The Sustainability Opportunity

Purpose of Presentation: Provide senior executives with background and business case for initiating sustainability strategies.

Outline:• Why is sustainability a business issue for retailers?• What is sustainability?• How to initiate a sustainability strategy in your company.

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Defining sustainability:

Business strategies and practices that promote the long-term well

being of the environment, society and the bottom line

FMI Sustainability Task Force

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Sustainability Is…..

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• A change in mindset and the way you do business and not just a new program or two.

• Very unique to every company and therefore, there is no one-sized-fits-all approach.

Why is Sustainability a Business Issue for

Retailers?

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Who Cares About Sustainability?

Our Customers• 92% of consumers agree with the statement that it is important for

the U.S. food industry, both food manufacturers and supermarkets, to be more proactive about addressing environmental concerns.

• FMI-Harris Poll 2007

• 89% of consumers are interested in “eco-friendly” products and 30% actively look for them. Information Resources, Inc. 2007

• 43% of Americans think that they will be extremely green in the next five years while only 11% classify themselves as extremely green now. Wal-Mart Live Better Index 2007

• Sales of “green” cleaning products increased 52% in 2006.• Information Resources, Inc.

• Organic food sales were up 109% between 2001 to 2005 and up 22% in 2006. Mintel Research/Organic Trade Association

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Who Cares About Sustainability?The Public• Americans consider a company’s commitment to social issues when

deciding the following:• Which companies they want to see doing business in their

communities, 86% (vs. 58% in 2001)• Where to work, 77% (vs. 48% in 2001) • Which stocks or mutual funds to invest in, 66% (vs. 40% in 2001)

• 87% say they want a company to support issues based on where its business can have the most social and/or environmental impacts.

• 80% of respondents listed health as the leading issue for companies to address.

2007 Cone Cause Evolution Survey

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Who Cares About Sustainability?

61% agreed they are personally responsible for making a difference in the world;

78% think companies have the same responsibility;

75% are more likely to pay attention to a company's messages if it has a deep commitment to a cause; and,

Nearly 90% stated they are "likely" or "very likely" to switch from one brand to another based on a strong association with a good cause. Cone and AMP Insights

Our Future EmployeesA survey of 1,800 Gen Y-ers (people between the ages of 13 and 25) in 2006 found that:

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Who Cares About Sustainability?

College graduates are looking for more than just a first job or an internship. They are looking to work for businesses that help the environment.

80% of those surveyed said they are interested in a job that has a positive impact on the environment

92% would chose working for an environmentally friendly company.

Our Future Employees (2)From a survey in October 2007 by MonsterTRAK (division of Monster Worldwide geared towards entry-level positions) of college graduates found:

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Who Cares About Sustainability?

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Supermarkets! Green is Green…..

The average basket size is three times larger when Eco-Friendly or Green products are in the basket, and the more items purchased, the higher the average basket size.

Potential Green buyers are current Organic food buyers; recognizing that only 10% of Organic buyers are currently purchasing Green products.

Green and Organic shoppers are 59% loyal (share of grocery wallet) to their chain and more than two times loyal than the average consumer.

Catalina Marketing September, 2007

Who Cares About Sustainability?

Other Companies

• Of the top 100 largest retailers, 83% are involved in green practices and 62 of those have increased their green investments during the past two years. BDO Siedman Retail Compass Survey, October 2007

• 79% of S & P 100 companies have special sections on their website dedicated to social and environmental policies and performance, up from 59% in 2005.Social Investment Research Analysis Network

• Green consumerism will be a huge driver of innovation and product change in the food retail sector….the biggest

consumer trend of them all”. Lucy Neville-Rolfe, Tesco

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Who Cares About Sustainability?Shareholders/Investors • In 1990, there were 5 investment indexes based on sustainability in

North America, Europe and Australia. In 2007, there are 21 including the Dow Jones Sustainability Index.

• Most of the leading brokerages (Goldman Sachs, Citigroup, JPMorgan, Merrill Lynch, and Morgan Stanley) have published investment research on the impact of social and environmental trends on the performance of companies in key industries; and,

• 51 banks from 17 countries representing an overwhelming portion of the project finance market (including Bank of America, Citigroup, JPMorgan Chase, Wachovia and Wells Fargo) have adopted the “Equator Principles” as a means of standardizing the review of social and environmental factors in lending.

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Why is Sustainability an Issue for Business?

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Why is Sustainabilitya Business Issue?

• The world population is growing at unprecedented rates and putting greater pressure on already overstressed natural resources;

• There are growing expectations on business to help solve environmental and social issues from government, employees, customers and the public broadly; and

• How individual companies respond to these trends will influence their profitability and longevity.

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Business Response:

Seek Out Opportunities from Social and Environmental Trends

Integrate Social and Environmental Trends into Business Strategy & Other Decisions

Business Value at Stake

Sustainability in the Marketplace:The New Equation

Copyright Ecos Corporation 2006

Social & Environmental Issues as Market Forces

Global Trends Magnify Market Forces+ = Changed Operating

Conditions for Retailers

• Global Population Explosion

• Wealthy Nation Consumption Patterns

• Declining Availability of Natural Resources

• Growth/Impact of Civil Society

• Globalization

• Role of Government

• Connectedness

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Environmental & Social Issues: Business Perspectives

Old School: cost to be lived with and minimized

New School: can add shareholder value

Next School: central to brand value

Which is your school…today and in the future?

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Living Beyond Earth’s Capacity• Where Are The Fish?

About half of all monitored [global fish] stocks are now fully exploited and another quarter are overexploited, depleted, or slowly recovering. 2004 Food & Agriculture Organization

• Better Food Uses More Water70% of world freshwater use is for agriculture. Growing global populations coupled with the shifting trend in the diet to more water-intensive food such as meat and fruits will further exacerbate already stressed regional water supplies. United Nations Environment Programme

• Climate: The Food Chain’s Weakest Link The impact of climate change coupled with the efforts to mitigate climate change will have a variety of impacts on availability and price of many agricultural products, especially corn. Wall Street Journal Market Watch May 2007

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Climate Change• A group of 284 institutional investors with assets of $41 trillion under

management have requested and received detailed information from approximately 1000 companies about their greenhouse gas emissionsand plans for managing those emissions.

• In a 2007 survey of consumers in the US and the UK, 60% of respondents said that they want companies to provide more product-based information at the point of sale and half would rather do business with companies that are working to reduce their contribution to global warming.AccountAbility

• In response to shareholder request, The Home Depot, Lowe’s and Simon Property Group (largest shopping mall company in US) have agreed to significantly expand reporting and disclosure on energy-efficiency performance, with the two big-box retailers also agreeing to discuss greenhouse gas emissions. GreenBiz.Com

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Living BeyondEarth’s Capacity

Humans are drawing on capital rather than interest, and once that is

exhausted, they will find Mother Nature reluctant to make a loan.

  February 13, 2007   The Columbus Dispatch

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Global Becoming Local:Trends in the Marketplace

• The public believes retailers are responsible for the environmental and social issues associated with their supply chain (Think Home Depot)

• Increasing globalization continues to cloud the source of raw materials and government food inspectors are stretched too thin (Think China)

• Compliance with environmental, health and safety regulations are no longer the ceiling for the public’s expectations but the floor (Think Teflon)

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NGOs UnitedNations

Large LocalCompanies

NationalGovernments

GlobalCompanies

Who the Public Believes to Act in the Best

Interest of Society

Activists are BecomingIncreasingly Credible

World Economic Forum 2005

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% of “yes” minus % of “no”

Activists are Having an Impact

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Companies Working with Environmental Groups for Sustainable Results

• World Wildlife Fund and Coca-Cola have created a partnership to conserve and enhance fresh water resources around the world.

• Unilever partnered with Greenpeace to develop HFC-Free Freezers and market them to specific customers.

• FedEx Express and Environmental Defense worked together to develop new generation of pickup and delivery trucks that decrease particulate emissions by 96 percent and travel 57 percent farther on a gallon of fuel, reducing fuel costs by over a third.

• GreenBlue Institute created the Sustainable Packaging Coalition that brings together a range of stakeholders to create a more robust environmental vision for packaging.

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Globalization & Safety ofU.S. Food Supply Chain

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The ChangedOperating Environment

• Higher Consumer Expectations(want performance and price while being environmentally and socially responsible.)

• Voluntary Actions Becoming New Standard

• Sustainable Supply Chain Offerings

• Shareholders/Investors Using Sustainability in Ratings and Analyses

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The Opportunities

Growth Opportunities• Grow Market Share• Build Customer Loyalty• Differentiation and Branding• Improve Employee Morale and Loyalty• Increase Efficiency/Productivity

Reduce Risk• Help Secure the Supply Chain for Future• Avoid Negative Public Opinion• Prepare for/ Be Ahead of New Regulations

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What Retailers are Already Doing….• Recycling = Revenue: Three FMI Members made close to

$50 million in revenue in 2006 from recycling plastics and cardboard.

• Being Green = Making Green: Several major retailers are focusing on “green” as the driving strategy behind new store development.

• Seismic Shift in Supply Chain: Some of the largest retailers in the world are implementing sustainable practices throughout their supply chains resulting in major positive impacts on the bottom line, and impacts on the price and availability of environmentally and socially preferable goods and services.

• Catch of the Day for Tomorrow: A small retail chain responded to consumer requests for more choice in sustainable seafood. They adopted Fishwise, a sustainable seafood education and marketing program. Results were increased customer loyalty, sales and profits and have transitioned their product offering to almost completely sustainable seafood.

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How to Initiate a Sustainability Strategy in

Your Company

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Change in Mindset:Sustainability is More Complex Than Any

Other Market Trend Past or Present• Impacts all aspects of business

• Most effective strategies are those that deliver financial value for the company (not PR or philanthropic)

• Involves Those in the Value Chain and Beyond:

- Suppliers - Producers

- Governments - NGOs

- Consumers - Shareholders

- Employees - Other

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A Sustainable Company….

• Understands environmental and social issues as business issues

• Develops business strategies around issues that generate shareholder and societal value

• Continually engages with a broad network of external stakeholders within and beyond the value chain

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Integrating Sustainability Will…

• Help manage complexity from environmental and social issues now impacting the marketplace

• Sharpen the “over the horizon radar” and open up “insights” into the evolution of the market place

• Hedge against future risks by connecting to key stakeholders and trends in society

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Potential Hurdles in Implementing Sustainability

• Internal Alignment: Sustainability impacts all aspects of the company and must be seen as aligning with the culture and changing the way employees think. There will be naysayers,it takes time to have this alignment.

• Not Just “Feel Good” Fluff: Sustainability tends to be relegated to the philanthropic department or for external affairs to handle but it is a business issue with real value at stake.

• Walk the Talk: A company that makes big promises with little delivery or one that brands itself “green” with little behind the curtain will get caught and labelled a “greenwasher.”

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Framework for an EffectiveSustainability Strategy

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Detail on Framework

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Your Sustainability Team

• Identify one person to lead the effort who has experience in developing and implementing business strategy.

• Build a core-team representing areas of Operations, Sourcing, Management and Marketing/Consumer Affairs - should assist in development and implementation.

• Senior Management must provide support and be included in regular updates on progress.

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Where to Start:The FMI Sustainability Toolkit

• A framework and guide to help you initiate and “operationalize” sustainability within your company at the strategic level

• Practical tips, advice and strategies on approaching and implementing sustainability

• Best practices, learnings and other examples of companies in the food retail value chain that are working on sustainability

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FMI’S Sustainability Task ForceMission: To develop the tools and resources needed by the

industry to help move sustainability initiatives forward.

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“It is not the strongest species that survive, nor the most intelligent, but the ones who

are most responsive to change.”

-Charles Darwin-

FMI recognizes the commitment and support of our sponsoring companies in the development of the soon to be released FMI Sustainability Starter Kit (release January 2008). We are grateful for their help in making this important resource available to help you move forward quickly with your company sustainability programs:

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ADDITIONAL SLIDES ON ENVIRONMENTAL

ISSUES

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Living Beyond the Earth’s CapacityGlobal Population Increasing Exponentially

Science Rationale

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Where Will We Get Our Fish in the Future?

Science Rationale

UN Millennium Assessment

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Living Beyond the Earth’s Capacity

UN Millennium Assessment

Increase in Portion of Land Cultivated ContinuesMore land was converted to cropland in the 30 years after 1950

than in the 150 years between 1700 and 1850.

Cultivated Systems in 2000 cover 25% of Earth’s terrestrial surface

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Living Beyond the Earth’s Capacity