceuticals Inc.Bristol-Myers Squibb Co.BNSF Railway CompanyThe Coca-Cola CompanyConAgra FoodsDell Inc.The Dow Chemical CompanyDuke EnergyDuPontEastman Kodak CompanyEli Lilly and CompanyFedEx ExpressGeorgia-Pacific CorporationHalliburton CompanyHewlett-Packard Company

Hoffmann-La RocheIntel CorporationJohnsonDiversey, Inc.Johnson & JohnsonJohnson Controls, Inc.Koch Industries, Inc.Lockheed Martin CorporationMerck & Company, Inc.Mirant CorporationMotorola, Inc.Novartis CorporationOccidental Petroleum CorporationPfizer IncThe Procter & Gamble CompanySchering-Plough CorporationSmithfield Foods, Inc.Southern CompanyTemple-Inland Inc.Texas Instruments IncorporatedWyeth

Global Environmental Management InitiativeGEMI Member Companies:

About The Global Environmental Management Initiative

III

Section 1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Section 2Making the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2EHS Performance is Linked to Shareholder Value . . . . . . . . . . . . . . . .2EHS is an Intangible Driver of Market Value . . . . . . . . . . . . . . . . . . . .2How EHS-Related IntangiblesBecome Tangible Outcomes for Investors . . . . . . . . . . . . . . . . . . . . . .3Corporate Initiatives Reflect the Demandsof Global Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4A Growing Awareness in the Financial Community . . . . . . . . . . . . . .6Ten Intangible Value Drivers for Measuring EHS Performance . . . . .8

Section 3A Closer Look . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Leadership & Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Communication and Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . .13Brand Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Environmental and Social Reputation . . . . . . . . . . . . . . . . . . . . . . . .16Alliances and Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Technology and Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Section 4From Concept to Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Linkage Between EHS and IR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25The Clear Advantage Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Step 1 - Identify Key Value Drivers . . . . . . . . . . . . . . . . . . . . . . . . . .26Step 2 - Assess Potential Contributions . . . . . . . . . . . . . . . . . . . . . . .27Step 3 - Develop Value-Enhancing Strategy . . . . . . . . . . . . . . . . . . .29Step 4 - Implement Strategy and Measure Results . . . . . . . . . . . . .31Step 5 - Communicate to Management and Investors . . . . . . . . . .31Step 6 - Assure Continuous Improvement . . . . . . . . . . . . . . . . . . . . .32

Section 5Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Appendix ADiscussion Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Appendix BBibliography and References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Intangible Value Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36EHS and Business Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Socially Responsible Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Appendix CGlossary and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Appendix DFootnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

ContentsAdditional supporting

information and

resources, as well as an

electronic version of this

document, are available

on the GEMI website,

www.gemi.org.

IV

Acknowledgements

Contributing GEMI Environment: Value to the Investor Work Group Members

Carty of the National Investor Relations Institute(NIRI), Suzanne Fallender of InstitutionalShareholders' Services, Katie Fry Hester ofSustainAbility, Elizabeth McGeveran of ISIS AssetManagement and Marge Wyrwas of Knight Tradingparticipated in a meeting to provide input on thedraft document. Linda Descano of Citigroup, PeterWilkes of Innovest, Tim Smith of Walden AssetManagement, Stan Craig, formerly of Merrill Lynch,Tim Lankford of SAM USA Inc. and Peter Wall andMichael Gormley of FTSE4Good provided inputand guidance during the early, formative stages ofthis project.

Audrey Bamberger, Anheuser-Busch Inc.Gregg Belardo, WyethTanya Blalock, Southern CompanyLaura Bradford, Bristol-Myers Squibb CompanyDon Brown, Dell Inc.Carol Cala, Eastman Kodak CompanyMark Chatelain, Johnson Controls, Inc.Stan Christian, Motorola, Inc.Steve Dishion, The Procter & Gamble CompanyJeff Forgang, Duke EnergyElizabeth Fraser, Aventis Pharmaceuticals Inc.Elizabeth Girardi Schoen, Pfizer IncVeronica Gliebe, Aventis PharmaceuticalsColin Goddard, AltriaRich Guimond, Motorola, Inc.Alex Heard, Intel CorporationMitch Jackson, FedEx ExpressDavid Jacoby, Georgia-Pacific CorporationBen Jordan, The Coca-Cola CompanyJim Kearney, Bristol-Myers Squibb CompanyJohn Kindervater, Eli Lilly and CompanyKen Larson, Hewlett-Packard CompanyDavid Lear, Hewlett-Packard CompanyDavid Lowy, AltriaMayda Martinez, Merck & Company, Inc.Keith Miller, 3MDean Miracle, Southern Company/Georgia PowerGus Moffitt, Schering-Plough CorporationEd Mongan, DuPontLeslie Montgomery, Southern Company

Clear Advantage was developed in a collaborativeprocess by GEMI's Environment: Value to theInvestor Work Group. Jim Thomas of NovartisCorporation and John Harris of Ashland Inc. co-chaired the project. Jonathan Low and PamelaCohen Kalafut of Cap Gemini Ernst & Young, JosephFiksel of Eco-Nomics LLC and Karina Funk of theMassachusetts Technology Collaborative createdClear Advantage. Cover art and overall graphicdesign were created by Laura McGoff. GEMI staffcontributing to this document includedSteve Hellem and Amy Goldman.

Special thanks:During the course of the project Robert Brady ofCitigroup (retired), Mark Brammer of Innovest, Beth

For more information about this project, please contact GEMI at: 202-296-7449 or [email protected].

Aldo Morrell, DuPontDennis Muscato, Hewlett-Packard CompanyGeorge Nagle, Bristol-Myers Squibb CompanyScott Noesen, The Dow Chemical CompanyHarry Ott, The Coca-Cola CompanyVivian Pai, Johnson & JohnsonElsie Rivera Palabrica, Abbott LaboratoriesMary Beth Parker, Mirant CorporationDon Radentz, ConAgra FoodsJames Reaves, Pfizer IncTed Reichelt, Intel CorporationWalt Rosenberg, Hewlett-Packard CompanyDavid Seep, BNSF Railway CompanyBert Share, Anheuser-Busch Inc.Robert Sherman, Halliburton CompanyLyle Staley, BNSF Railway CompanyAlan Stinchfield, Georgia-Pacific CorporationJohn L. Stein, Anheuser-Busch Inc. (retired)Richard Swan, Occidental Petroleum CorporationRobin Tollett, The Procter & Gamble CompanyDavid Townsend, Dell Inc.Lucian Turk, Dell Inc.Norm Varney, Lockheed Martin CorporationLara Wallentine, Texas Instruments IncorporatedTerry Welch, The Dow Chemical CompanyJeff Werwie, Johnson Controls, Inc.Robert Williams, Dell Inc.Carl Wirdak, Occidental Petroleum CorporationPat Wood, Georgia-Pacific Corporation

To succeed in today's global marketplace,companies must respond to the various marketforces that demand sound Environment, Healthand Safety (EHS) policies and practices. Themore successful companies will alsounderstand how these EHS policies contributeto shareholder value.

Experts have argued that, in effect, superiorEHS performance is a proxy indicator forsuperior management capability. As such,it can effectively communicate anorganization's ability to manage risk, reducevolatility, enhance transparency and buildstakeholder trust.

Risk management, transparency and trust areorganizational characteristics that marketsvalue, although they do not appear directly onfinancial statements. A substantial body ofevidence exists on how EHS practicescontribute to the bottom line, includingreductions in operating costs, insurancepremiums, and capital costs. It is thecontention of this document that EHSpractices contribute to shareholder value in abroader and more strategic way: by buildingcritical organizational capabilities. As such, themarkets value a company's EHS performanceevery day, whether it contributes to thatvaluation exercise consciously or not.

Thinking about EHS as merely a cost of doingbusiness is an opportunity lost. Organizationshave much to gain from measuring, managingand disclosing the positive impact of EHSperformance on shareholder value. Some ofthe facts, detailed below, suggest thatinvestors, senior executives and analystsconstitute a market for information related toEHS performance:

• 50 to 90% of a firm's market value can be attributed to intangibles like EHS.

• 35% of institutional investors' portfolio allocation decisions are based on intangibleslike EHS performance.

• 81% of Global 500 executives rate EHSissues among the top ten driving value intheir businesses.

This document provides a guide tocommunicating the value of EHS excellence.The document's goal is to show howcompanies can develop forward-looking toolsfocused on measuring the strategiccontributions of EHS to enhanced marketvaluation.

Section 1EXECUTIVE SUMMARY

Section 2, Making the Case, provides evidence to support the correlation between EHS performance

and financial outcomes. It may be of greatest benefit to Investor Relations Officers (IROs).

Section 3, A Closer Look, provides ten important EHS-related value drivers and related case studies

from GEMI member companies.

Section 4, From Concept to Practice, provides a methodology for EHS and IR colleagues to apply this

new knowledge and engage with senior executives in order to effectively measure, manage and disclose

the competitive advantage derived from superior EHS performance. Sections 3, 4 and the Appendices

are likely to be of value to all managers and EHS professionals.

1

INTANGIBLE DRIVERS, OFTEN INCLUDING EHS, ACCOUNT FORBETWEEN 50% AND 90% OF THE MARKET VALUE OF MOST FIRMS.3

Section 2MAKING THE CASE

EHS Performance is Linked toShareholder Value

The late 1990's and early 2000's were aturbulent period for the global investmentcommunity, with vast amounts of shareholderwealth being created and destroyed. Bothinstitutional and retail investors have learnedsome painful lessons, re-examined theirassumptions about what constitutes tangibleand intangible value, and broadened theirscope to consider characteristics that can leadto longer-term financial success.

One area of corporate performance that hasbegun to capture the attention of investmentprofessionals is environmental, health andsafety (EHS): a set of responsibilities thatcontributes directly to an organization's riskmanagement profile and is sometimes alsolinked with “corporate responsibility" or“sustainability." This report explores thelinkage between EHS performance andshareholder value creation. There isconsiderable evidence that EHS contributes toshareholder value in a variety of ways—notonly through “tangible" contributions such asrisk reduction and profitability improvements,but also through “intangibles" such as brandequity, human capital and strategy execution.In the words of one Chief Financial Officer(CFO):

“Every corporation is under intense pressure tocreate ever-increasing shareholder value.Enhancing environmental and socialperformance are enormous businessopportunities to do just that.”

Gary M. Pfeiffer,Sr. Vice President & CFO, DuPont

EHS is an Intangible Driver ofMarket Value

In order to understand the full potential forEHS value creation, it is first necessary toclarify the concept of intangible value drivers.The investment community increasinglyrecognizes the importance of intangibles in theshareholder value equation. Leadership,strategy execution, brand, human capitaland EHS performance are all currencies intoday's marketplace. A report on theIntangibles Economy to the EuropeanCommission noted that:

“Intangibles such as R&D, proprietary know-how, intellectual property and workforce skills,world-class supply networks and brands arenow the key drivers of wealth production whilephysical and financial assets are increasinglyregarded as commodities."1

The International Accounting Standards Boarddefines an intangible as an “identifiable, non-monetary asset without physical substanceheld for use in the production of goods orservices, for rental to others or foradministrative purposes."2 This report adopts abroader view: “Intangibles" describes thehuman, intellectual, social and structuralcapital of an organization. Thus, intangiblesinclude people, relationships, skills and ideasthat add value but are not traditionallyaccounted for on the balance sheet.

According to the Organization for EconomicCooperation and Development (OECD),investment by public companies in intangiblessuch as brand, R&D and training has exceededinvestment in tangibles like property, plant andequipment (PPE) since 1997.3

2

Figure 2-1 shows, further, that a company'smarket value has increasingly becomedecoupled from PPE and has increasinglybeen far outweighing companies’ tangibleasset bases.

Research shows that non-financial performanceaccounts for up to 35% of institutionalinvestors' portfolio allocation decisions.5

Further research in the U.S. and Europedemonstrates that between 50% and 90% of acompany's market value can be explained byintangibles.6 Yet, a majority of executives inevery industry studied believed that there weredisconnects between the value drivers they feltwere critical to the company's success andwhat was actually being measured andreported.

For the purposes of this report, a value driveris defined as a fundamental and persistentcharacteristic of a business enterprise thatinfluences its market value. The report focuseson the role of EHS in strengthening thesevalue drivers, with an emphasis on theimportance of measuring and monitoring thelinks between EHS activities and outcomes ofinterest to Investor Relations.

Adding confidence to the importance ofidentifying key value drivers and assessing theircontributions to shareholder value creation, a1996 study entitled Measures That Matterestablished that the correlation between

intangibles and a company's price-to-earningsratio varies according to industry. Figure 2-2depicts how a one unit change in a score foreach intangible can be related to both a short-term and a long-term percentage change in anindustry's price-to-earnings ratio.7

How EHS-Related Intangibles BecomeTangible Outcomes for Investors

Past efforts to characterize EHS valuecontributions have focused largely onretrospective estimation of financial returnsassociated with EHS initiatives. That type ofinformation may not be of interest to theinvestment community for several reasons:

• EHS financial returns are simply aggregatedinto common financial performance metrics(such as operating costs), and there is nobenefit in singling out the relativecontributions of specific departments.

• EHS contributions to the bottom line tendto be incremental in nature (such asconverting wastes into by-products), andare generally seen as tactical rather thanstrategic.

• The more strategic contributions of EHStend to be associated with non-financialvalue drivers, such as relationships andreputation, which provide a prospective,rather than retrospective, view ofshareholder value.

Figure 2-1

Market Cap v.PPE Over Time4

140

120

100

80

60

40

20

02.4

16.84.5

43.4

13.9

127.5

1981 1991 2002

Mar

ket

Cap/

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Rati

o(T

op 1

00 M

arke

t Ca

p Fi

rms

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Each

Yea

r)

Average

Maximum

35% OF INSTITUTIONAL INVESTORS' PORTFOLIO ALLOCATIONDECISIONS ARE BASED ON INTANGIBLES LIKE EHS5

3

In contrast with past efforts, this reportfocuses on how improvements in EHS andsocial performance can strengthen a company'sintangible assets in a number of ways that inturn lead to tangible shareholder valuecreation. The many pathways to shareholdervalue are illustrated in Figure 2-3; for example:

• Pro-active initiatives to address EHS issuescan lead to new product innovation,development of new markets, and improvedprocess technologies. For example, 3M andBristol-Myers Squibb have incorporatedproduct life cycle review into their newproduct development processes, resulting infaster times to market and reducedcompliance burdens.

• Differentiation of a company through a reputation for corporate responsibility canenhance brand equity and strengthen itslicense to operate. For example, Dow andDuPont have been recognized as industryleaders through their initiatives to reduce airand water emissions in their globaloperations.

Corporate Initiatives Reflect the Demandsof Global Capital Markets

The types of value creation opportunities citedabove have existed for many years. Onlyrecently, as a result of new forces in thebusiness environment, has a broader awarenessof these opportunities spread among leadingmulti-nationals, shareholders, regulatorybodies, non-governmental bodies andconsortia. The evidence of growing interest insustainability generally and EHS specifically isimpressive.

• 68% of the 100 largest global companiesissue EHS reports 9

• 487 companies published corporatesustainability reports in 2001, up from 194in 1995 and 7 in 199010

• 81% of Global 500 executives surveyed rateEHS issues among the top ten value driversfor their business11

These trends are partly attributable toincreasing regulatory pressures, especially in

81% OF GLOBAL 500 EXECUTIVES SURVEYED RATE EHSISSUES AMONG THE TOP TEN VALUE DRIVERS FOR THEIR BUSINESS11

4

Figure 2-2 Relationship between Intangibles and P/E by Industry8

0% 15%

Computer Industry Pharmaceuticals Food Industry Oil and GasNon-Financial Criteria

Quality of Management

Quality of Productsand Services

Level of CustomerSatisfaction

Strength of Corporate Culture

Quality of Investor Communications

Effectiveness of ExecutiveCompensation Policies

Effectiveness of NewProduct Development

Strength of Market Position

0% 15% 0% 15% 0% 15%

Influence on Price Short Term Long Term (Brand Value included)

Europe. In April 2003, the New York Timesreported that “the European Union is adoptingenvironmental and consumer protectionlegislation that will go further in regulatingcorporate behavior than almost anything theUnited States government has enacted indecades."12 However, it has become clear thatbeing proactive about EHS and sustainabilitymakes good business sense. In the words ofWilliam Stavropoulos, CEO of The DowChemical Company:

“There is no question in my mind thatbusiness and the free enterprise system areessential to making sustainability work. Ourfocus at Dow is on hard-wiring it into ourcompany in the same way we have fullyinstitutionalized environment, health andsafety into our culture and into our work andpeople processes. Our challenge is to makesustainability sustainable. Ultimately, the worldwill judge our commitment to sustainabilitynot by what we say, but by what we do."

Market demand for greater transparency,ethical behavior and corporate governance hasled to an increase in voluntary disclosure,endorsed by the major exchanges in Europe

and the U.S, as well as greater scrutiny frommajor investors. In addition to customers,shareholders and employees, there is a broadercollection of stakeholders that can influencethe success of a business and are interested inEHS performance. These include: suppliers andbusiness partners; regulators and governmentofficials at the local, state and federal levels;neighboring communities; religious groups,advocacy groups and other NGOs; academicand research organizations; and, of course, themedia. Many leading companies haveestablished stakeholder outreach programs,often including extensive dialogue sessions andformation of external advisory panels. Somecorporations have gone a step further byestablishing formal alliances with specificenvironmental or public interest groups—seepage 20 for an example of how FedEx Expressis working with Environmental Defense'sAlliance for Environmental Innovation.

In short, EHS and social performance matter tostakeholders, whether it is diversity in theworkforce to the labor markets, innovation andrisk management to the capital markets, orpollution prevention to stakeholders in the

Product and ProcessInnovation

Reduced Waste andEmissions

Efficient Use ofResources

Occupational Healthand Safety

StakeholderEngagement

EmployeeSatisfaction

EnvironmentalProtection

CommunityQuality of Life

IncreasedProfitability

Improved CapitalUtilization

ShareholderValue

CustomerSatisfaction

IntellectualCapital

License toOperate

Reputation andBrand Image

ReducedRisk

TangibleOutcomes

Value to Society

IntangibleAssets

Figure 2-3

Overview of PathwaysLinking EHS toShareholder Value

5

VOTES RECEIVED IN FAVOR OF SHAREHOLDER RESOLUTIONS ONCORPORATE GOVERNANCE IN 2002 WERE TWICE THOSE RECEIVED IN 200118

community. The growing environmental andsocial concerns of stakeholders present aunique opportunity for companies to betterleverage their EHS capabilities. This will enablecompanies to both measure and manage thecontribution of EHS and social performance toshareholder value.

A Growing Awareness in the FinancialCommunity

Despite the surge of interest in EHS andsustainability, the majority of companyfinancial officers, institutional investors andfund managers are reluctant to addressenvironmental and social performance.However, a growing minority of investmentprofessionals believes that it is worthwhile toconsider the relationship between market value,EHS and social performance. In particular,

there is a heightened awareness of thecontribution of non-financial performance tomarket value in such areas as corporategovernance, transparency and business ethics.

EHS Excellence is an Indicator of SuperiorManagement

Some analysts have argued that EHSperformance is correlated with financialperformance, and therefore that EHSexcellence can be used as a proxy indicator forshareholder returns. The underlying logic isthat effective management of EHS issues is asign of good management, which drives goodfinancial performance. For example, Innovestconstructed an EHS management rating indexcalled EcoValue21® as an investment analysistool, and claims that it distinguishescompanies with superior returns across a rangeof industries. Figure 2-4 illustrates how, in the

Figure 2-4

Analysis of PharmaceuticalIndustry Stock PerformanceBased on EcoValue21®Rating Index13

20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

-30%

May-01 Jun-01 July-01 Aug-01 Sept-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02

Difference 0.0% 4.0% 3.7% 3.9% 7.1% 5.8% 5.2% 5.9% 9.0% 16.9% 16.5% 15.5% 17.2%

Top Half Average 0.0% -1.4% -0.2% -3.5% -1.5% -0.8% -2.3% -3.0% -8.3% -3.5% -4.7% -7.7% -8.2%

Bottom Half Average 0.0% -5.4% -3.9% -7.4% -8.6% -6.6% -7.5% -8.9% -17.2% -20.4% -21.2% -23.3% -25.4%

May

-01

Jun-

01

Jul-

01

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-01

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-01

Dec

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6

Chart courtesy of Innovest

pharmaceutical industry, companies with aboveaverage ratings have outperformed companieswith below average ratings by approximately17 percentage points (1700 basis points) sinceMay 2001.

Business Fundamentals go Beyond AuditedFinancials

The recent wave of accounting scandals in theU.S. has led investors and other corporatestakeholders to re-think their position on justwhat is “fundamental" to the valuation of acompany. There is mounting evidence of thefinancial risks associated not only withcorporate environmental liabilities, but ofglobal problems such as climate change.Although analysts may not always speak thelanguage of EHS and sustainability, Wall Streetis gradually becoming aware of the importanceof measurement and disclosure of non-financial elements of a business. For example,up to 86% of oil and gas industry analystssurveyed confirmed that company performancein regulatory compliance, employee health andsafety, community service and lawsuits doindeed impact the value of a firm (see Figure2-5).14

Concerns about global warming are alsomaking some of Europe's largest insurance

companies keenly interested in greenhouse gasemissions. Insurers claim that in the nextdecade, the annual cost of global warming willrise to $150 billion a year.15 In the absence ofU.S. government mandates, several groups haveformed, including the Energy Future Coalitionand the Pew Business Environmental LeadershipCouncil, to address the challenge of globalwarming. As financial executive Linda Descanoof Citigroup noted,

“These issues are no longer environmental andsocial issues but are now recognized asstrategic business issues."16

Shareholder Advocacy is Mounting

Shareholder advocacy interests have alsofocused on the issue of disclosure beyond thatrequired by law. A recent report by the RoseFoundation provides a thorough review of theevidence linking environmental performance tofinancial performance, and recommends thatfiduciaries of pension funds, foundations andcharitable trusts should take active steps toencourage disclosure of environmentalperformance information.17

There is mounting evidence that shareholderadvocacy can succeed through a variety ofmechanisms—the formal shareholder proxyprocess, private dialogue, public dialogue using

82%

RegulatoryCompliance

100

80

60

40

20

0

50%

36%

86%

EmployeeSafety

CommunityService

Lawsuits

Figure 2-5 Percent of oil and gas industry analysts who feel thatselected EHS indicators impact the value of a firm.14

SOCIALLY SCREENED INVESTMENT PORTFOLIOS TURN OVER 50% LESS THAN OTHER MANAGED FUNDS9

7

8

the media, or litigation as a last resort. TheNew York Times reports that “shareholdershave filed 31 global warming resolutions with23 companies in the United States in 2003 and5 in Canada. The companies include automanufacturers, electric power companies andoil companies."18 Over 800 resolutions werefiled in 2002 concerning corporate governanceissues. The votes received in favor of suchresolutions were twice those received in 2001.

The stakes are increasing as multinationals inthe finance community band together tosupport their arguments for EHS considerationsin their finance portfolios. For example, tenleading banks from around the worldannounced in 2003 a set of voluntaryguidelines called the “Equator Principles,"whereby they intend to meet the InternationalFinance Corporation's EHS guidelines in theirprojects in developing countries. This is aninteresting and unprecedented expectation:banking clients must adhere to theseprinciples, and this is relevant to allcorporations. Principle #8 states that if aproject goes out of environmental or socialcompliance, this constitutes grounds for adefault on the loan.55

In 2002, the Corporation of London, inpartnership with international financial servicesfirms, put forth a set of guidelines called TheLondon Principles designed to elucidate “therole of financial services in sustainabledevelopment." Given that London has 58% ofthe global foreign equity market and isarguably, after New York, the most importantfinancial center in the world, this document isextraordinary. In addition, the principles wereendorsed by British Prime Minister TonyBlair.19

The Growth of Socially Responsible Investing (SRI)

There are now over 200 mutual funds, run byover 800 portfolio managers and analysts,dedicated to socially or environmentallyresponsible investing. In sum, socially screenedportfolios are now more than $2 trillion, over10% of the $19.9 trillion assets currently

under management in the U.S.20 Differentinvestment styles have emerged among fundsusing socially responsible, ethical orenvironmental criteria.21 The majority of the$2 trillion figure consists of screenedinvestments, but credible organizations in thepast several years have been developing scoringand ranking tools that rate companiesaccording to environmental, social andeconomic criteria. The Dow JonesSustainability Index scores companies basedlargely upon their responses to extensivequestionnaires,22 while the FTSE4Good Indexanalyzes EHS and social responsibilityactivities, with the stated intent of promotinga stronger business commitment.23 Theseindexes have generally performed in line withor have outperformed the broader marketaverages.24

Ten Intangible Value Drivers for MeasuringEHS Performance

Identifying and improving upon a company'skey value creation opportunities is only asuseful as the ability to communicate these tointerested stakeholders. To communicate moreeffectively the hidden value of EHS, the EHScommunity should adapt itself to the languageand world-view of the investment community.In practice, the importance of specific EHSissues can vary greatly from company tocompany, and an EHS department needs tounderstand its company's business strategiesand value drivers, and to develop its prioritiesaccordingly. Effective communication betweenthe EHS and the investor relations perspectivecan help focus on specific EHS valuecontributions in terms that are clear toinvestors.

The book Invisible Advantage25 helps bothindividuals and companies better understandand communicate the profound degree towhich intangibles are defining corporate valuecurrently and revolutionizing the ways inwhich business is conducted. Key intangiblesvary according to industry, but measures

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related to management credibility,innovativeness, ability to attract talentedemployees and research leadership areconsistently highly correlated with marketvalue.26 The GEMI EVI Work Group hasidentified ten intangible value drivers thatreflect significant pathways for value creationthrough EHS and sustainability. These valuedrivers are listed in Figure 2-6, and form thebasis for the subsequent sections of this report.

Utilizing these value drivers, this reportdemonstrates that (a) strengths in EHS andsustainability can add value to the enterprise,and (b) these strengths can be quantified in

the form of an index that is relevant tocompany valuation. Specifically, this reportshows how companies can develop a forward-looking tool that focuses on measuring thestrategic contributions of EHS and socialperformance to enhanced market valuation.The identification of EHS-related indicatorsthat are linked to intangible value drivers is thesubject of the next section.

CUSTOMER The ability to develop customer relationships, satisfaction and loyalty.

Management capabilities, experience and leadership's vision forthe future.

Does management communicate honestly and openly? Are itscommunications believed and trusted? Does it hold itself accountable?

Strength of market position. The ability to expand the market,perception of product/service quality and investor confidence.

How the company is viewed globally with regard to environmentalconcerns, community concerns, regulators' concerns, inclusion in "mostadmired company" lists and triple bottom line.

Supply chain relationships, strategic alliances, partnerships.

Strategy execution, IT capabilities, inventory management, turnaroundtimes, flexibility, reengineering, quality, internal transparency.

Talent acquisition, workforce retention, employee relations,compensation, what makes a "great place to work."

The R&D pipeline, effectiveness of new-product development, patents,know-how, business secrets.

The ability to effectively manage the balance between potentialliabilities and potential opportunities.

LEADERSHIP ANDSTRATEGY

RISK

INNOVATION

TRANSPARENCY

BRAND EQUITY

ENVIRONMENTAL ANDSOCIAL REPUTATION

HUMAN CAPITAL

TECHNOLOGYAND PROCESSES

ALLIANCE ANDNETWORKS

Figure 2-6 The Measures that Matter

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Section 3A CLOSER LOOK

This section describes and illustrates each ofthe 10 intangible value drivers listed in Figure2-6, and suggests performance indicators thatcan be used to quantify their EHS aspects.

• Customer satisfaction with EHS performance• Extent of customer relationships across product life cycle• Collaboration with customers on EHS solutions

Value Driver Sample Performance Indicators

CUSTOMER


TRANSPARENCY

BRAND EQUITY

ENVIRONMENTALAND SOCIALREPUTATION

ALLIANCES ANDNETWORKS

TECHNOLOGYAND PROCESSES

HUMAN CAPITAL

INNOVATION

RISK

• Commitment to EHS/sustainability principles and goals• Articulation and execution of EHS strategy• Expression of diverse EHS views at Board level• Level of reporting for EHS function

• Disclosure of governance policies & procedures• Stakeholder engagement• Timeliness of communications• Quality and depth of EHS/sustainability reporting

• Perception of brand as environmentally and socially responsible• Value-added due to product stewardship• Presence in environmentally or socially-screened investment funds

• Regulatory compliance record• Third-party recognition and awards• Participation in EHS/sustainability consortia• Community development and philanthropy

• Collaboration on EHS/sustainability throughout the supply chain• Partnerships with EHS/sustainability-oriented organizations• Participation in industrial ecology networks

• Inherent product or process hazards• Effectiveness of risk prevention and risk management• Effective response to challenges and opportunities.

• Leadership and patent position in EHS technologies• Cost savings through EHS/sustainability innovation• EHS-related product or service differentiation

• Leadership in EHS/sustainability technologies & business practices• Design for EHS/sustainability processes and results• Energy and material conservation• Ecosystem impact minimization

• Workforce diversity, employee benefits and compensation• Employee rights and empowerment• Perception and awards as a "great place to work"

Figure 3-1 Indicators that Contribute to EHS Intangible Value Drivers

These are summarized in Figure 3-1. The nextsection presents a process for companies toidentify, measure, communicate, and managethese drivers of shareholder value.

The ability to develop customer relationships, satisfaction, and loyalty

Meeting basic customer expectations is nolonger sufficient. When competitors are anarms-reach or a “click away,” fostering solidcustomer relationships is essential. Theserelationships extend beyond the product orservice transaction—many customers nowexpect environmental and social responsibilityas well. For example, the U.S. Federalgovernment, which purchases $200 billionannually in goods and services, has adoptedComprehensive Procurement Guidelines thatgive preference to energy efficient,environmentally effective, and bio-basedproducts. Many large manufacturers haveadopted similar EHS procurement criteria. Inthe European Union, “green" purchasing isbecoming more common among consumers,backed by a policy directive that promotessustainable consumption through reducedconsumer packaging and energy efficiency.

The Philippines as Satisfied Customer:Mirant Corporation

Mirant's Philippine operations and involvementin the Philippine rural electrification programhave earned the company many coveted

environmental performance and corporatecitizenship awards. They have also beenrecognized as a top employer in thePhilippines. These accomplishments andcorporate commitment have helped sustain apositive working partnership with thePhilippine government. In ensuring a license to operate through corporate citizenship,Mirant can be more certain of a license togrow in the market when additionalinvestments are warranted.

Measures related to EHS performance inenhancing customer relationships include:

• Extent of disclosure of the environmental/social impacts of products and processes

• Customer loyalty and price toleranceattributable to EHS differentiation

• Extent of customer relationships throughoutthe life cycle of the product

• Third-party feedback and customersatisfaction awards

• Collaboration with customers on EHS-relatedinnovations or customer solutions.

• Customer satisfaction with EHS performance• Extent of customer relationships across product life cycle• Collaboration with customers on EHS solutions

CUSTOMER

Customer Satisfaction throughEnvironmental Services: Ashland Inc.

Ashland Distribution Company, a division of AshlandInc., offers a one-source, ‘closed-loop’ process to notonly supply chemicals, plastics and other materials,but also to manage hazardous and non-hazardouswaste streams for customers. Ashland’s EnvironmentalServices group, leverages a value-added customerservice from the in-house expertise and capabilitiesgained while handling these issues for Ashland’s ownchemical businesses. It offers a range of processing

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and treatment options, compliance assurance andindustry-leading service throughout North America.

Key Intangibles:Customer, Technology and Processes

Sample Leading Indicators:• Customer cost of ownership for purchased

chemicals• Customer loyalty and retention• Revenue from environmental management

services

“Environmental protection is a complexundertaking, but the laws of nature are simple.We will provide leadership on the journey toan environmentally sustainable future, withefficient products and creative recyclingsystems."27

Carly FiorinaChairman and Chief Executive Officer, HP

The growing importance of transparency andcorporate responsibility has made EHS andsustainability commitment an essential elementof corporate leadership and governance. ChiefExecutives and Boards of Directors areincreasingly sensitive to the expectations ofshareholders, employees, and otherstakeholders.

Measures of EHS performance relevant toleadership and strategy include:

• Commitment and policies with regard to EHS/sustainability principles and goals

• Effectiveness of management in articulationand execution of EHS strategy, includingdialogue and engagement with externalstakeholders (see Transparency, page 13)

• Diversity and independence of the Board, including the number of outside Directors

• The level of reporting for the EHS/sustainability function.

• Commitment to EHS/sustainability principles and goals• Articulation and execution of EHS strategy• Expression of diverse EHS views at Board level• Level of reporting for EHS function


One of the world's foremost proponents ofintegrating EHS issues into business strategy isChad Holliday, CEO of DuPont, who served as chairof the World Business Council for SustainableDevelopment (WBCSD). DuPont no longer viewsEHS and social performance as separate thrusts,but instead has woven them into its threecorporate strategic priorities:

• Knowledge intensity - creating products and services that deliver greater value to customers and shareholders with less physical mass

• Productivity - improving operating efficiency and capital utilization while reducing the supply chain environmental footprint

• Integrated science - seeking technological innovations that improve quality of life, e.g., by enhancing safety, recyclability, or nutrition.

DuPont has effectively bridged the communicationsgap between EHS performance and financialperformance by emphasizing the contributions ofEHS to key intangible value drivers, such asinnovation and technology.

Key Intangibles:Leadership and Strategy, Innovation

Sample Leading Indicators: • Shareholder value added per pound of product• Operating efficiency improvements attributable

to eco-efficiency• Percent of new products with differentiated

EHS/sustainability features

Management capabilities, experience, vision for the future

Integrating EHS into Business Strategy: DuPont

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Effective communication can be the linchpinof corporate reputations; negative impacts canbe dramatic when stakeholders are not giventhe information or ability to make an informedchoice.28 Transparency has become a criticalbusiness issue. The Sarbanes-Oxley Act is thelegislative incarnation of the spotlight thatinvestors, consumers, and employees now shineon the financial statements of a company.29

GEMI holds NGO transparency workshops andis developing a new tool to addresstransparency challenges.30

Indeed, companies may pay a price for notmanaging the disclosure of their information,given the ease with which consumers andregulators can now access information oncorporate practices. When the Toxic ReleaseInventory (TRI), a U.S. EPA database of wastemanagement activities, was first disclosed,shares of publicly-traded companies reportingdata markedly declined in the short-term.31

The implication is that investors updated theirexpectations of future returns for high TRIcompanies. This feedback from the marketprompted change: The firms with the largestdecline in market value subsequentlyresponded by reducing emissions more thantheir industry peers.32

Companies stepping up to this demand forinformation disclose not only credible financialstatements, but also their environmental andsocial policies and procedures. One recentstudy shows the relationship betweencompanies that disclose more detailedinformation about their governance and highershareholder return.33 Though this correlation isnot conclusive, it does underscore the validityof transparency in governance as a value driver.

Sample measures related to transparency andcommunication include:

• Disclosure of governance policies andprocedures, including:

� Disclosure of Director share ownership requirements

� Issuance of reports, policies, guidelines, andprocedures concerning EHS/Sustainability,dialogue meetings with stakeholders,disclosure of business process improvementinitiatives

� Stating how these policies relate to existinginternational standards

� Tying executive and employee compensationto meeting or exceeding internal standardsand guidelines

� “Continuous" reporting or book-keeping;timeliness of financial and non-financialinformation disclosure beyond quarterly orannual filings

• Extent of stakeholder engagement anddialogue:

� Number of community advisory panels at manufacturing sites

� Cooperation or alliances with non-governmental organizations (NGOs)

� Employee involvement in EHS/Sustainabilitypolicies and practices

• Timeliness of communications: e.g.,responses to unplanned incidents or releases

• Quality and depth of EHS/Sustainabilityreporting:

� Commitment to quantitative indicatorsand goals

� Adherence to international reporting standards

� Candidness about gaps and needed improvements

• Disclosure of governance policies and procedures• Stakeholder engagement• Timeliness of communications• Quality and depth of EHS/Sustainability reporting

COMMUNICATION ANDTRANSPARENCY

Does management communicate honestly and openly?Are its communications believed and trusted?Does management hold itself accountable?

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Bristol-Myers Squibb (BMS), a global manufacturerof pharmaceuticals, recently recognized that anincreasing number of clinical trials are beingconducted in developing nations. In keeping withits social responsibility commitment, the companyformed a Bioethics Committee and developedpolicies regarding ethical issues in clinical trials,such as readability of forms and informed consenton behalf of children or disadvantaged subjects.One important consideration is that clinicalresearch should be done in a population that willderive benefit from that research, implying that theresulting products should be available to thepatients in that region. Another example is theemerging area of protection of privacy inpharmacogenetics, which seeks to predict diseasevulnerability or treatability in specific geneticgroups. Since bioethics is an evolving area, thecompany continues to reconsider and refine itspolicies.

BMS was approached by the Calvert Group, asocially responsible investment firm, to learn moreabout its corporate responsibility and ethicsprograms. During a meeting between Calvert andBMS researchers, the bioethics policies werefeatured as an ethical research example. Calverthas lauded these policies as a pharmaceuticalindustry model. At their suggestion, rather thankeeping its bioethics policies confidential, thecompany has decided to make them available uponrequest to interested stakeholders.

The transparency dialogue between Calvert andBMS supported Calvert's decision to include thecompany in the Calvert Social Index, which is usedas a basis for inclusion into many of its mutualfunds. As a result of its transparency and leadershipin the area of ethical research policies, Bristol-Myers Squibb hopes to be recognized not only bythe investment community, but also by the globalpopulations that it serves. It is plausible to expectthat governments, research institutions, and civilsociety will acknowledge the company as a trustedpartner in the conduct of future clinical trials, andthat this will translate into competitive advantagein growing international markets.

Key Intangibles: Transparency, Environmental and Social Reputation

Sample Leading Indicators: • Inclusion in socially responsible funds• Penetration into international markets• Clinical trials conducted in developing nations

that will benefit from research

Transparency in Bioethics Policy: Bristol-Myers Squibb

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Many GEMI companies (such as Coca-Cola,Intel and Johnson & Johnson) are householdnames, and there have been many attempts tocalculate a monetary value of such brands. Forexample, these brand names consistently scorehigh on Interbrand's annual ranking of the“World's Most Valuable Brands."34 Somecompanies have successfully tied their brand toan environmentally-friendly image, and haveleveraged this image to improve consumerawareness and customer loyalty. 35

Measures of brand equity that relate to EHSand sustainability include:

• Perception of the brand as environmentallyand socially responsible—this can influence

customer loyalty, lender and investorscrutiny, cost of capital

• Value added due to product stewardship—thecommitment of a company to support thesafe and responsible use of its productsthroughout the life cycle

• Eco-labels and other certifications earned

• Inclusion of the company in environmentaland social responsibility investor screens,such as Dow Jones Sustainability Index orFTSE4Good.

• Perception of brand as environmentally and socially responsible• Value-added due to product stewardship• Presence in environmentally and socially-screened investment funds

BRAND EQUITY Strength of market position, the ability to expand the market,perception of product/service quality, investor confidence

The merger of Hewlett-Packard (HP) and Compaqunited two companies that had long pursued acommitment to EHS performance and sustainability."HP strives to develop programs that reduce ourenvironmental footprint, as well as those of ourcustomers and partners," said Walt Rosenberg, VicePresident, Corporate, Social and Environmentalresponsibility, HP Corporate Affairs. The companyhas incorporated "design for environment" methodsinto its product development processes and workedwith suppliers to reduce EHS impacts associatedwith its products.

The EPA has awarded its 2003 EnvironmentalAchievement Award for U.S. EPA Region 9 to HP’sproduct recycling solutions facility in Roseville,California.

HP is the only technology company to have its owncomputer hardware recycling facilities in the

United States. With its partners, HP operates one ofthe world's largest hardware recycling facilities.HP's environmentally sound management of end-of-life hardware turns unwanted products intovaluable commodities that can be reused toproduce new products, reducing the burden on theEarth's resources.36

Key Intangibles:Brand Equity, Environmental and Social Reputation

Sample Leading Indicators: • Reduction in emissions, waste, and energy

consumption per product unit shipped• Percent of product mass recovered and recycled

at end-of-life

Sizing Up the Footprint: Hewlett-Packard (HP)

A company's reputation for environmental andsocial responsibility can have an importantimpact on strategic issues, such as access tocapital and global markets. While the primarynegotiating levers for most businesses arebased on economics, concern for EHS andsustainability can be a differentiator. Somehost governments may even demand adherenceto sustainable development principles as aprice of entry. Measurement and reporting ofEHS performance and corporate citizenshipinitiatives also help to build better relationshipswith stakeholders, especially at the local level.

Measures related to sustainability reputationinclude:37

• Regulatory compliance record (e.g.,violations, penalties, incidents), as well asshareholder activism and public criticism

• Third party recognition and awards forcorporate citizenship or EHS excellence

• Participation in consortia that promote EHSand sustainability, such as GEMI or theWorld Business Council for SustainableDevelopment (WBSCD)

• Community development and philanthropy, including donations, local investments, andvoluntary in-kind assistance.

ENVIRONMENTALAND SOCIALREPUTATION

How the company is viewed globally in terms of environmentalconcerns, community concerns, regulators' concerns, inclusion in “mostadmired company" lists, triple bottom line

3M has a strong commitment to sustainabledevelopment through environmental protection,social responsibility and economic progress. Itssustainability policies and practices are directlylinked to its four fundamental corporate values:

• Satisfying its customers with superior quality and value

• Providing investors an attractive return through sustained, high-quality growth

• Respecting its social and physical environment• Being a company that employees are proud to

be part of

3M has been recognized as a sustainability leaderby the Dow Jones Sustainability Index and hasachieved high rankings for quality of managementand innovation. The Harris Annual ReputationSurvey ranked 3M as the tenth most reputable U.S.company in 2002. 3M believes that itssustainability reputation translates into shareholder

value by (a) demonstrating that 3M is a well-managed company that addresses both risks andopportunities, (b) enhancing brand preferenceamongst consumers, and (c) attracting andretaining a diverse and talented work force.

Key Intangibles:Environmental and Social Reputation, Brand Equity,Human Capital

Sample Leading Indicators:• Recognition as a sustainability leader by

government, NGOs and business groups• Inclusion in environmentally- or socially-

screened funds• Product preference by consumers

• Regulatory compliance record• Third-party recognition and awards• Participation in EHS/sustainability consortia• Community development and philanthropy

Building a Reputation for Sustainability: 3M

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Businesses over the years have come to acceptthe claim that “to build a company or acapability without regard for the chain inwhich it is embedded is a recipe for disaster."38

Scrutinizing a company's supply chain with anEHS lens can reveal the choices andopportunities a company has to cost-effectively improve performance. Raw materialsand new technological concepts, for example,may demand choices between higher-pollutingor cleaner-burning energy sources. Materialssourcing can lie squarely in the scope amongother strategic considerations. Manufacturerscan choose product designs that areupgradeable, with the potential for customerlock-in with a service relationship.

The Global Brand With a Local Reach: TheCoca-Cola Company

The network of local businesses that Coca-Colahas built is as impressive as its global brand.In over 200 countries, Coca-Cola operates withlocal partners. Even in geographies far fromits world headquarters such as in the MiddleEast, Coca-Cola employs 20,000 people directlyand 200,000 including retail and supply jobs.39

Their products are produced, sold, anddistributed by authorized local bottlingpartners, employing one million local citizens.

Zahi Khouri, chairman of the National BeverageCompany, a Middle Eastern bottler that is 15percent owned by Coca-Cola, said in aninterview with The Economist that Coca-Colastrongly supports local management ofoperations in other countries.39 Coca-Cola isthe second biggest corporate investor in theWest Bank region.

Measures that indicate leverage ofEHS/sustainability in alliances and networksinclude:

• Collaboration on EHS/sustainabilityimprovement through supply chainrelationships, including outsourcing,collaborative innovation, and procurementpolicies.

• Extent of outsourcing (e.g., cost of goods,materials, and services purchased)

• Percentage of suppliers that meet or exceedvoluntary environmental performancestandards

• Extent to which supplies are sourced locallyversus globally

• Number of alliances and joint ventures

• Explicit use of EHS and sustainability criteriain selection of suppliers and businesspartners

• Partnerships with EHS/sustainability-orientedorganizations, including NGOs, governmentsor other groups

• Participation in industrial ecology networks,in which waste byproducts of one companybecome feedstocks for another company.

GEMI's Supply Chain project is documentinghow collaborative relationships betweensuppliers and customers can improve overallsupply chain performance from both afinancial and EHS perspective. These types ofopportunities are also being explored by theSuppliers Partnership for the Environment (SP),a recently established automotive industryconsortium.

ALLIANCES ANDNETWORKS

Supply chain relationships, strategic alliances, partnerships

• Collaboration on EHS/sustainability throughout the supply chain• Partnerships with EHS/sustainability-oriented organizations• Participation in industrial ecology networks

17

In April 1999, Dow Chemical completed a two-yearcollaborative program with the Natural ResourcesDefense Council (NRDC) and five local activistgroups to voluntarily reduce waste and emissionsat the Michigan Operations site. The projectfostered broader efforts within Dow to shift fromtraditional environmental compliance to pollutionprevention and further integrate EHS concerns intobusiness decision making.

MSRI was a participatory process involving directcollaboration between Dow managers andenvironmental activists to first establish reductiontargets and then agree on pollution preventionactions. A full-time external expert was alsoretained by Dow to help identify the greatestopportunities for waste minimization and emissionreduction and to provide a credible technicalresource for the MSRI participants.

Results:

• EnvironmentalThe MSRI project set an aggressive goal of 35%reduction in waste and emissions. This goal wasactually exceeded—targeted emissions werereduced by 43%, and targeted wastes by 37%. Thetotal reductions achieved were over 10 millionpounds per year of wastes and about 1.5 millionpounds per year of air emissions, and some wastestreams, such as formaldehyde, were virtuallyeliminated. Consequently the TRI emissions fromthe Midland, Michigan site for 1998 were 41%lower than 1997.

• EconomicThe cost savings and process improvements thatMSRI delivered were exemplary. The reductions willbe paid for in less than one year, which translatesto an overall rate of return of 180%—a savings ofover $5.4 million per year with a total one timecapital expenditure of $3.1 million. Dow was thefirst company to harness the Six Sigmamethodology to directly improve EHS performance.

• SocialMSRI involved a multi-stakeholder, participatoryendeavor that enabled community participants togain an understanding of Dow's decision-makingprocess, and helped to establish common ground.Relationships with all stakeholders involved in theproject improved dramatically.

Key Intangibles:Alliances and Networks, Transparency

Sample Leading Indicators: • Measures of company's ability to prevent

pollution at its source, versus the capital required for pollution control

• Measures of the amount and quality of various stakeholder dialogues

• Environmental gains and competitive advantage due to process modifications

The Michigan Source Reduction Initiative (MSRI): The Dow Chemical Company

18

The ability to exploit new practices is a criticalelement of sustained competitive advantage.40

In the past few decades, companies havebegun to introduce strategic frameworks andprocesses that take environmental costs andbenefits into account.

Design for Environment (DfE)41 is one suchtool, where environmental criteria are broughton board early in the product developmentstage. When combined with a Life CycleAssessment (LCA), these tools can not onlyimprove the environmental performance of aproduct during its use phase, but also simplifya product's end-of-life disassembly, reuse,recycling and disposal. Total cost assessment(TCA) has been another useful managementtool since the late 1980's, and when combinedwith environmental considerations can give acandid picture of total costs and benefits (seeSection 4 for further discussion on TCA).

Employing such tools at all levels of theorganization takes a commitment eitherthrough the provision of information about thetool or process, or by employing incentives andcompensation schemes. Companies that standout as leaders in organizational technologiesand processes will understand and quantify thebenefits of such tools, and provide acombination of information and incentives toimprove the measurable performance.42

Measures of superior technology and processperformance include:

• Leadership in EHS/sustainabilitytechnologies:

� Investment in alternative energy, bio-based products, etc.

� Adoption of sustainable process technologies

TECHNOLOGY ANDPROCESSES

Strategy execution; IT capabilities, inventory management, turnaroundtimes, flexibility, reengineering, quality, internal transparency• Leadership in EHS/sustainability technologies & business practices• Design for EHS/sustainability processes and results• Energy and material conservation• Ecosystem impact minimization

19

• Leadership in EHS/sustainability business practices:� Speed and quality of EHS due diligence� Incentives to develop “beyond compliance"

processes and technologies

• Design for EHS/sustainability processes and results:� Incorporation of EHS/sustainability criteria

into product realization processCollaboration with suppliers on life cycle impact reduction

� Materials and energy use reduction in product and process design

� Reductions in pollution, greenhouse gas emissions, hazardous wastes, etc.

� Improvements in product upgradeability, longevity, re-usability, etc.

� Reduction in product maintenance requirements and cost of ownership

• Energy and material conservation:� Initiatives to use renewable energy sources

and to increase energy efficiency� Percentage of the weight of products sold

that is reclaimable at the end of the products' useful life and percentage that is actually reclaimed

• Ecosystem impact minimization:� Brownfields re-development initiatives� Land use policies and habitat restoration� Ecological footprint reduction

Excellence in technology does not necessarilyrequire leading-edge innovation. In many casesit simply involves applying available expertiseand know-how to devise beneficial, cost-effective solutions. Moreover, technology doesnot refer only to the “hard" technologiesassociated with product design and processengineering; it also includes the “soft"technologies associated with business processesand decision-making.

FedEx Express, the Memphis, Tennessee-basedcompany that invented the express packagedelivery market, has been upgrading its ground-based delivery operations. In May 2003, FedExExpress announced it had agreed to purchase 20hybrid delivery trucks, the vanguard in a programthat has the potential to eventually replace its fleetof 30,000 medium-duty express delivery vans.FedEx Express is the first U.S. company to adapt thetechnology for diesel delivery vehicles on such alarge scale.

Hybrids, which combine a high-efficiency diesel orgas engine with an electric motor, have bothfinancial and environmental advantages. Theyrequire less maintenance because they run cleaner,and the braking systems last longer because themotor itself helps to decelerate the vehicle whilerecapturing kinetic energy. Through a combinationof fuel savings and lower maintenance costs, FedExExpress expects to recoup some of the higheracquisition costs of the hybrid vans. As productionlevels rise, these costs will come down (and savingsincrease). FedEx Express is working withEnvironmental Defense's Alliance for EnvironmentalInnovation to develop the environmentalperformance specifications for the new vehicles.

The scale of FedEx Express' commitment is likely totransform the economics of hybrid commercialvehicles, potentially enabling them to be mass-produced and more affordable for smallercompanies. Thus, FedEx Express is helping to jump-start a technology that could have widespreadeconomic and environmental benefits. In a recentreport, consumer consultant J.D. Power &Associates Inc. estimated there will be more than500,000 hybrid vehicles on the road by 2008 withtrucks accounting for 40% of that number.

Key Intangibles:Technology and Processes, Innovation, Alliances andNetworks

Sample Leading Indicators: • Percent of fleet utilizing alternative engine

technology• Life cycle operating and maintenance costs per

vehicle• Energy consumption per vehicle mile

Utilizing Advanced Technology: FedEx Express

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In a service-oriented economy, human capitalis critical to organizational success, whether acompany is product or service-oriented.Researchers have begun to quantify, in variousways, the effects of investment in humancapital. For example:

• A study of 405 public companies found thata well-managed workforce can add up to30% to a company's market value.43

• A study of 40 companies found thoseranking in the top half for trainingexpenditures per employee had higher netsales and higher gross profit per employeethan those in the bottom half; they also hada higher and faster-growing market-to-bookratio.44

• A study of 29 professional service firms in15 countries indicated that raising employeesatisfaction by 20% can boost financialperformance more than 40%.45

Measures of EHS contributions to humancapital include:

• Workforce diversity, employee benefits and compensation:� Composition of senior management and

governance bodies, including female/male ratio and other indicators of diversity asculturally appropriate.

� Net employment creation and average turnover

� Employee benefits beyond those legally mandated

� Clear organizational goals, incentives and performance measures

• Employee rights and empowerment:� Freedom of expression and tolerance for

individuality� Average training investment per employee

per year� Incentives for employee volunteerism,

education and career development� Culture of continuous improvement,

including employee health and safety.

• Perception and awards as a “Great Place to Work."

HUMAN CAPITAL Talent acquisition, workforce retention, employee relations,compensation, what makes a "great place to work"

Intel was ranked number three in Business Ethics2003 list of best corporate citizens. The magazineexplains that ethics at Intel "include carefulattention to employee safety—so much that CEOCraig Barrett insists he be sent an e-mail reportwithin 24 hours any time one of his firm's 80,000employees loses a single day of work to injury. 'Thispolicy allows us to look at the root causes of allaccidents and figure out what we can do toprevent them from occurring again,'” said DaveStangis, Intel's Director of Corporate Responsibility.In 2000, Intel's worldwide injury rate was just 0.27

injuries per 100 employees, compared to anindustry average of 6.7.

Key Intangibles:Human Capital, Environmental and SocialReputation

Sample Leading Indicators:• Awards and recognition• Employee satisfaction surveys• Employee health and safety statistics

Commitment to Employees: Intel Corporation

• Workforce diversity, employee benefits and compensation• Employee rights and empowerment• Perception and awards as a "great place to work"

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Service, product and process innovations canall improve EHS performance as well as addoverall value to a corporation. Devisinginnovative ways to meet or beat compliancetargets may not only help reduce costs; it hasalso helped steer environmental regulation in adirection beneficial to producers as well as tosocial/environmental well-being. 46

Measures of EHS/sustainability contributions toinnovation include:

• Leadership and patent position in EHS technologies:

� Level of R&D investment in addressing regulatory requirements

� Licensing revenues from EHS technologies

• Cost savings through EHS/sustainability innovations, including operating costs,capital costs, service and support costs, orproduct takeback costs

• EHS-related product or servicedifferentiation, e.g., ability to extract ahigher margin.

INNOVATION The R&D pipeline, effectiveness of new-product development, patents,know-how, business secrets

Johnson Controls, Inc. (JCI) is the world's largestmanufacturer of automotive interiors andautomobile batteries, and a global leader in controlsystems and commercial facility management. JCIhas achieved growth through innovation, whileremaining committed to its values, includingintegrity, customer satisfaction and EHS excellence.

JCI began decades ago to promote battery recyclingand develop a reverse logistics infrastructure.Today, the recycling rate of battery lead exceeds93%, far higher than any other commodity, and 48states require lead-acid batteries to be recovered.In addition, lead and plastic process wastes arerecycled for re-use in new batteries and otherproducts such as X-ray shielding. Continuinginnovations in battery technology include designfor disassembly and development of higher voltagebatteries to support electronic control systems thatwill improve fuel efficiency and reduce emissions infuture vehicles.

As a leader in facility management, JCI focuses onmaking commercial buildings more energy efficient,safe, secure and comfortable. For example, inbuilding control systems, JCI's mercury-freethermostats provide a competitive advantage inmany applications (e.g., schools, hospitals). Oneimportant innovation was the Energy SavingPerformance Contracting approach, in which energyefficiency upgrades are financed through JCI andrepaid through energy savings. This approach isprojected to achieve $95 billion in energy savingsand 1.3 billion tons of carbon dioxide emissionreductions between 1990 and 2020.

Key Intangibles:Innovation, Risk

Sample Leading Indicators: • Energy/materials use per consumer product unit• Competitive advantage in bidding for contracts• Reduced cost of ownership and liability risks for

customers

Innovation and Environmental Benefits: Johnson Controls, Inc.

• Leadership and patent position in EHS technologies• Cost savings through EHS/sustainability innovation• EHS-related product or service differentiation

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Proactive investing in environmental measuresbeyond those required by law can be good forthe bottom line, while limiting downside risk.47

Damages and hefty litigation fees are incentiveenough to manage proactively the risk ofunplanned incidents such as spills, workplaceaccidents or product-related injuries. Moreimportantly, such incidents may result in costlybusiness interruptions as well as adversepublicity that can compromise brand equityand reputation.

Risk management also has a positive aspect—the ability of a firm to pursue promisingbusiness opportunities that involve uncertainty.A company that is able to rapidly andeffectively discern potential obstacles orliabilities, e.g., through a due diligence processfor acquisition of new assets, is betterequipped to enhance long-term shareholderreturns. Likewise, a company that exercisesproduct stewardship, while advising customersand suppliers on how to minimize hazards intheir own operations, enhances both its ownrisk profile and its perceived value as abusiness partner.

Insurance Companies Re-think Risk Profiles

Swiss Re believes that companies that havepoor compliance records or are lacking in plansto mitigate climate change risks, are morelikely to attract shareholder lawsuits.Accordingly, the insurance giant has statedthat it may drop insurance for the directorsand officers of those companies who may bespecifically targeted by shareholders.

On the positive side, the effective riskmanagement program of Occidental PetroleumCorporation has been recognized by insurance

companies, resulting in Occidental beingoffered access to additional insurance capacityat preferred rates.

Measures related to effectiveness inEHS/sustainability exposure and risk include:

� Intrinsic product and process hazards, suchas presence of toxic constituents

� Effectiveness of risk prevention and risk management, including:

� Prevention of risks� Frequency of internal audits� Investment in meeting upcoming

regulatory requirements� Accrued environmental liabilities, fines,

warnings and penalties� Rate of worker days lost per 200,000

hours� Mitigation of impacts

� Crisis response and crisis management performance

� Waste recovery and recycling programs, whether in compliance with or in addition to regulatory initiatives

� Workers compensation case management costs

� Costs of unplanned business interruptions

� Effective responses to challenges and opportunities:

� Proactive policies to address regulatory initiatives and consumer preferences, e.g.,policies to prepare for climate change pressures, use of emissions trading schemes, product take-back regulations and consumerprivacy issues

� Proactive experimentation with environmental technologies such as joint implementation, emissions trading, pollution-prevention technologies

� Corporate citizenship and stakeholder engagement initiatives

RISK The ability to effectively manage the balance between potentialliabilities and potential opportunities• Inherent product or process hazards• Effectiveness of risk prevention and risk management• Effective response to challenges and opportunities

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Novartis is one of the world's leading healthcarecompanies. The company has had a long history ofrisk management, using a variety of tools to assessrisks associated with new projects and acquisitions,as well as ongoing operations. For example,Novartis sites are required to annually maintain a"risk portfolio," a matrix that screens various risksin terms of their potential impacts and level ofcontrol. This information is rolled up to the Grouplevel, and is used to improve managementawareness and support priority-setting in resourceallocation.

Novartis has initiated a new program thataddresses business continuity by assuring that allbusiness interruption risks are properly anticipatedand managed. Costly business interruptions canpotentially be triggered by a variety ofcircumstances, from an unintentional release ofhazardous materials to a failure of criticalinformation systems. The Health, Safety andEnvironmental Department has the responsibility todevelop a framework for assuring businesscontinuity, including risk identification, contingencyplanning, crisis management and disaster recovery.In addition, looking beyond the fenceline, Novartishas established a product stewardship program toanticipate potential risks associated with design,material acquisition, distribution and use of itsproducts; for example, the company might chooseto eliminate chemical constituents with undesirableproperties.

Assuring Business Continuity: Novartis

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Key Intangibles:Risk, Environmental and Social Reputation

Sample Leading Indicators: • Number of risks classified "high" for each

business unit• Percent completion of business continuity plans• Percent of product stewardship risk analyses

completed

Section 4FROM CONCEPT TO PRACTICE

Through identification of important EHS-related value drivers, companies can improvetheir competitive position and financialperformance over the long run. However, EHSvalue contributions are not meaningful to theinvestor unless they are properly articulatedand communicated.

Section 2 “Making the Case" and Section 3 “ACloser Look" are relevant for senior companyexecutives, mainstream financial analysts orfund managers, and investor relationsprofessionals. This section is intended as apractical primer for the EHS professional,working in collaboration with other corporatefunctions. This section, “From Concept toPractice" presents a step-by-step process foridentifying, measuring, communicating andmanaging these value drivers. The intent of theprocess is to help EHS professionals and theircompanies gain recognition for EHS excellencefrom their own internal investor relationsfunction, from the investment community andfrom other stakeholders.

Linkage Between EHS and IR

In its “Standards of Practice for InvestorRelations," the National Investor RelationsInstitute (NIRI) defines Investor Relations as:

“. . . a strategic corporate marketing activitycombining the disciplines of communicationsand finance that provides present andpotential investors with an accurate portrayalof a company's performance andprospect…Marketing in this context does notmean 'selling' a company's securities, butrather a process of identifying target audiencesand educating them about the present andpotential value of those securities."

The NIRI document further notes that theimportance of quality of management toinvestors suggests that those investors need toknow whether management can articulate avision and whether they have the resources to

accomplish that vision. To the extent that EHSexcellence can logically be understood to bepart of that vision, there is a clear role for EHSprofessionals to assist the Investor RelationsOfficer (IRO), the CFO and the company inachieving its goals.

The Clear Advantage Process

Communicating EHS excellence as part of acorporate vision requires a systematic processthat enables companies to recognize and takeadvantage of opportunities for value creation.This section presents the Clear Advantageprocess that has been developed to address theneeds of GEMI's participating membercompanies (see page II). The design of thisClear Advantage process is deliberately generic,so that it can be adapted by virtually anymanufacturing or service enterprise.

The Clear Advantage process, depicted in Figure4-1, consists of six cyclical steps, and followsthe familiar pattern of “plan, do, check, act"that underlies most contemporary businessprocess designs. Therefore, it will be simple forcompanies to incorporate the desirable featuresof Clear Advantage into their existing valuecreation processes.

It is recommended that the Clear Advantageprocess be carried out by a cross-functional“value creation team," under the guidance ofan “EHS value champion." The value championfor this type of initiative is frequently fromEHS management, although a champion fromanother senior management function (e.g.,CFO) could yield wider acceptance and greaterlegitimacy. In addition to EHS and IR, otherfunctions that may participate on this teaminclude strategic planning, new productdevelopment, marketing, operations, finance,engineering and human resources.

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STEP 1 - Identify Key Value Drivers

Identification of value drivers is the startingpoint for any effort to enhance shareholdervalue. As described in Section 2 “Making theCase," a value driver is defined as afundamental and persistent characteristic of abusiness enterprise that influences its marketvalue. Authentic value drivers are fundamentalin that they represent a strong, intrinsiccharacteristic of an enterprise. They arepersistent in that they will have a lastingimpact on value regardless of marketfluctuations.

The nature and relative importance of thesevalue drivers varies by industry, geography andeconomic setting. It is likely that the strategicplanning and/or investor relations groupswithin a company will be able to provide aninitial list of perceived value drivers.

The following are guidelines for identifyingyour company's value drivers and related EHScontributions:

Action Items✓ With the help of internal strategic planning,

investor relations, and other groups, develop agenerally accepted list of key value drivers foryour company. It is best to perform thisexercise without preconceptions about whereEHS improvements might contribute thegreatest value. The value drivers that have beenidentified by GEMI members in Figure 2-6 mayprovide a useful starting point. These are

believed to be the most common but the list isnot all-inclusive

✓ Based on the team's expertise and insights,evaluate how EHS activities contribute to thesekey value drivers

✓ Develop a generally agreed upon ranking orclustering of the list of key drivers in terms ofrelative importance. Two ways of achieving thisare through informal consensus or having teammembers rank the drivers and calculateaverages

✓ To the extent possible, develop anunderstanding of your company's strengths orweaknesses in these driver categories vis-à-viscompetitors. Are there particular value driversfor which improvement would be particularly advantageous?

For Your ToolkitPerform an Intangibles Assessment

It may be helpful to assess the relative strengthof your company's intangible assets throughsimple surveying techniques. There are a numberof approaches; one example is an existing toolcalled the “Invisible Advantage Diagnostic"(available at http://www.predictiv.net). Suchquestions may be adapted in order to help assessthe relevance of EHS to each intangible valuedriver. For example, the following hypotheticalquestion explores how EHS capabilities are linkedto the Innovation process.

Illustrative example of a diagnostic question

To what extent does your organization leverageits EHS capabilities to support product andprocess innovation?

Identify KeyValue Drivers

Assess PotentialContributions

Develop ValueEnhancing Strategy

Assure ContinuousImprovement

Communicate to Managementand Investors

Implement Strategy andMeasure Results

STEP1

Figure 4-1 The Clear Advantage Process

STEP2

STEP3

STEP6

STEP5

STEP4

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• EHS capabilities are not linked to theinnovation processes in a systematic way

• EHS considerations occasionally motivateadoption of new technologies aimed atemission control and/or waste reduction

• EHS knowledge is incorporated into facilityengineering to systematically improveoperating efficiency and safety, or

• EHS knowledge is applied systematically toencourage innovation in both facilityengineering and new product development

STEP 2 - Assess Potential Contributions

In order to identify the highest leverageopportunities, a company needs to movebeyond the qualitative identification ofintangible value drivers and develop anunderstanding of the relative magnitudeof each.

A variety of different conceptual frameworkshave been developed for characterizing thetangible and intangible assets that drive long-term performance. If a company has alreadyadopted one, then it makes sense to utilizethat framework to further explore EHSopportunities. The following Figures 4-2 and4-3 summarize two frameworks that are incommon use today.48

One of the most widely used frameworks is the“Balanced Scorecard," popularized by Kaplanand Norton,49 which proposes broadening

financial performance measurement to includethree major non-financial perspectives that areleading indicators of financial success:Learning and Growth, Internal Business ProcessExcellence, and Customer Relationships. Thisframework is illustrated in Figure 4-2.

Another important framework is the“intellectual capital" model developed byStewart50 and others, which includes thefollowing categories of intangible assets:

• Human Capital - skills and knowledge ofmanagement and employees

• Structural Capital - patents and proprietarydata, methodologies or processes

• Relationship Capital - bonds with customersand suppliers, and brand identity

Leading companies such as DuPont andGeneral Electric have systematically worked tosubstitute intellectual capital for physicalcapital in order to increase shareholder value—this is in line with a notion that intangibleassets are less expensive to maintain thantangible ones. The EHS value drivers in Section3 can be mapped into the intellectual capitalframework using an approach similar to theBalanced Scorecard example (see Figure 4-3).

While the frameworks discussed are extremelyrobust and flexible, they do not provideguidance to practitioners on what intangiblesneed to be emphasized within each of these

“If we succeed, how will we lookto our shareholders?”

CUSTOMER PERSPECTIVE

“To achieve my vision, how must Ilook to my customers?”

INTERNAL PERSPECTIVE

“To satisfy my customer, at whichprocesses must I excel?”

LEARNING PERSPECTIVE

FINANCIAL PERSPECTIVE

Figure 4-2 Balanced Scorecard Framework

STRATEGY

“To achieve my vision, how must myorganization learn and improve?”

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GEMI Intangible Value Drivers

Bala

nced

Sco

reca

rd F

ram

ewor

k

FinancialPerspective

InternalPerspective

LearningPerspective

CustomerPerspective

Transparency Openness of an organization with regard to sharing information about how it operates.

Risk The ability to effectively manage the balance between potential liabilities and potential opportunities.

Technology Strategy execution; IT capabilities; inventory management; turnaround and Processes times; flexibility; reengineering; quality; internal transparency.

Human Capital Talent acquisition, workforce retention, employee relations, compensation; What makes a “great place to work.”

Innovation The R&D pipeline; effectiveness of new-product development; patents; know-how; business secrets

Leadership and Strategy Management capabilities; experience and leadership’s vision forthe future.

Alliances and Networks Supply chain relationships; strategic alliances; partnerships.

Customer The ability to develop customer relationships, satisfaction, and loyalty.

Brand Equity Strength of market position. The ability to expand the market, perception of product/service quality, investor confidence.

Environmental and How the company is viewed globally such as: environmental concerns, Social Reputation community concerns, regulators’ concerns, inclusion in “most admired

company” lists, triple bottom line.

broad perspectives. In particular, they do notprovide explicit linkages between the strengthof a company's intangibles and the financialperformance of interest to investors. Step 3will focus on measurement of financial valuedrivers and account for the impact ofintangible assets.

For this step in the Clear Advantage process,EHS management should assess how it canmake the greatest contribution to value. This isultimately a creative exercise. The followingaction items are by no means exhaustive, butthey should help to articulate and assess themost promising opportunities.

Action Items✓ Create a set of hypotheses about areas of EHS

performance that represent significantopportunities for value creation

✓ For each hypothesis, identify the value driveror drivers from Figure 2-6 that can beimproved (e.g., customer satisfaction)

✓ State the specific contribution and valueoutcome (e.g., design changes to a product

line resulting in customer benefits such aslower cost, convenience, etc.)

✓ Repeat steps, this time starting with Figure 2-6and brainstorming the value drivers that can beaffected by EHS performance.

For Your ToolkitAssess Total Costs A helpful tool for identifying value creationopportunities is total cost assessment (TCA), amethod for quantifying all EHS costs, bothinternal and external, associated with a businessdecision.51 TCA is a comprehensive process toidentify potentially hidden environmental andhealth costs and to mitigate future risks andcontingent costs for industrial processes,products or facilities. Costs that may not havebeen previously considered are generallyassociated with allocated overhead chargesand/or potential future costs, including hiddenimpacts on the environment and human health,as well as internal intangible costs. For example,the potential future costs associated with carbondioxide emissions can be considered indeveloping a strategy for carbon management.

Figure 4-3 How GEMI Intangible Value Drivers Populate the Balanced Scorecard Framework

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STEP 3 - Develop Value-EnhancingStrategy

The next step in the Clear Advantage process isthe development of a strategy for capturingnew opportunities to enhance shareholdervalue. Given an initial set of hypotheses aboutvalue creation opportunities, it is important toconsider each in a strategic business context.The box below describes some frameworks thatattempt to do so by linking value-basedindicators to shareholder returns. Theintangible value contributions described in thistool may be considered in addition to othervalue-based management models.

EHS Intangibles as Leading Indicators

Steps 1 and 2 helped to identify and rank theimportant drivers for creating and sustainingvalue and competitive advantage. Theseinsights can then be applied to develop aunique model for an individual company. Asillustrated in Figure 4-4, many of the EHSperformance indicators discussed in Section 3can be configured as inputs to a company-specific model of intangible value creation.

It is likely that most public companies alreadyhave approximately 70 percent of theinformation required to begin constructingsuch a model. These data almost always reside

Value-Based Management and Intangibles ValuationThe 1990s saw a growing strategic emphasis on frameworks for value-based management - i.e., therealization of corporate value through identification, measurement and management of the drivers ofcustomer value and shareholder returns. These methodologies included economic value added (EVA)measures that are claimed to approximate shareholder returns, and strategic management accountingsystems that provide information concerning the current and expected states of strategic uncertainties.

EVA has been a popular value-based indicator—approximately 40% of Fortune 500 firms have used EVA orsome variant for strategic planning purposes.52 Other mechanisms like EBITDA (Earnings Before Interest,Taxes, Depreciation and Amortization) and pro forma statements of earnings have also gained widespreaduse. Research suggests that as many as 65 percent of Fortune 500 companies have experimented with suchmodels.53 All three approaches have supporters and detractors. They are mentioned here because of therecognition they enjoy, not because they are recommended.

The past two decades have also witnessed new experimentation with intangible asset valuation. Bothfinancial and non-financial value drivers were determined from organizational strategy and value chainanalysis and hypothetical models were created by fitting together these drivers and estimating their impacton one another. This enabled assessment of how changes in value drivers impact financial results andshareholder value. PriceWaterhouseCoopers, Cap Gemini Ernst & Young and New York University ProfessorBaruch Lev have all developed such models.

Intangible Assets and Hard Financial OutcomesAdding confidence to the importance of identifying key value drivers and assessing their potentialcontributions in Steps 1 and 2, Decisions That Matter, a study published in 2001, identified critical drivers oflong-term economic value from the point of view of senior corporate financial executives.54 The study alsoassessed the performance consequences of gaps between measures for internal decision-making andexternal reporting. More than 80% of executives surveyed perceived a gap between the information theyreceived from their own companies and what they actually believed was critical to measure. Moreover, thesize of gaps within companies (i.e., the difference between what companies measure and what they believeis important) was strongly correlated with stock price, market value and other "hard" performance data.

VALUE ENHANCING STRATEGY FRAMEWORK examples

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Stock Price

Earnings

Sales per Employee

Market Share

TangibleOutcomes

Inta

ngib

le V

alue

Dri

vers

Figure 4-4

ConceptualModel ofIntangible ValueCreation

Customer

Leadership andStrategy

Transparency

Brand Equity

Environmental/SocialReputation

Alliances andNetworks

Technology andProcesses

Human Capital

Innovation

Risk

in operational databases controlled at thebusiness unit or functional staff level, ratherthan in corporate financial databases. Bymining what is already known from a host ofqualitative evidence and quantitative measures,and seeking to identify indicators of EHSexcellence that cut across all their businessfunctions (procurement, supplier relations,product design, etc.), companies can obtain amore comprehensive view of EHS valuecreation. The model characterizes the potentialcontributions of EHS function to a spectrumof intangible assets, and thus shows how EHSresults are linked to financial outcomes.

The advantage of this sort of quantitativemodeling is that it permits more informedcommunication between EHS, InvestorRelations, Treasury and Chief Financial Officerstaffs about the expected impact ofinvestments in EHS activities, and underscoresthe linkage between the intangible valuedrivers and firm performance. It conducts thedialogue in the language of finance, which isfirst and foremost, in monetary terms.

Action Items✓ In a collaborative setting, consider the

opportunities selected in the first 2 steps andthen state goals for influencing particularvalue drivers

✓ Justify these goals in terms of expectedoutcomes (e.g., customer loyalty)

✓ Identify specific, measurable indicators ofimprovement for both the value drivers andanticipated outcomes

✓ Evaluate the costs, risks, and benefitsassociated with the strategy, in comparison tothe risks of maintaining status quo

✓ Develop an action plan, with clearaccountabilities, for realizing the proposedimprovements and assure compatibility withexisting business priorities.

For Your ToolkitDetermine MetricsMake a list of the types of information/data yourorganization is currently collecting to supportthose drivers, including where they reside in yourorganization. While many organizations collectdata to be used in the measurement andmonitoring of progress, most of it tends to reside

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in disparate parts of the organization and isnever collectively compiled. What concepts areexplained well by current measurement systems?Where are they lacking? Chances are it is thedrivers of intangible value that are mostneglected.

Of available data, determine which can be usedas proxies to represent the EHS drivers. Theseproxies should be measurable, comprehensive,and generally accepted as reliable indicatorstoward the understanding of a particularconcept. Multiple measures should be gatheredfor each intangible driver to aid in its robustness.And, keep in mind that even if these measuresare less than ideal, they can likely be used as agood starting point to help you and other keymanagement understand where your organizationcurrently stands with regard to these valuedrivers.

STEP 4 - Implement Strategy and MeasureResults

The strategy developed in Step 3 provides abasis for launching implementation. Armedwith this sort of framework, a company canidentify, measure and begin to manage theways in which its EHS/Sustainability activitiesaffect other operations and outcomes. Used inconcert with cases, anecdotes and historicaltrend data, the quantitative model presents acomprehensive picture to senior executives,investment professionals and to all of anorganization's concerned constituencies. Itenables informed discussion of (a) how EHScan improve financial performance, and (b) themagnitude of financial improvements that canbe expected. Thus, a company can begin tomeaningfully analyze the return on itsinvestment in EHS resources.

Action Items✓ Identify and secure the needed resources,

including senior management endorsementand cross-functional collaboration

✓ Gather needed data to measure both theeffectiveness of internal process changes

designed to influence value and outcomes ✓ Expand the strategy previously developed to

assign detailed implementation responsibilitiesto value creation teams

✓ Convene periodic team meetings to evaluateprogress and adjust the ongoing action plansas appropriate

✓ Remain watchful for signals of change thatmay run contrary to previously conceivedstrategic assumptions and rationale.

For Your ToolkitBenchmark Your PerformanceOnce you have a baseline of strategicallyimportant EHS factors defined, it is important tounderstand where your company stands currentlyand benchmark against competitors. Startingwith a snapshot of your present organizationrelative to these factors, you can assess yourposition relative to your competitors. Once EHScontributions to market value are measured,organizations have a much better sense of wherethey stand and what needs to be changed inorder to improve.

STEP 5 - Communicate to Managementand Investors

Realization of shareholder value through EHSimprovements requires recognition of value bythe investment community. Therefore, effectivecommunication is an essential component ofthe Clear Advantage process. The subject ofintangible value drivers in general, and of EHScontributions in particular, is still relativelynew. Environmental and social performancemessages fall outside of mainstream investorcommunications. Accordingly, careful design ofthese value creation messages is needed toassure that they are both easily understoodand responsive to investor interests.

Apart from coordinating the Clear Advantageprocess, the EHS value champion (and/orinternal alliance, industry coalition, etc.) mustplay a critical advocacy role in bringing thevalue creation opportunities and results to theattention of internal management.

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The format and language in which the valuecreation message is framed must be carefullychosen. In addition to assisting in theconstruction of these messages, the EHS valuecreation team may need to assist in thedevelopment of supporting materials forinvestor communication.

Action Items✓ Monitor quantitative and qualitative

implementation results to capture evidence ofsuccessful value creation

✓ Develop internal communications regardingsuccessful outcomes for presentation to seniormanagement and investor relations

✓ Advocate incorporation of the EHS valuemessage into investor communications

✓ Support development of investorcommunication materials as needed

✓ Establish a mechanism to record EHScontributions and to validate the long-termimpacts on value drivers and market valuation.

For Your ToolkitThe returns to transparency far outweigh thereturns to secrecy. Communicate the changesthat you are making both within theorganization and outside.

While information itself is of limitedcompetitive value, what you do with thatinformation can make a great difference toyour key stakeholders. Now, more than ever,companies need to help their stakeholders,both internal and external, rebuild a sense oftrust through the actions and commitments ofcorporate leaders. Transparent communicationto employees, customers, suppliers, industrygroups, investors and Wall Street analystsabout intangible valuation can have manypositive outcomes. After all, it is not justhaving particular information but rather whatyou do with it that is truly important. If youcan show why a certain EHS factor is critical,and if you can improve your company'sperformance in this area as well as measureits impact on performance outcomes, youwill gain critical credibility in the eyes ofkey stakeholders.

STEP 6 - Assure Continuous Improvement

The final step in the Clear Advantage processis, in reality, an ongoing process - assuringthat the initial promise of EHS value creation isrealized through systematic monitoring andcontinuous improvement. This can be designedand carried out by members of the EHS valuecreation team.

Action Items✓ Monitor the execution of the value creation

strategy and capture lessons learned✓ Promote regular evaluation and refinement of

the strategy, including selected value creationopportunities, goals, and mechanisms foraction

✓ Research and understand company experiencewith investor communications that addressEHS value creation and recommendimprovements

✓ Monitor changes in the competitive landscapeand company characteristics that might promptadjustment of the Clear Advantage process

✓ Monitor the selected company performanceindicators and remain alert for leadingindicators of significant changes

✓ Review and re-consider key value drivers,hypothesized pathways to value, and businessrationale, as appropriate

✓ Conduct periodic, informal surveys of internalstaff to assure that the Clear Advantageprocess is operating effectively and efficiently.

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Clear Advantage provides compelling evidenceof the link between EHS activities andshareholder value. Because an enterprise's EHSfunction cuts across many areas of business,this report covers the EHS function as well asrelated organizational activities: communityinvolvement, stakeholder relations, governance,transparency and business continuity. In aclimate of increased focus on corporategovernance and shareholder activism, theseissues will only increase in importance.

Risk management and trust are among thecharacteristics influenced by the organizationalactivities noted above. The capital marketsvalue them, although they do not appeardirectly on financial statements. A substantialbody of evidence exists on how EHS practicesspecficially contribute to the bottom line,including reductions in operating costs,insurance premiums and capital costs. It is thecontention of this document that EHSpractices contribute to shareholder value in abroader and more strategic way: by buildingcritical organizational capabilities.

This report also serves as a practical primer forthe EHS professional, working in collaborationwith other corporate functions, by providing astep-by-step process for identifying,measuring, communicating and managingvalue drivers. The intent of this process is tohelp EHS professionals and their companiesgain recognition for EHS excellence from theirown internal investor relations function, fromthe investment community and from otherstakeholders. Hopefully this enables companiesto recognize and take advantage ofopportunities to create a Clear Advantage fortheir company and Build Shareholder Value.

Section 5CONCLUSION

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Appendix ADISCUSSION GUIDE

These questions are intended to serve as guidelines in a discussion between staff members ofcorporate Environment, Health & Safety and Investor Relations.

1) Please rate your level of familiarity with the record of your company's Environmental, Health andSafety programs.(1 to 10 scale from "not at all" to "extremely").

NOT AT ALL EXTREMELY

1 � 2 � 3 � 4 � 5 � 6 � 7 � 8 � 9 � 10 �

2) If you answered 4 or above to Question 1, have you ever communicated this record to membersof the sell or buy side investment communities as part of your corporate IR strategy?

A � YesB � No

3) If yes, please describe the reaction you received.( 1 = indifference, 10 = great interest).

INDIFFERENCE GREAT INTEREST

1 � 2 � 3 � 4 � 5 � 6 � 7 � 8 � 9 � 10 �

4) If no, was it becauseA � You think the securities analysts and portfolio managers don't careB � You think the story is too negativeC � You think it is too risky to share this sort of informationD � Other stories about the company are more central to the corporate strategyE � You believe you need to know more yourself before disclosing this material

5) Would you be interested in learning more about the evidence of the positive correlation between EHSprograms and financial performance like stock price, P/E ratio?

A � YesB � No

6) If yes, what sort of information would you like?A � Quantitative dataB � Case studiesC � Narrative examplesD � Other, please explain

7) If no, why not?A � You think the securities analysts and portfolio managers don't careB � You think the story is too negativeC � You think it is too risky to share this sort of informationD � Other stories about the company are more central to the corporate strategyE � You believe you need to know more yourself before disclosing this material

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8) Please rate your level of interest in working with the EHS executives in your corporation to incorporate the value creation message into your company's IR strategy.(1 to 10 scale from "not at all" to "extremely" interested).

.NOT AT ALL EXTREMELY

1 � 2 � 3 � 4 � 5 � 6 � 7 � 8 � 9 � 10 �

9) If you answered 4 or above to Question 6, would you want to: A � Incorporate this material into a larger message about the effect of various intangible

on corporate value creation B � Focus solely on EHS or C � Both

10) To what degree do you think that socially responsible investing has a significant impact in investment decision-making?(1 to 10 scale from "not at all" to "extremely").


1 � 2 � 3 � 4 � 5 � 6 � 7 � 8 � 9 � 10 �

11) Over the next five years, to what degree do you think that socially responsible investment will become a more significant issue in investment decision-making?(1 to 10 scale from "not at all" to "extremely").


1 � 2 � 3 � 4 � 5 � 6 � 7 � 8 � 9 � 10 �

12) Would you like to learn more about what other companies are doing about disclosing this sortof information?

A � YesB � No

If yes, please describe your particular interests.

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Appendix BBIBLIOGRAPHY AND REFERENCES

Intangible Value DriversJ. Collins and J. Porras. Built to Last: SuccessfulHabits of Visionary Companies. New York: Harper,1997.

J.H. Daum, Intangible Assets and Value Creation,Wiley 2002.

R.S. Kaplan and D.P. Norton. The BalancedScorecard. Cambridge: Harvard Business SchoolPress, 1996.

Baruch Lev, Intangibles: Management, Measurementand Reporting, Brookings Institution Press, June2001.

Jonathan Low and Pamela Kalafut, InvisibleAdvantage, Perseus Press, 2002.

Thomas A. Stewart. Intellectual Capital: The NewWealth of Organizations. New York: Doubleday,1997.

EHS and Business ValueMatthew B. Arnold and Robert M. Day. “The NextBottom Line: Making Sustainable DevelopmentTangible," World Resources Institute, 1998.

The Aspen Institute, “Uncovering Value: IntegratingEnvironmental and Financial Performance," 1998.

Livio DeSimone and Frank Popoff. Eco-efficiency:The Business Link to Sustainable Development. TheMIT Press, 1997.

Marc J. Epstein and S. David Young. “Greening withEVA," Management Accounting, Jan. 1999.

Joseph Fiksel, “Revealing the Value of SustainableDevelopment," Corporate Strategy Today, Issue 7/8,2003.

Karina Funk, “Sustainability and Performance,"Sloan Management Review, Winter 2003.

P. Hawken, A. Lovins, and L.H. Lovins. NaturalCapitalism: Creating The Next Industrial Revolution.Rocky Mountain Institute, Snowmass, CO. 2001.

Andrew J. Hoffman, “Integrating Environmental andSocial Issues into Corporate Practice," Environment,June 2000.

C. Holliday and J.E. Pepper. Walking the Talk: TheBusiness Case for Sustainable Development. Geneva:World Business Council for SustainableDevelopment, 2001.

Adam B. Jaffe, Steven R. Peterson, Paul R. Portney,and Rovert N. Stavins. “Environmental Regulationand the Competitiveness of U.S. Manufacturing:What Does the Evidence Tell Us?" Journal ofEconomic Literature. Volume 33, pp. 132-163.March 1995.

Stephen Poltorzycki. Creating EnvironmentalBusiness Value. Crisp Publications, 1998.

Michael E Porter and Claas van der Linde. “Towarda New Conception of the Environment-Competitiveness Relationship." Journal of EconomicPerspectives. Vol. 9 No. 4, pps. 97-118. Fall 1995.

Forest Reinhardt. “Bringing the Environment Downto Earth." Harvard Business Review, pp. 149 - 157.July-August 1999.

Robert Repetto and Duncan Austin, Pure Profit: TheFinancial Implications of EnvironmentalPerformance, World Resources Institute, 2000.

SustainAbility and UNEP, “Buried Treasure:Uncovering the Business Case for CorporateSustainability," 2001.

Socially Responsible Investment S. Blake Goodman, J. Kron, T. Little, TheEnvironmental Fiduciary: The Case for IncorporatingEnvironmental Factors into Investment ManagementPolicies, The Rose Foundation for Communities &the Environment, Oakland, CA, 2002.

CERES, “Value at Risk: Climate Change and theFuture of Governance," April 2002.

Bruce R. Hutton et al. “Socially ResponsibleInvesting: Growing Issues and New Opportunities"Business and Society; Vol. 37 No.3 September,1998.

OECD, Corporate Responsibility: Private Initiativesand Public Goals, 2001.

Chris Laszlo, Dave Sherman, John Whalen.“Shareholder Value and Corporate Responsibility."Ethical Corporation Magazine. London: December2002.

U.S. Social Investment Forum, 2001 Report onSocially Responsible Investing Trends in the UnitedStates, SIF Industry Research Program, November28, 2001.

37

Appendix CGLOSSARY AND ACRONYMS

Analyst. Employee of a brokerage or fundmanagement house who studies companies andmakes buy-and-sell recommendations on theirstocks. Most specialize in a specific industry.

Balance sheet. Also called the statement of financialcondition, it is a summary of the assets, liabilities,and owners' equity.

Book value. A company's book value is its totalassets minus intangible assets and liabilities, such asdebt.

Brand equity. An intangible value-added aspect ofparticular goods otherwise not considered unique.

Business case. A rationale for making a businessdecision, usually involving quantitative analysis ofcosts, benefits and trade-offs.

Buy side analyst. A financial analyst employed by anon-brokerage firm, typically one of the largermoney management firms that purchase securitieson their own accounts.

Cash flow. Earnings before depreciation,amortization and non-cash charges (sometimescalled cash earnings).

Corporate citizenship. Company activities concernedwith treating the stakeholders of the firm ethicallyand in a socially responsible manner.

Corporate governance. The system by whichbusiness corporations are directed and controlled.The corporate governance structure specifies thedistribution of rights and responsibilities amongdifferent participants in the corporation.

Corporate Social Responsibility (CSR). Commitmentto uphold the rights of citizens and communities,behave according to accepted ethical standards, andcontribute to socio-economic development andquality of life.

Correlation. A statistical correspondence betweentwo or more variables.

Earnings Before Interest, Taxes, Depreciation andAmortization (EBITDA). An indicator of a company'sfinancial performance calculated as revenues lessexpenses, excluding tax, interest, depreciation, andamortization.

Earnings Per Share (EPS). A commonly usedfinancial indicator, calculated by dividing acompany's net income by its number ofoutstanding shares.

Eco-efficiency. A measure of the resource intensityof a company's operations, including the inputs ofmaterials and energy required to manufacture anddeliver a unit of output.

Environmental performance. The performance of abusiness or facility according to selected indicatorsof environmental impact.

Environment, Health and Safety (EHS). Aprofessional discipline concerned with protection ofthe environment, human health, and safety throughthe application of scientific, engineering, andmanagement methods.

Full disclosure. A policy under which publicly heldcompanies must disclose all material informationthat might affect investment decisions to allinvestors at the same time (implemented in SECRegulation FD—Fair Disclosure).

Generally Accepted Accounting Principles (GAAP). Atechnical accounting term that encompasses theconventions, rules, and procedures necessary todefine accepted accounting practice at a particulartime.

Global warming. Gradual increase in averagetemperatures at the earth's suface, believed to resultfrom the “greenhouse effect" due to increasedatmospheric concentrations of carbon dioxide andother gases.

Human capital. The set of skills which employeesacquire on the job, through training and experience,and which increase their value in the marketplace.

Income statement. A statement showing therevenues, expenses, and income (the differencebetween revenues and expenses) of a corporationover some period of time.

Institutional investor. An investor that is not anindividual and may be a foundation, endowment,pension fund, or the like.

Intangible asset. A non-monetary asset, includingpeople, ideas, networks, and processes, which is nottraditionally accounted for on the balance sheet.

Intellectual capital. Knowledge that can beexploited for some money-making or other usefulpurpose, including the skills and knowledge that acompany has developed about how to make itsgoods or services.

Investor Relations (IR). A strategic corporatemarketing activity, combining the disciplines of

38

communications and finance, that provides presentand potential investors with an accurate portrayal ofa company's performance and prospects.

Leading indicator. A predictive indicator ofanticipated performance that can be observed priorto the period of performance.

Liability. A financial obligation, or the cash outlaythat must be made at a specific time to satisfy thecontractual terms of such an obligation.

License to operate. The ability of a corporation orbusiness to continue operations based on ongoingacceptance by external stakeholder groups.

Market value. (1) The price at which a security istrading and could be purchased or sold. (2) Thevalue investors believe a firm is worth; calculated bymultiplying the number of shares outstanding bythe current market price of a firm's shares.

Net present value. The amount of cash today that isequivalent in value to a payment, or to a stream offuture cash flows minus the cost.

Non-financial performance. The performance of abusiness measured in terms of non-financial aspectssuch as environmental and social responsibility.

Performance. The percentage change in a portfolio'svalue over a specified period.

Price elasticity. A measure of price-sensitivity in themarketplace: the percentage change in the quantityof a product divided by the percentage change inthe price.

Price-to-Earnings ratio (P/E). The multiple ofearnings at which a stock sells, determined bydividing current stock price by current earnings pershare (adjusted for stock splits).

Proxy. Document intended to provide shareholderswith information necessary to vote in an informedmanner on matters to be brought up at astockholders' meeting.

Return on Investment (ROI). A measure of acorporation's profitability, equal to a fiscal year'sincome divided by common stock and preferredstock equity plus long-term debt. ROI measureshow effectively the firm uses its capital to generateprofit.

Risk. (1) The possibility of losing rather thangaining. (2) A measure of price fluctuation relativeto a broad market gauge. (3) The possibility of anadverse incident due to the presence of hazards oruncertainties.

Screened portfolio investing. The application ofsocial criteria to conventional investments, such asstocks, bonds, and mutual funds.

Sell side analyst. a financial analyst who works for abrokerage firm and whose recommendations arepassed on to the brokerage firm's customers.

Shareholder resolution. A recommendation orrequirement, proposed by a shareholder, that acompany and/or its board of directors take actionpresented for a vote at the company's generalshareholders' meeting.

Socially Responsible Investing (SRI). Theincorporation of an investor's social, ethical, orreligious criteria into the investment decision-making process.

Stakeholder. Any party that has an interest,financial or otherwise, in a firm - stockholders,creditors, bondholders, employees, customers,management, the community, and the government.

Supply chain. A sequence of suppliers andcustomers that add value in the form of materials,components, or services, ultimately resulting in afinal product.

Sustainability. Conditions or characteristicssupportive of sustainable development,encompassing the environmental, social, andeconomic aspects of a corporation.

Tangible asset. An asset whose value depends onparticular physical properties, including reproducibleassets such as buildings and non-reproducible assetssuch as land.

Transparency. Openness of an organization withregard to sharing information about how itoperates. Transparency is enhanced by using aprocess of two-way, responsive dialogue.

Triple bottom line. A framework for sustainabledevelopment that defines three fundamental aspectsof corporate performance—economic,environmental, and social.

Value creation. Activities that generate shareholdervalue for a company, e.g., value-basedmanagement.

Sources:New York Times Financial GlossaryInvestopedia.comInvestorWords.comSearchTechTarget.comEconomics.about.comEco-Nomics LLC, NIRI, OECDGlobal Environmental Management Initiative (GEMI).

39

Appendix DFOOTNOTES

16 Personal correspondence with Linda Descano.

17 S. Blake Goodman, J. Kron, T. Little, The EnvironmentalFiduciary: The Case for Incorporating EnvironmentalFactors into Investment Management Policies, TheRose Foundation for Communities & the Environment,Oakland, CA.

18 NYTimes 5/29/03, "Environmental Groups Gain AsCompanies Vote on Issues" by Katharine Q. Seelye.

19 The Principles are as follows:

1. Provide access to finance and risk managementproducts for investment, innovation and themost efficient use of existing assets

2. Promote transparency and high standards ofcorporate governance in themselves and in theactivities being financed

3. Reflect the cost of environmental and socialrisks in the pricing of financial and riskmanagement products

4. Exercise equity ownership to promote efficientand sustainable asset use and risk management

5. Provide access to finance for the developmentof environmentally beneficial technologies

6. Exercise equity ownership to promote highstandards of corporate social responsibility bythe activities being financed

7. Provide access to market finance and riskmanagement products to businesses indisadvantaged communities and developingeconomies.

20 Social Investment Forum Industry Research Program.November 28, 2001. 2001 Trends Report: 2001 Reporton Socially Responsible Investing Trends in the UnitedStates. Washington, DC. Social Investment Forum.

21 Distinct investment styles include environmentallyeffective investing (e.g., Winslow Management),socially responsible investing (e.g., companiesscreened by FTSE4Good Index), and sustainabilityinvesting (e.g., companies screened by Dow JonesSustainability Group Index or ranked by InnovestEcoValue'21).

22 More information athttp://www.sustainability-index.com/

23 More information athttp://www.ftse.com/ftse4good/index.jsp

24 Recent research reveals that there was no statisticallysignificant difference between the risk-adjustedreturns of socially responsible or ethical funds in theUS, Germany and the UK and those of conventionalfunds during the time period of January 1990 throughMarch 2001. See "International Evidence on EthicalMutual Fund Performance and Investment Style".

25 Low, Jonathan and Pamela Cohen Kalafut, "InvisibleAdvantage," Perseus Press, Cambridge, MA, USA(2002).

1 Eustace, Clark, “The Intangible Economy: Impact and Policy Issues." Report of the High Level Expert Groupon the Intangible Economy, Enterprise Directorate-General (Brussels: European Commission, October2000), 6-7.

2 Ramin, Kurt, “The Transparent Enterprise: The Value ofIntangibles." Presentation to European Commissionconference, Autonomous University of Madrid,November, 2002. also see Daum, Jurgen, "IntangibleAssets and Value Creation," Wiley & Sons, New York,2003.


4 Data: Top 100 greatest market cap firms for each yeardepicted, and total Plant, Property, Equipmentreported for same. Source: Compustat and CGEYanalysis.

5 Cap Gemini Ernst & Young's "Measures That Matter"study (1996), a survey of 300 sell-side analysts, 275buy-side analysts, as well as interviews with portfoliomanagers.



8 Ibid.

9 Social Investment Forum Industry Research Program.November 28, 2001. 2001 Trends Report: 2001 Reporton Socially Responsible Investing Trends in the UnitedStates. Washington, DC: Social Investment Forum.

10 A. Cortese, "The New Accountability: Tracking theSocial Costs," New York Times, Sunday, March 24,2002.

11 Cap Gemini Ernst & Young's "Decisions That Matter"research study (1999), a survey of financial executivesat Global 500 corporations.

12 New York Times, April 14, 2003.

13 Source: Innovest Strategic Value Advisors.


15 Webber, Martin. Monday, 14 October, 2002. TheEconomic Impact of Global Warming. World BusinessReview.

40

26 CGEY analysis of actual non-financial performance ascorrelated with market value revealed the followingvalue drivers: Innovation, Quality, Customer,Management, Alliances, Technology, Brand, Employee,Environment. Multiple, statistically independentmeasures are used as inputs for each driver in orderto ensure a robust model.

27 More information athttp://www.hp.com/hpinfo/globalcitizenship/environment/index.html


29 The SEC adopted the Sarbanes-Oxley Act in 2002,requiring CEOs and CFOs to certify the accuracy oftheir public reporting and to file federal forms in atimely manner so as to improve the accuracy ofinformation that is available to investors.

30 More information on the GEMI Transparencyworkgroup athttp://www.gemi.org/docs/workgroup.htm

31 See Hamilton, Kames T. 1995. "Pollution as News:Media and Stock Market Reactions to the ToxicsRelease Inventory Data." Journal of EnvironmentalEconomics and Management, vol. 28, pp. 98-113."Stockholders in firms reporting TRI pollution figuresexperienced negative, statistically significantabnormal returns upon the first release of theinformation."

32 Khanna, Madhu, Wilma Rose H. Quimio, and DoraBojilova. 1998. "Toxic Release Information: A PolicyTool for Environmental Protection." Journal ofEnvironmental Economics and Management, vol. 36,pp. 243-266. This article finds that the negative stockmarket returns following TRI disclosure had "asignificant negative impact on subsequent on-sitetoxic releases and a significant positive impact onwastes transferred off site, but their impact on totaltoxic wastes generated by these firms is negligible."The discrepancy with the Konar and Cohen (1997)findings is that the firm samples are different; Konarand Cohen analyze 130 publicly-traded firms fromseveral industries, while Khanna, Quimio and Bojilovaanalyze 40 firms from the chemical industry. In anyevent, there was a response by the firms in theirtreatment of waste, upon disclosure of TRI data.

33 Sibson Consulting, "A Study of Corporate GovernanceDisclosure Practices," Segal Company report, March2003.

34 "The 100 Top Brands." Business Week Special Report,August 4, 2003.

35 See for example Teisl, Mario F., Brian Roe, and RobertL. Hicks. "Can Eco-Labels Tune a Market? Evidencefrom Dolphin-Safe Labeling," Journal of EnvironmentalEconomics and Management, vol. 43, 339-359 2002.

36 http://www.hp.com/hpinfo/newsroom/press/2003/030422d.html

37 Many of these indicators are included in the GlobalReporting Initiative.

38 Fine, Charles. "Clockspeed: Winning Industry Controlin the Age of Temporary Advantage," Perseus Books,(1998).

39 The Economist, "Regime Change," October 31, 2002.

40 Teece D. and Pisano, 1994. The dynamic capabilities offirms: An Introduction. Industrial and CorporateChange 3(3): 537-556. In: Lennox, Michael andAndrew King. "Absorptive Capacity, InformationProvision and the Diffusion of Practice within Firms."New York University Stern School of Business WorkingPaper (submitted to Strategic Management Journal).

41 See for example Fiksel, J., Editor, "Design forEnvironment: Creating Eco-Efficient Products andProcesses", McGraw-Hill, New York, 1996.

42 See Lenox, Michael. January 2001. "OvercomingAgency and Information Problems in the Diffusion ofBest Practice within Firms." New York University SternSchool of Business (submitted to ManagementScience).

43 Drake Business Review, Amernik, Jerry. Watson WyattHuman Capital Index study (1999).


45 Ibid.

46 See for example Reinhardt, Forest L., "Bringing theEnvironment Down to Earth," Harvard BusinessReview (July-August 1999): 149-157.

47 Ibid.

48 Portions of this section are based on Joseph Fiksel,"Revealing the Value of Sustainable Development,"Corporate Strategy Today, Issue 7/8, 2003.

49 R.S. Kaplan and D.P. Norton. The Balanced Scorecard.Cambridge: Harvard Business School Press, 1996.

50 Thomas A. Stewart. Intellectual Capital: The NewWealth of Organizations. New York: Doubleday, 1997.

51 American Institute of Chemical Engineers' Center forWaste Reduction Technologies, Total Cost AssessmentMethodology, Washington, DC, 1999.


53 Cap Gemini Ernst & Young's "Decisions That Matter"research study (1999), a survey of Global 500financial executives.

54 Ibid.

55 More information athttp://www.equator-principles.com

“There is no question in my mind that business and the free enterprise systemare essential to making sustainability work. Our focus at Dow is on hard-wiringit into our company in the same way we have fully institutionalized environ-ment, health and safety into our culture and into our work and people processes.Our challenge is to make sustainability sustainable. Ultimately, the world willjudge our commitment to sustainability not by what we say, but by what we do."

William Stavropoulos, Chief Executive Officer, The Dow Chemical Company

“Environmental protection is a complex undertaking, but the laws of nature aresimple. We will provide leadership on the journey to an environmentallysustainable future, with efficient products and creative recycling systems."

Carly Fiorina, Chief Executive Officer, Hewlett-Packard Company

“Every corporation is under intense pressure to create ever-increasingshareholder value. Enhancing environmental and social performance areenormous business opportunities to do just that."

Gary Pfeiffer, Senior Vice President and Chief Financial Officer, DuPont

“These issues are no longer environmental and social issues but are nowrecognized as strategic business issues."

Linda Descano, Chief Operating Officer, Women & Co., Citigroup

Global Environmental Management Initiative (GEMI)One Thomas Circle, NW, Tenth Floor

Washington, DC 20005

Phone: 202-296-7449

Fax: 202-296-7442

e-mail: [email protected]

This document printed using 30% recycled paper and vegetable-based Ink.

W W W . G E M I . O R G

Business Helping Business Achieve Global Environmental,Health and Safety Excellence and Corporate Citizenship

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8A

bb

ott

: Man

agin

g Em

ergi

ng B

usin

ess

Pg 2

9D

uPo

nt:

Man

agin

g En

ergy

Pg 3

0Th

e D

ow

Ch

emic

al C

om

pan

y:

Dev

elop

ing

Dow

’s 20

15

Sust

aina

bilit

y G

oals

Pg 3

8Th

e Pr

oct

er &

Gam

ble

Co

mp

any:

Expl

orin

g N

ew V

alue

-Cre

atio

n M

etric

s

Pg 3

8In

tel C

orp

ora

tio

n: A

sses

sing

Perf

orm

ance

of

Educ

atio

n Pr

ogra

ms

Pg 3

9D

uPo

nt:

Met

rics

to D

rive

Sust

aina

ble

Gro

wth

Pg 4

13M

: Sco

reca

rd t

o D

rive

Perf

orm

ance

Pg 4

4 D

uPo

nt:

Set

ting

’Ach

ieva

bly

Stre

tche

d’ T

arge

ts

Pg 4

5So

uth

ern

Co

mp

any:

‘Tar

get

Zero

’ to

Cha

nge

Empl

oyee

s’ M

inds

ets

Pg 4

8 Jo

hn

son

Co

ntr

ols

, In

c.: M

anag

ing

Ener

gy a

nd G

reen

hous

e G

as D

ata

Pg 4

9 3M

: Mov

ing

Tow

ard

Sust

aina

bilit

y th

roug

h Si

x Si

gma

Pg 5

0 Jo

hn

son

& J

oh

nso

n: C

omm

unic

atin

g Pr

ogre

ss t

owar

d G

oals

Pg 5

3 O

ccid

enta

l Pet

role

um

Co

rpo

rati

on

:Pe

riodi

c Re

view

of

Met

rics

and

the

Man

agem

ent

Syst

em

Pg 5

4 Pfi

zer

Inc:

Eva

luat

ing

Com

pany

-

Wid

e G

oals

1

Ack

nowledgements

The

GEM

I Met

rics

Nav

igat

or™

was

dev

elop

ed

thro

ugh

a co

llabo

rativ

e pr

oces

s by

the

G

EMI M

etric

s W

ork

Gro

up a

nd B

RID

GES

to

Sust

aina

bilit

y, a

Div

isio

n of

Gol

der

Ass

ocia

tes

Inc.

(Gol

der)

. Jim

Kea

rney

, Bris

tol-M

yers

Squ

ibb

Com

pany

and

Les

lie M

ontg

omer

y, S

outh

ern

Com

pany

, co-

chai

red

the

proj

ect.

The

Gol

der

team

ope

rate

d un

der

the

dire

ctio

n of

Bet

h Be

loff

, th

e pr

ojec

t m

anag

emen

t of

Mar

iann

e Li

nes

and

incl

uded

sig

nific

ant

cont

ribut

ions

fro

m D

icks

en

Tanz

il, K

aren

Cla

rk-W

hist

ler,

Kim

berle

y M

urph

y,

Abi

gail

Mar

tin a

nd D

anie

l Mill

s. G

EMI s

taff

co

ntrib

utin

g to

thi

s do

cum

ent

incl

uded

Ste

ve

Hel

lem

and

Am

y G

oldm

an.

Co

ntr

ibu

tin

g G

EMI M

etri

cs W

ork

G

rou

p m

emb

ers

incl

ud

ed:

Bren

da A

bke,

The

Sco

tts

Com

pany

Robe

rt A

ccar

ino,

Abb

ott

Aud

rey

Bam

berg

er, A

nheu

ser-

Busc

h, In

c.G

regg

Bel

ardo

, Wye

thM

auric

e Be

char

d, J

ohns

onD

iver

sey,

Inc.

Paul

Bow

en, T

he C

oca-

Col

a C

ompa

nyJa

ime

Brow

n, E

li Li

lly a

nd C

ompa

nyRu

ssel

l Cer

chia

ro, S

cher

ing-

Plou

gh C

orpo

ratio

nM

ark

Cha

tela

in, J

ohns

on C

ontr

ols,

Inc.

Som

a C

heng

alur

, Eas

tman

Kod

ak C

ompa

nySt

an C

hris

tian,

Mot

orol

a, In

c.D

avid

Con

stab

le, G

laxo

Smith

Klin

eH

elen

Cor

bitt

, Eli

Lilly

and

Com

pany

Fran

cisc

o C

orde

ro, T

he C

oca-

Col

a C

ompa

nyRa

quel

Cor

dovi

, Car

niva

l Cor

pora

tion

& P

LCRo

n D

iCol

a, P

fizer

Inc

Robe

rt D

rinan

e M

erck

& C

ompa

ny, I

nc.

Kar

l Fen

ness

ey, T

he D

ow C

hem

ical

Com

pany

Dou

g Fi

nan,

Gla

xoSm

ithK

line

Don

Geb

hard

t, A

shla

nd In

c.

Eliz

abet

h G

irard

i Sch

oen,

Pfiz

er In

cA

ngel

a G

room

s, D

uke

Ener

gy

Deb

bie

Ham

mon

d, A

bbot

tM

ark

Hau

se, D

uPon

tG

reg

Hill

, Nov

artis

Cor

pora

tion

Jam

es H

unn,

Car

niva

l Cor

pora

tion

& P

LCM

itch

Jack

son,

Fed

ExBr

yan

Jaco

b, T

he C

oca-

Col

a C

ompa

nyH

iman

shu

Jani

, Ow

ens

Cor

ning

Leig

h A

nn J

ohns

ton,

Tys

on F

oods

, Inc

.Jim

Kea

rney

, Bris

tol-M

yers

Squ

ibb

Com

pany

Kel

ley

Klin

e, S

mith

field

Foo

ds, I

nc.

Dou

niel

Lam

ghar

i, Sc

herin

g-Pl

ough

Cor

pora

tion

Bill

Lech

ner,

The

Scot

ts C

ompa

nyN

ancy

Lia

boe,

Abb

ott

Kei

th M

iller

, 3M

Dea

n M

iracl

e, S

outh

ern

Com

pany

Ed

Mon

gan,

DuP

ont

Lesl

ie M

ontg

omer

y, S

outh

ern

Com

pany

Kar

en M

urph

y, A

shla

nd In

c.G

eorg

e O

ssm

an, S

cher

ing-

Plou

gh C

orpo

ratio

nV

ivia

n Pa

i, Jo

hnso

n &

Joh

nson

Ted

Reic

helt,

Inte

l Cor

pora

tion

Daw

n Ri

tten

hous

e, D

uPon

tD

avid

See

p, B

NSF

Rai

lway

Com

pany

Jan

Siev

ing,

Occ

iden

tal P

etro

leum

Cor

pora

tion

Lind

ell S

need

, Abb

ott

Lyle

Sta

ley,

BN

SF R

ailw

ay C

ompa

nyA

lan

Stin

chfie

ld, G

eorg

ia-P

acifi

c C

orpo

ratio

nJim

Tho

mas

, Nov

artis

Cor

pora

tion

Robi

n To

llett

, The

Pro

cter

& G

ambl

e C

ompa

nyG

eorg

e W

illia

ms,

Car

niva

l Cor

pora

tion

& P

LCC

arl W

irdak

, Occ

iden

tal P

etro

leum

Cor

pora

tion

Spec

ial t

han

ks

Dur

ing

the

cour

se o

f th

e pr

ojec

t, m

embe

rs o

f th

e G

EMI E

xter

nal A

dvis

ory

Gro

up (E

AG

) sha

red

thei

r in

sigh

ts in

to a

spec

ts o

f th

e m

etric

s pr

oces

s in

a s

erie

s of

wor

ksho

ps d

evel

oped

for

the

GEM

I M

etric

s W

ork

Gro

up.

2

The

follo

win

g pe

ople

par

ticip

ated

in E

AG

s an

d re

view

ed a

nd c

omm

ente

d on

the

con

tent

s of

the

M

etric

s N

avig

ator

™:

Dav

id A

eron

-Tho

mas

, For

um f

or t

he F

utur

eK

aren

Coy

ne, C

oVer

is

Jean

“Po

go”

Dav

is, C

onoc

oPhi

llips

(Ret

ired)

; Duk

e

Uni

vers

ity a

nd R

ice

Uni

vers

ityPe

ter

DeS

imon

e, In

vest

or R

espo

nsib

ility

Res

earc

h

Cen

ter,

(IRRC

)Pa

tric

e Fl

ynn,

Fly

nn R

esea

rch;

Joh

ns

Hop

kins

Uni

vers

ityC

arl-J

ohan

n Fr

anck

e, S

AM

Res

earc

hA

lan

Hec

ht, U

.S. E

PA

Thom

as K

rick,

Acc

ount

Abi

lity

John

Lai

dlow

, HSB

CRo

b La

ke, H

ende

rson

Glo

bal F

und

Jona

than

Low

, Pre

dict

iv L

LCM

ark

Mils

tein

, Cor

nell

Uni

vers

ity, T

he J

ohns

on

Scho

ol a

nd C

ente

r fo

r Su

stai

nabl

e

Glo

bal E

nter

pris

eEv

e M

itlet

on-K

elly,

Lon

don

Scho

ol o

f

Ec

onom

ics;

Soc

iety

for

Org

aniz

atio

nal L

earn

ing

Tom

Mur

ray,

Env

ironm

enta

l Def

ense

Mar

y A

ltom

are

Nat

tras

s, S

usta

inab

ility

Par

tner

sBr

ian

Nat

tras

s, S

usta

inab

ility

Par

tner

s Er

ic O

lson

, Bus

ines

s fo

r So

cial

Res

pons

ibili

ty (B

SR)

Am

anda

Pen

n, E

thic

al In

vest

men

t Re

sear

ch

Serv

ices

(EIR

IS),

Lond

onJa

mes

L. R

itchi

e-D

unha

m, I

nstit

ute

for

Stra

tegi

c

Cla

rity;

Har

vard

Uni

vers

ityK

irvil

Skin

narla

nd, S

usta

inab

le S

eatt

le; T

rilog

y LL

C

Paul

Teb

o, D

uPon

t (R

etire

d); T

he T

ebo

Gro

upJa

ck W

hela

n, In

tern

atio

nal B

usin

ess

Lead

ers

Foru

m.

In a

dditi

on, J

ean

“Pog

o” D

avis

and

Jon

atha

n Lo

w

prov

ided

inpu

t an

d gu

idan

ce d

urin

g th

e ea

rly,

form

ativ

e st

ages

of

this

pro

ject

.

For

mo

re in

form

atio

n a

bo

ut

this

pro

ject

, p

leas

e co

nta

ct G

EMI,

at: 2

02-2

96-7

449

or

in

fo@

gem

i.org

.

GEM

I gra

tefu

lly a

ckno

wle

dges

Car

niva

l Cor

pora

tion

and

PLC

’s co

ntrib

utio

n to

the

des

ign

of t

he c

over

pag

e.

3

Pre

face

In b

usin

ess,

num

bers

driv

e pe

rfor

man

ce.

Com

pani

es u

se a

wid

e va

riety

of

met

rics

to g

auge

how

wel

l the

y ar

e m

eetin

g th

e ne

eds

of t

heir

cust

omer

s, in

vest

ors,

an

d ot

her

stak

ehol

ders

. So

ciet

y is

bec

omin

g m

ore

awar

e of

the

soc

ial a

nd e

nviro

nmen

tal i

mpa

cts

of b

usin

ess

activ

ities

, and

, thu

s, m

ore

inte

rest

ed in

the

re

latio

nshi

p be

twee

n th

e pe

rfor

man

ce o

f a

busi

ness

in t

hese

are

as a

nd it

s m

arke

t va

lue

and

finan

cial

per

form

ance

. Thi

s ha

s ge

nera

ted

a de

luge

of

stak

ehol

der

info

rmat

ion

requ

ests

of

com

pani

es. W

hile

muc

h ha

s be

en d

one

to d

efine

‘sus

tain

abili

ty’ a

nd s

usta

inab

ility

-rel

ated

met

rics

for

busi

ness

, the

re h

as b

een

less

foc

us

on a

ligni

ng m

etric

s w

ith b

usin

ess

stra

tegy

. Doi

ng s

o ca

n ad

d si

gnifi

cant

and

long

-ter

m v

alue

to

the

busi

ness

.

Prog

ress

ive

com

pani

es r

ecog

nize

tha

t th

eir

perf

orm

ance

is ju

dged

on

man

y le

vels

, not

just

the

ir fin

anci

al s

ucce

ss. U

sing

app

ropr

iate

met

rics

to d

escr

ibe

prog

ram

s or

bac

k up

sta

tem

ents

of

prog

ress

can

enh

ance

bus

ines

s’ c

redi

bilit

y. T

his

tool

was

des

igne

d to

look

at

indi

cato

rs o

f pe

rfor

man

ce a

nd p

ut t

he n

umbe

rs in

to

a co

ntex

t th

at g

oes

beyo

nd t

radi

tiona

l fina

ncia

l met

rics.

It p

rovi

des

a ro

adm

ap f

or c

ompa

nies

to

iden

tify

key

met

rics

for

thos

e ac

tions

tha

t dr

ive

long

-ter

m

sust

aina

bilit

y an

d a

ratio

nal,

thou

ghtf

ul b

asis

for

dec

isio

n-m

akin

g.

This

too

l use

s a

plan

ning

pro

cess

tha

t ca

n he

lp u

ncov

er r

elev

ant

and

mat

eria

l ind

icat

ors

and

prio

ritiz

e am

ong

thos

e th

at a

re t

he m

ost

effe

ctiv

e at

driv

ing

and

com

mun

icat

ing

perf

orm

ance

, bot

h in

tern

ally

and

ext

erna

lly. T

hrou

gh it

s ap

plic

atio

n, c

ompa

nies

can

dem

onst

rate

the

ir ba

sis

for

sele

ctin

g m

etric

s an

d en

hanc

e th

eir

valu

e fo

r m

anag

emen

t de

cisi

ons.

For

exa

mpl

e, a

re e

mpl

oyee

ret

entio

n, g

reen

hous

e ga

s m

anag

emen

t, c

omm

unity

invo

lvem

ent,

or

wat

er r

esou

rces

impo

rtan

t to

you

r bu

sine

ss s

trat

egy?

Why

or

why

not

? H

ow a

re t

hey

mea

sure

d? T

hese

are

the

kin

ds o

f qu

estio

ns t

hat

the

tool

can

hel

p yo

ur o

rgan

izat

ion

expl

ore.

The

GEM

I Met

rics

Nav

igat

or™

is t

he p

rodu

ct o

f a

two-

year

, col

labo

rativ

e jo

urne

y by

GEM

I mem

bers

, with

the

supp

ort

of t

he B

RID

GES

to

Sust

aina

bilit

y te

am

of G

olde

r A

ssoc

iate

s, a

nd a

num

ber

of o

ther

exp

erts

in t

he fi

elds

of

sust

aina

bilit

y, m

etric

s, a

nd o

rgan

izat

iona

l cha

nge

man

agem

ent.

Ove

r th

e co

urse

of

thre

e w

orks

hops

in t

he U

S an

d U

K, p

artic

ipan

ts f

rom

25

exte

rnal

org

aniz

atio

ns a

nd s

ever

al G

EMI c

ompa

nies

dis

cuss

ed s

trat

egic

per

form

ance

mea

sure

men

t an

d ev

alua

tion;

the

cha

lleng

es o

f su

stai

nabi

lity

and

rela

ted

met

rics

that

driv

e bu

sine

ss v

alue

, inn

ovat

ion

and

grow

th; a

nd in

tang

ible

fina

ncia

l driv

ers.

We

are

deep

ly

grat

eful

to

all w

ho p

artic

ipat

ed in

thi

s pr

oces

s fo

r th

eir

inva

luab

le c

ontr

ibut

ions

.

This

too

l doe

s no

t re

com

men

d an

y pa

rtic

ular

pat

h fo

r a

com

pany

to

take

, nor

doe

s it

advo

cate

a c

omm

on s

et o

f in

dica

tors

for

indu

stry

. O

rgan

izat

ions

may

wis

h to

use

the

too

l’s s

ix-s

tep

proc

ess

in f

ull,

or m

ay s

impl

y us

e it

as a

ref

eren

ce t

o fin

e tu

ne e

xist

ing

effo

rts.

In e

ither

cas

e, it

s us

e sh

ould

brin

g to

ligh

t op

port

uniti

es t

o be

tter

set

goa

ls a

nd c

omm

unic

ate

perf

orm

ance

aro

und

com

pany

val

ues

and

stra

tegy

.

We

hope

thi

s ap

proa

ch a

nd t

he c

ase

for

non-

finan

cial

met

rics

help

s yo

ur c

ompa

ny t

o be

tter

nav

igat

e th

e la

ndsc

ape

of c

orpo

rate

citi

zens

hip.

Let

us

know

if it

do

es a

t info@gem

i.org

.

Jim K

earn

ey

Le

slie

Mon

tgom

ery

Br

isto

l-Mye

rs S

quib

b C

ompa

ny

Sout

hern

Com

pany

Co-

chai

rs, G

EMI M

etric

s W

ork

Gro

up

Mar

ch 2

007

4

Execu

tive S

um

mary

Tr

aditi

onal

ly, b

usin

ess

obje

ctiv

es h

ave

been

de

fined

and

mea

sure

d in

fina

ncia

l ter

ms.

Yet

, to

real

ize

the

valu

e of

add

ress

ing

envi

ronm

enta

l, so

cial

and

bro

ader

eco

nom

ic is

sues

, non

-fina

ncia

l m

etric

s ca

n al

so d

rive

succ

ess

in t

he o

rgan

izat

ion

by in

dica

ting

how

wel

l it

exec

utes

on

its v

alue

s an

d be

liefs

. The

se m

etric

s ar

e ne

eded

to

com

plem

ent

trad

ition

al fi

nanc

ial m

easu

rem

ent

syst

ems

and

help

org

aniz

atio

ns m

anag

e lo

ng-t

erm

bus

ines

s op

port

uniti

es a

nd f

utur

e un

cert

aint

y an

d ris

ks.

The

chal

leng

e is

to

use

the

right

mix

of

met

rics

that

pro

vide

s va

lue

to t

he o

rgan

izat

ion

– by

pr

ovid

ing

mea

ning

ful i

nfor

mat

ion,

info

rmin

g st

rate

gy a

nd s

uppo

rtin

g de

cisi

on-m

akin

g.

The

Glo

bal E

nviro

nmen

tal M

anag

emen

t In

itiat

ive’

s (G

EMI)

Met

rics

Nav

igat

or™

is a

too

l to

hel

p or

gani

zatio

ns d

evel

op a

nd im

plem

ent

met

rics

that

pro

vide

insi

ght

into

com

plex

issu

es,

supp

ort

busi

ness

str

ateg

y an

d co

ntrib

ute

to

busi

ness

suc

cess

. The

too

l pre

sent

s a

thor

ough

, si

x-st

ep p

roce

ss t

o se

lect

, im

plem

ent

and

eval

uate

a s

et o

f ‘c

ritic

al f

ew’ m

etric

s th

at f

ocus

on

an

orga

niza

tion’

s su

cces

s. E

ach

step

pro

vide

s gu

idan

ce in

the

for

m o

f a

wor

kshe

et, s

erie

s of

qu

estio

ns o

r ch

eckl

ist.

Any

org

aniz

atio

n ca

n us

e th

e to

ol a

nd a

pply

it

at a

ny o

rgan

izat

iona

l lev

el. T

he p

roce

ss is

ver

y fle

xibl

e an

d do

es n

ot d

icta

te h

ow t

o co

mpl

ete

the

wor

kshe

ets.

In f

act,

the

too

l doe

s no

t re

quire

th

at w

orks

heet

s be

use

d at

all,

if a

n or

gani

zatio

n al

read

y us

es p

rove

n in

tern

al p

roce

sses

for

pa

rtic

ular

ste

ps. T

he s

tren

gth

of t

he t

ool i

s th

at

it of

fers

a r

igor

ous

thou

ght

proc

ess.

The

gre

ates

t va

lue

is in

how

it h

elps

indi

vidu

als,

gro

ups

or

entir

e or

gani

zatio

ns t

hink

thr

ough

the

pro

cess

-

the

logi

cal fl

ow o

f th

e si

x st

eps

- an

d no

t in

th

e m

etho

ds in

clud

ed. T

he s

umm

ary

wor

kshe

et

(on

page

5) p

rovi

des

an o

verv

iew

of

the

proc

ess

and

capt

ures

the

crit

ical

con

clus

ions

fro

m t

he s

ix

step

s.

In a

ver

y pr

actic

al w

ay, t

he G

EMI M

etric

sN

avig

ator

™ h

elps

the

use

r to

:

•de

term

ine

wha

t is

mat

eria

l – a

sk t

he r

ight

qu

estio

ns, p

riorit

ize

issu

es, i

dent

ify o

bjec

tives

an

d un

ders

tand

pot

entia

l con

sequ

ence

s at

se

vera

l dec

isio

n po

ints

•de

cide

wha

t an

d ho

w t

o m

easu

re –

und

erst

and

the

inte

ract

ions

bet

wee

n ec

onom

ic, s

ocia

l and

en

viro

nmen

tal i

ssue

s an

d so

rt t

hrou

gh a

n ar

ray

of p

ossi

ble

met

rics

•im

plem

ent

a m

etric

s pr

ogra

m

Onc

e th

e m

etric

s ha

ve b

een

chos

en, t

his

tool

he

lps

the

user

ana

lyze

how

eff

ectiv

ely

the

non-

finan

cial

met

rics:

•in

form

bus

ines

s de

cisi

ons

and

lead

ersh

ip

•al

ign

envi

ronm

enta

l, so

cial

and

eco

nom

ic is

sues

w

ith b

usin

ess

stra

tegy

•re

spon

d to

issu

es id

entifi

ed b

y em

ploy

ees

and

ex

tern

al s

take

hold

ers

•he

lp in

tegr

ate

holis

tic t

hink

ing

into

the

orga

niza

tion’

s cu

lture

•re

flect

bus

ines

s va

lues

and

yie

ld b

usin

ess

bene

fits

The

prin

cipa

l ben

efit

of u

sing

thi

s to

ol is

to

adva

nce

busi

ness

per

form

ance

thr

ough

the

dev

elop

men

t an

d us

e of

non

-fina

ncia

l mea

sure

men

ts.

5

WO

RK

SHEE

T: S

UM

MA

RY O

F K

EY P

OIN

TS

Wh

at is

m

ater

ial

Key

bu

sin

ess

ob

ject

ives

(fr

om

Ste

p 1

)

Envi

ron

men

tal,

soci

al a

nd

eco

no

mic

ele

men

ts s

up

po

rt b

usi

nes

s o

bje

ctiv

es (

curr

ent

and

fu

ture

) (f

rom

Ste

p 1

)

Key

em

plo

yees

an

d e

xter

nal

sta

keh

old

ers

in t

his

eff

ort

(fr

om

Ste

p 2

)

Cri

tica

l few

mat

eria

l iss

ues

(fr

om

Ste

p 2

)

Key

ob

ject

ives

wh

ich

rel

ate

to t

he

mat

eria

l iss

ues

(fr

om

Ste

p 3

)

Wh

at a

nd

h

ow

to

m

easu

re

Exp

ecte

d u

ses

of

the

met

rics

an

d b

y w

ho

m (

fro

m S

tep

4)

KPI

s an

d r

elat

ed m

etri

cs, w

hat

th

ey a

re a

nd

ho

w w

ell t

hey

mee

t th

e cr

iter

ia (

fro

m S

tep

4)

Ho

w t

oas

sure

ef

fect

iven

ess

Deg

ree

of

inte

gra

tio

n o

f m

etri

cs in

to m

anag

emen

t sy

stem

s (f

rom

Ste

p 5

)

Effe

ctiv

enes

s o

f m

etri

cs c

om

mu

nic

atio

n t

o u

sers

(fr

om

Ste

p 5

)

Exp

ecte

d o

rgan

izat

ion

al b

ehav

ior

(fro

m S

tep

6)

Exp

ecte

d c

han

ge

in p

erso

nal

beh

avio

r (f

rom

Ste

p 6

)

Use

of

met

rics

to

su

pp

ort

th

e b

usi

nes

s ca

se a

nd

refi

ne

bu

sin

ess

stra

teg

y (f

rom

Ste

p 6

)

Exp

ecte

d b

usi

nes

s va

lue

(fro

m S

tep

6)

6 Eco

no

mic

, en

viro

nm

enta

l an

d

soci

al c

on

cern

s in

tera

ct in

fu

nd

amen

tal w

ays,

man

y o

f w

hic

h a

re n

ot

wel

l un

der

sto

od

…B

usi

nes

ses

exis

t w

ith

in

soci

etie

s, a

nd

so

ciet

al v

alu

es

exp

ress

ed f

orm

ally

(th

rou

gh

la

ws

and

reg

ula

tio

ns)

an

d

info

rmal

ly (

thro

ug

h v

alu

es a

nd

cu

ltu

re)

affe

ct a

ll as

pec

ts o

f a

co

mp

any’

s o

per

atio

ns.

— K

irvi

l Ski

nn

arla

nd

Intr

od

uct

ion

Pe

rfor

man

ce m

easu

rem

ent

is c

ritic

al in

man

agin

g co

mpl

ex is

sues

tha

t ar

e co

re t

o th

e bu

sine

ss.

Met

rics

are

ess

entia

l not

onl

y fo

r m

anag

ing

the

orga

niza

tion,

but

als

o fo

r in

form

ing

busi

ness

st

rate

gies

. With

out

rele

vant

met

rics,

it is

diffi

cult

- if

not

impo

ssib

le -

to

unde

rsta

nd h

ow a

nd if

co

mpl

ex is

sues

adv

ance

bus

ines

s su

cces

s (s

eeth

eG

loss

ary

on

pag

e 56

fo

r th

e d

efin

itio

ns

of

ital

iciz

ed w

ord

s, in

bo

ld).

Sust

aina

ble

deve

lopm

ent*

is a

com

plex

issu

e th

at e

mer

ged

as a

bus

ines

s co

ncep

t in

the

19

90s.

Sin

ce t

hen

it ha

s ga

ined

cre

denc

e as

an

impo

rtan

t dr

iver

of

busi

ness

str

ateg

y. Y

et, t

o re

aliz

e th

e va

lue

of a

ddre

ssin

g en

viro

nmen

tal,

soci

al a

nd b

road

er e

cono

mic

issu

es, n

on-

finan

cial

met

rics

are

need

ed t

o co

mpl

emen

t tr

aditi

onal

, fina

ncia

l mea

sure

men

t sy

stem

s an

d he

lp o

rgan

izat

ions

man

age

long

-ter

m b

usin

ess

oppo

rtun

ities

and

fut

ure

unce

rtai

nty

and

risks

.

The

chal

leng

e is

to

use

the

right

mix

of

met

rics

that

pro

vide

s va

lue

to t

he o

rgan

izat

ion

– by

pr

ovid

ing

mea

ning

ful i

nfor

mat

ion,

info

rmin

g st

rate

gy a

nd s

uppo

rtin

g de

cisi

on-m

akin

g.

GEM

I’s M

etric

s N

avig

ator

™ is

a t

ool t

o he

lp

orga

niza

tions

dev

elop

and

impl

emen

t m

etric

s th

at p

rovi

de in

sigh

t in

to c

ompl

ex is

sues

, sup

port

bu

sine

ss s

trat

egy

and

cont

ribut

e to

bus

ines

s su

cces

s. T

he t

ool p

rese

nts

a th

orou

gh, s

ix-s

tep

proc

ess

to s

elec

t, im

plem

ent

and

eval

uate

a s

et o

f ‘c

ritic

al f

ew’ m

etric

s th

at a

ddre

ss:

•W

hat

perf

orm

ance

bes

t re

flect

s th

at w

hich

is

mat

eria

l to

the

orga

niza

tion

and

impo

rtan

tto

sta

keho

lder

s?

•H

ow c

an p

erfo

rman

ce f

or t

hese

issu

esbe

mea

sure

d?

•W

hich

met

rics

are

mos

t ef

fect

ive

in

deci

sion

-mak

ing?

•W

ho w

ill u

se t

hem

?

•H

ow c

an p

erfo

rman

ce e

valu

atio

n im

prov

e th

e or

gani

zatio

n’s

stra

tegi

c di

rect

ion?

Sust

ain

abili

ty a

s a

Bu

sin

ess

Issu

eEa

rly c

orpo

rate

app

licat

ions

of

sust

aina

bilit

y ap

proa

ches

wer

e ty

pica

lly m

arke

ting-

focu

sed

and

appl

ied

to s

ingl

e is

sues

– s

uch

as ‘g

reen

’ pro

duct

s.

How

ever

, for

sev

eral

yea

rs, t

here

has

bee

n gr

owin

g re

cogn

ition

tha

t a

holis

tic a

ppro

ach

to m

anag

ing

risks

and

opp

ortu

nitie

s cr

eate

s bu

sine

ss v

alue

.

Figu

re 1

(on

page

7) i

llust

rate

s th

e ev

olut

ion

of in

tegr

atin

g su

stai

nabi

lity

thin

king

into

an

orga

niza

tion.

Firs

t st

eps

typi

cally

incl

ude

initi

ativ

es

to m

anag

e en

viro

nmen

t, h

ealth

and

saf

ety

(EH

S)

risk

by m

ovin

g be

yond

com

plia

nce

thro

ugh

deve

lopi

ng in

tern

al p

olic

ies

or a

dher

ing

to

volu

ntar

y st

anda

rds.

As

orga

niza

tions

hav

e ev

olve

d fr

om f

ocus

ing

on

EHS

stra

tegi

es t

o su

stai

nabi

lity

stra

tegi

es, g

oals

an

d ob

ject

ives

hav

e be

com

e m

ore

com

plex

. At

the

sam

e tim

e, g

iven

the

bro

ad s

pect

rum

of

issu

es t

hat

fall

unde

r th

e su

stai

nabi

lity

umbr

ella

, po

tent

ial s

take

hold

ers

have

mul

tiplie

d an

d gr

own

mor

e di

vers

e. In

thi

s se

ttin

g, t

he n

eed

for

a cl

ear,

resu

lts-o

rient

ed s

trat

egy

has

gain

ed

incr

easi

ng im

port

ance

for

org

aniz

atio

ns. A

nd,

beca

use

orga

niza

tions

can

not

affo

rd t

o ad

dres

s ev

ery

aspe

ct t

o th

e sa

me

degr

ee a

nd o

n th

e sa

me

sche

dule

, cho

ices

mus

t be

mad

e an

d a

stra

tegi

c di

rect

ion

set.

* Fo

r pu

rpos

es o

f th

is t

ool,

GEM

I con

side

rs t

he t

erm

s an

d va

ried

defin

ition

s ‘s

usta

inab

ility

’, ‘t

riple

-bot

tom

-line

’, ‘c

orpo

rate

soc

ial

resp

onsi

bilit

y’, ‘

corp

orat

e ci

tizen

ship

’, ‘c

orpo

rate

res

pons

ibili

ty’ a

nd ‘s

usta

inab

le d

evel

opm

ent’

to

be in

terc

hang

eabl

e, a

nd t

o in

volv

e th

e el

emen

ts o

f en

viro

nmen

tal s

tew

ards

hip,

eco

nom

ic d

evel

opm

ent

and

soci

al p

rogr

ess.

7

© B

RID

GES

to

Sust

aina

bilit

y, G

olde

r A

ssoc

iate

s In

c. A

dapt

ed f

rom

Tran

sfor

min

g Su

stai

nabi

lity

Stra

tegy

into

Act

ion,

Bel

off

et a

l, 20

05

Fig

ure

1. E

volu

tio

n o

f In

teg

rati

ng

Su

stai

nab

ility

Th

inki

ng

into

an

Org

aniz

atio

n

RISKS

OPPORTU

NITY

hig

hhig

hlo

wlo

w-1

0+

1

Tom

orr

ow

Tod

ay

Syst

em

Application

Fun

ctio

n

Exte

rnal

Time Inte

rnal

Lead

ing

the

pac

k

Inn

ova

tin

g -

rais

ing

th

e ce

ilin

g

Exp

and

ing

the

visi

on

Imp

rovi

ng

th

e fl

oo

r

Mee

tin

g m

inim

um

sta

nd

ard

s

As

the

valu

e of

add

ress

ing

envi

ronm

enta

l and

so

cial

issu

es in

crea

ses,

it is

impo

rtan

t fo

r m

etric

s to

ga

uge

an o

rgan

izat

ion’

s su

cces

s m

ore

holis

tical

ly.

A n

ew g

ener

atio

n of

met

rics

is n

eede

d to

co

mpl

emen

t tr

aditi

onal

mea

sure

men

t sy

stem

s an

d he

lp m

anag

ers

deal

with

long

-ter

m b

usin

ess

oppo

rtun

ities

and

fut

ure

unce

rtai

nty

and

risk.

Lead

ing

met

rics

are

valu

able

bec

ause

the

y te

nd

to r

eflec

t ca

usat

ion

and

can

be u

sed

to p

redi

ct

perf

orm

ance

. How

ever

, bec

ause

lead

ing

met

rics

ofte

n re

flect

inta

ngib

le a

sset

s of

bus

ines

s, t

hey

can

be d

ifficu

lt to

iden

tify.

The

chal

leng

e is

to

find

the

right

mix

of

lead

ing

and

lagg

ing

met

rics,

for

issu

es t

hat

are

criti

cally

im

port

ant,

i.e.

, mat

eria

l. Th

ese

met

rics

mus

t ac

cura

tely

dep

ict

prog

ress

tow

ards

goa

ls a

nd

be e

ffec

tive

in c

omm

unic

atin

g in

form

atio

n to

di

ffer

ent

audi

ence

s. F

urth

er, t

he m

etric

s sh

ould

pr

ovid

e va

lue

to t

he o

rgan

izat

ion

with

out

crea

ting

sign

ifica

nt o

pera

tiona

l bur

dens

. (1)

Seve

ral t

ools

dev

elop

ed b

y G

EMI h

ighl

ight

the

im

port

ance

of

met

rics

(see

list

of

Res

ou

rces

in

On

line

Ap

pen

dix

). G

EMI’s

Cle

ar A

dvan

tage

:Bu

ildin

g Sh

areh

olde

r Va

lue

help

s to

pro

vide

bu

sine

sses

app

roac

hes

on h

ow t

o m

easu

re,

man

age

and

com

mun

icat

e EH

S va

lue

to t

he

finan

cial

com

mun

ity. G

EMI’s

Tra

nspa

renc

y: A

Pa

th t

o Pu

blic

Tru

st u

nder

scor

es p

erfo

rman

ce

repo

rtin

g to

est

ablis

h in

tegr

ity, b

uild

cre

dibi

lity,

ea

rn r

espe

ct a

nd d

evel

op t

rust

with

sta

keho

lder

s.

Met

rics

help

‘clo

se t

he lo

op’ i

n th

e su

stai

nabi

lity

plan

one

dev

elop

s us

ing

the

GEM

I’s E

xplo

ring

Path

way

s to

a S

usta

inab

le E

nter

pris

e: S

D

Plan

ner™

. Con

side

ratio

ns f

or t

he d

evel

opm

ent

of m

etric

s ha

ve b

een

prev

ious

ly d

iscu

ssed

in

a 1

997

GEM

I pub

licat

ion,

Mea

surin

gEn

viro

nmen

tal P

erfo

rman

ce.

The

GEM

I Met

rics

Nav

igat

or™

bui

lds

on t

hese

an

d ot

her

tool

s, b

ut f

ocus

es e

xclu

sive

ly o

n a

proc

ess

com

pani

es c

an u

se t

o de

velo

p re

leva

nt

sust

aina

bilit

y m

etric

s.

A N

ew G

ener

atio

n o

f M

etri

csO

rgan

izat

ions

use

met

rics

to ju

dge

prog

ress

in

impl

emen

ting

stra

tegi

es a

nd t

o im

prov

e op

erat

ions

. Tra

ditio

nally

, bus

ines

s ob

ject

ives

hav

e be

en d

efine

d an

d m

easu

red

in fi

nanc

ial t

erm

s.

Org

aniz

atio

ns h

ave

relie

d on

lagg

ing

met

rics

whi

ch

refle

ct p

ast o

utco

mes

of o

rgan

izat

iona

l per

form

ance

. W

hile

lagg

ing

met

rics

help

org

aniz

atio

ns m

anag

e im

pact

s, th

e ef

fect

ive

man

agem

ent o

f non

-fina

ncia

l iss

ues

requ

ires

the

use

of b

oth

lead

ing

and

lagg

ing

indi

cato

rs o

f per

form

ance

.

8

Str

ate

gic

Metr

ics

Develo

pm

en

t Pro

cess

: O

verv

iew

Wh

at is

th

e G

EMI M

etri

cs N

avig

ato

r™?

The

tool

is in

the

for

m o

f a

wor

kboo

k th

at g

uide

s th

e us

er t

hrou

gh a

ser

ies

of w

orks

heet

s to

arr

ive

at m

etric

s th

at s

uppo

rt b

usin

ess

stra

tegy

, enh

ance

de

cisi

on-m

akin

g an

d co

ntrib

ute

to m

anag

ing

busi

ness

suc

cess

in t

he f

ollo

win

g ar

eas:

•In

form

str

ateg

y –

by m

easu

ring

the

abili

ty o

f th

e or

gani

zatio

n to

mee

t its

goa

ls a

nd t

arg

ets.

•D

rive

impr

oved

per

form

ance

– b

y:

oes

tabl

ishi

ng b

ase-

line

perf

orm

ance

otr

acki

ng p

erfo

rman

ce o

ver

time,

incl

udin

g m

anag

emen

t sy

stem

per

form

ance

opr

ovid

ing

insi

ghts

into

hid

den

aspe

cts

of p

erfo

rman

ce

osu

ppor

ting

deci

sion

-mak

ing

oid

entif

ying

per

form

ance

impr

ovem

ent

oppo

rtun

ities

•M

easu

re w

hat

is r

ight

– O

rgan

izat

ions

fac

e st

akeh

olde

r pr

essu

re t

o ac

coun

t pu

blic

ly t

heir

perf

orm

ance

rel

ativ

e to

a g

row

ing

list

of

sust

aina

bilit

y-re

late

d pr

inci

ples

, sta

ndar

ds a

nd

indi

cato

rs. O

ften

it is

diffi

cult

to m

eet

vary

ing

expe

ctat

ions

and

det

erm

ine

whi

ch f

ram

ewor

ks

to u

se a

nd w

hat

to m

easu

re. B

y de

velo

ping

m

etric

s th

at a

re a

ligne

d w

ith b

usin

ess

stra

tegy

th

is t

ool e

nsur

es t

hat

an o

rgan

izat

ion

mea

sure

s w

hat

is r

ight

for

itse

lf an

d m

easu

res

thin

gs t

he

right

way

.

•Pr

ovid

e m

eani

ngfu

l inf

orm

atio

n –

Org

aniz

atio

ns

can

be o

verw

helm

ed b

y da

ta a

nd in

form

atio

n.Th

is t

ool h

elps

the

use

r de

cide

whi

ch in

form

atio

n re

ally

mat

ters

, how

to

cost

-eff

ectiv

ely

conv

ert

it in

to m

etric

s an

d ho

w t

o co

mm

unic

ate

data

and

re

sults

to

the

right

peo

ple.

•C

omm

unic

ate

effe

ctiv

ely

– M

etric

s m

ean

little

w

ithou

t th

e co

ntex

t of

how

the

y w

ill b

e us

ed

to im

prov

e pe

rfor

man

ce a

nd o

rgan

izat

iona

l al

ignm

ent.

Thi

s to

ol h

ighl

ight

s ho

w m

etric

s ar

e de

fined

and

influ

ence

d by

the

use

s an

d us

ers

of m

etric

s. F

urth

er, t

he t

ool h

elps

the

us

er c

hoos

e th

e ty

pe a

nd n

umbe

r of

met

rics

give

n th

e au

dien

ce.

Wh

at is

Un

iqu

e ab

ou

t th

e To

ol?

Whi

le t

here

are

man

y pu

blis

hed

reso

urce

s on

m

etric

s, t

his

tool

inco

rpor

ates

div

erse

per

spec

tives

in

to a

com

preh

ensi

ve f

ram

ewor

k th

at li

nks

non-

finan

cial

pro

gram

met

rics

to a

n or

gani

zatio

n’s

busi

ness

str

ateg

y in

a p

ract

ical

way

tha

t he

lps

the

user

to:

•as

k th

e rig

ht q

uest

ions

, prio

ritiz

e is

sues

, id

entif

y ob

ject

ives

and

und

erst

and

pote

ntia

l co

nseq

uenc

es a

t se

vera

l dec

isio

n po

ints

•be

tter

und

erst

and

the

inte

ract

ions

bet

wee

n ec

onom

ic, s

ocia

l and

env

ironm

enta

l iss

ues

•al

ign

envi

ronm

enta

l and

soc

ial i

ssue

s w

ith

bu

sine

ss s

trat

egy

•ad

vanc

e bu

sine

ss p

erfo

rman

ce u

sing

non-

finan

cial

mea

sure

men

ts

The

tool

doe

s no

t re

com

men

d sp

ecifi

c m

etric

s,

but

its a

pplic

atio

n w

ill le

ad a

n or

gani

zatio

n th

roug

h th

e pr

oces

s of

dev

elop

ing

com

pany

-sp

ecifi

c m

etric

s.

9

Met

ho

do

log

y -

Ho

w t

he

Too

l was

Dev

elo

ped

This

too

l was

dev

elop

ed t

hrou

gh c

onsu

ltatio

n be

twee

n th

e G

EMI M

etric

s W

ork

Gro

up a

nd

the

Gol

der

team

, and

with

inpu

t fr

om E

xter

nal

Adv

isor

y G

roup

s (E

AG

s) c

ompr

ised

of

key

thou

ght

lead

ers

with

exp

ertis

e ra

ngin

g fr

om c

orpo

rate

st

rate

gy t

o st

akeh

olde

r en

gage

men

t pr

oces

ses

to p

erfo

rman

ce m

easu

rem

ent.

The

se e

xper

ts

part

icip

ated

in a

t le

ast

one

of t

hree

wor

ksho

ps

whi

ch a

ddre

ssed

sel

ecte

d is

sues

em

bedd

ed in

th

e to

ol. C

ontr

ibut

ions

fro

m s

ever

al E

AG

exp

erts

ar

e in

clud

ed in

the

too

l as

‘EA

G P

ersp

ectiv

es’.

The

deta

iled

pers

pect

ives

in t

he o

nlin

e ap

pend

ix

can

enha

nce

unde

rsta

ndin

g of

cer

tain

key

poi

nts

or b

e us

ed t

o m

ake

the

busi

ness

cas

e fo

r ta

king

si

mila

r st

eps.

Cas

e ex

ampl

es, w

ritte

n by

GEM

I mem

bers

, ill

ustr

ate

oppo

rtun

ities

and

cha

lleng

es in

de

velo

ping

and

usi

ng m

etric

s. W

hile

the

re a

re

man

y en

viro

nmen

tal c

ases

, the

re is

wid

espr

ead

reco

gniti

on o

f th

e ne

ed f

or m

ore

wor

k in

de

velo

ping

soc

ial a

nd e

cono

mic

met

rics.

Oft

en

soci

al is

sues

are

mor

e re

adily

man

aged

and

ac

coun

ted

for

at t

he lo

cal l

evel

, mak

ing

it di

fficu

lt to

agg

rega

te o

r ‘r

oll-u

p’ p

erfo

rman

ce in

to a

sin

gle

met

ric. T

here

in li

es a

key

cha

lleng

e th

at t

his

tool

at

tem

pts

to a

ddre

ss.

Wh

o S

ho

uld

Use

it?

The

tool

is in

tend

ed f

or u

se b

y m

anag

ers

and

envi

ronm

enta

l, he

alth

and

saf

ety,

and

sus

tain

able

de

velo

pmen

t pr

actit

ione

rs. T

he t

ool c

an b

e ap

plie

d to

any

typ

e of

bus

ines

s an

d ap

plie

d at

any

or

gani

zatio

nal l

evel

. The

pro

cess

is fl

exib

le a

nd

adap

tabl

e so

tha

t in

divi

dual

s or

tea

ms

can

tailo

r it

to m

eet

thei

r sp

ecifi

c ne

eds.

Ho

w t

o U

se t

he

Too

lTh

e pr

oces

s de

scrib

ed in

the

too

l is

sequ

entia

l and

re

pres

ents

the

rec

omm

ende

d ap

proa

ch t

o m

etric

s de

velo

pmen

t, b

ut u

sers

may

ent

er a

t an

y st

ep a

nd

mov

e be

twee

n st

eps

as n

eces

sary

. Eac

h st

ep o

f th

e G

EMI M

etric

s N

avig

ator

™ p

rovi

des

guid

ance

in

the

for

m o

f a

wor

kshe

et, s

erie

s of

que

stio

ns

or c

heck

list

of e

valu

atio

n cr

iteria

. To

illus

trat

e th

e co

ntin

uous

nat

ure

of t

he m

etric

s de

velo

pmen

t pr

oces

s, t

he s

ix s

teps

are

sho

wn,

in F

igur

e 2,

in a

Pl

an, D

o, C

heck

, Adv

ance

cyc

le.

A h

ypot

hetic

al o

rgan

izat

ion

calle

d ‘X

YZ

Nut

ritio

nal

Beve

rage

’ is

used

as

an e

xam

ple

thro

ugho

ut m

ost

of t

he s

ix-s

tep

proc

ess.

GEM

I mem

ber

com

pani

es

popu

late

d so

me

tabl

es a

nd w

orks

heet

s ba

sed

on

thei

r ow

n ex

perie

nces

, pro

vidi

ng m

ore

illus

trat

ive

exam

ples

tha

n co

uld

be a

chie

ved

thro

ugh

any

hypo

thet

ical

mod

el. T

he t

ool a

lso

incl

udes

re

fere

nces

and

res

ourc

es t

hat

furt

her

supp

ort

the

met

rics

deve

lopm

ent

proc

ess.

Due

to

spac

e lim

itatio

ns in

the

pub

lishe

d ve

rsio

n, t

he e

lect

roni

c PD

F ve

rsio

n of

the

to

ol, w

hich

can

be

foun

d on

GEM

I’s w

ebsi

te,

ww

w.g

emi.o

rg/m

etri

csn

avig

ato

r, in

clud

es

elab

orat

ions

on

EAG

Per

spec

tives

, add

ition

al

reso

urce

s an

d bl

ank

wor

kshe

ets

in u

sabl

e fo

rmat

.

Fig

ure

2. S

trat

egic

Met

rics

Dev

elo

pm

ent

Pro

cess

AD

VA

NC

E

CH

EC

K

PLA

N

DO

Wh

at

an

d H

ow

to

Measu

re

(Ste

p 4

)

Wh

at

is M

ate

rial

(S

tep

s 1

- 3

)

Ho

w t

o A

ssu

re

Eff

ect

iven

ess

(S

tep

s 5

- 6

)

10

The

Six

Step

sTh

is s

ectio

n of

the

too

l out

lines

the

six

-ste

p m

etric

s de

velo

pmen

t pr

oces

s. T

o in

crea

se

the

effe

ctiv

enes

s an

d va

lue

of t

he m

etric

s,

info

rmat

ion

is c

olle

cted

and

dec

isio

ns a

re m

ade

to r

espo

nd t

o th

ree

guid

ing

stat

emen

ts:

•W

hat

is m

ater

ial

•W

hat

and

how

to

mea

sure

•H

ow t

o as

sure

eff

ectiv

enes

s

Step

s 1–

3: W

hat

is M

ater

ial?

St

eps

1-3

of t

he p

roce

ss h

elp

iden

tify

wha

t is

mat

eria

l to

an o

rgan

izat

ion.

Mat

eria

lity

is

defin

ed a

s th

e re

leva

nce

and

subs

tant

ialit

y of

an

issu

e to

the

org

aniz

atio

n. T

his

early

foc

us

on m

ater

ialit

y en

sure

s th

at t

he o

rgan

izat

ion

is

mea

surin

g th

at w

hich

is r

ight

for

the

m.

A n

umbe

r of

org

aniz

atio

ns h

ave

deve

lope

d cr

iteria

fo

r de

finin

g m

ater

ialit

y fo

r va

rious

pur

pose

s,

incl

udin

g fin

anci

al r

epor

ting

(2) ,

sust

aina

bilit

y re

port

ing

(3) ,

stak

ehol

der

enga

gem

ent

(4) a

nd

audi

ting

(5) .

This

pro

cess

use

s th

e fo

llow

ing

crite

ria

for

asse

ssin

g an

issu

e’s

mat

eria

lity:

•re

leva

nce

to t

he b

usin

ess

stra

tegy

•si

gnifi

canc

e of

the

org

aniz

atio

n’s

envi

ronm

enta

l, so

cial

and

/or

econ

omic

impa

cts

•le

vel o

f co

ncer

n to

ext

erna

l sta

keho

lder

s

•ab

ility

of

the

orga

niza

tion

to c

ontr

ol o

r in

fluen

ce

Step

4: W

hat

an

d H

ow

to

Mea

sure

St

ep 4

defi

nes

Key

Per

form

ance

Ind

icat

ors

(KPI

s),

i.e.,

as a

gen

eral

sta

tem

ent

of w

hat

to m

easu

re a

nd

deve

lops

met

rics,

i.e.

, as

the

spec

ific

mea

sure

men

t ac

com

pani

ed b

y cl

ear

desc

riptio

ns o

f ho

w it

is

mea

sure

d. T

his

step

hel

ps s

ort

thro

ugh

the

arra

y of

po

ssib

le m

etric

s to

sel

ect

the

stra

tegi

c m

etric

s th

at

focu

s on

bus

ines

s su

cces

s. T

his

step

brie

fly lo

oks

at

tact

ical

met

rics

at t

he o

pera

tiona

l lev

el.

Step

4 in

clud

es a

rea

lity-

chec

k to

ens

ure

the

chos

en

met

rics

are

effe

ctiv

ely

fulfi

lling

the

ir in

tend

ed

purp

ose.

Par

t of

thi

s st

ep is

to

ensu

re t

he v

alid

ity o

f th

e m

etric

s in

ter

ms

of r

elia

bilit

y, r

elev

ance

to

the

busi

ness

, acc

urac

y an

d ot

her

crite

ria.

Step

s 5–

6: H

ow

to

Ass

ure

Eff

ecti

ven

ess

Step

5 f

ocus

es o

n di

still

ing

data

into

use

ful a

nd

man

agea

ble

info

rmat

ion

that

is m

eani

ngfu

l to

the

inte

nded

use

rs. T

his

impl

emen

tatio

n st

ep e

ncou

rage

s th

e us

er t

o w

ork

with

exi

stin

g m

anag

emen

t an

d in

form

atio

n sy

stem

s. T

his

sect

ion

also

cau

tions

on

the

use

of m

etric

s th

at c

an b

e m

isle

adin

g or

mis

unde

rsto

od.

Step

6 is

a c

ritic

al a

sses

smen

t of

the

met

rics

and

the

effe

ctiv

enes

s of

the

dev

elop

men

t pr

oces

s its

elf.

Thi

s st

ep e

ncou

rage

s re

flect

ion

on t

he fi

ve

prev

ious

ste

ps a

nd c

heck

s if

the

met

rics

info

rm t

he

busi

ness

str

ateg

y. D

oing

so

assu

res

that

the

met

rics

have

met

the

ir go

als

and

resu

lt in

bus

ines

s va

lue

for

the

orga

niza

tion.

Add

ition

ally,

it f

oste

rs t

he

deve

lopm

ent

of a

hig

h le

vel s

umm

ary

of r

esul

ts

(see

sum

mar

y w

orks

heet

on

page

5).

Figu

re 3

sho

ws

a sc

hem

atic

of

the

six

step

s of

the

St

rate

gic

Met

rics

Dev

elop

men

t Pr

oces

s an

d th

e as

soci

ated

wor

kshe

ets.

Fig

ure

3. S

trat

egic

Met

rics

Dev

elo

pm

ent

Pro

cess

an

d A

sso

ciat

ed W

ork

shee

ts

1

2

3

4

5

6

Bu

sin

ess

(W1a

) &

sust

ain

abili

ty c

on

text

s (W

1b)

Prio

riti

zed

list

s o

f is

sues

:in

tern

al (

W2a

) &

ext

ern

al (

W2b

)

“Cri

tica

l few

” m

ater

ial i

ssu

es (

W3a

)&

key

ob

ject

ives

(W

3b)

Key

Per

form

ance

Ind

icat

ors

(W

4a)

& M

etri

cs (

W4b

& W

4c)

Eval

uat

ion

of

imp

lem

enta

tio

n

& c

om

mu

nic

atio

n (

W4b

)

Eval

uat

ion

of

met

rics

sys

tem

eff

ecti

ven

ess

(W4b

)&

su

mm

ary

of

all k

ey r

esu

lts

(su

mm

ary

wo

rksh

eet

in

Exec

uti

ve S

um

mar

y)

Eval

uat

e In

teg

rati

on

& Im

pro

vem

ent

Eval

uat

e an

d

Co

mm

un

icat

e M

etri

cs

Defi

ne

Key

Perf

orm

ance

Ind

icat

ors

an

dM

etri

cs

Dev

elo

p K

eyO

bje

ctiv

es

Ass

ess

Issu

es

Un

der

stan

d C

on

text

11

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

The

GEM

I Met

rics

Nav

igat

or™

is d

esig

ned

to h

elp

user

s de

velo

p no

n-tr

aditi

onal

met

rics

that

com

plem

ent

the

orga

niza

tion’

s ex

istin

g pe

rfor

man

ce m

easu

rem

ent

syst

em. T

he m

etric

s de

velo

pmen

t pr

oces

s be

gins

with

:

•ar

ticul

atin

g th

e or

gani

zatio

n’s

busi

ness

st

rate

gy, b

usin

ess

obje

ctiv

es a

nd p

erfo

rman

ce

mea

sure

men

t sy

stem

•m

appi

ng h

ow t

he o

rgan

izat

ion

curr

ently

ad

dres

ses

envi

ronm

enta

l, ec

onom

ic a

nd

so

cial

asp

ects

This

ens

ures

tha

t th

e m

etric

s su

ppor

t w

hat

is im

port

ant

to t

he o

rgan

izat

ion

and

can

adva

nce

busi

ness

per

form

ance

by

leve

ragi

ng

the

inte

ract

ions

bet

wee

n ec

onom

ic, s

ocia

l and

en

viro

nmen

tal i

ssue

s.

Defi

ne

the

Org

aniz

atio

nal

Sco

pe

The

tool

is a

pplic

able

to

orga

niza

tions

of

vario

us

scal

es a

nd le

vels

. An

orga

niza

tion

is d

efine

d as

an

entit

y “t

hat

has

its o

wn

func

tion

and

adm

inis

trat

ion.

”(6)

Exam

ples

of

an o

rgan

izat

ion

for

this

too

l inc

lude

an

entir

e co

rpor

atio

n, a

bu

sine

ss u

nit

and

a si

ngle

site

or

oper

atio

n.

Un

der

stan

d t

he

Bu

sin

ess

Succ

ess

Fact

ors

An

orga

niza

tion

sets

dire

ctio

n th

roug

h st

rate

gy a

nd

uses

mea

sure

men

ts t

o st

ay o

n tr

ack.

Mea

sure

men

ts

deve

lope

d ou

tsid

e of

the

org

aniz

atio

n’s

stra

tegi

c bu

sine

ss s

ucce

ss f

acto

rs w

ill n

ot d

rive

the

resu

lts

iden

tified

in t

he s

trat

egy.

(7)

Des

crib

ing

the

orga

niza

tion’

s bu

sine

ss s

trat

egy

is t

he e

ssen

tial fi

rst

step

in u

nder

stan

ding

the

bu

sine

ss s

ucce

ss f

acto

rs f

or d

evel

opin

g ne

w

met

rics.

Man

y or

gani

zatio

ns a

rtic

ulat

e th

eir

stra

tegy

thr

ough

vis

ion

and

mis

sion

sta

tem

ents

as

wel

l as

clea

rly s

tate

d bu

sine

ss o

bjec

tives

. So

me

also

dev

elop

cor

e va

lues

to

refle

ct c

hara

cter

istic

s th

at a

re im

port

ant

to t

he o

rgan

izat

ion.

Mea

sure

Bu

sin

ess

Perf

orm

ance

Trad

ition

al m

easu

rem

ent

sche

mes

tra

ck

perf

orm

ance

tow

ards

fina

ncia

l and

ope

ratio

nal

goal

s. In

add

ition

to

finan

cial

met

rics

man

y or

gani

zatio

ns u

se n

on-fi

nanc

ial m

easu

rem

ents

in

emer

ging

are

as, s

uch

as r

esou

rce

man

agem

ent,

w

orkp

lace

and

boa

rd d

iver

sity

and

cor

pora

te

gove

rnan

ce. M

easu

ringintangibles,

e.g

., re

puta

tion,

is in

crea

sing

ly r

ecog

nize

d as

asse

ssin

g hi

dden

val

ue t

hat

has

been

cre

ated

by

an o

rgan

izat

ion.

Org

aniz

atio

ns m

ay u

se a

var

iety

of

mea

sure

men

t m

odel

s to

inte

grat

e no

n-fin

anci

al a

nd fi

nanc

ial

mea

sure

men

ts in

clud

ing:

The

Bal

ance

d Sc

orec

ard,

Eco

nom

ic V

alue

Add

, Int

elle

ctua

l C

apita

l App

roac

hes,

Val

ue E

xplo

rer®

and

Val

ue

C

hain

Sco

rebo

ard™

. (8)

STE

P 1

Exp

ecte

d O

utc

om

es•

U

nder

stan

ding

of

the

or

gani

zatio

n’s

busi

ness

str

ateg

y

an

d ex

istin

g pe

rfor

man

ce

m

easu

rem

ent

syst

ems

•

Und

erst

andi

ng o

f ho

w

the

orga

niza

tion

curr

ently

addr

esse

s en

viro

nmen

tal,

soci

al a

nd e

cono

mic

asp

ects

1.

Un

ders

tan

din

g t

he C

on

text

for

Metr

ics

Develo

pm

en

t

12 EAG

Per

spec

tive

Wh

at

Is t

he M

easu

rem

en

t C

hall

en

ge?

Busi

ness

es h

ave

done

an

exce

llent

job

in im

plem

entin

g rig

orou

s fin

anci

al

mea

sure

men

ts (‘

wha

t w

e un

ders

tand

’) an

d, t

o so

me

exte

nt, p

roce

ss m

easu

rem

ents

(‘w

hat

we

thin

k w

e un

ders

tand

’). T

he c

halle

nge

is t

o m

ove

tow

ard

a dy

nam

ic a

nd

mul

ti-di

men

sion

al s

yste

m t

hat

inco

rpor

ates

mea

sure

men

ts o

f ‘w

hat

we

do n

ot

unde

rsta

nd’ (

see

tabl

e be

low

). Jim

Ritc

hie-

Dun

ham

of

the

Inst

itute

of

Stra

tegi

c C

larit

y ex

plor

es t

his

onlin

e at

ww

w.g

emi.o

rg/m

etri

csn

avig

ato

r.

Lin

k M

easu

rem

ent

to S

trat

egy

By d

evel

opin

g m

etric

s th

at a

re a

ligne

d w

ith

busi

ness

str

ateg

y th

is t

ool e

nsur

es t

hat

an

orga

niza

tion

mea

sure

s w

hat

is r

ight

for

the

m

and

mea

sure

s th

ings

the

rig

ht w

ay. F

urth

er, a

n or

gani

zatio

n ca

n id

entif

y an

d im

plem

ent

met

rics

in t

he c

onte

xt o

f w

here

the

org

aniz

atio

n is

he

aded

, not

sol

ely

base

d on

whe

re it

has

bee

n. (9

)

Des

crib

e th

e B

usi

nes

s Su

cces

s Fa

cto

rs

– W

ork

shee

t 1a

Wor

kshe

et 1

a (o

n pa

ge 1

3) p

rovi

des

a te

mpl

ate

for

docu

men

ting

the

orga

niza

tion’

s bu

sine

ss

stra

tegy

and

per

form

ance

mea

sure

men

t sy

stem

. Th

e co

mpl

eted

wor

kshe

et w

ill:

•de

fine

the

orga

niza

tiona

l sco

pe f

or w

hich

fut

ure

met

rics

will

be

deve

lope

d

•ar

ticul

ate

‘hig

h-le

vel’

goal

s

•ou

tline

the

bus

ines

s st

rate

gy, b

usin

ess

obje

ctiv

es

and

stra

tegi

c pe

rfor

man

ce m

easu

rem

ent

syst

em

to w

hich

new

met

rics

shou

ld r

elat

e

Stra

teg

icM

easu

rem

ent

Wh

at W

e U

nd

erst

and

Wh

at W

e Th

ink

We

Un

der

stan

dW

hat

We

Do

No

t U

nd

erst

and

Wh

at w

e w

ant

(mis

sio

n /

visi

on

)O

ne fi

nanc

ial m

easu

reO

ne m

issi

on -

driv

en m

easu

reO

ne in

tegr

ativ

e m

easu

re

Wh

o c

ares

(s

take

ho

lder

s)Sh

areh

olde

r va

lue

Supp

ly c

hain

val

ueM

ultip

lest

akeh

olde

r va

lue

Wh

at is

nee

ded

(r

eso

urc

es)

Cos

t dr

iver

sVa

lue

driv

ers

Reso

urce

dyn

amic

s

Ho

w w

e ea

ch

con

trib

ute

(fu

nct

ion

s)

Profi

t ce

nter

co

ntrib

utio

nPr

oces

s co

ntrib

utio

nSy

stem

ic c

ontr

ibut

ion

Ho

w w

e in

flu

ence

ea

ch o

ther

(r

elat

ion

ship

s)

Profi

t an

d lo

ss

cont

ribut

ions

Han

doff

s in

pro

cess

Rela

tions

hip

dyna

mic

s

Wh

at h

app

ens

then

(sys

tem

)Si

ngle

indi

cato

r of

fin

anci

al h

ealth

Mul

tiple

indi

cato

rs o

f pr

oces

s he

alth

Mul

tiple

indi

cato

rs o

f sy

stem

hea

lth

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

13

WO

RK

SHEE

T 1a

: U

ND

ERST

AN

D T

HE

BU

SIN

ESS

SUC

CES

S FA

CTO

RS

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

Org

aniz

atio

n:

The

orga

niza

tiona

l uni

t un

der

cons

ider

atio

n fo

r m

etric

s de

velo

pmen

t X

YZ

Nut

ritio

nal B

ever

age

(a d

ivis

ion

of X

YZ

Food

Pro

duct

s, In

c.)

Mis

sio

n:

The

mis

sion

sta

tem

ent

for

the

orga

niza

tiona

l uni

t (o

r its

par

ent)

Prov

idin

g ou

r cu

stom

ers

nutr

itiou

s fo

od a

nd b

ever

age

prod

ucts

of

the

high

est

qual

ity t

hat

are

prod

uced

in

an

envi

ronm

enta

lly-s

ensi

tive

man

ner,

whi

le c

onsi

sten

tly e

xcee

ding

sha

reho

lder

exp

ecta

tion.

Co

re v

alu

es:

•Su

perio

r fin

anci

al p

erfo

rman

ce•

Nut

ritio

us p

rodu

cts

of t

he h

ighe

st q

ualit

y•

Safe

and

hea

lthy

wor

k en

viro

nmen

t•

Resp

onsi

ble

envi

ronm

enta

l pra

ctic

es•

Enric

hing

the

com

mun

ities

in w

hich

we

oper

ate

Vis

ion

fo

r p

rod

uct

/ p

roce

ss:

Supe

rior n

utrit

iona

l bev

erag

e br

and

whi

ch c

onsu

mer

s em

brac

e fo

r its

qua

lity,

tast

e an

d in

nova

tion.

Defi

ne

the

mar

ket

envi

ron

men

t:Fo

od a

nd B

ever

age

/ Nat

ural

Foo

ds In

dust

ry. C

onsu

mer

s fa

ll in

to t

hree

cat

egor

ies:

die

t an

d he

alth

y liv

ing,

lact

ose

alte

rnat

ive

and

orga

nic.

Bu

sin

ess

ob

ject

ives

:•

Incr

ease

mar

ket

shar

e•

Incr

ease

rev

enue

•Re

duce

cos

t

Bu

sin

ess

risk

s an

d o

pp

ort

un

itie

s:A

vaila

bilit

y an

d co

nsis

tenc

y of

raw

pro

duct

. Bui

ldin

g re

latio

nshi

ps a

nd p

artn

ersh

ips

with

org

anic

fa

rmer

s. F

ocus

ing

on e

mer

ging

mar

kets

by

build

ing

bran

d re

cogn

ition

and

edu

catin

g co

nsum

ers

on

heal

th b

enefi

ts o

f nu

triti

onal

bev

erag

e.

Bu

sin

ess

per

form

ance

mea

sure

men

t:Ba

lanc

ed S

core

card

(fina

ncia

l, cu

stom

ers,

bus

ines

s op

erat

ions

and

lear

ning

and

gro

wth

per

spec

tives

).

Cas

cade

d fr

om c

orpo

rate

dow

n to

eac

h bu

sine

ss d

ivis

ion

and

indi

vidu

al m

anag

er.

1.

Un

ders

tan

din

g t

he C

on

text

for

Metr

ics

Develo

pm

en

t

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

14

Wh

at S

ust

ain

abili

ty M

ean

s to

the

Org

aniz

atio

nIn

dev

elop

ing

the

sust

aina

bilit

y co

ntex

t,

a bu

sine

ss s

houl

d lo

ok b

eyon

d fin

anci

al

perf

orm

ance

to

see

how

env

ironm

enta

l, ec

onom

ic a

nd s

ocia

l iss

ues

curr

ently

are

, or

will

be

, add

ress

ed w

ithin

the

org

aniz

atio

n.

The

tang

ible

and

inta

ngib

le b

usin

ess

valu

es t

hat

can

resu

lt fr

om a

ddre

ssin

g no

n-fin

anci

al is

sues

ha

ve b

een

disc

usse

d in

GEM

I’s C

lear

Adv

anta

geto

ol (s

ee R

esou

rces

in O

nlin

e A

ppen

dix)

. Th

e ca

se e

xam

ple

by F

edEx

Cor

pora

tion

dem

onst

rate

s ho

w t

heir

corp

orat

e va

lues

refl

ect

the

capa

bilit

ies

of it

s co

re o

pera

tions

and

val

ues

of it

s em

ploy

ees.

Vario

us f

ram

ewor

ks a

nd m

etho

ds e

xist

to

help

iden

tify

issu

es a

n or

gani

zatio

n cu

rren

tly

addr

esse

s, in

clud

ing:

•th

e G

EMI S

D P

lann

er™

– c

an h

elp

docu

men

t th

e st

atus

for

env

ironm

enta

l, so

cial

or

econ

omic

issu

es a

nd t

he g

aps

betw

een

an

orga

niza

tion’

s cu

rren

t an

d de

sire

d po

sitio

n

•th

e BR

IDG

ES S

usta

inab

ility

Fra

mew

ork

(10)

– ill

ustr

ated

in F

igur

e 4

(on

page

15)

, thi

s fr

amew

ork

offe

rs a

mod

el t

o id

entif

y as

pect

s an

d im

pact

s th

at n

eed

to b

e co

nsid

ered

in

deve

lopi

ng m

etric

s

Cas

e ex

ampl

es b

y 3M

and

Eas

tman

Kod

ak

Com

pany

(on

page

s 16

& 1

7) il

lust

rate

how

an

orga

niza

tion’

s co

mm

itmen

t to

a s

usta

inab

ility

vi

sion

dire

ctly

sup

port

s th

e bu

sine

ss c

onte

xt.

Fed

Ex

Res

po

nse

to

Hu

rric

ane

Kat

rin

aTh

e va

lues

of

FedE

x C

orp.

and

its

empl

oyee

s ar

e re

flect

ed in

how

it u

ses

its c

apab

ilitie

s in

res

pons

e to

a

disa

ster

. Cor

pora

te v

alue

s ar

e cr

afte

d on

six

prin

cipl

es: P

eopl

e, S

ervi

ce, I

nnov

atio

n, In

tegr

ity, R

espo

nsib

ility

an

d Lo

yalty

. The

ir ex

ecut

ion

unde

rpin

ned

the

com

pany

’s pl

anni

ng a

nd r

espo

nse

to H

urric

ane

Kat

rina’

s de

vast

atio

n of

the

Gul

f C

oast

reg

ion

in 2

005.

The

natu

re o

f th

e tr

ansp

orta

tion

indu

stry

can

be

vola

tile,

mak

ing

cont

inge

ncy

plan

ning

cru

cial

to

a su

cces

sful

bu

sine

ss. V

aria

bles

suc

h as

wea

ther

pat

tern

s, m

echa

nica

l diffi

culti

es a

nd la

st-m

inut

e cu

stom

er n

eeds

rou

tinel

y af

fect

the

sys

tem

.

FedE

x, a

s pa

rt o

f its

nor

mal

ope

ratio

ns, m

aint

ains

a c

ompl

ex lo

gist

ics

netw

ork

to p

inpo

int

and

reso

lve

prob

lem

s be

fore

the

y im

pact

ser

vice

. For

exa

mpl

e, e

mer

genc

y re

lief

kits

con

tain

ing

two

tons

of

oper

atio

nal

supp

lies

are

cons

tant

ly o

n st

andb

y fo

r an

y fa

cilit

y w

ith a

n em

erge

ncy.

Fiv

e em

pty

FedE

x fli

ghts

ope

rate

ni

ghtly

, rea

dy t

o su

bstit

ute

for

out-

of-s

ervi

ce a

ircra

ft o

r he

lp w

ith a

sur

ge in

airl

ift d

eman

d.

In a

dditi

on, d

isas

ter

resp

onse

dril

ls a

re in

corp

orat

ed in

to t

he b

usin

ess

mod

el. A

s a

resu

lt, d

isas

ter

plan

ning

an

d re

spon

se a

re c

ore

com

pete

ncie

s th

at s

erve

bro

ader

hum

anita

rian

need

s. H

urric

ane

Kat

rina

dem

onst

rate

d th

is p

rinci

ple

whe

n it

deva

stat

ed t

he U

.S. G

ulf

Coa

st r

egio

n.

In a

ntic

ipat

ion

of K

atrin

a’s

land

fall,

Fed

Ex p

re-p

ositi

oned

sup

plie

s, in

clud

ing

30,0

00 g

allo

ns o

f w

ater

, 85,

000

hom

e ge

nera

tors

and

fou

r 4,

000-

lb. f

acili

ty r

epai

r ki

ts, n

ear

Bato

n Ro

uge

and

Talla

hass

ee s

o th

ey c

ould

qu

ickl

y be

tra

nspo

rted

to

the

poin

t of

nee

d. T

he c

ompa

ny jo

ined

for

ces

with

the

Red

Cro

ss, a

long

time

disa

ster

rel

ief

part

ner,

to d

eliv

er m

edic

al s

uppl

ies.

And

, Fed

Ex K

inko

’s de

liver

ed o

ffice

sup

plie

s to

gov

ernm

ent

relie

f w

orke

rs w

orki

ng o

nsite

.

The

valu

es t

hat

unde

rlie

thes

e ac

tions

ext

ende

d to

indi

vidu

al e

mpl

oyee

s. M

ike

Mitc

hell,

a s

enio

r te

chni

cal

advi

sor

at F

edEx

Exp

ress

, too

k in

depe

nden

t ac

tion

to d

eliv

er a

gen

erat

or a

nd t

echn

ical

equ

ipm

ent

to r

elie

f w

orke

rs w

ho d

espe

rate

ly n

eede

d a

func

tioni

ng c

omm

unic

atio

ns s

yste

m. H

is a

ctio

n en

able

d re

lief

team

s to

use

a

FedE

x co

mm

unic

atio

ns in

stal

latio

n th

at h

ad s

urvi

ved

the

stor

m.

Alth

ough

Mitc

hell’

s ac

tions

wer

e of

his

ow

n in

itiat

ive,

the

y w

ere

cons

iste

nt w

ith c

orpo

rate

phi

loso

phy.

Jus

t as

im

port

ant,

his

suc

cess

was

roo

ted

in t

he s

kills

and

tra

inin

g w

hich

are

indi

spen

sabl

e to

the

suc

cess

of

FedE

x as

a

busi

ness

.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

15

Fig

ure

4. B

RID

GES

Su

stai

nab

ility

Fra

mew

ork

EAG

Per

spec

tive

Wh

at

Co

ntr

ibu

tes

toSh

are

ho

lder

Valu

e?

Shar

ehol

der

valu

e is

der

ived

fro

m t

he m

arke

t’s

perc

eptio

n of

a b

usin

ess’

abi

lity

to g

ener

ate

retu

rns

toda

y an

d in

the

fut

ure.

Onl

ine

at

ww

w.g

emi.o

rg/m

etri

csn

avig

ato

r, J

ean

‘Pog

o’ D

avis

, for

mer

ly o

f C

onoc

oPhi

llips

, ex

plai

ns h

ow e

nviro

nmen

tal a

nd s

ocie

tal

fact

ors

can

cont

ribut

e to

sha

reho

lder

val

ue b

y im

prov

ing

shor

t-te

rm r

etur

ns a

nd e

xcee

ding

the

m

arke

t’s e

xpec

tatio

ns o

f fu

ture

per

form

ance

.

1.

Un

ders

tan

din

g t

he C

on

text

for

Metr

ics

Develo

pm

en

t

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

{C

on

text

Go

vern

ance

an

d S

tru

ctu

re

Dimensions of Sustainability

Val

ue

Ch

ain

Envi

ron

men

tal

Eco

no

mic

Soci

al

Sup

ply

Pr

od

uct

ion

U

se

Fat

e

{{ Res

ou

rces

V

alu

es

Pl

ace

Tim

e

© B

RID

GES

to

Sust

aina

bilit

y, G

olde

r A

ssoc

iate

s In

c.

The

BRID

GES

Sus

tain

abili

ty F

ram

ewor

k of

fers

a m

odel

to

iden

tify

aspe

cts

and

impa

cts

that

nee

d to

be

con

side

red

in d

evel

opin

g m

etric

s. T

he f

ram

ewor

k re

cogn

izes

tha

t th

is r

equi

res

look

ing

at t

he

trip

le-b

otto

m-li

ne, n

ot o

nly

with

in t

he c

ompa

ny’s

fenc

e lin

e, b

ut a

lso

alon

g its

val

ue c

hain

. Eac

h fr

ame

serv

es a

s a

set

of le

nses

thr

ough

whi

ch t

he s

cope

of

the

issu

es c

an b

e de

fined

and

the

rel

evan

t ris

ks a

nd o

ppor

tuni

ties

asso

ciat

ed w

ith e

nviro

nmen

tal,

soci

al a

nd e

cono

mic

con

side

ratio

ns c

an b

e de

term

ined

. The

mos

t co

mm

on c

onte

xt f

ram

es o

f tim

e, p

lace

, val

ues

and

reso

urce

s de

fine

and

refin

e th

e sc

ope

of e

ach

issu

e.

16

3M

The

Ro

le o

f Su

stai

nab

ility

at

3MTh

e th

ree

legs

of

sust

aina

bilit

y (e

cono

mic

, env

ironm

enta

l and

soc

ial)

are

inte

rdep

ende

nt a

t 3M

. Thi

s is

evi

dent

fr

om it

s co

rpor

ate

busi

ness

impe

rativ

es:

1)C

orpo

rate

val

ues

2)Su

stai

nabl

e gr

owth

3)Pr

oduc

tivity

4)Ta

lent

man

agem

ent

The

first

bus

ines

s im

pera

tive,

3M

’s si

x fu

ndam

enta

l cor

pora

te v

alue

s ar

e re

flect

ed in

its

sust

aina

bilit

y po

licie

s an

d pr

actic

es. T

he c

ompa

ny’s

com

mitm

ent

to c

orpo

rate

gov

erna

nce

and

its s

usta

inab

ility

vis

ion

to “

activ

ely

cont

ribut

e to

sus

tain

able

dev

elop

men

t th

roug

h en

viro

nmen

tal p

rote

ctio

n, s

ocia

l res

pons

ibili

ty a

nd e

cono

mic

pro

gres

s” a

re

dire

ct r

eflec

tions

of

the

fund

amen

tal c

orpo

rate

val

ues.

Sust

aina

ble

grow

th a

nd p

rodu

ctiv

ity in

clud

e tw

o of

the

com

pany

’s m

ain

sust

aina

bilit

y pl

atfo

rms:

Life

Cyc

le

Man

agem

ent

(LC

M) a

nd P

ollu

tion

Prev

entio

n Pa

ys (3

P). L

CM

is a

req

uire

d pr

oces

s in

the

dev

elop

men

t,

man

ufac

turin

g an

d di

strib

utio

n fo

r al

l pro

duct

s to

red

uce

the

envi

ronm

enta

l, he

alth

, saf

ety

and

ener

gy im

pact

s th

roug

hout

the

ent

ire p

rodu

ct li

fe c

ycle

. 3P

is a

30-

year

-old

pro

gram

foc

used

at

redu

cing

pol

lutio

n at

its

sour

ce, w

hich

is a

cor

ners

tone

for

pro

cess

impr

ovem

ents

to

redu

ce w

aste

and

impr

ove

prod

uctiv

ity.

Last

ly, a

com

pany

is o

nly

as g

ood

as it

s em

ploy

ees.

3M

’s bu

sine

ss im

pera

tive

for

tale

nt m

anag

emen

t su

ppor

ts

its s

ocia

l sus

tain

abili

ty s

trat

egy

of m

eetin

g em

ploy

ee a

nd c

omm

unity

nee

ds a

s a

soci

ally

-res

pons

ible

com

pany

. Sp

ecifi

c ob

ject

ives

hav

e be

en d

evel

oped

aro

und

attr

actin

g an

d re

tain

ing

a di

vers

e an

d ta

lent

ed w

orkf

orce

, su

ppor

ting

cont

inuo

us le

arni

ng a

nd k

now

ledg

e-sh

arin

g an

d pr

ovid

ing

mea

ning

ful e

mpl

oym

ent

in a

wor

k en

viro

nmen

t th

at r

espe

cts

the

dign

ity o

f in

divi

dual

s.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

17

Cu

rren

t Su

stai

nab

ility

Fo

cus

– W

ork

shee

t 1b

Wor

kshe

et 1

b (o

n pa

ge 1

8) p

rovi

des

a te

mpl

ate

for

iden

tifyi

ng w

here

the

org

aniz

atio

n cu

rren

tly

focu

ses,

or

plan

s to

foc

us, i

ts e

ffor

ts w

ith r

espe

ct

to e

nviro

nmen

tal,

soci

al a

nd e

cono

mic

issu

es

an

d in

itiat

ives

. The

org

aniz

atio

n sh

ould

be

able

to d

escr

ibe:

•th

e or

gani

zatio

n’s

curr

ent

focu

s w

ith r

espe

ct

to is

sues

impa

ctin

g bo

th t

he o

rgan

izat

ion’

s bu

sine

ss a

nd s

ocie

ty a

t la

rge

•th

e pr

ogra

ms

and

initi

ativ

es t

hat

are

in p

lace

•w

hich

cor

pora

te f

unct

ions

are

invo

lved

in t

hese

pr

ogra

ms

and

initi

ativ

es

•w

here

eff

orts

are

foc

used

in t

he v

alue

cha

in

Co

nsi

der

Div

erse

Per

spec

tive

sTo

col

lect

com

preh

ensi

ve in

form

atio

n fo

r W

orks

heet

1b,

rep

rese

ntat

ives

fro

m r

elev

ant

inte

rnal

fun

ctio

nal a

reas

mig

ht b

e co

nsul

ted.

This

cro

ss-f

unct

iona

l app

roac

h w

ill p

rovi

de d

iver

se

pers

pect

ives

on

wha

t is

sues

are

bei

ng a

ddre

ssed

an

d th

e in

itiat

ives

und

erw

ay in

the

org

aniz

atio

n.W

orks

heet

1b

prov

ides

exa

mpl

es t

o ill

ustr

ate

how

en

viro

nmen

tal,

soci

al a

nd e

cono

mic

issu

es c

an b

e m

anag

ed b

y va

rious

bus

ines

s fu

nctio

ns.

This

exe

rcis

e m

ay a

lso

prov

ide

insi

ght

into

em

ergi

ng a

nd e

nviro

nmen

tal,

soci

al o

r ec

onom

ic

issu

es t

hat

are

bein

g ov

erlo

oked

. Thi

s in

form

atio

n sh

ould

beg

in t

o ill

ustr

ate

how

res

pons

ible

co

rpor

ate

beha

vior

sup

port

s th

e bu

sine

ss a

nd

cont

ribut

es t

o sh

areh

olde

r va

lue.

East

man

Ko

dak C

om

pan

y

Sup

po

rtin

g B

usi

nes

s Tr

ansi

tio

n t

hro

ug

h R

esp

on

sib

le G

row

thK

odak

is t

rans

form

ing

its t

radi

tiona

l im

agin

g pr

oduc

ts a

nd s

ervi

ces

to c

ompe

te in

the

dig

ital m

arke

t. T

he

tran

sitio

n to

dig

ital t

echn

olog

ies

has

chan

ged

the

natu

re o

f K

odak

’s bu

sine

ss a

nd p

rese

nted

new

cha

lleng

es

and

oppo

rtun

ities

for

res

pons

ible

gro

wth

. Ear

ly in

thi

s tr

ansi

tion,

Kod

ak d

evel

oped

a s

et o

f Re

spon

sibl

e G

row

th

Prin

cipl

es, w

hich

est

ablis

hed

goal

s to

sup

port

bus

ines

s ob

ject

ives

for

con

tinue

d di

gita

l exp

ansi

on a

nd t

he

com

pany

’s co

mm

itmen

t to

hea

lth, s

afet

y, e

nviro

nmen

t an

d gl

obal

sus

tain

abili

ty.

The

digi

tal b

usin

ess

is m

ore

equi

pmen

t-in

tens

ive

com

pare

d to

tra

ditio

nal i

mag

ing,

mak

ing

life-

cycl

e pl

anni

ng

and

prod

uct

stew

ards

hip

criti

cally

impo

rtan

t. T

here

fore

, Kod

ak h

as s

et, a

s pa

rt o

f its

new

Res

pons

ible

Gro

wth

go

als,

a p

rodu

ct s

tew

ards

hip

goal

of

impr

ovin

g th

e en

viro

nmen

tal a

ttrib

utes

of

Kod

ak p

rodu

cts

thro

ugho

ut

thei

r lif

e cy

cle.

Thi

s go

al is

sup

port

ed b

y K

odak

’s co

mpr

ehen

sive

Pro

duct

Ste

war

dshi

p St

rate

gy, w

hich

incl

udes

a

set

of s

tand

ards

bas

ed o

n co

nsid

erat

ions

suc

h as

pen

ding

legi

slat

ion,

ris

k as

sess

men

t da

ta, p

oten

tial

envi

ronm

enta

l con

ditio

ns, p

rodu

ct s

afet

y/el

ectr

omag

netic

com

patib

ility

, use

of

rest

ricte

d m

ater

ials

and

end

-of-

life

cons

ider

atio

ns.

The

Kod

ak P

ictu

re K

iosk

pro

vide

s an

exa

mpl

e of

the

com

pany

’s co

mm

itmen

t to

pro

duct

ste

war

dshi

p an

d co

ntin

uous

impr

ovem

ent

durin

g th

e tr

ansi

tion

from

tra

ditio

nal t

o di

gita

l tec

hnol

ogie

s. S

ince

200

0, K

odak

’s Pi

ctur

e K

iosk

s ha

ve a

chie

ved

envi

ronm

enta

l im

prov

emen

ts w

hile

del

iver

ing

a la

rger

var

iety

of

prin

ts a

t fa

ster

th

roug

hput

s. A

s th

e ki

osk

evol

ves,

pro

duct

ste

war

dshi

p st

anda

rds

are

appl

ied

at e

ach

deve

lopm

ent

gate

/pha

se

from

idea

tion

to fi

nal d

esig

n. T

he r

esul

t ha

s be

en e

nviro

nmen

tal i

mpr

ovem

ents

in e

ach

succ

essi

ve g

ener

atio

n,

such

as

a re

duce

d m

ater

ial a

nd p

acka

ging

use

and

U.S

. EPA

EN

ERG

Y S

TAR®

com

plia

nce.

The

se e

nviro

nmen

tal

impr

ovem

ents

in t

he P

ictu

re K

iosk

refl

ect

Kod

ak’s

herit

age

of p

rodu

ct s

tew

ards

hip,

whi

le im

prov

ed

perf

orm

ance

cap

abili

ties

in p

rintin

g sp

eed

solid

ify it

s po

sitio

n of

gro

wth

and

inno

vatio

n in

the

dig

ital w

orld

.

1.

Un

ders

tan

din

g t

he C

on

text

for

Metr

ics

Develo

pm

en

t

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

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at

is

Mate

rial

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hat

is

Mate

rial

1W

hat

is

Mate

rial

18

WO

RK

SHEE

T 1b

: ID

ENTI

FY T

HE

FOC

US

ON

EN

VIR

ON

MEN

TAL,

SO

CIA

L A

ND

EC

ON

OM

IC IS

SUES

AN

D IN

ITIA

TIV

ES(X

YZ

Nut

ritio

nal B

ever

age

Exam

ple)

Org

aniz

atio

n’s

Su

stai

nab

ility

Defi

niti

on:

Brun

dtla

nd C

omm

issi

on (1

1) d

efini

tion

VA

LUE

CH

AIN

STA

GES

:S

= S

uppl

y; C

= C

ompa

ny O

pera

tions

; D =

Dis

trib

utio

n; U

= C

usto

mer

Use

of

Prod

uct

/ Ser

vice

; E =

End

of

Life

Val

ue

Ch

ain

Envi

ron

men

tal

Soci

alEc

on

om

ic

SR

eso

urc

e Ex

trac

tio

n,

Raw

Mat

eria

l D

evel

op

men

t &

Su

pp

ly

• Im

pact

on

biod

iver

sity

• C

ompe

nsat

ion

and

hum

an r

ight

s of

su

pplie

r’s e

mpl

oyee

s •

Mee

t bu

sine

ss c

ontr

act

oblig

atio

ns

a

s cu

stom

er

C

Res

earc

h &

D

evel

op

men

t

• S

ourc

ing

from

env

ironm

enta

lly-

s

ensi

tive

area

s •

Reg

ulat

ory

com

plia

nce

• C

onsi

der

envi

ronm

enta

l im

pact

of

new

pro

duct

s

• C

linic

al s

tudy

eth

ics

(e.g

., D

ecla

ratio

n of

Hel

sink

i)•

Tal

ent

rete

ntio

n / a

ttra

ctio

n

• P

aten

t an

d in

telle

ctua

l pro

pert

y pr

otec

tion

ethi

cs•

Res

pons

ible

env

ironm

enta

l pra

ctic

es•

Enr

ichi

ng t

he c

omm

uniti

es in

whi

chw

e op

erat

e

Man

ufa

ctu

rin

g /

O

per

atio

ns

•Re

gula

tory

com

plia

nce

•M

eetin

g su

stai

nabi

lity

goal

s•

Fai

r co

mpe

nsat

ion

and

bene

fits;

pr

actic

es o

n fr

eedo

m t

o or

gani

ze

• R

elat

ions

hip

to c

omm

uniti

es

surr

ound

ing

oper

atio

ns

•M

eet

prod

uctio

n an

d co

st g

oals

w

hile

con

form

ing

to t

he c

ompa

nyco

de o

f co

nduc

t

Mar

keti

ng

& S

ales

•Re

gula

tory

com

plia

nce

•A

cces

s to

pro

duct

s in

dev

elop

ing

w

orld

(F)

•Pr

icin

g•

Con

sum

er a

dver

tisin

g

DD

istr

ibu

tio

n

•Re

gula

tory

com

plia

nce

•G

HG

impa

ct o

f sh

ippi

ng /

tran

spor

tatio

n•

Com

pens

atio

n an

d hu

man

rig

hts

of

supp

lier’s

em

ploy

ees

or t

hose

of

third

pa

rty

dist

ribut

ion

com

pany

•Re

latio

nshi

p to

com

mun

ities

•O

n-tim

e de

liver

ies

that

mee

tpa

tient

dem

ands

UC

ust

om

er U

se o

f Pr

od

uct

/ S

ervi

ce

•Sa

fety

dat

a co

mpl

ete

•M

inim

ize

pack

agin

g•

Prop

er d

ispo

sal g

uide

lines

•W

arni

ngs

of p

oten

tial p

rodu

ct a

buse

•Em

phas

is o

n he

alth

y lif

esty

les,

not

pr

oduc

t us

e (F

)

•O

ver-

pres

crib

ing

EEn

d o

f Li

fe•

Prop

er d

ispo

sal v

erifi

ed•

Easy

dis

posa

l opt

ions

•Re

turn

ed p

rodu

ct p

ract

ices

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

NO

TE: a

nnot

ate

futu

re (F

) or

plan

ned

cons

ider

atio

ns

19

STE

P 2

Exp

ecte

d O

utc

om

es•

Id

entifi

catio

n an

d

pr

iorit

izat

ion

of is

sues

from

the

per

spec

tives

of

empl

oyee

s an

d ke

y

ex

tern

al s

take

hold

ers

EAG

Per

spec

tive

Ho

w C

an

On

e D

evelo

p

‘Su

stain

ab

ilit

y L

ead

ers

’?It

is a

ll ab

out

peop

le. M

any

com

pani

es la

ck

a pl

an t

o de

velo

p th

e un

ders

tand

ing

and

com

mitm

ent

for

sust

aina

bilit

y th

inki

ng in

le

ader

s at

all

leve

ls o

f th

e or

gani

zatio

n.A

n im

port

ant

first

ste

p is

to

iden

tify

the

cham

pion

s, d

oubt

ers

and

thos

e in

-bet

wee

n (i.

e., ‘

gree

n, r

ed, a

nd y

ello

w d

ots’

) with

in

the

orga

niza

tion

and

unde

rsta

nd h

ow

to in

volv

e th

em.

This

is d

iscu

ssed

by

Paul

Teb

o, f

orm

erly

of

DuP

ont,

onl

ine

at

w

ww

.gem

i.org

/met

rics

nav

igat

or

in

the

cont

ext

of d

evel

opin

g cu

rren

t an

d

fu

ture

lead

ers.

The

purp

ose

of S

tep

2 is

to

iden

tify

and

asse

ss

the

envi

ronm

enta

l, so

cial

and

eco

nom

ic is

sues

of

impo

rtan

ce t

o st

akeh

olde

rs. I

t w

ill h

elp

dete

rmin

e m

ater

ial i

ssue

s fo

r th

e or

gani

zatio

n an

d re

sult

in

prio

ritiz

ed li

sts

of is

sues

bas

ed o

n em

ploy

ees’

and

ex

tern

al s

take

hold

ers’

per

spec

tives

.

Inte

rnal

- Id

enti

fyin

g a

nd

En

gag

ing

Em

plo

yees

Ass

essi

ng w

hich

issu

es a

re im

port

ant

or m

ater

ial

to a

n or

gani

zatio

n be

gins

with

iden

tifyi

ng a

nd

enga

ging

key

em

ploy

ees

and

man

ager

s fr

om

vario

us f

unct

iona

l are

as. T

o de

term

ine

wha

t is

im

port

ant

inte

rnal

ly, t

he o

rgan

izat

ion

shou

ld b

ring

toge

ther

or

reac

h ou

t to

em

ploy

ees

who

hav

e th

e m

ost

expe

rienc

e in

add

ress

ing

envi

ronm

enta

l, so

cial

an

d ec

onom

ic c

once

rns.

Man

y in

tern

al in

itiat

ives

de

al w

ith o

ne o

r se

vera

l dim

ensi

ons

of c

orpo

rate

re

spon

sibi

lity

but

ther

e m

ay b

e lit

tle c

oord

inat

ion

or c

olla

bora

tion.

Thi

s ca

n be

an

oppo

rtun

ity f

or

the

orga

niza

tion

to lo

ok h

olis

tical

ly a

nd d

raw

upo

n ex

pert

ise

rega

rdle

ss o

f w

here

in t

he o

rgan

izat

ion

it is

fou

nd. I

t ca

n al

so b

e a

way

to

find

and

insp

ire

cham

pion

s in

the

org

aniz

atio

n.

Tabl

e 1

(on

page

20)

dem

onst

rate

s ho

w

empl

oyee

s of

fer

dive

rse

and

cros

s-fu

nctio

nal

pers

pect

ives

on

issu

es t

hat

pres

ent

risks

and

/or

oppo

rtun

ities

for

the

org

aniz

atio

n.

In e

ngag

ing

empl

oyee

s w

ho a

re n

ot n

eces

saril

y ve

rsed

in t

he c

once

pts

of s

usta

inab

ility

, it

is v

alua

ble

to id

entif

y an

d un

ders

tand

the

ir co

ntex

t, s

o as

to

com

mun

icat

e ef

fect

ivel

y an

d ga

in n

eede

d su

ppor

t. It

may

als

o be

use

ful t

o ch

arac

teriz

e th

e de

gree

to

whi

ch t

hey

supp

ort

the

conc

epts

of

sust

aina

bilit

y or

co

rpo

rate

soci

al r

esp

on

sib

ility

(CSR

).

Inte

rnal

- Id

enti

fyin

g C

urr

ent

and

Em

erg

ing

Issu

esO

nce

key

empl

oyee

s ar

e se

lect

ed, t

he o

rgan

izat

ion

can

then

iden

tify

and

eval

uate

the

ir is

sues

of

con

cern

. The

re a

re m

any

way

s to

col

lect

in

form

atio

n fr

om e

mpl

oyee

s ra

ngin

g fr

om

desk

top

rese

arch

to

inte

rvie

win

g or

con

duct

ing

info

rmal

sur

veys

, to

brin

ging

a t

eam

tog

ethe

r to

br

ains

torm

. Var

ious

inte

rnal

sou

rces

are

ava

ilabl

e to

hel

p id

entif

y is

sues

, inc

ludi

ng: i

nter

nal r

isk

anal

ysis

; com

pany

ann

ual a

nd fi

nanc

ial r

epor

ts;

empl

oyee

sur

veys

; env

ironm

enta

l man

agem

ent

syst

em c

ontr

ol p

lan;

sta

keho

lder

eng

agem

ent

plan

an

d sh

areh

olde

r re

solu

tions

.

2.

Ass

ess

Iss

ues

fro

m S

takeh

old

ers

’ Pers

pect

ives

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

20

TAB

LE 1

. EX

AM

PLES

OF

POTE

NTI

AL

ENV

IRO

NM

ENTA

L, S

OC

IAL

AN

D E

CO

NO

MIC

INTE

RN

AL

PER

SPEC

TIV

ES

Val

ue

Ch

ain

Bu

sin

ess

Fun

ctio

nEn

viro

nm

enta

lSo

cial

Eco

no

mic

S

Log

isti

cs /

Su

pp

ly

Ch

ain

Man

agem

ent

(Pro

cure

men

t)

Purc

hase

fro

m e

nviro

nmen

tally

-res

pons

ible

su

pplie

rsPu

rcha

se f

rom

sup

plie

rs w

ho o

bser

ve f

air

labo

r la

ws

and

guid

elin

es

Hel

p st

imul

ate

loca

l eco

nom

ic

deve

lopm

ent

thro

ugh

purc

hasi

ng

Exec

uti

ve M

anag

emen

tD

evel

op v

isio

n an

d po

licie

sD

evel

op v

isio

n an

d po

licie

sD

evel

op v

isio

n an

d po

licie

s

Fin

ance

& In

vest

or

Rel

atio

ns

Link

env

ironm

enta

l pra

ctic

es t

o lo

wer

fin

anci

al r

isk

Rela

te s

ocia

lly-r

espo

nsib

le p

ract

ices

to

low

er fi

nanc

ial r

isk

Incl

ude

com

pany

in S

ocia

lly R

espo

nsib

le

Inve

stin

g (S

RI) f

unds

Bu

sin

ess

Man

agem

ent

Dev

elop

goa

lsD

evel

op g

oals

Dev

elop

goa

ls

Leg

alC

ompl

ianc

eD

efen

d ag

ains

t lit

igat

ion

rega

rdin

g en

viro

nmen

tal p

ract

ices

Com

plia

nce

Def

end

agai

nst

litig

atio

n re

gard

ing

labo

r or

ot

her

soci

al a

ctio

nsC

ompl

ianc

e

Res

earc

h &

D

evel

op

men

tD

evel

op e

nviro

nmen

tally

-frie

ndly

prod

uct

/ ser

vice

Dev

elop

pro

duct

/ se

rvic

es t

hat

mee

t so

ciet

y’s

need

s eq

uita

bly

Stim

ulat

e in

nova

tion

and

new

mar

ket

idea

s

C

Man

ufa

ctu

rin

g /

O

per

atio

ns

Eco-

effic

ienc

y: r

educ

ing

envi

ronm

enta

l im

pact

s pe

r un

it of

out

put

Add

ress

con

cern

s of

loca

l com

mun

ityPr

ovid

e jo

bs

Envi

ron

men

tal,

Hea

lth

&

Saf

ety

Miti

gate

env

ironm

enta

l ris

kM

anag

e / r

educ

e EH

S fo

otpr

int

Man

age

heal

th a

nd s

afet

y ris

k, e

ngag

e co

lleag

ues

to a

dopt

cha

nge

Dem

onst

rate

sav

ings

thr

ough

po

llutio

n pr

even

tion

initi

ativ

es a

nd

acci

dent

red

uctio

n pr

ogra

ms

Hu

man

Res

ou

rces

Prom

ote

prog

ram

s to

hel

p em

ploy

ees

save

en

ergy

at

wor

k En

hanc

e em

ploy

ee h

ealth

and

wel

l-bei

ngC

reat

e jo

bs in

the

com

mun

ityM

inim

ize

outs

ourc

ing

of la

bor

Mar

keti

ng

& S

ales

Mar

ket

envi

ronm

enta

l ben

efits

of

prod

ucts

an

d se

rvic

esU

nder

stan

d re

late

d cu

stom

er n

eeds

Mar

ket

soci

ally

-res

pons

ible

man

agem

ent

and

envi

ronm

enta

lly-f

riend

ly p

rodu

ct a

nd s

ervi

ces

Co

mm

un

icat

ion

s (P

R)

Feat

ure

envi

ronm

enta

lly-r

espo

nsib

le

beha

vior

Enga

ge lo

cal s

take

hold

er c

omm

unity

Link

soc

ially

-res

pons

ible

beh

avio

r to

co

mpa

ny v

alue

DLo

gis

tics

/ SC

M(D

istr

ibu

tio

n)

Requ

ire s

hipp

ers

to m

eet

envi

ronm

enta

l law

s In

crea

se s

pend

ing

with

wom

en a

nd

min

ority

-ow

ned

supp

liers

Opt

imiz

e su

pply

and

dem

and

over

tim

e

UC

om

mu

nic

atio

ns

(Cu

sto

mer

Ser

vice

, PR

)C

omm

unic

ate

envi

ronm

enta

l ben

efits

and

risks

Use

foc

us g

roup

s on

cus

tom

er s

ervi

ceEv

alua

te r

etur

n on

inve

stm

ent

of

com

mun

icat

ion

effo

rts

EPr

od

uct

Ste

war

dsh

ipIn

trod

uce

recy

clab

le p

acka

ging

Min

imiz

e pr

oduc

t’s li

fecy

cle

impa

cts

Use

loca

l was

te s

ervi

ce c

ompa

nies

Expa

nd p

rodu

ct d

evel

opm

ent

/ pac

kagi

ng

take

-bac

k po

licy

No

te: V

ALU

E C

HA

IN S

TAG

ES:

S =

Su

pp

ly; C

= C

om

pan

y O

per

atio

ns;

D =

Dis

trib

uti

on

; U =

Cu

sto

mer

Use

of

Pro

du

ct /

Serv

ice;

E =

En

d o

f Li

fe

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

21

WO

RK

SHEE

T 2a

: IN

TER

NA

L –

PRIO

RIT

IZE

EMPL

OY

EES’

ISSU

ES O

F R

ELEV

AN

CE

TO T

HE

BU

SIN

ESS

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

INST

RU

CTI

ON

S:Pl

ot t

he p

oten

tial a

nd c

urre

nt is

sues

iden

tified

by

empl

oyee

s. R

ate

each

issu

e as

Hig

h (H

), M

ediu

m (M

), or

Low

(L) a

ccor

ding

to

the

follo

win

g co

nsid

erat

ions

:O

rgan

izat

ion

’s Im

pac

ts•

Do

the

orga

niza

tion’

s ac

tiviti

es c

urre

ntly

or

have

the

pot

entia

l to

impa

ct t

he is

sue?

• A

re t

he c

urre

nt /

pote

ntia

l im

pact

s si

gnifi

cant

in c

ompa

rison

to

othe

r in

dust

ries

or p

eers

in t

he s

ame

sect

or?

Imp

ort

ance

to

Bu

sin

ess

Succ

ess

Fact

ors

• A

re t

here

sho

rt-

or lo

ng-t

erm

bus

ines

s ris

ks o

r op

port

uniti

es a

ssoc

iate

d w

ith t

he is

sue?

• W

ould

add

ress

ing

the

risks

/ op

port

uniti

es s

uppo

rt t

he o

rgan

izat

ion’

s bu

sine

ss s

trat

egy

and

obje

ctiv

es?

VA

LUE

CH

AIN

STA

GES

:S

= S

uppl

y; C

= C

ompa

ny O

pera

tions

; D =

Dis

trib

utio

n; U

= C

usto

mer

Use

of

Prod

uct

/ Ser

vice

; E =

End

of

Life

H

•En

ergy

use

(S, C

)•

Empl

oyee

Hea

lth a

nd S

afet

y (C

)•

Impa

ct o

n lo

cal c

omm

uniti

es (S

, C)

•Ta

lent

ret

entio

n (C

)

•W

ater

use

(S, C

)•

Org

anic

pro

duct

s (S

, U)

•N

utrit

ion

cont

ent

(U)

•En

ergy

use

(D)

M•

Imm

igra

tion

polic

y (C

)

•U

se o

f al

tern

ativ

e en

ergy

(S, C

, D)

•C

omm

unity

out

reac

h (C

)•

Educ

atio

n (U

, E)

•Lo

cal h

omel

ess

popu

latio

n (D

•Lo

cal e

cono

mic

de

velo

pmen

t (S,

C)

•Fa

rmin

g ru

n-of

fs (S

)

L•

Tran

spor

tatio

n in

fras

truc

ture

(D)

•Ta

xes

paid

(C)

•A

ir em

issi

ons

(D)

LM

H

Org

aniz

atio

n’s

Imp

acts

Rea

son

ing

beh

ind

Rat

ing

:H

igh

impa

cts,

dis

trib

utio

n is

maj

or c

ontr

ibut

or t

o en

ergy

use

and

ass

ocia

ted

cost

sM

ediu

m e

nerg

y in

tens

ity in

sup

ply

and

com

pany

ope

ratio

nsM

ediu

m p

oten

tial i

mpa

cts

and

oppo

rtun

ity f

or in

dust

ry le

ader

ship

Si

gnifi

cant

cur

rent

impa

cts,

med

ium

bus

ines

s ris

kM

ediu

m c

urre

nt im

pact

s, b

ut im

port

ant

as p

art

of c

ore

valu

eO

ppor

tuni

ty to

inte

grat

e in

to lo

cal f

abric

, with

hig

h im

pact

but

med

ium

impo

rtan

ce to

bus

ines

s St

anda

rd b

usin

ess

proc

edur

eRe

leva

nt b

ut n

ot im

port

ant

to b

usin

ess,

with

lim

ited

orga

niza

tion’

s im

pact

s

Issu

es (

exam

ple

s):

Ener

gy u

se (D

)En

ergy

use

(S, C

)U

se o

f alte

rnat

ive

ener

gy s

ourc

es (S

, C, D

)Fa

rmin

g ru

n-of

fs (S

)Em

ploy

ee H

ealth

and

Saf

ety

(C)

Loca

l eco

nom

ic d

evel

opm

ent

(C)

Taxe

s pa

id (C

)Tr

ansp

orta

tion

infr

astr

uctu

re (D

)

2.

Ass

ess

Iss

ues

fro

m S

takeh

old

ers

’ Pers

pect

ives

Am

ong

the

best

way

s to

iden

tify

both

cur

rent

an

d fu

ture

issu

es o

f co

ncer

n is

thr

ough

eff

ectiv

e em

ploy

ee e

ngag

emen

t. E

mpl

oyee

s ar

e th

e or

gani

zatio

n’s

‘ear

s-to

-the

-gro

und’

and

for

m a

ve

ry p

erce

ptiv

e ea

rly-w

arni

ng s

yste

m. W

hen

issu

es

are

iden

tified

, the

y m

ay n

ot b

e m

ater

ial t

oday

but

m

ay n

eed

to b

e co

nsid

ered

in t

he f

utur

e.

Wo

rksh

eet

2a –

Pri

ori

tizi

ng

Em

plo

yees

’ Iss

ues

Wor

kshe

et 2

a pr

ovid

es a

tem

plat

e to

rat

e an

d pr

iorit

ize

issu

es id

entifi

ed b

y an

inte

rnal

tea

m.

This

allo

ws

user

s to

rat

e th

e is

sues

iden

tified

at

each

val

ue c

hain

sta

ge b

ased

on

two

crite

ria u

sed

to a

sses

s re

leva

nce

to b

usin

ess,

incl

udin

g:

•im

port

ance

to

busi

ness

suc

cess

fac

tors

(y-a

xis)

–

Is t

he is

sue

impo

rtan

t to

the

org

aniz

atio

n,

busi

ness

str

ateg

y, o

bjec

tives

and

val

ues?

•si

gnifi

canc

e of

org

aniz

atio

n’s

impa

cts

(x-a

xis)

– D

oes

the

orga

niza

tion

have

cur

rent

or

po

tent

ial i

mpa

cts

to t

he o

utsi

de w

orld

with

re

spec

t to

the

env

ironm

enta

l, so

cial

and

/or

econ

omic

issu

e?

Wor

kshe

et 2

a pl

ots

ratin

gs f

or e

ach

issu

e ba

sed

on t

he c

ombi

natio

n of

the

tw

o cr

iteria

. Col

or

codi

ng d

emon

stra

tes

how

the

issu

es r

ate

in t

erm

s of

ove

rall

rele

vanc

e to

bus

ines

s. F

or e

xam

ple,

an

issu

e th

at r

ates

hig

hly

on b

oth

crite

ria is

de

term

ined

to

have

hig

h re

leva

nce

to b

usin

ess.

A

lso

this

con

solid

ates

issu

es id

entifi

ed a

t al

l val

ue

chai

n st

ages

. N

otic

e th

at is

sues

may

rec

eive

di

ffer

ent

ratin

gs a

t di

ffer

ent

stag

es o

f th

e va

lue

chai

n, e

.g.,

ener

gy u

se a

t th

e di

strib

utio

n st

age

rece

ives

a h

ighe

r ra

ting

than

ene

rgy

use

at t

he

supp

ly a

nd c

orpo

rate

ope

ratio

n st

ages

.

Importance to Business Success Factors

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

22

Exte

rnal

- E

ng

agin

g S

take

ho

lder

sH

ow t

he o

rgan

izat

ion

choo

ses

to e

ngag

e st

akeh

olde

rs s

houl

d be

gin

with

und

erst

andi

ng t

he

exis

ting

rela

tions

hip.

An

orga

niza

tion

may

cho

ose

to e

stab

lish

diff

eren

t ‘r

ules

of

enga

gem

ent’

for

a

host

ile s

take

hold

er v

ersu

s a

supp

ortiv

e an

d co

mm

itted

one

. The

GEM

I Tra

nspa

renc

y to

ol

outli

nes

a m

etho

d fo

r as

sess

ing

stak

ehol

der

rela

tions

hips

and

how

tha

t re

latio

nshi

p m

ay a

ffec

t en

gage

men

t. T

he c

ase

exam

ple

by T

he S

cott

s C

ompa

ny (o

n pa

ge 2

3) s

how

s ho

w is

sues

can

be

iden

tified

fro

m c

usto

mer

cal

ls.

Inco

rpo

rati

ng

Ext

ern

al

St

akeh

old

ers’

Per

spec

tive

sIn

corp

orat

ing

exte

rnal

sta

keho

lder

per

spec

tives

ca

n in

clud

e a

surv

ey o

f a

cros

s-se

ctio

n of

em

ploy

ees

know

ledg

eabl

e of

ext

erna

l sta

keho

lder

co

ncer

ns. A

s th

e G

EMI T

rans

pare

ncy

tool

poi

nts

out,

var

ious

sta

keho

lder

con

cern

s ar

e of

ten

know

n by

em

ploy

ees.

Nev

erth

eles

s, d

irect

en

gage

men

t of

the

sig

nific

ant

stak

ehol

ders

may

be

nec

essa

ry t

o fu

rthe

r id

entif

y, a

sses

s or

con

firm

th

eir

conc

erns

. Th

is e

nsur

es t

hat

the

mat

eria

l is

sues

iden

tified

thr

ough

thi

s pr

oces

s in

corp

orat

e th

e ex

pect

atio

ns a

nd n

eeds

of

all s

take

hold

ers.

Exte

rnal

- Id

enti

fyin

g S

take

ho

lder

sC

once

rns

of k

ey e

xter

nal s

take

hold

ers

have

bee

n a

hist

oric

driv

er f

or t

he in

tern

al m

anag

emen

t of

em

ergi

ng s

ocia

l and

env

ironm

enta

l iss

ues,

as

illus

trat

ed b

y th

e ca

se e

xam

ple

of B

risto

l-Mye

rs

Squi

bb (o

n pa

ge 2

3).

In a

dditi

on t

o th

e st

akeh

olde

r en

gage

men

t pr

oces

ses

alre

ady

prac

ticed

in a

n or

gani

zatio

n,

ther

e ar

e se

vera

l met

hods

to

iden

tify

whi

ch

exte

rnal

gro

ups

coul

d pl

ay a

key

rol

e in

iden

tifyi

ng

and

ratin

g is

sues

. GEM

I’s T

rans

pare

ncy:

A P

ath

to

Publ

ic T

rust

pro

vide

s gu

idan

ce in

:

•id

entif

ying

sig

nific

ant

stak

ehol

ders

tha

t in

tera

ct

with

the

org

aniz

atio

n

•ga

ther

ing

key

info

rmat

ion

rega

rdin

g st

akeh

olde

rs’ e

xpec

tatio

ns a

nd m

otiv

atio

ns, a

s w

ell a

s th

e cu

rren

t st

ate

of t

he o

rgan

izat

ion’

s re

latio

nshi

p w

ith t

hem

•de

cidi

ng w

hich

sta

keho

lder

s ar

e ‘s

igni

fican

t’ o

r ke

y to

the

org

aniz

atio

n

The

tool

fur

ther

cla

ssifi

es s

take

hold

ers

as

‘sig

nific

ant’

whe

n th

ey: (1

2)

•su

pply

res

ourc

es t

hat

are

criti

cal t

o th

e su

cces

s of

the

org

aniz

atio

n

•ha

ve s

omet

hing

at

risk;

the

ir w

elfa

re is

dire

ctly

af

fect

ed b

y th

e pe

rfor

man

ce o

f th

e or

gani

zatio

n

•ha

ve s

uffic

ient

pow

er t

o af

fect

the

pe

rfor

man

ce o

f th

e or

gani

zatio

n, e

ither

fa

vora

bly

or u

nfav

orab

ly

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

23

Bri

sto

l-M

yers

Sq

uib

b C

om

pan

y

Exte

rnal

Rep

ort

ing

an

d In

tern

al M

anag

emen

t o

f M

etri

csBr

isto

l-Mye

rs S

quib

b is

an

early

lead

er in

rep

ortin

g en

viro

nmen

tal,

heal

th a

nd s

afet

y (E

HS)

met

rics.

With

res

pect

to

gove

rnm

ent

and

med

ia r

epor

ts o

f en

viro

nmen

tal

data

, and

to

com

mun

ities

’ inq

uirie

s re

gard

ing

loca

l ope

ratio

ns, t

he c

ompa

ny b

egan

to

rep

ort

envi

ronm

enta

l per

form

ance

dat

a in

the

199

0s. I

n ad

ditio

n, t

he c

ompa

ny

part

icip

ated

in d

evel

opin

g th

e fir

st d

raft

of

the

Glo

bal R

epor

ting

Initi

ativ

e (G

RI) a

nd

was

am

ong

the

first

to

appl

y th

e G

RI r

epor

ting

stan

dard

s.

Whi

le r

epor

ting

EHS

met

rics

bega

n as

par

t of

Bris

tol-M

yers

Squ

ibb’

s ef

fort

to

mee

t ex

tern

al s

take

hold

er e

xpec

tatio

ns, i

t ha

s dr

iven

the

dev

elop

men

t of

an

orga

niza

tiona

l cap

acity

for

tra

ckin

g an

d m

anag

ing

non-

regu

lato

ry m

etric

s. A

n ex

tens

ive

infr

astr

uctu

re, i

nclu

ding

pro

cedu

res

and

data

base

s, w

ere

deve

lope

d fo

r EH

S da

ta c

olle

ctio

n, v

erifi

catio

n an

d re

port

ing.

In s

pite

of

the

exte

rnal

rep

ortin

g fo

cus,

the

met

rics

resu

lted

in a

ran

ge o

f in

tern

al m

anag

emen

t be

nefit

s, in

clud

ing:

•ab

ility

to

asse

ss t

he c

ompa

ny’s

pote

ntia

l env

ironm

enta

l im

pact

s

•id

entifi

catio

n of

cos

t-sa

ving

opp

ortu

nitie

s

•cr

oss-

func

tiona

l inv

olve

men

t an

d co

mpa

ny-w

ide

awar

enes

s of

sust

aina

bilit

y is

sues

In s

hort

, the

sys

tem

ena

bled

Bris

tol-M

yers

Squ

ibb

to a

sses

s its

pot

entia

l im

pact

s, t

o de

term

ine

appr

opria

te p

erfo

rman

ce t

arge

ts a

nd t

o m

easu

re p

rogr

ess

tow

ards

suc

h ta

rget

s. It

pro

vide

d m

uch

of t

he c

apac

ity f

or t

he d

evel

opm

ent

and

trac

king

of

the

com

pany

’s 20

10 s

usta

inab

ility

goa

ls.

Toda

y, B

risto

l-Mye

rs S

quib

b tr

acks

60

envi

ronm

enta

l par

amet

ers

in a

bout

50

faci

litie

s w

orld

wid

e an

d ha

s pr

oduc

ed s

usta

inab

ility

rep

orts

sin

ce 2

001.

Mai

ntai

ning

an

d fu

rthe

r de

velo

ping

met

rics

and

repo

rtin

g sy

stem

s, h

owev

er, d

o co

me

with

ch

alle

nges

. Firs

t, d

ata

colle

ctio

n an

d ve

rifica

tion

can

be c

ostly

, esp

ecia

lly in

ter

ms

of h

uman

res

ourc

es, a

nd n

eed

to b

e ef

fect

ivel

y m

anag

ed. F

urth

er, i

n ex

tern

al

repo

rtin

g, it

is c

ritic

al t

o un

ders

tand

tha

t in

form

atio

n m

ay b

e us

ed b

y th

e pu

blic

in

way

s w

hich

wer

e no

t in

tend

ed.

In s

umm

ary,

tho

ugh

initi

ally

driv

en b

y ex

tern

al r

eque

sts,

Bris

tol-M

yers

Squ

ibb’

s EH

S m

etric

s an

d re

port

ing

syst

em h

as b

roug

ht t

angi

ble,

inte

rnal

bus

ines

s be

nefit

s.

The S

cott

s C

om

pan

y

Iden

tify

ing

Issu

es f

rom

Co

nsu

mer

Cal

lsO

ne e

ffec

tive

way

for

iden

tifyi

ng is

sues

of

impo

rtan

ce t

o cu

stom

ers

is t

he

cons

umer

cal

ls m

ade

to t

he c

ompa

ny. S

cott

s ha

s es

tabl

ishe

d a

proc

ess

for

iden

tifyi

ng b

usin

ess

issu

es r

aise

d th

roug

h co

nsum

er c

alls

, com

mun

icat

ing

the

info

rmat

ion

to t

he v

ario

us b

usin

ess

func

tions

and

tra

nsla

ting

it in

to a

ctio

ns.

Scot

ts’ C

onsu

mer

Cal

l Cen

ter

rece

ives

rou

ghly

one

mill

ion

calls

ann

ually

fro

m

cons

umer

s fo

r al

l of

its p

rodu

ct li

nes.

Eve

ry in

com

ing

call

is lo

gged

into

a

data

base

, alo

ng w

ith k

ey in

form

atio

n su

ch a

s co

nsum

er c

once

rns,

pro

duct

s af

fect

ed a

nd t

he g

eogr

aphi

c lo

catio

n of

the

cal

l. Th

e da

taba

se is

rou

tinel

y an

alyz

ed a

nd c

ompa

red

to p

revi

ous

perio

ds t

o id

entif

y tr

ends

and

ano

mal

ies.

Th

e an

alys

is is

the

n re

port

ed t

o va

rious

dep

artm

ents

whe

re it

can

be

furt

her

exam

ined

to

iden

tify

issu

es t

hat

requ

ire t

he c

ompa

ny’s

atte

ntio

n.

The

data

base

is d

esig

ned

to f

acili

tate

col

labo

ratio

n be

twee

n va

rious

inte

rnal

de

part

men

ts, s

uch

as q

ualit

y as

sura

nce,

mar

ketin

g, r

esea

rch

& d

evel

opm

ent

and

envi

ronm

enta

l ste

war

dshi

p, t

o de

velo

p st

rate

gies

to

impr

ove

Scot

ts’ p

rodu

cts.

Th

e co

nsum

er c

all d

ata

have

bee

n ef

fect

ive

in id

entif

ying

ris

ks. E

ven

one

call

rela

ted

to a

ser

ious

saf

ety

issu

e, f

or e

xam

ple,

has

led

to a

pro

duct

bei

ng p

ulle

d ou

t of

the

mar

ket

and/

or r

e-en

gine

ered

for

impr

oved

saf

ety

perf

orm

ance

. Tha

t ch

ange

res

ulte

d in

a C

onsu

mer

Saf

ety

Aw

ard

from

the

Hom

e Sa

fety

Cou

ncil

for

prod

uct

inno

vatio

n.

Opp

ortu

nitie

s fo

r pr

oduc

ts t

hat

addr

ess

envi

ronm

enta

l con

cern

s ha

ve a

lso

been

id

entifi

ed t

hrou

gh c

onsu

mer

cal

ls. T

he d

esire

for

pho

spho

rous

-fre

e fe

rtili

zer

as

an o

ptio

n fo

r us

e ar

ound

sen

sitiv

e w

ater

way

s an

d C

anad

ian

mar

ket

dem

and

for

natu

ral p

rodu

cts

are

amon

g co

nsum

er is

sues

tha

t ha

ve le

d to

new

pro

duct

s.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

2.

Ass

ess

Iss

ues

fro

m S

takeh

old

ers

’ Pers

pect

ives

24 EAG

Per

spec

tive

Are

So

cial

Go

als

Rele

van

t to

Bu

sin

ess

?C

omm

unity

indi

cato

r pr

ogra

ms

can

prov

ide

insi

ghts

into

wha

t is

impo

rtan

t to

the

loca

l com

mun

ity. W

hile

soc

ial /

com

mun

ity g

oals

are

typ

ical

ly o

utsi

de a

co

mpa

ny’s

sphe

re o

f co

ntro

l, th

ey a

re in

fluen

ced

by lo

cal b

usin

ess

polic

ies

and

prac

tices

(see

figu

re b

elow

). O

nlin

e at

ww

w.g

emi.o

rg/m

etri

csn

avig

ato

r, K

irvil

Skin

narla

nd o

f Su

stai

nabl

e Se

attle

and

Tril

ogy,

LLC

, exp

lore

s ho

w c

omm

unity

in

dica

tors

can

hel

p in

form

a c

ompa

ny in

det

erm

inin

g w

hat

is m

ater

ial a

nd in

sh

apin

g its

bus

ines

s go

als.

Soci

al G

oal

s

Sam

ple

Indi

cato

rs:

Livi

ng W

ages

Hea

lth C

are

Aff

orda

ble

Hou

sing

Publ

ic S

afet

yD

iver

sity

/ D

iscr

imin

atio

nEn

viro

nmen

tal Q

ualit

yEm

ploy

men

tEd

ucat

ion

Inco

me

Dis

trib

utio

nA

Co

mp

any’

s Sp

her

eo

f C

on

tro

l

Info

rm

Infl

uen

ce

Sph

ere

of

Infl

uen

ce —

Ou

tco

mes

in c

om

mu

nit

ies

are

affe

cted

by

man

y va

riab

les,

e.g

., d

emo

gra

ph

ic t

ren

ds,

eco

no

mic

tr

end

s, p

olit

ical

dec

isio

ns,

etc

.

Perf

orm

ance

Mea

sure

s

Bu

sin

ess

Go

als

RES

OU

RC

ES/

INPU

TSA

CTI

VIT

IES

OU

TPU

TSO

UTC

OM

ES

Wo

rksh

eets

2b

– P

rio

riti

zin

g

Ex

tern

al Is

sues

W

orks

heet

2b

(on

page

25)

pro

vide

s a

tem

plat

e to

rate

and

prio

ritiz

e iss

ues

of c

once

rn to

ext

erna

l st

akeh

olde

rs.T

his

allo

ws

user

s to

rat

e th

e is

sues

id

entifi

ed a

t fo

r ea

ch v

alue

cha

in s

tage

bas

ed o

n tw

o cr

iteria

:

•le

vel o

f co

ncer

n to

sta

keho

lder

s (x

-axi

s) –

Is t

he

issu

e is

of

high

cur

rent

or

pote

ntia

l con

cern

to

key

exte

rnal

sta

keho

lder

s?

•or

gani

zatio

n’s

abili

ty t

o co

ntro

l or

influ

ence

(y

-axi

s) –

Are

the

re a

ctio

ns t

he o

rgan

izat

ion

can

take

to

cont

rol o

r in

fluen

ce t

he is

sue?

Con

cern

s of

em

ploy

ees

and

exte

rnal

sta

keho

lder

s sh

ould

refl

ect

both

cur

rent

and

em

ergi

ng is

sues

ev

en if

the

y ar

e no

t of

hig

h co

ncer

n or

with

in

the

com

pany

’s ab

ility

to

cont

rol t

oday

. The

y m

ay

repr

esen

t fu

ture

issu

es t

o be

con

side

red

toda

y or

at

leas

t ‘p

arke

d’ f

or c

onsi

dera

tion

in t

he

futu

re. T

oget

her,

thes

e tw

o cr

iteria

det

erm

ine

the

sign

ifica

nce

of t

he e

xter

nal c

once

rns.

Wor

kshe

et 2

b pl

ots

issu

es’ r

atin

gs b

ased

on

the

com

bina

tion

of t

he t

wo

crite

ria a

nd t

he

colo

r co

ding

dem

onst

rate

s ho

w t

he is

sues

rat

e in

ter

ms

of o

vera

ll si

gnifi

canc

e. A

n is

sue

rate

d hi

ghly

on

both

crit

eria

is c

onsi

dere

d to

be

of h

igh

sign

ifica

nce

of e

xter

nal c

once

rn.

Som

e of

the

issu

es li

sted

in a

re id

entic

al t

o th

ose

iden

tified

ear

lier

from

the

per

spec

tive

of

empl

oyee

s (W

orks

heet

2a)

. Oth

er is

sues

, how

ever

, m

ay b

e id

entifi

ed o

nly

thro

ugh

the

pers

pect

ive

of

exte

rnal

sta

keho

lder

s.

Com

plet

ing

Step

2 w

ill r

esul

t in

prio

ritiz

ed li

sts

of is

sues

fro

m t

he p

ersp

ectiv

es o

f em

ploy

ees

and

exte

rnal

sta

keho

lder

s. T

he n

ext

step

will

out

line

how

to

cons

olid

ate

thes

e to

pro

duce

a s

hort

list

of

mat

eria

l iss

ues.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

25

WO

RK

SHEE

T 2b

: EX

TER

NA

L –

PRIO

RIT

IZE

ISSU

ES O

F C

ON

CER

N T

O E

XTE

RN

AL

STA

KEH

OLD

ERS

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

INST

RUCT

ION

S:Pl

ot th

e po

tent

ial a

nd c

urre

nt is

sues

iden

tified

by

exte

rnal

sta

keho

lder

s. R

ate

each

issu

e as

Hig

h (H

), M

ediu

m (M

) or L

ow (L

) acc

ordi

ng to

the

follo

win

g co

nsid

erat

ions

:

Leve

l of

Co

nce

rn t

o S

take

ho

lder

s•

How

str

ongl

y do

es e

ach

key

stak

ehol

der

grou

p ca

re a

bout

the

issu

e?

Org

aniz

atio

n’s

Ab

ility

to

Co

ntr

ol o

r In

flu

ence

•D

oes

the

orga

niza

tion

have

con

trol

or

influ

ence

ove

r th

e va

lue-

chai

n st

ages

aff

ectin

g th

e is

sue?

•A

re t

here

act

ions

the

org

aniz

atio

n ca

n ta

ke t

o af

fect

the

issu

e di

rect

ly o

r in

dire

ctly

?

VA

LUE

CH

AIN

STA

GES

:S

= S

uppl

y; C

= C

ompa

ny O

pera

tions

; D =

Dis

trib

utio

n; U

= C

usto

mer

Use

of

Prod

uct

/ Ser

vice

; E =

End

of

Life

Organization’s Ability to Control or Influence

H•

Ener

gy u

se (S

, C)

•W

ater

use

(C)

•Ed

ucat

ion

(U, E

)•

Com

mun

ity o

utre

ach

(C)

•Im

mig

ratio

n po

licy

(C)

•N

utrit

ion

cont

ent

(U)

•O

rgan

ic p

rodu

cts

(S, U

)•

Impa

ct o

n lo

cal c

omm

uniti

es (S

, C)

M•

Taxe

s pa

id (C

)

•U

se o

f al

tern

ativ

e en

ergy

(S, C

, D)

•Em

ploy

ee H

ealth

& S

afet

y (C

)•

Ener

gy u

se (D

)•

Ani

mal

rig

hts

(S)

•W

ater

use

(S)

•Fa

rmin

g ru

n-of

fs (S

)•

Loca

l eco

nom

ic d

evel

opm

ent

(S, C

)•

Air

emis

sion

s (D

)

L•

Loca

l hom

eles

s po

pula

tion

(D)

•Ta

lent

rete

ntio

n (C

)•

Tran

spor

tatio

n in

fras

truc

ture

(D)

•G

loba

l sec

urity

(S, C

, D)

LM

H

Rea

son

ing

beh

ind

Rat

ing

:H

igh

leve

l of

stak

ehol

der

conc

ern,

wel

l with

in o

rgan

izat

ion’

s ab

ility

to

cont

rol

Impo

rtan

t to

cus

tom

ers,

org

aniz

atio

n ca

n ex

pand

por

tfol

io a

nd m

odify

sou

rcin

gC

once

rn t

o so

me

stak

ehol

ders

, org

aniz

atio

n ca

n in

fluen

ce s

uppl

y ch

ain

Hig

h le

vel o

f sta

keho

lder

con

cern

, but

lim

ited

orga

niza

tion’

s ab

ility

to c

ontr

ol o

r infl

uenc

e

Issu

es (

exam

ple

s):

Nut

ritio

n co

nten

t (U

)O

rgan

ic p

rodu

cts

(S, U

)U

se o

f alte

rnat

ive

ener

gy (S

, C, D

)G

loba

l sec

urity

(S, C

, D)

Not

e: t

he is

sues

of

glob

al s

ecur

ity a

nd a

nim

al r

ight

s w

ere

adde

d by

ext

erna

l sta

keho

lder

s, n

ot in

clud

ed b

y em

ploy

ees

in W

orks

heet

2a

2.

Ass

ess

Iss

ues

fro

m S

takeh

old

ers

’ Pers

pect

ives

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

Leve

l of

Co

nce

rn t

o S

take

ho

lder

s

26

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

STE

P 3

Exp

ecte

d O

utc

om

es•

M

ater

ial i

ssue

s fo

r

co

nsid

erat

ion

in

deve

lopi

ng m

etric

s

•

Crit

ical

few

key

obj

ectiv

es

The

purp

ose

of S

tep

3 is

to:

•co

nsol

idat

e th

e in

tern

al a

nd e

xter

nal i

ssue

s to

pr

oduc

e a

shor

t lis

t of

issu

es m

ost

mat

eria

l to

the

orga

niza

tion

•id

entif

y po

tent

ial o

bjec

tives

, i.e

., w

hat

the

orga

niza

tion

may

wan

t to

ach

ieve

in a

ddre

ssin

g th

e m

ater

ial i

ssue

s

•se

lect

the

crit

ical

few

key

obj

ectiv

es b

ased

on

the

busi

ness

and

soc

ieta

l val

ue o

f ad

dres

sing

the

m

ater

ial i

ssue

s

This

is a

crit

ical

syn

thes

is o

f m

ater

ial i

ssue

s an

d th

eir

eval

uatio

n ag

ains

t th

e bu

sine

ss s

ucce

ss

fact

ors

outli

ned

in S

tep

1. S

tep

3 w

orks

heet

s lis

t m

ater

ial i

ssue

s an

d se

lect

ed k

ey o

bjec

tives

for

w

hich

KPI

s an

d m

etric

s w

ill b

e de

velo

ped.

Sele

ctin

g M

ater

ial I

ssu

es –

Wo

rksh

eet

3a

Mat

eria

lity

is e

xam

ined

in t

his

tool

thr

ough

the

fo

ur c

riter

ia d

iscu

ssed

in t

he O

verv

iew

. Tw

o of

th

ese

crite

ria w

ere

appl

ied

in W

orks

heet

2a

(on

page

21)

to

prio

ritiz

e is

sues

for

the

ir re

leva

nce

to b

usin

ess:

•im

port

ance

to

the

busi

ness

suc

cess

fac

tors

•si

gnifi

canc

e of

env

ironm

enta

l, so

cial

and

/or

econ

omic

impa

cts

from

the

org

aniz

atio

n

The

rem

aini

ng t

wo

crite

ria w

ere

appl

ied

in

Wor

kshe

et 2

b (o

n p

age

25) t

o pr

iorit

ize

issu

es f

or

sign

ifica

nce

of e

xter

nal c

once

rns:

•le

vel o

f co

ncer

n to

ext

erna

l sta

keho

lder

s

•th

e or

gani

zatio

n’s

abili

ty t

o co

ntro

l or

influ

ence

Wor

kshe

et 3

a (o

n pa

ge 2

7) s

erve

s as

a m

echa

nism

fo

r se

lect

ing

and

sum

mar

izin

g m

ater

ial i

ssue

s fr

om b

oth

inte

rnal

and

ext

erna

l sta

keho

lder

pe

rspe

ctiv

es. T

he is

sues

will

be

plot

ted

acco

rdin

g to

rel

evan

ce t

o bu

sine

ss (W

orks

heet

2a)

and

si

gnifi

canc

e of

con

cern

(Wor

kshe

et 2

b). F

or

the

exam

ple

of X

YZ

Nut

ritio

nal B

ever

age,

co

mm

unity

out

reac

h is

of

high

con

cern

to

exte

rnal

st

akeh

olde

rs b

ut o

f m

ediu

m r

elev

ance

to

the

busi

ness

, res

ultin

g in

a m

ediu

m m

ater

ialit

y in

W

orks

heet

3a.

This

fol

low

s th

e sa

me

form

at a

nd c

olor

-cod

ing

as

prev

ious

wor

kshe

ets.

Issu

es t

hat

fall

into

the

hig

h m

ater

ialit

y ra

ting

in W

orks

heet

3a

are

impo

rtan

t in

tern

ally

and

ext

erna

lly a

nd c

an b

e th

e ba

sis

for

key

obje

ctiv

es.

Issu

es t

hat

fall

into

the

med

ium

mat

eria

lity

ratin

g al

so w

arra

nt c

onsi

dera

tion

for

key

obje

ctiv

es. T

his

incl

udes

issu

es o

f hi

gh p

riorit

y fr

om t

he in

tern

al

pers

pect

ives

tha

t th

e ex

tern

al s

take

hold

ers

have

no

t ye

t re

cogn

ized

, or

vice

ver

sa.

In f

act,

issu

es

of h

igh

prio

rity

to e

xter

nal s

take

hold

ers

that

hav

e no

t be

en r

ecog

nize

d in

tern

ally

may

con

stitu

te

emer

ging

issu

es f

or t

he o

rgan

izat

ion.

Issu

es t

hat

rece

ive

low

rat

ings

are

not

mat

eria

l is

sues

and

may

not

req

uire

imm

edia

te a

tten

tion.

Fo

r X

YZ

Nut

ritio

nal B

ever

age,

the

se in

clud

e bo

rder

con

trol

, tra

nspo

rtat

ion

infr

astr

uctu

re a

nd

anim

al r

ight

s.

Sim

ilar

mat

eria

lity

ratin

gs a

re u

sed

by s

ome

com

pani

es. A

bbot

t, a

s ill

ustr

ated

in it

s ca

se

exam

ple

(on

page

28)

, rat

es is

sues

by

high

, m

ediu

m, a

nd lo

w p

riorit

y.

3.

Develo

p K

ey O

bje

ctiv

es

27

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

WO

RK

SHEE

T 3a

: SE

LEC

T M

ATE

RIA

L IS

SUES

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

INST

RU

CTI

ON

S:Pl

ot t

he is

sues

acc

ordi

ng t

o ra

tings

rec

eive

d in

Wor

kshe

et 2

a (R

elev

ance

to

Busi

ness

) and

Wor

kshe

et 2

b (S

igni

fican

ce o

f C

once

rn).

H/H

=H

; H/M

=H

; H/L

= L

or

M; M

/M=

M; M

/L =

L; L

/L =

L

For

exam

ple,

Ene

rgy

Use

(S, C

) was

plo

tted

in t

he d

ark-

shad

ed a

rea

in W

orks

heet

2a

and

rece

ives

a h

igh

ratin

g on

the

Rel

evan

ce t

o th

e Bu

sine

ss a

xis

in

Wor

kshe

et 3

a. E

nerg

y U

se (S

, C) w

as p

lott

ed in

the

med

ium

-sha

ded

area

in W

orks

heet

2b

and

rece

ives

a m

ediu

m r

atin

g on

the

Sig

nific

ance

of

Con

cern

axi

s in

Wor

kshe

et 3

a. T

he o

vera

ll ra

ting

is h

igh

(dar

k sh

aded

) in

this

com

bine

d w

orks

heet

.

VA

LUE

CH

AIN

STA

GES

:S

= S

uppl

y; C

= C

ompa

ny O

pera

tions

; D =

Dis

trib

utio

n; U

= C

usto

mer

Use

of

Prod

uct

/ Ser

vice

; E =

End

of

Life

Significance of Concern(Worksheet 2b)

H

•Im

mig

ratio

n po

licy

(C)

•C

omm

unity

out

reac

h (C

)•

Educ

atio

n (U

, E)

•A

ir em

issi

ons

(D)

•N

utrit

ion

cont

ent

(U)

•O

rgan

ic p

rodu

cts

(S, U

)•

Wat

er u

se (S

)•

Impa

ct o

n lo

cal c

omm

uniti

es (S

, C)

•Lo

cal e

cono

mic

dev

elop

men

t (S

, C)

•Fa

rmin

g ru

n-of

fs (S

)

M•

Glo

bal s

ecur

ity (S

,C,D

)•

Ani

mal

rig

hts

(S)

•U

se o

f al

tern

ativ

e en

ergy

(S, C

, D)

•En

ergy

use

(S, C

, D)

•W

ater

use

(C)

•Em

ploy

ee H

ealth

& S

afet

y (C

)

L•

Taxe

s pa

id (C

)•

Tran

spor

tatio

n in

fras

truc

ture

(D)

•Lo

cal h

omel

ess

popu

latio

n (D

)•

Tale

nt r

eten

tion

(C)

LM

H

Rel

evan

ce t

o t

he

Bu

sin

ess

(Wor

kshe

et 2

a)

28

Dev

elo

pin

g K

ey O

bje

ctiv

es

Onc

e a

mat

eria

l iss

ue h

as b

een

sele

cted

, the

nex

t ta

sk is

to

dete

rmin

e:

•w

hat

does

the

org

aniz

atio

n w

ant

to d

o ab

out,

an

d ac

hiev

e w

ith, t

he m

ater

ial i

ssue

, i.e

., w

hat

are

the

pote

ntia

l obj

ectiv

es

•is

the

re s

uffic

ient

val

ue in

add

ress

ing

the

mat

eria

l iss

ue t

o be

the

bas

is f

or a

key

obj

ectiv

e

To b

e de

velo

ped

as a

key

obj

ectiv

e th

e m

ater

ial

issu

e m

ust

prov

ide

valu

e an

d su

ppor

t th

e bu

sine

ss

stra

tegy

iden

tified

in S

tep1

. The

re a

re t

hree

co

nsid

erat

ions

tha

t in

fluen

ce t

he s

elec

tion

of a

key

ob

ject

ive

and

form

the

bas

is o

f W

orks

heet

3b:

•re

leva

nt c

ompo

nent

s -

fact

ors

that

influ

ence

th

e m

ater

ial i

ssue

or

rela

ted

issu

es t

hat

can

be

clus

tere

d an

d ad

dres

sed

colle

ctiv

ely

with

the

m

ater

ial i

ssue

•po

tent

ial o

bjec

tives

- t

he d

esire

d ou

tcom

es

defin

ed in

ter

ms

of t

he o

rgan

izat

ion’

s ob

ject

ives

•va

lue

prop

ositi

on -

the

exp

ecte

d bu

sine

ss

and

soci

etal

val

ue g

ener

ated

in m

eetin

g th

e po

tent

ial o

bjec

tives

Ab

bo

tt

Man

agin

g E

mer

gin

g B

usi

nes

s Is

sues

Abb

ott’s

str

ateg

y fo

r m

anag

ing

emer

ging

bus

ines

s is

sues

rel

ies

on a

thr

ee-p

hase

pro

cess

of

asse

ssm

ent,

pr

iorit

izat

ion

and

impl

emen

tatio

n.

The

asse

ssm

ent

phas

e yi

elds

an

inve

ntor

y of

env

ironm

enta

l, ec

onom

ic a

nd s

ocia

l iss

ues.

The

issu

es a

re id

entifi

ed

thro

ugh

inte

rvie

ws

of in

tern

al p

artie

s an

d ex

tern

al s

take

hold

er e

ngag

emen

t an

d re

sear

ch. A

ppro

xim

atel

y 50

bu

sine

ss a

nd f

unct

iona

l lea

ders

are

invo

lved

in t

his

phas

e.

The

issu

es a

re t

hen

prio

ritiz

ed b

y a

team

of

25 c

orpo

rate

Vic

e Pr

esid

ents

and

Dire

ctor

s. E

ach

issu

e is

sco

red

for

its im

pact

on

Abb

ott

and

the

oppo

rtun

ity f

or a

ctio

n an

d m

appe

d. ’H

igh

Prio

rity’

issu

es id

entifi

ed h

ave

a pr

oact

ive

stra

tegy

and

ded

icat

ed r

esou

rces

and

peo

ple

supp

ort

impl

emen

tatio

n. Is

sues

tha

t ar

e ’M

ediu

m

Prio

rity’

req

uire

Abb

ott

not

only

to

mon

itor

with

app

ropr

iate

man

ager

s ke

pt in

form

ed, b

ut a

lso

to h

ave

posi

tions

dev

elop

ed a

nd k

now

whe

re t

hird

-par

ty s

uppo

rt e

xist

s. ’L

ow P

riorit

y’ is

sues

req

uire

onl

y m

onito

ring

and

man

ager

s be

kep

t in

form

ed. O

ther

issu

es t

hat

are

not

nece

ssar

ily m

anag

ed a

re p

lace

d in

a ‘P

arki

ng L

ot’ f

or

futu

re c

onsi

dera

tion.

The

impl

emen

tatio

n ph

ase

invo

lves

alig

ning

exi

stin

g te

ams

with

the

pol

icy

com

mitt

ee a

nd d

eter

min

ing

actio

n pl

ans

and

resp

onsi

bilit

ies.

Too

ls t

o su

ppor

t A

bbot

t’s e

mer

ging

issu

es’ s

trat

egy,

incl

udin

g pa

rtne

rshi

ps a

nd

com

mun

icat

ion

aven

ues,

are

als

o id

entifi

ed.

This

thr

ee-p

hase

pro

cess

is d

esig

ned

to p

rovi

de v

alue

at

seve

ral m

anag

emen

t le

vels

. The

ass

essm

ent

phas

e pr

ovid

es a

n op

port

unity

for

bus

ines

s le

ader

s to

be

info

rmed

abo

ut k

ey is

sues

and

mee

t to

dis

cuss

issu

es a

nd

chan

nel i

nfor

mat

ion

thro

ugh

a co

ordi

nate

d pr

oces

s. T

he p

riorit

izat

ion

phas

e le

ads

to b

ette

r pl

anni

ng a

nd h

elps

cr

eate

a c

omm

on p

urpo

se a

roun

d w

hat

is im

port

ant

and

wha

t A

bbot

t ca

n ad

dres

s fir

st. T

he im

plem

enta

tion

phas

e en

cour

ages

cro

ss-f

unct

iona

l act

ion,

impr

oves

dis

cuss

ion

of a

ccou

ntab

ility

, and

orie

nts

peop

le t

owar

ds t

he

resu

lts a

nd h

ow t

he e

mer

ging

issu

es c

an a

ffec

t th

e co

rpor

atio

n.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

29

Du

Po

nt

Man

agin

g E

ner

gy

Ener

gy is

a m

ater

ial i

ssue

for

DuP

ont.

At

a co

nsum

ptio

n ra

te o

f 23

3 tr

illio

n BT

Us

per

year

, DuP

ont

is a

la

rge

ener

gy u

ser.

Ener

gy c

ontr

ibut

es s

igni

fican

tly t

o th

e co

st o

f m

anuf

actu

ring

as w

ell a

s to

the

com

pany

’s en

viro

nmen

tal f

ootp

rint,

incl

udin

g gr

eenh

ouse

gas

em

issi

ons.

The

refo

re, m

anag

ing

ener

gy c

onsu

mpt

ion

is

impo

rtan

t no

t on

ly t

o re

duce

cos

ts b

ut a

lso

to a

ddre

ss im

pact

s of

con

cern

to

exte

rnal

sta

keho

lder

s.

Two

stra

tegi

c m

etric

s ar

e us

ed b

y D

uPon

t to

man

age

ener

gy u

se: t

he t

otal

ann

ual c

onsu

mpt

ion

and

perc

ent

ener

gy f

rom

ren

ewab

le s

ourc

es. F

or t

otal

ann

ual c

onsu

mpt

ion,

DuP

ont

set

a ta

rget

of

keep

ing

ener

gy u

se fl

at

at t

he 1

990

base

line

in t

he f

ace

of t

he c

ompa

ny’s

grow

th. D

uPon

t ha

s ac

hiev

ed t

his

targ

et o

ver

the

past

ten

ye

ars,

and

in f

act,

red

uced

tot

al e

nerg

y us

e by

abo

ut s

ix p

erce

nt, w

hile

incr

easi

ng p

rodu

ctio

n by

41

perc

ent

over

the

sam

e pe

riod.

Thi

s re

sulte

d in

mor

e th

an $

3 bi

llion

of

ener

gy c

ost

avoi

danc

e.

Usi

ng r

enew

able

ene

rgy,

on

the

othe

r ha

nd, p

oses

an

oppo

rtun

ity f

or in

dust

ry le

ader

ship

. The

lack

of

both

co

st-e

ffec

tive

tech

nolo

gies

and

suf

ficie

nt m

arke

t de

man

d ha

s lo

ng h

inde

red

the

adva

nce

of r

enew

able

ene

rgy

usag

e in

the

mar

ketp

lace

. By

sett

ing

a ta

rget

of

achi

evin

g te

n pe

rcen

t of

its

ener

gy u

se f

rom

ren

ewab

le s

ourc

es

by 2

010,

DuP

ont

is t

akin

g a

lead

ersh

ip r

ole

in c

hang

ing

the

mar

ket

land

scap

e by

incr

easi

ng t

he d

eman

d fo

r re

new

able

sou

rces

, dem

onst

ratin

g th

e us

e of

ren

ewab

le s

ourc

es a

s a

prac

tical

alte

rnat

ive

in m

anag

ing

ener

gy

cons

umpt

ion

and

redu

cing

the

ir as

soci

ated

env

ironm

enta

l im

pact

s.

Rel

evan

t C

om

po

nen

tsTh

e re

leva

nt c

ompo

nent

s in

clud

e fa

ctor

s th

at

influ

ence

the

mat

eria

l iss

ue a

s w

ell a

s af

fect

the

or

gani

zatio

n’s

impa

cts

on t

he is

sue.

For

exa

mpl

e,

if th

e m

ater

ial i

ssue

is g

reen

hous

e ga

s (G

HG

) em

issi

ons,

a f

acto

r af

fect

ing

the

mat

eria

l iss

ue

wou

ld b

e en

ergy

use

and

the

org

aniz

atio

n’s

impa

ct o

n th

e is

sue

coul

d be

its

use

of

alte

rnat

ive

ener

gy.

Mul

tiple

mat

eria

l iss

ues

can

shar

e so

me

of t

he

sam

e re

leva

nt c

ompo

nent

s. F

or e

xam

ple,

if G

HG

em

issi

ons

and

the

use

of a

ltern

ativ

e en

ergy

are

bo

th m

ater

ial i

ssue

s th

ey c

ould

bot

h be

aff

ecte

d by

ris

ing

ener

gy p

rices

. A m

ater

ial i

ssue

can

al

so b

e a

rele

vant

com

pone

nt f

or o

ther

mat

eria

l is

sues

. For

exa

mpl

e, t

he p

ublic

’s co

ncer

n ov

er

GH

G e

mis

sion

s is

a r

elev

ant

com

pone

nt t

hat

coul

d in

fluen

ce t

he m

ater

ial i

ssue

of

the

use

of

alte

rnat

ive

ener

gy (t

he e

xam

ple

in W

orks

heet

3b

dem

onst

rate

s ho

w r

elev

ant

com

pone

nts

may

in

fluen

ce a

mat

eria

l iss

ue).

The

DuP

ont

case

exa

mpl

e ill

ustr

ates

how

the

m

ater

ial i

ssue

of

ener

gy c

an b

e m

anag

ed

thro

ugh

two

of it

s re

leva

nt c

ompo

nent

s: a

nnua

l co

nsum

ptio

n an

d us

e of

ren

ewab

le s

ourc

es.

Pote

nti

al O

bje

ctiv

eTh

e po

tent

ial o

bjec

tive

is t

he o

utco

me

or g

oal t

hat

the

orga

niza

tion

wan

ts t

o ac

hiev

e in

add

ress

ing

the

mat

eria

l iss

ue. T

here

can

be

mor

e th

an o

ne

pote

ntia

l obj

ectiv

e fo

r ea

ch m

ater

ial i

ssue

.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

3.

Develo

p K

ey O

bje

ctiv

es

30

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

The D

ow

Ch

em

ical

Co

mp

an

y

Dev

elo

pin

g D

ow

’s 2

015

Sust

ain

abili

ty G

oal

sD

ow s

et it

s co

rpor

ate

visi

on t

o be

“th

e la

rges

t, m

ost

profi

tabl

e an

d m

ost

resp

ecte

d ch

emic

al c

ompa

ny in

th

e w

orld

”. T

hat

mea

ns, i

t as

pire

s to

hav

e th

e sc

ale

and

scop

e to

do

thin

gs o

ther

s ca

nnot

; to

offe

r gr

eat

shar

ehol

der

valu

e; a

nd t

o ea

rn t

he r

eput

atio

n of

an

indu

stry

lead

er in

mee

ting

and

stay

ing

ahea

d of

sta

keho

lder

s’

expe

ctat

ions

. Dow

’s 20

15 S

usta

inab

ility

Goa

ls, a

nnou

nced

in 2

006,

are

inte

nded

to

help

the

com

pany

ach

ieve

th

is v

isio

n.

Com

plet

ion

of D

ow’s

2005

Env

ironm

enta

l, H

ealth

and

Saf

ety

(EH

S) G

oals

has

dem

onst

rate

d its

abi

lity

to u

se

real

, mea

sura

ble

and

long

-ter

m g

oals

to

mot

ivat

e em

ploy

ees,

driv

e in

nova

tions

and

ach

ieve

per

form

ance

im

prov

emen

ts. T

o co

ntin

ue t

o m

eet

and

exce

ed s

take

hold

ers’

exp

ecta

tions

, Dow

rec

ogni

zed

the

need

to

expa

nd

the

para

met

ers

of it

s ne

w 1

0-ye

ar g

oals

bey

ond

EHS

to in

clud

e ot

her

aspe

cts

of it

s re

latio

nshi

p w

ith t

he w

orld

.

A s

take

hold

er e

ngag

emen

t pr

oces

s, s

tart

ed in

200

3 in

volv

ing

exec

utiv

es, e

mpl

oyee

s, it

s C

orpo

rate

Env

ironm

enta

l A

dvis

ory

Cou

ncil

and

exte

rnal

sta

keho

lder

rep

rese

ntat

ives

, ide

ntifi

ed t

hree

are

as f

or it

s ne

w s

et o

f go

als:

•im

prov

ing

loca

l cor

pora

te c

itize

nshi

p

•in

crea

sing

com

mitm

ent

to p

rodu

ct s

tew

ards

hip

•re

duci

ng g

loba

l foo

tprin

t

‘Crit

ical

few

’ goa

ls w

ith s

igni

fican

ce a

nd im

pact

s on

all

its s

take

hold

ers

wer

e id

entifi

ed f

or e

ach

of t

he t

hree

ar

eas

thro

ugh

disc

ussi

ons

at a

leve

l of

deta

il ap

prop

riate

to

each

sta

keho

lder

gro

up.

Dow

’s 20

15 S

usta

inab

ility

goa

ls e

xten

d be

yond

min

imiz

ing

the

risks

in it

s cu

rren

t op

erat

ions

tow

ards

pro

activ

e co

ntrib

utio

n to

the

glo

bal c

omm

unity

. Sp

ecifi

cally

, it

incl

udes

the

goa

l of

achi

evin

g by

201

5 at

leas

t th

ree

brea

kthr

ough

s th

at w

ill s

igni

fican

tly im

prov

e th

e w

orld

’s ab

ility

to

solv

e th

e ch

alle

nges

suc

h as

iden

tified

in t

he

Uni

ted

Nat

ions

Mill

enni

um D

evel

opm

ent

Goa

ls.

The

2015

Sus

tain

abili

ty G

oals

als

o ba

lanc

e th

e ne

eds

for

cons

tanc

y an

d fle

xibi

lity.

It in

clud

es s

peci

fic n

umer

ical

ta

rget

s, s

uch

as r

educ

ing

ener

gy in

tens

ity b

y 25

per

cent

, as

wel

l as

qual

itativ

e ta

rget

s, s

uch

as c

omm

itmen

ts t

o pa

rtic

ipat

e in

cer

tain

vol

unta

ry p

rogr

ams

and

to e

stab

lish

loca

l com

mun

ity g

oals

.

Val

ue

Pro

po

siti

on

Eval

uatin

g th

e va

lue

prop

ositi

on d

eter

min

es w

hich

of

the

pot

entia

l obj

ectiv

es c

ould

be

addr

esse

d as

st

rate

gic

key

obje

ctiv

es f

or t

he o

rgan

izat

ion.

Both

bus

ines

s an

d so

ciet

al v

alue

s sh

ould

be

artic

ulat

ed f

or e

ach

pote

ntia

l obj

ectiv

e(s)

de

velo

ped

for

each

mat

eria

l iss

ue. I

n as

sess

ing

the

busi

ness

val

ue, o

ne s

houl

d co

nsid

er w

heth

er a

po

tent

ial o

bjec

tive

supp

orts

the

bus

ines

s st

rate

gy.

Less

tan

gibl

e ef

fect

s, s

uch

as b

rand

imag

e an

d im

prov

ed r

eput

atio

n, s

houl

d al

so b

e co

nsid

ered

. Th

e ca

se e

xam

ple

by D

ow C

hem

ical

Com

pany

ill

ustr

ates

how

goa

ls a

nd m

etric

s ar

e de

velo

ped

to

supp

ort

a co

mpa

ny’s

busi

ness

mis

sion

.

Soci

etal

val

ues

are

unde

rsto

od b

road

ly a

s be

nefit

s th

e or

gani

zatio

n ca

n br

ing

to s

ocie

ty,

the

envi

ronm

ent

and

the

larg

er e

cono

mic

sys

tem

th

roug

h m

eetin

g th

e po

tent

ial o

bjec

tives

.

Valu

e pr

opos

ition

is t

he m

ost

impo

rtan

t co

nsid

erat

ion

in d

eter

min

ing

whe

ther

a p

oten

tial

obje

ctiv

e sh

ould

be

sele

cted

as

a ke

y ob

ject

ive.

Th

ese

pote

ntia

l val

ues

can

be r

egar

ded

as t

he fi

nal

scre

en o

f m

ater

ialit

y th

at c

onso

lidat

es t

he f

our

crite

ria d

iscu

ssed

ear

lier

in t

he s

tep.

31

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

3.

Develo

p K

ey O

bje

ctiv

es

Sele

ctin

g t

he

Key

Ob

ject

ives

–

Wo

rksh

eet

3bW

orks

heet

3b

(on

page

32)

pro

vide

s a

tem

plat

e fo

r do

cum

entin

g th

e co

nsid

erat

ions

tha

t go

into

th

e se

lect

ion

of a

key

obj

ectiv

e. B

egin

ning

with

th

e m

ater

ial i

ssue

s id

entifi

ed in

Wor

kshe

et 3

a,

a st

epw

ise

anal

ysis

of

the

rele

vant

com

pone

nts,

po

tent

ial o

bjec

tives

and

val

ue p

ropo

sitio

ns is

pe

rfor

med

and

doc

umen

ted

in W

orks

heet

3b.

To b

e se

lect

ed a

s a

key

obje

ctiv

e, a

pot

entia

l ob

ject

ive

mus

t pr

esen

t a

clea

r va

lue

prop

ositi

on.

The

key

obje

ctiv

es s

houl

d be

few

in n

umbe

r, re

pres

entin

g th

e cr

itica

l few

are

as w

here

the

or

gani

zatio

n w

ill f

ocus

its

atte

ntio

n an

d ef

fort

s.

Inte

rrel

ated

issu

es c

an o

ften

be

addr

esse

d th

roug

h on

e ke

y ob

ject

ive.

A p

oten

tial o

bjec

tive

may

not

be

sele

cted

as

a ke

y ob

ject

ive

for

a va

riety

of

reas

ons,

incl

udin

g:

•la

ck o

f cl

ear

busi

ness

or

soci

etal

val

ue

•le

ss im

med

iate

val

ue c

ompa

red

to o

ther

po

tent

ial o

bjec

tives

, and

thu

s po

stpo

ned

for

futu

re c

onsi

dera

tions

•ac

hiev

able

as

part

of

addr

essi

ng a

noth

er

mat

eria

l iss

ue t

hat

has

been

sel

ecte

d as

a k

ey

obje

ctiv

e an

d ca

n be

incl

uded

as

a lo

wer

-leve

l (m

ore

tact

ical

) obj

ectiv

e

•in

abili

ty o

f th

e bu

sine

ss t

o in

fluen

ce it

Com

ple

ting S

tep 3

res

ults

in t

he

prioritiza

tion

of

mat

eria

l iss

ues

and s

elec

tion o

f ke

y obje

ctiv

es f

or

whic

h K

PIs,

met

rics

and t

arget

s ar

e to

be

dev

eloped

.

EAG

Per

spec

tive

Ho

w C

an

On

e A

lig

n

En

vir

on

men

tal,

So

cial

an

d B

usi

ness

Valu

es?

The

com

mun

ity, e

nviro

nmen

t an

d pr

ivat

e se

ctor

all

bene

fit w

hen

busi

ness

and

su

stai

nabi

lity

inte

rest

s ar

e th

e sa

me.

Pau

l Te

bo, f

orm

erly

of

DuP

ont,

exp

lore

s ho

w

to u

nlea

sh t

he p

ower

of

sust

aina

bilit

y th

inki

ng in

bus

ines

s by

alig

ning

bus

ines

s ob

ject

ives

and

env

ironm

enta

l and

soc

ial

valu

es. T

he a

ppro

ach,

out

lined

onl

ine

at

w

ww

.gem

i.org

/met

rics

nav

igat

or,

will

in

tegr

ate

sust

aina

bilit

y in

to a

ll as

pect

sof

bus

ines

s.

32

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

WO

RK

SHEE

T 3

b: S

ELEC

T K

EY O

BJE

CTI

VES

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

INST

RU

CTI

ON

S: D

ocum

ent

cons

ider

atio

ns t

hat

lead

to

the

sele

ctio

n of

key

obj

ectiv

es (i

n b

old

), in

clud

ing

the

listin

g of

:•

Mat

eria

l Iss

ue: ‘

high

’ and

‘med

ium

’ mat

eria

l iss

ues

from

Wor

kshe

et 3

a•

Rele

vant

Com

pone

nts:

fac

tors

tha

t in

fluen

ce t

he m

ater

ial i

ssue

or

the

orga

niza

tion’

s im

pact

on

the

mat

eria

l iss

ue•

Pote

ntia

l Obj

ectiv

e: o

bjec

tive(

s) o

r go

al(s

) to

be a

chie

ved

in a

ddre

ssin

g ea

ch m

ater

ial i

ssue

•Va

lue

Prop

ositi

on: b

usin

ess

and

soci

etal

val

ue o

f th

e po

tent

ial o

bjec

tives

VA

LUE

CH

AIN

STA

GES

:S

= S

uppl

y; C

= C

ompa

ny O

pera

tions

; D =

Dis

trib

utio

n; U

= C

usto

mer

Use

of

Prod

uct

/ Ser

vice

; E =

End

of

Life

Mat

eria

lIs

sue

Rel

evan

t C

om

po

nen

tsPo

ten

tial

Ob

ject

ive

Val

ue

Pro

po

siti

on

Sele

ct a

s K

ey

Ob

ject

ive?

Bu

sin

ess

Val

ue

Soci

etal

Val

ue

Educ

atio

nal

outr

each

(U, E

)

•La

ck o

f aw

aren

ess

of h

ealth

y di

et,

espe

cial

ly a

mon

g sc

hool

chi

ldre

n•

Lack

of

awar

enes

s of

recy

clin

g,

how

& w

hy

Incr

ease

invo

lvem

ent

in

educ

atio

nal o

utre

ach

prog

ram

s fo

r sc

hool

chi

ldre

n

•A

cces

s to

key

m

arke

t dem

ogra

phic

•Br

and

valu

e

•Pr

omot

e he

alth

y di

et

•Pr

omot

e re

duct

ion

of

pack

agin

g &

rec

yclin

g

No;

whi

le im

port

ant,

it is

par

t of

the

obj

ectiv

e of

bec

omin

g a

prov

ider

of

choi

ce f

or

scho

ol b

reak

fast

bev

erag

e

GH

Gem

issi

ons

(S, C

, D)

•En

ergy

use

•U

se o

f al

tern

ativ

e en

ergy

•Be

st-p

ract

ice

tech

nolo

gies

•En

ergy

cos

t•

Publ

ic c

once

rn o

n G

HG

em

issi

ons

Red

uce

GH

G e

mis

sio

ns

alo

ng

val

ue

chai

n•

Redu

ce e

nerg

y co

st in

va

lue

chai

n•

Mar

ketin

g be

nefit

s

•C

ontr

ibut

ing

to e

nerg

y se

curit

y•

Soci

etal

ben

efits

ass

ocia

ted

with

GH

G r

educ

tion;

red

uctio

n in

glo

bal c

limat

e ch

ange

Yes;

sig

nific

ant

bene

fits

& a

ddre

sses

mul

tiple

issu

es

Use

of

alte

rnat

ive

ener

gy(S

, C, D

)

•En

ergy

use

•G

HG

em

issi

ons

•En

ergy

cos

t•

Publ

ic c

once

rn o

n G

HG

em

issi

ons

Incr

ease

use

of

alte

rnat

ive

ener

gy

sou

rces

•C

ost,

may

dec

reas

e or

in

crea

se•

Mar

ketin

g be

nefit

s

•C

ontr

ibut

ing

to e

nerg

y se

curit

y•

Soci

etal

ben

efits

ass

ocia

ted

with

GH

G r

educ

tion;

red

uctio

n in

glo

bal c

limat

e ch

ange

No;

it is

a s

uppo

rtin

g ob

ject

ive

unde

r th

e ke

y ob

ject

ive,

GH

G r

educ

tion

Org

anic

prod

ucts

(S, U

)

•Fa

rmin

g ru

noff

s•

Loca

l eco

nom

ic d

evel

opm

ent

(rur

al c

omm

uniti

es)

•M

arke

t fo

r or

gani

c pr

oduc

ts

Incr

ease

org

anic

pro

duct

po

rtfo

lio a

nd s

ales

•C

aptu

re a

fas

t gr

owin

g fo

od &

be

vera

ge m

arke

t•

Mar

ketin

g be

nefit

s

•Re

duce

env

ironm

enta

l im

pact

s fr

om fa

rmin

g•

Incr

ease

jobs

in ru

ral A

mer

ica

Yes;

sig

nific

ant

bene

fits

& a

ddre

sses

mul

tiple

m

ater

ial i

ssue

s

Nut

ritio

nco

nten

t(U

)

•M

arke

t fo

r ba

lanc

ed

nutr

ition

pro

duct

s•

Con

cern

ove

r ch

ildre

n’s

nutr

ition

, esp

ecia

lly in

pub

lic s

choo

l

Dev

elop

soy

-bas

ed d

ieta

ry

supp

lem

ent

beve

rage

s•

Cap

ture

a p

oten

tially

de

velo

ping

mar

ket

•A

die

tary

sup

plem

ent

choi

ce

for

lact

ose

into

lera

nt p

erso

nsN

o; s

igni

fican

ce o

f be

nefit

s un

clea

r

Bec

om

e p

rovi

der

of

cho

ice

of

bal

ance

dn

utr

itio

nal

bre

akfa

stp

rod

uct

s fo

r ch

ildre

n

•G

row

th in

key

m

arke

t de

mog

raph

ic•

Bran

d va

lue

•A

ddre

ss la

ck o

f he

alth

y ch

oice

for

chi

ldre

n, e

spec

ially

sc

hool

child

ren

Yes;

sig

nific

ant

bene

fits

to

busi

ness

and

soc

iety

33

STE

P 4

Exp

ecte

d O

utc

om

es•

Es

tabl

ishe

d se

t of

Key

Perf

orm

ance

Indi

cato

r (K

PIs)

•

Und

erst

andi

ng o

f us

es a

nd

user

s of

met

rics

•

Mea

sure

men

ts t

hat

defin

e an

d su

ppor

t K

PIs

•

Cle

ar ta

rget

s fo

r the

met

rics

Step

4 b

uild

s up

on t

he c

ritic

al f

ew k

ey o

bjec

tives

se

lect

ed in

Ste

p 3

and

crea

tes

the

Key

Per

form

ance

In

dica

tors

(KPI

s) a

nd r

elat

ed s

trat

egic

met

rics.

For

purp

oses

of

this

too

l, G

EMI d

efine

s a

KPI

as

a ge

nera

l sta

tem

ent

of w

hat

to m

easu

re; a

nd a

m

etric

as

the

spec

ific

mea

sure

men

t ac

com

pani

ed

by c

lear

des

crip

tions

of

how

it is

mea

sure

d.

KPI

s an

d m

etric

s ar

e cl

osel

y re

late

d, b

ut t

hey

repr

esen

t tw

o di

stin

ct le

vels

. A K

PI c

an b

e de

fined

to

rep

rese

nt w

hat

the

orga

niza

tion

shou

ld m

easu

re

to r

eflec

t pe

rfor

man

ce a

gain

st a

key

obj

ectiv

e. A

m

etric

is a

qua

ntita

tive

mea

sure

, i.e

., a

num

ber

whi

ch is

giv

en m

eani

ng in

the

con

text

of

the

KPI

.A

KPI

can

be

appl

ied

cons

iste

ntly

thr

ough

out

the

orga

niza

tion,

but

as

a m

etric

can

be

expr

esse

d di

ffer

ently

dep

endi

ng o

n us

es a

nd u

sers

.

The

proc

ess

for

defin

ing

KPI

s an

d m

etric

s is

de

pict

ed in

Fig

ure

5, w

ith a

n ex

ampl

e. A

t th

e st

rate

gic

leve

l, m

ater

ial i

ssue

s an

d ke

y ob

ject

ives

de

term

ine

the

KPI

s an

d m

etric

s al

ong

with

the

ir as

soci

ated

tar

gets

. The

se s

trat

egic

-leve

l met

rics

are

used

to

driv

e ac

tions

thr

ough

out

the

orga

niza

tion

and

will

res

ult

in b

usin

ess

and

soci

etal

co

nseq

uenc

es, i

nclu

ding

long

er-t

erm

eff

ects

. Mor

e ta

ctic

al m

etric

s ca

n be

dev

elop

ed t

o tr

ack

the

imm

edia

te a

ctio

ns.

The

cons

eque

nces

of

appl

ying

th

e m

etric

s an

d/or

mee

ting

the

targ

ets

can

also

be

mea

sure

d, p

oten

tially

bec

omin

g ne

w m

etric

s,

to in

form

the

refi

nem

ent

and

deve

lopm

ent

of t

he

next

gen

erat

ion

of k

ey o

bjec

tives

and

KPI

s.

This

too

l is

focu

sed

prim

arily

on

KPI

s an

d m

etric

s at

the

str

ateg

ic le

vel,

refle

ctin

g th

e cr

itica

l few

ke

y ob

ject

ives

mos

t m

ater

ial t

o th

e or

gani

zatio

n.

Nev

erth

eles

s, t

he a

ppro

ach

pres

ente

d he

re c

an

be a

pplie

d at

var

ious

leve

ls o

f us

es, f

rom

str

ateg

ic

to t

actic

al.

Fig

ure

5. D

efin

ing

Key

Per

form

ance

Ind

icat

ors

an

d M

etri

cs

Exam

ple

:

INFO

RM

Mat

eria

lIs

sue

Key

Ob

ject

ives

KPI

Met

rics

&

Targ

ets

Act

ion

Act

ion

Act

ion

MET

RIC

S

1. Im

prov

e sa

larie

s &

con

ditio

ns

in A

sia

2. R

evis

it m

ater

nity

ben

efits

in

Latin

Am

eric

a3.

Mai

ntai

n sa

lary

& b

enefi

t le

vel

in N

orth

Am

eric

a &

Eur

ope

Att

ract

ing

&

reta

inin

g be

st

empl

oyee

s

Off

er c

ompe

titiv

e sa

lary

& b

enefi

tsRa

nkin

g of

sal

ary

&

bene

fits

rela

tive

to

peer

s

Med

ian

sala

ry &

be

nefit

s to

be

at

top

quar

tile

in

indu

stry

Met

rics

Co

nse

qu

ence

s

1. R

eten

tion

2. E

mpl

oyee

sat

isfa

ctio

n in

dex

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

34

Fram

ewo

rk f

or

Mea

sure

men

t C

on

sid

erat

ion

sC

onsi

derin

g dr

iver

s an

d co

nseq

uenc

es a

s pa

rt

of t

he K

PIs

and

met

rics

help

s de

velo

p le

adin

g m

easu

rem

ents

as

wel

l as

mea

sure

men

ts o

f ac

hiev

ing

the

key

obje

ctiv

es. D

river

s in

clud

e pr

oces

ses,

act

ions

and

oth

er f

acto

rs t

hat

lead

to

the

inte

nded

out

com

e. F

or e

xam

ple,

usi

ng

rene

wab

le e

nerg

y so

urce

s ca

n re

duce

GH

G

emis

sion

s, a

nd t

hus,

can

be

rega

rded

as

one

of

the

driv

ers

that

aff

ect

that

inte

nded

out

com

e.

Con

sequ

ence

s in

clud

e im

med

iate

, med

ium

-ter

m

and

long

-ter

m e

ffec

ts o

f ac

hiev

ing

the

inte

nded

ou

tcom

e. E

nerg

y co

st a

void

ance

, for

exa

mpl

e, is

an im

med

iate

con

sequ

ence

of

redu

cing

ene

rgy

use.

Lon

ger-

term

con

sequ

ence

s in

clud

e po

tent

ial

inno

vatio

ns in

tec

hnol

ogy

deve

lopm

ent

and

busi

ness

mod

els,

alo

ng w

ith t

he a

ssoc

iate

d be

nefit

s to

the

soc

iety

suc

h as

red

uctio

n in

G

HG

s. S

ome

of t

he c

onse

quen

ces

deriv

ed f

rom

th

e bu

sine

ss a

nd s

ocie

tal v

alue

s ar

e id

entifi

ed in

W

orks

heet

3b

(on

page

32)

.

A K

PI t

ypic

ally

mea

sure

s th

e ou

tcom

e or

res

ult

inte

nded

by

the

key

obje

ctiv

e. It

is s

omet

imes

us

eful

to

esta

blis

h m

easu

rem

ents

for

eith

er t

he

driv

ers

or c

onse

quen

ces

of t

he o

utco

mes

as

part

of

the

org

aniz

atio

n’s

syst

em o

f K

PIs

and

met

rics.

Defi

nin

g t

he

Key

Per

form

ance

In

dic

ato

rs –

Wo

rksh

eet

4aW

orks

heet

4a

prov

ides

the

tem

plat

e fo

r ex

amin

ing

driv

ers

and

cons

eque

nces

in o

rder

to

defin

e th

e K

PIs

and

iden

tify

othe

r m

easu

rem

ent

cons

ider

atio

ns t

hat

late

r ar

e de

velo

ped

into

m

etric

s.

Whi

le a

KPI

is u

sual

ly a

n ou

tcom

e m

easu

re d

eriv

ed

from

the

key

obj

ectiv

e, t

hat

is n

ot a

lway

s th

e ca

se.

If ne

cess

ary,

mor

e th

an o

ne K

PI c

an b

e de

fined

for

a

key

obje

ctiv

e.

WO

RK

SHEE

T 4a

: DEF

INE

THE

KEY

PER

FOR

MA

NC

E IN

DIC

ATO

RS

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

INST

RU

CTI

ON

S:Id

entif

y th

e dr

iver

s th

at a

ffec

t th

e ke

y ob

ject

ive

and

pote

ntia

l con

sequ

ence

s (f

or t

he b

usin

ess

and

for

soci

ety)

in m

eetin

g th

e ke

y ob

ject

ive.

This

info

rmat

ion

info

rms

the

deci

sion

as

to w

hat

to t

rack

as

KPI

s. In

dica

te o

ther

mea

sure

men

t co

nsid

erat

ions

rel

ated

to

the

KPI

tha

t ca

n be

dev

elop

ed in

to m

etric

s in

late

r st

ages

. K

ey O

bjec

tives

wer

e id

entifi

ed e

arlie

r in

Wor

kshe

et 3

b.

Mat

eria

lIs

sue

Key

Ob

ject

ive

Dri

vers

Co

nse

qu

ence

sK

ey P

erfo

rman

ce

Ind

icat

or

(KPI

)O

ther

Mea

sure

men

t C

on

sid

erat

ion

s

GH

Gem

issi

ons

(S, C

, D)

Redu

ce G

HG

em

issi

ons

alon

g va

lue

chai

n

•En

ergy

effi

cien

cy•

Use

of

rene

wab

le e

nerg

y•

Impl

emen

tatio

n of

bes

t pr

actic

e te

chno

logy

and

pro

cess

es

•En

ergy

cos

t re

duct

ion

•In

nova

tions

: tec

hnol

ogy

&

bus

ines

s m

odel

•En

ergy

cos

t re

duct

ion

•In

nova

tions

:te

chno

logy

&

busi

ness

mod

el

•Pe

rcen

t en

ergy

fro

m

rene

wab

le r

esou

rces

•Be

st p

ract

ice

impl

emen

tatio

n•

Ener

gy c

ost-

savi

ng

Org

anic

prod

ucts

(S, U

)

Incr

ease

org

anic

pr

oduc

t po

rtfo

lio

and

sale

s

•N

ew o

rgan

ic p

rodu

ct

deve

lopm

ent

•M

arke

ting

of o

rgan

ic p

rodu

cts

•Re

latio

nshi

p w

ith o

rgan

ic

farm

ers

•In

crea

sed

sale

s•

Bran

d im

age

•D

rivin

g m

ore

sust

aina

ble

agric

ultu

re

•Pe

rcen

t re

venu

e fr

om o

rgan

ic

prod

ucts

•Im

plem

enta

tion

of o

rgan

ic

farm

ers

prog

ram

•C

usto

mer

per

cept

ion

•A

void

ance

in p

estic

ide

run-

offs

Nut

ritio

nco

nten

t(U

)

Beco

me

prov

ider

of

choi

ce o

f ba

lanc

ed-

nutr

ition

al b

reak

fast

pr

oduc

ts f

or c

hild

ren

•C

hild

ren

nutr

ition

aw

aren

ess

cam

paig

n at

sch

ools

•N

utrit

ion

cont

ent

in p

rodu

cts

•In

crea

sed

sale

s•

Bran

d im

age

•C

ontr

ibut

ing

to

c

hild

ren’

s he

alth

•Sc

hool

chi

ldre

n re

ache

d in

nut

ritio

n aw

aren

ess

cam

paig

n•

Nut

ritio

n co

nten

t

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

35

The

exam

ples

incl

uded

in W

orks

heet

4a

cont

inue

fr

om t

he k

ey o

bjec

tives

iden

tified

in W

orks

heet

3b

for

the

hyp

othe

tical

‘XY

Z N

utrit

iona

l Bev

erag

e’

busi

ness

. For

the

GH

G r

educ

tion

obje

ctiv

es, t

wo

KPI

s w

ere

dete

rmin

ed t

o be

equ

ally

impo

rtan

t:

net

GH

G e

mis

sion

s (a

n ou

tcom

e m

easu

re) a

nd

ener

gy u

se (a

driv

er f

or G

HG

em

issi

ons)

. Fo

r th

e ob

ject

ive

of b

ecom

ing

the

prov

ider

of

choi

ce f

or

bala

nced

-nut

ritio

nal b

reak

fast

for

chi

ldre

n, t

he K

PI

is c

hose

n to

refl

ect

one

of t

he c

ausa

l fac

tors

, i.e

., th

e nu

mbe

r of

sch

oolc

hild

ren

reac

hed

in n

utrit

ion

awar

enes

s ca

mpa

ign.

In t

his

case

, the

driv

er w

as

cons

ider

ed t

he c

ritic

al p

art

of m

eetin

g th

e ke

y ob

ject

ive

as w

ell a

s m

ore

suita

ble

to m

easu

re.

KPIs

and

othe

r mea

sure

men

t con

sider

atio

ns id

entifi

ed

in W

orks

heet

4a

info

rm th

e de

velo

pmen

t of m

etric

s fo

r var

ious

use

s an

d us

ers

in th

e or

gani

zatio

n.

Use

s an

d U

sers

of

Met

rics

The

uses

and

use

rs o

f m

etric

s in

fluen

ce h

ow t

hey

are

defin

ed. M

etric

s by

the

mse

lves

mea

n lit

tle o

utsi

de

of t

he c

onte

xt o

f ho

w t

hey

will

be

used

to

impr

ove

perf

orm

ance

and

org

aniz

atio

nal i

nteg

ratio

n.

Tabl

e 2

lists

the

var

ious

use

s of

met

rics

whi

ch

gene

rally

are

gro

uped

into

fou

r ca

tego

ries

(13):

•le

arni

ng –

pro

duce

und

erst

andi

ng a

nd in

sigh

ts

into

opp

ortu

nitie

s fo

r im

prov

emen

t t

hrou

gh

the

iden

tifica

tion

and

asse

ssm

ent

of a

spec

ts,

impa

cts

and

issu

es

•de

cisi

on-m

akin

g –

gen

erat

e in

sigh

ts t

o su

ppor

t de

cisi

on-m

akin

g

•ac

coun

tabi

lity

– pr

ovid

e in

form

atio

n to

judg

e in

divi

dual

s’ o

r un

its’ p

erfo

rman

ce

•de

mon

stra

tion

– co

nvin

ce o

r re

assu

re s

take

hold

ers

abou

t or

gani

zatio

n’s

perf

orm

ance

and

tre

nds,

in

clud

ing

dem

onst

ratin

g th

e co

nnec

tion

betw

een

envi

ronm

enta

l, so

cial

and

fina

ncia

l per

form

ance

Met

rics

can

be u

sed

by s

ever

al f

unct

iona

l are

as in

th

e or

gani

zatio

n as

sho

wn

in T

able

2.

In S

tep

2,

exam

ples

dem

onst

rate

d ho

w d

ecis

ions

are

mad

e in

num

erou

s fu

nctio

nal a

reas

usi

ng e

nviro

nmen

tal,

soci

al a

nd e

cono

mic

info

rmat

ion.

In

dete

rmin

ing

who

will

use

the

met

rics

cons

ider

:

•w

here

with

in t

he o

rgan

izat

ion

deci

sion

s in

volv

ing

KPI

s ar

e m

ade

•w

hich

peo

ple

are

resp

onsi

ble

for

mee

ting

the

key

obje

ctiv

e

•w

hat

info

rmat

ion

will

be

need

ed t

o in

form

th

ose

deci

sion

s

Tab

le 2

. EX

AM

PLES

OF

USE

S A

ND

USE

RS

OF

MET

RIC

S

Use

s o

f M

etri

csM

anag

emen

tO

per

atio

ns

Fin

anci

alEn

viro

nm

ent

Hea

lth

Saf

ety

Res

earc

h a

nd

Dev

elo

pm

ent

Hu

man

Res

ou

rces

Pub

licR

elat

ion

sIn

vest

or

Rel

atio

ns

Lear

nin

g•

Benc

hmar

k In

tern

ally

•Ev

alua

te A

ltern

ativ

es

Dec

isio

n-M

akin

g•

Iden

tify

Impr

ovem

ent

Opt

ions

Acc

ou

nta

bili

ty•

Repo

rt t

o St

akeh

olde

rs

•Tr

ack

Perf

orm

ance

Dem

on

stra

tio

n•

Build

the

Bus

ines

s C

ase

•Pr

omot

e SD

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

36

How

a m

etric

is d

efine

d an

d pr

esen

ted,

how

ever

, ca

n di

ffer

am

ong

uses

and

use

rs. M

etric

s us

ed

for

man

agem

ent

prog

ress

tra

ckin

g, e

xter

nal

com

mun

icat

ion

and

Rese

arch

& D

evel

opm

ent

deci

sion

-mak

ing,

for

exa

mpl

e, m

ay in

volv

e di

ffer

ent

defin

ition

s in

ter

ms

of b

ound

arie

s, d

ata

sour

ces

and

leve

l of

spec

ifici

ty.

Typ

es o

f M

etri

csTh

e fr

amew

ork

desc

ribed

ear

lier

prov

ides

a w

ay

to c

ateg

oriz

e th

e ty

pes

of m

etric

s. D

escr

iptio

ns o

f th

ese

cate

gorie

s fo

llow

and

exa

mpl

es a

re s

how

n in

Tab

le 3

(on

page

37)

.

Out

com

e M

etri

csO

utc

om

e m

etri

cs a

re m

easu

rem

ents

of

resu

lts.

Man

y of

the

exi

stin

g m

etric

s st

anda

rds,

suc

h as

th

e G

loba

l Rep

ortin

g In

itiat

ive

(GRI

), ha

ve la

rgel

y fo

cuse

d on

out

com

e m

etric

s. O

utco

me

met

rics

typi

cally

incl

ude:

•O

ne-d

imen

sion

al m

etric

s -

ofte

n ex

pres

sed

as

the

abso

lute

mag

nitu

de o

f th

e or

gani

zatio

n’s

impa

cts

per

time

perio

d

•C

ross

-cut

ting

met

rics

(Inte

grat

ed P

erfo

rman

ce

Met

rics)

- e

xpre

ss t

wo

or m

ore

dim

ensi

ons

of

perf

orm

ance

, usu

ally

as

ratio

s. E

co-e

ffici

ency

and

so

cio-

effic

ienc

y m

etric

s ar

e ex

ampl

es o

f cr

oss-

cutt

ing

indi

cato

rs

Both

one

-dim

ensi

onal

and

cro

ss-c

uttin

g m

etric

s ca

n be

eff

ectiv

e m

easu

rem

ents

of

outc

omes

. Th

e ch

oice

is b

ased

larg

ely

on w

hat

it is

to

be

mea

sure

d. A

KPI

usu

ally

poi

nts

to a

n ou

tcom

e m

etric

, mea

surin

g th

e ou

tcom

e in

tend

ed b

y th

e ke

y ob

ject

ive.

Pro

cess

Met

rics

Pro

cess

met

rics

mea

sure

the

act

ions

or

proc

esse

s th

at d

rive

the

inte

nded

out

com

es i.

e.,t

he c

ause

s,

and

are

usua

lly t

ied

to t

he a

ctio

n pl

ans

to a

chie

ve

targ

ets.

The

y in

clud

e m

etric

s th

at m

easu

re t

he

perf

orm

ance

of

man

agem

ent

proc

esse

s as

wel

l as

tech

nica

l and

ope

ratio

nal p

roce

sses

put

in p

lace

to

prod

uce

the

inte

nded

out

com

es.

Proc

ess

met

rics

can

be u

sed

as e

ffec

tive

lead

ing

met

rics.

For

exa

mpl

e, if

the

per

form

ance

obj

ectiv

e fo

r an

org

aniz

atio

n is

to

redu

ce t

he n

umbe

r of

no

n-co

mpl

ianc

e co

mpl

aint

s, t

he o

utco

me

met

ric

is t

he n

umbe

r of

non

-com

plia

nce

com

plai

nts.

H

owev

er, a

cau

se-e

ffec

t an

alys

is m

ight

rev

eal t

hat

lack

of

appr

opria

te t

rain

ing

is t

he d

river

of

non-

com

plia

nce.

In t

his

case

, an

appr

opria

te p

roce

ss

met

ric m

ight

incl

ude

the

num

ber

of e

mpl

oyee

s th

at

have

rec

eive

d co

mpl

ianc

e tr

aini

ng o

r th

e nu

mbe

r of

em

ploy

ees

who

hav

e ch

ange

d th

eir

beha

vior

as

a re

sult

of t

rain

ing.

Thi

s pr

oces

s m

etric

, in

addi

tion

to

the

outc

ome

met

ric, w

ill p

rovi

de t

he o

rgan

izat

ion

with

gre

ater

insi

ght

into

the

mat

eria

l iss

ue a

nd t

he

actio

ns t

o ac

hiev

e ob

ject

ives

.

Proc

ess

met

rics

can

be q

uant

itativ

e or

qu

alita

tive.

For

exa

mpl

e, in

mea

surin

g th

e pr

oces

s of

sta

keho

lder

eng

agem

ent,

one

can

us

e qu

antit

ativ

e m

easu

rem

ents

, suc

h as

the

nu

mbe

r of

sta

keho

lder

s en

gage

d, o

r qu

alita

tive

mea

sure

men

ts, s

uch

as s

take

hold

er s

atis

fact

ion

and

perc

eive

d ef

fect

iven

ess.

Co

nse

qu

ence

Met

rics

Co

nse

qu

ence

met

rics

refl

ect

the

cons

eque

nces

or

eff

ects

on

the

broa

der

syst

em o

f th

e in

tend

ed

outc

omes

. The

se t

ypes

of

met

rics

may

incl

ude:

•Bu

sine

ss c

onse

quen

ce m

etric

s m

easu

re t

he

busi

ness

and

fina

ncia

l con

sequ

ence

s of

th

e in

tend

ed o

utco

mes

. The

se c

an c

aptu

re

bene

fits

to t

he o

rgan

izat

ion,

bot

h ta

ngib

le a

nd

inta

ngib

le. F

or e

xam

ple,

an

ethi

cal r

eput

atio

n in

dex

can

info

rm a

n or

gani

zatio

n ho

w it

s bu

sine

ss is

per

ceiv

ed.

•So

ciet

al c

onse

quen

ce m

etric

s co

nnec

t ac

tions

an

d ac

tiviti

es t

o th

e br

oade

r ec

onom

ic,

envi

ronm

enta

l and

soc

ial s

yste

ms

with

in

whi

ch t

hey

oper

ate.

An

exam

ple

of a

soc

ieta

l va

lue

met

ric m

ight

be

the

num

ber

of a

cres

of

habi

tat

an o

rgan

izat

ion

crea

ted

in p

ropo

rtio

n to

the

num

ber

of a

cres

of

habi

tat

crea

ted

in

the

regi

on.

Exam

ples

of

the

diff

eren

t ty

pes

of m

etric

s ar

e sh

own

in T

able

3.

All

type

s of

met

rics

have

the

pot

entia

l to

be

rele

vant

to

mos

t us

es a

nd u

sers

, so

they

sho

uld

all

be c

onsi

dere

d in

bui

ldin

g th

e m

etric

s. H

owev

er,

cert

ain

type

s ar

e m

ore

appl

icab

le t

o ce

rtai

n us

es.

For

exam

ple,

Res

earc

h &

Dev

elop

men

t de

cisi

on-

mak

ing

typi

cally

rel

ies

on o

utco

me

and,

to

a le

sser

ex

tent

, con

sequ

ence

met

rics.

Pro

cess

met

rics,

on

the

othe

r ha

nd, a

re u

sefu

l to

man

age

and

trac

k pr

ogre

ss t

owar

ds g

oals

, i.e

., ac

coun

tabi

lity,

alo

ng

with

out

com

e m

etric

s.

Con

sequ

ence

met

rics

are

part

icul

arly

use

ful i

n de

mon

stra

ting

the

valu

e of

an

orga

niza

tion’

s ef

fort

s. C

ase

exam

ples

by

The

Proc

ter

& G

ambl

e C

ompa

ny a

nd In

tel C

orpo

ratio

n (o

n pa

ge 3

8)

prov

ide

exam

ples

of

met

rics

that

may

be

used

to

man

age,

tra

ck a

nd c

omm

unic

ate

a co

mpa

ny’s

impa

cts

on t

he s

ocie

ty.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

37

TAB

LE 3

. EX

AM

PLES

OF

ENV

IRO

NM

ENTA

L, S

OC

IAL

AN

D E

CO

NO

MIC

MET

RIC

S

Met

ric

Typ

esEn

viro

nm

enta

lSo

cial

Eco

no

mic

Ou

tco

me

One

-dim

ensi

onal

•En

ergy

con

sum

ptio

n pe

r ye

ar•

Perc

ent

raw

mat

eria

ls r

ecyc

led

fr

om c

usto

mer

s

•Lo

st-t

ime

inci

dent

fre

quen

cy•

Com

mun

ity p

erce

ptio

n in

dex

•D

olla

rs in

sal

arie

s an

d ta

x be

nefit

s flo

win

g to

the

lo

cal c

omm

unity

Cro

ss-c

uttin

g•

Ener

gy c

onsu

mpt

ion

per

unit

of v

alue

add

•To

tal r

aw m

ater

ials

per

uni

t of

val

ue a

dd•

Num

ber

of c

omm

unity

com

plai

nts

per

unit

of v

alue

add

to

the

com

pany

•Ec

onom

ic b

enefi

ts t

o th

e co

mm

unity

per

uni

t of

va

lue

add

to t

he c

ompa

ny

Pro

cess

Man

agem

ent

& O

pera

tions

•N

umbe

r of

ene

rgy

revi

ew

ac

tiviti

es c

ondu

cted

•Pe

rcen

t fa

cilit

ies

part

icip

atin

g in

res

ourc

e-ef

ficie

ncy

trai

ning

•In

corp

orat

ion

of e

nerg

y-ef

ficie

nt

tech

nolo

gies

in f

acili

ties

•Pe

rcen

t of

bus

ines

s un

its t

hat

have

hum

an

right

s po

licy

and

proc

edur

es r

egar

ding

ch

ild la

bor

•N

umbe

r or

per

cent

of

cont

ract

ors

and

supp

liers

aud

ited

for

use

of c

hild

labo

r

•N

umbe

r of

exe

cutiv

e re

view

mee

tings

on

soci

oeco

nom

ic r

isks

and

cha

lleng

es

Co

nse

qu

ence

Busi

ness

•C

ost

redu

ctio

n fr

om e

nerg

y

sav

ings

pro

gram

•Em

ploy

ee r

eten

tion

inde

x •

Repu

tatio

n in

dex

•Po

tent

ial c

ost

of le

gal l

iabi

lity

rela

ted

to

com

mun

ity a

ctio

ns

Soci

etal

•La

nd a

rea

of e

cosy

stem

sav

ed d

ue t

o re

duct

ion

in r

aw m

ater

ial u

se•

Num

ber

of q

ualit

y-ad

just

ed li

fe y

ears

save

d by

pro

duct

use

•C

ompa

ny’s

cont

ribut

ion

to lo

cal e

cono

mic

de

velo

pmen

t

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

38

Inte

l C

orp

ora

tio

n

Ass

essi

ng

Per

form

ance

of

Edu

cati

on

Pro

gra

ms

Inte

l str

ives

to

be a

tru

sted

par

tner

to

educ

ator

s an

d go

vern

men

ts w

orld

wid

e.

Inte

gral

to

the

com

pany

’s m

issi

on is

a f

ocus

on

“suc

cess

for

all,

” pr

ovid

ing

prog

ram

s an

d re

sour

ces

that

impr

ove

teac

hing

and

lear

ning

to

ever

yone

in

clud

ing

wom

en, u

nder

-rep

rese

nted

min

oriti

es a

nd t

hose

with

litt

le o

r no

acc

ess

to t

echn

olog

y.

Seve

ral d

istin

ct p

rogr

ams

wor

k in

con

cert

to

achi

eve

Inte

l’s e

duca

tion

mis

sion

in

bot

h de

velo

ped

and

deve

lopi

ng c

ount

ries.

Ann

ual g

oals

are

set

for

the

se

prog

ram

s, a

llow

ing

Inte

l to

cont

inua

lly a

sses

s its

per

form

ance

. For

200

6, t

he g

oals

in

clud

e, f

or e

xam

ple:

•Ex

tend

its

teac

hers

’ pro

fess

iona

l dev

elop

men

t pr

ogra

m t

o re

ach

an a

dditi

onal

90

0,00

0 te

ache

rs a

nd fi

ve n

ew c

ount

ries

•G

row

its

afte

r-sc

hool

pro

gram

s in

gov

ernm

ent-

fund

ed c

omm

unity

tech

nolo

gy c

ente

rs w

ith t

he g

oal o

f re

achi

ng a

n ad

ditio

nal 1

50,0

00 le

arne

rs

and

addi

ng t

hree

new

cou

ntrie

s

In C

hina

, Int

el r

ecen

tly a

nnou

nced

in 2

006

a ne

w p

lan

to t

rain

one

mill

ion

elem

enta

ry a

nd m

iddl

e sc

hool

tea

cher

s ov

er t

he n

ext

five

year

s, h

elpi

ng t

hem

use

in

form

atio

n te

chno

logi

es in

tea

chin

g. M

ore

than

10,

000

pers

onal

com

pute

rs w

ill

be p

rovi

ded

to C

hina

’s ru

ral s

choo

ls b

y 20

08.

The

effe

cts

of In

tel’s

eff

ort

are

evid

ent

in M

inas

Ger

ais,

a B

razi

lian

stat

e pr

evio

usly

id

entifi

ed a

s ha

ving

the

low

est

com

pute

r lit

erac

y ra

te in

the

cou

ntry

. Int

el

prov

ided

ove

r 2,

400

scho

ols

in t

he s

tate

a c

ompl

ete

tech

nolo

gy in

fras

truc

ture

w

ith c

ompu

ters

in s

choo

l lab

s, li

brar

ies

and

adm

inis

trat

ive

offic

es. T

he p

rogr

am

also

invo

lves

tra

inin

g te

ache

rs w

ith t

he n

eces

sary

ski

lls t

o fu

lly r

ealiz

e th

e po

tent

ial

of t

he t

echn

olog

y. U

ltim

atel

y, t

his

will

hel

p te

ache

rs in

tegr

ate

tech

nolo

gy in

to

the

regu

lar

curr

icul

um a

nd e

nhan

ce s

tude

nt’s

lear

ning

cap

acity

in t

he c

lass

room

. By

the

end

of

2006

, app

roxi

mat

ely

170,

000

teac

hers

and

2.5

mill

ion

stud

ents

in

Min

as G

erai

s w

ill b

enefi

t fr

om t

his

proj

ect.

The P

roct

er

& G

am

ble

Co

mp

an

y (

P&

G)

Exp

lori

ng

New

Val

ue-

Cre

atio

n M

etri

csTh

e Pr

octe

r &

Gam

ble

Com

pany

’s (P

&G

’s) v

isio

n of

sus

tain

able

dev

elop

men

t in

corp

orat

es n

ot o

nly

redu

cing

cos

ts a

nd im

pact

s bu

t al

so c

reat

ing

valu

e an

d bu

sine

ss g

row

th t

hrou

gh s

ales

, new

mar

kets

, new

con

sum

ers

and

new

bu

sine

sses

. Thi

s ca

n be

ach

ieve

d w

hen

soci

etal

cha

lleng

es, s

uch

as t

hose

id

entifi

ed in

the

Uni

ted

Nat

ions

’ Mill

enni

um D

evel

opm

ent

Goa

ls, i

nter

sect

P&

G’s

abili

ty t

o in

nova

te.

P&G

has

iden

tified

a n

umbe

r of

are

as f

or it

s co

ntrib

utio

n to

sus

tain

able

de

velo

pmen

t. T

hese

incl

ude

safe

wat

er, i

mpr

oved

hyg

iene

and

qua

lity

of li

fe

of c

hild

ren

and

wom

en. T

o m

easu

re t

he p

erfo

rman

ce o

f th

ese

new

initi

ativ

es,

trad

ition

al b

usin

ess

and

envi

ronm

enta

l met

rics

no lo

nger

suf

fice.

Inst

ead,

the

y ne

ed t

o be

mea

sure

d by

new

‘val

ue-c

reat

ion’

met

rics,

suc

h as

dis

ease

avo

ided

, liv

es s

aved

, the

num

ber

of c

hild

ren

who

rea

ch t

heir

full

deve

lopm

ent

pote

ntia

l an

d w

ays

in w

hich

wom

en’s

lives

are

impr

oved

as

a re

sult

of P

&G

pro

duct

and

/or

serv

ice

inno

vatio

ns.

P&G

’s w

ater

pur

ifier

s, f

or e

xam

ple,

pre

sent

sig

nific

ant

oppo

rtun

ities

to

impr

ove

and

even

sav

e liv

es in

dev

elop

ing

coun

trie

s. W

ith t

his

safe

wat

er t

echn

olog

y,

P&G

can

acc

urat

ely

trac

k th

e co

nsum

ptio

n an

d re

peat

use

of

the

prod

uct

and

the

estim

ated

vol

ume

of w

ater

tre

ated

. Mea

surin

g an

d re

port

ing

on d

isea

se a

void

ed

and

lives

sav

ed b

y an

inno

vatio

n at

the

com

pany

leve

l, ho

wev

er, i

s re

lativ

ely

new

. N

ever

thel

ess,

res

earc

hers

and

non

-gov

ernm

enta

l org

aniz

atio

ns (N

GO

s) h

ave

mea

sure

d th

e w

ater

pur

ifier

s’ e

ffec

ts in

ter

ms

of p

erce

nt d

iarr

hea

redu

ctio

n an

d th

e nu

mbe

r of

dia

rrhe

a ep

isod

es a

vert

ed in

cer

tain

reg

ions

. The

se m

etric

s ar

e im

port

ant

for

P&G

to

eval

uate

and

com

mun

icat

e th

e ef

fect

iven

ess

of t

he p

rodu

ct.

In d

evel

opin

g va

lue-

crea

tion

met

rics

that

are

cre

dibl

e an

d tr

ansp

aren

t to

st

akeh

olde

rs, t

he m

etric

s ne

ed t

o be

alig

ned

with

tho

se u

sed

by N

GO

s,

gove

rnm

ents

, res

earc

h an

d he

alth

org

aniz

atio

ns w

ho a

re lo

ng-s

tand

ing

mem

bers

of

the

pub

lic h

ealth

com

mun

ities

. Par

tner

ship

s w

ith t

hese

gro

ups

allo

w P

&G

to

gain

exp

erie

nce

in it

s ap

proa

ch t

o he

alth

and

dev

elop

men

t an

d in

the

use

of

valu

e-cr

eatio

n m

etric

s. U

ltim

atel

y, t

his

can

lead

to

the

deve

lopm

ent

of s

peci

fic

goal

s to

gui

de t

he c

ompa

ny’s

sust

aina

bilit

y ac

tions

.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

39

Du

Po

nt

Met

rics

to

Dri

ve S

ust

ain

able

Gro

wth

Sust

aina

ble

grow

th is

the

str

ateg

ic m

issi

on o

f D

uPon

t. T

o m

easu

re s

usta

inab

le g

row

th, D

uPon

t pr

evio

usly

de

velo

ped

’shar

ehol

der

valu

e ad

d (S

VA) p

er p

ound

of

prod

uctio

n’ a

s a

sing

le m

etric

tha

t co

mbi

nes

mul

tiple

en

viro

nmen

tal a

nd e

cono

mic

con

side

ratio

ns in

one

num

ber.

As

mas

s of

pro

duct

is g

ener

ally

cor

rela

ted

with

en

viro

nmen

tal i

mpa

cts,

the

SVA

/lb m

etric

was

des

igne

d to

driv

e en

viro

nmen

tal f

ootp

rint

redu

ctio

n as

wel

l as

to

mov

e th

e co

mpa

ny t

owar

d m

ore

know

ledg

e-in

tens

ive,

hig

her-

valu

e pr

oduc

ts a

nd s

ervi

ces.

Thi

s m

etric

ha

s pr

oven

use

ful f

or p

lann

ing

and

stra

tegi

c di

scus

sion

s. N

ever

thel

ess,

DuP

ont

foun

d th

e m

etric

to

be o

verly

se

nsiti

ve t

o fa

ctor

s th

at h

ad li

ttle

eff

ect

on t

he s

tate

of

the

envi

ronm

ent,

incl

udin

g m

arke

t pr

ice

fluct

uatio

ns

and

busi

ness

acq

uisi

tions

and

div

estit

ures

.

Ther

efor

e, D

uPon

t ha

s fo

cuse

d on

ano

ther

set

of

mar

ketp

lace

and

foo

tprin

t re

duct

ion

met

rics

to d

rive

sust

aina

ble

grow

th in

its

oper

atio

ns. O

ne e

xam

ple

is t

he ‘r

even

ue f

rom

non

-dep

leta

ble

reso

urce

s’. T

his

met

ric is

cal

cula

ted

from

the

rev

enue

gen

erat

ed f

rom

DuP

ont’s

bus

ines

ses

that

rel

y pr

imar

ily o

n re

new

able

re

sour

ces

(suc

h as

see

d, s

oy a

nd b

io-b

ased

pol

ymer

bus

ines

ses)

or

the

com

pany

’s hu

man

res

ourc

es a

nd

know

ledg

e ba

se (s

uch

as s

afet

y co

nsul

ting

serv

ices

and

tec

hnol

ogy

licen

sing

). D

uPon

t ha

s se

t th

e go

al o

f ne

arly

dou

blin

g its

rev

enue

s fr

om n

on-d

eple

tabl

e re

sour

ces

to a

t le

ast

$8 b

illio

n by

201

5.

Like

SVA

/lb, t

he m

etric

is in

tend

ed t

o dr

ive

the

com

pany

tow

ard

a lo

wer

env

ironm

enta

l foo

tprin

t an

d m

ore

know

ledg

e-in

tens

ive

serv

ices

. The

met

ric w

as s

elec

ted

as a

foc

us f

or D

uPon

t as

it m

akes

sen

se t

o al

l th

ree

legs

of

the

trip

le-b

otto

m-li

ne. E

cono

mic

ally

, it

redu

ces

expo

sure

to

mar

ket

vola

tility

ass

ocia

ted

with

pe

trol

eum

and

oth

er d

eple

tabl

e re

sour

ces.

At

the

sam

e tim

e, it

add

ress

es s

take

hold

ers’

con

cern

s re

gard

ing

the

depl

etio

n of

nat

ural

res

ourc

es a

nd r

elat

ed e

nviro

nmen

tal i

mpa

cts.

Met

rics

Cri

teri

a –

Wo

rksh

eet

4b

To d

rive

impr

ovem

ent

and

orga

niza

tiona

l in

tegr

atio

n, a

met

ric s

houl

d m

eet

man

y of

the

fo

llow

ing

crite

ria:

•re

leva

nt t

o bu

sine

ss -

alig

ned

with

bus

ines

s ob

ject

ives

and

refl

ect

issu

es t

hat

are

mat

eria

l to

the

orga

niza

tion

•tr

ansf

orm

ativ

e -

will

lead

to

posi

tive

cons

eque

nces

•ac

cura

te -

refl

ect

wha

t it

is in

tend

ed t

o m

easu

re

•re

liabl

e -

repr

oduc

ible

and

com

para

ble

acro

ss

repo

rtin

g pe

riods

and

org

aniz

atio

nal u

nits

•m

eani

ngfu

l and

use

ful -

can

be

rela

ted

to

actio

ns a

nd e

ffec

tive

for

its in

tend

ed u

se

and

user

s

•un

ders

tand

able

- c

omm

unic

ated

with

in c

onte

xt

that

gen

erat

es in

sigh

ts f

or d

ecis

ion-

mak

ing

•co

st-e

ffec

tive

- ca

n be

dev

elop

ed a

nd

impl

emen

ted

with

rea

sona

ble

cost

s

DuP

ont

illus

trat

es in

its

case

exa

mpl

e ho

w s

ome

of t

he a

bove

crit

eria

app

ly in

dev

elop

ing

met

rics.

In a

dditi

on, t

here

are

crit

eria

tha

t ap

ply

to t

he

suite

of

met

rics:

•fe

w in

num

ber

- co

ncen

trat

e on

the

crit

ical

few

to

foc

us o

rgan

izat

iona

l eff

ort

and

impl

emen

t a

cost

-eff

ectiv

e m

etric

s pr

ogra

m

•ba

lanc

ed -

incl

ude

the

right

mix

of

lead

ing

and

lagg

ing

met

rics,

diff

eren

t ty

pes

of m

etric

s an

d th

e so

cial

, env

ironm

enta

l and

eco

nom

ic

dim

ensi

ons

to d

rive

impr

ovem

ent

and

orga

niza

tiona

l int

egra

tion

•va

luab

le -

the

sui

te o

f m

etric

s re

sults

in t

angi

ble

and

inta

ngib

le v

alue

for

the

org

aniz

atio

n

3M c

ase

exam

ple

(on

page

41)

dis

cuss

es t

he

proc

ess

and

cons

ider

atio

ns in

dev

elop

ing

an

effe

ctiv

e su

ite o

f ke

y m

etric

s (it

s ‘E

HS

scor

ecar

d’).

Wor

kshe

et 4

b (o

n pa

ge 4

0) p

rovi

des

a ch

eckl

ist

of c

riter

ia in

defi

ning

the

KPI

s an

d m

etric

s (in

th

e fir

st c

olum

n). T

he c

riter

ia a

re a

pplie

d ag

ain

in t

he im

plem

enta

tion

of t

he m

etric

s (in

the

se

cond

col

umn

for

Step

5) a

nd in

ass

essi

ng t

heir

effe

ctiv

enes

s (in

the

thi

rd c

olum

n fo

r St

ep 6

).

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

40

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

WO

RK

SHEE

T 4b

: EV

ALU

ATE

MET

RIC

S EF

FEC

TIV

ENES

S C

HEC

KLI

ST (

to b

e us

ed in

Ste

ps 4

-6)

Cri

teri

a

Co

nsi

der

atio

ns

Step

4D

efin

e K

PIs

and

Met

rics

Step

5Im

ple

men

t M

etri

csSt

ep 6

Eval

uat

e Im

pro

vem

ent

& In

teg

rati

on

For individual metrics

Rel

evan

t to

B

usi

nes

s

•Re

flect

key

obj

ectiv

es•

Inte

grat

ed in

to e

xist

ing

man

agem

ent

syst

em•

Supp

ort

busi

ness

obj

ectiv

es•

Rele

vant

to

asse

ssin

g fu

ture

per

form

ance

•A

lign

staf

f an

d m

anag

emen

t on

str

ateg

y

Tran

sfo

rmat

ive

•W

ill le

ad t

o po

sitiv

e co

nseq

uenc

es•

Pote

ntia

l for

uni

nten

ded

nega

tive

cons

eque

nces

is

cons

ider

ed a

nd a

ddre

ssed

as

nece

ssar

y•

Requ

ire a

ctio

ns o

r be

havi

or c

hang

es b

eyon

d bu

sine

ss

as u

sual

•Ta

rget

s ar

e in

spira

tiona

l

•Le

ad to

the

inte

nded

and

oth

er p

ositi

ve b

ehav

ior c

hang

es•

Driv

e pe

rfor

man

ce im

prov

emen

t•

Stre

tch

orga

niza

tion

to in

nova

te in

reac

hing

goa

ls•

Broa

den

inte

rnal

invo

lvem

ent

and

enga

gem

ent

•C

hang

e th

e m

inds

ets

/ att

itude

s of

em

ploy

ees

tow

ard

the

impo

rtan

ce o

f ad

dres

sing

the

issu

es

Acc

ura

te•

Mea

sure

wha

t was

inte

nded

to m

easu

re•

Incl

ude

key

risks

and

opp

ortu

nitie

s w

ithin

the

m

etric

’s bo

unda

ries

•A

ccur

acy

of t

he m

etric

and

und

erly

ing

data

are

verifi

able

•C

alcu

late

d ba

sed

on c

redi

ble

data

N/A

Rel

iab

le

•Re

prod

ucib

le a

nd c

ompa

rabl

e ac

ross

org

aniz

atio

n an

d re

port

ing

perio

ds•

Supp

orte

d by

sta

ndar

dize

d de

finiti

on a

nd p

roce

dure

s fo

r da

ta c

olle

ctio

n an

d ca

lcul

atio

n

•D

efini

tion

and

proc

edur

es a

re c

lear

ly u

nder

stoo

d an

d ca

n be

fol

low

ed b

y us

ers

•C

ompa

rabl

e da

ta a

re c

olle

cted

acr

oss

or

gani

zatio

nal u

nits

N/A

Mea

nin

gfu

l&

Use

ful

•Re

leva

nt t

o th

e in

tend

ed u

sers

and

use

s•

Can

be

rela

ted

to a

ctio

n pl

an a

nd a

ccou

ntab

le t

arge

ts•

Can

be

scal

ed a

s de

sired

acr

oss

valu

e ch

ain

and

orga

niza

tiona

l lev

els

•Pr

ovid

e su

ffici

ent

prec

isio

n an

d gr

anul

arity

to

be

use

ful

•Ef

fect

ive

in u

se a

nd in

sup

port

ing

de

cisi

on-m

akin

g pr

oces

s•

Link

ope

ratio

nal m

etric

s to

str

ateg

ic m

etric

s•

Tim

ely

in t

erm

s of

the

per

iodi

c co

llect

ion

of d

ata

rela

tive

to k

ey d

ecis

ions

•Pr

ovid

e re

leva

nt, t

imel

y an

d re

liabl

e in

form

atio

n to

de

cisi

on-m

aker

s•

Mee

t th

e in

tend

ed u

ses

for

the

inte

nded

use

rs

Und

erst

anda

ble

•Ex

pres

sed

in t

erm

s th

at is

und

erst

anda

ble

to t

he

inte

nded

aud

ienc

e•

Com

mun

icat

ed in

con

text

that

sup

port

use

and

insig

hts

•C

an b

e vi

sual

ly p

rese

nted

to

intu

itive

ly d

emon

stra

te

tren

ds a

nd d

irect

ions

(e.g

., us

ing

a ‘d

ashb

oard

’) N

/A

For the suite of metrics

Co

st-E

ffec

tive

•C

an b

e de

velo

ped

from

ava

ilabl

e da

ta, w

hene

ver p

ossib

le•

Reas

onab

le a

nd c

ost-

effe

ctiv

e le

vels

of

gran

ular

ity

and

prec

isio

n

•D

ata

are

calc

ulat

ed c

ost-

effe

ctiv

ely,

in a

usa

ble

man

ner,

with

out e

xten

sive

man

ual i

nter

vent

ion

N/A

Few

in N

um

ber

•Ba

sed

on t

he ‘c

ritic

al f

ew’ k

ey o

bjec

tives

•C

ombi

ne m

ultip

le m

etric

s, a

s ap

prop

riate

N/A

N/A

Bal

ance

d•

Incl

ude

lead

ing

and

lagg

ing

indi

cato

rs, a

s ap

prop

riate

N/A

•C

ompl

emen

t tra

ditio

nal fi

nanc

ial m

easu

rem

ents

•Se

t of m

etric

s re

flect

soc

ial,

envi

ronm

enta

l and

ec

onom

ic c

onsid

erat

ions

, whe

neve

r app

licab

le

Val

uab

leN

/AN

/A•

Met

rics

link

to b

usin

ess

valu

e, b

oth

tang

ible

and

inta

ngib

le

41

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

3M

Sco

reca

rd t

o D

rive

Per

form

ance

3M’s

Envi

ronm

enta

l, H

ealth

and

Saf

ety

(EH

S) S

core

card

is a

n im

port

ant

tool

for

driv

ing

the

com

pany

’s EH

S pe

rfor

man

ce. E

ach

scor

ecar

d is

pro

duce

d qu

arte

rly f

or a

ll fa

cilit

ies,

div

isio

ns (i

.e.,

busi

ness

uni

ts) a

nd c

ount

ries

whe

re 3

M o

pera

tes.

The

sco

reca

rd c

onta

ins

a se

t of

met

rics

with

a p

re-d

eter

min

ed g

oal t

hat

is m

easu

red

each

ye

ar a

nd u

ses

a gr

een,

yel

low

, and

red

col

or s

chem

e to

tra

ck p

erfo

rman

ce t

owar

d th

e go

al. T

he in

tent

is t

o en

sure

key

met

rics

are

defin

ed a

nd t

rack

ed a

nd t

hat

perf

orm

ance

rel

ativ

e to

the

tar

gets

is r

epor

ted.

Scor

ecar

d m

etric

s ar

e re

view

ed a

nd s

elec

ted

annu

ally

by

a te

am o

f co

rpor

ate

and

busi

ness

EH

S pr

ofes

sion

als.

Ea

ch m

etric

is e

valu

ated

for

a v

arie

ty o

f pa

ram

eter

s to

det

erm

ine

its a

pplic

abili

ty o

n th

e ne

xt c

alen

dar

year

sc

orec

ard.

Som

e of

the

se p

aram

eter

s in

clud

e: d

esire

d EH

S ou

tcom

e, le

adin

g / l

aggi

ng s

tatu

s, r

epor

ting

freq

uenc

y an

d le

ngth

of

impl

emen

tatio

n. S

core

card

met

rics

gene

rally

req

uire

glo

bal a

pplic

abili

ty a

nd a

re

bala

nced

bet

wee

n le

adin

g an

d la

ggin

g in

dica

tors

. Lea

ding

indi

cato

rs, s

uch

as E

HS

plan

s, P

ollu

tion

Prev

entio

n Pa

ys (3

P) p

rogr

am im

plem

enta

tion

and

EHS

self-

asse

ssm

ent

perf

orm

ance

, are

mea

sure

s of

opp

ortu

nitie

s th

at

will

res

ult

in im

prov

ed E

HS

outc

omes

. The

se m

etric

s ar

e cr

itica

l to

prov

idin

g fle

xibi

lity

for

faci

litie

s to

add

ress

th

eir

indi

vidu

al n

eeds

and

opp

ortu

nitie

s, w

ithou

t us

ing

a ‘o

ne s

ize

fits

all’

appr

oach

. Lag

ging

indi

cato

rs, s

uch

as

inci

dent

rat

e an

d ai

r em

issi

ons,

are

mea

sure

s of

how

eff

ectiv

ely

oppo

rtun

ities

wer

e ad

dres

sed

durin

g th

e ye

ar.

The

over

all o

utco

me

of t

he 3

M E

HS

Scor

ecar

d is

incr

ease

d pe

rfor

man

ce a

nd a

ccou

ntab

ility

. 3M

exp

ects

all

of

its f

acili

ties

to h

ave

high

leve

ls o

f EH

S pe

rfor

man

ce. T

he 3

M E

HS

Scor

ecar

d pr

ovid

es v

isib

ility

at

all l

evel

s of

the

or

gani

zatio

n to

ens

ure

that

eve

ryon

e is

wor

king

to

mee

t th

ese

expe

ctat

ions

and

tha

t th

ey h

ave

the

reso

urce

s an

d m

anag

emen

t su

ppor

t to

do

so.

Bu

ildin

g t

he

Met

rics

The

uses

and

use

rs, t

ypes

of

met

rics

and

crite

ria

disc

usse

d ea

rlier

are

impo

rtan

t co

nsid

erat

ions

for

de

finin

g a

met

ric. A

num

ber

of s

teps

are

invo

lved

in

defi

ning

a m

etric

:

•se

ttin

g th

e bo

unda

ry

•de

finin

g th

e fo

rm t

he m

etric

tak

es

•as

sess

ing

pote

ntia

l dat

a so

urce

s

•de

term

inin

g th

e ne

cess

ary

leve

l of

prec

isio

n an

d sp

ecifi

city

Each

of

thes

e st

eps

is n

eces

sary

for

com

ing

up w

ith a

rig

orou

s de

finiti

on a

nd f

orm

ula

or

guid

elin

es f

or h

ow t

hey

will

be

calc

ulat

ed.

Sett

ing

th

e B

ou

nd

ary

Met

rics

may

enc

ompa

ss o

ne o

r m

ore

stag

es in

the

or

gani

zatio

n’s

valu

e ch

ain.

In d

efini

ng a

met

ric,

one

need

s to

set

the

bou

ndar

y fo

r w

hat

the

met

ric is

to

incl

ude.

Thi

s is

impo

rtan

t to

ens

ure

its a

ccur

acy

- ev

eryt

hing

tha

t sh

ould

be

mea

sure

d as

par

t of

the

met

ric is

to

be in

clud

ed w

ithin

the

m

etric

’s bo

unda

ry.

Con

side

r th

e ex

ampl

e in

Wor

kshe

et 3

b (o

n pa

ge

32) w

here

one

of

the

key

obje

ctiv

es is

to

redu

ce

ener

gy c

ost

and

the

orga

niza

tion’

s ex

posu

re t

o th

e cl

imat

e ch

ange

issu

e. R

elat

ed t

o a

GH

G e

mis

sion

K

PI id

entifi

ed f

or t

his

key

obje

ctiv

e, t

he m

etric

sh

ould

incl

ude

estim

ated

em

issi

ons

from

hea

t an

d po

wer

gen

erat

ion,

reg

ardl

ess

of w

heth

er

they

are

with

in t

he o

rgan

izat

ion’

s fe

nce-

line.

Fo

cusi

ng s

olel

y on

GH

G e

mis

sion

s fr

om w

ithin

th

e fe

nce-

line

can

be m

isle

adin

g. F

or e

xam

ple,

ou

tsou

rcin

g po

wer

gen

erat

ion,

esp

ecia

lly t

o a

less

ef

ficie

nt e

ntity

, can

impr

ove

a m

etric

lim

ited

to

the

orga

niza

tion’

s di

rect

ope

ratio

ns (f

rom

with

in

the

fenc

e-lin

e) w

hile

act

ually

lead

ing

to in

crea

sed

indi

rect

em

issi

ons

from

pur

chas

ed e

lect

ricity

. Em

issi

ons

have

sim

ply

been

shi

fted

or

tran

sfer

red

outs

ide

the

fenc

e-lin

e, a

nd t

otal

GH

G e

mis

sion

s to

th

e en

viro

nmen

t m

ay h

ave

actu

ally

incr

ease

d.

Step

2’s

asse

ssm

ent

of is

sues

sho

uld

prov

ide

the

basi

s fo

r de

term

inin

g th

e re

leva

nt v

alue

cha

in

stag

es t

o be

incl

uded

in t

he m

etric

. Bo

unda

ries

may

var

y fr

om o

ne m

etric

to

anot

her.

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

42

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

A m

etri

c n

eed

s to

be

suffi

cien

tly

pre

cise

an

d s

pec

ific

to b

e m

ean

ing

ful

an

d u

sab

le.

Defi

nin

g t

he

Form

of

the

Met

ric

Ther

e ar

e m

any

form

s a

met

ric c

an t

ake.

Som

e ca

n be

exp

ress

ed in

abs

olut

e fo

rm, i

.e.,

in t

he

form

it is

col

lect

ed, s

uch

as t

otal

occ

urre

nces

of

a s

peci

fic t

ype

of in

cide

nt p

er y

ear.

Met

rics,

ho

wev

er, a

re o

ften

exp

ress

ed in

rat

ios,

indi

ces

and

othe

r fo

rms

that

pro

vide

con

text

and

ena

ble

mor

e ef

fect

ive

com

paris

on o

ver

time

and

acro

ss

the

orga

niza

tion.

The

for

m o

f a

met

ric c

ontr

ibut

es

to h

ow m

eani

ngfu

l and

use

ful t

he m

etric

is f

or it

s in

tend

ed u

ses

and

user

s.

In f

orm

ing

a m

etric

, one

sho

uld

cons

ider

the

follo

win

g:

•In

clus

ion

of q

uant

itativ

e an

d qu

alita

tive

mea

sure

men

ts -

Whi

le m

etric

s ar

e ge

nera

lly

rega

rded

as

quan

titat

ive,

som

e m

easu

re

qual

itativ

e pa

ram

eter

s. E

xam

ples

com

mon

ly

are

foun

d in

the

soc

ial a

rea

and

incl

ude

indi

ces

of e

mpl

oyee

mor

ale

and

cust

omer

sat

isfa

ctio

n,

calc

ulat

ed f

rom

qua

litat

ive

(or

subj

ectiv

e)

surv

ey r

esul

ts. W

hile

qua

litat

ive

mea

sure

men

ts

can

capt

ure

mor

e su

bjec

tive

attr

ibut

es

such

as

satis

fact

ion,

att

itude

, sen

se o

f w

ell-

bein

g, im

port

ance

of

issu

e, e

tc.,

they

can

be

inte

rpre

ted

num

eric

ally

by

appl

ying

ran

king

or

scor

ing

met

hods

•N

orm

aliz

atio

n -

Nor

mal

izat

ion

can

prod

uce

ratio

s th

at p

rovi

de b

ette

r co

ntex

t an

d m

ore

effe

ctiv

e sc

ale

for

com

paris

on. S

ome

deno

min

ator

s fo

r no

rmal

izat

ion

incl

ude:

opr

oduc

tion

thro

ughp

ut -

Sui

tabl

e fo

r a

m

anuf

actu

ring

orga

niza

tion

that

mak

es

prod

ucts

of

sim

ilar

char

acte

ristic

s an

d ec

onom

ic v

alue

, e.g

., a

sing

le p

rodu

ct f

acili

ty,

this

den

omin

ator

is s

eldo

m e

ffec

tive

for

mor

e di

vers

e or

ser

vice

-orie

nted

org

aniz

atio

ns

ofin

anci

al m

easu

rem

ents

of

valu

e -

Fina

ncia

l m

easu

rem

ents

, suc

h as

rev

enue

, sha

reho

lder

va

lue

add

(SVA

) and

eco

nom

ic v

alue

ad

d (E

VA),

are

appl

ied

to n

orm

aliz

e th

e or

gani

zatio

n’s

impa

cts.

Exa

mpl

es a

re e

co-

effic

ienc

y an

d so

cio-

effic

ienc

y m

etric

s, s

uch

as jo

b cr

eatio

n pe

r do

llar

SVA

. Va

lue-

add

mea

sure

men

ts a

re o

ften

mor

e ap

prop

riate

in

repr

esen

ting

the

finan

cial

val

ue d

irect

ly r

elat

ed

to t

he im

pact

s

In a

dditi

on t

o co

nven

tiona

l mea

sure

men

ts

of v

alue

-add

, a s

usta

inab

le v

alue

-add

can

be

defin

ed. F

igur

e 6

(on

page

43)

illu

stra

tes

a su

stai

nabl

e va

lue-

add

calc

ulat

ed a

s th

e di

ffer

ence

be

twee

n re

venu

e an

d th

e co

sts

of n

atur

al c

apita

l. Th

is in

clud

es n

ot o

nly

econ

omic

pro

fit b

ut a

lso

the

com

pany

’s co

ntrib

utio

n to

the

dev

elop

men

t of

hum

an /

soci

al c

apita

l.

•In

dexe

s an

d co

mpo

site

indi

ces

- A

met

ric m

ay

also

tak

e th

e fo

rm o

f a

com

posi

te in

dex

- a

com

bine

d m

easu

re e

ncom

pass

ing

vario

us o

ther

m

etric

s. E

xam

ples

incl

ude:

oTo

tal c

ost

- su

m o

f in

tern

al a

nd e

xter

nal

mon

etar

y co

sts

of e

nviro

nmen

tal a

nd s

ocia

l im

pact

s

oEc

olog

ical

foo

tprin

t -

a co

mbi

ned

estim

ate

of e

nviro

nmen

tal i

mpa

cts

expr

esse

d in

ter

ms

of e

quiv

alen

t la

nd a

rea

impa

cted

and

oth

er

ecol

ogic

al in

dice

s

oD

isab

ility

-Adj

uste

d Li

fe Y

ears

(DA

LY),

Qua

lity-

Adj

uste

d Li

fe Y

ears

(QA

LY) a

nd o

ther

hea

lth-

base

d in

dice

s fo

r w

eigh

ting

impa

cts

in t

erm

s of

hum

an h

ealth

oSe

mi-q

uant

itativ

e co

mpo

site

sco

re w

eigh

ted

by im

port

ance

to

stak

ehol

ders

, suc

h as

ou

tline

d in

the

ISO

-140

40 s

erie

s of

sta

ndar

ds

for

life-

cycl

e as

sess

men

t

43

Fig

ure

6.

‘Su

stai

nab

le V

alu

e-A

dd

’ to

Co

mp

any

and

So

ciet

y

Sust

ain

able

Val

ue-

Ad

d =

Rev

enu

e –

Co

sts

of

Nat

ura

l Cap

ital

Cos

ts o

f en

ergy

and

util

ities

, mat

eria

ls, a

nd la

nd (i

f si

gnifi

cant

) are

use

d as

pro

xies

for

the

cos

ts o

f na

tura

l cap

ital.

The

Val

ue A

dd r

epre

sent

s co

ntrib

utio

ns t

o th

e de

velo

pmen

t of

fina

ncia

l / b

uilt

capi

tal

and

hum

an /

soci

al c

apita

l.

Pro

fit

Kn

ow

led

ge

Lab

or

Oth

er C

apit

al

Ener

gy/

Uti

litie

s

Mat

eria

l

Lan

d

Rev

enu

e

Val

ue

Ad

dto

co

mp

any

& s

oci

ety

Co

sts

of

Nat

ura

l Cap

ital

(lim

ited

nat

ura

l res

ou

rces

)

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

oLo

cally

nor

mal

ized

met

rics

coul

d in

clud

e w

ages

as

a ra

tio t

o pr

evai

ling

loca

l wag

es o

r w

ater

use

as

a ra

tio t

o an

nual

vol

ume

loca

lly

allo

cate

d fo

r in

dust

ry u

se

oC

ompo

site

indi

ces

deve

lope

d by

inve

stm

ent

anal

ysis

and

res

earc

h or

gani

zatio

ns

Repr

esen

tativ

es f

rom

Eth

ical

Inve

stm

ent

Rese

arch

Se

rvic

es (E

IRIS

), Su

stai

nabl

e A

sset

Man

agem

ent

(SA

M) a

nd In

vest

or R

espo

nsib

ility

Res

earc

h C

ente

r (IR

RC) p

artic

ipat

ed in

the

GEM

I EA

G

sess

ions

. Bo

th E

IRIS

and

SA

M h

ave

deve

lope

d an

d ap

plie

d co

mpo

site

indi

ces

to a

sses

s co

rpor

ate

sust

aina

bilit

y pr

actic

es b

ased

on

com

pany

qu

estio

nnai

res

and

anal

ysis

of

publ

ic in

form

atio

n.

IRRC

poi

nted

out

the

val

ue-c

hain

per

spec

tive

that

ana

lyst

s in

crea

sing

ly a

pply,

con

side

ring

risks

be

yond

the

com

pany

’s im

med

iate

sph

ere

of

cont

rol (

see

the

EAG

per

spec

tive,

Are

Soc

ial G

oals

Re

leva

nt t

o Bu

sine

ss?

on p

age

24).

Diffi

culty

in c

ombi

ning

var

ious

met

rics

into

co

mpo

site

indi

ces

varie

s. T

otal

cos

t, f

or e

xam

ple,

yi

elds

val

uabl

e re

sults

but

oft

en r

equi

res

the

labo

rious

and

unc

erta

in p

roce

ss o

f m

onet

izin

g as

pect

s ha

ving

unc

erta

in fi

nanc

ial v

alue

. The

use

of

sem

i-qua

ntita

tive

scor

es, o

n th

e ot

her

hand

, ca

n pr

ocee

d on

ce a

con

sens

us is

rea

ched

on

how

ea

ch m

etric

is n

orm

aliz

ed a

nd a

wei

ght

assi

gned

to

eac

h m

etric

.

In d

eter

min

ing

the

form

and

wha

t is

incl

uded

w

ithin

the

met

ric, t

he o

rgan

izat

ion

also

nee

ds t

o de

term

ine

whe

ther

the

met

ric c

an b

e m

eani

ngfu

l an

d us

eful

at

the

diff

eren

t or

gani

zatio

nal l

evel

s.

Pote

nti

al D

ata

Sou

rces

an

d L

evel

s o

f Pr

ecis

ion

/ S

pec

ifici

tyTh

e av

aila

bilit

y of

dat

a so

urce

s is

an

impo

rtan

t co

nsid

erat

ion

in d

eter

min

ing

whe

ther

the

met

ric c

an

be d

evel

oped

in a

cos

t-ef

fect

ive

man

ner.

The

met

ric

can

be o

btai

ned

thro

ugh

vario

us m

eans

, inc

ludi

ng:

•di

rect

ly c

alcu

late

d fr

om a

vaila

ble

data

•es

timat

ed o

r m

odel

ed f

rom

ava

ilabl

e da

ta

•ca

lcul

ated

, est

imat

ed, o

r m

odel

ed f

rom

dat

a no

t cu

rren

tly c

olle

cted

by

the

orga

niza

tion

To m

inim

ize

cost

, con

side

r us

ing

avai

labl

e da

ta o

r da

ta t

hat

can

be c

olle

cted

usi

ng t

he e

xist

ing

data

co

llect

ion

syst

em.

Whe

n da

ta a

re n

ot a

vaila

ble

to d

irect

ly c

alcu

late

the

met

ric, c

onsi

der

whe

ther

es

timat

ion

from

ava

ilabl

e da

ta is

suf

ficie

nt.

For

exam

ple,

a G

HG

met

ric is

com

mon

ly e

stim

ated

fr

om a

vaila

ble

ener

gy-u

se d

ata.

Dat

a so

urce

s an

d av

aila

bilit

y ar

e tig

htly

link

ed w

ith

the

leve

l of

prec

isio

n an

d sp

ecifi

city

nee

ded

for

the

met

ric.

Spec

ifici

ty r

efer

s to

the

low

est

leve

l of

the

orga

niza

tion

to w

hich

the

met

ric is

rep

orte

d.

Was

tew

ater

dat

a, f

or e

xam

ple,

may

be

read

ily

avai

labl

e fo

r an

ent

ire la

rge

man

ufac

turin

g fa

cilit

y,

but

not

for

the

indi

vidu

al p

roce

ss u

nits

with

in

the

faci

lity.

A m

etric

nee

ds t

o be

suf

ficie

ntly

pr

ecis

e an

d sp

ecifi

c to

be

mea

ning

ful a

nd u

sabl

e.

How

ever

, gre

ater

pre

cisi

on a

nd s

peci

ficity

tha

n ar

e ne

cess

ary

may

mak

e da

ta c

olle

ctio

n an

d ca

lcul

atio

n co

st-p

rohi

bitiv

e.

© B

RID

GES

to

Sust

aina

bilit

y, G

olde

r A

ssoc

iate

s In

c.

44

Sett

ing

Tar

get

s Ta

rget

s ar

e pe

rfor

man

ce g

oals

tha

t ar

e re

leva

nt t

o th

e or

gani

zatio

n’s

key

obje

ctiv

es.

An

orga

niza

tion

can

set

envi

ronm

enta

l and

soc

ial t

arge

ts in

muc

h th

e sa

me

way

tha

t it

sets

fina

ncia

l tar

gets

. To

cont

ribut

e to

per

form

ance

impr

ovem

ent,

a t

arge

t sh

ould

be:

•Sp

ecifi

c -

focu

sed

on a

spe

cific

obj

ectiv

e an

d th

e ou

tcom

e th

at is

exp

ecte

d

•M

easu

rabl

e -

thro

ugh

mea

sure

men

ts d

efine

d in

th

e m

etric

s

•A

chie

vabl

e -

know

ledg

e, t

ools

and

res

ourc

es

shou

ld b

e av

aila

ble

to a

chie

ve t

arge

ts

•R

ealis

tic -

with

act

ions

the

org

aniz

atio

n ca

n ta

ke

to a

chie

ve t

arge

ts

•Ti

me-

spec

ific

- w

ith t

imel

ine

atta

ched

to

a ta

rget

Targ

ets

mee

ting

the

abov

e cr

iteria

are

com

mon

lykn

own

as t

he ‘S

MA

RT’ t

arge

ts, r

eflec

ting

the

initi

al le

tter

s of

the

crit

eria

. Tar

gets

can

be

incr

emen

tal o

r st

retc

h.

Incr

emen

tal t

arg

ets

are

set

to a

chie

ve g

radu

al

chan

ge a

nd u

sual

ly t

o m

eet

a th

resh

old

esse

ntia

l to

rem

aini

ng o

pera

tiona

l. S

tret

ch t

arg

ets

are

mor

e re

volu

tiona

ry t

arge

ts.

A s

tret

ch t

arge

t is

set

with

le

ss u

nder

stan

ding

of

how

it w

ill b

e m

et. S

tret

ch

targ

ets

are

mea

nt t

o sp

ark

orga

niza

tiona

l cha

nge

by s

timul

atin

g in

nova

tion,

enc

oura

ging

em

ploy

ees

to p

ush

trad

ition

al b

ound

arie

s an

d ch

alle

ngin

g th

e cu

rren

t w

ays

of d

oing

bus

ines

s. T

hus,

the

y ar

e us

ually

set

for

a lo

nger

ter

m, a

llow

ing

time

for

chan

ges

and

inno

vatio

n. N

ever

thel

ess,

set

ting

stre

tch

targ

ets

is a

cha

lleng

ing

task

. D

ecis

ions

m

ust

be m

ade

as t

o ho

w f

ar t

o st

retc

h a

targ

et,

whi

le k

eepi

ng it

cre

dibl

e.

DuP

ont’s

cas

e ex

ampl

e su

mm

ariz

es it

s co

nsid

erat

ions

and

pro

cess

for

dev

elop

ing

stre

tch

targ

ets.

Sou

ther

n C

ompa

ny’s

zero

inju

ry t

arge

t,

(on

page

45)

is a

n ex

ampl

e of

a s

tret

ch t

arge

t de

sign

ed t

o ch

ange

an

orga

niza

tion’

s m

inds

et.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

Du

Po

nt

Sett

ing

’Ach

ieva

bly

Str

etch

ed’ T

arg

ets

Cor

pora

te e

nviro

nmen

tal a

nd s

usta

inab

ility

goa

ls a

t D

uPon

t ar

e se

t on

a n

ine-

to-t

en-y

ear

timef

ram

e. T

his

long

er

perio

d al

low

s th

e co

rpor

atio

n to

set

mor

e ch

alle

ngin

g (i.

e., ’

stre

tche

d’) g

oals

and

suf

ficie

nt t

ime

to in

nova

te a

nd

find

crea

tive

solu

tions

tha

t ar

e be

tter

for

the

bus

ines

s as

wel

l as

the

envi

ronm

ent.

Aft

er is

sues

are

iden

tified

and

prio

ritiz

ed, t

he f

ollo

win

g ge

neric

pro

cess

is u

sed

to s

et t

he c

orpo

rate

goa

ls:

•de

velo

p a

base

line

on w

here

the

com

pany

cur

rent

ly s

tand

s on

the

issu

es

•de

term

ine

wha

t th

e co

mpa

ny in

tend

s to

do

abou

t th

e is

sues

•es

timat

e th

e le

vels

of

impr

ovem

ent

that

can

be

reas

onab

ly e

xpec

ted

base

d on

exi

stin

g te

chno

logi

es,

cu

rren

t Re

sear

ch &

Dev

elop

men

t ef

fort

s an

d an

ticip

ated

cha

nges

in t

he m

arke

tpla

ce

•de

cide

on

spec

ific

targ

ets

that

can

suf

ficie

ntly

cha

lleng

e th

e co

mpa

ny

Ulti

mat

ely,

set

ting

targ

ets

is a

pro

cess

tha

t re

quire

s no

t on

ly q

uant

itativ

e an

d qu

alita

tive

anal

ysis

, but

als

o a

stro

ng le

ader

ship

rol

e. I

n ad

ditio

n to

det

erm

inin

g ta

rget

s th

at w

ill a

dequ

atel

y ch

alle

nge

the

com

pany

, lea

ders

hip

mus

t en

sure

tha

t th

e ta

rget

s se

t ar

e fe

asib

le, l

est

the

com

pany

’s cr

edib

ility

may

be

harm

ed. F

urth

erm

ore,

le

ader

ship

mus

t en

sure

tha

t th

e ta

rget

s w

ill b

enefi

t th

e en

viro

nmen

t an

d so

ciet

y w

hile

als

o m

akin

g ec

onom

ic

sens

e fo

r th

e co

mpa

ny.

Inte

rnal

met

rics,

or

‘mile

ston

es’,

are

deve

lope

d to

ben

chm

ark

the

com

pany

’s pr

ogre

ss t

owar

d th

e go

als.

To

assu

re

cont

inuo

us im

prov

emen

t, m

ore

imm

edia

te t

wo-

to-t

hree

-yea

r ta

rget

s ar

e se

t an

d m

anag

ed a

t D

uPon

t’s in

divi

dual

bu

sine

ss u

nits

.

To “

near

ly d

oubl

e re

venu

es f

rom

non

-dep

leta

ble

reso

urce

s to

at

leas

t $8

bill

ion

by 2

015”

is a

n ex

ampl

e of

a

long

er-t

erm

goa

l set

at

DuP

ont.

Suc

h go

als

are

valu

able

in s

timul

atin

g ne

w id

eas,

esp

ecia

lly in

Res

earc

h &

D

evel

opm

ent

and

way

s to

mar

ket

prod

ucts

and

ser

vice

s. T

hey

chal

leng

e em

ploy

ees

to c

reat

e a

mor

e su

stai

nabl

e co

mpa

ny t

hat

will

pro

vide

mea

sura

ble

soci

etal

val

ue.

45

4.

Defi

ne K

ey P

erf

orm

an

ce I

nd

icato

rs a

nd

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

So

uth

ern

Co

mp

an

y

‘Tar

get

Zer

o’ t

o C

han

ge

Emp

loye

es’ M

ind

sets

Sout

hern

Com

pany

is a

n ov

eral

l lea

der

in t

he U

nite

d St

ates

pow

er in

dust

ry. Y

et, c

olle

ctiv

e 20

02-2

004

resu

lts f

or

all u

tiliti

es in

the

com

pany

’s re

gion

pla

ced

its s

afet

y pe

rfor

man

ce in

the

thi

rd q

uart

ile. T

his

was

att

ribut

able

to

a cu

lture

tha

t be

lieve

d in

cide

nts

wer

e un

avoi

dabl

e an

d ac

cept

able

. To

achi

eve

wor

ld c

lass

saf

ety

perf

orm

ance

tha

t th

e co

mpa

ny d

esire

s, t

his

min

dset

had

to

chan

ge.

Sout

hern

Com

pany

his

toric

ally

has

bee

n ef

fect

ive

in a

ccom

plis

hing

cor

pora

te g

oals

tha

t it

sets

for

itse

lf.

Nev

erth

eles

s, p

ast

safe

ty g

oals

hav

e no

t br

ough

t th

e ex

celle

nce

expe

cted

of

a le

ader

ship

com

pany

. Thu

s,

effe

ctiv

e in

200

5, S

outh

ern

Com

pany

set

a n

ew s

afet

y go

al –

‘Tar

get

Zero

’ – t

o ac

hiev

e ze

ro in

jurie

s ev

ery

day

on e

very

job.

One

may

que

stio

n w

heth

er a

zer

o go

al is

rea

listic

. The

key

, how

ever

, is

to e

mbe

d in

to t

he o

rgan

izat

ion

the

belie

fs,

expe

ctat

ions

and

per

form

ance

sta

ndar

ds in

here

nt in

‘Tar

get

Zero

.’ A

set

of

prin

cipl

es r

ecen

tly a

dopt

ed b

y th

e co

mpa

ny’s

Cen

tral

Saf

ety

Com

mitt

ee c

larifi

es t

hree

val

ues

criti

cal f

or t

he c

ompa

ny’s

succ

ess

in a

chie

ving

the

goa

l:

•‘B

elie

ve it

!’ –

em

ploy

ees

mus

t fir

mly

bel

ieve

tha

t al

l inj

urie

s an

d oc

cupa

tiona

l illn

esse

s ar

e pr

even

tabl

e an

d

ever

y ta

sk c

an b

e pl

anne

d an

d co

mpl

eted

saf

ely

•‘E

xpec

t it!

’ – e

mpl

oyee

s m

ust

unde

rsta

nd t

hat

wor

king

saf

ely

is a

con

ditio

n fo

r em

ploy

men

t; a

nd m

anag

ers,

su

perv

isor

s an

d in

divi

dual

s ar

e he

ld a

ccou

ntab

le f

or u

nsaf

e be

havi

ors

and

cond

ition

s

•‘L

ive

it!’ –

em

ploy

ees

mus

t co

mm

it to

hea

lth a

nd s

afet

y ru

les

and

to c

ontin

uous

impr

ovem

ent;

and

lead

ers

m

ust

reco

gniz

e an

d re

war

d su

cces

ses

A c

ultu

re w

ill c

hang

e on

ly w

ith t

ime.

Man

agem

ent

is fi

rst

resp

onsi

ble

for

dem

onst

ratin

g th

e ch

ange

and

cr

eatin

g th

e en

viro

nmen

t fo

r sa

fety

exc

elle

nce.

The

re a

re c

urre

ntly

org

aniz

atio

ns w

ithin

Sou

ther

n C

ompa

ny

that

are

bec

omin

g w

orld

cla

ss p

erfo

rmer

s. T

hat

shou

ld b

ecom

e th

e ne

w n

orm

for

saf

ety.

The

res

ults

so

far

are

enco

urag

ing.

In t

he fi

rst

year

of

impl

emen

tatio

n, S

outh

ern

Com

pany

red

uced

rec

orda

ble

inju

ries

by 2

5 pe

rcen

t an

d lo

st w

ork

time

inju

ries

by 4

0 pe

rcen

t.

Bu

ild M

etri

cs a

nd

Set

Tar

get

s –

Wo

rksh

eet

4c

Wor

kshe

et 4

c (o

n pa

ge 4

6) p

rovi

des

a te

mpl

ate

to s

umm

ariz

e th

e se

t of

met

rics

that

sup

port

the

K

PIs

and

incl

udes

: the

for

mul

a fo

r ea

ch m

etric

, th

e pr

otoc

ol, i

.e.,

proc

edur

e fo

r m

easu

ring

and

calc

ulat

ing

the

met

ric a

nd a

ny a

ssum

ptio

ns t

hat

go

into

the

cal

cula

tion.

The

Nee

d f

or

Co

mp

lem

enta

ry M

etri

csIn

add

ition

to

the

stra

tegi

c m

etric

s th

at d

irect

ly

refle

ct t

he K

PIs,

add

ition

al m

etric

s ca

n be

de

velo

ped

to a

ddre

ss s

peci

fic n

eeds

. Th

ese

met

rics

are

com

plem

enta

ry t

o th

e cr

itica

l few

m

easu

rem

ents

and

can

incl

ude

met

rics

that

:

•em

phas

ize

cert

ain

com

pone

nts

of t

he s

trat

egic

m

etric

s, e

.g.,

mas

s of

tox

ic r

aw m

ater

ials

em

phas

izes

an

elem

ent

of a

n ov

eral

l mat

eria

l co

nsum

ptio

n m

etric

•in

clud

e co

mpo

nent

s no

t ac

coun

ted

for

in t

he

stra

tegi

c m

etric

s, e

.g.,

tran

spor

tatio

n en

ergy

m

etric

com

plem

ents

an

ener

gy m

etric

for

the

co

mpa

ny’s

oper

atio

ns

•pr

ovid

e ad

ditio

nal i

nsig

hts

to t

he s

trat

egic

m

etric

s, e

.g.,

toxi

city

rat

ing

com

plem

ents

the

to

tal m

ass

of t

oxic

s re

leas

ed

•su

ppor

t th

e st

rate

gic

met

rics’

impl

emen

tatio

n an

d ev

alua

tion,

e.g

., nu

mbe

r of

peo

ple

who

re

ceiv

ed m

etric

s an

d be

st-p

ract

ice

trai

ning

s

46

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

WO

RK

SHEE

T 4c

: BU

ILD

MET

RIC

S A

ND

SET

TA

RG

ETS

(XY

Z N

utrit

iona

l Bev

erag

e Ex

ampl

e)

Mat

eria

l Iss

ue(

s)M

ater

ial i

ssue

(s) a

ddre

ssed

by

key

obje

ctiv

eG

HG

em

issi

ons,

ene

rgy

use

and

use

of a

ltern

ativ

e en

ergy

Key

Ob

ject

ive

A s

elec

ted

key

obje

ctiv

eRe

duce

GH

G e

mis

sion

s al

ong

valu

e ch

ain

KPI

sD

escr

iptio

n of

the

mea

sure

(s) o

f pe

rfor

man

ce t

owar

d a

key

obje

ctiv

e(s)

GH

G e

mis

sion

s En

ergy

red

uctio

n re

lativ

e to

gro

wth

Use

& U

sers

Div

erse

use

rsD

iver

se u

sers

Met

ric

Defi

nit

ion

sM

easu

rem

ents

tha

t fu

rthe

r de

fine

and

supp

ort

the

KPI

– T

he ‘h

ow-t

o’ o

f K

PI

GH

G e

mis

sion

s fr

om re

leva

nt v

alue

cha

in s

tage

s, e

xpre

ssed

per

sal

es re

venu

eEn

ergy

use

per

sal

es r

even

ue

Met

ric

Bo

un

dar

yFa

rmin

g, t

rans

port

atio

n, h

eat

& p

ower

gen

erat

ion,

com

pany

’s op

erat

ions

Com

pany

’s op

erat

ions

and

tra

nspo

rtat

ion

Rep

ort

ing

Lev

elBu

sine

ss U

nit

Busi

ness

Uni

t

Form

ula

Sum

of

GH

G e

mis

sion

s fr

om e

ach

valu

e ch

ain

stag

es (C

O2-

equ

iv/y

r) p

er

US$

sal

esA

nnua

l ene

rgy

use

(MJ/

year

) per

US$

sal

es

Pro

toco

ls &

Ass

um

pti

on

s

•G

HG

fro

m f

arm

ing

(ups

trea

m):

Estim

ate

usin

g U

S av

erag

e fo

r co

nven

tiona

l an

d or

gani

c so

y be

an f

arm

ing

•G

HG

fro

m in

com

ing

tran

spor

tatio

n an

d fr

om d

istr

ibut

ion:

Est

imat

e fr

om lo

gist

ics

data

usi

ng W

BCSD

gui

delin

es f

or c

alcu

latin

g G

HG

fro

m

tran

spor

tatio

n•

GH

G f

rom

hea

t an

d po

wer

gen

erat

ion:

Cal

cula

te f

rom

ele

ctric

ity a

nd s

team

us

e at

fac

ilitie

s an

d G

HG

em

issi

on f

acto

rs f

rom

sup

plie

rs•

Non

-CO

2 G

HG

em

issi

ons

conv

erte

d in

to C

O2

equi

vale

nts

follo

win

g IP

CC

20-y

ear

horiz

on•

Sale

s re

venu

e: f

ollo

w fi

nanc

ial a

ccou

ntin

g ca

lcul

atio

n

•En

ergy

use

cal

cula

ted

as fu

el e

quiv

alen

ce (i

n M

J)•

For

purc

hase

d el

ectr

icity

and

ste

am, r

epor

t as

th

e eq

uiva

lenc

e of

fue

l req

uire

d to

gen

erat

e an

d de

liver

the

ene

rgy

•Sa

les

reve

nue:

fol

low

fina

ncia

l

acco

untin

g ca

lcul

atio

n

Dat

a So

urc

esSe

e ca

lcul

atio

n pr

otoc

ols

& a

ssum

ptio

ns a

bove

Util

ity d

ata;

tra

nspo

rtat

ion

reco

rds

GH

G e

mis

sion

s al

ong

valu

e ch

ain

Freq

uen

cyA

nnua

lQ

uart

erly

Targ

etRe

duce

30

perc

ent

in 5

yea

rsRe

duce

10

perc

ent

in 5

yea

rs

47

Step

5 o

utlin

es h

ow to

impl

emen

t the

met

rics

and

inte

grat

e th

em in

to e

xist

ing

info

rmat

ion

and

man

agem

ent s

yste

ms.

Thi

s st

ep w

ill c

onfir

m th

at th

e or

gani

zatio

n ha

s a

syst

emat

ic a

ppro

ach

to m

easu

ring

key

finan

cial

and

non

-fina

ncia

l per

form

ance

and

en

sure

that

the

info

rmat

ion

gene

rate

d is

relia

ble,

co

mpl

ete,

com

para

ble

and

rele

vant

.

The

syst

emat

ic in

tegr

atio

n of

met

rics

into

m

anag

emen

t an

d in

form

atio

n sy

stem

s ca

n lin

k st

rate

gy a

nd o

pera

tions

to

prod

uce

insi

ghts

fo

r de

cisi

on-m

aker

s an

d tr

ansl

ate

impo

rtan

t in

form

atio

n to

key

sta

keho

lder

s. Im

plem

enta

tion

is n

ot o

nly

abou

t th

e m

echa

nics

of

syst

ems,

but

al

so a

bout

the

eff

ectiv

enes

s of

com

mun

icat

ion.

Th

e m

etric

s ne

ed t

o be

mea

ning

ful a

nd

unde

rsta

ndab

le t

o th

e in

tend

ed a

udie

nce.

Inte

gra

tio

n in

to E

xist

ing

Sys

tem

s In

inte

rvie

win

g U

.S. s

enio

r ex

ecut

ives

and

maj

or

gove

rnm

ents

, KPM

G L

LP id

entifi

ed o

rgan

izat

iona

l be

nefit

s by

dev

elop

ing

and

impl

emen

ting

a m

easu

rem

ent

syst

em t

hat

is a

ligne

d w

ith a

n or

gani

zatio

n’s

stra

tegy

. Thi

s al

ignm

ent

ensu

res

that

, wha

teve

r m

etric

s an

org

aniz

atio

n us

es, t

hey

are

mea

surin

g w

hat

is r

ight

for

the

m, a

s w

ell a

s m

easu

ring

thin

gs t

he r

ight

way

. The

alig

nmen

t fu

rthe

r tr

ansl

ates

met

rics

into

spe

cific

act

ion

step

s th

at g

ener

ally

ben

efit

the

orga

niza

tion.

Th

e re

sear

ch a

lso

foun

d th

at f

or m

easu

rem

ent

to

prov

ide

a co

mpe

titiv

e ad

vant

age,

it n

eeds

to

be

cons

ider

ed a

s a

core

org

aniz

atio

nal p

roce

ss (1

4).

To e

mbe

d th

e m

etric

s in

to e

xist

ing

prac

tices

and

sy

stem

s, o

ne n

eeds

to:

•id

entif

y th

ose

acco

unta

ble

for

the

met

rics

proc

ess

•de

velo

p a

form

al im

plem

enta

tion

appr

oach

•es

tabl

ish

an im

plem

enta

tion

team

•de

velo

p a

writ

ten

proc

edur

e or

gui

danc

e do

cum

ent

base

d on

the

met

rics

defin

ition

•in

tegr

ate

into

the

exi

stin

g da

ta c

olle

ctio

n an

d in

form

atio

n m

anag

emen

t sy

stem

, whe

neve

r po

ssib

le

•in

tegr

ate

into

pla

nnin

g, b

udge

ting

or o

ther

re

leva

nt b

usin

ess

proc

esse

s

•in

corp

orat

e th

e us

e of

met

rics

into

job

perf

orm

ance

eva

luat

ion

crite

ria

•es

tabl

ish

a pr

oces

s fo

r re

view

ing,

refi

ning

and

re

tirin

g m

etric

s

Dat

a M

anag

emen

tTh

e da

ta n

eede

d to

cal

cula

te t

he c

hose

n m

etric

s ar

e id

entifi

ed in

Ste

p 4,

alo

ng w

ith c

onsi

dera

tion

of w

heth

er t

he m

etric

s ca

n be

cal

cula

ted

or

estim

ated

fro

m a

vaila

ble

data

. In

inte

grat

ing

the

new

ly d

evel

oped

met

rics

into

exi

stin

g in

form

atio

n sy

stem

, one

nee

ds t

o as

k:

•W

here

do

(or

will

) the

nec

essa

ry d

ata

resi

de?

•W

ho is

(or

will

be)

res

pons

ible

for

the

dat

a?

•H

ow o

ften

are

the

dat

a (o

r w

ill b

e) c

olle

cted

?

•H

ow a

re (o

r ca

n) t

he d

ata

be v

erifi

ed f

or

accu

racy

?

•A

re t

he d

ata

(or

will

the

dat

a be

) com

para

ble

acro

ss f

acili

ties

or o

rgan

izat

iona

l uni

ts f

or t

he

purp

ose

of t

he m

etric

?

Obt

aini

ng c

ompa

rabl

e da

ta c

an b

e ch

alle

ngin

g ac

ross

a la

rge

orga

niza

tion.

Env

ironm

enta

l, he

alth

and

saf

ety

data

, in

part

icul

ar, a

re t

ypic

ally

co

llect

ed t

o sa

tisfy

loca

l reg

ulat

ory

requ

irem

ents

th

at v

ary

acro

ss t

he d

iffer

ent

juris

dict

ions

tha

t an

or

gani

zatio

n op

erat

es.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

STE

P 5

Exp

ecte

d O

utc

om

es•

Re

gula

r co

mm

unic

atio

n

and

feed

back

bas

ed o

n

perf

orm

ance

aga

inst

tar

gets

5.

Evalu

ate

an

d C

om

mu

nic

ate

Metr

ics

48

Cla

rity

in d

efini

tions

and

bou

ndar

ies

can

impr

ove

the

com

para

bilit

y of

met

rics.

For

exa

mpl

e, in

stea

d of

mea

surin

g em

issi

ons

from

a u

nifo

rm s

et o

f su

bsta

nces

, the

met

ric c

an b

e re

-defi

ned

in t

erm

s of

sub

stan

ces

of c

once

rn t

o th

e lo

cal c

onte

xt.

Use

of

an a

utom

ated

info

rmat

ion

man

agem

ent

syst

em c

an e

ffec

tivel

y re

duce

the

cos

t an

d hu

man

re

sour

ces

requ

ired

to s

uppo

rt d

ata

colle

ctio

n an

d ve

rifica

tion

and

repo

rtin

g in

a t

imel

y m

anne

r. O

ne s

uch

tool

is t

he G

EMI H

SE W

eb D

epo

t,an

EH

S m

anag

emen

t in

form

atio

n sy

stem

s to

ol t

hat

can

be f

ound

at

ww

w.g

emi.o

rg/

hse

web

dep

ot.

org

.

John

son

Con

trol

s In

c. p

rovi

des

a ca

se e

xam

ple

of

a w

eb-b

ased

info

rmat

ion

man

agem

ent

syst

em t

o m

anag

e en

ergy

and

gre

enho

use

gas

data

.

Inte

gra

tio

n in

to B

usi

nes

s Pr

oce

sses

Met

rics

can

have

mul

tiple

use

s an

d us

ers.

In

impl

emen

ting

the

met

rics,

one

nee

ds to

ask

whe

ther

:

•gu

idel

ines

and

inst

ruct

ions

ass

ocia

ted

with

the

m

etric

s ar

e ef

fect

ivel

y co

mm

unic

ated

and

are

un

ders

tand

able

to

the

user

s

•us

ers

reco

gniz

e th

e va

lue

of t

he m

etric

s

Vario

us c

omm

unic

atio

n ve

nues

, suc

h as

an

inte

rnal

com

pany

’s w

ebsi

te a

nd s

hort

cou

rses

, may

be

use

d to

dis

sem

inat

e in

form

atio

n re

latin

g to

the

m

etric

s an

d ex

ampl

es o

f is

sues

and

suc

cess

es in

th

e m

etric

s’ im

plem

enta

tion.

One

sho

uld

also

con

side

r w

heth

er t

he m

etric

s pr

ogra

m c

an b

e in

tegr

ated

into

exi

stin

g pr

oces

ses,

su

ch a

s Si

x Si

gma

as

dem

onst

rate

d in

the

3M

cas

e ex

ampl

e (o

n pa

ge 4

9).

Joh

nso

n C

on

tro

ls,

Inc.

Man

agin

g E

ner

gy

and

Gre

enh

ou

se G

as D

ata

Ener

gy u

se m

anag

emen

t is

an

impo

rtan

t pa

rt o

f re

duci

ng g

reen

hous

e ga

ses

(GH

Gs)

and

a c

ore

busi

ness

of

Joh

nson

Con

trol

s, In

c. T

o as

sist

bus

ines

ses

in m

anag

ing

ener

gy a

nd G

HG

dat

a in

vent

ory,

tra

ckin

g, a

nd

repo

rtin

g, J

ohns

on C

ontr

ols,

Inc.

dev

elop

ed a

Util

ity B

ill P

aym

ent

& M

anag

emen

t Re

port

ing

Syst

em.

The

syst

em f

eatu

res

accu

rate

, con

sist

ent,

cos

t-ef

fect

ive,

tim

e sa

ving

, cre

dibl

e, fl

exib

le a

nd u

nder

stan

dabl

e ap

proa

ch f

or m

anag

ing

the

data

. The

se f

eatu

res

incl

ude:

•A

ccur

ate

Base

line

Dev

elop

men

t –

a m

odul

ar a

nd s

cala

ble

syst

em t

hat

sim

plifi

es c

alcu

latio

ns a

t fa

cilit

y an

d co

rpor

ate

leve

ls a

nd a

ccou

nts

for

chan

ging

bou

ndar

ies

due

to m

erge

rs, a

cqui

sitio

ns a

nd d

ispo

sals

•Si

mpl

ified

Em

issi

ons

Repo

rtin

g –

prov

ides

GH

G a

nd o

ther

em

issi

on f

acto

rs t

hat

mee

t va

rious

pub

lic

repo

rtin

g re

quire

men

ts f

or d

irect

and

indi

rect

em

issi

ons

•Ex

pert

Em

issi

ons

Info

rmat

ion

Man

agem

ent

– m

anag

es d

ata

in a

sec

ure

and

verifi

able

Web

app

licat

ion

that

fac

ilita

tes

data

ent

ry, a

utom

atic

cal

cula

tion

of d

eriv

ed d

ata,

and

ana

lysi

s of

tre

nds,

effi

cien

cy a

nd

cost

red

uctio

n op

port

uniti

es

Use

rs, i

nclu

ding

Joh

nson

Con

trol

s, In

c. a

nd it

s cu

stom

ers,

can

eas

ily c

olle

ct e

mis

sion

s da

ta f

rom

mul

tiple

fa

cilit

ies

wor

ldw

ide

and

use

the

syst

em t

o su

ppor

t so

und

deci

sion

-mak

ing.

Co

mm

un

icat

ing

Res

ult

s M

etric

s sh

ould

be

com

mun

icat

ed in

way

s th

at p

rovi

de m

eani

ngfu

l ins

ight

s an

d ar

e un

ders

tand

able

to

deci

sion

-mak

ers

and

othe

r au

dien

ces

that

can

ben

efit

from

the

m. T

o ac

hiev

e th

at, c

onsi

der

the:

•le

vel o

f ro

ll-up

and

det

ails

req

uire

d fo

r di

ffer

ent

audi

ence

s

•co

ntex

t in

whi

ch t

he m

etric

s ar

e pr

esen

ted

•vi

sual

dep

ictio

n of

the

met

ric

In a

dditi

on t

o co

mpo

site

indi

ces

that

com

bine

m

ultip

le m

easu

rem

ents

, met

rics

can

be r

olle

d-up

or a

ggre

gate

d or

gani

zatio

nally

and

geo

grap

hica

lly,

such

as

from

a b

usin

ess

unit

to t

he r

egio

nal

com

pany

and

the

n w

orld

wid

e. J

udic

ious

use

of

such

met

rics

can

be e

ffec

tive

in c

omm

unic

atin

g th

e bi

gger

pic

ture

, esp

ecia

lly t

o m

anag

ers

look

ing

for

a ge

nera

l tre

nd in

the

org

aniz

atio

n. H

owev

er,

one

mus

t ex

erci

se c

autio

n in

mak

ing

deci

sion

s on

su

ch b

ird’s-

eye-

view

met

rics.

Det

ails

nee

d to

be

avai

labl

e to

sup

port

the

use

of

com

posi

te in

dice

s an

d ro

lled-

up m

etric

s an

d co

nsid

ered

in p

rodu

cing

in

sigh

ts f

rom

suc

h m

etric

s.

Not

all

met

rics

are

suita

ble

for

roll-

up.

Loca

l co

mm

unity

issu

es, w

hile

impo

rtan

t at

the

co

rpor

ate

leve

l, ne

ed t

o ha

ve m

etric

s m

anag

ed a

t

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

49

3M

Mo

vin

g T

ow

ard

Su

stai

nab

ility

th

rou

gh

Six

Sig

ma

Six

Sigm

a no

t on

ly d

rives

bus

ines

ses

proc

ess

impr

ovem

ent,

but

hel

ps m

ove

3M f

urth

er t

owar

d its

vis

ion

of

sust

aina

bilit

y. In

200

1, 3

M e

mbr

aced

Six

Sig

ma

to h

elp

the

com

pany

ana

lyze

and

impr

ove

its c

ritic

al b

usin

ess

proc

esse

s an

d, o

ver

the

last

few

yea

rs, S

ix S

igm

a ha

s be

com

e in

grai

ned

in a

ll of

3M

’s bu

sine

ss p

ract

ices

. In

part

icul

ar, i

t ha

s be

com

e an

impo

rtan

t to

ol in

hel

ping

3M

ach

ieve

its

sust

aina

bilit

y go

als.

3M h

as a

long

-sta

ndin

g co

mm

itmen

t to

sus

tain

able

dev

elop

men

t th

roug

h en

viro

nmen

tal p

rote

ctio

n, s

ocia

l re

spon

sibi

lity

and

econ

omic

pro

gres

s. M

ore

then

30

year

s ag

o, 3

M’s

form

er V

ice

Pres

iden

t of

Env

ironm

enta

l En

gine

erin

g an

d Po

llutio

n C

ontr

ol, D

r. Jo

e Li

ng, c

reat

ed 3

M’s

Pollu

tion

Prev

entio

n Pa

ys o

r 3P

pro

gram

bec

ause

he

bel

ieve

d th

at, “

pollu

tion

is w

aste

, and

was

te t

oday

lead

s to

sho

rtag

es t

omor

row

.” D

r. Li

ng k

new

the

n, w

hat

man

y co

mpa

nies

are

just

beg

inni

ng t

o em

brac

e, t

hat

pollu

tion

prev

entio

n is

mor

e en

viro

nmen

tally

eff

ectiv

e,

tech

nica

lly s

ound

and

eco

nom

ical

tha

n co

nven

tiona

l pol

lutio

n co

ntro

l equ

ipm

ent.

Six

Sigm

a is

, ess

entia

lly, a

con

tinua

tion

of D

r. Li

ng’s

philo

soph

y ab

out

redu

cing

was

te a

nd in

effic

ienc

y.

At

3M, S

ix S

igm

a ha

s pr

oved

tha

t fu

ndam

enta

l pro

cess

cha

nge

lead

s to

hig

her

qual

ity o

utpu

t, in

crea

sed

prod

uctiv

ity a

nd e

nerg

ized

em

ploy

ees.

Whe

n co

uple

d, p

ollu

tion

prev

entio

n an

d Si

x Si

gma

add

up t

o bi

g nu

mbe

rs in

cos

t sa

ving

s an

d en

viro

nmen

tal p

erfo

rman

ce. B

oth

prog

ram

s st

reng

then

3M

’s co

re b

usin

ess

proc

esse

s an

d ca

n pr

omot

e th

e pr

oduc

tion

of m

ore

prod

ucts

and

ser

vice

s th

at u

se f

ewer

res

ourc

es a

nd h

ave

less

env

ironm

enta

l im

pact

.

In a

dditi

on, S

ix S

igm

a is

hel

ping

the

com

pany

impr

ove

its s

ocia

l pro

gram

s. In

200

5, 3

M im

plem

ente

d a

Six

Sigm

a pr

ojec

t to

ana

lyze

and

impr

ove

its m

echa

nism

s fo

r st

akeh

olde

r en

gage

men

t at

its

U.S

. fac

ilitie

s.

Six

Sigm

a’s

tool

s to

driv

e co

ntin

uous

impr

ovem

ent

and

bett

er u

nder

stan

d th

e cu

stom

er, o

r in

thi

s ca

se t

he

stak

ehol

der,

wer

e in

stru

men

tal i

n al

low

ing

3M t

o be

tter

a p

roce

ss f

or f

acili

ties

to a

ntic

ipat

e an

d re

spon

d to

st

akeh

olde

r co

ncer

ns a

nd e

stab

lish

a co

nsis

tent

, doc

umen

ted

and

proa

ctiv

e sy

stem

to

driv

e im

plem

enta

tion.

the

loca

l lev

el o

r th

ey c

an lo

se s

ome

of t

heir

valu

e if

rolle

d- u

p (1

5) ,

e.g.

, wat

er u

se in

a w

ater

-str

esse

d re

gion

on

the

wor

ld.

Met

rics

also

nee

d to

be

com

mun

icat

ed in

con

text

, re

lativ

e to

:

•hi

stor

ical

per

form

ance

to

dem

onst

rate

tre

nds

•ta

rget

s to

dem

onst

rate

pro

gres

s

•in

dust

ry b

ench

mar

ks to

ass

ess

com

petit

ive

stan

ding

•si

mila

r or

gani

zatio

nal u

nits

(e.g

., si

mila

r fa

cilit

ies

in a

cor

pora

tion)

to

iden

tify

best

pra

ctic

es

•ot

her

entit

ies

in t

he v

alue

cha

in t

o id

entif

y w

here

to

focu

s ef

fort

s

From

the

sta

ndpo

int

of v

isua

lly d

epic

ting

met

rics

so t

hat

they

rea

dily

con

vey

info

rmat

ion,

th

e us

e of

cha

rts

and

grap

hics

can

eff

ectiv

ely

rein

forc

e th

e co

ntex

t an

d fa

cilit

ate

insi

ghts

fro

m

the

met

rics.

The

cas

e ex

ampl

e by

Joh

nson

&

John

son

(on

page

50)

dem

onst

rate

s th

e us

e of

a

dash

boar

d to

driv

e ac

tions

and

com

mun

icat

e pr

ogre

ss t

owar

ds E

HS

goal

s.

Eval

uat

ion

of

Imp

lem

enta

tio

n &

C

om

mu

nic

atio

n-W

ork

shee

t 4b

The

seco

nd c

olum

n of

Wor

kshe

et 4

b (o

n pa

ge

40) p

rovi

des

a ch

eckl

ist

of c

riter

ia t

o ev

alua

te

the

met

rics’

eff

ectiv

enes

s in

impl

emen

tatio

n.

In a

dditi

on, o

ne c

an r

evis

it Ta

ble

2 (o

n pa

ge

35) a

nd a

sses

s th

e ef

fect

iven

ess

of m

etric

s im

plem

enta

tion

and

com

mun

icat

ion

for

each

of

the

use

s an

d us

ers.

Do

the

met

rics

supp

ort

the

inte

nded

use

, and

if t

hey

are

mea

ning

ful

and

unde

rsta

ndab

le t

o th

e us

er, g

iven

the

ir pe

rspe

ctiv

es a

nd le

vel o

f co

mm

itmen

t.

If an

y of

the

crit

eria

sho

wn

in W

orks

heet

4b

cann

ot b

e co

nfirm

ed in

the

impl

emen

tatio

n st

age,

re

fine

the

met

rics

proc

edur

e an

d gu

idel

ines

or

retu

rn t

o th

e m

etric

s de

velo

pmen

t pr

oces

s in

Ste

p 4

to r

edefi

ne t

he m

etric

s.

Mis

use

s o

f M

etri

csM

etrics

an

d t

arg

ets

can

so

met

imes

be

use

d f

or

pu

rpo

ses

for

wh

ich

th

ey a

re n

ot

inte

nd

ed.

On

e co

mm

on

mis

use

is t

o h

old

peo

ple

acc

ou

nta

ble

fo

r m

etrics

no

t d

esig

ned

fo

r ac

cou

nta

bili

ty.

For

exam

ple

, th

ere

is a

po

ten

tial

to

un

der

rep

ort

sa

fety

sta

tist

ics

if a

n o

rgan

izat

ion

fo

cuse

s st

rict

ly

on

a r

epo

rtab

le n

um

ber

. M

etrics

dev

elo

ped

fo

r in

tern

al le

arn

ing

, fo

r in

stan

ce,

are

oft

en n

ot

app

rop

riat

e fo

r ac

cou

nta

bili

ty.

Sim

ilarly,

str

etch

ta

rget

s in

ten

ded

to

drive

inn

ova

tio

n s

ho

uld

no

t b

e as

soci

ated

with

pen

alties

fo

r n

ot

mee

tin

g

the

targ

ets.

5.

Evalu

ate

an

d C

om

mu

nic

ate

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

50

Joh

nso

n &

Jo

hn

son

Co

mm

un

icat

ing

Pro

gre

ss t

ow

ard

Go

als

John

son

& Jo

hnso

n re

cent

ly m

arke

d th

e en

dpoi

nt o

f its

200

0-20

05 N

ext G

ener

atio

n G

oals

– a

set o

f man

agem

ent a

nd e

nviro

nmen

tal p

erfo

rman

ce g

oals

impl

emen

ted

acro

ss th

e co

mpa

ny’s

dive

rse

oper

atio

ns in

57

coun

trie

s.

The

Envi

ronm

enta

l Per

form

ance

Das

hboa

rd (s

ee F

igur

e) w

as a

n im

port

ant t

ool i

n co

mm

unic

atin

g th

e pe

rfor

man

ce g

oals

to e

mpl

oyee

s an

d m

anag

ers.

It is

des

igne

d to

pro

vide

insig

hts

on p

erfo

rman

ce a

nd c

an b

e us

ed a

t mul

tiple

org

aniz

atio

nal l

evel

s: fr

om a

faci

lity,

busin

ess

unit,

regi

on, t

o th

e w

orld

wid

e co

rpor

atio

n. P

rogr

ess

tow

ard

each

goa

l cat

egor

y is

disp

laye

d as

gr

een

(‘On-

Targ

et’),

yel

low

(‘C

autio

n’),

or re

d (‘N

eeds

Att

entio

n’) (

show

n in

the

acco

mpa

nyin

g Fi

gure

as

light

, med

ium

, and

dar

k sh

ades

, res

pect

ivel

y).

Perf

orm

ance

is ra

ted

usin

g bo

th p

roce

ss m

etric

s (e

.g.,

best

pra

ctic

e im

plem

enta

tion)

and

out

com

e m

etric

s (e

.g.,

perc

ent a

void

ance

in p

acka

ging

use

). C

ompo

site

indi

ces

wer

e al

so u

sed

to c

ombi

ne m

ultip

le p

erfo

rman

ce m

etric

s an

d cr

iteria

into

sin

gle

scor

es. T

hres

hold

s w

ere

set f

or th

e di

ffer

ent c

olor

-cod

ed ra

tings

. To

allo

w e

ffec

tive

roll-

up, t

he c

riter

ia m

ay v

ary

from

one

or

gani

zatio

nal l

evel

to th

e ne

xt. F

or in

stan

ce, f

or th

e C

ompl

ianc

e/Ri

sk M

anag

emen

t cat

egor

y, a

gree

n O

n-Ta

rget

ratin

g fo

r a fa

cilit

y re

quire

s IS

O 1

4001

cer

tifica

tion,

alo

ng w

ith a

few

ot

her p

roce

ss re

quire

men

ts. A

t the

bus

ines

s un

it le

vel,

how

ever

, the

sam

e ra

ting

requ

ires

that

a c

erta

in p

erce

ntag

e of

its

faci

litie

s m

eet f

acilit

y-le

vel g

reen

ratin

g.

The

Envi

ronm

enta

l Per

form

ance

Das

hboa

rds

wer

e po

sted

pro

min

ently

in a

ll fa

cilit

ies

and

revi

ewed

sem

i-ann

ually

by

John

son

& Jo

hnso

n’s

Wor

ldw

ide

Envi

ronm

enta

l Ste

erin

g C

omm

ittee

ch

aire

d by

one

of i

ts V

ice

Cha

irmen

. Sim

ilar D

ashb

oard

s w

ill al

so b

e us

ed to

trac

k an

d co

mm

unic

ate

prog

ress

tow

ard

the

com

pany

’s ne

w H

ealth

y Pl

anet

201

0 G

oals.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

Nex

t G

ener

atio

n G

oal

Pro

gre

ssR

easo

ns

/ C

om

men

tsC

ompl

ianc

e / R

isk

Man

agem

ent

3 N

onco

mpl

ianc

e ev

ents

Mgt

Sys

tem

s / I

SO 1

4001

ISO

cer

tified

, MA

ARS

rat

ing

= 2

, MA

P no

t re

view

ed a

nd s

igne

d, 1

00%

of

MA

P ite

ms

on t

ime,

C

CO

pla

n on

goin

g &

on

sche

dule

New

Pro

duct

/Pro

cess

Rev

iew

100%

of

New

Pro

duct

s/Pr

oces

ses/

Pack

agin

g re

view

ed u

sing

the

DfE

too

l or

equi

vale

nt.

Exte

rnal

Man

ufac

turin

g76

% E

M w

ith E

HS

cont

ract

lang

uage

, 40%

EM

aud

its o

n sc

hedu

le, 1

00%

EM

aud

ited

befo

re u

se,

0 un

acce

ptab

le E

M, 0

Mar

gina

l EM

Ener

gy U

se93

% E

nhan

ced

Best

Pra

ctic

es im

plem

ente

d

Wat

er U

se81

% B

est p

ract

ices

impl

emen

ted.

Cum

ulat

ive

PBA

= 7

.15,

Wat

er U

sage

= 5

02,3

86 m

3 , A

void

ed =

35,

897

m3

Raw

Mat

eria

l Use

Tota

l avo

idan

ce: 1

,589

,456

Tot

al u

sage

: 53,

165,

445

(PBA

: 3.0

)

Pack

agin

g U

sePa

ckag

ing

avoi

danc

e =

726

,489

Pack

agin

g U

se =

13,

592,

000

(5.4

PBA

)

Was

te R

educ

tion

(NPO

)

1. N

on-h

az N

PO a

void

ed =

1,2

75,1

94 T

otal

Non

-haz

NPO

= 8

1,09

5,43

2 (1

.57

PBA

)2.

Haz

NPO

avo

ided

= 1

4,14

6,30

2 To

tal H

az N

PO =

109

,443

,578

(12.

9 PB

A)

3. T

oxic

NPO

avo

ided

= 1

, 914

,000

Tot

al T

oxic

NPO

= 3

2,40

3,39

6 (5

.9 P

BA)

4. U

se o

f Pr

efer

red

Was

te M

gmt

Met

hod

= 1

6% d

ecre

ase

from

200

0

12

34

Joh

nso

n &

Jo

hn

son

En

viro

nm

enta

l Per

form

ance

Das

hb

oar

d (

Exam

ple

)

51

Met

rics

can

also

be

effe

ctiv

e fo

r on

e us

e bu

t no

t ot

hers

. For

exa

mpl

e, s

ome

met

rics

that

rel

y on

for

ecas

ted

data

are

eff

ectiv

e fo

r pl

anni

ng o

r en

gine

erin

g de

cisi

on-m

akin

g us

ing

fore

cast

ed

data

. H

owev

er, t

o us

e th

em f

or d

ay-t

o-da

y pr

ogre

ss t

rack

ing

may

pro

ve in

effe

ctiv

e du

e to

po

or d

ata

qual

ity a

nd r

elia

bilit

y. A

lso,

exe

rcis

e ca

utio

n w

ith m

etric

s de

velo

ped

for

exte

rnal

st

akeh

olde

rs. W

hile

tra

nspa

renc

y ty

pica

lly b

rings

va

lue

to t

he o

rgan

izat

ion,

con

side

r po

tent

ial

mis

use

or m

isin

terp

reta

tion

by t

hird

-par

ties,

whi

ch

can

affe

ct t

he c

ompa

ny’s

com

petit

iven

ess

or

secu

rity

of it

s op

erat

ions

.

Ret

irin

g M

etri

csA

met

ric s

houl

d be

con

side

red

for

retir

emen

t w

hen

it no

long

er s

erve

s its

pur

pose

. A

met

ric

may

no

long

er s

atis

fy t

he e

valu

atio

n cr

iteria

use

d in

Wor

kshe

et 4

due

to

vario

us f

acto

rs, i

nclu

ding

:

•su

cces

ses

- it

is n

o lo

nger

mea

ning

ful i

n dr

ivin

g ac

tions

as

the

targ

ets

have

bee

n ac

hiev

ed; i

t is

no

long

er t

rans

form

ativ

e as

the

new

beh

avio

r be

com

es t

he n

orm

•sh

ort

com

ing

s -

it r

esu

lts

in u

nin

ten

ded

ad

vers

e ac

tio

ns

and

co

nse

qu

ence

s; it

req

uire

s g

reat

er r

eso

urc

es a

nd

is le

ss c

ost

-eff

ective

th

an a

ntici

pat

ed

•ch

ange

s in

the

org

aniz

atio

n an

d/or

ext

erna

l bu

sine

ss e

nviro

nmen

t -

it is

no

long

er r

elev

ant

as t

he b

usin

ess

obje

ctiv

es h

ave

chan

ged

If an

y of

the

se p

rove

tru

e, r

etur

n to

the

beg

inni

ng

of t

he S

trat

egic

Met

rics

Dev

elop

men

t Pr

oces

s an

d de

fine

a ne

w m

etric

.

Ach

ievi

ng t

he t

arge

t an

d ot

her

obje

ctiv

es

asso

ciat

ed w

ith a

met

ric, h

owev

er, s

houl

d no

t

auto

mat

ical

ly le

ad t

o a

met

ric’s

retir

emen

t.

To a

ssur

e co

ntin

uous

impr

ovem

ent

and

orga

niza

tiona

l int

egra

tion,

one

sho

uld

cons

ider

al

tern

ativ

es s

uch

as:

•up

datin

g th

e ta

rget

•co

ntin

uing

to

mon

itor

the

met

ric

•re

finin

g th

e m

etric

For

exam

ple,

a m

etric

on

the

tota

l num

ber

of s

afet

y in

cide

nts

may

lose

its

effe

ctiv

enes

s in

driv

ing

impr

ovem

ents

as

an o

rgan

izat

ion

appr

oach

es t

he t

arge

t of

zer

o in

cide

nts.

In

fact

, it

may

driv

e th

e w

rong

beh

avio

r, e.

g.,

mov

ing

away

fro

m c

olla

bora

ting

on s

olut

ions

to

sim

ply

blam

ing

the

unit

whe

re t

he in

cide

nt

occu

rred

. Thi

s si

gnal

s th

e ne

ed f

or n

ew m

etric

s.

Retir

ing

a m

etric

, how

ever

, typ

ical

ly r

equi

res

man

agem

ent

and

key

stak

ehol

der

inpu

t, a

s w

ell

as r

epla

cem

ent

met

rics

and

a tr

ansi

tion

plan

. M

etric

s on

the

tot

al n

umbe

r of

inci

dent

s m

ay b

e re

plac

ed b

y pr

oces

s m

etric

s re

flect

ing

the

caus

es

behi

nd t

he in

cide

nts,

and

thu

s pr

ovid

e m

ore

in-d

epth

ana

lysi

s. T

hey

serv

e as

the

new

set

of

met

rics

on w

hich

the

org

aniz

atio

n fo

cuse

s.

5.

Evalu

ate

an

d C

om

mu

nic

ate

Metr

ics

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

STE

P 6

Exp

ecte

d O

utc

om

es•

A

sses

smen

t of

how

met

rics

are

driv

ing

impr

ovem

ent

an

d or

gani

zatio

nal

al

ignm

ent

and

crea

ting

busi

ness

ben

efits

52

Step

6 is

a c

ritic

al a

sses

smen

t of

the

met

rics,

re

flect

ing

on t

he fi

ve p

revi

ous

step

s of

the

too

l. W

hile

the

re a

re v

ital c

onne

ctio

ns b

etw

een

each

of

the

ear

lier

step

s, n

owhe

re w

ill t

he li

nkag

es

and

the

impo

rtan

ce o

f cy

clin

g ba

ck b

etw

een

prev

ious

ste

ps b

e m

ore

evid

ent

than

in t

his

final

st

ep. H

ere

the

focu

s is

on

how

eff

ectiv

ely

the

non-

finan

cial

met

rics:

•in

form

bus

ines

s de

cisi

ons,

pro

mot

e le

arni

ng a

nd

lead

ersh

ip a

nd d

emon

stra

te t

he b

usin

ess

case

•su

ppor

t th

e bu

sine

ss s

trat

egy

•en

gage

em

ploy

ees

and

exte

rnal

sta

keho

lder

s

•re

spon

d to

issu

es id

entifi

ed b

y st

akeh

olde

rs

•ch

ange

the

beh

avio

r an

d at

titud

e ch

ange

of

indi

vidu

als

with

in t

he o

rgan

izat

ion

•he

lp in

tegr

ate

sust

aina

bilit

y th

inki

ng in

to t

he

orga

niza

tion’

s cu

lture

•re

flect

bus

ines

s va

lues

and

yie

ld b

usin

ess

bene

fits

Ulti

mat

ely

this

ana

lysi

s w

ill d

eter

min

e th

e bu

sine

ss

valu

e th

at h

as b

een

achi

eved

thr

ough

the

met

rics

deve

lopm

ent

proc

ess.

Cri

teri

a fo

r M

easu

rin

g S

ucc

ess

The

bene

fits

prov

ided

by

this

too

l can

be

eval

uate

d by

a f

ew s

yste

m m

etric

s th

at a

ddre

ss

the

follo

win

g qu

estio

ns.

•A

re t

he a

spec

ts, i

ssue

s an

d m

etric

s re

leva

nt

to t

he b

usin

ess?

Are

the

y re

flect

ed in

bu

sine

ss o

bjec

tives

and

str

ateg

ies?

Are

the

y in

corp

orat

ed in

to t

he p

rogr

ams

desi

gned

to

addr

ess

them

? Is

tha

t re

leva

nce

acce

pted

by

key

empl

oyee

s? D

o yo

u ha

ve t

heir

buy-

in?

•A

re t

he m

etric

s m

eani

ngfu

l and

use

ful?

Do

they

sup

port

man

agem

ent

deci

sion

-mak

ing?

D

o th

ey m

eet

the

inte

nded

use

s fo

r th

e in

tend

ed u

sers

? D

o th

ey p

rodu

ce m

eani

ngfu

l re

sults

for

the

bus

ines

s?

•A

re t

hey

tran

sfor

mat

ive?

Hav

e th

ey b

een

inte

grat

ed in

to t

he c

ultu

re o

f th

e co

mpa

ny?

Hav

e th

ey c

hang

ed m

inds

ets,

att

itude

s an

d be

havi

or?

•A

re t

hey

bala

nced

in t

erm

s of

inte

rrel

atin

g en

viro

nmen

tal,

soci

al a

nd e

cono

mic

issu

es a

nd

resu

lts?

Do

they

link

acr

oss

func

tions

and

fro

m

stra

tegy

to

oper

atio

ns?

•A

re t

hey

valu

able

to

the

orga

niza

tion?

Do

the

met

rics

driv

e th

e rig

ht p

erfo

rman

ce a

nd d

o th

ey

resu

lt in

bet

ter

busi

ness

per

form

ance

? D

oes

this

lead

to

grea

ter

busi

ness

val

ue, t

angi

ble

and/

or in

tang

ible

?

•H

ave

the

met

rics

been

mis

used

or

man

ipul

ated

in u

nint

ende

d w

ays?

Are

the

m

etric

s ac

cess

ible

to

thos

e w

ho in

tend

to

use

them

aga

inst

the

org

aniz

atio

n?

Det

erm

inin

g th

e de

gree

to

whi

ch t

he m

etric

s sy

stem

mee

ts t

he c

riter

ia (t

he t

hird

col

umn

of

Wor

kshe

et 4

b on

pag

e 40

) sho

uld

prov

ide

insi

ghts

in

to w

here

the

sys

tem

will

nee

d to

be

revi

sed.

It

is

the

feed

back

loop

to

earli

er s

teps

and

pro

vide

s an

op

port

unity

to

refle

ct o

n th

e pr

oces

s an

d ra

te t

he

effe

ctiv

enes

s of

the

pro

cess

and

its

resu

lts.

Cas

e ex

ampl

es b

y th

e O

ccid

enta

l Pet

role

um

Cor

pora

tion

(on

page

53)

and

Pfiz

er In

c. (o

n pa

ge

54) i

llust

rate

the

eva

luat

ion

of m

etric

sys

tem

s to

as

sure

the

ir ef

fect

iven

ess

and

in d

evel

opin

g th

e ne

xt g

ener

atio

n of

met

rics.

A f

ocu

s g

rou

p o

f em

plo

yees

fro

m

acro

ss f

un

ctio

nal

ar

eas

is m

ost

like

ly t

o

un

der

stan

d t

he

dir

ect

and

ind

irec

t, t

ang

ible

an

d in

tan

gib

le v

alu

es

that

are

bei

ng

, an

d

can

be,

der

ived

.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

6.

Evalu

ate

Im

pro

vem

en

t an

d I

nte

gra

tio

n

53

Eval

uat

ing

Eff

ecti

ven

ess

of

the

Pro

cess

Ther

e ar

e nu

mer

ous

way

s to

eva

luat

e ef

fect

iven

ess

of t

he p

roce

ss:

•B

uy-

in–

The

proc

ess

is o

nly

as g

ood

as t

he

peop

le w

ho a

re in

volv

ed, b

elie

ve it

to

be, a

nd

are

satis

fied

with

the

res

ults

. If

ther

e is

lim

ited

or

no b

uy-in

fro

m t

he s

take

hold

ers

in t

he p

roce

ss

and/

or r

esul

ts, t

hen

revi

sit

the

met

rics.

If t

here

is

a h

igh

degr

ee o

f bu

y-in

but

the

res

ults

do

not

refle

ct it

, loo

k at

the

man

agem

ent

syst

em a

nd

met

rics

to d

eter

min

e w

here

the

pro

blem

lies

.Fo

r ex

ampl

e, s

take

hold

er s

urve

ys t

hat

rate

the

ef

fect

iven

ess

of t

he p

roce

ss a

nd s

atis

fact

ion

that

the

res

ults

refl

ect

stak

ehol

der

inpu

t ca

n

be c

onsi

dere

d.

EAG

Per

spec

tive

Ho

w C

an

On

e F

orm

an

Eff

ect

ive ‘

Pic

ture

’ fo

r D

iffe

ren

t U

sers

of

Metr

ics?

A m

etric

s pr

ogra

m is

eff

ectiv

e w

hen

it is

re

leva

nt t

o th

e de

cisi

on-m

aker

s an

d ca

n he

lp

them

for

m a

n ac

cura

te p

ictu

re o

f w

here

the

or

gani

zatio

n is

and

whe

re it

is h

eadi

ng.

Onl

ine

atw

ww

.gem

i.org

/met

rics

nav

igat

or,

Jim

Ri

tchi

e-D

unha

m o

f th

e In

stitu

te o

f St

rate

gic

Cla

rity

expl

ores

way

s to

com

mun

icat

e ef

fect

ivel

y w

ith d

iffer

ent

grou

ps o

f us

ers,

de

pend

ing

on w

heth

er t

hey

unde

rsta

nd

sust

aina

bilit

y an

d w

heth

er t

hey

wan

t to

un

ders

tand

it.

Occ

iden

tal

Petr

ole

um

Co

rpo

rati

on

Peri

od

ic R

evie

w o

f M

etri

cs a

nd

th

e M

anag

emen

t Sy

stem

The

envi

ronm

ent,

hea

lth a

nd s

afet

y (E

HS)

man

agem

ent

syst

em o

f O

ccid

enta

l Pet

role

um r

elie

s up

on t

he u

se o

f m

etric

s to

pur

sue

cont

inuo

us p

erfo

rman

ce im

prov

emen

t. A

long

with

ong

oing

qua

rter

ly a

nd a

nnua

l bus

ines

s un

it (B

U) r

evie

ws

of p

erfo

rman

ce, O

ccid

enta

l inc

lude

s an

ass

essm

ent

of m

etric

s in

its

perio

dic

man

agem

ent

syst

ems

revi

ew, w

hich

is c

ondu

cted

at

the

dire

ctio

n of

Occ

iden

tal’s

EH

S C

omm

ittee

of

the

Boar

d of

Dire

ctor

s.

Kno

wn

as t

he P

rogr

am R

evie

w, t

he e

valu

atio

n pr

ovid

es a

n ov

eral

l opi

nion

abo

ut t

he a

bilit

y of

the

BU

’s m

anag

emen

t te

am a

nd s

yste

m t

o ac

hiev

e th

e pe

rfor

man

ce g

oals

spe

cifie

d in

the

cor

pora

tion’

s EH

S po

licy

and

proc

edur

es. I

t co

nfirm

s th

at B

U le

ader

s ar

e in

tegr

atin

g EH

S co

nsid

erat

ions

into

bus

ines

s pl

anni

ng a

nd d

ecis

ion-

mak

ing

proc

esse

s. F

ocus

ing

on fi

ve k

ey m

anag

emen

t di

men

sion

s –

Lead

ersh

ip, B

usin

ess

Inte

grat

ion,

Pla

nnin

g,

Man

agem

ent

Syst

ems

and

Reso

urce

s –

the

Prog

ram

Rev

iew

che

cks

for

conf

orm

ance

with

EH

S po

licy,

ass

esse

s th

e im

pact

of

pers

onne

l cha

nges

and

reo

rgan

izat

ions

, det

erm

ines

the

sta

tus

of p

rior

Prog

ram

Rev

iew

issu

es a

nd

oppo

rtun

ities

for

impr

ovem

ent

and

iden

tifies

new

opp

ortu

nitie

s fo

r sy

stem

enh

ance

men

t.

The

basi

c te

net

of E

HS

lead

ersh

ip is

tha

t ex

ecut

ive

and

line

man

ager

s ar

e th

e pr

imar

y ow

ners

of

the

EHS

prog

ram

and

are

acc

ount

able

for

EH

S co

mpl

ianc

e an

d co

ntin

uous

impr

ovem

ent.

Yea

r-ov

er-y

ear

EHS

perf

orm

ance

rel

ativ

e to

the

met

rics

(lagg

ing

and

lead

ing)

est

ablis

hed

by t

he B

U p

rovi

des

a ke

y be

nchm

ark

for

prog

ress

. Int

ervi

ews

of e

xecu

tive

and

line

man

agem

ent,

as

wel

l as

mem

bers

of

vario

us b

usin

ess

unit

staf

f de

part

men

ts, t

est

pers

onal

und

erst

andi

ng o

f an

d ac

coun

tabi

lity

for

achi

evin

g go

als.

Met

rics

are

also

ass

esse

d fo

r th

eir

rele

vanc

e (Is

the

re a

con

nect

ion

to t

he g

oal?

), ef

fect

iven

ess

(Do

they

mot

ivat

e pe

rfor

man

ce?)

and

th

e de

gree

to

whi

ch t

hey

are

embe

dded

into

cor

e bu

sine

ss p

roce

sses

. The

rev

iew

con

firm

s th

at t

he m

easu

res

bein

g us

ed c

ontr

ibut

e to

org

aniz

atio

nal a

lignm

ent

and

rein

forc

e th

e ro

les

of t

eam

s an

d in

divi

dual

s th

roug

h es

tabl

ishe

d re

cogn

ition

and

com

pens

atio

n sy

stem

s.

At

the

conc

lusi

on o

f th

e re

view

, the

bus

ines

s un

it C

EO m

eets

with

Occ

iden

tal’s

EH

S Bo

ard

Com

mitt

ee t

o di

scus

s th

e re

sults

of

the

revi

ew, i

nclu

ding

impo

rtan

t pe

rfor

man

ce t

rend

s / i

ssue

s an

d pl

anne

d ac

tions

. Per

iodi

c fo

llow

-up

of

plan

ned

actio

ns, a

s w

ell a

s re

gula

r ev

alua

tion

of p

erfo

rman

ce a

gain

st m

etric

s an

d m

ilest

ones

ser

ve t

o cl

ose

the

man

agem

ent

syst

ems

loop

.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

54

Pfi

zer

Inc

Eval

uat

ing

Co

mp

any-

Wid

e G

oal

sPfi

zer

has

esta

blis

hed

com

pany

-wid

e en

viro

nmen

t, h

ealth

and

saf

ety

(EH

S) g

oals

on

clim

ate

chan

ge a

nd

ener

gy, w

hich

are

:

•To

red

uce

CO

2 em

issi

ons

by 3

5 pe

rcen

t pe

r m

illio

n do

llars

of

sale

s by

200

7 fr

om t

he b

asel

ine

year

200

0

•To

mee

t 35

per

cent

of

its g

loba

l ele

ctric

ity n

eeds

by

2010

thr

ough

‘cle

an’ e

nerg

y so

urce

s, in

clud

ing

co-g

ener

atio

n, s

olar

, and

win

d po

wer

By 2

006,

Pfiz

er is

clo

se t

o ac

hiev

ing

the

35 p

erce

nt r

educ

tion

targ

et f

or C

O2

emis

sion

s an

d is

on

trac

k to

war

ds it

s cl

ean

ener

gy g

oal.

As

it ap

proa

ches

the

200

7 ta

rget

yea

r fo

r C

O2

emis

sion

red

uctio

n, P

fizer

is

eval

uatin

g its

cur

rent

goa

ls a

nd t

arge

ts in

pre

para

tion

for

deve

lopi

ng t

he n

ext

set.

The

com

pany

-wid

e cl

imat

e ch

ange

and

ene

rgy

goal

s w

ere

deve

lope

d to

cap

ture

exi

stin

g in

tere

sts

and

proj

ect

idea

s by

Pfiz

er s

taff

, refl

ect

man

agem

ent’s

con

cern

on

risks

and

opp

ortu

nitie

s an

d m

eet

exte

rnal

st

akeh

olde

rs’ e

xpec

tatio

ns. A

s a

phar

mac

eutic

al c

ompa

ny, P

fizer

’s ca

rbon

foo

tprin

t is

rel

ativ

ely

smal

l and

en

ergy

rem

ains

a s

mal

l fra

ctio

n of

the

cos

t of

goo

ds s

old.

How

ever

, the

goa

ls a

re r

egar

ded

as im

port

ant

in

stre

ngth

enin

g th

e co

mpa

ny’s

repu

tatio

n as

an

indu

stry

lead

er.

The

goal

s ha

ve b

een

effe

ctiv

e in

rai

sing

aw

aren

ess

on t

he is

sues

and

pro

vidi

ng t

arge

ts in

dev

elop

ing

impr

ovem

ent

proj

ects

. Est

ablis

hing

cor

pora

te g

oals

hel

ped

ener

gy r

educ

tion

and

clea

n en

ergy

pro

ject

s in

com

petin

g fo

r ca

pita

l. W

hile

the

se p

roje

cts

are

ofte

n di

sadv

anta

ged

due

to lo

w r

etur

n on

inve

stm

ent,

em

ploy

ees

and

man

agem

ent

have

now

lear

ned

that

the

y in

volv

e ve

ry lo

w r

isk

and

are

wor

th d

oing

.

In e

valu

atin

g co

mpa

ny-w

ide

goal

s an

d ta

rget

s, P

fizer

is a

sses

sing

met

rics

used

for

the

tar

gets

, per

form

ance

ta

rget

s to

set

for

the

nex

t ge

nera

tion’

s go

als

and

othe

r is

sues

tha

t m

ay b

ecom

e m

ater

ial a

nd r

equi

re c

ompa

ny-

wid

e EH

S go

als.

Thi

s in

clud

es r

evis

iting

the

bou

ndar

ies

and

deno

min

ator

s us

ed in

the

pre

sent

set

of

met

rics

and

iden

tifyi

ng o

ther

pos

sibl

e m

easu

res

that

can

bet

ter

capt

ure

wha

t is

mat

eria

l int

erna

lly a

nd e

xter

nally

.

•B

ehav

ior

chan

ge

– Th

e de

gree

to

whi

ch t

he

met

rics

and

thei

r un

derly

ing

logi

c he

lp in

form

a

rele

vant

, acc

urat

e an

d va

luab

le p

ictu

re f

or

the

empl

oyee

s is

impo

rtan

t in

eva

luat

ing

the

succ

ess

of t

he m

etric

s pr

ogra

m d

evel

oped

. Su

cces

sful

ly in

form

ing,

and

the

refo

re s

hift

ing

attit

udes

, min

dset

s an

d be

havi

ors

from

‘tho

se

who

do

not

get

sust

aina

bilit

y an

d do

not

wan

t to

’ to

‘tho

se w

ho g

et s

usta

inab

ility

and

wan

t to

’ is

criti

cal t

o th

e su

cces

s of

any

met

rics

prog

ram

. Fu

rthe

r, as

sess

ing

the

unde

rsta

ndin

g an

d co

mm

itmen

t of

bot

h se

nior

lead

ers

and

the

entir

e or

gani

zatio

n is

impo

rtan

t to

the

su

cces

s in

bui

ldin

g a

sust

aina

bilit

y cu

lture

and

th

e m

easu

re o

f su

ch a

cul

ture

.

Ther

efor

e, p

erio

dica

lly s

urve

ying

the

em

ploy

ees

to a

sses

s ho

w t

heir

attit

udes

and

beh

avio

rs a

re

chan

ging

to

reco

gniz

e th

e va

lue

of s

usta

inab

ility

th

inki

ng is

ano

ther

way

to

asse

ss t

he d

egre

e to

w

hich

the

met

rics

effo

rt is

driv

ing

chan

ge.

•O

rgan

izat

ion

al in

teg

rati

on

& c

han

ge

– H

ow

wel

l the

issu

es, o

bjec

tives

and

rel

ated

met

rics

are

inte

grat

ed in

to t

he o

rgan

izat

ion

and

driv

e or

gani

zatio

nal c

hang

e is

ano

ther

cat

egor

y fo

r ev

alua

tion.

To

asse

ss t

he t

rans

form

ativ

e na

ture

of

the

met

rics

and

the

proc

ess

behi

nd t

hem

, co

nsid

er t

he u

nder

lyin

g at

trib

utes

of

a co

mpl

ex

lear

ning

org

aniz

atio

n. D

oes

the

orga

niza

tion

supp

ort

and

rew

ard

lear

ning

beh

avio

r? D

oes

it ha

ve a

n in

nova

tion

cultu

re?

Doe

s it

enco

urag

e cr

oss-

func

tiona

l tea

min

g an

d re

war

d le

ader

ship

in

new

are

as?

A s

elf-

asse

ssm

ent

by e

mpl

oyee

s w

hich

rat

es t

he c

ompa

ny’s

attr

ibut

es a

s a

lear

ning

org

aniz

atio

n w

ill s

hed

som

e lig

ht

on h

ow w

ell t

he o

rgan

izat

ion

can

lear

n fr

om e

mbr

acin

g th

e ch

alle

nges

inhe

rent

in

sust

aina

bilit

y ac

tions

.

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

55

EAG

Per

spec

tive

Wh

at

are

th

e C

hara

cteri

stic

s o

f a L

earn

ing

Org

an

izati

on

?A

lear

ning

org

aniz

atio

n is

one

tha

t is

abl

e to

ch

ange

its

beha

vior

s an

d m

inds

ets

as a

res

ult

of e

xper

ienc

e. S

uch

an o

rgan

izat

ion

allo

ws

indi

vidu

als

to t

hriv

e an

d en

gage

in le

gitim

ate

expl

orat

ions

of

the

spac

e of

pos

sibi

litie

s an

d is

abl

e to

ada

pt t

o ex

tern

al c

hang

es. A

ful

ler

desc

riptio

n of

the

cha

ract

eris

tics

of a

lear

ning

or

gani

zatio

n, a

s su

mm

ariz

ed b

y Ev

e M

ittle

ton-

Kel

ly o

f Lo

ndon

Sch

ool o

f Ec

onom

ics

and

the

Soci

ety

of O

rgan

izat

iona

l Lea

rnin

g –

UK

, can

be

fou

nd o

nlin

e at

ww

w.g

emi.o

rg/m

etri

csn

avig

ato

r.

EAG

Per

spec

tive

Do

Yo

ur

Metr

ics

Dri

ve I

nn

ovati

on

?Th

e ne

ed f

or s

trat

egic

met

rics

cann

ot b

e un

ders

tate

d, f

or t

hey

ultim

atel

y he

lp d

eter

min

e w

here

inve

stm

ents

are

mad

e an

d w

hat

the

over

all s

trat

egic

dire

ctio

n of

the

firm

is g

oing

to

be

in a

ver

y dy

nam

ic m

arke

tpla

ce. M

ark

Mils

tein

of

Cen

ter

for

Sust

aina

ble

Glo

bal

Ente

rpris

e, c

halle

nges

org

aniz

atio

ns t

o an

swer

, “D

o yo

ur m

etric

s m

atch

you

r st

ated

inte

ntio

ns

to g

et b

eyon

d in

crem

enta

l inn

ovat

ion?

” on

line

atw

ww

.gem

i.org

/met

rics

nav

igat

or.

•M

etri

cs r

esu

lts

– Th

e pe

rfor

man

ce o

f th

e m

etric

s is

als

o im

port

ant,

alth

ough

the

se r

esul

ts

will

tak

e tim

e to

rea

lize.

Are

the

met

rics

driv

ing

the

right

per

form

ance

of

the

syst

em?

Wha

t ar

e th

e re

sults

rel

ativ

e to

the

tar

gets

? If

the

re

sults

are

con

side

red

poor

, ask

: Are

the

tar

gets

re

ason

able

? A

re t

he m

etric

s th

e rig

ht o

nes?

D

o th

ey in

fac

t su

ppor

t th

e us

es f

or w

hich

the

y w

ere

deve

lope

d? A

re t

hey

bein

g us

ed b

y th

e in

tend

ed p

artie

s? D

oes

the

man

agem

ent

syst

em

supp

ort

the

achi

evem

ent

of t

hose

tar

gets

?

•B

usi

nes

s va

lue

– La

stly,

the

met

rics

proc

ess

and

resu

lting

met

rics

will

onl

y be

use

ful i

f th

e ef

fort

has

ben

efici

al a

nd v

alua

ble

resu

lts

for

the

busi

ness

org

aniz

atio

n. In

the

fina

l an

alys

is, w

hat

bene

fits

can

be d

eriv

ed f

rom

an

inte

grat

ion

of t

hese

issu

es, o

bjec

tives

and

m

etric

s in

to t

he b

usin

ess?

Wha

t is

the

val

ue

prop

ositi

on?

A f

ocus

gro

up o

f em

ploy

ees

from

acr

oss

func

tiona

l are

as is

mos

t lik

ely

to

unde

rsta

nd t

he d

irect

and

indi

rect

, tan

gibl

e an

d in

tang

ible

, val

ues

that

are

bei

ng, a

nd c

an b

e de

rived

. The

se p

eopl

e sh

ould

be

aske

d w

hat

unde

rlyin

g va

lue

is a

chie

ved

thro

ugh

adop

ting

sust

aina

bilit

y co

ncep

ts a

nd w

heth

er t

he m

etric

s de

mon

stra

te t

his

bene

fit.

This

eva

luat

ion

is t

he

mos

t im

port

ant,

as

it is

all

abou

t pe

ople

and

ho

w t

hey

reco

gniz

e va

lue.

Valu

es t

hat

can

be c

onsi

dere

d an

d pe

rhap

s ra

nked

or

rat

ed in

clud

e:

oab

ility

to

asse

ss im

pact

s in

ter

ms

of t

angi

ble

and

inta

ngib

le b

usin

ess

valu

e

oid

entifi

catio

n of

cos

t-sa

ving

and

rev

enue

-ge

nera

ting

oppo

rtun

ities

oris

k re

duct

ion

oin

form

ed /

impr

oved

dec

isio

n-m

akin

g

om

utua

lly b

enefi

cial

rel

atio

nshi

ps w

ith e

xter

nal

stak

ehol

ders

ost

reng

then

ed li

cens

e to

ope

rate

in th

e co

mm

unity

oop

port

unity

to

build

alli

ance

s w

ith o

ther

s (n

on-g

over

nmen

t or

gani

zatio

ns, g

over

nmen

t ag

enci

es, c

omm

uniti

es, o

ther

bus

ines

ses)

oen

tran

ce t

o, a

nd e

xpan

sion

of,

mar

kets

oen

hanc

ed r

eput

atio

n

oen

hanc

ed a

bilit

y to

att

ract

and

reta

in to

p ta

lent

oab

ility

to

fore

cast

issu

es

oin

dust

ry le

ader

ship

and

com

petit

ive

adva

ntag

e

In C

on

clu

sio

nRe

gard

less

of

how

thi

s to

ol is

use

d, it

sho

uld

gene

rate

mea

ning

ful c

oncl

usio

ns. T

he s

umm

ary

wor

kshe

et (o

n pa

ge 5

) cap

ture

s th

e fe

w c

ritic

al

conc

lusi

ons

from

eac

h st

ep a

nd is

a lo

gica

l fr

amew

ork

for

com

mun

icat

ing

the

‘wha

t’ a

nd

‘why

’ of

met

rics.

It c

an b

e us

ed t

o ge

nera

te

a su

mm

ary

for

seni

or m

anag

emen

t w

hich

de

mon

stra

tes

the

met

rics

deve

lopm

ent

proc

ess

and

outc

omes

, inc

ludi

ng t

he b

usin

ess

ratio

nale

.

This

too

l doe

s no

t re

com

men

d sp

ecifi

c m

etric

s;

rath

er, i

t pr

ovid

es a

fra

mew

ork

for

iden

tifyi

ng a

nd

man

agin

g en

viro

nmen

tal,

soci

al a

nd e

cono

mic

is

sues

, and

a p

roce

ss f

or d

evel

opin

g th

e cr

itica

l fe

w m

etric

s w

hich

mea

sure

per

form

ance

. The

st

reng

th o

f th

e to

ol is

tha

t it

offe

rs a

rig

orou

s th

ough

t pr

oces

s. T

he g

reat

est

valu

e is

in h

ow it

he

lps

indi

vidu

als,

gro

ups

or e

ntire

org

aniz

atio

ns

thin

k th

roug

h th

e pr

oces

s -

the

logi

cal fl

ow o

f th

e si

x st

eps

– w

ith s

ugge

sted

met

hods

to

deve

lop

or a

ugm

ent

in-h

ouse

app

roac

hes.

The

prin

cipa

l be

nefit

of

usin

g th

e to

ol is

to

adva

nce

busi

ness

pe

rfor

man

ce t

hrou

gh t

he d

evel

opm

ent

and

use

of

non-

finan

cial

mea

sure

men

ts. 6.

Evalu

ate

Im

pro

vem

en

t an

d I

nte

gra

tio

n

6H

ow

to

Ass

ure

Eff

ect

iven

ess

5H

ow

to

Ass

ure

Eff

ect

iven

ess

4W

hat

an

d H

ow

toM

easu

re3

Wh

at

is

Mate

rial

2W

hat

is

Mate

rial

1W

hat

is

Mate

rial

56

Glo

ssary

Co

nse

qu

ence

Met

rics

– r

eflec

t th

e

cons

eque

nces

or

effe

cts

on t

he b

road

er s

yste

m o

f th

e in

tend

ed o

utco

mes

.

Co

rpo

rate

So

cial

Res

po

nsi

bili

ty (C

SR) –

is a

co

mm

itmen

t to

uph

old

hum

an r

ight

s, b

ehav

e ac

cord

ing

to a

ccep

ted

ethi

cal s

tand

ards

and

co

ntrib

ute

to s

ocio

-eco

nom

ic d

evel

opm

ent

and

qual

ity o

f lif

e. (1

6)

Incr

emen

tal T

arg

ets

– ar

e se

t to

ach

ieve

gr

adua

l cha

nge.

Inta

ng

ible

s –

are

non-

mon

etar

y as

sets

, inc

ludi

ng

peop

le, i

deas

, net

wor

ks a

nd p

roce

sses

, whi

ch

ar

e no

t tr

aditi

onal

ly a

ccou

nted

for

on

the

ba

lanc

e sh

eet.

Key

Per

form

ance

Ind

icat

or

(KPI

) – is

an

indi

cato

r of

per

form

ance

tow

ard

a ke

y ob

ject

ive(

s), i

.e.,

wha

t to

mea

sure

.

Lag

gin

g M

etri

cs –

is a

mea

sure

whi

ch r

eflec

ts

past

out

com

es o

f pe

rfor

man

ce.

Lead

ing

Met

rics

– is

a p

redi

ctiv

e m

easu

re o

f an

ticip

ated

per

form

ance

tha

t ca

n be

obs

erve

d pr

ior

to t

he p

erio

d of

per

form

ance

.

Mat

eria

lity

– is

defi

ned

as t

he r

elev

ance

and

su

bsta

ntia

lity

of a

n is

sue

to t

he o

rgan

izat

ion.

Met

ric

– is

a q

uant

itativ

e m

easu

re, i

.e.,

wha

t to

m

easu

re. W

hile

KPI

s ar

e st

rate

gic

met

rics

that

m

ust

be t

ied

to a

key

obj

ectiv

e an

d a

targ

et, a

m

etric

is a

num

ber

whi

ch is

giv

en m

eani

ng in

the

co

ntex

t of

the

KPI

.

Ou

tco

me

Met

rics

– a

re m

easu

rem

ents

of

resu

lts.

Pro

cess

Met

rics

– m

easu

re t

he a

ctio

ns o

r pr

oces

ses

that

driv

e th

e in

tend

ed o

utco

mes

, i.e

., th

e ca

uses

, and

are

usu

ally

tie

d to

the

act

ion

plan

s pu

t in

pla

ce t

o ac

hiev

e ta

rget

s.

Spec

ifici

ty –

ref

ers

to t

he lo

wes

t le

vel o

f th

e or

gani

zatio

n to

whi

ch t

he m

etric

is r

epor

ted.

Stre

tch

Tar

get

s –

are

mor

e re

volu

tiona

ry t

arge

ts.

A s

tret

ch t

arge

t is

set

with

less

und

erst

andi

ng o

f ho

w it

will

be

met

.

Targ

ets

– ar

e qu

antifi

able

per

form

ance

goa

ls

that

are

rel

evan

t to

the

org

aniz

atio

n’s

obje

ctiv

es

and

deriv

ed f

rom

its

KPI

’s. A

tar

get

is e

xpre

ssed

as

a t

angi

ble

mea

sura

ble

obje

ctiv

e, a

gain

st w

hich

ac

tual

ach

ieve

men

t ca

n be

com

pare

d. (1

7)

Refe

ren

ces

1. A

.L. W

hite

, “Fa

de, I

nteg

rate

or

Tran

sfor

m?

The

Futu

re o

f C

SR,”

Bus

ines

s fo

r So

cial

Res

pons

ibili

ty (B

SR) R

epor

t, A

ugus

t 20

05

(h

ttp://w

ww.bsr.org/CSR

Resources

)

2. F

ASB

Sta

tem

ent

of F

inan

cial

Acc

ount

ing

Con

cept

s 2

(htt

p://w

ww

.fas

b.or

g/st

/); S

EC S

taff

Acc

ount

ing

Bulle

tin (S

AB)

Num

ber

99 o

n M

ater

ialit

y

(h

ttp://sec.gov/interps/acco

unt/sab99

.htm

)

3. S

usta

inA

bilit

y Is

sue

Brie

f #6

“M

ater

ialit

y,”

Mar

ch 2

004

(http://w

ww.sustainab

ility.com/insight/issu

e-brief.asp

?id=65

); N

ike

FY04

Cor

pora

te

R

espo

nsib

ility

Rep

ort;

For

d M

otor

Com

pany

Sus

tain

abili

ty R

epor

t 20

04/0

5

4. G

EMI T

rans

pare

ncy:

A P

ath

to P

ublic

Tru

st (h

ttp://w

ww.gem

i.org

); U

NEP

Sta

keho

lder

Eng

agem

ent

Man

ual (http://w

ww.unep

tie.org/outrea

ch)

5. A

A10

00 s

tand

ards

(http://w

ww.accountability21

.net/aa1

000)

6. IS

O 1

4001

sta

ndar

d, S

ectio

n 3.

12 (h

ttp://w

ww.iso.org/iso

/en/prods-services/otherpubs/iso14

000)

7. K

PMG

, “A

chie

ving

Mea

sura

ble

Perf

orm

ance

Impr

ovem

ent

in a

Cha

ngin

g W

orld

: The

Sea

rch

for

New

Insi

ghts

,” 2

004

(h

ttp://w

ww.kpmg.com.au/aci/docs/m

easu

re-perform

ance.pdf)

8. Ib

id.

9. Ib

id.

10. B

. Bel

off,

“Pl

anni

ng f

or S

usta

inab

ility

,” in

Tra

nsfo

rmin

g Su

stai

nabi

lity

Stra

tegy

into

Act

ion:

The

Che

mic

al In

dust

ry, B

. Bel

off,

M. L

ines

, and

D. T

anzi

l

(eds

.), J

ohn

Wile

y &

Son

s, H

obok

en, N

J, 2

005

11. W

CED

, Our

Com

mon

Fut

ure

(198

7), O

xfor

d: O

xfor

d U

nive

rsity

Pre

ss. I

SBN

0-1

9-28

2080

-X

12. T

.A. K

ocha

n an

d S.

A. R

uben

stei

n, “

Tow

ard

a St

akeh

olde

r Th

eory

of

the

Firm

: The

Sat

urn

Part

ners

hip,

” O

rgan

izat

iona

l Sci

ence

, 11(

4):3

67-8

6, 2

000.

13. A

dapt

ed fr

om p

rese

ntat

ion

by B

arba

ra W

inte

r-Wat

son

of E

RM to

the

GEM

I Met

rics

Wor

kgro

up, S

epte

mbe

r 21,

200

4

14. S

ee f

ootn

ote

8

15. P

rese

ntat

ion

by P

atric

e Fl

ynn

at t

he G

EMI M

etric

s W

orkg

roup

Ext

erna

l Adv

isor

y G

roup

mee

ting,

Mar

ch 1

, 200

6

16. G

EMI F

orgi

ng N

ew L

inks

: Enh

anci

ng S

uppl

y C

hain

Val

ue t

hrou

gh E

nviro

nmen

tal E

xcel

lenc

e 20

04

17.S

ervi

ng t

he A

mer

ican

Pub

lic: B

est

Prac

tices

in P

erfo

rman

ce M

easu

rem

ent.

Nat

iona

l Per

form

ance

Rev

iew

: Ben

chm

arki

ng R

epor

t. J

une

1997

.

Glo

bal

En

viro

nm

enta

l Man

agem

ent

Init

iati

ve11

55 1

5th

Stre

et, N

W, S

uite

500

Was

hing

ton,

DC

200

05Te

l. 20

2-29

6-74

49w

ww

.gem

i.org

Prin

ted

wit

h 1

00%

so

y-b

ased

inks

on

rec

ycle

d p

aper

(25%

po

st-c

on

sum

er w

aste

co

nte

nt

and

50%

to

tal r

ecyc

led

fib

er)

12008

GE

MI:

Pro

vid

ing

Bu

sin

ess V

alu

e t

o its

Mem

bers

Th

e G

lob

al E

nvir

on

men

tal

Ma

nag

em

en

t In

itia

tive (

GE

MI)

22008

GE

MI

Valu

es

Vis

ion

:

“To

be

glo

ba

lly r

eco

gn

ize

d a

s a

le

ad

er

in p

rovid

ing

str

ate

gie

s f

or

busin

esses t

o a

chie

ve E

HS

excelle

nce,

econom

ic s

uccess, and c

orp

ora

te c

itiz

enship

.”

Mis

sio

n:

“Bu

sin

ess h

elp

ing

bu

sin

ess im

pro

ve

EH

S

pe

rfo

rma

nce

, sh

are

ho

lde

r va

lue

, a

nd

co

rpo

rate

citiz

en

sh

ip.”

32008

Cu

rren

t M

emb

ers

42008

Wh

at

Does

GE

MI

Do?

•H

elp

se

nio

r-le

ve

l E

HS

pra

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202-2

96-7

449

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IN Focus September 11, 2008

Can America Invent Its Way Back?

"Innovation economics" shows how smart ideas can turn

into jobs and growth—and keep the U.S. competitive

by Michael Mandel

Will 2009 be the year of innovation economics?

Pessimism about America's future is growing. People worry about the long-term impact of the housing crisis, global competition, and expensive energy. And the policy solutions offered by Republicans and Democrats—mainly tax cuts and government spending programs—seem insufficient.

Yet beneath the gloom, economists and business leaders across the political spectrum are slowly coming to an agreement: Innovation is the best—and maybe the only—way the U.S. can get out of its economic hole. New products, services, and ways of doing business can create enough growth to enable Americans to prosper over the long run.

Certainly the Presidential candidates are taking the idea seriously. John McCain has proposed a $300 million prize for the person or company that creates a better battery technology to power cars. Barack Obama has called for spending $150 billion over the next 10 years on clean-energy technologies. The hoped-for outcome: more jobs, more competitive trade, less dependence on foreign oil.

But here's the conundrum: If money alone were enough to guarantee successful innovation, the U.S. would be in much better shape than it is today. Since 2000, the nation's public and private sectors have poured almost $5 trillion into research and development and higher education, the key contributors to innovation. Nevertheless, employment in most technologically advanced industries has stagnated or even fallen. The number of domestic jobs in the computer and electronics sector continues to plunge while pharmaceutical and biotech companies lay off as many workers as they hire. And even the industry category that includes Google (GOOG)—Internet publishing and Web search portals—has added only 15,000 jobs since 2003.

The new field of innovation economics addresses this gap between spending and results. Economists are increasingly studying what drives successful innovation to learn how companies can get more bang from the bucks spent on R&D and higher education. At the same time, they're collecting new data on American R&D initiatives to understand what's working in the U.S. and what's not. And most important, economists are making concrete proposals about how to turn smart ideas into jobs and growth.

DISAPPOINTING BIOTECH AND NANOTECH

This focus on innovation as a crucial way to develop a competitive edge is a big change from the past. While a handful of economists have studied technological change, the main focus of policy-minded economists has, until recently, been on traditional topics such as taxes, government spending, and trade.

Now some of the brightest minds in the field, including Daron Acemoglu of Massachusetts Institute of Technology, winner of the 2005 John Bates Clark Medal for the top economist under 40, are paying a lot more attention. His work examines how government and business decisions such as outsourcing can influence the direction of technological change.

But theorizing isn't enough without good data. That's why government statisticians such as Lynda Carlson of the National Science Foundation are trying to find new ways to quantify innovation and its impacts on business. In January the NSF will launch an annual survey of 40,000 companies asking how much they spend on R&D in the U.S. and overseas, by type of business and country. "For the first time, we'll have a clear picture of what kind of research companies are doing globally and what benefits they are getting from their spending," says Carlson, who is spearheading the survey.

Economists are also suggesting how to use new tools to boost innovation. They're studying when prizes for technological advances make sense. They're proposing ways state and local governments can best encourage innovation-based economic development. And they're exploring how to make optimal use of the billions of dollars' worth of research conducted in government-funded national labs.

It's possible the longstanding partisan debate over tax rates and budget deficits may soon become a sideshow. "The main purpose of economic policy should be to spur innovation and growth," argues economist Robert Atkinson, head of the Information Technology & Innovation Foundation (ITIF), a nonpartisan think tank in Washington. "This is not an issue either party owns."

Historically, technological change has been the biggest force for productivity growth in the U.S. The latest figures show that "multifactor productivity"—a category that includes technological change and other improvements in business processes—accounted for 45% of productivity gains between 1987 and 2007. "Ninety-five percent of economists agree that innovation is the most important thing for long-run growth," says Acemoglu of MIT.

What's more, the best way to keep the U.S. competitive is to bank on promising new ideas. America still is a leader in resources devoted to innovation, as measured by the share of gross domestic product spent on R&D and higher education. But it can't compete with China, India, and other developing countries on labor costs. And it's unlikely the U.S. can depend on cheap capital because it borrows so much money from overseas. Indeed, personal, corporate, and government savings combined total only 14% of GDP in the U.S., vs. an average 22% among other industrialized nations.

But innovation has fallen short of its promise in recent years. While some info tech corporations are still thriving, other sectors that were supposed to drive growth have faltered.

Biotech companies have produced new drugs, but so far no real breakthroughs. And nanotechnology has been slow to generate commercial products.

Worse, the historic link between jobs and innovation seems to have vanished, at least for now. In the past, pioneering industries such as automobile manufacturing and aerospace were big job creators. Today, jobs in cutting-edge sectors are down 12% since their 2001 peak. (Those industries include computer and communications hardware, software and computer-systems design, aircraft, drugs and medical devices, telecom, and Internet outfits such as Google and Yahoo! (YHOO))

Until recently, economists had few good remedies when innovation stopped producing enough tangible benefits. Thats because technological progress—the discovery of penicillin or the invention of the laser—was viewed mainly as the product of science and serendipity, and therefore not very responsive to economic forces.

As a result, economists had only one blunt tool for stimulating innovation: larger government research grants and tax breaks for businesses. Economists for the most part treated R&D spending as an investment in a physical asset, just like an office building or truck.

DO PRIZES WORK?

But there were always some who saw beyond this narrow view. In the 1940s, Joseph Schumpeter of Harvard University coined the phrase creative destruction to describe the necessary turmoil caused by innovation. Robert Solow of MIT won a Nobel Prize for economics for his work on technological progress and growth. And Dale Jorgenson of Harvard and William Baumol of New York University have been mentioned as potential Nobel laureates for their work in areas such as technological change and entrepreneurship.

Economists began taking a broader interest in innovation during the New Economy boom of the 1990s, which was driven by breakthroughs in information technology. At the same time, economist Paul Romer, now at Stanford University, showed how spending on innovation was different from the usual sort of capital investment because the gains from new ideas and discoveries could be shared by everyone.

Today, researchers are focusing on ways to make those undertakings more efficient. "Innovation is not just exerting effort and spending money, it's problem-solving," says Karim Lakhani, a professor at Harvard Business School. Lakhani has been studying what is called distributed innovation, in which solutions to a business or technical problem are solicited from a wide variety of people. Open-source software or companies like InnoCentive, which encourages outside researchers to work on corporate problems, are good examples. By contrast, most companies are unwilling to draw on outside expertise. "It's the broadcast of the problem that is important," argues Lakhani. "By publicizing a problem, we can get access to better ideas."

Lakhani is encouraged by the growing number of prizes for innovative products, such as the Progressive Automotive X prize ($10 million for a car that gets 100 mpg). However, offering more—and smaller—prizes would allow a wider range of people to take on a challenge, he argues. "We want diversity of eyeballs."

One way to attract broader attention to a problem is to conduct more R&D overseas. In part, that's because scientists and engineers in India, China, and Eastern Europe are cheaper than their American counterparts. In addition, global collaboration can improve results by bringing in more diverse perspectives.

But globalizing research and production can also alter the direction of technological change—with potentially negative effects on U.S. prosperity. MIT's Acemoglu, who holds dual American and Turkish citizenship, argues in his work that in the past U.S. companies directed their research to take advantage of the well-educated American workforce. Now, as more multinationals move operations overseas, they are developing technologies adapted for their less skilled foreign workforces. In other words, offshoring is affecting the direction of innovation in ways that are more favorable to countries such as China and India. In particular, says Acemoglu, "China is going to have a major effect on technology."

Measuring the impact of outsourcing and other factors on innovation will require far better statistics than are now available. That's why the NSF is pushing hard to collect greatly improved data on R&D and innovation, a tough task. Its new study aims to provide useful information for both businesses and policymakers, says Carlson, who helped create the government's statistics on energy consumption before she joined NSF in 2000. The survey will ask a wide range of questions, including whether companies are using their research to create new products or simply to improve existing ones. "The new statistics will provide benchmarks for companies," says Carlson, "and allow them to see how their R&D and innovation performance compares to the rest of their industry."

Even as better data are collected, the government is also upgrading the system of economic statistics it uses to produce GDP figures. The goal: to shed more light on innovation and other drivers of growth. Late this year, the Bureau of Economic Analysis plans to publish a "blueprint for innovation" showing how the government stats can better capture innovation-related expenses such as education and R&D, says BEA director J. Steve Landefeld.

ACADEMIC AND CORPORATE ALLIANCES

What kinds of policies can improve the performance of U.S. innovation? Since 2000, the Bush Administration has boosted spending on nondefense R&D by roughly 40%, after adjusting for inflation. Still, more could be done. Democrat Obama wants to double federal funding for basic research, which in real terms is up just about 20% since 2000. Both the GOPs McCain and Obama want to boost support for the development of less polluting technologies.

But a big point of innovation economics is that money alone is not enough. Atkinson, of the think tank ITIF, argues that the R&D tax credit needs to be reworked to encourage collaboration. He suggests giving companies credit on their tax returns for 40% of the money they spend on research partnerships with universities and government laboratories, not just for their increased spending, as the current law allows.

Atkinson also advocates creating a national foundation, similar to the NSF, with the mission of promoting innovation. The idea has some support: In June, Senators Hillary Clinton (D-

N.Y.) and Susan Collins (R-Maine) introduced legislation to set up a National Innovation Council.

One of the hottest areas in the field is the use of government aid to cultivate "innovation clusters," or collections of local companies and academic institutions working together to create new products and processes. Ideally, those alliances would build on existing expertise in a region.

Last November, for example, Maine voters passed a $50 million bond issue to help finance groundbreaking local business initiatives. In early August, grants totalling $29 million were announced, including funds to renovate a commercial pulp mill by adding a pilot plant to produce ethanol—without reducing the mill's usual output.

Will innovation economics keep America growing? Proponents are upbeat about the long-term technological possibilities, despite the current pullback. "Like the 1970s, people are going to assume that a short-term slowdown means the trend is slower as well," says Stanford's Romer. "But the arguments for long-run optimism are as strong as they have ever been."

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic

network

Race You to the Moon

Hoping to kick-start a new era of privately funded space exploration, the X Prize Foundation teamed up with Google year to announce the Google Lunar X Prize. The partners award $20 million to the first team that lands a robot explorer the moon and beams back pictures and video. (NASA and government-run space programs need not apply.) Speaking from Google's Mountain View (Calif.) headquarters on Sep. 19, 2007, Peter H. Diamandis, CEO of the X Prize Foundation, described his organization's role in spurring innovation in such things as genomics, superefficient cars, and spaceships.

IN Technology September 11, 2008

Los Alamos and Sandia: R&D Treasures

How the famous weapons labs, Los Alamos and Sandia,

are aiding corporations and spinning off startups

by Pete Engardio

For decades, Procter & Gamble (PG) has been creating petroleum-derived materials that are engineering marvels. Tide bottles that don't explode if dropped from a high shelf onto a Wal-Mart (WMT) floor. Shampoo emulsions that don't separate, whether they're shipped by plane at 30,000 feet or warehoused at temperatures of 120F. Billions of disposable diapers that absorb, breathe, and stretch exactly the same way—wrapped in packages that never fade.

Now P&G is joining the "go green" bandwagon. The problem, says Thomas J. Lange, the company's director of modeling and simulation: "Natural materials may not be as pure, as strong, or as stable over time" as petro-plastics. And developing replacements for them takes deep science that is beyond the ken of most companies.

Enter Los Alamos National Laboratory and Sandia National Laboratories. That's right, the fabled weapons-research centers in New Mexico that spawned America's nuclear arsenal. In a partnership that has lasted 14 years, P&G is tapping the labs' supercomputers and immense brain trusts to create new eco-friendly materials for consumer products. "These are the only places I can go in the world that have such a range of world-class physicists, chemists, biologists, production engineers, and computational scientists," says Lange. "These labs are national treasures."

Public-private collaborations such as P&G's are earning praise in many quarters. They're just what Congress had in mind two decades ago when it began pushing the nation's hundreds of national labs to transfer more of their knowhow to U.S. companies. Many of the facilities, which are dedicated to security, space, health, and energy research, jumped at the challenge. For one, they were eager to earn contract-research fees from corporations. And it was a chance to test their world-beating computer systems and software in some of the most demanding business settings.

After a burst of deals in the late 1990s, however, the number of new research collaborations and commercial spin-offs declined. Scientists say the joint ventures and startups suffered from too much red tape. They also faced a drop in federal subsidies, the bursting of the tech bubble, and the task of coaxing scientists to think in business terms.

"Without market signals, the labs have shown a predictable capacity to be overtaken by bureaucracy," says Carl J. Schramm, president of the Ewing Marion Kauffman Foundation, which focuses on entrepreneurship. The casualties, Schramm says, are "speed, effectiveness, and inventiveness."

Now, as the idea of "innovation economics" gains currency in Washington, executives are once again turning to the national labs, especially those such as Sandia, Los Alamos, Lawrence Livermore, and others that belong to the Energy Dept. These centers are still committed to national security. But at a time when U.S. industries are under pressure to address America's energy crisis while facing ever-tougher competition abroad, the labs understand they have an important role to play.

Companies, for their part, know they can save on research costs when they partner with the labs. Together, Sandia and Los Alamos employ about 4,000 PhD scientists and thousands of engineers, and they have a long legacy of innovation in everything from biofuels and microelectronics to medical devices. P&G's collaboration with Los Alamos in computer simulation has saved the company upwards of $1 billion. Goodyear Tire & Rubber (GT) says Sandia helped radically speed up product launches, a key to its recent financial turnaround.

The labs aren't simply collaborating. They're spinning off new tech companies amid the mesas and deserts of New Mexico. An industrial park on 240 acres abutting Sandia's sprawling Albuquerque compound boasts 27 startups that employ 2,184 people and have attracted $234 million in investment capital. All of these companies were founded by former Sandia scientists or rely on technology licensed from the lab. Los Alamos has helped spawn 54 spin-offs since 1997. A recent one, APJeT, is trying to commercialize an ionized gas known as atmospheric plasma, which was first developed by Los Alamos to kill anthrax spores. The company now uses the process to make fabrics water-resistant. Another of Los Alamos' affiliate, CNT Technologies of Seattle, is turning tiny carbon nanotubes into strong yarns that can be woven into sporting goods, aircraft parts, and artificial limbs.

Goodyear and Sandia have been working together since 1993, when the Akron company enlisted the lab to help design and test new car tires. At the time, the company was running through at least four physical prototypes for each model of tire, which then would have to be tested over thousands of miles—a process that took three years on average. In exchange for fees that can run several million dollars a year, Sandia gave Goodyear access to supercomputers and software code it had developed to simulate explosions, design weapons systems components, or model the stresses on a bridge. Over the next decade more than a dozen Sandia scientists worked on software to assist Goodyear engineers. The code helped them to accurately predict how each design tweak would affect traction, pressure, and rubber wear under a range of road conditions and speeds. "It all adds up to a fairly nasty problem you have to solve," says Benjamin Spencer, a Sandia software developer who works with Goodyear. But there's a side benefit, Spencer says: The collaboration is "making our code more robust."

The Goodyear project culminated in the Assurance TripleTred, which launched in 2005. It's a tire with three different treads for driving on icy, wet, and dry pavement. The program also enabled Goodyear designers to make use of such materials as volcanic pumice and glass microfibers, which aid the tire in gripping slick surfaces. The Assurance became one of Goodyear's best-selling tires, and the company has adopted virtual design for each of the several hundred new tires it develops every year for vehicles ranging from sports cars to garbage trucks to earth movers. The development cycle, which now often requires just a single prototype, has shrunk to as little as eight months, says Surendra Chawla, Goodyear's head of commercial tire research. The portion of the company's annual R&D budget consumed by testing and building molds for tire manufacturing has dropped from 40% to 15% since 2001, he says.

Despite the obvious benefits that have flowed to Goodyear and P&G, however, only a handful of corporations have forged this sort of long-term collaboration. Companies complain that it takes too long—up to a year—to negotiate a joint R&D project or license technology from a federal lab. Officials at the labs have their own complaints: They say U.S. companies mainly want off-the-shelf technology they can use immediately, as opposed to investing in research that won't pay off for three to five years.

Bureaucracy also is slowing the spin-off of startups. Unlike at universities, scientists at federal labs are barred from serving as paid consultants. And as long as they're on the government payroll, they can't hold equity stakes in companies that license their research. Moreover, few hard-core scientists want to trade secure posts at premier labs for risky jobs in industry. This is a stark contrast to Silicon Valley, where "people are spring-loaded to leave and begin their next startup," says Gary Ebersole, a serial entrepreneur from the San Francisco Bay area who moved to Santa Fe and licensed software from Los Alamos to start a social networking company.

The National Labs want to lower the hurdles to entrepreneurship. They're offering staff two-year "entrepreneurial leaves" to give them a taste of life outside. They also understand that Congress wants to see scientists and their spin-offs succeed. So Los Alamos set up a fund that doles out $350,000 a year in seed capital to startups. Both Sandia and Los Alamos are experimenting with ways to let departing scientists maintain access to their facilities while working at startups. They even offer courses to familiarize their staff with entrepreneurship. "We don't yet have a model that is tuned to the nation's needs," says Sandia Chief Technology Officer Richard H. Stulen. "But we're getting better."

25 JANUARY 2008 VOL 319 SCIENCE www.sciencemag.org424

ASSOCIATIONAFFAIRS

The American Association for the Advance-ment of Science (AAAS) is not about theadvancement of science just for science’s sake.Rather, as indicated by the Association’s motto,“Advancing Science, Serving Society,” it isabout advancing science in the context of adesire to improve the human condition. Thismission necessarily entails attention to thesocial as well as natural sciences; attention to theembodiment of science in technology throughengineering; and attention to the processes bywhich understandings from the natural sci-ences, the social sciences, and engineeringinfluence—or fail to influence—public policy.All of these long-standing preoccupations of theAAAS are integral to the theme of the 2007Annual Meeting and of this essay, “Science andTechnology for Sustainable Well-Being.”

I begin my exploration of that theme withsome premises and definitions relating to well-being and sustainability, before turning to a tax-onomy of shortfalls in sustainable well-beingand a rough quantification of those that arereflected in morbidity and mortality. I thenaddress the status of five specific challenges inwhich science and technology (S&T) have par-ticularly important roles to play: meeting thebasic needs of the poor; managing the competi-tion for the land, water, and terrestrial biota ofthe planet; maintaining the integrity of theoceans; mastering the energy-economy-envi-ronment dilemma; and moving toward anuclear weapon–free world. I close with somethoughts on what more is needed in order toimprove the pace of progress, including whatthe AAAS is doing and can do and what indi-vidual scientists and engineers can do.

Well-Being and SustainabilityHuman well-being rests on a foundation ofthree pillars, the preservation and enhancement

of all three of which constitute the core respon-sibilities of society:

•Economic conditions and processes, suchas production, employment, income, wealth,markets, trade, and the technologies that facili-tate all of these;

•Sociopolitical conditions and processes,such as national and personal security, liberty,justice, the rule of law, education, health care,the pursuit of science and the arts, and otheraspects of civil society and culture; and

•Environmental conditions and processes,including our planet’s air, water, soils, min-eral resources, biota, and climate, and all ofthe natural and anthropogenic processes thataffect them.

Arguments about which of the three pillarsis “most important” are pointless, in partbecause each of the three is indispensable: Justas a three-legged stool falls down if any legfails, so is human well-being dependent on theintegrity of all three pillars.

The futility of attempts to strengthen anyone of the pillars in ways that dangerouslyweaken one or both of the others is underlinedby their interdependence. The economic sys-tem cannot function without inputs from theenvironmental system, nor can it functionwithout elements of societal stability andorder provided by the sociopolitical system.And societal stability itself cannot be main-tained in the face of environmental disaster, asthe effect of Hurricane Katrina on NewOrleans demonstrated is true even in the mosteconomically prosperous and technologicallycapable country in the world.

This understanding about the elements ofwell-being leads, when combined with theproposition that improvements in well-beingare most meaningful if they can be sustained, toa set of definitions that embody the essence ofthe sustainable-well-being challenge (1):

•Development means improving the humancondition in all of its aspects, not only economicbut also sociopolitical and environmental;

•Sustainable development means doing soby means and to end points that are consistentwith maintaining the improved conditionsindefinitely; and

•Sustainable well-being, in my lexicon,

entails pursuing sustainable development toachieve well-being where it is now most con-spicuously absent, as well as converting to asustainable basis the maintenance and expan-sion of well-being where it already exists but isbeing provided by unsustainable means.

ShortfallsPersistent shortfalls in the pursuit of sustainablewell-being are evident across a range of dimen-sions of the human condition, including (2):

•Poverty, afflicting not only the 2.5 billionpeople in the poorest countries who live on lessthan the equivalent of $2 per day, but also hun-dreds of millions in addition who have muchmore but still cannot afford many of the ingre-dients of a decent existence in the more prosper-ous settings in which they live;

•Preventable disease, which keeps infantand child mortality high and life expectancylow, especially in Africa but among the verypoor everywhere;

•Impoverishment of the environment, mean-ing progressive erosion of the environmentalunderpinnings of well-being in the qualities ofair, water, soil, biota, and climate;

•Pervasiveness of organized violence,manifested in the well over 100 instances ofarmed conflict since World War II (nearly allof them in the South, with a total loss of life inthe tens of millions), as well as in the globalrise of terrorism;

•Oppression of human rights in other ways(for the preceding items are also forms of suchoppression), denying human beings their dig-nity, their liberty, their personal security, andtheir possibilities for shaping their own des-tinies; and

•Wastage of human potential, resulting fromall of the foregoing and the despair and apathythat accompany them, from shortfalls in educa-tion, and from the loss of cultural diversity.

Underlying these shortfalls is an array ofdriving forces and aggravating factors, amongthem:

•Non-use, ineffective use, and misuse ofS&T, including misuses both intentional (as inthe development and deployment of weaponsof mass destruction) and inadvertent (as mani-fested in the side effects of broad-spectrumherbicides, pesticides, and antibiotics);

•Maldistribution of consumption and invest-ment, where the maldistribution is of threekinds: between rich and poor as the beneficiar-ies of both consumption and investment;between military and civilian forms of con-sumption and investment [“too much for war-fare, too little for welfare” (3)]; and between thetwo activities themselves; i.e., between too

P R E S I D E N T I A L A D D R E S S

Science and Technology forSustainable Well-BeingJohn P. Holdren

John P. Holdren is Teresa and John Heinz Professor ofEnvironmental Policy at the Kennedy School of Govern-ment as well as professor in the Department of Earthand Planetary Sciences, Harvard University, and direc-tor of the Woods Hole Research Center. He served aspresident of the American Association for the Advance-ment of Science (AAAS) from February 2006 to Febru-ary 2007. This article is adapted from the PresidentialAddress he delivered at the AAAS Annual Meeting in SanFrancisco on 15 February 2007.

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much consumption and too little investment;•Incompetence, mismanagement, and cor-

ruption, which although sometimes attributedto developing countries particularly are in factpervasive in industrialized and developingcountries alike;

•Continuing population growth, which,while not the sole cause of any of the shortfallslisted, makes the remedy of all of them moredifficult (4); and

•Ignorance, apathy, and denial, the firstconsisting of lack of exposure to informationand the second and third of havingthe information but lacking the con-viction or optimism or understand-ing to act on it.

The magnitudes of the contri-butions to premature mortality of anumber of the shortfalls and theirrespective contributing factorsare shown in Table 1, which isadapted from a remarkablecompilation of the underlyingcauses of premature death pro-duced by the World Health Organi-zation (WHO) (5–7).

How Can S&T Help?Table 1 underlines the role, inglobal mortality, of shortfalls in thedeployment if not always the devel-opment of adequate technologiesfor food production, clean waterand sanitation, and clean and effi-cient energy supply. I would char-acterize the roles of S&T inaddressing the challenges of sus-tainable well-being in broaderterms as follows:

•Advances in science improveour understanding of shortfalls,dangers, and possibilities andenable advances in technology.

•Advances in technology helpmeet basic human needs and driveeconomic growth through increasedproductivity, reduced costs, reducedresource use and environmentalimpact, and new or improved prod-ucts and services.

•S&T together provide the basisfor integrated assessment of challenges andopportunities, advice to decision-makers andthe public about these, and formal and informaleducation toward a more S&T-literate (andtherefore more informed and capable) society.

The need to do better with S&T applied tothe goal of sustainable well-being is particu-larly compelling in relation to the five specific

challenges mentioned above, and I turn tothese now.

Meeting the Basic Needs of the PoorThe contemporary effort to address this mostfundamental of sustainable-development needsis cataloged and chronicled in the MillenniumDevelopment Goals (MDG) project of theUnited Nations (UN). The MDGs, consisting ofeight overarching goals and specific targets forthe pace of progress to be made on them, wereofficially adopted in 2000. The goals, targets,

and some indicators of the extent of progress onthem are summarized in Table 2. The MDG pic-ture is clearly mixed. Many regions are on trackto meet many of the targets, but other regions—and above all sub-Saharan Africa—are pro-jected to fall short on most of them. What isworse, while the MDGs appear ambitious interms of the pace of improvement embodied in

the targets, they are really very modest whenviewed in terms of the immense shortfalls inwell-being that would persist into 2015 andbeyond even if the targets were met. Where thetargets do seem likely to be met for the world asa whole, moreover, as is the case for access tosafe drinking water, regional shortfalls stillloom large (8).

The considerable progress that has beenmade in some important respects (such as inlife expectancy, which has been improving vir-tually everywhere other than sub-Saharan

Africa and the former SovietUnion) has been the result of acombination of economic andsocial factors, but improvements intechnology appear to have been themost important (9). Among otheradvances, widespread gains in theproductivity of agriculture, whichplayed a crucial role in improvingnutrition and health in the develop-ing world, were driven above all byinvestments in agricultural S&Tthat yielded, in strictly economicterms, enormous rates of return;and export-led economic growth,providing the means with whichthe public and private sectors inmany developing countries havecontributed to lifting portions oftheir populations out of poverty,has likewise been driven stronglyby technology (9).

Relatively simple and inexpen-sive technologies can have largepositive impacts on the most funda-mental aspects of well-being, suchas public health, as was initiallydemonstrated in today’s industrial-ized countries when they first intro-duced simple water-treatment tech-nologies (8) and has been shownmore recently in developing coun-tries with such simple innovationsas oral rehydration therapy for diar-rheal diseases, which has sharplylowered death rates even in circum-stances where incomes were notrising (9). A current example oflarge “bang for the buck” in the

public health domain is the rapid expansion inthe use of insecticide-treated bed nets tocombat malaria, particularly in Africa, fundedby a combination of private, governmental, andmultilateral initiatives (10).

These insights and examples only serve tounderline how much better we could be doingwith the application of S&T to meeting basic

www.sciencemag.org SCIENCE VOL 319 25 JANUARY 2008 425

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Primary shortfalls

and drivers

Millions of

years of life lost

Poverty, technology, apathy

Consumption, denial

Ignorance, denial

Denial

Poverty, technology, apathy

Violence

Poverty. technology

Wasted potential, ignorance, denial

Consumption, technology

Consumption, technology, denial

200

150

80

50

50

40

35

30

6

5

CONTRIBUTORS TO GLOBAL MORTALITY IN 20001

Fundamental cause

Childhood and maternal malnutrition

High blood pressure, cholesterol,

overweight, low physical activity

Unsafe sex

Tobacco

Unsafe water

War and revolution

(20th-century average)

Indoor smoke from solid fuels

Alcohol

Urban air pollution

Global climate change

Table 1. Contributors to global mortality in 2000, categorized by fundamentalcauses. Units in column three are millions of years of life lost to prematuredeaths in the year 2000 (= numbers of premature deaths in 2000 from the indi-cated cause × average loss of life expectancy per death from that cause). Thecategorization of fundamental causes and associated lost-life estimates are fromWHO (5), except for “war and revolution”; that figure is the author’s estimate forthe 20th-century annual average, based on a UN figure of about 100 millionconflict-related deaths in the 20th century (6) and the author’s guess of 40years of lost life expectancy per conflict-related death. Attributions of relevant“shortfalls and drivers” are the author’s (7).

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human needs if a more respectable effort werebeing devoted to this aim. The dimension of theshortfall is suggested by the figures for officialdevelopment assistance (ODA) from the Orga-nization for Economic Cooperation and Devel-opment (OECD): A recent upturn in ODA hasbrought the total back only to the 1990 level of0.33% of the gross national income of thedonor countries (this despite long-standinginternational agreement on a target of 1%,which itself seems pathetically small in relationto both the needs and the opportunities) (11).The United States, by far the richest country inthe world in gross national income, is the stingi-est among all the OECD countries in the frac-tion of it, 0.2%, devoted toODA. [Americans spend 3.5times more on tobacco and 20times more on defense (12).]

Land, Water, and TerrestrialBiotaTurning to the environmentaldimension of sustainablewell-being, a central chal-lenge is how to managethe intensifying competi-tion among human uses for theland, water, and biota of theplanet. Those uses fall mainlyinto three categories:

•Land and water for hous-ing, commerce, industry, andinfrastructure (energy, trans-port, and communications).

•Land, water, and net pri-mary productivity (NPP) forthe production of food, feed fordomestic animals, fiber, biofu-els, and chemical feedstocks.

•Land, water, and biota(plants, animals, and microor-ganisms) for recreation,beauty, the solace of unspoilednature, and other “ecosystemservices.”

The term “ecosystem serv-ices” refers to functions ofecosystems that underpinhuman well-being, including,besides those already sepa-rately mentioned, regulationof water flows; detoxificationand purification of soil, water,and air; nutrient cycling; soilformation and maintenance;controls on the populationsand distribution of pests andpathogens; pollination of

flowers and crops; maintenance of biodiver-sity; and regulation of climate (through, e.g.,evapotranspiration, reflectivity, and carbonsequestration) (13, 14).

The competition among these uses for thelimited supplies of land and water and thebiota that these can support is being intensi-fied by rising population and affluence, withaffluence providing a particularly powerfulmultiplier in the demand for land and waterfor agriculture and pasture as rising incomestranslate into higher consumption of meat.Also contributing to the intensification of thecompetition is global climate change (aboutwhich more will be said below), which is

sharply increasing the demand for both bio-fuels and carbon sequestration in intact forests(15) at the same time as it stresses farms andforests in many parts of the world withincreased heat, drought, and wildfires (16).

A number of other factors complicate thechallenge of managing the competing uses ofland, water, and biota. One is the rising tide oftoxic spillovers from energy supply, industry,and agriculture, which reduce the usability ofwater and otherwise directly stress managedand unmanaged ecosystems alike (more aboutthis below, too). Another is the prevalence ofhaphazard, unintegrated, and short-range plan-ning in relation to society’s uses of land and

water. A third—and one of theprimary causes of the preced-ing two—is the frequent fail-ure to charge a reasonableprice (or any price at all) forthe use of environmentalresources or the degradationof environmental conditionsand services.

A quantitative picture ofworld water supply anddemand is presented in Table3 (17). A key point is that onlyabout a quarter of total runoffand recharge is actually avail-able for human use (afteruncaptured storm runoff andremote areas are subtracted),and nearly 40% of the glob-ally available amount isalready being used. (Irrigatedagriculture is by far the largestuser, and it is the fastest-growing—driven above all byrising demand for grain tofeed to animals and now, inthe United States especially,for corn to convert toethanol.) There is a differenceof a factor of 40 in currentannual water withdrawals perperson between the poorestand richest countries, whichbodes ill for future waterdemand in relation to supplyas incomes and populationscontinue to rise.

The widespread supposi-tion that humans can use all ofthe “available” runoff is inerror, moreover. Enough flowmust be left in rivers to meetecological needs. Takingthese ecological flow require-

ASSOCIATIONAFFAIRS

Target ProgressGoal

Eradicate extreme poverty

and hunger

Achieve universal primary

education

Promote gender equality

and empower women

Reduce child mortality

Improve maternal health

Combat HIV/AIDS,

malaria, and other

diseases

Ensure environmental

sustainability

Develop a global

partnership for

development

Proportion of people

living on less than $1 per

day to be halved between

1990 and 2015

Full course of primary

schooling for boys and

girls everywhere by 2005

Eliminate gender disparities at

all levels of education by 2015

Reduce under-5 mortality

rate by 2/3 between 1990

and 2015

Reduce maternal mortality

rate by 3/4 between 1990

and 2015

Have halted and begun to

reverse spread of HIV/AIDS

and incidence of malaria

by 2015

Proportion of people lacking

access to safe drinking water

and basic sanitation to be

halved between 1990 and 2015

No quantitative target; a range

of qualitative goals address

mechanisms of assistance

Target already met in East and

Southeast Asia, but other

developing regions are behind

pace needed to meet it by 2015

Southern Asia, northern Africa,

and Latin America on track to

meet target; other developing

regions behind

Nearly all developing regions

far off pace needed to meet target

East and Southeast Asia, northern

Africa, and Latin American on track

to meet target; other developing

regions far behind


Africa, and Latin American on track

to meet target; other developing

regions behind

No. of people with HIV/AIDS may

have stabilized in sub-Saharan

Africa; is rising in most other

developing regions


Africa, and Latin America on track

to meet sanitation target; other

developing regions behind

If official development assistance

is the index, progress is slight;

debt and trade measures look better

MDG’s, targets, and pace of progress2

Table 2. MDGs, targets, and pace of progress (10, 11).

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ments into account reveals that many of theworld’s river basins are already overexploited:Human withdrawals are leaving less water inrivers than needed to meet ecological require-ments. Rising human water demands are alsoleading, at many locations around the world, tothe extraction of groundwater from aquifers atrates exceeding natural recharge, leading todeclining water tables, wells running dry, andincreased drilling and pumping costs (8).

The current extent of human exploitation ofEath’s land surface and vegetation is, similarly,far greater than is generally supposed. Crops,pastures, and grazing now take up about 40% ofthe planet’s 133 million km2 of ice-free land(18). Forests, which once covered 50 millionkm2, have shrunk by about 10 million km2 inthe past 300 years (with half of that loss occur-ring in the past half century), and desert andnear-desert lands have expanded by nearly 10million km2. Cities, towns, roads, and airportsnow cover about 2% of the land area—approaching 3 million km2 (18–20).

Arguably a more informative measure ofthe scale of human intervention in terrestrialecosystems than areas transformed is thefraction of the NPP of those ecosystems thathuman activities have eliminated or appropri-ated for human purposes; a pioneering studyin the mid-1980s estimated that humansappropriate about 25% of terrestrial NPP andhave eliminated nearly another 15% throughland transformations (21). Subsequent stud-ies using the more extensive remote-sensinginformation and geographic information sys-tems (GIS) databases that have become avail-able in the meantime have altered the detailsof the picture but reinforced the basic findingthat, depending on the definitions employed,human activities are appropriating between25 and 40% of terrestrial NPP (22).

Considering the increases in humandemands for NPP that are in prospect both forthe combination of food and feed and for bio-fuels, and considering the need to leave largeareas of forest substantially intact for purposesof carbon sequestration and other ecosystemfunctions, these are not encouraging numbers.They become even less so when one considersthe loss of biodiversity that has accompaniedthe level of appropriation of terrestrial NPPalready reached.

The Millennium Ecosystem Assessmentcompleted in 2005 developed estimates forcontemporary and projected extinction ratescompared to past rates suggested by the fossilrecord: 100 to 1000 times past extinction ratestoday, another 10 to 100 times higher in thefuture (13). And already in 2000 it was esti-

mated that 18% of mammal species,12% of bird species, and 8% of plantspecies worldwide were threatenedwith extinction (23); the projectedincreases in extinction rates, if theymaterialize, thus portend a biodiver-sity catastrophe.

The current state of under-standing of ecosystem structureand function does not generallyallow prediction of what forms anddegrees of local or regional biodiver-sity decline will lead to severeimpacts on basic ecosystem functionsand the services associated withthem. To confuse this ignorance withcause for complacency would befolly, however. The most elementarycommon sense (embodied in AldoLeopold’s famous dictum from ASand County Almanac that “The firstrule of intelligent tinkering is to saveall the parts” )—reinforced by a largepart of the detailed ecological knowl-edge accumulated since—tells us thatcontinuing biodiversity loss musteventually exact a large toll in ecosys-tem performance and resilienceagainst shocks and stresses both natu-ral and anthropogenic (24).

What is needed from S&T in rela-tion to the intensifying competitionfor land, water, and biota? We need,for reasons both purely scientific andas a basis for sensible ecosystem man-agement, a large increase in ecologi-cal research focused on the relationslinking biodiversity and other aspectsof ecosystem condition with ecosys-tem function and services; and weneed a better understanding of whatthose services do and could deliver insupport of human well-being, as wellas better ways to quantify their valuefor incorporation into the market andnonmarket processes shaping thefuture of ecosystems (25).

We need more studies that combine pro-jected land requirements for food and feed,fiber, biofuels, and infrastructure—rather thanpretending that each use can be analyzed sepa-rately—and that attempt to reconcile the com-bined demands with the requirement forenough land covered by intact forests and othernative ecosystems to provide the carbonsequestration and other ecosystem servicessociety cannot do without (26). We need moreeffective use of the capabilities provided bysatellite imagery and other remote sensing, and

by GIS, both for conducting such studies andfor conveying the results to publics and deci-sion-makers in forms they will understand anduse (27). And, not least, we need technologiesfor extracting food, fiber, and fuel from agricul-tural and forest ecosystems in ways less disrup-tive of the other services those systems providethan the technologies typically used today (28).

The OceansThe oceans cover 70% of the surface of theplanet, contain 98% of the water, and contributeabout half of the NPP. They are a gigantic bal-


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Available river flow and recharge/world population

Per capita withdrawals, global average

Nigeria

Israel

China

Mexico

Italy

United States

World desalting capacity/world population

1,400,000,000

30,000,000

10,000,000

100,000

10,000

Cubic kilometers

The world’s water 3

120,000

70,000

50,000

12,000

5,000

13

Cubic kilometers per year

1,800

800

50

300

500

800

1,000

2,000

2

Cubic meters per person

per year

Stocks

Water in the oceans (~35,000

parts per million salt)

Water locked up in ice

Groundwater

Water in lakes and rivers

Water in the atmosphere

Flows

Precipitation on land

Evaporation from land

River runoff and groundwater recharge

Available river flow and recharge

Withdrawals for human use

of which Agriculture 3,500

Industry 1,000

Domestic 500

World desalting capacity

Flows per capita

Table 3. Where is the world’s water and where is it going?Compiled and rounded from several sources (17). 1 km3 = 109

m3 = 1012 liters = 264 × 109 gallons. Available river flow andrecharge = runoff + recharge – uncaptured storm runoff –remote areas. Withdrawals for human use are estimated for2007. Per capita withdrawals are data for 2000.

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ance wheel in Earth’s weather and climate.They are an immense reservoir of biodiversity;one even less cataloged and characterized thanthat of the terrestrial biota. And fisheriesderived from them supply 20% or more of theper capita animal-derived protein consumed by40% of the human population (29).

Although the oceans are perceived by manyas being too gigantic and immutable to bemuch influenced by human activities, theyhave actually been, like the land, substantiallyaltered by human influences. Human-causedwarming of Earth’s surface and atmospherehas penetrated theoceans to depths ofhundreds of meters;and absorption by theocean of part of thecarbon dioxide (CO2)added to the atmos-phere by human activ-ities has lowered theaverage pH of seawa-ter by about 0.1 (30).Lead and mercurymobilized by humansmove through marinefood webs, concen-trating at the higherlevels, as do syntheticorganic compoundssuch as DDT andPCBs. No part of theoceans is free of tracesof oil spills or free ofplastic trash.

The most conspic-uous of human impactson the oceans to date has been the decline in thepopulations of many of the fish and shellfish weharvest for food. Marine fish catches reached aplateau in the mid-1990s and have been main-tained there since only by dint of harvestinglower in the food web; continuing expansion ofthe total supply of protein from fish and shell-fish has depended on rapid growth in aquacul-ture (31). The real magnitude of the humanimpact, however, is revealed only by lookingregion by region and species by species at thefish and shellfish stocks on which the catch haddepended; it is a picture of devastating decline,brought about not only by unsustainable harvestof target species but also by the extensivebycatch and bottom-habitat destruction broughtabout by widely used if reprehensible fishingtechniques (32).

Coral reefs, which have the highest densityof biodiversity in the oceans, are also increas-ingly endangered. Originally the risks to reefs

came mainly from subsistence fishing and sed-iment runoff from agriculture and land devel-opment on inhabited islands; to this was lateradded the stress on reef fish populations fromrapidly expanding commercial fishing to sup-ply the aquarium trade in North America andEurope and the live-fish restaurant trade in Eastand Southeast Asia, as well as physical damageto the reefs from the influx of cruise ships andthe reef-walking tourists they carry (33).

Today, coral reefs are being affectedthroughout their range by two further factorsthat are independent of local population densi-

ties, tourist influxes,and commercial fish-ing fleets: increasingwater temperatures,which can causebleaching (ejection ofthe living coral organ-isms from the calciumcarbonate structure)and disease; anddeclining pH, whichhinders the ability oforganisms to make thecalcium carbonate. Arecent survey con-cluded that 30% ofthe world’s coral reefsare already severelydamaged and that60% could be lost by2030 (33).

Another sign oftrouble in the oceansis the rapid prolifera-tion of harmful algal

blooms and the oxygen-depleted “dead zones”that are often the ultimate result. This phenom-enon is largely driven by overfertilization ofcoastal zones by river runoff laden with nutri-ents from sewage and agriculture. The numberof regions affected and the scale of the impactin individual regions appear to have beengrowing recently, with a doubling time on theorder of a decade (29, 34).

Scientifically, technologically, and politi-cally, human pressures on the oceans are evenmore challenging to deal with than the pres-sures on terrestrial ecosystems discussedabove. Difficulties of observation and study inthe oceans mean that the marine realm is lesswell explored and less well understood than ter-restrial ecosystems. Technologically, the oceansare a more difficult operating environment thanthe land for almost any purpose. Politically, theproblems of governance and management ofocean resources and the ocean environment are

compounded by the circumstance that most ofthe world ocean is a commons, not the provinceof any nation.

Much of what is needed from S&T in rela-tion to the challenge of sustainability for oceansystems and services, however, is similar towhat is needed on the terrestrial side: moreresearch on marine ecosystem structure, func-tion, and service; more and better monitoringand reporting, in forms meaningful to andusable by decision-makers; and more integra-tion of analyses relating to multiple interactinguses and stresses, so that limits on what is sus-tainable can be identif ied before they areexceeded. Also needed on the marine side istechnological change in relation to what wealready know is unsustainable: replacement ofharvesting technologies that destroy habitat anddecimate bycatch with more resource-friendlyalternatives, and modification of agriculturaland sewage-treatment practices on land in orderto drastically reduce the dead zone–inducingimpacts of nutrient-laden river runoff (35).

The Energy-Economy-EnvironmentDilemmaThe essence of this dilemma resides in tworobust propositions (36–38): First, reliable andaffordable energy is essential for meeting basichuman needs and fueling economic growth.Second, the harvesting, transport, processing,and conversion of energy using the resourcesand technologies relied upon today cause alarge share of the most difficult and damagingenvironmental problems society faces.

Contemporary technologies of energy sup-ply are responsible for most indoor and outdoorair pollution exposure, most acid precipitation,most radioactive wastes, much of the hydrocar-bon and trace-metal pollution of soil andgroundwater, nearly all of the oil added byhumans to the oceans, and most of the human-caused emissions of greenhouse gases that arealtering the global climate (39).

The study of these environmental impactsof energy has been a major preoccupation ofmine for nearly four decades. I have concludedfrom this study that energy is the hardest part ofthe environment problem; environment is thehardest part of the energy problem; and resolv-ing the energy-economy-environmentdilemma is the hardest part of the challenge ofsustainable well-being for industrial and devel-oping countries alike.

Figure 1 shows the composition of worldprimary energy supply during the bulk of thefossil-fuel era to date, from 1850 to 2000 (40).Energy use increased 20-fold over this period—that number being the product of a somewhat

ASSOCIATIONAFFAIRS

World Energy 1850–2000

0

50

100

150

200

250

300

350

400

450

500

1850 1875 1900 1925 1950 1975 2000

Year

EJ/

year

Gas

Oil

Coal

Nuclear

Hydro +

Biomass

Fig. 1. World supply of primary energy1850–2000 (40). Primary energy refers to energyforms found in nature (such as fuelwood, crudepetroleum, and coal), as opposed to secondaryforms (such as charcoal, gasoline, and electricity)produced from the primary ones using technology.“Hydro +” includes hydropower, geothermal,wind, and solar. Fossil fuels are counted at higherheating value and hydropower is counted asenergy content, not fossil-fuel equivalent. 1 exa-joule (EJ) = 1018 joules = 0.95 quadrillion Btu.

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greater than fivefold increase in world popula-tion and a somewhat less than fourfold increasein average energy use per person (41). Fossil-fuel use increased more than 150-fold, risingfrom 12% of the modest energy use of 1850 to79% of 2000’s much larger total. By 2005, fos-sil fuels were contributing 81% of the worldprimary energy supply, 82% in China, and 88%in the United States (42); even in the electricitysector (where nuclear, hydropower, wind, solar,and geothermal energies make their largestcontributions), fossil fuels accounted for two-thirds of global generation (Table 4).

The huge increase in fossil-fuel use over thepast century and a half played a large role inexpanding the impact of humankind as a globalbiogeochemical force (43), not only throughthe associated emissions of CO2, oxides of sul-fur and nitrogen, trace metals, and more, butalso through the mobilization of other materi-als, production of fertilizer, transport of water,and transformations of land that the availabilityof this energy made possible (44). At the end ofthe 20th century and the beginning of the 21st,the fossil-fuel–dominated energy supply sys-tem continued to impose immense environ-mental burdens at local, regional, andglobal scales, despite large invest-ments and some success in reducingemissions to air and water per unit ofenergy supplied (29).

Fine particles appear to be the mosttoxic of the usual air pollutantsresulting from the combustion offossil and biomass fuels, andwhether emitted directly or formedin the atmosphere from gaseous pre-cursors, they have proven difficult tocontrol (45). The concentrations offine particulates in urban air in theUnited States, Western Europe, andJapan have mostly been falling inrecent years, but in cities across thedeveloping world the concentrationshave risen to shockingly high levels—often several times the WHO guide-lines (29). As noted above in connec-tion with Table 1, population expo-sures to particulate matter from thecombustion of fossil and biomass fuelsindoors are even greater, with com-mensurate impacts on health.

A major regional impact of fossil-fuel combustion is wet and dry depo-sition of sulfur and nitrogen, much ofit in acidic forms. Of the sulfur oxideand nitrogen oxide emissions that arethe precursors of this fallout, the for-mer are somewhat easier to control

technologically. Global emissions of both arenow increasing, however, as rapid expansion ofpoorly controlled sources in Asia, and to alesser extent in Africa and Latin America, isnow more than offsetting reductions in theindustrialized countries (29).

Mid-range projections for energy growthover the next few decades show world use ofenergy reaching 1.5 and 2 to 2.5 times the 2005level by 2030 and 2050, respectively; electricitygeneration in these “business-as-usual” casesnearly doubles by 2030 and triples by 2050(46). Although these are daunting numbersfrom the standpoint of sustainability, the prob-lem is not that the world is running out ofenergy. It isn’t (37, 47). But it is running out ofcheap and easy oil and gas, and it is running outof environmental capacity to absorb, withoutintolerable consequences, the impacts of mobi-lizing these quantities of energy in the ways wehave been accustomed to doing it (48).

Much discussion of the oil issue has beenframed around the contentious question of“peak oil” (49): When will global production ofconventional petroleum reach a peak and beginto decline, as U.S. domestic production did

around 1970? The question derives its impor-tance from the proposition that reaching thispeak globally will presage large and long-last-ing increases in the price of oil, plus a costly anddemanding scramble for alternatives to fill thewidening gap between the demand for liquidfuel and the supply of conventional petroleum.

Oil-supply pessimists argue that the peak ofconventional oil production could occur anytime now; oil-supply optimists say it probablywon’t happen until after 2030, perhaps not untilafter 2050. Similar arguments go on about con-ventional supplies of natural gas, the totalrecoverable resources of which are thoughtto be not greatly different, in terms of energycontent, from those of crude petroleum.

In my judgment, it’s difficult to tell at thisjuncture whether the optimists or the pessimistsare closer to right about when the world willexperience peak oil, but the answer is not veryimportant as a determinant of what we need tobe doing. After all, it’s clear that heavy oildependence carries substantial economic andpolitical risks in a world where high proportionsof the reserves and remaining recoverableresources lie in regions that are unstable and/orcontrolled by authoritarian governments thathave sometimes been inclined to wield oil sup-ply as a weapon. It’s also clear that world oil use(which is dominated by the transport sector and,within it, by motor vehicles) is a huge producerof conventional air pollutants, as well as beingabout equal to coal burning as a contributor tothe global buildup of the heat-trapping gas CO2(29, 42). Given these liabilities, it makes senseto be looking urgently for ways to reduce oildependence (while working to clean up contin-uing uses of oil), no matter when we think peakoil might occur under business as usual.

Indeed, the problem of how to reduce thedangers from urban and regional air pollutionand from overdependence on oil in the face ofrising worldwide demand for personal trans-portation is one of the two greatest challengesat the energy-economy-environment intersec-tion. The other one is how to provide theaffordable energy needed to create and sustainprosperity everywhere without wrecking theglobal climate with the CO2 emitted by fossil-fuel burning.

Climate is the envelope within which nearlyall other environmental conditions andprocesses important to human well-being mustfunction (50). Climate strongly influences (soclimate change directly affects) the availabilityof water; the productivity of farms, forests, andfisheries; the prevalence of oppressive heat andhumidity; the geography of disease; the dam-ages to be expected from storms, floods,


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2007

World energy supply in 20054

Primary energy (exajoules)

of which Oil

Natural gas

Coal

Nuclear energy

Hydropower

Biomass and other

514

34%

21%

26%

6%

2%

11%

WORLD

106

40%

24%

25%

8%

1%

3%

USA

80

18%

2%

62%

0.6%

2%

15%

CHINA

Primary energy (terawatt-hours)

of which Coal

Oil and gas

Nuclear

Hydropower

Wind, geothermal, and solar

17,300

40%

26%

16%

16%

2%

4,000

50%

21%

20%

7%

2%

2,400

80%

3%

2%

15%

0.1%

Table 4. World energy supply in 2005. About a third of the pri-mary energy is devoted to electricity generation. Net electricity= gross generation less the electricity used within the generat-ing facility. In the “primary energy” column, hydropower iscounted as energy content, not fossil-fuel equivalent. “Other”includes wind, geothermal, and solar energy (42).

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droughts, and wildfires; the property losses tobe expected from sea-level rise; the investmentsof capital, technology, and energy devoted toameliorating aspects of climate we don’t like;and the distribution and abundance of speciesof all kinds (those we love and those we hate). Asufficient distortion in the climatic enve-lope, as recent human activities arewell on the way to achieving, can beexpected to have substantial impactsin most of these dimensions.

Indeed, after a rise in global aver-age surface temperature of about0.75º ± 0.20ºC since 1880–1900(51), changes in most of these cat-egories, and significant damagesin many, have already becomeapparent (5, 10, 16, 52, 53). Largeimpacts from seemingly modestchanges in global average surfacetemperature underline the reality thatthis temperature is a sensitive proxyfor the state of the world’s climate,which consists of the patterns in spaceand time not only of temperature andhumidity but of sun and clouds, rain-fall and snowfall, winds and stormtracks, and more. (The sensitivity ofthe temperature proxy for the state ofthe climate is often illustrated by theobservation that the difference inglobal average surface temperaturebetween an ice age and a warm inter-glacial—drastically different cli-mates—is only about 5ºC.)

There is no longer any seriousdoubt that most of the climatic changethat has been observed over the pastfew decades has been due to humanrather than natural influences (54). Asshown in Table 5, the largest of thepositive human “forcings” (warminginfluences) has been the buildup ofCO2 in the atmosphere over the pasttwo and a half centuries. (About two-thirds of this buildup has come fromfossil-fuel burning and the other one-third from land-use change.) Otherimportant contributors have beenmethane from energy supply, land-usechange, and waste disposal; halocarbons from avariety of commercial and industrial applica-tions; nitrous oxide from fertilizer and combus-tion; and soot from inefficient engines and bio-mass burning. Partially offsetting coolingeffects have been caused by the reflecting andcloud-forming effects of human-produced par-ticulate matter and by increased surface reflec-tivity due to deforestation and desertification.

Facing the menace of growing, human-caused disruption of global climate, civiliza-tion has only three options: mitigation (takingsteps to reduce the pace and the magnitude ofthe climatic changes we are causing); adapta-tion (taking steps to reduce the adverse impactsof the changes that occur); and suffering from

impacts not averted by either mitigation oradaptation. We are already doing some of eachand will do more of all, but what the mix will bedepends on choices that society will makegoing forward. Avoiding increases in sufferingthat could become catastrophic will requirelarge increases in the efforts devoted to bothmitigation and adaptation.

A 2007 report for the UN Commission on

Sustainable Development, focused on what todo, emphasizing mitigation and adaptationequally, concluded that the chances of a “tip-ping point” into unmanageable degrees of cli-matic change increase steeply once the globalaverage surface temperature exceeds 2º to2.5ºC above the pre-industrial level, and thatmitigation strategies should therefore bedesigned to avoid increases larger than that(52). Having a better-than-even chance of doingthis means stabilizing atmospheric concentra-tions of greenhouse gases and particles at theequivalent of no more than 450 to 500 parts permillion by volume (ppmv) of CO2 (55, 56).

A mitigation strategy sufficient to achievesuch stabilization will need to address methane,halocarbons, nitrous oxide, and soot as well asCO2, but the largest and most difficult reduc-tions from business-as-usual trajectories offuture emissions are those needed for CO2itself. The difficulty in the case of CO2 emis-sions from the energy system resides in the cur-rent 80% dependence of world energy supplyon fossil fuels, the technical difficulty of avoid-ing release to the atmosphere of the immensequantities of CO2 involved, and the longturnover time of the energy-system capitalstock (meaning that the shares of the differentenergy sources are hard to change quickly)(57). In the case of the 15 to 25% of global CO2emissions still coming from deforestation(essentially all of it now in the tropics), the dif-ficulty is that the causes of this deforestation aredeeply embedded in the economics of food,timber, biofuel, trade, and development, and inthe lack of valuation and marketization of theservices of intact forests (58).

Stabilizing atmospheric CO2 at 500 ppmvwould be possible if global emissions fromfossil-fuel combustion in 2050 could be cut inhalf from the mid-range business-as-usual fig-ure of 14 billion metric tons of carbon in CO2per year. Numerous studies of how reductionsof this general magnitude might be achievedhave been undertaken (59), and, notwithstand-ing differences in emphasis, virtually all haveshown that: (i) such reductions are possible butvery demanding to achieve; (ii) there is no sin-gle silver-bullet approach that can do all or evenmost of the job; (iii) it is essential, in terms ofboth feasibility of the ultimate aim and cost ofachieving it, to begin reductions sooner ratherthan later; (iv) the quickest and cheapest avail-able reductions will be through improving theefficiency of energy end-use in residential andcommercial buildings, manufacturing, andtransport, but costlier measures to reduce emis-sions from the energy supply system will alsoneed to be embraced; and (v) without major

ASSOCIATIONAFFAIRS

Disrupting earth’s climate5Cause of forcing

Change in atmospheric concentration of

Carbon dioxide

Methane

Halocarbons

Nitrous oxide

Tropospheric ozone

Stratospheric ozone

Soot

Reflecting particles

Cloud-forming effect of particles

Change in reflectivity of surface (albedo) due to

Land-use change

Soot on snow

Change in solar irradiance

+1.66 (±0.17)

+0.55 (±0.07)

+0.34 (±0.03)

+0.16 (±0.02)

+0.35 (–0.10,+0.30)

–0.05 (±0.10)

+0.3 (±0.2)

–0.8 (±0.4)

–0.7 (–1.1,+0.4)

–0.2 (±0.2)

+0.1 (±0.1)

+0.12 (–0.06,+0.18)

Magnitude of

forcing (W/m2)

Table 5. IPCC estimates of principal human-produced and nat-ural forcings since 1750. Forcings are essentially changes inEarth’s energy balance, measured in watts per square meter ofthe planetary surface, with positive values denoting warminginfluences and negative values denoting cooling. The uncer-tainty range is given in parentheses. Large volcanic eruptionsproduce negative forcings of a few years’ duration due to theparticles they inject into the atmosphere, but they are notincluded in the table because no trend is evident in the size ofthis effect over time. Effects of the 11-year sunspot cycle arelikewise not shown because they average out over time periodslonger than that. Note that the IPCC’s best estimate of the con-tribution of the net change in input from the Sun since 1750 issome 14 times smaller than that of the CO

2(30).

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improvements in technology on both thedemand side and the supply side—and a majorexpansion of international cooperation in thedevelopment and deployment of these tech-nologies—the world is unlikely to achievereductions as large as required.

The improved technologies we should bepursuing, for help not only with the energy-cli-mate challenge but also with other aspects ofthe energy-economy-environment dilemma,are of many kinds: improved batteries for plug-in hybrid vehicles; cheaper photovoltaic cells;improved coal-gasification technologies tomake electricity and hydrogen while capturingCO2; new processes for producing hydrogenfrom water using solar energy; better means ofhydrogen storage; cheaper, more durable, moreefficient fuel cells; biofuel options that do notcompete with food production or drive defor-estation; advanced fission reactors with prolif-eration-resistant fuel cycles and increasedrobustness against malfunction and malfea-sance; fusion; more attractive and efficient pub-lic transportation options; and a range of poten-tial advances in materials science, biotechnol-ogy, nanotechnology, information technology,and process engineering that could drasticallyreduce the energy and resource requirements ofmanufacturing and food production (60).

Also urgently needed from S&T in theenergy-climate domain are improved under-standing of potential tipping points related toice-sheet disintegration and carbon releasefrom the heating of northern soils; a greatlyexpanded research, development, anddemonstration effort to determine the bestapproaches for both geologic and enhancedbiologic sequestration of CO2; a serious pro-gram of research to determine whether thereare “geoengineering” options (to createglobal cooling effects that counter the ongo-ing warming) that make practical sense; andwide-ranging integrated assessments of theoptions for adaptation (61).

Adequately addressing these and otherneeds in the science and engineering of theenergy-environment interaction would proba-bly require a 2- to 10-fold increase in the sumof public and private spending for energyresearch, development, and demonstration(ERD&D) (62). This sounds daunting, but theamounts involved are astonishingly smallcompared to what society spends for energyitself (63). There are signs that the private sec-tor is ramping up its efforts in ERD&D inresponse to the challenge, but for reasons thathave been abundantly documented (64), thepublic sector must also play a large role in theneeded expansion. Sadly, until now there has

been precious little sign of that happening,notwithstanding abundant rhetoric from polit-ical leaders about new technologies being thekey to the solution (65).

Moving Toward Elimination of NuclearWeaponsThroughout the Cold War, the world’s nucleararsenals (which reached tens of thousands ofnuclear weapons on each side in the USA-USSR confrontation and hundreds each in thepossession of the United Kingdom, France,China, and probably Israel) were recognized bynearly everyone as a threat to the existence of asizable part of the human population and to thewell-being of most of it, if any significant frac-tion of them were ever used. Following thepeaceful end of the Cold War at the beginningof the 1990s, however, the salience of the threatfrom these nuclear weapons rapidly receded inthe minds of most people. The most plausiblepolitical source of a nuclear conflagration haddisappeared, and the only related set of worriesthat retained any widespread salience was aconcern—initially much less compelling andimmediate than the Cold War’s nuclear threathad been—about the possible acquisition ofnuclear weapons by rogue states and terrorists.

The tendency toward complacency aboutdangers from nuclear weapons in the posses-sion of the major powers was reinforced by con-siderable shrinkage in the U.S. and Russianarsenals—as weapons now deemed surpluswere retired from active service and a processof dismantling was begun—and subsequentlyby conclusion of the Moscow Treaty of 2002,which appeared to promise further significantcuts. Meanwhile, the refocusing of residualconcerns about nuclear weapons on issues ofproliferation and terrorism proceeded apace,driven by the initial discovery of a nuclearweapon program in Iraq, the Indian and Pak-istani nuclear tests of 1998, the revelation ofA. Q. Khan’s proliferation network, theunmasking of North Korea’s nuclear weaponprogram, and the exercise of frighteninglyorganized and destructive (even if non-nuclear)terrorist capabilities on September 11, 2001.

To be concerned about nuclear prolifera-tion and the possibility of nuclear terrorismcertainly wasn’t and isn’t wrong (66). But tobelieve that the nuclear weapons still in thepossession of the United States, Russia, andthe other de jure nuclear weapon states (67)are not themselves still a major threat to theworld is to underrate both the direct threat oftheir use that remains and the ways in whichtheir existence influences the proliferationand terrorism threats.

Concerning the possibility that these major-power weapons might in fact be used, highlyrelevant facts (which polls show are largelyunknown to the U.S. public) are as follows: (i)These arsenals still contain altogether about20,000 nuclear weapons, of which the UnitedStates possesses about half; (ii) most of the U.S.and Russian nuclear weapons are not coveredby the Moscow Treaty, which governs only asubcategory called “operationally deployedstrategic nuclear weapons” (and which alsolacks any provision or mechanism for verifica-tion); (iii) the United States and Russia eachcontinue to maintain about 2000 strategicnuclear weapons on short-reaction-time alert,increasing the chance of use by mistake or mal-function; and (iv) the United States and Russiaboth reserve the “right” of first use of nuclearweapons, including in response to non-nuclearthreats. While the chance of large-scale use ofU.S. and Soviet/Russian nuclear weapons cer-tainly diminished with the end of the Cold War,then, the danger has by no means completelydisappeared (68, 69).

The existing nuclear arsenals and the pos-tures of their owners toward their potentialuses and improvement are hardly uncon-nected, moreover, from the dangers of nuclearproliferation and nuclear terrorism. The evi-dent intentions of the current nuclear weaponstates to retain large arsenals indefinitely, tomaintain high states of alert, to continue tothreaten first use of nuclear weapons evenagainst states that do not possess them, and topursue development of new types of nuclearweapons for increased effectiveness or newpurposes are manifestly incompatible withthe bargain embodied in the Non-Prolifera-tion Treaty and corrosive of the nonprolifera-tion regime (70).

More specifically, with these stances thenuclear weapon states forfeit any moral author-ity to which they might aspire on questions ofnuclear weapon possession, and they reduce thechances of gaining the cooperation of the worldcommunity on technology-transfer restrictionsand sanctions directed against proliferators.They also directly encourage proliferation byreinforcing the view that nuclear weapons havegreat political and military value and by under-mining confidence that nonpossession ofnuclear weapons means a country need not fearbeing attacked with them.

Nuclear proliferation itself, when it occurs,tends to increase both the incentives and theopportunities for further proliferation, as wellas expanding the opportunities for terroristacquisition of nuclear weapons. The expansionof opportunities accompanying proliferation


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comes not merely because nuclear weapons,nuclear weapons expertise, and nuclear explo-sive materials have been put in additionalhands in additional locations, from which theymay spread further (as the Khan network soappallingly demonstrated), but especiallybecause they have been placed into contextswhere there has been no experience in control-ling them. Constraints on the numbers, disper-sion, and contemplated uses of nuclearweapons are important, therefore, both toreduce the probability of accidental, erro-neous, unauthorized, or authorized use and toreduce the chances of nuclear weapons com-ing into the possession of additional prolifer-ant states or terrorists.

Ultimately, however, the only alternative tocontinued proliferation is achievement of a uni-versal prohibition on nuclear weapons, coupledwith means to ensure confidence in compli-ance. If possession of nuclear weapons does nottend toward zero, it will tend instead toward uni-versality; and though no one can predict thepace of this, it will mean, in the long run, thatthe probability of use of these weapons willtend toward unity (71). There are, moreover,powerful arguments that a prohibition ofnuclear weapons is not only a practical andmoral but a legal necessity, under internationallaw (72). It is also telling that, over the years,more and more of the people who have hadcommand over the U.S. nuclear arsenal and thepolicies governing its use have reached the con-clusion that pursuing prohibition is the onlysensible option (73).

While the contrary is often claimed, prohibi-tion does not require “un-inventing” nuclearweapons (an impossibility). Societies sepa-rately and together have productively prohib-ited murder, slavery, and chemical and biologi-cal weapons without imagining that these havebeen un-invented. Nor is verification an insur-mountable obstacle. Verification, with furtherinnovations both technical and social, can bemore effective than most suppose (74); and inany case, the dangers to the world from cheat-ing are likely to be smaller than the dangers tobe expected in a world from which nuclearweapons have not been banned (75).

As for timing, the buildup of the globalnuclear weapon stockpile from a dozen in 1946(all in the possession of the United States) to thepeak of about 65,000 in 1986 took just fourdecades; another two decades later, the numberhad fallen by more than two-thirds (76). I see noreason the world shouldn’t aim for getting tozero in another two decades; that is, by about2025. Crucial early steps in that directioninclude declarations by the nuclear weapon

states that they will never, in any circum-stances, use nuclear weapons first or againstcountries that do not possess such weapons; de-alerting of all nuclear forces; a series of pro-gressively deeper cuts in total numbers ofnuclear weapons (strategic and nonstrategic,deployed and nondeployed), with physicaldestruction of all of the weapons made surplusby these cuts and disposition of their nuclearexplosive materials in ways that effectively pre-clude their reuse for weapons, and with interna-tionally agreed means of verification; ratifica-tion and entry into force of the ComprehensiveNuclear Test Ban Treaty; and negotiation of acutoff of production of nuclear explosive mate-rials for weapons (77).

S&T can contribute to achieving suchprogress in several ways: through technicaladvances that make verifying weapon-reduc-tion agreements easier (and thus make agreeingto them easier); through other technicaladvances that make nuclear energy technologyless likely to be used for nuclear weaponryand/or more likely to be detected if this hap-pens; through applications of science and engi-neering to the task of reducing the dangers ofaccidental, erroneous, or unauthorized use ofnuclear weapons, as well to the task of obviatingany need for nuclear explosive testing ofweapons, for as long as these still exist; andthrough S&T-based integrated assessmentsclarifying dangers and pitfalls on the path tozero and how to avoid them.

Almost certainly, getting to a world ofzero nuclear weapons will be as much a mat-ter of political wisdom, political courage,and diminution in the motivations for armedconflict of any sort as a matter of S&T per se.But in the domain of diminishing motiva-tions for conflict, the alleviation of the othershortfalls in sustainable well-being dis-cussed here—to which, as I have tried toshow, S&T have large contributions tomake—will be indispensable (78).

What Else Is Needed? Beyond the points made already here about thecontributions needed from S&T with respect tothe five specific challenges on which I havefocused, I want to mention some cross-cuttingdesiderata. We need:

•A stronger, clearer focus by scientists andtechnologists on the largest threats to humanwell-being;

•Greater emphasis on analysis of threats andremedies by teams that are interdisciplinary,intersectoral, international, and intergenera-tional (as the problems are);

•Undergraduate education and graduate

training better matched to these tasks;•More attention to interactions among

threats and to remedies that address multiplethreats at once;

•Larger and more coordinated investmentsin advances in S&T that meet key needs atlower cost with smaller adverse side effects;

•Clearer and more compelling argumentsto policy-makers about the threats and theremedies; and

•Increased public S&T literacy.Most, if not all, of these aims would be

advanced by wider acceptance, within the aca-demic scientific and engineering communitiesand elsewhere, of the proposition that applied,interdisciplinary, and integrative work by indi-vidual scientists and technologists and by teamsis not necessarily less rigorous, less demanding,or less worthy of recognition—and certainlynot less valuable to society—than work that isnarrower or “purer” (79).

The role of the AAAS in advancing theseideas has been and remains immensely impor-tant. It is the largest, most diverse, and mostinterdisciplinary of U.S. scientific societies,and it is also the most influential. Our flagshippublication, Science, has the largest paid circu-lation among all the peer-reviewed sciencejournals in the world and enjoys a well-earnedreputation for discerning coverage of the inter-section of S&T with public policy (as well asfor cutting-edge reports on disciplinaryresearch in multiple fields). The extraordinaryintellectual smorgasbord of our annual meetingmakes it the year’s most important gathering forthe growing segment of the S&T communityinterested in the interactions among S&T disci-plines and in the influence of S&T on thehuman condition. It also draws, appropriately,by far the most and best media coverage of anyscientific meeting (80).

As a visit to the AAAS Web site atwww.aaas.org will reveal, there is much more.A remarkable array of interdisciplinary, inter-sectoral, practice- and policy-oriented centers,programs, and initiatives operate out of AAASheadquarters and engage the energies of mem-bers and the attention of publics and policy-makers all around the world. The AAAS R&DBudget and Policy Program provides the mostcomprehensive and continuously up-to-datecoverage available anywhere on patterns, prior-ities, and policy underpinnings of U.S. govern-ment investments in S&T. Since 1973, theAAAS Science and Technology Policy Fellow-ship programs have been installing postdoctoralto mid-career scientists and engineers in keyvenues of the federal government where theirinsights can inform real-world policy-making

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while they learn how the policy process worksand how it can be made to work better; therehave been something in the range of 2000 ofthese AAAS S&T fellows, and this tremendousbody of talent and experience now constitutesa major part of the national community ofteaching and practice in science, technology,and public policy. And the extraordinary AAASProject 2061 has become a major force instrengthening S&T education in our schoolsand communities.

What More Can Individuals Do?Individual scientists and technologists con-cerned with the roles of S&T in the pursuit ofsustainable well-being have available to theman array of avenues and opportunities for effec-tive thought and action. Perhaps the most obvi-ous of these, given what I have just said aboutthe AAAS, is to increase one’s support for, par-ticipation in, and use of the relevant activitiesand resources of this organization. The similaractivities of other science- and engineering-oriented professional societies, academies, andnongovernmental organizations (NGOs) like-wise need and deserve increased participationand support.

More specifically, I would urge every sci-entist and engineer with an interest in the inter-section of S&T with sustainable well-being (inall the senses I have explored here and more) toread more and think more about relevant fieldsoutside your normal area of specialization, aswell as about the interconnections of your spe-cialty to these other domains and to the practi-cal problems of improving the human condi-tion; to improve the aspects of your communi-cation skills that are germane to conveyingyour understandings about these interconnec-tions to members of the public and to policy-makers; to actively seek out additional andmore effective avenues for doing so (includingbut not limited to increased participation in therelevant activities of the AAAS and otherNGOs); and indeed to “tithe” 10% of your pro-fessional time and effort to working in theseand other ways to increase the benefits of S&Tfor the human condition and to decrease theliabilities (81).

If so much as a substantial fraction of theworld’s scientists and engineers resolved to dothis much, the acceleration of progress towardsustainable well-being for all of Earth’s inhabi-tants would surprise us all.

References and Notes

1. See especially the classic treatise on sustainable development by

the World Commission on Environment and Development, G. H.

Brundtland, chair, Our Common Future (Oxford Univ. Press, 1987),

and the more comprehensive and analytical update by the National

Research Council Board on Sustainable Development, Our Common

Journey: A Transition Toward Sustainability (National Academy Press,

Washington, DC, 1999).

2. A number of the formulations in this section are adapted from J. P.

Holdren, G. C. Daily, P. R. Ehrlich, in Defining and Measuring Sustain-

ability The Biogeophysical Foundations, M. Munasinghe, W. Shearer,

Eds. (World Bank, Washington, DC, 1995), pp. 3–17.

3. The quoted formulation is from Robert Kates.

4. This was the key insight in Paul Ehrlich’s The Population Bomb

(Ballantine, New York, 1968), as well as one of those in Harrison

Brown’s prescient earlier book, The Challenge of Man’s Future

(Viking, New York, 1954). The elementary but discomfiting truth of it

may account for the vast amount of ink, paper, and angry energy that

has been expended trying in vain to refute it.

5. WHO, The World Health Report 2002 (WHO, Geneva, 2002); see

also K. R. Smith, M. Ezatti, Annu. Rev. Environ. Resour. 30, 291

(2005).

6. UN Development Programme (UNDP), The Human Development

Report 2005: International Cooperation at a Crossroads (UNDP, New

York, 2005).

7. An unsurprising conclusion from Table 1 is that poverty is a bigger

cause of loss of life in today’s world than high consumption is. More

surprising to some, although known to specialists since the early

1980s, is that indoor air pollution from the use of solid fuels in prim-

itive stoves for cooking, boiling water, and space heating in develop-

ing countries is a far bigger killer than the outdoor air pollution in all

of the world’s cities. See K. R. Smith, A. L. Aggarwal, R. M. Dave,

Atmos. Environ. 17, 2343 (1983). Also surprising to many is WHO’s

finding that, already in 2000, climate change was approaching

urban air pollution as a contributor to global mortality, principally

through the effects of increases in heat waves, floods, droughts, and

the incidence of certain tropical diseases. For a discussion of the

WHO estimate, arguing that it is conservative, see J. A. Patz et al.,

Nature 438, 310 (2005).

8. UNDP, Human Development Report 2006: Beyond Scarcity—

Power, Poverty, and the Global Water Crisis (Palgrave Macmillan,

New York, 2006).

9. UNDP, Human Development Report 2001: Making New Technolo-

gies Work for Human Development (Oxford Univ. Press, New York,

2001).

10. UN, The Millennium Development Goals Report (UN, New York,

2006).

11. World Bank, Global Monitoring Report: Millennium Develop-

ment Goals (World Bank, Washington, DC, 2007)

12. See U.S. Dept. of Commerce, 2007 Statistical Abstract of the

United States (U.S. Government Printing Office, Washington DC,

2007). The United States compounds its distinction as the meanest

of wealthy countries in aid-giving by claiming the record for the frac-

tion of its aid that is “tied”: that is, the money must be used to pur-

chase goods and services from the donor (6).

13. Millennium Ecosystem Assessment (MEA), Ecosystems and

Human Well-being: Biodiversity Synthesis (World Resources Institute,


14. G. C. Daily, Ed., Nature’s Services: Societal Dependence on Nat-

ural Ecosystems (Island Press, Washington, DC, 1997).

15. Growing concern about global climate change, which is driven

largely by the buildup of CO2

and other greenhouse gases in the

atmosphere, has helped drive increased demand for biofuels

because of the impression that they are CO2-neutral. This is indeed

the case if the biomass being used for energy is replaced by new

growth as rapidly as it is burned, and if no fossil fuels are used for

growing the energy crop, harvesting it, transporting it, and convert-

ing it into the desired fuel form. Most often the latter condition is not

met in the real world, as it most emphatically is not in the case of corn

ethanol, which is by far the most rapidly expanding biofuel enterprise

in the United States. But a biofuel operation that is short of CO2-neu-

tral may still offer some greenhouse gas–abatement benefit com-

pared to direct burning of fossil fuel. See, e.g., A. E. Farrell et al., Sci-

ence 311, 506 (2006), and J. Hill, E. Nelson, D. Tilman, S. Polasky, D.

Tiffany, Proc. Natl. Acad. Sci. U.S.A. 103, 11206 (2006).

16. Intergovernmental Panel on Climate Change (IPCC), Climate

Change 2007: Impacts, Adaptation, and Vulnerability (Contribution

of Working Group II to the Fourth Assessment Report of the IPCC,

Cambridge Univ. Press, Cambridge, 2007).

17. Compiled and rounded from P. Gleick, Ed., The World’s Water:

2006-7 (Island Press, Washington, DC, 2006); T. Oki, S. Kanae,

Science 313, 1068 (2006); and UN Environment Programme

(UNEP), Vital Water Graphics (UNEP, Washington, DC, 2002).

18. J. A. Foley et al., Science 309, 570 (2005).

19. For further detail about human transformations of land and

related impacts, see especially the classic by B. L. Turner et al., Eds.,

The Earth As Transformed by Human Action (Cambridge Univ. Press,

Cambridge, 1991), as well as R. DeFries, G. Asner, R. Houghton, Eds.,

Ecosystems and Land Use Change (Geophysical Monograph Series,

vol. 153, American Geophysical Union, Washington, DC, 2004) and

(21).

20. MEA, Current State and Trends: Findings of the Conditions and

Trends Working Group (MEA, Washington, DC, 2005).

21. P. M. Vitousek, P. R. Ehrlich, A. H. Ehrlich, P. A. Matson, Bioscience

36, 368 (1986). NPP is the part of the energy captured by primary

producers (mostly plants) that is not used by the plants for their own

metabolic processes; hence, it is available for consumption by other

organisms or addition to stocks.

22. See, most recently, H. Haberl et al., Proc. Natl. Acad, Sci.

U.S.A.104, 12942 (2007).

23. F. S. Chapin III et al., Nature 405, 234 (2000). See also R. Dirzo,

P. H. Raven, Annu. Rev. Environ. Resour. 28, 137 (2003) and (13).

24. A. Leopold, A Sand County Almanac (Oxford Univ. Press, Oxford,

1949, reissued by Ballantine Books, New York 1970). For more cur-

rent ecological insight about the “why worry about biodiversity loss?”

question, see P. M. Vitousek, H. A. Mooney, J. Lubchenco, J. M. Melillo,

Science 277, 494 (1997) and (13).

25. Good catalogs of the research needs in these domains have been

provided by the MEA (13, 20) and by the indicators project of the H.

John Heinz III Center for Science, Economics, and the Environment:

Heinz Center, The State of the Nation’s Ecosystems (Cambridge Univ.

Press, Cambridge, 2002); Heinz Center, Filling the Gaps: Priority

Data Needs and Key Management Challenges for National Reporting

on Ecosystem Condition (Heinz Center, Washington, DC, 2006).

26. See, e.g., B. Soares-Filho et al., Nature 440, 520 (2006).

27. See, e.g., C. L. Convis Jr., Ed., Conservation Geography: Case

Studies in GIS, Computer Mapping, and Activism (ESRI Press, CA,

2001), and A. Falconer, J. Foresman, Eds., A System for Survival, GIS

and Sustainable Development (ESRI Press, CA, 2002).

28. The approach being promoted by Tilman and colleagues on the

use of mixed prairie grasses as feedstock for cellulosic ethanol pro-

duction is a good example [D. Tilman, J. Hill, C. Lehman, Science

314, 1598 (2006)].

29. UNEP, Global Environmental Outlook 4 (GEO-4,UNEP, Nairobi,

Kenya, 2007).

30. IPCC, Climate Change 2007: The Physical Science Basis (Contri-

bution of Working Group I to the Fourth Assessment Report of the

IPCC, Cambridge Univ. Press, Cambridge, 2007).

31. See., e.g., J. B. C. Jackson et al., Science 293, 629 (2001), and

World Bank, Global Economic Prospects 2007 (World Bank, Wash-

ington, DC, 2007).

32. B. Worm et al., Science 314, 787 (2006).

33. T. P. Hughes et al., Science 301, 929 (2003).

34. L. Mee, Sci. Am. 295, 79 (November 2006) and (29).

35. For more extensive discussions of what is required to sustain the

integrity and services of the oceans—including not only scientific

and technological but the all-important management and gover-

nance dimensions—see, e.g., Pew Oceans Commission, L. E.

Panetta, chair, America’s Living Oceans: Charting a Course for Sea

Change (Pew Oceans Commission, Arlington, VA, 2003) and (13).

36. M. K. Hubbert, in National Research Council, Resources and Man

(W. H. Freeman, San Francisco, 1969), chap. 8.

37. J. Holdren, P. Herrera, Energy (Sierra Club Books, NY, 1971).

38. J. Goldemberg, Ed., The World Energy Assessment (UNDP, UN

Department of Economic and Social Affairs, and World Energy Coun-

cil, New York, 2000).

39. Much of this was already clear from the pioneering report of the

1970 summer workshop organized at the Massachusetts Institute of

Technology (MIT) by Carroll Wilson, Study of Critical Environment

Problems (MIT Press, Cambridge, MA, 1970). A more recent synoptic

account is the chapter on “Energy, Environment, and Health,” J. P.

Holdren, K. R. Smith, convening lead authors, in (38). See also (16,

19, 20, 29).

40. Data for Fig. 1 were compiled and reconciled from J. Darm-

stadter, Energy in the World Economy ( Johns Hopkins Univ. Press,

Baltimore, MD, 1968); D. O. Hall, G. W. Barnard, P. A. Moss, Biomass

for Energy in Developing Countries (Pergamon, Oxford, 1982); BP


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Amoco, Stat. Rev. World Energy (BP, London, annual); and (36).

Graphic courtesy of S. Fetter.

41. J. P. Holdren, Popul. Environ. 12, 231 (1991).

42. International Energy Agency, Key World Energy Statistics 2007

(OECD, Paris, 2007).

43. P. J. Crutzen, W. Steffen, Clim. Change 61, 251 (2003).

44. For earlier discussions of this issue, see, e.g., J. Holdren, P.

Ehrlich, Am. Sci. 62, 282 (1974) and the references cited in (20, 21,

37).

45. C. A. Pope et al., JAMA 287, 1132 (2002); J. Kaiser, Science 307,

1858 (2005).

46. U.S. Energy Information Administration, International Energy

Outlook 2007 (U.S. Department of Energy, Washington, DC, 2007).

47. See, e.g., IPCC, Climate Change 2007: Mitigation (Working

Group III Contribution to the IPCC Fourth Assessment Report, IPCC,

Geneva, 2007).

48. J. P. Holdren, Innovations 1, 3 (2006).

49. Credit for the idea of approximating the production trajectory of

a depletable resources as a Gaussian curve and for insights about the

significance of the peak year and how to predict it belongs to the late

geophysicist M. King Hubbert, who in the 1950s used this approach

to correctly predict that U.S. domestic production of conventional oil

would peak around 1970 [(36) and references therein]. He also pre-

dicted that world production of crude petroleum would peak between

2000 and 2010. Reviews, extensions, and critiques of Hubbert’s

approach now constitute a considerable literature; see, e.g., K. Def-

feyes, Hubbert’s Peak: The Impending World Oil Shortage (Farrar,

Straus & Giroux, New York, 2002), and C. J. van der Veen, Eos 87,

199 (2006).

50. Some of the formulations about climate in what follows have

been adapted from (48).

51. The beginning of the buildup of atmospheric greenhouse gases

attributable to human activities dates back to even before 1750, the

nominal start of the Industrial Revolution and the zero point used by

the IPCC for its estimates of subsequent human influences. Earlier

human contributions to atmospheric greenhouse gas concentrations

came principally from deforestation and other land-use change (43).

The human influences on global average surface temperature did not

become large enough to be clearly discernible against the backdrop

of natural variability until the 20th century, however. See especially

J. Hansen et al., Proc. Natl. Acad, Sci. U.S.A. 103, 14288 (2006), as

well as (16).

52. P. Raven et al., Confronting Climate Change: Avoiding the

Unmanageable and Managing the Unavoidable (UN Foundation,


53. UNDP, Human Development Report 2007-2008: Fighting

Climate Change (UNDP, Washington, DC, 2007).

54. Even the IPCC, which by its structure and process is designed to

be ultraconservative in its pronouncements, rates the probability that

most of the observed change has been due to human influences as

between 90 and 95% in its 2007 report (30).

55. For convenience, the IPCC and other analysts often represent the

net effect of all of the human influences on Earth’s energy balance as

the increased concentration of CO2

alone that would be needed to

achieve the same effect, starting from a reference point of 278 ppmv

of CO2in 1750. In 2005, when the actual CO

2concentration was 379

ppmv, the additional warming influences of the non-CO2greenhouse

gases and soot were the equivalent of another 100 ppmv of CO2, and

the cooling effects of human-produced reflecting and cloud-forming

particles and surface reflectivity changes were (coincidentally) equiv-

alent to subtracting about the same amount of CO2. Thus, the net

effect was about what would have been produced by the actual CO2

increase alone (see Table 5).

56. The relationship between climate forcing (represented as the CO2

concentration increase that would give the same effect as all of the

human influences combined) and the corresponding change in

global average surface temperature must be expressed in probabilis-

tic terms because of uncertainty about the value of climate “sensitiv-

ity,” which is commonly defined as the temperature change that

would result from forcing corresponding to a doubling of the 1750

CO2

concentration. See especially S. Schneider, M. Mastrandrea,

Proc. Natl. Acad, Sci. U.S.A. 102, 15728 (2005) as well as (30).

57. About 27.5 billion tons of CO2, containing 7.5 billion tons of car-

bon, were emitted by fossil-fuel combustion in 2005. The replace-

ment cost of the current world energy system is in the range of $15

trillion, and the associated capital stock has an average turnover time

of at least 30 to 40 years. See, e.g., International Energy Agency,

World Energy Outlook 2006 (OECD, Paris, 2006) and (52).

58. P. Moutinho, S. Schwartzman, Eds., Tropical Deforestation and

Climate Change (Instituto de Pesquisa Ambiental da Amazônia,

Belem, and Environmental Defense, Washington, DC, 2005).

59. M. Hoffert et al., Science 298, 981 (2002); S. Pacala, R. Socolow,

Science 305, 968 (2004); P. Enkvist, T. Nauclér, J. Rosander, McKin-

sey Quart. 1, 35 (2007); J. Edmonds et al., Global Energy Technology

Strategy (Battelle Memorial Institute, Washington, DC, 2007) and

(47).

60. See., e.g., N. Lane, K. Matthews, A. Jaffe, R. Bierbaum, Eds.,

Bridging the Gap Between Science and Society ( James A. Baker III

Institute for Public Policy, Rice Univ., Houston, TX, 2006).

61. D. W. Keith, Annu. Rev. Energy Environ. 25, 245 (2000); P. J.

Crutzen, Clim. Change 77, 211 (2006); and (52)

62. See, e.g., President’s Committee of Advisors on Science and Tech-

nology, Federal Energy Research and Development for the Chal-

lenges of the 21st Century (Executive Office of the President of the

United States, Washington, DC, 2007); World Energy Council (WEC),

Energy Technologies for the 21st Century (WEC, London, 2001);

National Commission on Energy Policy (NCEP), Breaking the Energy

Stalemate (NCEP, Washington, DC, 2004); and G. F. Nemet, D. M.

Kammen, Energy Policy 35, 746 (2007).

63. Expenditures of firms and individuals for energy are generally in

the range of 5 to 10% of gross domestic product—in round num-

bers, perhaps a trillion dollars per year currently in the United States

and five times that globally. Estimates of expenditures by govern-

ments on ERD&D depend on assumptions about exactly what should

be included, but by any reasonable definition are currently not more

than $12 billion to $15 billion per year worldwide. Private-sector

investments in ERD&D are much more difficult to estimate; but, if fol-

lowing the general pattern in the United States they are assumed to

be twice government investments, then the public/private total for

the world is in the range of $35 billion to $50 billion per year, which

is equal to at most 1% of what is spent on energy itself. By contrast,

many other high-technology sectors spend 8 to 15% percent of rev-

enues on R&D [see (62)].

64. See, e.g., K. S. Gallagher, J. P. Holdren, A. D. Sagar, Annu. Rev.

Environ. Resources 31, 193 (2006); President’s Committee of Advi-

sors on Science and Technology, Powerful Partnerships: The Federal

Role in International Cooperation on Energy-Technology Innovation

(Executive Office of the President of the United States, Washington,

DC, 1999); and (62).

65. K. S. Gallagher, A. D. Sagar, D. Segal, P. de Sa, J. P. Holdren, DOE

Budget Authority for Energy Research, Development, and Demon-

stration Database (Energy Technology Innovation Project, Cam-

bridge, MA, 2006).

66. National Academy of Sciences, Committee on International Secu-

rity and Arms Control, Management and Disposition of Excess

Weapons Plutonium (National Academy Press, Washington, DC,

1994); G. Allison, Nuclear Terrorism: The Ultimate Preventable Cata-

strophe (Henry Holt, New York, 2004); M. Bunn, Securing the Bomb

2007 (Project on Managing the Atom, Cambridge, MA, and Nuclear

Threat Initiative, Washington, DC, 2007).

67. The term “de jure nuclear weapon states” refers to those certified

as legitimate albeit temporary possessors of such weapons by the

Non-Proliferation Treaty (signed in 1968 and entering into force in

1970), in exchange for their agreement to make progress toward

nuclear disarmament (Article VI) and to assist non–nuclear weapon

states in acquiring the benefits of peaceful useful energy (Article IV).

They are the United States, the Soviet Union (now Russia), the United

Kingdom, France, and China.

68. National Academy of Sciences, Committee on International Secu-

rity and Arms Control, The Future of U.S. Nuclear Weapons Policy

(National Academy Press, Washington, DC, 1997).

69. John P. Holdren, “Beyond the Moscow Treaty,” testimony before

the Foreign Relations Committee, U.S. Senate, 12 September 2002

(www.belfercenter.org/files/holdren_testimony_9_12_02.pdf).

70. See, e.g., Canberra Commission on the Elimination of Nuclear

Weapons, Report of the Canberra Commission (Department of For-

eign Affairs, Commonwealth of Australia, Canberra, 1996) and (68).

71. This was recognized already in the prescient book that Harrison

Brown, then a young chemist working in the Manhattan Project,

started writing even before the Hiroshima and Nagasaki bombs were

exploded: Must Destruction Be Our Destiny? (Simon & Schuster, New

York, 1946). The Polish/British Manhattan Project scientist Joseph

Rotblat also reached this conclusion before World War II ended, left

the project as a result, and spent the rest of his 97 years working for

the elimination of nuclear weapons (including through the Pugwash

Conferences on Science and World Affairs, which he helped organize

and lead and with which he shared the 1995 Nobel Peace Prize). See

J. Rotblat, Scientists in the Quest for Peace: A History of the Pugwash

Conferences (MIT Press, Cambridge, MA, 1972); J. Rotblat, in Les Prix

Nobel 1995 (Nobel Foundation, Stockholm, 1996); and J. P. Holdren,

Science 310, 633 (2005).

72. International Court of Justice, Int. Legal Materials 35, 830

(1996).

73. G. L. Butler, “Abolition of Nuclear Weapons,” speech at the

National Press Club, 4 December 1996 (www.wagingpeace.org/

articles/1996/12/04_butler_abolition-speech.htm); A. Goodpaster,

chair, An American Legacy: Building a Nuclear-Weapon-Free World

(Stimson Center, Washington, DC, 1997); G. Schultz, H. Kissinger, W.

Perry, S. Nunn, Wall Street Journal, 6 January 2007, Op-Ed page.

General Butler was the commander of all U.S. strategic nuclear

forces; General Goodpaster was Supreme Allied Commander in

Europe; Schultz, Kissinger, and Perry all served as U.S. secretary of

defense.

74. Committee on International Security and Arms Control, National

Academy of Sciences, Monitoring Nuclear Weapons and Nuclear-

Explosive Materials (National Academy Press, Washington, DC,

2005).

75. J. P. Holdren, in M. Bruce, T. Milne, Eds., Ending War: The Force of

Reason: Essays in Honour of Joseph Rotblat (St. Martin’s Press, New

York, 1999), chap. 4.

76. Natural Resources Defense Council, Table of Global Nuclear

Stockpiles, 1945–2002, November 2002 (www.nrdc.org/nuclear/

nudb/datab19.asp).

77. See, e.g., (68–70, 73) and National Academy of Sciences, Com-

mittee on Technical Issues Related to Ratification of the Comprehen-

sive Nuclear Test Ban Treaty, Technical Issues Related to Ratification

of the Comprehensive Nuclear Test Ban Treaty (National Academy

Press, Washington, DC, 2002).

78. See also J. P. Holdren, “Arms Limitation and Peace Building in the

Post–Cold-War World” (Nobel Peace Prize acceptance lecture on

behalf of the Pugwash Conferences on Science and World Affairs), Les

Prix Nobel 1995 (Nobel Foundation, Stockholm, Sweden, 1996).

79. A multidecade trend in the right direction is evident in the estab-

lishment and success of increasing numbers of interdisciplinary

graduate degree programs focused on various dimensions of the

science-technology-society intersection in universities of the first

rank in the United States and around the world, as well as in the

increasing number of prestigious prizes focused on such work and

the increasing recognition of its importance by academies of science

and engineering through the election of members whose careers

have been largely in this domain.

80. This and the subsequent paragraph have been adapted from my

candidate statement in the 2004 election for president-elect of the

AAAS.

81. Although I have been advocating this tithe for decades, the idea

is certainly not original with me. I note here that a similar idea was a

major theme in J. Lubchenco’s AAAS presidential address in 1997

[Science 279, 491 (1998)].

82. I owe thanks for insight and inspiration to several late mentors

(among them Harrison Brown, Roger Revelle, Gilbert White, Jerome

Wiesner, Harvey Brooks, and Joseph Rotblat); to other mentors still

very much alive (among them Paul Ehrlich, George Woodwell,

Richard Garwin, Murray Gell-Mann, and Lewis Branscomb ); to previ-

ous presidents of the AAAS who have shared my preoccupation with

the links between S&T and sustainable well-being (among them

Peter Raven, Jane Lubchenco, Shirley Ann Jackson, and Gil Omenn);

to my wife (the biologist Cheryl E. Holdren); and to colleagues, stu-

dents, and friends—too numerous to list here—at all of the institu-

tions where I’ve worked or visited. I thank the editors of Science for

their patience and assistance with this essay, and the AAAS staff—

above all Alan Leshner and Gretchen Seiler—for their exceptional

support throughout my term in the Association’s leadership. My work

on the topics discussed here has been supported by the John D. and

Catherine T. MacArthur Foundation, the William and Flora Hewlett

Foundation, the David and Lucile Packard Foundation, the Heinz

Family Philanthropies, the Energy Foundation, the Winslow Founda-

tion, the Henry Luce Foundation, and many individual donors to the

Woods Hole Research Center. I am most grateful to all of them.

ASSOCIATIONAFFAIRS

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ERRATUM

www.sciencemag.org SCIENCE ERRATUM POST DATE 11 APRIL 2008 1

CORRECTIONS &CLARIFICATIONS

Association Affairs: “Science and technology for sustainable well-being” by John P. Holdren(25 January, p. 424). In Table 4, the heading reading “Primary energy (terawatt-hours)” shouldhave read “Net electricity (terawatt-hours).” In ref. 73, the positions held by G. Schultz, H.Kissinger, W. Perry, and S. Nunn were incorrectly described. The text should have read “Schultzand Kissinger served as U.S. secretary of state, Perry was secretary of defense, and Nunn waschair of the Senate Armed Services Committee.”

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T H E I N FO RM AT I O N T EC H N O L O GY & I N N O VAT I O N FO U N D AT I O N

I T I F

The InformationTechnology

& InnovationFoundation

In today’s economy, innovation – the development and adoption

-

es, and new business models – is the most important factor driv-

ing increases in American standards of living. By putting innovation

at the center of our nation’s economic policies, we can ensure robust

economic growth and rising standards of living for all Americans.

To ensure U.S. economic prosperity, the

federal government cannot consign its

role, as many neo-Keynesian economists

advocate, to simply redistributing re-

sources to the needy (or even the middle

class). Economic policy must emphasize

growth. This is not to say that govern-

ment policies to ensure that growth is

more fairly distributed are not needed,

but without robust economic growth, it

living for average Americans. In contrast

to what many have recently asserted, pro-

-

age American workers.1

To foster prosperity, we also cannot, as

many neoclassical economists do, simply

hope that markets will get it right. Mar-

kets do play important roles in generating

economic prosperity, but markets acting

in response to price signals alone will not

maximize U.S. economic growth. That

requires proactive and strategic public

policies to spur innovation.2

2009, it is time for both Congress and the

Executive Branch to take concrete steps

to ensure that the economy is on a robust

growth path over the next decade. To do

this, they should adopt and implement

eight key recommendations outlined be-

low:

-

-

-

-

-

BY ROBERT D. ATKINSON | SEPTEMBER 2008

By putting innovation at

the center of our nation’s

economic policies, we can

ensure robust economic

growth and rising stan-

dards of living for all

Americans.

An Innovation Economics Agenda for the Next Administration

PAGE 2THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | SEPTEMBER 2008 PAGE 2THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION |

1. SIGNIFICANTLY EXPAND THE FEDERAL RESEARCH AND DEVELOPMENT TAX CREDIT

Virtually all scholarly studies of the research and de-

-

tive tool to spur private sector R&D.3 When President

States was the most generous in the world. By 2004, in

large part because other nations had put in place much

more generous R&D tax incentives, the U.S. tax credit

was only the 17th most generous.

It’s time to not only make the federal R&D tax credit

-

sure that the United States can compete in the global

innovation economy. Doing so would not only spur

more R&D investments here at home, leading to faster

economic growth and more quality-of-life enhancing

innovations, but would also make the United States a

more competitive location for internationally-mobile

R&D.

To expand the federal R&D tax credit, Congress

should do the following:

The regular R&D tax credit allows

companies to take a credit of 20 percent of increases

period. The rate should be doubled to 40 percent.4

- Under the

-

-

cent of the average of their expenditures over the

prior three years. Congress should expand the ASC

percent for expenditures above 100 percent of the

base. Establishing such a three-tiered credit would

United States.

-

Collabora-

-

vest less in it than is optimal because many of the

Firms investing in extramural collaborative R&D

such expenditures.

--

Allowing

in the skills of the American workforce. At present,

companies can expense investments in workforce

development for tax purposes, but they cannot take

a more generous tax credit on the investments. This

is one reason why, with greater workforce turnover

and more competitive markets, corporate expendi-

tures on workforce training as a share of U.S. gross

domestic product (GDP) have fallen by almost half

Transforming the R&D credit

into a “Knowledge Credit” would help rectify this

situation.

2. CREATE A NATIONAL INNOVATION FOUNDATION

Congress took an important step in the direction of

supporting science and technology with the passage of

the 2007 America Competes Act. But the challenge of

maintaining U.S. competitiveness in science and tech-

more if we are to maintain our competitive position in

the global innovation economy. Besides fully funding

the America Competes Act, Congress should establish

a National Innovation Foundation with a core mission

of boosting technological innovation in the United

States.6

A National Innovation Foundation would be a nimble,

lean, and collaborative entity devoted to supporting

-

tivities.7 It would catalyze industry-university research

partnerships through national sector research grants,

expand regional innovation-promotion through state-

level grants to fund activities like technology commer-

cialization and entrepreneurial support, and encourage

technology adoption by assisting small and mid-sized

-

ganizational forms that they do not currently use.

PAGE 3THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | SEPTEMBER 2008

3. ALLOW FOREIGN STUDENTS RECEIVING A GRADUATE DEGREE IN MATH, SCIENCE, OR ENGINEERING TO QUAL-IFY FOR PERMANENT RESIDENT STATUS (I.E., RECEIVE A GREEN CARD)

Scientists and engineers are a key driver of innovation.

This is why many nations are actively competing to lure

this top-level talent to their borders.8 Yet the number

of Americans obtaining graduate science and engi-

neering degrees has not kept up with demand. Indeed,

almost one half of Ph.D. graduates of U.S. engineer-

ing, computer science, physical science, and life science

programs are now from other nations. If we want the

United States to continue to be the global innovation

leader, we should make it easier for these talented indi-

viduals who receive a graduate degree in science, tech-

to stay in the United States after graduation by making

them eligible for a green card.9

4. REFORM THE PATENT SYSTEM TO DRIVE INNOVATION

Reforms to the U.S. patent system are urgently need-

ed. A well-functioning patent system is key to driving

innovation. But the U.S. patent system suffers from

three key problems. First, the U.S. patent system is rife

with delay. With over 700,000 pending patent applica-

it can take four years to get a patent. Second, in part

-

aminers have been granting questionable patents that

are overly broad and overlap with existing patents. Fi-

nally, there has been a dramatic increase in patent liti-

the U.S. innovation system. Patent reform legislation

to address these issues has been introduced in Con-

gress and should be passed.10

5. LET COMPANIES EXPENSE NEW INVESTMENTS IN IN-FORMATION TECHNOLOGY IN THE FIRST YEAR

Innovation itself is important, but it is largely through

investment that innovations are diffused throughout

the economy. Scholarly research has conclusively

shown that investment in information technology (IT)

powers growth.11 In fact, IT seems to be “super capi-

tal” that has a much larger impact on productivity than

other capital.

Greater investment in newer generations of IT spurs

faster productivity growth. To encourage investment

in IT in the United States, Congress should let compa-

companies must depreciate IT equipment and software

investments over a number of years. Allowing compa-

nies to write off all the costs for tax purposes in the

-

ment, spurring companies to invest more and to more

rapidly turn over older, less productive equipment. By

lowering the cost of equipment and software, invest-

ment incentives encourage more investment by help-

earlier than such investments otherwise would. In ad-

dition, the expensing of IT investments would make

companies in the United States more competitive with

companies in other nations, especially nations that use

-

tablishments.12

6. ESTABLISH A FEDERAL CHIEF INFORMATION OFFICER

The lion’s share of productivity gains for the foresee-

able future will likely continue to come from the trend

of digital transformation – leading all organizations and

individuals to use digital technologies. Although the

private sector will drive much of the digital transfor-

mation, several market failures are slowing the trans-

formation process – and the federal government could

take a number of steps to help speed the process.13

for the federal government to take the steps that are

needed to help spur digital transformation of the U.S.

economy and government. Currently, no one in the

federal government is responsible for leading e-trans-

government as a whole does not.

It’s time to create a position of a federal CIO that

reports directly to the President. The federal CIO

should task all government agencies with examining

how their procurement, regulatory, and other actions

(e.g., health, education, transportation, banking and

securities, law enforcement, and housing).14 The CIO

should also take the lead in shaping e-government for

the entire federal government, help share the Admin-

istration’s policy regarding the Internet, oversee issues

of computer and network security for the government,

and work with state and local governments to promote

e-government.


7. CRAFT AND IMPLEMENT A NATIONAL BROADBANDSTRATEGY

America lags behind other nations in broadband adop-

Economic Cooperation Development (OECD) nations.

To spur ubiquitous high-speed broadband deployment

and adoption, Congress and the next Administration

should do all of the following:

-

-

-

15

8. CRAFT AND IMPLEMENT AN INNOVATION-BASED NA-TIONAL TRADE POLICY

U.S. trade policy should help spur innovation. To en-

sure that it does, Congress and the next Administra-

tion should craft and implement an innovation-based

U.S. trade policy that has two major features.

First, given the limitations of bilateral free trade agree-

broad multilateral agreements, the next Administration

should actively explore other mechanisms to open mar-

kets around the world. This should include a renewed

focus on sectoral agreements. The United States and

the European Union, for example, tabled a proposal

in the Doha Round context to forge a multilateral en-

vironmental goods and services agreement. With or

without Doha, this should be pursued, especially given

the critical importance of promoting green trade. In

addition, the next Administration should begin efforts

to forge a services industry sectoral agreement. How-

ever, to be WTO consistent, these would need to in-

clude substantially all the services sectors (including

telecom, banking and health care).

Second, to combat other nations’ systematic and unfair

“mercantilist” trade policies directed at eroding tech-

nology leadership of nations like the United States,

U.S. policy should focus more on assertively confront-

ing practices used by other countries such as theft of

intellectual property, discriminatory tax systems, and

protectionist standards – to unfairly gain global market

share. Many nations systematically seek to gain ad-

vantage in the innovation economy by violating either

the letter or the spirit of the World Trade Organization

(WTO).16 It is critical that U.S. trade policy place as

policies aimed at eroding U.S. technology leadership as

it does opening up new markets.

To ensure that U.S. trade policy supports innovation

while combating technology mercantilism, Congress

and the next Administration should take the following

steps:

One reason

why USTR has not done more to enforce existing

trade agreements is because doing so is quite costly

and labor intensive. Expanding USTR’s trade en-

forcement budget and creating these new positions

would provide USTR with needed resources and

send a clear signal that a key part of USTR’s job is to

aggressively bring actions against other nations that

are engaged in technology mercantilism.17

- Companies that help the USTR bring cases are

acting on behalf of the U.S. government and U.S.

workers. But bringing WTO cases is costly for the

trade enforcement is a collective good, companies

have an incentive to free ride and take advantage of

companies. As a nation, therefore, the United States

underinvests in trade enforcement. To help remedy


this situation, companies should be allowed to take

a tax credit for expenses related to trade enforce-

ment.

CONCLUSION

If the United States is to regain robust, broadly shared

growth and maintain its international economic com-

petitiveness, it’s time for bold policy action to spur in-

novation. We need smart public-private partnerships

that recognize that while the private sector is the key

performer of innovation, the public sector can and

should play a vital supportive role. These recommen-

innovation-based public-private partnerships needed

to drive economic growth and prosperity.

ENDNOTES

Determine How Much Median Incomes Trail Productivity Growth,” Information Technology and Innovation Foundation,

September 14, 2008).

2. Robert D. Atkinson and David B. Audretsch, “Economic Doctrines and Policy Differences: Why Washington Can’t Agree

on Economic Policies,” Information Technology and Innovation Foundation, Washington, D.C., September 12, 2008 <www.

(accessed September 14, 2008).

3. Robert D. Atkinson, “The Research and Experimentation Tax Credit: A Critical Policy Tool for Boosting Research and

Enhancing U.S. Economic Competitiveness,” Information Technology and Innovation Foundation, Washington, D.C.,

4. For more detail on these recommendations, see Robert D. Atkinson, “Expanding the Research and Development

Tax Credit to Drive Innovation, Competitiveness and Prosperity,” Information Technology and Innovation Foundation,

D. Atkinson, The New Economy Index (Washington, D.C.: Progressive Policy Institute, 1998). By 2007, training

expenditures had declined to 0.42 percent of GDP. See The New Economy Index and industry report data from

Training Magazine’s 2001-2007 Industry Reports <www.trainingmag.com/msg/ content_display/publications/

6. The National Innovation and Job Creation Act (S. 3078), introduced by Senators Clinton (D-NY) and Collins (R-ME)

would create a National Innovation Council modeled after the National Innovation Foundation. See S. 3078: National

7. Robert D. Atkinson and Howard Wial, “Boosting Productivity, Innovation, and Growth Through a National Innovation

8. David M. Hart, “Global Flows of Talent: Benchmarking the United States,” Information Technology and Innovation

9. See H.R. 6093, introduced by Congresswoman Zoe Lofgren (D-CA) which exempts from the employment-based (EB)

caps any alien who has earned a master’s or higher degree from a United States institution of higher education in a STEM

PAGE 6THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | SEPTEMBER 2008 PAGE 6THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION |

on by the full Senate.

11. Robert D. Atkinson and Andrew S. McKay,

Revolution

20 percent in the United States.

13. These include opposition by vested interests, lack of standards, chicken or egg issues, and system interdependencies, as

we see in the slow pace of health IT adoption. See Daniel Castro, “Improving Health Care: Why a Dose of IT May Be Just

What the Doctor Ordered,” Information Technology and Innovation Foundation, Washington, D.C., October 2007 <www.

16. Julie A. Hedlund and Robert D. Atkinson, “The Rise of the New Mercantilists: Unfair Trade Practices in the Innovation

17. Robert D. Atkinson, “Combating Unfair Trade Practices in the Innovation Economy,” testimony before


ABOUT THE AUTHOR

Dr. Robert D. Atkinson is President of the Information Technology and Innovation Foundation, a Washington, DC-based technology policy think tank. He is also author of the The Past and Future of America’s Economy: Long Waves of Innovation that Power Cycles of Growth (Edward Elgar, 2005).

ABOUT THE INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION

The Information Technology and Innovation Foundation (ITIF) is a nonprofit, non-partisan public policy think tank com-mitted to articulating and advancing a pro-productivity, pro-innovation and pro-technology public policy agenda inter-nationally, in Washington and in the states. Through its research, policy proposals, and commentary, ITIF is working to advance and support public policies that boost innovation, e-transformation and productivity.

For more information contact ITIF at 202-449-1351 or at [email protected], or go online to www.innovationpolicy.org.ITIF | 1250 I St. N.W. | Suite 200 | Washington, DC 20005

Speaker Sponsor: Robert S. Boege

Robert Spurrier Boege (“Bur—ga”) has served as Executive Director of ASTRA, the Alliance for Science & Technology Research in America since January of 2001. ASTRA is a collaboration of more than 120 companies, academic institutions, professional and trade associations focused on increasing federal research support for the physical sciences, mathematics & computational sciences, and engineering.

ASTRA was founded in 2000. The “Friends of ASTRA” worldwide number about 32,000 scientists, engineers and technologists. ASTRA is primarily a Web-based network of institutions and individuals linking through two key Web Sites: www.usinnovation.org andwww.aboutastra.org. Mr. Boege edits ASTRA Briefs and Tipping

Points for ASTRA and oversees ASTRA’s two Web sites as part of his ASTRA duties.

Mr. Boege has served in various positions within the government, nonprofit sector and industry. He has published extensively in the areas of nonprofit taxation and antitrust law. Boege created the publication Association Law & Policy and served as its editor for 11 years. Following positions with the Congressional Research Service’s American Law Division and Sperry Corporation’s Washington Office,

Mr. Boege became the chief lobbyist for the American Society of Association Executives (ASAE) and began that organization’s government affairs outreach program in 1982.

He was in charge of business liaison for the 1984 Presidential Campaign for President Reagan and then the Presidential Inaugural Committee in 1985. Mr. Boege was subsequently appointed Associate Director of the White House Conference on Small Business in 1985-86, then held a series of positions in the U.S. Small Business Administration and the U.S. Department of Energy.

From 1999-2000 he served in the Technology Administration at the U.S. Department of Commerce, where he specialized in issues related to the “new” economy, workforce development and technology policy.

He holds an undergraduate degree in International Affairs from Georgetown University, which he attended on a Whitehall Scholarship. He also attended the Université de Fribourg, Switzerland as part of his Georgetown studies. He is a graduate of the Georgetown University Law Center where he received his J.D. Boege graduated from Georgetown Law with honors in Comparative Law and received the U.S. Law Weekly Award for Academic Excellence.

A native of Davenport, Iowa, Boege’s home town is Park Forest, Illinois. Boege is now a resident of Martinsburg, West Virginia where he is active in civic affairs and historic preservation activities.

Visiting Speaker: Susan B. Butts, Ph.D.

Dr. Susan Butts is Senior Director of External Science and Technology

Programs at The Dow Chemical Company. In this capacity she is

responsible for Dow’s contract research activities with US and European

government agencies and sponsored research programs at over 100

universities, institutes, and national laboratories worldwide. She has also

held the role of Global Staffing Leader in which she managed recruiting and

hiring activities for the R&D function. She currently works from Dow’s

Washington, DC office and represents the company on many issues relating

to science & technology policy.

Dr. Butts is active in a number of organizations that address issues pertaining to relationships between

industry, universities, and government research laboratories. She was a co-founder and member of the

Steering Team for the University-Industry Partnership Project, an effort sponsored by the Government-

University-Industry Research Roundtable (GUIRR) of the National Academies, NCURA and IRI with

the goal of lowering the barriers to industry sponsored research at universities. This project led to the

creation of a new organization, the University-Industry Demonstration Partnership (UIDP), which

operates within GUIRR. Dr. Butts is currently the President of the UIDP. She also serves on the

governing boards for the Council for Chemical Research (CCR) and the Alliance for Science and

Technology Research in America (ASTRA). She is the Dow representative to the American Chemical

Society’s Committee on Corporation Associates, and the Industrial Research Institute (IRI). She is also

a member of the National Council of University Research Administrators (NCURA), the Association of

University Technology Managers, the American Association for the Advancement of Science, and

Sigma Xi.

Dr. Butts holds the degrees of B.S. in Chemistry from the University of Michigan and Ph.D. in

chemistry from Northwestern University. Before joining the External Technology group Dr. Butts held

several other positions at Dow including Senior Resource Leader for Atomic Spectroscopy and

Inorganic Analysis within the Analytical Sciences Laboratory, Manager of Ph.D. Hiring and Placement,

Safety and Regulatory Affairs Manager for Central Research, and Principal Investigator on various

catalysis research projects in Central Research.

For more information about the HSS Visiting Speaker Program

or the other Outreach and Collaboration effortsof the Office of Health, Safety and Security

Please see the website

http://www.hssoutreach.doe.gov/collaboration/index.html

Office of Health, Safety and Security Visiting Speakers ...€¦ · (i.e., Office of Science, Office of Environmental Management, and the National Nuclear Security Administration).

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