Corporate Sustainability Report 2013

Our vision is to be an amazing logistics services organization that is admired and trusted by our employees, customers, and community.

As a family owned business, we at Murphy are in for the long haul. We believe it is important to be a leader, and today that involves sustainability. But what does that really mean? It means looking at our facilities, our operations, and our place in the community with a holistic view of how we do business and the impact it has on our employees, our customers, our neighbors, and the environment.

Murphy has been taking a leadership role in this industry through its sustainability efforts, detailed in this first annual Corporate Sustainability Report. For our inaugural edition, you will find many things that we have already accomplished through various initiatives and investments.

We are guided by our belief that a truly sustainable business must balance economic and environmental

factors to be successful. For any decision we make, we always consider our environmental impact, as well as our financial position and return on investment. In our minds, this is the only way a 21st century business can survive.

As we like to say, at Murphy, we’ve always been Green.

Richard T. Murphy, Jr.President & CEO,Murphy

TO OUR STAKEHOLDERS

80%$17,000$73,000of ongoing

consumables recycled

saved annually in maintenance costs for native prairies

instead of turf grass

saved on annual water bill

for managing stormwater on site

for 7033 Campus

LEED + Energy Star Certification

2012 Highlights

5th largestproducer of solar energy in Minnesota

SUSTAINABILITY REPORTINGSustainability programs at organizations are not just the latest buzz; they are here to stay – and for good reason. The Society for Human Resources Management compared companies that have strong sustainability programs with companies that have poor ones and found that in the former, morale was 55% better, business processes were 43% more efficient, public image was 43% stronger, and employee loyalty was 38% better.

This report is influenced and guided by the Global Reporting Initiative (GRI), an internationally recognized Sustainability Reporting Framework that enables all companies and organizations to measure, understand, and communicate their sustainability efforts. GRI’s mission is to make sustainability reporting standard practice; one which helps to promote and manage change towards a sustainable global economy. It is Murphy’s goal to adhere to these guidelines and register our report in 2012 and beyond.

Owned & Occupied Square Footage

701 24th Avenue SE, Minneapolis 4700 Main St SE, Fridley 4850 Main St SE, Fridley 7033 Central Ave. NE, Fridley

Leased Square Footage Total Square Footage

WHY WE CAREMany companies are taking the next step: corporate sustainability reporting. Last year, according to CorporateRegister.com, more than 5,500 companies around the world issued sustainability reports, up from about 800 a decade ago. The benefit of having our own report extends beyond letting our people know about the good things we’re doing; it fosters a deeper understanding of our operations and the impact we have. Coming up with sustainability metrics and making them public holds us accountable to continuous improvement, which is just how we do business at Murphy.

The pages ahead cover what we think is most relevant to our business: Energy, Water, Site, Materials & Resources, Health, Safety, and Community. This report does not address the fuel consumption needed to transport all the goods we store, though that is a material factor in our industry. It also does not address the upstream and downstream supply chain of the products we warehouse, as that would be beyond the scope of our business.

This report only addresses our owned and occupied facilities, because that is the square footage we control. Additionally, this report highlights our performance through 2012. Pursuits and accomplishments of 2013, such as opening the Eagan Warehouse, will be addressed in next year’s report.

680,000265,000194,500406,164

_________1,545,664

+ 998,810

_________= 2,544,474

LOGISTICS

Recognizing that logistics requires energy, we do what

we can to be as efficient as possible in our own logistical operations:

• Long haul trailers retrofitted to reduce wind

resistance, which saves 10% on gas

• Two “green” tractors burn clean and save 8% on gas by adding urea to fuel

• Up to 5% of fuel is Bio-diesel

The logistics industry is inherently energy intensive. It relies on truck, rail, and air freight to move goods around the world – all of which require fuel. The logistics industry is the link between producers and consumers of manufactured goods, accounting for 8.7% of the GDP in the United States.

The logistics industry is addressing sustainability head on. A 2011 Sustainability in Warehousing, Distribution & Manufacturing survey found that companies in this sector are steadily embracing earth-friendly products, processes and practices. When asked why, 78% said social responsibility was the driving force; 63% cited resulting efficiencies, and 42% reported that customers were demanding this action.

Our StrategiesOur Goal

Be involved with the SustainableLogistics Initiative

Advocatefor rail freight

Murphy has been intimately involved in the International Warehouse Logistics Agency (IWLA), the association that represents third-party logistics and warehousing service providers. Thanks to Murphy’s leadership role, the IWLA has recently launched its own Sustainable Logistics Initiative (SLI). The SLI’s objective is to improve warehouse sustainability practices by providing a standardized metric and benchmark to measure improvements both environmentally and socially.

While it would be beyond our capabilities to track and report on the energy consumed by thousands of trucks going in and out of our warehouses, we do pay attention to this issue: Our facilities are located near cities, airports, and rail lines—which reduces the number of miles traveled to store and transport our customers’ goods. Our ability to load and unload off railroads further contributes to our goals, because rail lines are three times more efficient than trucks –that is, for every pound of freight carried on a rail line, a truck carrying that same load would consume three times more fuel.

Become a leader and role model for sustainability within the logistics industry.

CERTIFICATION

Leadership in Energy and Environmental Design (LEED) was developed by the U.S. Green Building Council as a voluntary, consensus-based program that provides education, metrics, and verification for high performance green buildings. LEED establishes performance criteria in the areas of site, energy, water, indoor air quality, and materials and resources. Murphy has LEED certified its 4700, 4850, and 7033 campuses in Fridley under the Operations and Maintenance rating system (LEED EBOM). LEED EBOM requires recertification every five years.

Maintaining the internationally-recognized third party certifications of LEED, Energy Star, and ISO 14001 are a key component of our overall business strategy. Why?

Leadership: As a fourth generation family-owned business, we believe sustainability is important for our future. We have been taking a leadership role and will continue to do so.

Third-party Verification: In the operations and maintenance of our facilities, we already do most things required by the governing bodies of LEED, Energy Star, and ISO 14001. Third party verification continues to hold us accountable to these high standards.

Business Strategy: Major corporations are starting to require that their supply chain go green. Certification shows them that we are listening and responding to their future needs.

Marketing: Murphy has been consistently listed among the top 50 Green Supply Chain Partners and has been featured in numerous business magazines, case studies, and television. This kind of exposure opens up new opportunities to grow the business.

Return on Investment (ROI): Our investments have been paying off in reduced operating expenses, allowing us to reinvest in our company.

Energy Star is a U.S. Environmental Protection Agency voluntary program that helps businesses save money by tracking their energy and water usage. Energy Star certification can be granted to buildings that perform at the 75th percentile or higher compared with similar buildings. Murphy facilities have consistently scored even higher.

The ISO 14001 standard requires measurable performance goals, targets, and objectives for the company and for each individual environmental aspect and impact process. Murphy is committed to maintaining this standard annually.

LEED certifyour owned facilities

Explore runningleased facilities through Energy Star

MaintainISO 14001 certification

Continue to LEED + Energy Star certify our facilities and maintain ISO 14001 certification.

Our StrategiesOur Goal

35%

Energy Star Score by Facility

ENERGY CONSERVATIONEnergy conservation is by far the single greatest opportunity to reduce our dependence on fossil fuels and decrease carbon emissions. Becoming more energy efficient is not just a one-time initiative. Looking for ways to reduce energy consumption is an on-going endeavor. As technology continues to improve, Murphy will be on the cutting edge.

We have accomplished energy conservation through several strategies:

Building Recommissioning – By helping ensure the HVAC systems and controls are working as intended, building recommissioning saves 10%-15% of energy consumption on average.

Lighting Upgrades – LED lights use 1/5 the energy of a traditional incandescent and can last 25 times longer. LEDs are safer because they operate at lower temperatures, contain no mercury, and do not produce any ultraviolet rays.

Installing Efficiency Measures – Utilizing dock blankets increases building temperature by about 10 degrees and reduces heating expense by 15% in the winter. Installing programmable thermostat and occupancy sensors decreases energy consumption.

While the environmental benefits of reducing energy are the primary driver of our efforts, Murphy benefits in another important way : financially. As we reduce energy consumption, we also become less vulnerable to fluctuations in energy prices. Since 2008, our energy costs have decreased by 35%, saving the company tens of thousands of dollars and allowing us to reinvest these funds in the company.

reduction in energy costs since 2008

nationalaverage

ENERGY EFFICIENCY

Maintain an Energy Star score of 85 or higher for all owned facilities.

Our Strategies

Investin LED lighting

PurchaseEnergy Star rated equipment

Installprogrammablethermostats

9910087 90

50

4700 Cam

pus

4850 Cam

pus

7033 Cam

pus

Mai

n Cam

pus

Our Goal

RENEWABLE ENERGY

SOLAR POWER

198,350

5th largest

1 kilowatt hour(kWh)

100%

Continue reducing our electricity consumption through renewable sources.

In Minnesota, 53% of electricity is produced through coal burning. But when coal is burned to produce energy, it creates several byproducts: carbon dioxide (greenhouse gas), nitrous oxide, sulfur dioxide, and coal ash – which is the fine particulate matter that creates smog and contributes to respiratory illnesses. There are clear environmental reasons to move toward renewable energy, but there are also financial benefits.

Each 40 kW system takes up only about 6,000 square feet, and there is plenty more space on Murphy’s roofs. We will continue to invest in solar if and when it makes sound financial sense.

kilowatt hours produced by Murphy solar arrays in 2012

producer of solar energy in Minnesota

of 7033 Campus’ electricity usage offset by purchased Renewable Energy Credits

in 2012

Utilizeempty roof spacefor solar panels

Partnerwith tenKsolar

Our StrategiesOur Goal

Energy conservation can only take us so far toward reducing our

reliance on fossil fuels. Renewable energy,

specifically solar energy, can take us the rest of the way.

Each 40 kW can produce between 30,000-50,000 kilowatt hours (kWh) per year, primarily depending on sunlight or snowfall.

What do these systems do?

one 100-watt light bulb turned on for 10 hours

6,000

5,000

4,000

3,000

2,000

1,000

--

Solar Power Generated in 2012 (kWh)

Jan Jun Dec

4700 Campus4850 Campus

7033 CampusMain Campus 1

Main Campus 2Main Campus 3

NATIVE LANDSCAPE

$17,000

22%

annual savings in maintenance costs

coverage of native vegetation

Continue leadership and education of other businesses on environmental and economic values in planting native prairies.

Most logistics campuses devote a majority of their site to storage and transportation, paying little attention to green space. These sites are typically surrounded by thin strips of turf grass, weeds, aggregate, and very few trees, which are often neglected or require high maintenance. In contrast, Murphy has chosen to maximize the utility of its green space by planting native landscapes, which provide ecological services such as purification of water and air, pollination, and carbon sequestration in plants.

Enhanceour current biodiversity

NATIVE PRAIRIE

4700 + 4850 Campuses

Educatebusinesses about benefits

Convertmore acreage to native

In 1994, Murphy installed its first native prairie in Fridley. Today, all of our campuses have been planted with native prairie and woodland species. This ambitious effort replaced conventional landscapes, made up of excessive turf grass area, with native vegetation that promotes stormwater retention, biodiversity, and carbon sequestration. These investments dramatically reduce maintenance costs and improve public relations. Even though numerous vehicles enter and exit the facilities everyday, neighbors and visitors often refer to our campuses as “the place where all the beautiful flowers grow.”

Prairie Areas: 6 acresLawn Areas: 4.2 acres

$12,500

$10,000

$7,500

$5,000

$2,500

$-

Native Prairie vs. LawnComponent Cost Differences

Main

tenance

Mow

ing

Wat

ering

Fertiliz

atio

n

$4,240

$12,015

$8,630

$1,005

Our Goal Our Strategies

Main CampusStormwater Management Plan

WATER MANAGEMENT

Our Strategies

STORMWATER MANAGEMENT

WATER CONSERVATIONStormwater runoff is a major source of water pollution. Conventional logistics campuses are made up of vast amounts of impervious surfaces, such as roofs and pavement. These hard surfaces, known as ‘grey infrastructure’, present a problem during major rainfall events because large volumes of stormwater can overwhelm and damage storm sewers. This often requires expensive infrastructure upgrades to reduce volume and improve water quality.

In addition to stormwater management, Murphy is taking strides in water conservation. What many people don’t know is that utilizing water also utilizes energy – so reducing water usage also reduces energy. Our water conservation efforts include upgrading plumbing fixtures to low flow faucets and toilets and reducing irrigation through innovative landscaping efforts.

Increaseonsite infiltration

Investin green infrastructure

Reducestormwater runoff

Realizing the significant contribution that the logistics industry makes to regional and national stormwater challenges, Murphy has made an ambitious investment in reducing its stormwater impact. Murphy’s strategy has been to invest in ‘green infrastructure’, which uses environmentally-friendly techniques to manage stormwater such as native landscaping, bioswales, and infiltration ponds. These stormwater best management practices increase onsite infiltration, reduce or eliminate pollution from stormwater runoff, and eliminate contaminants.

Before 2008, nearly 100% of stormwater occuring at our headquaters in Minneapolis was running off site. Since implementing these strategies, we retain nearly 100% of our stormwater onsite for major storm events. Because of this, we receive a monthly credit on our water bill from the City of Minneapolis.

These infrastructure upgrades will pay for themselves in 7 years and continue to save us $73,000 annually.

Continue to explore avenues to reduce water consumption.

Our Goal

Materials selection plays a significant role in sustainable building operations. The life cycle of a material - extraction, processing, transportation, use, and disposal - can have negative health and environmental consequences. Murphy has adopted environmentally responsible procurement and waste management policies that can significantly reduce these impacts.

By showing preference for products with recycled content, we are doing our part to expand markets for recycled materials, slow the consumption of raw materials, and reduce the waste entering the landfills. 38% of office products and other consumables meet the established sustainability criteria.

By nature of our business, there are a lot of packaging materials that come into our warehouses; we can’t avoid that. We can make a difference in where those materials end up, though. Through efforts like extensive cardboard, metal, and plastic recycling, along with the use of starch-based packing peanuts, we are able to divert more than 80% of the ongoing consumables we use daily in the office and warehouse from going into the landfill.

Our commitment to reuse, which reduces the need for extraction of raw materials while also preventing toxic materials from polluting the groundwater, is further exemplified by our use of refurbished furniture, electric equipment, and rechargeable batteries.

Reducepackagingand waste

Reuseoffice furniture

Recycleeverything!

MATERIALS & RESOURCES

WASTE MANAGEMENT

PURCHASING

Have 40% (by cost) of ongoing consumables we

purchase meet sustainability criteria.

At Murphy, we are reducing the quantity of waste generated while improving the building environment through responsible procurement practices.

Extensive Shop Recycling Practices

The following are recycled or reused:

BatteriesBrakes

Lamps/pcb ballastsPlastic air bagsParts solvent

Bio-based anti-freezeOil-soaked rags & floor dry

Used oil

80% 70%of our ongoing

daily consumables destined for landfill

are diverted through recycling efforts

of furniture purchased for our offices are

refurbished

Our StrategiesOur Goal

CARBON NEUTRALITY

Recycleeverything!

Reduce carbon emissions to 30% of typical warehouses.

Our Strategies

Reducing carbon emissions is a challenging goal, particularly in the logistics industry where goods are being transported all over the world by carbon-intensive means. That’s why we are focusing on what we can control: our own facilities.

Murphy wants to reduce greenhouse gas emissions because it’s simply the right thing to do. But there are other benefits: as we reduce carbon emissions, we are also reducing other air pollutants. Electricity generated from coal burning causes smog, acid rain, and toxic air pollution that leads to respiratory illnesses. While burning natural gas is typically cleaner than coal, it still emits hazardous air pollutants. Anything we can do to reduce carbon also reduces these other pollutants, which affect our health.

Another benefit is risk mitigation. In the future, businesses may have to pay for carbon emissions.The more we can reduce our carbon, the better off we are financially, especially compared with our competition.

Also referred to as having a net zero carbon footprint, carbon neutrality means reducing and avoiding carbon emissions so that only unavoidable emissions are offset. There are two components:

Increaseenergy efficiency

Investin renewable energy

Plantnative prairies and trees

*Data

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PA

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ort

folio

Man

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er

Equivalent Metric Tons of CO2 in 2012 (MtCO2e)

Carbon Offsets

Existing carbon still being emitted needs to be offset, either by purchasing “carbon credits” or by sequestering the carbon through one’s own actions – like planting trees or installing native prairies.

Reducing Carbon

Accomplished by reducing fossil fuel consumption through both energy efficiency measures and generating energy from clean, renewable sources like the sun and wind.

Solar = 140 Mte

Energy Efficiency = 6,757 Mte

Planting Trees + Native Prairies = 142 Mte

Renewable Energy Credits = 1,271 Mte

actual carbonemissions - offsets

compared with typical warehouse

actual carbon emissionscompared with typical warehouse

11,294 Mte

2,984 Mte

4,397 Mte

26%

39%M

UR

PH

Y

TY

PIC

AL

WA

RE

HO

US

E*

Our Goal

Health is inextricably linked to sustainability. In fact, doing things that are less detrimental to the environment is really about public health – so that we can continue to have access to clean air and water.

At Murphy, we know that our people are what make us great. Our core values - Excellence, Integrity, Mutual Respect, Creativity, and Leadership – have allowed the family business to grow and thrive. It is a common belief at Murphy that to compete we must be a preferred employer within our industry.

To keep us healthy, we offer a comprehensive and ever-improving wellness program that includes a free annual wellness screening to our employees and their spouses, a wellness coach available to all employees, wellness roundtables, health competitions and prizes, educational seminars regarding common concerns, an Employee Assistance Provider available for all employees and their families, and generous health insurance benefits. Additionally, by LEED certifying our facilities, we take regular occupant comfort surveys and ensure all of our cleaning products and purchasing are non-toxic.

HEALTH & SAFETY

Our Strategies

SAFETY PROGRAMS

Demonstrate constant progress toward improving Murphy’s Safety and Health Programs.

In 2010, the Star Tribune ranked Murphy in the

top 25 places to work.

Achievethe highest safety standards

Continue ourComprehensiveWellness Program

In 2003, we received our OSHA MNSHARP Certification from the Minnesota Department of Labor and Industry, becoming the 11th company in Minnesota to achieve this status. Achieving certification from MNSHARP – Minnesota Safety and Health Achievement Recognition Program – means that we have developed, implemented and maintained an excellent and comprehensive safety program. Key elements of the program include: a high level of leadership and employee involvement, generous allocations of resources to address health and safety issues, systems in place that identify, correct and control workplace hazards, and a plan for employee safety training and education.

Putting our employees first means keeping them safe from injury. In 2001, heart defibrillator devices were installed in all Murphy facilities and employees were provided with defibrillator and CPR training. Should an employee become injured, we have a progressive return-to-work program to ensure the quickest recovery and peace of mind for the injured party. We have consistently won the Minnesota Trucking and American Trucking Association Safe Driving Award and Fleet Safety Award, as well as Certificates of Excellence for being accident-free and having an above average safety record.

Our Goal

Murphy employees annually contribute their time to various causes. We have an annual Toys for Tots drive around the holidays and provide free warehouse space.

Beyond donating time and money to non-profits, Richard Murphy Jr. donates his expertise and leadership skills to a number of organizations, including serving as president of the American Society for Landscape Architects, serving on the board of the International Warehouse Logistics Association, and being actively involved in the Workplace Ergonomics issue as a member of the OSHA Small Business Advisory Review Panel. He frequently speaks to university students and business councils.

COMMUNITY

Our Strategies

LOCAL COMMITMENT

AWARDS

Be recognized for giving back to our community.

In 2009, Murphy was awarded the Community Commitment Award by Minnesota Business Magazine. The award recognizes family businesses for their commitment to giving back to the communities in which they operate.

In 2010, Murphy won the Minnesota Family Business Legacy Award. For this, Murphy was recognized as a multigeneration, legacy family business that has thrived and successfully transitioned from one generation to the next based on five criteria:

• Business success• Family involvement in the business • Positive family business structure• An active board of directors with outside advisors• Dedication to philanthropy and

community service

We are proud of these awards, and we will continue to be a trailblazer for a sustainable future for the next generation.

Donatetime to thosein need

Increase our involvement in community organizations

Local community engagement is as much a part of sustainability as anything. Businesses depend on their community for survival, and giving back is integral to Murphy’s core values.

Our Goal

Murphy Warehouse Company701 24th Avenue SEMinneapolis, MN 55414

z2013 Murphy Sustology LLC