Lee Scott: We should view the environment as Katrina in slow motionOld: Energy efficiency, waste New: Renewables, roofspace, sustainable fishEasy wins1-3 years projectsGame Changers

Fourth Wave- Creativity- Innovation- Enterprise- Scale

3Dilemmas

2002-20062000: climate change2005: poverty, climate, global governance 2006: SD in China and India, financial crises, pandemics in globalized economy

Green CEOStakeholders 3 prioritiesSUVs, Bold MovesJunk bond status?Challengers

4Conflicts

Andrew Liveris2015 Sustainability Goals: Sustainable Chemistry Products Designed to Solve World Challenges4 MDGs:WaterFoodHousingPersonal health and safety

Chad Holliday: board issueBlind spots (e.g. CFCs)Sustainable Growth, e.g. oil > cellulose (biotech)But PFOA, Ti02 Evolution of human rights, e.g. bodily trespass

Amazon, Google, etcGreentech, $100 million, $100,000 KPCB Green Innovation prize3 megatrends1: energy security2: megacities3: abrupt climate change

5Next Steps

Top-down, bottom-up 1Public Relations, Legal Advisors Environment Managers, Project Planners Process and Product Design, Marketing (TQM) CEOs, Investor Relations, Boards (e.g. NEDs) CFOs, Entrepreneurs, Investment Bankers, VCs

Our Wave 4 StrategyFinancial marketsImplementationEmerging economies

3-year Skoll ProgramGlobalization 2015Global Reporters 2006Millennium Development Goals

Bottom-up

www.sustainability.com

www.johnelkington.com

elkington@sustainability.com

THESE NOTES ARE FOR GUIDANCE ONLY: DELIVERY WILL VARY

Thank youand it is a great pleasure to speaking here today.

The theme I was given was The Socially Responsible Company: Challenges, Dilemmas and Conflicts.

And the reason for the surfboards? I will talk in a moment about a new wave of societal pressure on business, a wave which some companies will manage to surf, while others drown.

And here is the menu.

I will start with a brief introduction to who we areand what we do.

Then I will talk about some of the Challenges, Dilemmas and Conflicts.

And, finally, I will look at the business challenge in terms of where leadership and innovation come from.

In some cases that is top-down, but in many cases it is bottom-up.This slide simply makes the point that, in addition to my SustainAbility role, I wear a number of different hats.

For example:

I chair the Advisory Council for the UK Export Credit AgencyI am a Trustee for the Business & Human Rights Resource Centre, and our Chair Chris Marsden is also speaking at this eventI am on the International Board of Ethos and I am on the Advisory Board of the Dow Jones Sustainability Indexes

Here are a few brief facts about SustainAbility:

We are almost 20 years old we have a small team of around 25 people, in three offices and our mission is to inspire and support innovation that creates tomorrows market valueNow for some of the challenges companies face.

Here are some of the clients we work with and some of the languages they use in describing the relevant challenges.

Corporate citizenship is an area where we see some impressive innovation, but is very often little more than philanthropy.

We have also seen a boom in Corporate Social Responsibility in Europe and in countries like Japan.

We prefer to drop the social and talk in terms of corporate responsibility. And the area where we have seen the fastest progress in recent years has been human rights, where the original focus on torture and political abuse has opened out to include issues like access to clean water, affordable energy and drugs for diseases like HIV/AIDS, malaria and tuberculosis.

And then, in the final line, there is the triple bottom line And its interesting to see major international companies like Procter & Gamble dealing with triple bottom line issues as a matter of routine.

Some of the biggest issues, paradoxically, come in relation to the economic bottom line, including such issues as corproate tax policy.In terms of where next, we see leading companies increasingly trying to integrate these different dimensions of risk management and value creation into their operations.

This diagram shows four different aspects of the creation of blended value.

The way this diagram works is that it distinguishes between challenges in the areas of governance and markets, and between challenges we understand fairly well and those we dont.

So the first area where companies are trying to create blended value is through their brands

Which is more or less where SustainAbility started, in the late 1980s, with our book The Green Consumer Guide As corporate reputations and brands came under attack, so we saw a rapid development in such areas as corporate accounting, reporting and assurance But as the environmental, social, economic and governance issues evolved, companies struggled to deal with the complexity and with the political implications.

And that helped push many of these issues up to Board level in companies.Finally, before the cycle starts again, we get to the most challenging area of all how companies can integrate these issues and forms of value creation in to their DNA, into their business models .

That is increasingly where we are working.As context, here is how the business challenge has built. There have been three great waves of societal pressure to date.

The first wave peaked between 1969 and 1973, putting pressure on governments to bring in new laws, and forcing companies into defensive positions, based on compliance.

The second wave peaked between 1988 and 1991, with growing competitive pressur eon companiesthough after several years many dropped back to basic corporate citizenship thinking.

And the third wave peaked between 1999 and 2001, with a growing focus on globalization and on two forms of governance (global and corporate). It was brought to an end by the 9/11 attacks.

In the first downwave, from 1974 to 1987, the focus was on introducing and enforcing new laws.

The second downwave, running from 1992 to 1998, saw a growing focus on management standards, like ISO14000, SA8000 and the Global Reporting Initiative.In terms of our biggest challenges, climate change is increasingly seen as the most worrying with Hurricane Katrina spotlighting the dramatic implications for people and for economies.One of the companies that has changed its mind about these sort of issues is Wal-Mart.

This is what its CEO, Leo Scott, had to say about Katrina.

It has been interesting to see Wal-Mart tightening up in areas like energy efficiency and waste management, but also promising to use more renewable energy and to source more sustainable fish.

These changes will be cascaded through Wal-Marts extensive supply chains.And where next?

Any forecast must come with a public health warning, but our sense is that we will see a fourth wave or rising tide through 2010.

You are seeing leading business people like Jeff Immelt, CEO of General Electric, shown here making extraordinary new promises in the area of green technology.

And, in line with the proposals we made in a recent report with WWF on corporate lobbying, we also see GE starting to lobby for the public policy conditions that will support sustainable development.As these challenges have evolved, political and business leaders have faced a growing range of dilemmas.

I have been lucky enough to take part in the annual summit meetings of the World Economic Forum for the last five years.

In 2000, for the first time, climate change came top of the priority list when an electronic vote was taken.

In 2005, issues like poverty and global governance were also at the top of the list.

And this year despite an attempt to cut back on the number of NGO people at the summit in Davos it was interesting to see the question of how to achieve sustainable developing in countries like China and India coming top of the list.We work with many companies that are struggling with these dilemmas.

One of them is Ford, where Bill Ford has been seen as a Green CEO.

When we did a stakeholder process for Ford some years back, they were surprised to see climate change and human rights coming top of the list.

Climate change has been a particular problem for a company whose profitability at a time when some analysts would like to reduce Ford to junk bond status has been heavily dependent on gass-guzzling sport utility vehicles (SUVs).

And the competitive challenge is accelerating, particularly from companies like Toyota, with its Prius hybrid cars.

We are also seeing governments beginning to provide incentives for clean cars, as in London, where the only cars that dont have to pay the 8 a day congestion charge are hybrids.

We have also been working in China, incidentally, for a Ford subsidiary, Volvo, engaging stakeholders on the issue of which power train technology Volvo should adopt.

In some areas, we are seeing fairly major CONFICTS of interest.

Take Dow Chemical, which has recently branded its efforts to meet environmental and social objectives like those spotlighted by the UN Millennium Development Goals as ability.

Some of you will know that Dow bought Union Carbides assets at the ill-fated Bhopal site in India.

Their lawyers told them they could cap the legal liabilities.

By contrast, our report on new forms of liability which we produced with partners like Swiss Re, the giant reinsurance company argued that new forms of moral liability are emerging.Such conflicts are ensuring that such issues are being driven up to Board level in such companies.

Earlier in 2006, I did a Board session with US chemical giant DuPont. A great company, trying very hard to move towards sustainability. But I made the point that in addition to their current challenges around PFOA (used to make Teflon) and titanium dioxide, such companies face a new type of challenge

In the European Union, for example, we are seeing campaigners targeting chemical companies with legal actions based on property law, arguing that chemicals trespass on our rights when they enter our bodies without permission.Another major area of conflict will be in relation to China.

Part of that will be political, part military, part to do with their growing appetite for energy and raw materials, and partly it will be in relation to their growing outputs of greenhouse gases.More positively, we begin to see venture capitalists waking up to the opportunities in this area.

A couple of months back, for example, I was in San Francisco for a clean technology conference.

The speakers after my session were from venture capital firm Kleiner Perkins Caufield & Byers, well known for their early investments in companies like Amazon and Google.

John Doer of KPCB spotlighted three great challenges the world faces:

Energy security The growth of megacities (from 2 in 1950, to over 450 by the 2050s) Abrupt climate change (with the melting of the Greenland ice cap alone likely to raise average sea levels by 6 metres.

A terrifying prospect, but KPCB are among the venture capitalists who also see huge opportunities for making money in all of this with sustainable technology and business models.

In summary, we have seen the agenda move up through company hierarchies, from defensive professions like lawyers and public relations people, through boards (where the best companies tend to handle this agenda today) to the future challenge of engaging people like chief financial officers, investment bankers and venture capitalists.In terms of where SustainAbility is heading, we had a key Board meeting last week, in which we agreed to invest heavily in the coming 5 years in

better understanding capital marketsbuilding our ability to help clients embed sustainability-focused strategies in their business models, and Developing our business in the emerging economies, particularly Brazil, China, India and South Africa

At the same time and reason why on the left of this slide you have pictures of eBay founder and multi-billionaire Jeff Skoll and Al Gore I that we have just won a $1 million, 3-year grant from The Skoll Foundation to develop a new programme focusing on social enterprise, and on bottom-up strategies for change.

We are feeding this thinking into several major projects this year among them Globalization 2015 and our latest report benchmarking study, Global Reporters 2006.

One of the projects will involve trying to work out the size and value of the relevant markets if we met the UNs Millennium Development Goals.And if you want to know more about any of this, here are some contact details: 2 websites and my email address.

Thank you for your attention.