Trends in ‘Sustainability’

Personal reflections based on experiences leading Deloitte’s global Sustainability and Climate Change practice and as

Deloitte global Chief Sustainability Officer

Agenda

• Topics– Climate Change– Sustainability– Business purpose and business ethics (CSR)

• Dimensions– Europe– North America– China– Africa, India, South America

Resource Depletion Demand for Energy Water Scarcity

Between 2000 and 20005, nearly 50,000 square feet of the Amazon Rainforest, which comprises 30% of the world’s rain forest, was destroyed.

By 2030, it is predicted that resource consumption will be at 1.5 times the earth’s natural renewable capacity putting the world into a resource deficit

Energy costs have increased 163% between 1973 and 2012 while food prices have declined by 58% and raw material prices have declined by 59%.

In the past five years, global coal production rose 66% while oil production has increased by 4.5 million barrels per day

Water consumption has grown at double the rate of population growth in the last 100 years.

By 2025, 1.8 billion people will live in regions with absolute water scarcity, and 2/3 of the global population is at risk for stressed conditions.

Increasing demand for limited resources from population growth

Population Growth Population expected to grow 28% to nearly 9 billion people by

2050.

Population growth and increasing life expectancy lead to increased resource use.

In 2008, the global per capita energy consumption was 1.96 times the natural carrying capacity, which will continue to increase with population growth.

Population Density3

Climate Change

• International framework (UNFCCC)– 2009 CoP15– 2011 CoP17– Rio +20

• Domestic drivers (regulation, customers, competition)– Europe– US– China– Africa, India, South America

Sustainability

• The drivers– Consumers– Politicians– NGOs– Business

• The business/CEO led agenda– Customer intimacy– Cost management– Risk management / resilience– Water/food/energy– Reporting

Consumers and NGOs

BusinessPoliticians

Environment, resources animal

health etc

Profit, returnsSociety, poverty,

employment

Broad Agenda

“Rethinking Consumption” - Consumers care

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Emergence of a new consumer sector called ‘the Aspirationals’ seeking both consumption

AND sustainability.

Consumers in developing markets are twice as likely to purchase products due to their social and

environmental benefits (51%)

60% of consumers in developing markets prepared to spend

more on sustainable products because

they perceive them as being better

performance and quality

Almost all consumers would

choose a sustainable

product if price and quality were

same as alternates

67% of consumers want to be engaged in product development

65% of consumers say they ‘feel a sense of responsibility’ to society and 74% say that business

should be working to improve their performance

Source: Rethinking Consumption Consumers and the Future of Sustainability, BBMG, GlobeScan, SustainAbility, 2012

So consumers do care, but how much?

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Despite the surveys there appears to be a significant gap between Value and Action. Consumers don’t actually do what they say they will do...

Source: European Union, 2011

Misalignment between consumer attitudes and action in Europe Misalignment between consumer

attitudes and action at a global level

Source; Aegis Media, 2011

So who is filling the gap? What are the opportunities?

Values

Action

Impact of NGOs

• Maintaining the focus– Public awareness– Issue focused– ‘Outing’ of corporates– Raising the risk

• Two types of action– Work with business (e.g. WWF)– Activists (e.g. Greenpeace)

The impacts of CEOs - Trends in strategy

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Decoupling growth from impact

Source: M&S, How we do business report 2012

Source: Unilever, Sustainable Living Plan, Progress Report 2011

"I say to a lot of people you have to measure success in terms of progress, not in terms of end state”

Paul Polman, Unilever, Former CEOSource: The Telegraph, 2011

“What would be the impact on our business strategy and our investment decisions if we factor in the full cost of the resources that we are using?”

Jean-Marc Huët, Unilever, CFOSource: The Prince’s Accounting for Sustainability Project, A4S Annual Forum

CEO’s in reflective mode: World Economic Forum 2013 Global Risk report

• World Economic Forum Report on Global Risks to multiple stakeholders

• The Global Risks Landscape shows how survey respondents rated, on a scale of one to five, 50 global risks in terms of both likelihood and impact over the next 10 years if they were to occur.

• For businesses the risk landscape over the next 10 years is anticipated to be:

1. Water supply crisis

2. Persistent extreme events

3. Rising greenhouse gas emissions

4. Severe income disparity

• How might these events affect our business? How would embedding sustainability help us? What should be prioritised?

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Water supply crisis

Rising greenhouse gas emissions

Persistent extreme events

Severe income disparity

Source: World Economic Forum (2013), Global Risks 2013 available at http://reports.weforum.org/global-risks-2013

Reporting

• Issue specific:– Carbon Disclosure Project– Water Disclosure Project

• General disclosures:– GRI– Integrated reporting

• Other:– UN Global Compact– PACI

Reporting : Globally CFO’s also care - sustainability is a key topic on their agenda

Sustainability seen as key driver of financial performance

Nearly half of CFOs (49%) saw a “significant” link between sustainability performance and financial performance

This has increased from last year

In contrast 93% of CEOs see this as a key issue

Organizations are transforming themselves in response to the sustainability imperative

More than one-third of CFOs (34%) are implementing an organizational transformation relating to energy, environment and sustainability

Nearly one-fifth (22%) plan to do so in the next two years

Sustainability is becoming operationalized

Authority for sustainability appears to be moving to executives with operating authority and substantial budgets. More CFOs and COOs hold authority for sustainability

efforts than in 2011

Fewer CEOs and heads of sustainability hold this authority than in 2011

CFO involvement with sustainability is deepening

Two-thirds (66%) involved “always” or “frequently” in driving execution of sustainability strategy

More than half (53%) said their involvement increased over the last year

More than three-fifths (61%) expect their involvement to increase over next 2 years

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Business purpose and ethics

• The concept• Where this came from• Principal sources of thinking• WEF• Exemplars

Trust in business

• In 2012 trust in business stood at 53%, with trust in the food and beverage sector standing slightly higher than at 64%

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Trust is a key element of the brand promise. The Food and beverage presently are more trusted than most. This trust must not be abused.

Source: Edelman Trust Barometer 2012

• Corporate transparency is expected by consumers but a lack of trust in business means that consumers still rely on independent assurances

74% of consumers say that business should be working to improve their performance

What does this mean for NZ?

• The picture is more complex and nuanced but increasingly you will be seen as ‘on the journey’ or not

• The business reasons are often– Cost reduction– Risk management / strategic flexibility– Innovation– Customer intimacy– Reputation management

• We have a lot riding on the ‘New Zealand’ Brand

Consumers expect their brands to do the right thing

• The rise of the middle classes especially within developing markets is a key driver for change

• We are seeing the emergence of a new consumer sector called ‘the Aspirationals’ seeking both consumption AND sustainability.

• 65% of consumers say that the ‘feel a sense of responsibility’ to society and almost all consumers would choose a sustainable product if price and quality were same as alternates

• Consumers in developing markets are twice as likely to purchase products due to their social and environmental benefits (51%)

• 45% of Chinese consumers surveyed said they were willing to pay a 5-10% premium for green products (Source; WEF, More with less – scaling consumption and resource efficency)

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Business cannot afford to ignore sustainability challenges or green wash activities

In emerging markets the ‘green consumer’ offers a potential to create enhanced brand value, and promote and encourage sustainable forms of consumption

Where should companies strive to be on the Performance Perception alignment map?

Performance vs. Perception

Deloitte worked with Interbrand to develop and score an environmental performance methodology based on green performance and perception as part of the Best Global Green Brand Score

Sustainability and brand value: Best Global Green Brands

Performance

Perc

eptio

n

Overvalued

Undervalued

Aligned laggard

Aligned leader

Performance and perception quadrants

Improve Performance

Impr

ove

perfo

rman

ce

and

perc

eptio

n

Imp

rove

pe

rce

ptio

n

Performance

Governance

Stakeholder Engagement Operations

Supply Chain Transportation & Logistics

Products & Services

Perception

Authenticity Relevance

+

Differentiation Consistency

Presence Understanding

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“Not surprisingly, sustainability is driving brand value across all sectors – from automotive, to consumer products, to financial services.”

- Interbrand 2008

Sustainability performance & brand value - Best Green Global Brands

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“These two critical halves – performance and perception – make up the whole of a green company: one that operates sustainably and has build a positive image that can be leveraged to strengthen brand value.”

- Jez Frampton, CEO Interbrand

What does this mean for NZ (con’t)

• Unfortunately we seem to be heading backwards:– Climate change and Kyoto– Transparency and 100% Pure and food chain issues– Ross sea fisheries and mineral extraction– The level of public debate

• Business needs to take the lead!

“It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that you’ll do things differently”

Warren Buffet

Discussion