Corporate Sustainability v2

8/11/2019 Corporate Sustainability v2

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KPMG INTERNATIONAL

Corporate

SustainabilityA progress report

kpmg.com

In cooperation with


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Contents

Foreword 3

KPMG viewpoint 5

About this report 12

Executive summary 13

Introduction 14

The role of government 23

Case Study: How FedEx, UPS and otherlogistics firms are driving new transportinnovation 24

Measuring and reporting 27

Case Study: CLPFrom integrated

processes to integrated reporting 32Challenges ahead 34

Conclusion 37

Our thanks are due to all survey respondents and

interviewees for their time and insights.

Interviewees (listed alphabetically by company):

Hugh Share, Senior Global Director, Beer & Better World,Anheuser-Busch InBev

Jeanne Ng, Director, group environmental affairs, CLP Holdings

Victoria Mills, Managing Director, corporate partnershipsprogram, Environmental Defense Fund

Mitch Jackson, Vice President, environmental affairs andsustainability, FedEx

Wayne Balta, Vice President, corporate environmental affairsand product safety, IBM

Len Sauers, Vice President for global sustainability, Procter &Gamble

Sren Buttkereit, Head, corporate sustainability external office,Siemens

Bob Stoffel, Senior Vice President, engineering, strategy, supplychain distribution and sustainability, UPS (retired January 2011)

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reser ved.


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Corporate Sustainability | 3

Foreword

The evidence that sustainability is

becoming a core consideration for

successful businesses around the world

grows stronger every day.

It is a powerful undercurrent runningthrough the pages of the business media,

an almost compulsory topic of discussionat meetings of business leaders, andamong the most thoroughly researchedbusiness issues of the past decade.

But translating this into action is notproving to be easy. As this survey shows,despite all the progress that has beenmade, more than a third of businesses

still do not have a sustainability strategy inplace. Of those that do, only one in three isreporting publicly on their progress.

Among those that have implemented theprinciples of sustainability, enthusiasm ishigh.

Nearly half of the people who took partin our survey thought that sustainablepractices would definitely improve

profitability for their companies. Onerespondent whose company has a long-running program reported that for everydollar they are spending, they are gettingUS$1.50-2.00 back, while another toldus, with complete confidence, that allissues of sustainability will be solved byinnovation.

So what are the problems preventing a

wider take-up of sustainable practices?

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.


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4| Corporate Sustainability

On the evidence of our survey, they comedown to three things:

The need for financing solutions thatwill allow the longer term benefits ofsustainability to compete with otherprograms with a higher short-termpayback

The need for common measures,and underlying systems that producecredible information, to analyze theimpact of sustainability programs

The need for a clear and rigorousinternational framework of regulationwithin which companies can plan withconfidence.

The fieldwork for this study was carriedout before the United Nations FrameworkConvention on Climate Change talks inCancn, Mexico at which major effortswere made to win progress on theinternational agreements necessary forfurther adoption of sustainable practices.

These initiatives need to succeed becauseit is clear from our investigations thatsustainability can be a source of innovationand growth, if governments help businessto make it so. The large amount of privatesector funds necessary to achieve climatechange goals will be released only when

investors are confident that governmentsare committed to making these newsystems work.

We want to thank everyone who has takenpart in this research project, especially ourcolleagues at the EIU and the respondentswho gave their time to let us hear theirviews. We hope the report will be of valueto anyone with an interest in achieving agenuinely sustainable future for business.

Ted Senko, Global CEO Climate Change

& Sustainability and Yvo de Boer, Global

Special Advisor



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KPMG viewpoint

Clearly, sustainability is rapidly becominga strategic priority for businesses. Aroundthe world and throughout this survey, wesee encouraging examples of pioneeringcompanies that have recognized theimperative of sustainability and createdstrategies and solutions to effectively

respond to the issue.

For a growing number, the concept ofsustainability goes far beyond corporatesocial responsibility (CSR). It has becomethe strategic lens through which they viewtheir businesses. For these organizations,sustainability offers an undeniableopportunity to gain competitive advantage,drive innovation and generate real bottom-

line results.

And despite a complex array of challenges,these companies are already takinggreat strides towards shaping the globalapproach to sustainability. One needonly look at leading global brands such asProcter & Gamble, Anheuser-Busch InBev,

UPS or CLP Holdings (all of which areprofiled in the accompanying report) to seethat these market leaders are setting thepace and standard by which their peers willsoon be held accountable.

What propels these organizations and

a host of others like them past theircompetitors is the recognition thatsustainability goals must be tied tooperational strategy and measured in thesame way as other investments. And bytreating sustainability as an investmentrather than a cost, they have adjusted theirbusiness models to drive long-term changeand make them more competitive in themarket.



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Other companies, however, still seeuncertainties and complexities which stopthem from taking the initial steps required to

implement sustainability programs. For one,the lack of a clear and consistent regulatoryframework makes it difficult for companies toformulate business decisions that can havea long-term effect on sustainability. At thesame time, companies are struggling withunderstanding how to build an appropriatebusiness case for sustainability programs asthey grapple with sparse, inconsistent and

often unreliable data.An evolving regulatory environment

Notwithstanding any assumed progress onthe international stage, it is clear that moreneeds to be done to encourage businessesto embrace sustainability.

For example, governments may considerdesigning regulations that provideincentives for businesses to transform.

Indeed, in almost every jurisdiction,there is a real opportunity to createa stage upon which companies canachieve their sustainability goals in acommercially viable manner. Managedappropriately, governments may find thatthey can effectively deliver on their ownenvironmental targets and create a self-sufficient market for sustainability.

In the meantime, many companies areassessing both the risks and opportunitiesthat are posed by regulation. At the frontend, this generally includes a mix ofregulatory compliance reviews, enterpriserisk assessments and tax exposureevaluations, and can often result

in changes that position the company tomitigate their risk and create competitiveadvantage.

What gets measured gets managed

Outside of regulation, many companies arefinding that their largest challenges stemfrom a lack of credible information, metricsand standards related to sustainability. Thishampers progress in several ways. Thefirst is without meaningful benchmarks many companies are unable to properly

gauge their progress in relation to theircompetitors and market leaders. Thisgoes to the heart of good businessdecision making, and presents an issuefor all stakeholders including investors,shareholders and customers, all of whomare placing increased scrutiny on businessand product sustainability.



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For sustainability programs to be properlyintegrated into operational strategy,meaningful and reliable metrics must

be developed along with the underlyingprocesses and systems to produce suchinformation. To determine long-termROI and delineate bottom-line benefits,sustainability programs must includeappropriate and relevant measurement thatleverages both financial and non-financialmetrics. Moreover, since this data will beused to evaluate overall performance, it

should be subject to the same controls thatapply to the companys financial systemsto ensure the information is accurate andcredible.

There is growing demand for the designof systems, processes, controls andgovernance frameworks that can properlymeasure and analyze sustainability metrics.And increasingly, assessments and audits

of company sustainability reports are beingconducted to provide stakeholders with aclearer view into the businesss progressand accomplishments.

There are a number of encouraginginitiatives under way that seek to createindustry benchmarks and reporting

standards such as the Global ReportingInitiative activities and the InternationalIntegrated Reporting Committees work inthis area. On a related front, new auditingstandards are also under development:the International Auditing and AssuranceStandards Board released a proposed newstandard for Assurance Engagementson Greenhouse Gas Statements. But

continued progress and collaborationamong standard setters will be criticalto furthering the meaningful reporting ofsustainability initiatives globally.



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Funding business sustainability programs

While one of the great challenges facing corporatesustainability programs lies in securing adequate long-term funding, we are seeing increasing levels of changeand innovation in this area. As organizations increasinglyview their business operations through the strategic lens ofsustainability, many will find their programs can and should deliver measurable returns in the long-run. As you will find

in the accompanying survey, some companies are alreadyseeing returns of 50 to 100 percent on their programs; othersbelieve returns to be much higher. This will invariably lead tonew ways of thinking about financing strategic initiatives byleveraging both internal and external sources of funding.

From an external standpoint, global banks, investors andfinancial institutions are putting greater focus on the impactand design of sustainability programs to gain a better snapshotof a companys ability to assess risk, respond to change and

deliver shareholder returns. A number of asset owners andmutual funds now evaluate companies on the sophisticationand strength of their sustainability programs and include theoutcomes in their investment decisions.

11 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG I nternational provides no client services. All rights reserved.



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Working together to achieve real change

As the world drives towards a state ofsustainable capitalism, much of the heavylifting will fall on the private sector. Fortheir part, governments will need to worktogether to develop and deliver clear andconsistent rules in order to reduce thecomplexity and regulatory uncertainty ofsustainability for business.

For their part, the private sector mustcontinue to lead and move ahead withboth individual programs and cooperativeinitiatives that support the creation of abroader sustainability framework. Thosethat have yet to take their sustainability

program from a philanthropic CSRobjective to something substantial thatis embedded in strategy will quickly findthat without an integrated and proactiveapproach to sustainability they will rapidlylose ground to their competitors.

In the not-too-distant-future, it will be thosecompanies that understand and respondto the issue of sustainability by makingchanges to their business models andtaking a commercial approach to investingin sustainability programs that will achievereal and lasting benefits over the long-run.



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Looking Ahead

I believe the private sector has the power to make a massive impact on global

sustainability goals, said Yvo de Boer, KPMG`s Special Global Advisor on Climate

Change and Sustainability and Former Executive Secretary, United Nations Framework

Convention on Climate Change. But empowering them to do so will require supportive

policy and actions on the part of the world`s governments. As we look ahead to Durban,

we call on policy makers to deliver a strong, clear and unified vision for the future of

carbon pricing and regulation, and in such a way provide the consistent frameworkbusinesses need in order to commit to robust sustainability programs.

1The 17th Conference of Parties (COP-17) of the United Nations

Framework Convention on Climate Change will be held in Durban,

South Africa, November 28 December 9, 2011



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About this report

Corporate Sustainability: A progress report is a KPMG research paper, conducted in cooperation with

the Economist Intelligence Unit. It reviews the importance of sustainability within business today and


executive attitudes toward this issue.

For the purposes of this report, corporate sustainabilityis defined as: adopting business strategies thatmeet the needs of the enterprise and its stakeholderstoday while sustaining the resources, both human andnatural, that will be needed in the future.

The report is based on the following inputs:

A global survey of 378 senior executives,encompassing a range of industries, and evenlysplit among North America (US and Canada), AsiaPacific and Europe, with a smaller representationfrom the Middle East, Africa, and Latin America.Organizations of all sizes were represented:40 percent of respondents worked for firms

with revenues of at least US$1 billion, whereas47 percent were from firms with revenues ofUS$500 million or less. The respondent base wasvery senior: 26 percent were CEOs, presidents ormanaging directors of their firms; half representedthe C-suite or board; and all respondents were in amanagement position.

The survey was conducted in October 2010.

Chart 1

Survey has global perspective

(% of respondents located in each region)

29%

32%

28%

11%North America

Europe

Asia Pacif ic

Rest of World

Source: Economist Intelligence

Unit survey, October 2010

To complement this, and provide specific context,the Economist Intelligence Unit conductedextensive desk research and in-depth interviewswith numerous corporate sustainabilityexecutives and experts.



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Executive summary

This report examines the impact ofsustainability on business practices, therole that government is playing, howfirms are reporting on this issue andthe challenges ahead. Some of its keyfindings include:

Sustainability has moved up the

corporate agenda over the past three

years. Sixty-two percent of companies

surveyed have a strategy for corporate

sustainability, up from just over half

in February 2008, despite the tough

economic environment that has made

many organizations focus on goals with

immediate impact. Just 5 percent have

no plans to create such a strategy, while

remaining firms are in the process ofdeveloping such a plan.

Sustainabilitys main drivers are

changing. Although regulatory

requirements, brand enhancement and

risk management remain key drivers of

sustainability, cost reduction is also a

key rationale. The primary focus is on

the environmental side, in particular

with regard to resource and energy

efficiency.

Sustainability is being viewed

as a source of innovationand

new growth. Forty-four percent of

executives agree sustainability is asource of innovation, and 39 percent

see it as a source of new business

opportunities. Far fewer disagree.

Firms are increasingly measuring

and reportingtheir sustainability

performance. Just over one out of

three (36 percent) companies polled

have issued at least one public report onsustainability, and another 19 percent

plan to do so soonalthough a sizeable

minority (38 percent) have no plans to

do so. Two key challenges on this front

include generating relevant data and

establishing relevant benchmarks.

Business wants a successor to the

Kyoto Protocol. Two-thirds (67 percent)

of executives believe a new set of rules

to replace those that will end in 2012

is very important or critical. Just 8

percent think it is not important. The

field of sustainability is unusual in that

corporate lobbying is weighted toward

tighter rules, even though this may

result in higher costs.

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are a ffiliated with KPMG International. KPMG International provides no client services. All rights reserved.


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IntroductionSustainabilitys corporate evolution

No one can resist an idea

whose time has come.Victor Hugos quote could well beapplied to corporate sustainability at thedawn of 2011. Companies around theworld remain committed to pursuing

sustainability agendas, despite a numberof factors: a severe economic downturnin many regions, high unemployment, adisappointing outcome from the 2009Copenhagen climate change meeting andsomewhat lower energy prices.

Indeed, the proportion of firms with asustainability strategy has edged up to62 percent, from just over half in a similarsurvey conducted by the EconomistIntelligence Unit in early 2008. This risewas by no means a foregone conclusion afew years ago, but illustrates how the ideahas caught hold within business.

Senior executives interviewed for thecurrent report often cited the depth ofengagement with the issue as the mostsurprising thing about their organizationssustainability policies. German industrialconglomerate Siemens, for example, nowregards sustainability not as a compliance

topic, but as a strategy topic, saysSren Buttkereit, Head of the companyscorporate sustainability external office.

It is worth noting, though, that this uptakeis more common among larger, publiclylisted firms, which are far more likely tohave developed a corporate sustainabilitystrategy (79 percent of those polled haveone) than their smaller, privately held

counterparts (49 percent). It can also besector-specific: among consumer goodsfirms, for example, as many as eight in tencompanies have developed a sustainabilitystrategy.


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Sustainability moves into the mainstream

Nevertheless, uptake is widespread: only5 percent of survey respondents say theircompany does not need a sustainabilitystrategy, while most of the remaining firmswithout such a plan are busy developingone, or intend to have one soon.

As sustainability has moved into the

mainstream, firms have worked to widenand deepen their efforts.

Chart 2

Although sustainability encompasses abroad range of issues, much work hascentered on the environmentdealingwith pollutants and greenhouse gaseswhile improving efficiency in the use ofphysical inputs. And while the need anddesire to do the right thing is often cited as

their primary motivation, organizations areincreasingly finding economic drivers forsuch actions.

Larger companies are more likely to have corporate sustainability strategies

(% of respondents who say their companies have an all-encompassing strategy for corporate sustainability)

Private companies with49%revenues less than

US$500 million

Public companies with79%revenues over

US$1 billion

Source: Ec onomist Intelligence Unit surv ey, October 2010



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Sustainability boosts bottom line

In a 2008 study, only 31 percent ofrespondents said the biggest benefit

of adopting sustainability would beincreased profitability; today, 48 percentof executives believe implementingsustainability strategies would boost thebottom line in some way, either by cuttingcosts (27 percent) or increasing profitability(21 percent). The benefits often flow tothe bottom line, as the search for newefficiencies cuts costs. But they also can

boost revenues by creating markets fornew products and services. In both cases,sustainability strategies are triggeringpromising innovations.

These efforts are driving other changes.First, the need to measure such actions isgiving rise to more internal monitoring and,as a result, external reporting.

Second, sustainability-related metricsand objectives are being applied morefrequently to new investment and project-

related decisions, and thus reshaping,to some degree, how some of thesedecisions are made.

For the passionate advocates ofsustainability, all this is good news, buttheir work is far from finished. Mostorganizations are still at an early stage inimplementing sustainability. Relevant skillsand experience are in short supply. Many

firms are grappling with the problem ofdeciding exactly what and how to measure,and appropriate benchmarks are scarce.The macroeconomic environment remainschallenging, making it difficult to obtainapproval for larger capital investments.And existing government policiesforexample, long-standing subsidies for

some types of energystill undercutthe economic viability of some newertechnologies. Also, energy prices could

well remain relatively flat in the mediumterm, thus somewhat weakening a keymotivation to adopt energy-saving policies.In the long run, however, prices seem sureto increase.

Finally, the global regulatory environmentremains fractured and uncertain, despite amajority of firms that are actually in favor ofclearincluding tighterrules.

This report explores each of these trends.It argues that sustainability can be seenas a source of innovation and growth,especially if government helps. It outlinesthe challenges faced in measuring andreporting. Finally, it assesses the keyhurdles still to overcome.



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Where to next? Sustainability as a source of innovation and growth

Companies engage in a variety of sustainability activities

(% of respondents who say their companies have taken these actions in the last 12 months)

Over the past decade, the issue of

sustainability has steadily gained greaterprominence on the corporate agenda.Numerous factors have contributed to this,particularly a widening array of laws andregulations (cited by 42 percent of surveyrespondents) and a desire to enhancebrand reputations (41 percent). Otherdrivers include concerns about managingrisks associated with sustainability

issues (29 percent) and an interest in costreduction (27 percent).

Chart 3

Improving energy eff iciency

Reducing products' environmentalfootprint

Cutting emissions or pollutants

Improving environment aroundfacilities

Enhancing impact on localcommunities

61%

65%

67%

69%

72%

Source: Ec onomist Intelligence Unit s urvey, October 2010

Already, basic engagement is widespread:

about seven in ten companies polled forthis report have undertaken an array ofsustainability-related activities over thepast yearand will continue to do so.These typically include improving energyefficiency (72 percent); reducing productsenvironmental footprint (69 percent); andcutting either emissions or pollutants(67 percent). Executives interviewed for

this report describe a wide range of suchactions.

20 201111 KPMG International CooperativKPMG International Cooperative (KPMG International), a Se (KPMG International), a Swiss entitwiss entityy.. Member fiMember firms of the KPMG netrms of the KPMG netwwork of independent fiork of independent firms are afrms are affifiliated with KPMG International. KPMG International proliated with KPMG International. KPMG International provides no client servides no client services.vices. All rights reserAll rights reservved.ed.


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Commitment to tough goals

This highlights the fact that businesses engagementwith sustainability has, in general, deepened in recentyears, especially in the environmental realm. Many firmsare committing themselves to tough goals, even withoutregulatory mandates, in part because they believe suchrules will come at some point. Procter & Gamble (P&G),with global revenues of US$78.9 billion in fiscal 2010, is a

prime example. In late 2010 it set out a range of long-termtargets for transforming its business, ranging from poweringits plants solely with renewable energy to ensuring zeroconsumer and manufacturing waste goes to landfill. It hasset a series of goals for 2020, such as using 30 percentrenewable energy and reducing packaging by 20 percent.This comes even as the firm works to extend its reach to five

billion consumers, from the 4.2 billion it currently serves.

All issues of sustainability will be

solved by innovation.

Len Sauers, Vice President for global

sustainability, Procter & Gamble




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Delivering on such targets will requireinnovation, in terms of both processesand technology.

All issues of sustainability will be solvedby innovation, I have no doubt in my mind,says Len Sauers, P&Gs Vice Presidentfor global sustainability. Executives polled

for this report generally agree: 44 percentthink sustainability is a source of innovationin their firms; just 18 percent disagree.

Such innovation is often focused on simpleefficiency. Brewer Anheuser-Busch InBev(AB InBev), for example, focuses on cuttingits water and energy use, while increasingrecycling within its facilities. The firm,which had revenues of US$36.8 billion in2009 and holds a global market share ofnearly 25 percent, is working to cut wateruse by 30 percent by 2012 compared with2007 levels, among other goals.

Increased internal efficiency

Hugh Share, Senior Global Director forthe firms Beer & Better World program,says its internal efficiency system helpscreate more efficient brewing operationsby standardizing processes worldwide. Itsmost efficient brewery, in Cartersville, GA,

uses 3.06 hectoliters of water for everyhectoliter of beer produced, comparedwith a company-wide average of 4.3hectoliters in 2009. Those lessons havehelped a company plant in Ningbo, China,cut its equivalent rate to 3.5 hectoliters,the brewers target level for all of its plantsby 2012. It did so by implementing variousinnovations, including narrower nozzle

diameters on bottle-washing machines.We have a very strong culture aroundbusiness performance in every area and soI see that as something that is just going todrive efficiency in our operations in manydifferent areas, of which sustainability isone, says Mr. Share.



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Logistics industry

The logistics industry is another example.With the huge volume of goods deliveredeach day, even tiny efficiency gains can

translate into significant savings. Take UPS,which operates a fleet of some 100,000vehicles across more than 200 countries,delivering an average of 15 million packageseach day to generate revenues of US$45.3billion in 2009. If I can take a second outof handling those every day, thats thirtymillion dollars a year, says Bob Stoffel, thefirms Senior Vice President for engineering,

strategy, supply chain distribution andsustainability until his retirement inJanuary 2011. The improved use of planningtechnology alone has enabled UPS to trim20 million miles a year from its deliveries,by enabling optimization of collection anddelivery routes, for example.

Alternative technology and fuels

UPS is also investigating alternativevehicle technologies and fuels, such ascompressed natural gas, hybrid-electric,

all electric and hybrid-hydraulic. Thisalternative-fuel fleet has already drivennearly 200 million miles. In such areas,UPS knows it needs to embrace newtechnologies, but here the economicscan be trickier. Some pay back quickly,whereas for others there is not a quickpay-back. But we have to keep investingin the future and well make those trade-

offs, says Mr. Stoffel. So when you lookat all the areas in which you can invest, youlook at where you get the most return oninvestment and where you get the greatestreduction in carbon.

Sustainability economics is spreading

Such weighing of the economics ofsustainability is spreading into otherinvestment and project-related decisions

too.

At CLP Holdings, a Hong Kong-headquartered energy firm with 2009revenues of HK$50.7 billion (about US$6.5billion), for example, the committee thatsigns off on new projects and investmentsnow includes the environmental affairsdirector, along with legal, HR and otherdepartments (see case study on page 32).



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Sustainability prompting firms to develop new products

and services

Sustainability is not only driving greaterefficiency internally, but is also promptingfirms to develop new products andservices. P&G has embraced openinnovation to bring in new ideas for bothinternal efficiencies and new or betterproducts, such as an effective cold water

washing detergent. It actively encouragesits 75,000 suppliers to suggest ideas, andco-develops them with the vendorsabout half of its innovations are nowcreated this way. This in turn drives newbusiness growth: during 2007-12, it aimsto generate US$15 billion in sales fromproducts that help consumers reduce theirenvironmental impact, such as by cutting

energy used for laundry.

P&G exemplifies how leading firms areembracing sustainability as a source ofnew growth. According to the survey,about four in ten (39 percent) executivessee sustainability as a creator of newbusiness opportunities; far fewer disagree.

And internal lessons can help shape

external solutions, too: Wayne Balta, VicePresident for corporate environmentalaffairs and product safety at IBM, says hisfirms long experience in improving theenvironmental sustainability of variousproducts and processes has in turn aidedthe company in developing new solutionsfor clients.

Developing a new focus

All this points to a change in the waysustainability is being viewed. Siemens,for example, has shifted over the pasttwo years from a focus on risk andcompliance to something that directlydrives business expansion. Siemens

portfolio of environmental products andservicesincluding energy-efficient gasturbines and offshore wind farms, aswell as desalination and water-cleaningtechnologiesalready outperforms thecompanys other businesses. In fiscal2009, it generated 23 billion (about US$32billion) in sales from these products.



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The global economic downturn of

2008-10 has not been as detrimental to

the progress of corporate sustainabilityas might have been expected. However,

given that the financial services industry

has been hardest hit, one of the challenges

created by the recession is difficulty in

obtaining financing for sustainability

related projects.

Businesses vying for financing for relevant

investments were hit from two sides.On the one hand, access to credit from

traditional sources has been substantially

curtailed, especially for small and midsize

companies. On the other hand, many

projects have become less attractive due

to the sharp fall in many resource and

energy prices in 2009. The business case

deteriorated because of the input prices,says Siemens Sren Buttkereit.

Nevertheless, there have been many

creative examples of how some financing

approaches might work. For example,

energy services companies (ESCOs),

ranging from small providers such as

Streamline Power in the UK to large players

such as Ameresco in the US, have created

various pay as you save products,which allows businesses to install energy

efficiency measures with no upfront costs

and with repayments that are less than the

cashflow savings generated from reduced

energy costs.

Such financing schemes are boosted by

the fact that many corporate investments

seeking internal funding are often requiredto demonstrate a payback period of just 2-3

years, thus implying an annual return of 33

percent or better. Many people would be

happy to have a 6-7 percent return, in these

times, when interest rates are so low, so

the real challenge is in finding new financial

structures to take it off companies balance

sheets, says Mr. Buttkereit.Accordingly, many vendors provide

financing schemes to accompany their

technologies. They compete against

various rivals, including those that are

linked to specific energy utility firms or

other independent ESCOs.

For firms not willing or able to access

external financing, another approach has

been to bundle up projects with longer andshorter payback cycles.

What some companies are doing is

creating a portfolio of investments where

they group together investments with very

short payback and that may not have big

financial gains, with longer payback ones

that might have huge financial gains, says

Victoria Mills, Managing Director of thecorporate partnerships program of the

Environmental Defense Fund.

In so doing, the basket of investments can

help achieve the firms internal payback

requirements, thus persuading the CFO to

support the initiatives.



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The role of government

More laws and guidelines required

The field of sustainability is unusual inthat businesses generally agree thatgovernment should do more in termsof setting rules and targets. On almostevery other issue, firms seek greaterderegulation, but frustratingly slow

progress in establishing new internationallaws and guidelines on sustainability haveleft companies in a tough position: awarethat new rules are coming, but with nocertainty as to what they will entail.

Indeed, a large majority of theexecutives surveyed for this report areoverwhelmingly in favor of an effective,global successor to the Kyoto Protocol

the first phase of which is due to end in2012. Many are following up with politicalaction: about one in five executives reporttheir firms are lobbying government aboutdomestic legislation relating to climatechange.

Of those that are, twice as many wanttougher domestic regulations than thoselooking for weaker rulesand nearly fourtimes as many want tougher international

regulations.


| C S i bili


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Case Study: How FedEx, UPS and other logistics firms aredriving new transport innovation

In its efforts to increase its fleetsfuel efficiency, FedEx has lobbied theUS government to set fuel economyand greenhouse gas regulations forcommercial vehicles.

The goal was not only to aid internalefforts to reduce consumption, but also

to help create a market for more efficientvehicles, as the firm alone doesnt havethe purchasing power to transform themarket. We felt the best way to [have animpact] was through a regulatory approach,as it created a market for manufacturersto produce and sell these efficienttechnologies, says Mitch Jackson, FedExsVice President for environmental affairs

and sustainability.But as Mr. Jackson acknowledges, differentcompanies will have different reasons fortrying to shape the legislative agenda. Insome cases theyre trying to bring theirgreener innovative products to market andso they need legislation in order to do that,

whether its a price on carbon or somethingelse. In other cases, certain industriesor businesses are trying to actually putthe burden upon other sectors of theeconomy.

This unequal burden is an important point,and highlights the fact that the ongoing

drive toward tougher regulations will helpsome firms, just as it hinders others. Onthe one hand, significant numbers ofexecutives think new rules on climatechange, for example, would providefresh incentives to innovate and createnew products (40 percent), or encouragecompanies to adopt more wide-rangingsustainability initiatives (39 percent).


C t S t i bilit | 25


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Far fewer think otherwise. Talking aboutgreen growth, youre saying you canactually increase growth if you are inthe right industries, and by the way thatwill increase resource efficiency, saysSiemens Mr. Buttkereit.

Goals and parameters

Others add that the creation of certainhigh-level goals, such as the EUstargeted 20 percent reduction in carbonemissions by 2020, or similar US plansto cut emissions by 17 percent (albeitfrom a different baseline), has providedcompanies parameters to guide theirstrategic planning: We think its helpful inestablishing benchmarks, says UPSs Mr.

Stoffel.

Talking about green

growth, youre saying

you can actually increase

growth if you are in the

right industries, and by

the way that will increaseresource efficiency.Sren Buttkereit, Head,

corporate sustainability

external office, Siemens


26 | Corporate Sustainability


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A clearer picture

As things stand, companies cannot

yet fully assess the impact of the

ongoing climate change negotiations.

The recently concluded COP16 talks

in Cancn produced a promising

range of new agreements on

the post-2012 framework. Theseinclude increased actions to reduce

emissions by developing countries

and financial support and technology

transfer mechanisms to support such

actions, but details on exactly how

such mechanisms will work remain to

be decided. Accordingly, executives

have longer to wait before having a

clear picture as to demands for their

firms to cut emissions in the coming

years.

Still, there are decidedly mixed feelings asto the impact of a global climate accord.Nearly half (46 percent) of executivespolled think this would add to theirregulatory burden and increase operating

costs (41 percent).

Chart 4

Twenty-two percent think such anaccord would deliver a more level playingfield within their industry in partbecause global rules are interpreted andimplemented in widely varying fashionswithin individual countries. And 23 percentthink it will reduce the long-term strategic

risks to their business from such things asan adverse climate.

A global climate accord brings opportunities and challenges

(% of respondents who expect these impacts if a global climate change ac cord is reached)

Increase regulatory burden

Increase operating costs

Provide incentives to innovate

Provide incentives to adoptsustainability initiatives

Bolster cost savings from energy efficiency initiatives

Reduce long-term strategic risks to the business

Deliver a morelevel playing field in theirindustry

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Source: Economist Intelligence Unit survey, October 2010

22%

23%

24 %

39 %

40 %

41%

46%




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Measuring and reporting

The number of dedicated sustainability reports produced bycompanies has mushroomed over the past decade. In 1996,only about 300 firms globally did so; but as of early 2010,some 3,100 did, according to CSR Insight, a research firm.About one in three companies polled in our survey producethem now, and more than half will do so over the next twoyears. Smaller, privately held companies are least likely to

report on these issues. Fully two-thirds of large companies,with annual revenues of US$5 billion or more, currentlyproduce these reports, and a further 12 percent plan to doso within two years. Many are old hands: IBM, for example,has issued sustainability reports for two decades. A morerecent take on this has been a movement toward integratedreporting, which provides both financial and non-financialinformation in a single document (see case study on page 24).

Even without reporting, companies seeking to embrace

sustainability need to measure their existing performance ona wide range of metrics, from energy consumption to waterusage. We look at very basic measures like greenhouse gasemissions, energy and water consumption, solid wastethese are all important, countable things, says Victoria Mills,of the Environmental Defense Fund.


28 | Corporate Sustainability


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We look at very basic measures like greenhouse gas emissions, energy and water

consumption, solid wastethese are all important, countable things.

Victoria Mills, Managing Director, corporate partnerships program,Environmental Defense Fund

For many firms, this is already a long-established activity. UPS, for example,tracks its CO

2emissions, water usage,

gallons of fuel used, energy consumptionand so on. As part of its tracking, itestablishes benchmarks that are

meaningful to its specific business. Ittracks not only its total emissions, but alsoits emissions on a density basis, based onpackages, revenue and weight.

Accordingly, as its clients businesses It also has a scale challenge in needinggrow, they can see their carbon emissions to measure consistently across the 214per package or per kilo, for example. Such countries in which it operates.measurement is not straightforward:although UPS has detailed data for its fleetof airplanes, it does not have equivalent

data when it sends some packages via acommercial airliner or other third parties.




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Measures and benchmarks

Appropriate measures and benchmarks arestill being worked out for many industries,

adding to the overall challenge. Surveyrespondents flag difficulties in findingmeaningful benchmarks (76 percent) as amajor or moderate challenge, along withcreating or finding reliable internal data (78percent). Take Anheuser-Busch InBev: thecompany is aware that most of its impact,in terms of its water and carbon footprint,is actually incurred outside of its walls.

Chart 5

Most of it is in agriculture. Where [thecomplexity] comes in is that theres notreally a standardized methodology forcalculating or estimating these impacts,says Mr. Share. He cites the example oftrying to calculate the total water usedwithin a specific product, given the paucityof data in the supply chain, especiallywithin agriculture, where official rates forissues such as evapotranspiration (thesum of evaporation and plant transpirationfrom the ground to the atmosphere) orgroundwater usage are lacking. Thats

where the technical challenge is, he says.

Deciding how to measure is more difficult than deciding what to measure

(% of respondents who consider these a "major" or "moderate" challenge)

Creating or finding reliable internal data

Finding meaningful benchmarks

Determining what to report on

78%

76%

65%

Source: Economist Intelligence Unit survey, October 2010





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| p y

Executives from both P&G and Siemens also highlight the

challenge of sprawling product portfoliosand their impacts.

We are in so many different businesses

that size and breadth creates challenges,

says Mr. Sauers.

At Siemens, for example, it is difficult to

calculate how many tons of greenhouse

gas emissions are saved if a lighter and

more efficient set of trains is installed in acity.

Nevertheless, both firms also benefit from

their scale, by having resources to draw

on, and a longer history of trying to track

such things. At P&G, a Global Business

Systems Group develops standards for

tracking materials and raw inputs, ensuring

plants consistently track energy, water,waste and so on. Were able to tap into all

those systems to get a collective corporate

number, says Mr. Sauers.

A supplier scorecard

allows us to extend our

measuring and our tracking

beyond just our own fence

line.

Len Sauers, Vice President forglobal sustainability, Procter &

Gamble




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|

P&G faces a new challenge in applying

such systems across its vast supply chain.

It has co-developed a supplier scorecard

with its partners, and is rolling it out to

its 400 largest suppliers. It allows us to

extend our measuring and our tracking

beyond just our own fence line, says Mr.

Sauers.

However, given that P&Gs key metrics

are well defined, this challenge is less

daunting: You should be tracking those

things anyway and you should have

programs in place toward reduction in

[energy, water or other resources used]

because they do lead to great cost

savings.

...you should have

programs in place toward

reduction in [energy, water

or other resources used]

because they do lead to

great cost savings.Len Sauers, Vice President

for global sustainability,

Procter & Gamble




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Case Study: CLPFrom integrated processes tointegrated reporting

Energy firm CLP Holdings has been

working for some time to bolster both its

internal and external efforts to grapple

with its environmental impact.

On the internal front, the challenge hasbeen to add environmental metricsand targets to its investment and

project considerations. Accordingly, itsenvironmental affairs team now weighs inon all new investments being considered.Our job is not to say yes or no, our job isto say, this is everything thats wrong withit, this is what you do, this is how muchyou should probably budget, says JeanneNg, Director of CLPs environmentalaffairs team. The firms bid to build a new

coal-fired power plant in Jhajjar, India,exemplifies this. CLP had to balance thenegative environmental impact of coalagainst the social and economic benefitsprovided.

After a robust debate, its board voted to

reduce the standard rate of financial return

over the lifecycle of the project in order to

ensure that the latest emissions reduction

technologies were installed (despite this not

being a prerequisite of the bid). That way,

the company could remain on course for its

overall emissions reductions targets. Ms. Ng

admits this is an isolated case, but says such

debates are now more common. Externally,

CLP works hard to communicate such

efforts. It actively benchmarks itself against

other firms, such as South Africas Eskom

or Frances EDF, while also sharing best

practices with these firms.

In 2009, it launched an interactive version

of its sustainability report to make itmore accessible. It details its operating

performance in line with Global Reporting

Initiative (GRI) standards, with data

independently verified at the plant level by

local assessors.



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The aggregate report is then checkedagain by another independent firm. CLPsprogress on this front helped the firm wina sustainability reporting award from thenot-for-profit organization Globe Award,which works to recognize and encouragesustainability in business, society andacademia.

So whats next?

Ms. Ng is now reviewing how to integrateCLPs financial and sustainability reporting,following in the footsteps of a handfulof pioneers, such as BASF, Philips andNovo Nordisk. This wont be easy, sheadmits: Theres another learning process.[Different departments] talk in different

languages and yet we all need to agree [oncommon] metrics. But work is underway,and Ms. Ng is already on an InternationalIntegrated Reporting Committee workinggroup, established in August 2010 by thePrinces Accounting for SustainabilityProject (A4S) and the Global Reporting

Initiative (GRI) to set standards andframeworks for integrated financial andsustainability reporting.

Such integrated reporting is set to spreadquickly, in both developed and emergingmarkets. In South Africa, for example,several firms, including Anglo Platinum and

Eskom, have already produced integratedreports. This follows the introduction ofthe countrys King Report on CorporateGovernance in 2009, with which allcompanies listed on South Africas JSESecurities Exchange must comply. Thereport recommends that all firms producean integrated report in line with GRIguidelines, or else give an explanation as to

why they have not.




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Challenges ahead

Corporate sustainability advocates have made muchprogress in recent years.

Today, corporate sustainability is a mainstream issue that isoften led from the top. In many cases, sustainability-relatedactivity is increasingly addressed as an efficiency issue.Indeed, given that leading firms have long embraced newefficiency initiatives, it is surprising that many firms are only

now focusing on potential gains in resources and energymanagement.

But embedding such thinking into the far greater pool ofsmaller and less regulated firms is far from assured.

There are still many challenges to doing so.

For one, relevant skills and experience are short on theground, especially in a business context. CLPs Director ofthe environmental affairs team, Jeanne Ng, notes that her

team is comprised of environmental specialists, which is achallenge when trying to liaise with business unit heads. Thisis especially pertinent when different functions measurethings in different ways, and highlights another need: thedevelopment of standards and definitions that can be appliedacross a range of industries, and rolled out consistentlyacross global supply chains.




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Establishing priorities

At a macro level, the global economicenvironment hinders some, even as it aidsothers. Of all the barriers to sustainability,this is the biggest: 45 percent ofexecutives say business survival andshort-term financial pressures are bigger

priorities right now. Simply put, while mostcompanies could save by cutting resourcescosts, many management teams cannotdrop their focus on retaining customersand protecting revenues at this time.And while many firms have embracedcost-cutting in recent years and boostedresource- and energy-efficiency programs,some of the necessary capital investments

are simply too large, especially for smallerfirms with limited access to finance.

ROI plays a role

The economic environment can alsoaffect the expected payback period fromefficiency projects, for example by creatinguncertainty about future resource costs.

For those firms that are heavily reliant onoil, such as UPS or FedEx, there may be

a strong long-term incentive to invest in arange of projects that can help to curb thisfuel use. But for others, such as servicesfirms that consume relatively little fuel,an expectation of flat energy prices in themedium-term may lead them to focus onother initiatives that offer a faster return.

At P&G, for example, all sustainability-related investment decisions, whetherassociated with implementing renewableenergy or making environmentalimprovements in a particular operation, aresubject to the same return on investmentcalculations.




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For every dollar we spend, we are getting US$1.50-2.00back.

Wayne Balta, Vice president, corporate environmental affairs and product safety, IBM

But amidst this economic uncertainty,some executives see scope for companiesto maneuver ahead of rivals. I thinkthats really, at the end of the day, wherethe competitive advantage can be forcorporations, being able to overcome thesebarriers and implement these kinds ofthings without those cost increases, saysMr. Sauers. IBMs Mr. Balta agrees, notingthat within his firm, many environment-related investment decisions have paid off.

If you think it is expensive to do things forthe environment, you should try ignoring it.Youll find out how expensive it gets. Hesays IBMs decades-long effort to improveenvironmental performance reaps majorreturns: For every dollar we spend, we aregetting US$1.50-2.00back.

A final challenge is the regulatoryenvironment. In the US, where proposedfederal energy bills have stalled, states areimplementing their own regulations.

Companies that do business in more thanone location are likely to meet the mostonerous requirements. Internationally,recent climate talks have delivered onlymodest progress. All of this affectscorporate decision-making: I think theworst thing that could happen is that youhave uncertainty about regulation, saysSiemens Mr. Buttkereit.


http:///reader/full/US$1.50-2.00http:///reader/full/US$1.50-2.00http:///reader/full/US$1.50-2.00http:///reader/full/US$1.50-2.00


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ConclusionSeven key steps to implementing andbenefitting from corporate sustainability

Corporate sustainability comes in many

forms, and produces many different

outcomes. In our global survey of

business executives, which polled a

wide range of industries and company

sizes, executives were asked to provide

an example of a benefit they had gained

from a sustainability initiative.

Use scenario planning to identify

potential risks to your businessand

new opportunities to exploit. A keysustainability challenge, especially inthe environmental realm, relates toregulatory and economic uncertaintyand the likely impacts these might have.

Scenario planning can help establisha range of potential legislative andeconomic environments in which yourfirm might end up operating, puttingparticular challenges into focus and alsosparking new ideas about emergingopportunities.

Set ambitious targetsand lead

by example.Although many firmsare making solid progress by cuttingresource use in specific departments,leading global firms are setting thepace by establishing tough, long-termgoals that define a vision, balanced withinterim deadlines that force progresstoday. Both P&G and Anheuser-BuschInBev have set themselves ambitiousgoals for creating more sustainablebusinesses and are now focused onachieving initial deadlines and targets.Decisive action here can often put firmsahead of the regulatory agenda, orindustry peers.




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Start measuring environmental inputs and productivity

across your business. As the management maxim holds,what gets measured gets managed. Firms need to startmeasuring resource usage and productivity across all partsof their business, from water used per unit of output toenergy consumed per delivery mile driven. At the outset,this can be a challenge for newcomers, especially in areaswhere data is difficult to obtain or proper guidelines andstandards are not yet established. Global guidelines andstandards can be helpful and are widely used.

Tap into employee engagementboth internally, and

across business partners. Executives interviewed forthis report cited the unexpectedly high levels of employeeinterest in their endeavors. Companies should tap into thisenthusiasm, not only to increase engagement levels amongstaff, but also to gain access to new ideas and approachesat every level of the business. This can be extended tobusiness and supply chain partners too.

Develop internal lessons into external products and

services. Firms with experience of optimizing their ownbusinesses have found this to be a rich source of expertisethat can in turn help develop new products, services orinnovations for clients.




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IBM for example is drawing on its longexperience of controlling and thenpreventing pollution to help inform anddrive innovation in this area and developservices to offer to clients, such as itsSmarter Planet proposition.

Explore other benefits that can be

derived from action on sustainability.Consider what other opportunities mayresult from actions on sustainabilityin your industry or market. Surveyrespondents have discovered a widearray of benefits emerging from theirefforts. Aside from the improvedresource efficiency, cost reductionsand risk mitigation discussed in thereport, other internal gains have includedbetter relations with suppliers andpartners, new products and services andmore motivated employees. Externally,investor awareness may be improved,and new markets may open up as aresult.

Benchmark and report progress. Oneof the key objectives for many firmsengaging with sustainability is the desireto enhance their brand. Accordingly, itis important to develop accurate andtransparent reporting to be sharedwith a range of stakeholders, frompotential investors and shareholdersto clients and business partners. Inorder to provide a relative measure ofhow the business is performing, firmsneed to benchmark themselves againsttheir industry peers. They can do so byreviewing industry metrics publishedthrough relevant organizations suchas the World Business Council forSustainable Development, or by sharing

relevant data and best practices throughindustry bodies. This also helps todevelop appropriate standards andbenchmarks for particular industries.



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Contact us

Ted Senko, Global CEO

Climate Change & Sustainability

+1 212 872 6752

[email protected]

CatherineLewis, Global Tax Leader

Climate Change & Sustainability+1 816 802 5240

[email protected]

Barend van Bergen

Head, KPMGs Global Center of Excellence


+31 20 6564506

[email protected]

kpmg.com

Yvo de Boer, Special Global Advisor


+44 20 7694 8173

[email protected]

Wim Bartels, Global Audit Leader


+31 20 656 7783

[email protected]

The views and opinions expressed herein are those of the interviewees and survey respondents and do not necessarily represent the views and opinions of KPMG

International and KPMG member firms.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide

accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No

one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG

International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis

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Publication name: Corporate Sustainabilit y. Publication number: 314644. Publication date: April 2011. Printed on recycled material. Designed by Over The Woods.
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