Driving Revenue Growth Through Sustainable Products and Services Webinar July 14, 2015

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1 Driving Revenue Growth Through Sustainable Products and Services Webinar July 14,

2 Agenda Introductions Research Review IRRCi Perspective Q&A 2

3 Webinar Logistics! Attendees in listen only mode.! Questions encouraged. Type using the Question function, and we will answer following report overview.! You will receive with link to replay.! Report and all others available at Share info on social media. Find Audio issues during webinar, contact

4 Speakers Thomas Singer Report Author & Principal Researcher The Conference Board Jon Lukomnik Executive Director, Investor Responsibility Research Center Institute 4 4

About the Investor Responsibility Research Center Institute Not-for-profit established in 2005.

5 About the Investor Responsibility Research Center Institute Not-for-profit established in Funds, disseminates research on range of issues at intersection of corporate responsibility, investors informational needs. Examines the capital market context that impacts how investors and companies make decisions. Sponsors annual research award. Five Year Impact report available. All research available at no charge. 5

6 Broad range of research topics Recent studies include: The Materiality of Human Capital to Corporate Financial Performance The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design Nanotechnology and the S&P 500: Small Sizes, Big Questions The Impact and Future of High Frequency Trading What Investors Need To Know About Cybersecurity Informed Options Trading prior to M&A Announcements: Insider Trading? Board Oversight of Sustainability Issues Integrated Financial and Sustainability Reporting in the United States Growing Traction For Environmental, Social Shareholder Proposals Controlled Companies in the Standard and Poor s 1500: A Ten Year Performance and Risk Review Executive Superstars, Peer Groups and Over-Compensation Voting Decisions at US Mutual Funds: How Investors Use Proxy Advisors Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing Download at no cost at 6

7 The Conference Board, in collaboration with the Investor Responsibility Research Center Institute (IRRCi), examined the extent to which sustainability is generating revenue, providing business growth opportunities, and stimulating innovation in products and services among S&P Global 100 companies. 7

8 The research is founded on the increasing recognition that corporate sustainability programs can drive innovation and be a key element of a company s growth strategy 8

9 Key questions this research addresses! How much revenue are companies generating from portfolios of sustainable products and services?! How much R&D spending are companies allocating to sustainability?! How has this changed over the last four years?! What lessons can be learned from companies that have successfully launched portfolios of sustainable products and services? 9

10 Defining sustainable products and services! The term sustainable product is riddled with definitional issues, and truly sustainable products do not exist (all products have some environmental impact).! Many companies prefer to use terms that describe products as environmentally superior to existing alternatives, e.g. sustainabilityadvantaged or environmentally-preferable.! This research uses the term sustainable products and services as short-hand to refer to products or services that have an explicit environmental advantage over equivalent existing products or services. 10

11 Methodology! We started with the S&P Global 100 as our research universe.! We obtained, organized, and analyzed publicly disclosed company data on revenue and R&D spending related to sustainable products and services. " Data were collected for the most recent year available and for each year back to 2010 (when available). " All companies in the research universe were contacted to obtain additional data that may not be included in company reports.! We developed case studies to feature company-specific details and qualitative findings. 11

12 A word of caution! The data this research is based upon remain limited and largely unstandardized. " Few companies have developed reporting around a stand-alone group of sustainable products and even fewer track revenues and R&D spending associated with these portfolios.! This research should be viewed as an (imperfect) attempt at quantifying the contribution of sustainable products and services to company growth. 12

13 The report includes 12 case studies featuring companies in six different sectors 13

14 What we found 1. Portfolios of sustainable products and services contribute significantly to revenue and are growing at an accelerated pace. 2. Growth in these portfolios can be attributed in part to the incorporation of sustainable products into company strategic planning and target setting. 3. R&D spending allocated to sustainable products and services supports the growth of these portfolios. 4. Financial sector involvement in sustainability is mushrooming. 5. A common piece of advice companies give is to widely engage stakeholders in the development of these portfolios. 14

15 1 Portfolios of sustainable products and services contribute significantly to revenue and are growing at an accelerated pace 15

Percentage of Total Revenue (Average, 2013) Revenue from Sustainable Products and

16 Among our sample, sustainable products and services on average account for 21 percent of total revenues Revenue from Sustainable Products and Services as a Percentage of Total Revenue (Average, 2013) Revenue from Sustainable Products and Services as a Percentage of Total Revenue (Average, ) Source: The Conference Board,

17 Among our sample, sustainable products and services on average account for 21 percent of total revenues Revenue from Sustainable Products and Services as a Percentage of Total Revenue (2013) Average Source: The Conference Board,

18 Among the companies in our sample, revenues from sustainable products and services are growing at six times the rate of overall company revenues. Change in Revenue from Sustainable Products and Services vs. Change in Total Company Revenue (Average, 2010 vs. 2013) Source: The Conference Board,

19 2 Growth in sustainable product portfolios can be attributed in part to the incorporation of sustainable products into company strategic planning and target setting 19

20 GE set a goal in 2005 to increase revenues from Ecomagination to at least $20 billion by 2010 The GE Lightgrid system allows remote monitoring and control, utility-grade energy metering, and GPS mapping of streetlights 20

21 In 2014 Ecomagination revenues totaled $34 billion, or 31% of GE s overall industrial revenue GE Ecomagination Revenue Sources: 2014, 2013, and 2012 data: GE communication to The Conference Board, April 20, and 2010 data: 2011 data: GE ecomagination reports. 21

In 2006 Dow Chemical set a 2015 target to derive 10% of total revenues from products that are highly advantaged by sustainable chemistry FILMTEC ECO Reverse

22 In 2006 Dow Chemical set a 2015 target to derive 10% of total revenues from products that are highly advantaged by sustainable chemistry FILMTEC ECO Reverse Osmosis technology delivers 40 percent better water purification with 30 percent less energy compared to current best-in-class water purification membranes 22

23 This target was reached in 2013, with revenues from these products totaling $5.7 billion Dow Chemical Revenue from Products Highly Advantaged by Sustainable Chemistry as a Percentage of Total Revenue Source: Dow Chemical 2013 Annual Sustainability Report, p

DuPont set a goal in 2011 to increase annual revenue from products that increase energy efficiency or significantly reduce GHG emissions by at least $2

24 DuPont set a goal in 2011 to increase annual revenue from products that increase energy efficiency or significantly reduce GHG emissions by at least $2 billion by 2015 DuPont s Biofuel Solutions, such as cellulosic ethanol, use non-food feed, including agricultural residues like corn stover and sugarcane straw. 24

25 By 2013 these products accounted for $2.5 billion in revenues, or 7 percent of overall revenues DuPont Revenue from Products that Reduce GHG Emissions Sources: 2014 DuPont Sustainability Progress Report (2013 data) and 2013 DuPont Sustainability Progress Report (2012, 2011, 2010 data). 25

26 Johnson & Johnson set a goal in 2011 to reach 60 Earthwards products by 2015 Over 90 percent of the ingredients in Neutrogena Naturals cleansing towelettes are naturally derived, including the plastic (it uses polylactide biodegradable and renewable plastic). 26

27 This goal was surpassed in 2014 with 73 Earthwards products totaling $8 billion or 11 percent of total revenues Total Number of Johnson & Johnson Earthwards Products Sources: Johnson & Johnson, Our Citizenship & Sustainability, (2014 data) and Johnson & Johnson, 2013 Citizenship & Sustainability Report, p. 70 (2013, 2012, 2011, and 2010 data). 27

28 Kimberly-Clark set a goal in 2011 to achieve 25% of revenue from environmentally innovative products by 2015 Scott Naturals Tube Free launched nationally in the US in

29 This goal was achieved in 2013 with ecological products totaling almost $8 billion in revenue Kimberly-Clark ecological Portfolio Revenue as a Percentage of Total Revenue Sources: Kimberly-Clark, 2013 Sustainability Report (2013, 2012, and 2011 data) and 2010 Sustainability Report (2010 data). 29

30 3 R&D spending allocated to sustainable products and services supports the growth of these portfolios 30

Sustainability R&D Spending as a Percentage of Total R&D Spending (Average, 2013)

31 In 2013, the companies in our sample allocated an average of almost $1.6 billion to sustainability R&D spending, or about 38 percent of their R&D budget. Sustainability R&D Spending as a Percentage of Total R&D Spending (Average, 2013) Sustainability R&D Spending as a Percentage of Total R&D Spending (Average, ) Source: The Conference Board,

32 R&D spending allocated to sustainability is also outpacing overall R&D spending among our sample Change in Sustainability R&D Spending vs. Change in Total R&D Spending (2010 vs. 2013) Source: The Conference Board,

33 What sustainable products and technologies are companies investing in? 33

34 Electric mobility technologies Intelligent transport systems Structural adhesives Photo Credit: Ian Muttoo, 34

35 Functional crop care Reverse osmosis Industrial biotechnology Photo Credit: 35

36 Renewable energy technologies Advanced materials for PV cells Increasing power plant efficiencies Photo Credit: twice 36

37 Product energy efficiency Energy management technologies Materials reduction and innovation Photo Credit: Matt 37

38 4 Banks are playing an increasingly significant role in financing the development of large-scale sustainable products and solutions, primarily through asset finance, tax equity, and green bonds 38

39 Global investments in renewable energy reached $310 billion in 2014 Global New Investments in Renewable Energy ( ) Source: Global Trends in Clean Energy Investment 2014, Bloomberg New Energy Finance, January 9,

40 While green bonds are a small component of the total fixed income market, their growth is significant Green bonds are fixed income financial instruments in which the funds raised are dedicated exclusively to projects and activities that promote climate stability or other environmentally sustainable purposes. 40

41 Almost $39 billion in green bonds were issued in 2014, more than 2.5X the total issued in 2013 Global Green Bond Issuance, by Type ( ) 41

42 5 To successfully launch sustainable product initiatives, a common piece of advice companies give is to widely engage stakeholders in the development of these initiatives 42

43 Launching successful portfolios requires overcoming a number of significant challenges! Lack of existing global standards in this field.! Trade-offs between cost, environmental design, and pressure to price sustainable products competitively.! Embedding these initiatives into existing company processes. 43

44 Companies point to the following as key to overcoming challenges! Leadership from the CEO and C-suite.! Tapping into motivated and passionate employees.! Understanding the specific needs of customers and society.! Clearly communicating the business benefits of the company s sustainable products and services to stakeholders. 44

45 This research should be viewed as a first step and invitation to advance the analysis of corporate sustainability initiatives as drivers of business growth 45

46 From IRRCi s viewpoint! Nascent area of research " Some previous research, notably The Value Driver Model: A Tool For Communicating The Business Value of Sustainability (PRI and UN Global Compact 2013) " But, overall, little and disparate data! Poor data does not mean poor results, however " Sustainable products seem to be one area where doing good does translate to doing well " Six times the revenue growth rate of non-sustainable products and services " While data points not robust, indications are that growth is economically profitable " Growth appears to be scalable 46

47 From IRRCi s viewpoint! Companies and investors seek economically profitable growth! Devising sustainable products and services seems to " Meet market demand " Drive innovation across traditional product silos " Grow revenue! Effectively a different lens for strategic planning and improving product/service implementation 47

48 Type using the Question function. We will read questions aloud, speakers will respond. 48

49 Contacts Jon Lukomnik Executive Director IRRC Institute Thomas Singer Report Author Principal Researcher The Conference Board

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