Green Investing ™

Past, Present, & Future

Jack Robinson

Yale Club Thought Leaders in Business @ The Yale Club of New York

June 28th, 2012

The Have More Plan

Garden Way, Inc.

• Tillers, carts, books, greenhouses, woodstoves, etc.

• High margin, 1982: $125 million mail order company

• Most profitable product: re-manufactured tillers

• Responsible company: socially and environmentally

TROY-BILT TILLERGARDEN CART

Winslow Management Company

• Green focus: metrics are quantifiable

• Negative screen for harmful products/services

• Avoided coal, oil, nuclear, weapons, chemicals

• Eliminated about 40% of S&P 500

Green Investing Since 1983™

NegativeScreening

Winslow Management Company merged with Brown Advisory in 2009

Green/SRI* Investing: religious roots

• 1750’s: “The Use of Money” sermon by Rev. John Wesley. Gain all you can but not at expense of life, working conditions, or health (arsenic, lead, and harmful chemicals)

• 1758: Quakers prohibited slave trade

• Other religions impose dogma related guidelines

• 1977: Sullivan Principles (apartheid)

NegativeScreening

*Socially Responsible Investing (SRI)

Whole Foods IPOJanuary, 1992

• Initial response: great skepticism

• Microcap > large cap today: IRR of 20%*

• The birth of the natural & organic foods industry

• Organic, Natural and Local food with a focus on healthy living for customers, community, & team

PositiveScreening

*Internal Rate of Return (IRR) of 20% for time frame 1992 through Q1 2012

Objectives of Positive Screening

• Reduce Risks

• Lower Costs

• Enhance Revenue Growth

Financial Metrics

• Branding

• Innovation

• Employee Recruitment and Retention

Other

Clean Energy

Water Management

Green BuildingProducts

GreenTransportation

Sustainable Living

Environ-mental

Services

Resource Efficiency

•Fossil Fuels

•Water Quality•Water Quantity

•Emissions

•Pollution•Waste

•Resource Scarcity

PositiveGreen

Solutions • Inefficient Buildings

•Obesity•Toxins

Green (Sustainable) Investing Today

U.S. Buildings: Energy Efficiency Retrofits

• $279 Billion Energy Retrofits

• Estimated Energy Savings over 10 years: >$1 trillion

• CO2 mitigation 600 mil metric tons/year (10% total U.S. Emissions)

• 3.3 million new jobs (cumulative) job years

Source: The Rockefeller Fund & Deutsche Bank Climate Change Advisors, “United States Building Energy Efficiency Retrofits,” page 7 and figure 1,March 2012 Image Source: Bobby Mikul, http://www.publicdomainpictures.net/view-image.php?image=16166&picture=empire-state-building

Natural & Organic Food Industry

• $41 billion in 2010• Past 10 Year Growth Rate: 10-12%• Preliminary Estimate of 2011 Growth Rate: 9-10% • (Nutritionals : $26 billion)

Sources: Data points from Canaccord Genuity Analyst Scott Van WinkleQuote from “Arsenic In Our Chicken?” The New York Times Op-Ed, April 5, 2012.

“I used to be skeptical of organic, but the more reporting I do on our food supply, the more I want my family eating organic – just to be safe.”

-Nicholas D. Kristof

Pink Slime aka LFTB*

• Bad News

• One known bankruptcy (AFA Foods)• 75% capacity reduction (Beef Products, Inc.)• Traditional supermarket chains

• Good News

• Local providers• Natural & Organic• Supply chain

*Lean Finely Textured Beef

Sources: John Bussey “Cows: The Innocent Bystanders”, The Wall Street Journal, April 5 th 2012. Image Source: U.S. Department of Agriculture/Public Domain

Annie’s, Inc.

• Natural & Organic Foods

• Current Annual Revenues $125 million (Est.)

• I.P.O. on 3/28/12 @ $19/share for total market valuation of $323 million

• Market Capitalization 5/31/12: $668 million

Growth Outlook for Natural & Organics?

Image Source: http://www.annies.com/products Data Source: Annie’s Inc. Preliminary Prospectus, March, 28 2012

Resource Scarcity

“No compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.”

-Jeremy Grantham1

Sources: 1.“Time to Wake Up: Days of Abundant Resources and Falling Prices Are over Forever”, GMO, April 20112. “Next Great Depression? MIT researchers predict ‘global economic collapse’ by 2030” Yahoo News, April 4, 2012

“A new study from researchers at Jay W. Forrester's institute at MIT says that the world could suffer from ‘global economic collapse’ and ‘precipitous population decline’ if people continue to consume the world's resources at the current pace.”

-Eric Pfeiffer2

Schnitzer Steel

Image and Quote Source: Schnitzer Steel Sustainability Website http://www.schnitzersteel.com/values_sustainability_2.aspx

"This program has made it easy for fishermen to recycle their unusable, heavy equipment – they don't have to pay or go out of their way. Some have also found a new source of income in retrieving abandoned gear from the ocean floor.”

-James Banigan, General Manager, Schnitzer Steel Hawaii

• “Fishing for Energy”• Reclaim and recycle program• Partners: NOAA, NFWF, Covanta

“In 2011, we saw an unrelenting barrage of weather-related catastrophes all across the country. This resulted in a record number of homeowner claims – from fire and ice to droughts and floods.”

-Robert A. DiMuccioChairman, President and CEO, Amica

Source: DiMuccio. “President’s Message.” Amica 2011 Annual Report.Image Source: NSSL Tornado Photos from SPC http://www.spc.noaa.gov/faq/tornado/torscans.htm April 10, 1979

Climate Change

“How strongly do you agree with the following statement? Global warming is affecting the weather in the United States.”

National Average

Strongly agree 26

Somewhat agree 43

Somewhat disagree 19

Strongly disagree 11

Source: Leiserowitz, A., Maibach, E., Roser-Renouf, C., & Hmielowski, J. D. (2012) Extreme Weather, Climate & Preparedness in the American Mind. Yale University and George Mason University. New Haven, CT: Yale Project on Climate Change Communication. http://environment.yale.edu/climate/files/Extreme-Weather-Climate-Preparedness.pdf

• 1,008 adults (18+) surveyed, survey conducted at a 95% confidence level, • Interview dates March 12, 2012 to March 30, 2012

Climate Change: Only Three Options

• Prevention: it’s too late

• Mitigation: not enough, but not too late

• Adaptation: occurring with all or none stakes

“Adaptation at 1 or 2 degrees will be painful, but at 5 or 6 degrees, it’s catastrophic”

-Steven Chu

Source: Zakaria, Fareed. “In the Great Ship Titanic.” Newsweek, April 20, 2009

“Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

-Milton Friedman

Source: Capitalism and Freedom, University of Chicago Press, 1962

Ideas and Alternatives

• Government: broken and broke

• NGO’s*: on task and seeking to enhance influence, but…

• Corporations: must take a leadership position

Capitalism to the rescue?

*Non-governmental organization (NGO)

Low Tech Start-ups

Cleantech Private Equity Investments Q1 1995 to Q4 2011

MoneyTree definition of Clean technology: This designation crosses traditional MoneyTree industries and comprises companies that focus on alternative energy, pollution and recycling, power supplies and conservation.Data Source:PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters Q1 1995 – Q4 2011

Question: What is keeping you awake at night?

Answer: Lack of educated/skilled/talented workers to take our company to the next level

Is sustainability possible without employee engagement and the right human resources?

Key Question for CEOs:

“Lack of Skilled Workers Threat to Growth”

-Alejandra CancinoChicago Tribune, February 26, 2012

“Funds to Train Jobless in U.S. Are Drying Up”

-Motoko RichThe New York Times Headline, April 9, 2012

Source: Reprint in the Providence Journal, March 11th, 2012

HR Education and Training Solutions

• “Colleges to Careers” programs in Chicago:

- Community colleges with corporations

• Northeastern: Co-op model partnering with corporations

• Wharton: - New Program: Business sustainability leadership cosponsored by SAP AG at San Francisco campus

- Initiative for global environment leadership

• Caterpillar University with > 100 online courses

• Taco, Inc. (Rhode Island): education a core value with onsite college course program

Sources: Rahm Emanuel, “Chicago’s Plan to Match Education with Jobs,” The Wall Street Journal, December 19, 2011Caterpillar University Website < https://www.caterpillaruniversity.com/> January 17 th, 2012

Safety a Core Value?

Data Source for Chart: Clean Harbors 2011 Annual Report, p 3, February 29, 2012

How can you be sustainable if you are not safe?

“A new $70 million RFP rests on our safety record”-NYSE CEO, Fall 2011

*Total Recordable Incident Rate (TRIR)

Alcoa’s Approach to Sustainability

Source: Alcoa Sustainability, “2011 Sustainability at a Glance” Accessed June 25, 2012

“Sustainability is not a catalog of processes, nor merely a philosophy at Alcoa. Rather, it is part of everything we do.”

-Klaus KleinfeldAlcoa Chairman and CEO

Clicksoftware

Sustainability• Scheduling efficiencies

• Reduce fleet mileage

• Same set optimization

• Reduce wear & tear (people & equipment)

• Increase preventive maintenance visits

• Travel savings

Source chain & mobile field force management & optimization

SAP AG

“Software a critical component of sustainable solutions for our customers…and for a sustainable world

Our corporate strategy is sustainable…as sustainability embedded in everything we do including for example diversity and CO2 emissions

90% of SAP AG employees say sustainability is important to team and should be important to company

Employee engagement is absolutely critical for sustainability to work”

-Rami BranitskySenior Vice President of SAP AG

Source: Eric Orts “Podcast: An Interconnected Wed: How Sustainability Relates to SAP’s Corporate Strategy” Wharton School of Business

Unilever

CEO’s three sustainability goals by 20201:• “Halve the environmental footprint of our products”

• “Help more than 1 billion people take action to improve their well being”

• “Source 100% of our agricultural raw materials sustainably”

Transparency +:• All ingredients, all products sold in Europe

• Example: Dove intensive beauty body butter, 48 ingredients listed

Sustainability Includes Transparency

Source: 1. Paul Polman, “Message From Our CEO”, Unilever Global Website http://www.unilever.com/sustainable-living/ourapproach/messageceo/ accessed June 13, 2012

Sustainability and Risk

Sustainability is fundamentally good governance – astute and prudent management of complex, multifaceted risk.”

-Felice Kincannon and Julianne Zimmerman

“The reality is that businesses of all sizes and types are facing unprecedented risk and volatility, for which sustainability strategy is a direct, timely, and effective countermeasure…

Source: Kincannon, Zimmerman. “Reframing the Sustainability Conversation to Risk and Resilience”. environmentalleader.com, October 10, 2011.

“Sustainability Nears a Tipping Point”

Sources: MIT Sloan Management Review and The Boston Consulting Group “Sustainability Nears a Tipping Point”. Winter 2012, Vol. 53, no.2, 69-74 .

Sustainability Making a Difference at Nike

• Stifel Nicolaus, June 1st sell-side report, “Innovation, Supply Chain and Sustainability Gains make NIKE Tough Act to Follow”

• Benefits of sustainability identified:

• Lowers energy costs, reduces waste, reduces worker turnover, improves productivity, decreases dependence on increasingly scarce resources, consolidates factory list, improves product quality, insures long-term access to sustainable materials, community reinvestment positively impacts brand

• Benefit of near-sourcing identified:

• Savings on transport, and duties, and shorter lead time

Source: Duffy, Jim, Eric Alexander, Molly Iarocci, and Stifel Nicolaus.“Company Update: Nike, Inc.” June 1 st, 2012. Stifel Nicolaus.

Does Corporate Sustainability Favorable Stock Performance?

HBS Working Paper: November 2011

% High Sustainability vs. % Low Sustainability (traditional) Companies

• Other characteristics (size, ROA, ROE, leverage, inventory turnover, etc.) very similar

• 18 years of composite performance

• Sustainability: coherent set of policies related to environment, employees, community, product, and customers

Incremental average annual return?

Source: Robert Eccles, Ioannis Ioannou, George Serafeim “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance” Working Paper #12-035. Harvard Business School. May 9, 2012

4.8%

Your thoughts?