directions 10

OTHER FEATURES INCLUDE:

GS SUSTAIN on ‘Crossing the Rubicon’ The sustainability year – winners, losers and highlights ING’s Third Industrial Revolution Palm oil – myths, facts and some scary research

Directions 10 The Innovation Edition

INSIDE: Lord Nicholas Stern explains that if we want to keep growing, we need to keep innovating

CONTENTS

04 FEATURE INTERvIEwAndrew Howard of GS SUSTAIN on how companies are ‘Crossing the Rubicon’

02A YEAR IN REvIEwFrom ‘Climategate’ to the BP disaster we review the highlights of the year

16 CITIESArup showcase the latest innovations shaping sustainable cities of the future and Nathan Schock from POET explains how biotechnology is set to revolutionise our society

24 COmPANIESING set the scene for the Third Industrial Revolution and salterbaxter search for the true leaders in sustainability innovation

48 PRODUCTSwe explore the latest palm oil scandal and its impact on global brands

36 PEOPLEPeter Graf talks about his role as SAP’s Chief Sustainability Officer and our panel of international practitioners tell us what’s on their mind for 2011

10 COUNTRIESLord Nicholas Stern describes the global challenge of delivering low carbon growth

salterbaxter DIreCtIONs 2010 1

EDITOR’S LETTERDirections 10

wELCOmE TO THE TENTH

EDITION OF DIRECTIONS

We’ve come a long way from the early days of

analysing the trends in what was then called CSR.

NIGELSALTER Director, salterbaxter

KARENDEIGNAN Sustainability

Consultant, salterbaxter

Our scope is now international and the sustainability agenda is now arguably one of the key concerns of the CEOs of the world’s biggest companies. It’s one of the few agendas that cuts across entire organisations, covering strategy, competitive positioning, investor relations, product development, brand, reporting, health and safety, employees, and impacting just about every stakeholder group. No wonder this is now a competitive battleground. And it’s a battleground where innovation and sustainability are joined at the hip and where clear leaders are starting to emerge.

This edition looks at innovation and leadership in all its layers – countries, cities, corporations, finance, infrastructure, people, products and communications.

Amongst other things we hear how GS SUSTAIN believe we have passed a tipping point and that the investment community is now beginning to understand the scale of the importance of sustainability. Lord Stern provides an insight into the challenges of achieving low-carbon growth. we also feature opinion and analysis on

sustainable cities, the ING Equity Research team’s prediction of a ‘Third Industrial Revolution’, and the view on the big issues from sustainability practitioners around the world.

And then we have our own pieces of research in which we expose some of the startling truths behind the latest corporate palm oil scandal and reveal which global companies are the true innovation leaders.

The tenth edition of Directions is harder-hitting, bringing a broader perspective, and with more key players’ views than ever before. It’s also online at www.salterbaxter.com where you’ll find additional features and interactive content.

we think it’s the best edition ever – we hope you agree.

Nigel and the Sustainability team

2 DIreCtIONs 2010 salterbaxter

© world Economic Forum

© US Geological Survey

A YEAR IN REvIEw

NOvember 2009

CLImATEGATE SCANDALEmails from climate change scientists at the University of East Anglia (UEA) that questioned some of the scientific claims about man-made climate change were leaked to the press causing a media storm. The UEA scientists had been influential in driving worldwide awareness of global warming and were involved in the UN’s Intergovernmental Panel on Climate Change (IPCC). The damaging emails kick started what was to be a difficult year for the reputation of climate scientists and for the IPCC.

OCtOber 2009

GEORGE SOROS PLEDGES $1BN TO SEARCH FOR CLEAN ENERGYThe billionaire financier announced that he would invest $1bn in clean energy technology to tackle climate change. Soros will also spend $10m annually funding a new Climate Policy Initiative, focused on the efficacy and implementation of policy.

jaNuary 2010

BRIC NATIONS COmmIT TO vOLUNTARY EmISSIONS CUTSDuring talks in New Delhi, India, China, Brazil, and South Africa each agreed to formally submit their own voluntary carbon emission control plans to the United Nations by January 31.

marCh 2010

OIL COmPANY FUNDS CLImATE SCEPTICSGreenpeace accused US oil company Koch Industries of donating $73m to fund research by ‘climate sceptic’ groups, with the aim of spreading ‘inaccurate and misleading information’ about climate change.

DeCember 2009

COP 15 CLImATE CHANGE CONFERENCE IN COPENHAGENGlobal leaders came together to try to agree a global deal on climate change that would replace the Kyoto protocol. The talks were generally branded a failure, as agreement could not be reached between participating nations on appropriate binding emissions targets.

DeCember 2009

GOOGLE UNvEILS BREAKTHROUGH TECHNOLOGY TO mONITOR DEFORESTATIONmonitoring the destruction of the world’s forests should become easier with Google’s new software which can process satellite images and extract scientific and tracking information about how much forests have changed over time.

february 2010

LABELLING FOR GREEN POwER TARIFFSBritain launched a scheme to certify and label electricity produced from renewable sources to help consumers choose tariffs that support suppliers who are going beyond legal obligations to cut carbon.


aprIl 2010

BP DEEPwATER HORIzONThe explosion and fire on the BP-licensed Transocean drilling rig, Deepwater Horizon, in the Gulf of mexico caused the death of 11 people and serious injuries to another 17. Fishermen and environmentalists looked on in horror as millions of gallons of crude oil poured into the ocean, devastating marine life. Two days later the rig sank resulting in a five-mile-long oil slick. As BP boss Tony Hayward faced a media furore and a tough Congress hearing over the summer, President Obama compared the catastrophe to 9/11.

aprIl 2010

GREENPEACE LAUNCHES vIRAL CAmPAIGN AGAINST NESTLÉ BRANDBased on a spoof Kit Kat advert, the Greenpeace campaign forced Nestlé to withdraw from its contract with palm oil supplier Sinar mas, who Greenpeace accused of unethical practices around palm oil. In may, Nestlé announced a partnership with The Forest Trust to independently verify their palm oil supply chain.

juNe 2010

BARCOO APP LAUNCHED FOR ETHICAL SHOPPINGAn app, launched in Germany, is designed to help shoppers access ethical information on products while they are shopping. Its take-up will be an interesting indicator of how engaged consumers are in this area. It is due in the UK later in 2010.

july 2010

FIRST SOLAR POwERED FLIGHTThe solar powered plane ‘Solar Impulse’ completed its first overnight flight, flying a total of 26 hours and 9 minutes. It was the longest and highest flight in the history of solar aviation. The next milestone will be crossing the Atlantic.

september 2010

BJØRN LOmBORG CHANGES HIS mIND The world’s most high-profile climate change sceptic, Bjørn Lomborg, declared that global warming “is undoubtedly one of the chief concerns facing the world today”. In an apparent U-turn he called for tens of billions of dollars a year to be invested in tackling climate change.

may 2010

US CLImATE BILL UNvEILEDUS Senators John Kerry and Joe Lieberman unveiled a new climate bill, which proposes a ‘cap and trade’ system for reducing US carbon emissions. The third author, Senator Graham Lindsey, pulled out of the launch ceremony at the last minute, saying the BP oil spill and plans for immigration reform meant this was not the time to be pushing forward a climate bill. The bill stalled in the Senate with commentators proclaiming that ‘cap and trade’ legislation ‘appears to be dead in this Congress’.

august 2010

CATASTROPHIC FLOODS IN PAKISTANAs with the heat wave in Russia in July, the disastrous floods in Pakistan, in which 1,500 died and 20 million people were affected, were deemed to be a direct result of climate change.

© Nissan

august 2010

NISSAN UNvEILS ITS NEw ELECTRIC CAR The Nissan LEAF was unveiled as ‘the world’s first affordable, zero-emission car’. A medium-size hatchback, it has a range of more than 160km (100 miles).

july 2010

SUSTAINABILITY INDEx FOR HONG KONG AND CHINAHang Seng Indexes launched a series of sustainability indices, covering Hong Kong and Chinese companies. The index series aims to raise awareness about corporate sustainability and meet international demand for socially responsible investment in Chinese companies.


FEATURE INTERvIEw

THE GS SUSTAIN

FOCUS LIST IS SHAKING UP

mANAGEmENT THINKING ON

SUSTAINABILITYNigel Salter talks to

Andrew Howard, head of the GS SUSTAIN research team,

to find out more about the methodology and how it is

linking sustainability performance to company

performance and valuation.

You can view this interview in full online:www.salterbaxter.com

Andrew, welcome to salterbaxter and thank you very much for being an interviewee for Directions 10. I’m wondering if you could just tell us a little bit about what you actually do at Goldman Sachs.

Thanks, nice to be here. I head the GS SUSTAIN research team at Goldman Sachs. Our job, basically, is to take a long-term view of industries, how they’re changing, how companies will evolve within those industries and, as a result, which companies investors should focus on for generating long-term outperformance.

It’s very much about taking a long-term view of industries and investment, which is something slightly different from how a lot of other research has been done in the past. I think it’s a little bit of an evolution for us, and our industry as a whole.

One of your more recent research reports is titled Crossing the Rubicon. Tell me a bit about the background to that.

Crossing the Rubicon, the report we put out recently within Goldman, is the culmination of the work that we’ve been doing for the last four or five years within Goldman Sachs, understanding how companies are adapting to long-term pressures. The title itself is designed really to indicate that we take the view we’re shifting from the early recognition that environmental, social and governance issues, long-term pressures, are becoming more important, into an environment where they’re having a very real, tangible impact on the way that companies perform.

we’re past the point of theoretical interest. we’re into the point of financial impact and, increasingly, we’re going to find those financial impacts become bigger and bigger on companies within different sectors.


ANDREwHowARDExecutive DirectorHead of GS SUSTAIN

We’re past the point of theoretical interest. We’re into the point of financial impact.


FEATURE INTERvIEwContinued

business on a fundamental basis. And what we’re doing within GS SUSTAIN, really, is saying, rather than focusing on the 20%, let’s focus on the 80%. Let’s understand how a company will behave and perform in the long run, which, ultimately, can be an awful lot more successful.

It’s also, obviously, exactly what sustainability is about, which is why it’s such an important concept. But some of your language in the reports that have been published recently, some of the research, is really quite dramatic. You talk about dramatic structural shifts and global crises. Tell me a little about what those are.

The trends that we’re talking about, to a large degree, are relatively well-established trends. we’re talking about population growth. we’re talking about a shift in the structure of the global economy. we’re talking about a rising new middle class of consumers in emerging markets.

The important point is the scale, speed and impact of those trends on companies in different industries. Everything is happening at a faster pace, on a bigger scale, and with a bigger impact on how companies perform financially. To put some rough numbers to it, if you look forward over the next 15 years, on the UN’s forecast, there will be as many people added to the world’s population as existed in the world prior to world war I.

So it’s not particularly that we’re talking about new trends. It’s the speed, scale and magnitude of those trends that’s really the new factor.

And your own climate change report also talks about the equity market just beginning to factor in and understand the scale of these changes. Have you got any proof of that really being understood?

we’re beginning to see it happening and I’d say in probably the most obvious industries, in many ways. So, if you look at the utility sector, if you look at the steel sector, you begin to see differences in valuations

And what’s the specific difference in the approach that GS SUSTAIN is adopting in its analysis?

I think that the really unique characteristic of GS SUSTAIN is the perspective that we’re taking. It’s very much about taking a long-term view of companies and industries. If you look back through the last few decades, really, investing has become a shorter and shorter-term horizon.

what we’re doing within GS SUSTAIN is really trying to say, how do we reverse that trend? How do we understand how companies will behave in the longer term?

You talk about exploiting the inefficiencies between short- and long-term views. This goes to the heart of why the financial community has been criticised. Is it working?

It’s beginning, I think. And, you know, I think it’s a valid point that if you look at the last ten years or so, certainly the focus on short-term movements, the focus on short-term news flow, has only intensified.

when you boil it down, however, the average company, globally, in round numbers, about 20% of the value of that company lies in the earnings that they’re going to generate over the next three years. The corollary of that is that 80% of the value of the company lies in the earnings it generates after the next three years.

And you’ve got this disproportionate focus on the news flow and the earnings around a relatively small proportion of the value of their

Over the next 15 years, on the UN’s forecast, there will be as many people added to the world’s population as existed in the world prior to World War I.


Speak to the company and they’ll tell you that it’s largely about their employees. People that want to work for Roche, by nature, are scientific and have a social perspective that means they find it easier to recruit, retain and incentivise the best employees to work for Roche.

And that touches on an important point, which is about management and chief executives, in particular. Some of the recent research suggests there is a massive amount of understanding at the chief executive level of the importance of sustainability. But what’s your view on that? Do they understand and are they doing something, as well as understanding?

It’s interesting. As you say, there’s an awful lot of research that points to the same conclusion, that chief executives of companies do recognise that sustainability and environmental and social factors are important to their business. If you look at the responses of companies, actually there is something of a gap between a recognition that it’s an issue and the understanding of what to do about it.

And I think it’s fairly clear that the debate about whether environmental issues and social issues are something that companies need to worry about has changed dramatically. It’s very rare today to find a CEO of a large company who says anything other than, these are issues that matter to my business and I recognise their importance. However, there are relatively few companies that have really developed a strategy integrated with their overall business plan that adapts to those.

what we’re talking about, with many of the issues in this field, are outcomes that are very uncertain. Planning becomes more of an options process rather than a certain process. And that’s something that I think that investors certainly are continuing to get their heads around and still, frankly, in most cases, haven’t quite managed and, similarly, that companies themselves are struggling with.

of companies that are either more or less efficient in terms of their emissions of carbon dioxide or other greenhouse gases.

To put some rough gauges to it, if you go out to 2050, on the IPCC’s own data, we would need to see a roughly 60% reduction in annual emissions of carbon dioxide. Combine that with population growth and you’re talking about something of the order of a 75% to 80% reduction in per capita emissions globally.

And that’s over 40 years, which sounds like an awfully long time,

but when you think about the sorts of changes that are going to need to be made, the investments in new infrastructure, power generation and our transport infrastructure, it’s fairly clear that those changes have to start happening now if they’re going to be met.

Do you have any examples of any particularly innovative responses to the climate change agenda or to the population changes?

well, there’s a few examples. I think to start with, perhaps some of the more obvious industries, such as UK power. It’s certainly interesting to me if I look at the leaflets that come through my letter box, to find that utilities companies are trying to explain to me that I should be using less power.

That’s a fairly obvious example. I think some of the less obvious examples are a couple of companies like BSkyB and Roche. To take Roche as an example, which has a monopoly over its products as a pharmaceutical company, which really doesn’t emit too much carbon dioxide in the first place, and, yet, when you look at their climate change strategy, when you look at the targets that they’ve laid out, they are actually relatively ambitious, well-thought-through and integrated across the business.

80% of the value of the company lies in the earnings it generates after the next three years.


Companies in emerging markets where economies are still relatively healthy have an opportunity in many industries to effectively leapfrog a technology level that we’ve seen already developed in the West.

looking for companies whose share price will outperform. That, ultimately, is the goal of what we’re trying to achieve with all of this.

The first question, therefore, is what aspect of financial performance drives long-run performance and we find companies that can sustain industry-leading returns on capital consistently deliver outperformance in the equity market.

Because we’re taking a slightly longer-term view – we’re not simply looking at the next three months – we’re trying to understand who those companies will be over the next three to five years. You really need to look at what are the things that drive those returns in the long run.

And there’s two factors that we look at. A company’s strategic or industrial positioning within its sector. Do you have access to the low-cost assets? Do you have a strong brand? Are you exposed to parts of the world where demand is growing?

And then secondly, a company’s management of environment, social and governance issues and how effectively it’s adapting to the new pressures and the new challenges that it faces.

So we end up, for every industry that we look at, with three different rankings of companies: one, their profitability or their return on capital; two, their industry positioning; and three, their management quality.

And what typifies the leaders for you?

Leaders, generally speaking, are those companies with profitability today and a long-term view of how they reinvest the money that they’re generating into building a business for the future. Rather than focusing as much on short-term results, they’re those

And we’ve then had the financial crisis, which has really challenged a lot of the business models around the world. Has that really changed the relationship between business and society? Or do you see it changing?

I think it certainly has and I think we see it – we’re sort of in the middle of it within Goldman Sachs and it’s certainly something that’s not escaped our attention.

I think it’s become very clear that companies are an integral part of society. They have an impact on it and, essentially, trying to think of the two as separate things has become a defunct idea.

The expectations, as a result, on companies to play a more socially positive role have significantly increased in every country that we look at and that will feed through into how companies need to behave, engage with their stakeholders and effectively develop long-term business plans.

I’ve heard management talk about using environmental, social and governance aspects as almost a proxy for the quality of their management. Would you agree with that?

well, we almost use the two phrases interchangeably. So for us, when we look at management quality, we’re looking at environment, social and governance factors. we would, in that sense, almost define management quality as a company’s ability to manage those issues, to manage those pressures.

Let’s talk a little bit about the GS SUSTAIN Focus List. It’s all about identifying leaders around the world. Just tell me very specifically about the methodology and who are the leaders?

well, we look through about 800 or so companies at the moment, globally, and they’re predominantly large capital companies. The first key point is that we’re

FEATURE INTERvIEwContinued


Well, Andrew, thank you very much for sharing GS SUSTAIN’s opinions with us.

The traction’s been tremendous. If I go back a few years, the majority of people that we spoke to within GS SUSTAIN were people who had a mandate specifically to look at environmental, social and governance issues.

we still speak to all of those people. They have become a fairly clear minority of the people that have an interest in the work that we’re doing. we’re finding that an awful lot of general investors, who are simply trying to make money, are finding that understanding how companies are adapting to environmental, social and governance issues – taking a long-term view of industries and companies – are really growing in importance. I think we are beginning to see more of a shift amongst investors, for one, in understanding how a company fits into the longer-term future world and industries in which they operate.

And what companies are being given is, effectively, a platform to describe what they’re doing. And I think there’s been a very significant step change in the transparency and disclosure by companies of the efforts that they’re making and that’s got an awful lot further to run but we’ve come a long way, as well, in the last ten years or so.

And in the next five to ten years, what are the key headline issues that businesses are going to have to be responding to?

The next ten years are going to see growth in demand for everything. It’s going to see increased competition from everywhere and it’s going to see increasing constraints on how that demand can be met, through resource tensions and resource constraints really beginning to introduce new challenges to companies in every industry.

companies that are building a business for the world of five or ten years time and they’re taking a more holistic view of the challenges they’re likely to face.

It’s about companies that are effectively understanding where are the different possible sources of pressure that I might face and what do I need to do to adapt to those possible sources of challenge.

And are there any regions which seem to be better placed to respond to these pressures?

The areas certainly with the tailwinds are those parts of the world where demand is growing most quickly. That essentially means the emerging markets and the BRIC economies in particular. Countries where you have domestic demand growing particularly quickly really gives companies there a tailwind. And those companies outside of those regions that can effectively tap into demand, in turn, have a chance to effectively expose themselves to the same trends. But companies that sit within developed markets without taking a more outward view, without trying to think about how do I adapt to the future world, will find it increasingly hard.

You get a sense from some of those countries that it’s less driven by regulation and more about innovation and opportunity. Is that really the case?

In many cases, yes. And I think, you know, if you look at the way the world is changing, the world of ten years’ time in almost every industry that we look at will look dramatically different to the world of today. Companies in emerging markets where economies are still relatively healthy have an opportunity in many industries to effectively leapfrog a technology level that we’ve seen already developed in the west.

And then just finally, two questions really. Do you feel that GS SUSTAIN is really starting to gain traction at the senior level in organisations and with investors? And then where is it taking us?


COUNTRIES IN FOCUS

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The challenge oflow-carbon

growth

The dramatic reductions in global emissions needed to have a 50:50 chance of avoiding more than a 2ºC rise in global temperatures

Global emissions target for a 2oC path

China’s ambitions for emissions reduction, as indicated in its submission to the Copenhagen Accord. (This still represents about 50% of the world’s emissions ‘allowance’ for a 2ºC path)

China’s predicted growth path if emissions per unit of output stay constant between now and 2030

Current projections for global emissions, as stated in participating countries’ submissions to the Copenhagen Accord


LoRDNICHoLASSTERNChairman Grantham Research Institute on Climate Change and the Environment

Lord Nicholas Stern describes the challenge of low-carbon growth and

explains that if we want to keep growing, we need to keep innovating.

The 15th Session of the Conference of the Parties (COP15) to the United Nations Framework Convention on Climate Change (UNFCCC) in Copenhagen in December 2009 made important steps towards global agreement, but also revealed and highlighted serious problems and divisions. managing climate change is a fundamental, indeed defining, challenge of our century and it requires global agreement if it is to be managed effectively. Global agreement for action requires a foundation of shared understanding across three basic issues as follows:

Understanding the risksFirst, we must recognise that unmanaged climate change would put at risk the great advances in development of the last few decades, which have seen hundreds of millions rise out of income poverty, great improvements in health and life expectancy, and major advances in education and literacy. Such advances have taken place throughout the world but in terms of numbers involved and scale of advance, China has been at the forefront. China, with its large fraction of the population near the coast, its pressures on water supply, its dependence on the Himalayan region as a water source, and with many

populous countries on its borders, is very vulnerable to climate change. The risks involve substantial probabilities of temperatures not seen on the planet for tens of millions of years, way outside the experience of homo sapiens. And they involve the possibility that local habitats and climates would be so disrupted that hundreds of millions would have to move, with the associated risks of severe and extended conflict. Any discussion of policy must start from an understanding of the potential scale of these risks and the required magnitude of global action.

The options for actionSecond, the transition to low-carbon growth in the world economy over the next two or three decades is likely to be the most dynamic period in economic history, full of innovation, discovery and change. And low-carbon growth, when established, will be more energy-secure, cleaner, quieter, safer and more biologically diverse than high-carbon growth. Indeed, high-carbon growth will kill itself, first on hydrocarbon prices and more fundamentally on the very hostile physical environment it will create; it is not a serious medium- term option.

It is a mistake to see the transition to low-carbon growth as a burden and a growth-reducing diversion. That is to apply the crude planning models of the middle of the last century. modern growth theory is about technical change and learning. And it will also have to embrace interactions with the environment. Delayed action will lock in high-carbon technologies that will take concentration levels of greenhouse gases to still more dangerous levels, and such technologies will soon be outmoded. Delay would also force stronger and much more disruptive and costly action ten years from now. It is much better to plan in a careful, strong and measured way, starting now, for the changes in production and consumption methods that will be inevitable.

Global co-operationThird, we must understand how to build on the platform created at Copenhagen, and to do this we must understand both the substance of the Copenhagen Accord and some of the difficulties encountered on the road to and at Copenhagen and how they can be overcome. The agreement in the Copenhagen Accord on the importance of holding temperature increases to 2ºC (relative to mid-19th century levels, the usual benchmark) was a major

Global agreement for action requires a foundation of shared understanding across three basic issues:

THE mAGNITUDE OF THE RISKS;

THE OPTIONS FOR ACTION, INCLUDING POLICIES AND TECHNOLOGIES FOR REDUCING EmISSIONS AND PROmOTING THE TRANSITION TO LOw-CARBON GROwTH, TOGETHER wITH A RECOGNITION OF THE ATTRACTIvENESS OF BOTH THE TRANSITION TO AND LOw-CARBON GROwTH ITSELF;

HOw THE DIFFERENT NATIONS OF THE wORLD mIGHT COLLABORATE AND wORK TOGETHER, INCLUDING THE DIFFERENT RESPONSIBILITIES OF EACH AND SUPPORT FOR ADAPTATION IN THE POOREST COUNTRIES AND COmmUNITIES.

three basIC Issues


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5050

194 countries have been involved in discussions about the Copenhagen Accord.

FORTY SeveN BILLIONIN TweNTY TeN FORTY FOUR BILLIONBY TweNTY TweNTY THIRTY FIve BILLIONBY TweNTY THIRTY TweNTY BILLIONBY TweNTY FIFTYTo have a reasonable 50:50 chance

of avoiding a rise in global average temperature of more than 2ºC, annual global emissions of greenhouse gases would have to follow a critical path from 47 billion tonnes CO2E today to less than 20 billion tonnes by 2050.

COUNTRIES IN FOCUSContinued

advance. It provides a clear sense of direction and points strongly to global targets for emissions reductions. Good progress was made on the way forward on forest issues and on the establishment of a high-level advisory group on methods for raising US$100 billion per year of financial flows from rich to poor countries by 2020. This will be a key element in providing support for the adaptation to climate change that is now unavoidable, particularly in the poorest countries and communities. It will also be a key element in supporting emissions reductions.

The Copenhagen Accord: a platform to build onThe submissions on planned emissions paths, received by the United Nations to date, have made possible the first overall assessments on where global emissions could be in 2020 based on the articulated plans of countries around the world. The total is still too high for a 2ºC path. Research carried out by my colleagues at the Grantham Research Institute on Climate Change and the Environment indicates that to have a reasonable 50:50 chance of avoiding a rise of global average temperature of more than 2ºC, annual global emissions of greenhouse gases would have to follow a path from about 47 billion tonnes of carbon dioxide equivalent (CO2E) today to about 44 billion tonnes in 2020, less than 35 billion tonnes in 2030 and much less than 20 billion tonnes in 2050. But the emissions reductions pledged through the Copenhagen Accord represent

a strong move in the right direction.

when we left Copenhagen in December 2009 we hoped that the Copenhagen Accord would establish a platform for going forward: the subsequent nine months with the submissions, the establishment of the advisory group on financial resources, and progress on forest issues has given us some confidence that it can be a platform of real substance.

On the other hand, there was only small progress on technology and on the monitoring, reporting and verification of emissions. The responsibilities of countries were generally left open on key issues, including emissions and

The way forward must build on the platform created by the Accord. we must examine: the prospects for overall emissions; potential developments on emissions reductions in key countries or regions; and the processes of engagement and interaction. we must assess potential progress on four key issues:

Finance

Reducing emissions from deforestation and forest degradation in developing countries (including the role of conservation, sustainable management of forests and enhancement of forest carbon stocks) (REDD+)

Technology

Measurement, reporting and verification (MRV).

finance, and the Copenhagen Accord was only noted. Further, the discussions in a number of cases led to acrimony and distrust.

THERE HAS BEEN GROwING DISSATISFACTION wITH TRYING TO IDENTIFY KEY ELEmENTS OF AGREEmENT ON SUBSTANTIAL ACTION, THROUGH A vERY UNwIELDY PROCESS OF ALL 194 COUNTRIES BEING INvOLvED AT EACH STAGE OF THE DISCUSSION.

Openness and participation are crucial but formulating ideas and drafting text requires smaller and more focused groups. All these difficulties must be overcome.


Cap on aviation and maritime emissions = 0.5 billion tonnes

Annex 1 countries cut emissions by extra 25% = 1.3 billion tonnes

China cuts emissions by 50% per decade = 2 billion tonnes

4844

4DeveLOpeD cOUNTRIeS DeveLOpING cOUNTRIeSFOReSTS/peAT INTeRNATIONAL AvIATION & mARITIme emISSIONS

It should be possible to find significant reductions at reasonable cost, from each of four main sub-headings:

Reducing the four billion tonne gap

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Global emissions: the four billion tonne gapOn overall emissions and their consistency with a 2ºC path, current intentions as stated in submissions for the Accord would, if fully implemented, result in total emissions of around 48 or 49 billion tonnes of CO2E in 2020. This compares with a target emissions path for 2ºC which would be around 44 billion tonnes in 2020. A 2ºC emissions path with 48 billion tonnes in 2020 will require much steeper and much more disruptive and costly cuts in global emissions later.

The first lesson is that we must organise our discussion in terms of overall global emissions. It is this total that matters for climate change. we

cannot conduct our discussions only or mainly in percentage reductions; they do not ‘add up’ in any straightforward way. we must constantly apply the discipline of adding up and examining the total. Further, percentages depend on starting dates which can be manipulated for convenience.

Emissions per capita have some relevance from an equity perspective. And emissions per unit of output have some relevance from the perspective of effort and difficulty of structural change. They both have a role to play in important aspects of the discussion. But it is the path of total world emissions that is at the heart of the science.

we must ask whether it would be possible to find an extra four billion tonnes of reductions by 2020. In my view it should be possible to find significant reductions at reasonable cost, from each of four main sub-headings:

Developed countries

Developing countries (excluding forests/peat)

Forests/peat

International aviation and maritime emissions

we should have a clear and analytical discussion on possible sources.

For example:

Setting a cap on international aviation and maritime emissions of 20% below 2005 levels would reduce emissions by around 0.5 billion tonnes

Reductions in emissions per unit of output by 29% in each five-year plan in China (halving emissions per unit of output each decade) would save nearly two billion tonnes of emissions by 2020

If Annex 1 countries (industrialised countries and economies in transition) increased their commitments to an average of 25% below 1990 levels, emissions would be 1.3 billion tonnes below the current high intentions.


It is time to recognise the extraordinary potential of technical advance to low-carbon technologies and realise that the current rate of discovery is encouraging.

COUNTRIES IN FOCUSContinued

China’s path to growthThe largest emitters are associated with one or more of: high income, large populations, deforestation. Hence the five largest emitters are China, the US, the European Union, Indonesia, and Brazil.

Let us examine some basic arithmetic for China. If China’s output were to grow at 7% per year then China’s output would roughly double each decade. I am deliberately keeping numbers simple here to keep the arithmetic transparent and to avoid formal modelling which sometimes conceals the basic logic of the argument. It is possible that China will grow more quickly between 2010 and 2020 and slow down a little between 2020 and 2030. But 7% per year keeps things

simple as it gives a doubling in a decade.

China’s emissions in 2010 are probably eight or nine billion tonnes of CO2E. If emissions per unit of output were to stay constant, China’s emissions would be 30–35 billion tonnes in 2030. As discussed earlier, the maximum for the world as a whole, consistent with a 50:50 chance of 2ºC, is well below 35 billion tonnes, probably around 30–32 billion tonnes. Thus China would exhaust the entire world’s budget for a 2ºC path. If it managed to cut emissions per unit of output by 50% by 2030, then China’s emissions would be 15–18 billion tonnes, more than half the world’s budget in 2030.

Given that, for 2ºC, the world’s average emissions per capita have to be below four tonnes of CO2E by 2030, China’s emissions per capita would likely have to be well below its current level of around six (or a little above). That would mean that China would have to get back to something like eight to nine billion tonnes of total emissions by 2030. In other words, if it is to grow at 7% per year for the next two decades, and we hope growth rates will be at least that, it would have to cut emissions per unit of output by a factor of four over 20 years. That means cutting emissions per unit of output by 50% each decade or 29% in each five-year plan. A cut of 29% in emissions per unit of output in a five year period could be achieved, for example, by a cut of 20% in energy use per unit of output and a cut of 11% in emissions per unit of energy.


my own interactions with Chinese analysts and the experience of the 11th five-year plan suggests that this could be possible but it would depend on strong technical progress as well as major investments. my own assessment is that all too often formal modelling tends to underestimate technical progress and be too focused on current technologies and input-output coefficients. It is time to recognise the extraordinary potential of technical advance to low-carbon technologies and realise that the current rate of discovery is encouraging.

China has indicated in its submission to the UNFCCC for the Copenhagen Accord that it will endeavour to lower its carbon dioxide emissions per unit of GDP by 40–45% between 2005 and 2020 and has indicated targets for non-fossil fuels and for forestry. This points to total emissions for 2020 (with an 8% assumption on growth rates) of 11.4 billion tonnes of CO2E, compared with around eight or nine billion tonnes now.

If there were a similar quantity increase in total emissions in the next decade (2020 to 2030), then China’s emissions in 2030 would be 14 or 15 billion tonnes. This would correspond to a reduction in emissions per unit of output of 30–35% in that decade. Emissions per unit of output would have been divided by a factor of around 2.5 between 2010 and 2030 compared to the four which seems necessary for a 2ºC path. That total for China would be close to half of the world’s

emissions in 2030, from a country with a population of around 17 or 18% of the world’s total population in 2030.

Basic arithmetic: emissions cuts for a sustainable futurewe must recognise that such a path for China could not possibly be consistent with the 2ºC path we have described. This is not to allocate blame or to make any demands, or to identify required policies: this is purely arithmetic. But we must ask ourselves about the implications of such arithmetic.

I must emphasise, however, that I am not making recommendations here. I am simply following the scientific implications of the 2ºC path and combining this with the assumption of 7% per year growth in China to work out implications for changes in emissions per unit of output.

THIS IS BASICALLY ARITHmETIC. wHETHER IT CAN BE ACHIEvED IS A mATTER OF POLICY AND TECHNOLOGY, AND IS UNDER INTENSE DISCUSSION BY CHINESE ANALYSTS.

These illustrative calculations have been focused on China; corresponding calculations for other countries indicate that, if the 2ºC path is to be realised, rich countries, assuming a 2.5% annual growth rate, would also have to cut emissions per unit of output by around a factor of four by 2030. China’s emissions, on the above assumptions, would be similar in 2030 to now, implying a peak around 2020 or somewhere in the early 2020s.

If we both accept 2ºC, as we surely should, and we look for growth, which in my view is vital to raise living standards in developing countries, then the above arithmetic is inescapable. The world as a whole, rich and poor, cannot avoid this simple logic.

The discussion above has been mainly arithmetic. It is hard to describe the implied emissions paths of different countries as equitable. These calculations take no account of relative income or wealth, the challenge of poverty reduction, of past history of emissions, or of the questions of whether responsibility for emissions lies with the producer or consumer of a product. Both consumers and producers benefit from and determine the international division of labour. Thus they should both bear some responsibility for emissions.

All of these are important ethical issues. my own view is that they have strong relevance and there is a responsibility and obligation arising from past emissions by rich countries, at least over the last 20 years when the dangers have been clearly understood. Further, we must recognise that the two defining challenges of our century are managing climate change and overcoming poverty. Ultimately we will succeed or fail on the two together.

Lord Nicholas Sternis IG Patel Professor of Economics and Government, Director of the Asia Research Centre, and Chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.

5035China must cut emissions per unit of output by 50% by 2030 to achieve the 2°C path.

China’s intention for emissions reduction per unit of output by 2030, as stated in the Copenhagen Accord.

%

%


CITIES IN FOCUS

Sustainable cities of

the future


KEYCoNTRIBUToRSBuilding, Infrastructure and Planning Groups, Advanced Technology and Research Team ARUP

Sustainable citiesOver half of the world’s population now live in urban areas. By 2050 this will have risen to 70%. In the industrialised world, cities are bursting at the seams, struggling to meet the needs of their citizens. Creaking, outdated infrastructure, cars clogging up the roads, and buildings that are literally leaking energy – not exactly the picture of urban health. Add to this inadequate public transport, a shortage of green spaces, landfill sites overflowing and it’s enough to make you run for the (greener) hills. The situation is even worse in parts of the developing world, with the poorest countries least equipped to invest in the basic urban infrastructure – water, sanitation, housing – that is needed to cope with rapidly growing urban populations.

Unfortunately there is no simple formula for converting a sprawling, polluted, congested 20th century metropolis into a clean, free- flowing, low-carbon urban utopia. most of the world’s leading cities have evolved over many decades – think of London, New York, Paris, Copenhagen. A few, like São Paulo, have been created in a concentrated burst of growth. Almost none have been ‘planned’. But planning, together with innovation, investment and cooperation is exactly what is needed now. So how can we achieve this? And which cities are already leading the way?

Reducing emissionsThe much-used management phrase – ‘you can only manage what you can measure’ – certainly holds true for cities. Pioneers such as San Francisco, Stockholm and Copenhagen started mapping

Cities across the world are growing by over one million people every week. Creating sustainable

urban landscapes for this growing population while simultaneously cutting carbon emissions is

undoubtedly one of this century’s greatest challenges. Here, Arup describe the scale of the

problem we face and how the latest innovations are set to revolutionise urban life as we know it.

the profile of greenhouse gas emissions and measuring vulnerability to climate change in the 1990s. many others are now following suit. But to truly understand sustainability a city needs to measure the wider impact of consumption: from food, to water, to transport and beyond. The resulting ‘ecological footprint’ calculates how many planets it would take to sustain a place (or person) if everyone adopted the same consumption patterns. The answer in a sustainable city is one! The challenge of course, is to achieve this while at the same time improving quality of life.

In the developed world, energy used to heat and cool buildings and power devices used within them is the single biggest contributor to cities’ carbon emissions. with 50-70% of existing buildings expected to still be in use in 2050, reducing energy demand by retrofitting will be key.

Lighting alone accounts for up to 10% of a city’s energy demand. Technological advances in things like LED lighting will enable huge reductions in energy consumption.

Changing behavioursReducing demand for energy will require significant mass behaviour change. As the former mayor of London, Ken Livingstone, put it, “we don’t have to reduce our quality of life to tackle climate change, but we do all have to change the way that we live”. Technologies like smart meters can make consumers much more aware of the amount of


CITIES IN FOCUSContinued

energy they are using and how much that energy is costing. New transport technologies offer the prospect of low-carbon travel, which, combined with a shift away from cars towards public transport, walking and cycling bring not only more environmentally friendly cities, but also better public spaces and improved public health.

Improving efficiencymoving away from reliance on a centralised grid and installing decentralised heat and power networks that use combined cooling, heat and power (CCHP) technology goes a long way in minimising wasted energy. ‘Smart grids’ offer another option, allowing energy suppliers to smooth supply over the day, for example by automatically turning down the temperature on washing machines during peak demand, via financial incentives to consumers to allow these minor, automated adjustments to their energy use.

Renewable energyDensely populated urban areas are unlikely to be the best sites for large-scale renewable energy generation. However, there are often widespread opportunities for solar thermal and photovoltaics and many cities have developed solar energy programmes in recent years. There is also considerable scope for generating energy from the one thing every city has too much of – waste.

Integration and co-operationIf it is easy to create a dream-team of interventions to reduce a city’s ecological footprint, it is much harder to draw them together into a comprehensive, integrated plan that also meets societal and economic goals of delivering a better place to work and live. As the challenge of sustainable development demands fundamental change to cities’ infrastructure, there will be many instances where the cross-benefits of emissions reduction policies are not immediately obvious, or where real conflicts emerge with other policy aims. Sustainable development policy-making has, therefore, to be conducted at the most holistic level possible. In governmental terms, this means that responsibility has to sit across all departments and report directly to the city administrator or mayor.

The scale of transformation required to fashion revamped cities capable of providing high quality living without destroying the planet for future generations, in an incredibly short timescale of just a few decades, is beyond anything humanity has had to cope with previously. Yet low-carbon cities are feasible, if we can marry science, political will and technological innovation.

Let’s now take a look at some of the innovations that will shape our cities in the future.

Leading the way –

around the world

ImprOvINg effICIeNCy

Copenhagen has connected 97% of its buildings to a district heating system over the last 30 years cutting carbon emissions in the city by over a third.

ImprOvINg effICIeNCy

Helsinki supplies 84% of its heating from CCHP and has become a net exporter of electricity.

reNewable eNergy

Barcelona has achieved a tenfold increase in solar heating in just three years, since city authorities made it compulsory to use solar thermal panels to generate at least 60% of running hot water in new buildings.

reNewable eNergy

Freiburg’s anaerobic digestion plants now supply 25% of the town’s electricity demand.

reNewable eNergy

São Paulo already generates 7% of its electricity using biogas emitted from landfills and the authorities are looking to significantly increase this in the coming years.

reDuCINg emIssIONs

Los Angeles’ plan to replace 209,000 street lights with LED systems will deliver a 40% cut in energy usage, reduce CO2 emissions by 40,000 tonnes, and save the city $10m annually.

ChaNgINg behavIOurs

Bogota’s cost-effective rapid bus transit system, the Transmilenio, carries 1.4 million passengers every day, reducing travel time by 32%.

ChaNgINg behavIOurs

Toronto aims to get at least 300 plug-in hybrids and pure electric vehicles into public and private fleets by 2012.

ChaNgINg behavIOurs

Just two months after Paris’ bicycle hire scheme was launched, over 100,000 people were cycling 300,000km each day. Londoners are following suit since the launch of a similar scheme in London this summer.


Innovations for sustainable

cities

vehicles (Evs) are set to revolutionise sustainable transport, leading to cleaner, quieter cities. The first mass-produced Evs will be available next year, but expect to see performance improve and prices fall as more manufacturers move to volume production. Batteries are key to increasing range, and vast sums of money are being poured into lithium-based research, with nanotechnology being introduced to improve power output and charging times. By interacting with the smart grid, Evs will help balance the system with users programming their vehicles to charge only when electricity is abundant and costs are low.

SOLAR POwERED vEHICLE CHARGINGParking bays are being developed which use solar energy to charge electric vehicle batteries. The 1.5kw peak power generation provides enough energy for 10-15km driving for every hour a car is parked. when the bays are empty, the energy is fed back into the grid.

SmART GRIDS ‘Smart grids’ are electricity networks that use IT to better plan and run electricity generation and distribution and enable more efficient end use. Information fed back to the network allows it to dynamically adjust supply to meet demand, so less energy is wasted. Smart grids can also deal with the fluctuations in energy generation that will come from the inherent variability of renewable sources like wind and tidal power.

SUPER GRIDSPlans are underway for a pan-continental electricity super grid, which will be powered by a chain of solar farms in the Arabian Gulf and North Africa. These will be linked to hydroelectric plants in Scandinavia and the European Alps, onshore and offshore wind farms in the Baltic and North Sea, and various marine

energy and biomass power facilities. The ‘Desertec’ plan, as it’s known, aims to provide 15% or more of Europe and the middle East’s electricity needs by 2050.

SmART mETERS‘Smart meters’ are a key component of smart grids. They provide real time data on energy production and consumption. Utility companies will benefit from a wealth of data on the detailed usage patterns of end users. And consumers will be better able to understand and manage their energy consumption. Smart meters can encourage consumers to reduce their demand when prices are high or when system reliability or power quality is at risk and vice versa.

ELECTRIC vEHICLESwith almost silent motors and zero tailpipe emissions, electric


the nearest available parking space, so time and fuel is not wasted driving around. ITS also provides information on the public transport options available if a user leaves their car outside the city centre at a ‘park and ride’ type facility.

ACTIvE TRAFFIC mANAGEmENT Active traffic management systems, also known as managed motorways, will become more common on inter-urban motorway routes. They reduce congestion and pollution by smoothing traffic flows to prevent queues and stop/start driving. Key components are the use of dynamic speed limits displayed on electronic overhead signs, which are modified based on conditions monitored by traffic detectors, and use of the hard shoulder to maximise available capacity at peak times.


INTELLIGENT SPEED ADAPTATION Intelligent Speed Adaptation (ISA) enables a vehicle to become aware of the speed limits or road conditions. Satellite systems coupled to a database of speed limits/hazards send information to the vehicle or alternatively, the vehicle is equipped with an image capturing device, capable of reading roadside signage. The resulting action taken by the vehicle varies from a simple warning to overriding the driver and reducing the speed of the vehicle automatically.

PERSONAL RAPID TRANSIT SYSTEmSPersonal rapid transit (PRT) is a system of small, automated vehicles on a network of specially built electric guideways that provide on-demand transport for individuals or groups.

wIRELESS CHARGING‘Static induction’ or wireless charging for electric vehicles will do away with the need for cables and charging posts in the street, replacing them with a pad, most often buried under the road surface in a parking place. To charge, the car just needs to park over the pad and the electricity for charging will be transferred by induction. The next evolution – ‘dynamic induction’ – will see cars charged on the move. This has the potential to remove ‘range anxiety’, which is currently a major barrier to the uptake of electric vehicles.

INTELLIGENT TRANSPORT SYSTEmS Intelligent Transport Systems (ITS) provide information to enable more efficient travel and better choice of travel mode. For example, in-vehicle information provided via satellite and mobile communication guides drivers to


BIOFUEL PLANESAeroplanes emit around 600 million tonnes of CO2 every year. This is almost equivalent to Africa’s annual CO2 emissions. The aviation industry is already taking measures to reduce emissions and dependency on fossil fuel. Aero engines will slowly migrate to higher blends of biofuel over the coming years and trials are underway with fuel and engine suppliers. The use of biofuel is a step in the right direction to achieve sustainable aviation. However, rigorous testing, fuel specifications and standards will be required to convince airline operators to increase the blend or change fuel type completely.

The remaining energy consumption will be offset by a combination of onsite renewables (see microgeneration) and a contribution to community energy funds, which will invest in energy efficiency and renewable technologies.

mICROGENERATION microgeneration is the generation of zero or low-carbon electricity or heat by individual households, small businesses and communities. It uses an array of technologies such as small-scale wind turbines, micro hydro, photovoltaic solar panels, ground source heat pumps and micro Combined Heat and Power (microCHP). Through feed-in tariffs (currently being introduced in several countries) microgeneration can also provide an additional income stream whereby excess electricity produced can be sold back to the grid or offset against energy bills. Since microgeneration is, by definition, decentralised, energy is not wasted in transmission/distribution.

GAS FROm wASTEwaste disposal plants that convert waste into energy are already a common sight in Denmark and are set to become popular around the world. Through the natural process of anaerobic digestion, organic matter from household and garden waste is stored in containers with little or no oxygen where it breaks down and produces methane. This gas can be further processed and delivered into the gas network or used as a fuel for transportation.

zERO CARBON HOUSING with UK building regulations stipulating that all new homes built from 2016 onwards must be carbon neutral we will see a major shift in construction industry techniques in the next five to ten years. Homes will be fitted with much better insulation, heat recovery systems and energy efficient LED lighting.

Passengers go to the nearest PRT station and purchase a ticket or swipe their travel card. A display screen indicates the next available ‘berth’ and once the vehicle arrives, passengers select their destination using a touch screen. The central control system verifies the details and provides journey instructions to the vehicle, which takes passengers straight to their destination by the best available route. There is minimal waiting time, no stops along the way, and you only travel with people you want to travel with!

HIGH-SPEED RAIL High-speed rail (HSR) offers a genuine alternative to short haul flights, making future low-carbon business and personal travel much easier. HSR services between station hubs at least 100 miles apart enable journey times to compete with short haul air travel and allow long high speed trains to run efficiently, without the need for frequent time- and energy- consuming stops. HSR can also benefit from the use of innovations like ‘regenerative braking energy’ where kinetic energy is generated during braking and fed back to bolster the grid.



to sustainability. As a recent report from wwF Denmark states: ‘IF wE DO NOT RADICALLY ALTER THE SYSTEm AND CONSTRUCT A 21ST CENTURY GREEN ECONOmY wE ARE LIKELY TO REDUCE THE PROBLEm BUT NOT SOLvE IT ENTIRELY.’

So what is the solution? The headline finding from the wwF report entitled ‘Industrial Biotechnology: more than Green Fuel in a Dirty Economy?’ is that biotechnology is a big part of the answer. It has the potential to save the planet up to 2.5 billion tonnes of CO2 emissions per year by 2030. That’s more than Germany’s total reported emissions in 1990.

At the centre of the innovation is the biorefinery. Like a new type of industrial village, it will

Books have been written about it. movies made. we are addicted to oil. But if we are to create sustainable cities and a sustainable society for the future, we need to urgently shift away from this oil-dependent society towards a ‘bio-based society’.

First we must acknowledge the scale of the problem. Petroleum is most visible in the tanks of our vehicles, but it is literally everywhere. There aren’t many products you can buy today that don’t have petroleum in them or used petroleum to make them. From the computer I’m using to type this to the paper you’re reading it on, petroleum is everywhere. Part of the answer in the short term is simply to use less of it; to be more efficient. But efficiency alone won’t get us

take products such as corn cobs, sugar, wood waste and methane and convert them into all kinds of useful products, from ethanol (for fuel), to proteins (for animal feed), to consumable oils and compounds (for use in paints, solvents and bio-based plastics). many of the things that are made from hydrocarbons today will essentially be made from carbohydrates in the future.

The wwF report describes four interlinked steps on biotechnologies’ path to a low-carbon, bio-based economy: 1. ImPROvED EFFICIENCY2. SwITCHING TO BIOFUELS3. REPLACING

PETROCHEmICALS wITH BIO-BASED mATERIALS

4. CLOSING THE LOOP

Imagine a world where

cars are fuelled by sugar, homes

powered by corn and cities run on waste.

Welcome to the bio-society.

Living in a

bio-society


Each step presents a monumental challenge, but biotechnology is chipping away at every one of them. Let’s take a closer look at progress.

Improved efficiencyBiotechnology has made the production of crops more efficient, requiring less land and less energy. Combined with efficiency gains at the biorefinery, it has made the production of biofuels more efficient. 30 years ago it took more energy to produce a gallon of bioethanol than the energy it contained. Today, it’s more than a 2–1 gain. Bioethanol from waste products, which is being produced at small scale today, can be more than a 7–1 net energy gain.

Switching to biofuelsOne of the fastest growing sources of energy in the world is biofuels. Today, bioethanol makes up nearly 10% of the gasoline in American vehicles, and in Brazil it’s about half. The US Energy Information Administration (EIA) predicts that global use of petroleum-based liquid fuels will be flat over the next 15 years because biofuels will account for all of the three million barrel per day expansion in liquid fuel use. But, as the wwF report notes, bioethanol production provides the platform for the next step.

Replacing petrochemicals with bio-based materialsExisting bioethanol plants are platforms upon which true biorefineries of the future will be built. In addition to the bioethanol, food and animal feed they are producing today,

they will also produce speciality proteins, oils and compounds for use in paints, solvents and bio-based plastics.

Closing the loopBiorefineries are working to close the loop and eliminate waste in a number of ways. One model has a biorefinery adjacent to an animal feedlot so that the animal waste can be converted to biogas to power the plant; and the grains left over from ethanol production can feed the animals. Our engineers have developed a system to close the loop on water, recycling water throughout the biorefinery so that there is no discharge. One of our bioethanol plants is powered by burning waste wood and landfill gas. Three others use co-generation.

To see all of these steps occurring in one biorefinery, I would invite you to come to our research centre in Scotland, South Dakota. This little community provides the corn and corn cobs that the plant converts to ten million gallons of bioethanol each year. In return, the community gets a local, sustainable market for their commodities and uses the distiller’s grains left over from bioethanol production to feed their animals.

But what makes this biorefinery unique is its production process, where very little is wasted. First, let’s take the corn grain, which can roughly be divided into thirds: starch, protein (the fibre, fat and micronutrients) and carbon dioxide. At this plant, the starch is used to produce bioethanol. From the protein comes animal

feed, speciality proteins, oils used to produce biodiesel and even edible fibre. The biogenic CO2 is captured, liquefied and used for beverage carbonation, municipal water treatment and other applications.

The second feedstock that comes into the biorefinery is the plant residue – corn cobs, leaves and husks. The cellulose is extracted from those materials and used to produce cellulosic bioethanol. The leftovers are fed to an anaerobic digester that produces biogas power. Finally, we are researching the use of the ash from the anaerobic digester as an application that could be used to increase the soil carbon of the surrounding fields.

Some of the early criticisms of bioethanol have been the vast amount of land it takes to grow the feedstock and the use of food crops to produce the fuel. Today’s bioethanol production is addressing those issues by being more efficient with the land and the feedstock. Ten years ago, an acre of corn was only capable of producing

around 300 gallons of bioethanol. Today, the productive fields around our biorefineries produce more than 600 gallons per acre. with the ability to produce bioethanol from the crop waste coupled with increasing grain yields, it will eclipse 1,000 gallons per acre in the near future. All the while using the nutritious part of the kernel to produce edible food and the leftovers from the crop waste to power the biorefinery.

The wwF biotechnology report cites a 2008 United Nations Food and Agriculture Organisation (FAO) study identifying an additional two billion hectares that “are considered potentially suitable for rain fed crop production”. That presents a vast opportunity for industrial biotechnology and the biorefinery. Biotechnology may still be in its infancy in 2010, but if the current pace of innovation continues it will undoubtedly be a fundamental building block in the creation of a low-carbon, sustainable future.

bIOrefINery

Corn cobs, wood waste and methane converted into fuel, animal feed and bio-based products

NATHANSCHoCKPR Director POET


COmPANIES IN FOCUS

The Third Industrial Revolution


Eight crises, eight

opportunities

The Third Industrial Revolution takes place against a backdrop of eight interdependent, global crises – demographic and consumer explosion, ethical and value change, financial and economic ‘reset’, food scarcity, climate change, water scarcity, energy tension and political power shifts. Each of these represents both an enormous challenge and an exciting opportunity for business.

1 DemOgraphIC aND CONsumer explOsION

with global population predicted to reach nine to ten billion by 2050 we forecast 40% more consumers in the next 30 years. These new consumers will consume more per capita than ever before. Companies will undoubtedly benefit from this consumer explosion, however the growth also leads to competition for agricultural land, energy and water. Successful companies will have to decouple consumption growth from impacts on society and the environment by using scarce resources well.

2 ethICal aND value ChaNge

As human beings we have long been conditioned to think that ‘growth is good’. However, criticism of capitalism and ever-rising consumption is now widespread. we are seeing

Leading the revolution will be consumer goods companies who reposition themselves as mCCs – multi-committed companies. These businesses will create opportunities from the eight interdependent crises the world is facing. They will expand their presence in new regional power centres such as Brazil and China. They will transform their business models to cope with the reality of resource scarcity. And they will alter their marketing strategies to respond to consumers’ growing social and environmental concerns.

In doing this they will reap hard business benefits – higher sales, lower supply chain costs, and better margins. The unexpected heroes of the revolution, they will, on the one hand, save the planet and on the other, accommodate the impending explosion in global consumerism.

several groups in the debate: the ‘cultural creatives’ who want to reshape the world in a more sustainable way, the ‘populists’ who feel hurt by the negative effects of capitalism and want to defend their personal wealth and the ‘mass conservatists’ who simply want to go on consuming as they’ve always done. These groups all disagree on how values and ethics should be adjusted. They present real challenges for product development and marketing.

3 fINaNCIal aNDeCONOmIC ‘reset’

The resolution of the financial crisis is likely to result in lower economic growth in the western world and a tempering of potential growth in developing countries. Consumers will reset their consumption patterns, leading to lower consumption growth and more inflation in debt-laden nations.

4 fOOD sCarCIty

The rising population and growing consumption per capita leads to increased demand for food, especially grain. In a best-case scenario, food demand-supply tension can be managed, but higher prices will be needed in the coming ten years. In a worst-

First came the steam engine, then the computer. Now, we

believe the world is on the verge of a Third Industrial Revolution.

GERARDRIJKFood and beverages analyst ING Commercial Banking, Equity Markets


case scenario, which takes account of the negative effects of climate change and water scarcity, tensions between rich consumers and poor consumers increase, with grain use per capita in developing markets falling by 42% from an already low starting point. In order to avoid this kind of global food crisis we need more efficient use of land, higher yield and less food waste in the western world.

5 ClImate ChaNge

The debate on the validity of climate change science that we have seen over the last year has dealt a blow to climate scientists and pushed the subject of climate change somewhat to the background. In addition, governments will struggle to gain support for investment in climate change measures because of the knock-on effect of higher taxes/costs for consumers. To keep climate change on the agenda, companies need to invest in research that demonstrates the catastrophic consequences if ecosystems reach a climate change tipping point from which there is no going back.

6 water sCarCIty

Global demand for fresh water will increase due to rising populations, increasing per capita consumption and urbanisation. we forecast a bigger supply-demand gap in the coming 20 years, which means the price of water could increase by 300% over this period. Political struggles are likely as particular regions face shortages. Around 75% of fresh water is used in the food chain (from agriculture to consumer)

so companies will have to adapt and find innovative solutions for using water efficiently.

7 eNergy teNsION

Rising energy prices, driven by a shortage of fossil fuels and rising consumption, will lead to higher costs for agricultural raw materials, packaging materials, production and transport. Companies will need to drive down their energy consumption or use renewable sources. They will need to reduce the carbon footprint of their products or even stop production of very energy intensive products. Areas with large oil and gas reserves, like the middle East, Russia and parts of Africa and Latin America should benefit from the energy crisis and companies are likely to find the most disposable income growth in these areas.

8 pOlItICal pOwer shIfts

Regional wealth changes will lead to the creation of seven or eight new power centres in the world. This means a shift from a unipolar world (with the US dominating) to a multipolar world. we expect the US/Canada will remain strong; Brazil will become stronger; China will remain a stronghold especially given its investments in resources worldwide; and Russia and parts of the middle East will also be strong. The EU will have a relatively small place based on its limited resources in energy and soft commodities. Sub-Saharan Africa is an outsider. India will be very strong in demographics but its current investments in infrastructure and its lack of resources make it a problematic area.

Evolution of the phasing of crises and opportunitieswhile climate change has been the major focus over the last five to ten years and the climate crisis will continue for the next 40 years, we predict that the climate discussion will move to the background temporarily. In 2010–15 the focus will instead be on demographic trends, financial, social and economic crises, food price risk and energy tension. Then from 2015–20, it will shift to a focus on the water crisis, changes in consumer ethics, and the global political change from unipolar to multipolar. The phasing of these crises and trends is important for companies and investors in terms of understanding the key driving factors in the coming decade.

COmPANIES IN FOCUSContinued

2005 2010 2015 2020

PHASING OF THE EIGHT CRISES/OPPORTUNITY EvENTS

Source: ING estimates

CLImATE CHANGE

wATER SCARCITY ETHICAL & vALUE CHANGEPOLITICAL POwER SHIFTSCLImATE CHANGE

DEmOGRAPHIC AND CONSUmER ExPLOSIONFINANCIAL AND ECONOmIC ‘RESET’FOOD SCARCITYENERGY TENSION


Revolution in strategy: the rise of the MCCThe rising star of the Third Industrial Revolution is a new breed of company: the multi-committed company (mCC). Some multi-nationals are already on the way to becoming mCCs while others still have a long way to go. One thing is clear – this is not just a fad driven by the need to be ‘seen to be green’. Successful mCCs will achieve hard business benefits from a combination of higher sales, lower supply chain costs and better margins.

So what does being an mCC involve? First, it requires companies to move away from traditional colonial-style behaviours where western brands are simply rolled out in developing markets, towards greater connection with and commitment to local regions. The focus will be on the new regional power centres: North America, Brazil/LatAm, Europe, Russia, China, the middle East, parts of Africa and possibly India. In recent years several companies have significantly expanded their activities in these regions, mainly by following the rise in local purchasing power. we think this geographical footprint change will continue in the coming decades.

Second, ‘clean sourcing’ across the whole supply chain needs to get into the DNA of every company. Companies that are able to secure the use of ‘crucial input materials’ like milk and grain and reduce waste will be best able to defend their margins in an environment of rising resource

REvOLUTIONS THAT CHANGED THE wORLD

1stThe Industrial Revolution

2nd

The Digital Revolution

3rd

The Sustainable Revolution



scarcity. The focus needs to be on enhancing supply chain control and securing sustainable sourcing.

Third, to cope with the complex and contradictory consumer trends emerging in the Third Industrial Revolution, companies and brands will need to redefine their sales and marketing strategies.

Given the attitude of the majority of consumers, the role of NGOs such as wwF and Greenpeace will remain important in changing hearts and minds.

In product portfolios, we expect to see the development of innovative products that better serve the world, like low-energy cars, wind turbines, organic food, and products with a low energy and raw material footprint.

The positive impact for companies from the multi-committed approach is better international knowledge transfer, the development of local sourcing, and improved roll out of corporate governance. Local employees will also benefit from things like better healthcare support.

In our view, national governments (particularly in western democracies) and multilateral organisations are unlikely to offer solutions to the current global crises. They have neither the power nor sufficient legacy to make decisive changes.

The proof: some companies are changing, others are laggingIn general, we believe big companies are aware of the multi-crisis and opportunity environment and are taking action in many areas including climate change, energy and water efficiency, securing supplies and implementing ‘green’ strategies. Small companies are, not surprisingly, more conservative and less active.

Unilever is an example of a company that we think is taking a broad, forward-looking approach. It not only looks at its own energy and CO2 efficiency, but also at that of its suppliers and customers. CEO Paul Polman said recently that it is essential for sustainability to be part of the company strategy and that this will be rewarded in the future by higher sales growth and higher profits.

In Africa, SABmiller obtains barley from 12,700 local farmers in Uganda, mozambique, malawi, Ghana, Tanzania, zimbabwe, and zambia. By 2012, it aims to increase this to 45,000 farmers. In an effort to reduce their carbon footprints, whole Foods market and Bed Bath & Beyond have both taken a decisive stance on the Canadian oil sands issue and are avoiding energy suppliers that source from that area.

The future: vive la révolutionmulti-committed companies are in the sweet spot of a number of emerging crises and trends. we predict that those companies that can anticipate global GDP and middle class growth trends in developing markets and become known for innovative sustainable strategies will show above-average sales growth and create increased shareholder value. Through establishing sustainable sourcing policies, and through development of a local supplier base, their margin growth will also be above average.

Crucially, this commercial success goes hand-in-hand with creating a better world at a time when governments and the consumer base are not capable of driving this change themselves. The stage is set for mCCs to create the Third Industrial Revolution: real responsible and sustainable growth. The question is: can they step up to the challenge?


coupled with the potential for huge opportunity should they make the right, bold changes. we looked at five DJSI supersector leaders and compared them against two of their sector peers to find out if they have the systems, initiatives and programmes in place to foster sustainability-led innovation. we then challenged whether the DJSI supersector leaders really are the best of the best.

where business and society come together to solve complex problems. mcKinsey have identified five global forces set to make 21st century operating environments the most complex yet.* To address these challenges as mcKinsey sees them, businesses must use sustainability as a force for innovation.

we set out to discover whether sustainability-framed innovation is at the centre of the DJSI leaders’ thinking across a selection of sectors. These sectors all face the challenge of adapting to an altered external environment

The 2010 Dow Jones Sustainability Index (DJSI) supersector leaders and their peers appear to be leading the way in embedding sustainability across their businesses. But how well set up are they to make the big leaps forward that a shift to a sustainable global economy needs?

The global landscape of the future will need creativity and adaptability – two qualities not traditionally used to describe large public companies. Sustainability can be both a lens to focus minds on innovation challenges and opportunities, and a place

How well do the best

companies link innovation to sustainability

and are the true leaders

slipping through the net?

Innovation and true

leadership

* The five global forces include growth and innovation in emerging markets, increased productivity in developed economies, a connected but volatile global economy, ‘pricing the planet’ and the pressure on resources, and social stability.

https://www.mckinseyquarterly.com/Strategy/Globalization/Global_forces_An_introduction_2625?gp=1

SALTERBAxTERSustainability team


Telecoms

CHALLENGES AROUND THE SHIFT TO EmERGING mARKETS

TURNING CLImATE CHANGE AND ACCESS CHALLENGES INTO NEw SOLUTIONS AND SERvICE OPPORTUNITIES

BECOmING A PART OF THE NEw GLOBAL ICT INFRASTRUCTURE


Our verDICt Our verDICt Our verDICt

Our winnerTelefónica narrowly beats Vodafone to retain its supersector leader position. If it can maintain the quality of its services while developing fundamentally new product lines (in areas like health and finance), it should deliver sustainable change to its business model.

Vodafone has experienced the sharp end of governance in emerging markets. If it can weather legislative and cost pressures, its focus on a sustainability-led product pipeline should see it well placed to take advantage of changes to its operating environment.

Does state interference make a difference to China Mobile’s sustainability innovation performance? If the answer is yes, there are implications for the effectiveness of the solutions it can provide. If no, its potential to transform the way society functions could become a defining factor in China’s future development.

Innovation driven by sustainability has played a big role in helping the Telecoms sector reposition itself to cope with demand for new products and services from emerging markets. As these products and services move into the mainstream they should maintain the Telecoms industry’s position as a key player in addressing sustainability challenges.

As the world’s largest mobile phone operator with over 70% national market share and 530 million subscribers, China mobile is playing a transformative role in the new global economy. Through collaboration with a range of partners, it is addressing barriers to technological and business innovation. For example, it is developing energy efficiency monitoring solutions for a range of industries, and a microcredit information platform for use in rural areas. China mobile also created the mobile labs sharing platform as a creation space for the communications and tech industries to come together to discuss and share challenges, solutions and expertise.

For vodafone, sustainability is a driver of innovation against a backdrop of persistent cost pressures and wide-ranging issues sparked from operating in emerging markets. Access and low-cost solutions, climate change mitigation, mobile health and mobile payment services are areas where sustainability expertise is being used to refine new products and services. Climate change is an issue across the sustainability value chain and so vodafone positions itself at the forefront of research into mobile telephony’s role in tackling climate change.

Supersector leaderFor Telefónica, the two areas of access and inclusion and Green Information and Communication Technology (ICT) are supported by developments in e-health, e-learning, and the provision of financial services. Across all these areas, there is a recognition that huge new business opportunities exist. The recently established Global e-health Unit in Granada, Andalucia is recognition of this shift. Telefónica partners with the likes of Google and Intel, collaborates with non-tech companies on challenges such as energy provision, and commits to open innovation.

bIg INNOvatION Issues


Healthcare

CHANGING GLOBAL DEmOGRAPHICS AND GROwING DEmAND

FIxING THE ‘ACCESS TO mEDICINES’ PROBLEm

FINDING COST EFFECTIvE AND SUSTAINABLE APPROACHES TO R&D


Whether Roche’s approach to innovation will be enough to see it through tough regulatory licensing issues and help it respond to a shortage of skills amongst potential employees will determine how well it rebalances itself in a changing operating environment.

Cross-sector collaboration and sharing of expertise should help Novartis adapt to the changing global context for the healthcare sector and remain competitive.

Our winnerAstraZeneca beats Roche because its approach appears to be more fast-paced and nimble. This, together with effective partnerships, should enable it to anticipate new challenges, feed that straight back to R&D, and innovate at a rate that is in line with future healthcare demands.

The healthcare industry’s R&D model is struggling to adapt to a changing economic climate. The innovation and R&D pipelines are long, so looking for ways to make this process more effective is key. Beyond this, meeting the demand from emerging and developing regions will determine companies’ ability to prosper. This will require even greater focus on transparency and access.

Astrazeneca has identified the need to transform its approach to R&D as central to helping it get fit for the future. Creating value-enhancing partnerships by going outside the business to source innovation is key to lowering fixed costs and building flexibility into its operating structure. Astrazeneca is collaborating to explore personalised healthcare (PHC) solutions which bring down the costs of medicines in high income countries. It is working with international NGOs and other organisations on developing world health issues. All of this allows Astrazeneca to innovate and prepare for future healthcare demands and new markets.

Novartis’ business focus is on innovation and diversification to remain responsive to a challenging external environment and changing global demographics. Novartis’ R&D strategy targets neglected diseases where market potential is large. It also recognises the importance of collaborating with external partners and across industries. For example, in partnership with not-for-profits, the company has repurposed its knowledge from research into diseases in high income countries to create solutions to illnesses such as diarrhoea in developing countries. In an effort to improve efficiency, it has also used techniques taken from the FmCG sector to adapt its approach to patient education.

Supersector leaderRoche’s commitment to innovation is backed up by its mission to create medically differentiated products and services – i.e. ones that add real health benefits to people’s lives and the bottom line. It aims to do this through an innovation-driven culture. For Roche, innovation is firmly linked to human capital. This is critical in not only maintaining the highest levels of product quality, but also in providing it with the management expertise and skills required to adapt to the changing face of the global healthcare and pharmaceutical sector.




Technology

For Nokia, the transformational effect of its handsets can help address issues around access and environmental protection. Tools such as education delivery, data gathering, mobile banking, and low cost mobile internet access make Nokia well placed to deal with demand from emerging and developing countries. Nokia is transparent in setting out supply chain challenges recognising that securing a social and environmentally positive supply chain will give it competitive advantage in the future. It hosts innovation discussions to bring together ideas to enhance the development of its products and services and to encourage wider participation around sustainability challenges.

SAP recognises that through improving the effectiveness of its sustainability software, combined with its role as business partner to a customer base worth $5 trillion, it can have a big role in the shift towards creating a sustainable future. By collaborating and co-innovating with its ‘ecosystem’ of customers, partners and stakeholders, SAP aims to expand the reach and impact of its business solutions. SAP’s Developer Network (SDN), a community of over two million members, is a co-innovation space where members can share, discuss and learn about how to best use the company’s services.

Supersector leaderAs a chipmaker, Intel sits at a unique point in the technology sector. Its product range gives it a key role in creating the tools and mechanisms that will help in the transition to a sustainable future. This fits its goals of playing a transformative role in education, quality and access, and environmental sustainability. Alongside the citizenship aspect of this approach, the strategy also lays the foundation for building new businesses by tackling big problems. By pledging to train ten million teachers by 2011 and investing in science and maths education, Intel is helping people engage with digital technologies and ensuring its workforce requirements for the future are catered for.

The technology industry is set to play a central role in enabling the transition to a low-carbon future. There are promising signs of innovation, but the sector is not quite there. More needs to be done to create the tools needed to respond to social and environmental challenges and to facilitate companies coming together to share knowledge and find solutions.


Intel’s approach, while not explicitly about innovation, is about transformative change. Helping people learn through its products and services – at a time when access to quality education is a major challenge – means that the company is facing up to future challenges in critical areas of its business footprint.

Our winnerSAP beats Intel, because it demonstrates the best ‘horizon spotting’ potential and the best approach to co-innovating solutions. It has the products to serve a new generation of business and if it can continue to look ahead and move fast, should stay ahead of the competition.

Nokia faces serious supply chain challenges in the near future. While it is clearly focused on tackling this challenge, its overall approach to innovation is not as aggressive as we would expect from such a leader and potential enabler of a low-carbon economy.

HOw TO BALANCE RESOURCE CONSTRAINTS wITH GROwING DEmAND FOR PRODUCTS AND SERvICES

CREATING mORE wAYS FOR PEOPLE ACROSS SECTORS TO COLLABORATE AND SHARE ExPERTISE

ALIGNING PRODUCTS AND SERvICES wITH SUSTAINABILITY SOLUTIONS



Automotive

vw has linked its sustainable mobility strategy to increased urbanisation and the diversity of approaches that are needed to adapt to a variety of local, regional and national contexts. The ‘18plus’ strategy provides the framework for the company to continue innovating to adapt to serve new markets with relevant vehicles. Networked driving goes hand-in-hand with environmental considerations to ensure that driving fits into smart transport systems of the future. The group’s Bluemotion technology provides a well recognised engagement channel with customers around vw’s environmental efforts.

Fiat recognises that innovation focused on sustainable mobility, which creates solutions people want to use, will mean the group remains competitive. The eco:Drive partnership with microsoft allows drivers to create personalised plans for reducing emissions. The Open Innovation Initiative is an example of Fiat’s commitment to sharing expertise. It aims to bring together ideas from around the world to speed up and restructure traditional R&D platforms. The Fiat mio crowdsourcing project in Brazil, which allowed individuals to suggest their own innovations for a perfect vehicle, demonstrates an appetite for experimenting with new forms of customer engagement.

Supersector leaderFor Bmw, premium and performance count. The business recognises the competitive edge for a manufacturer offering the most compelling vision for an eco-friendly future and the best environmental production management. The cross-company ‘project-i’ business unit, which rolled out the electric mini customer test scheme last year, leads on exploring sustainable mobility. Alongside this, the efficient dynamics strategy is continuing to push the potential of hybrid technology, reducing the carbon intensity of Bmw’s product line.


BMW is working hard to lower the carbon intensity of its vehicle line-up in the near-term and explore mobility concepts for future transport challenges. If it can scale up innovation fast enough it can retain its position at the top end of the market.

Our winnerFiat beats BMW, because of its open approach to R&D and its understanding of what a car manufacturer of the future needs to be concerned about. Fiat is just ahead of VW but it’s a close race.

VW’s awareness of the shifting global landscape means that it is well structured to adapt to new markets with new products. Ability to engage with customers depends on continued innovation and the effectiveness of the BlueMotion brand.

Can the automotive sector make the right near- term decisions, combined with long-term vision, and integrate itself with other transport infrastructure thinking? Innovation around sustainability will be harder for some than for others but obsolescence beckons for the company that can’t see that sustainability is its biggest challenge.

LOwERING THE CARBON INTENSITY OF vEHICLES

INTEGRATING TECHNOLOGY INTO THE APPROACH TO SUSTAINABILITY

ADAPTING TO FUTURE DEmOGRAPHIC AND URBAN CHALLENGES TO TRANSPORT INFRASTRUCTURE




Personal and household

goods

with 54% of its current workforce and a target of 45% sales by 2012 (up from 38% in 2009) coming from emerging markets, FmCG company Henkel is adapting to global shifts. It not only needs to make products that meet a global standard but that also meet the specific needs of national and regional markets. This global-to-local context also applies for production standards and efficient resource use in Henkel’s 57 producer countries. New products must contribute to at least one sustainable development area, ensuring that social and environmental decisions go hand-in-hand with the product innovation process.

Nike’s sustainable business and innovation strategy is an explicit approach to rewiring the way it does business to keep the brand on track in light of upcoming resource constraints, continuing supply chain challenges and changing consumer behaviour. In a sector where the customer-brand relationship is key, Nike has taken to talking about this journey via campaigns such as Nike Grind – where rubber from shoes is repurposed. Nike also demonstrates willingness to work beyond the traditional corporate walls to seek out changes to techniques and consumer behaviour. The GreenExchange – an almost free to use open patent exchange set up in collaboration with Creative Commons – is an example of this.

Supersector leaderPhilips is aware that the healthcare challenges and demand for other products from emerging markets will shift the balance of its business East and South. In these new markets, both lower cost solutions that are sympathetic to a variety of conditions and high end equipment that meets growing needs are required. Philips launched Ecovision5 – a set of sustainability targets for 2015 – in response to the need for flexibility in the face of this new demand from multiple new markets.


Philips’ focus is on meeting demands of new markets while reducing its environmental footprint. But it will need to further leverage the power of its brand if it really wants to drive sustainable innovation across its business and its customer base.

Our winnerNike, with its potential to harness the power of its consumer base, is our winner. Nike is using its considerable expertise as a marketer to communicate and engage customers on sustainability issues, in a language they understand.

Henkel’s global footprint has forced the company to develop product and service design skills that fit the new global challenges. More effort to use new forms of customer engagement will help speed up learning about new local contexts.

Developing products that have social and environmental value is a key challenge for companies in this sector. They must also take advantage of their brand leverage and marketing expertise to influence consumer behaviour around sustainability challenges. This means embracing open innovation and ‘crowd platforms’ to bring people together and effect change on a large scale. Companies must do this without missing a step on the road to sustainable supply chain management.

SECURING A SUSTAINABLE SUPPLY CHAIN

CREATING PRODUCTS AND SERvICES THAT ADD vALUE TO SOCIETY AND THE ENvIRONmENT

LEvERAGING THE POwER OF BRANDS TO ENGAGE CONSUmERS



Conclusion

we took five DJSI supersectors that we felt were facing some big issues and that have a big role to play in speeding up the transition to a sustainable future.

we then took the DJSI supersector leaders and benchmarked them against two of their supersector peers, looking at the following criteria:

1 Commitments, strategies and systems for sustainable innovation

2 Sustainable innovation initiatives and programmes

3 Evidence that customers and consumers are being engaged around sustainable innovation

4 Evidence that they are going outside the boundaries of their company to source innovation and are helping others to connect, share and collaborate around sustainable innovation.

we set this against what we see as the big challenges for each sector and whether their company’s approach to innovation and sustainability is sufficient for them to rebalance their business to cope with the big shifts taking place.

The risks and opportunities in sustainability have become better understood – though the actions of companies to address them can be less clear. Our analysis shows that leading the sustainability industry rankings does not necessarily mean leading in sustainability innovation – and that is a serious gap in a company’s leadership qualities. If those held up as leaders are not taking the agenda forward to meet global pressures and unprecedented change to the corporate operating environment, where will adaptation and new, sustainable ways of doing business come from?

The word ‘sustainability’ has joined ‘innovation’ as one of the most over-used words in the corporate lexicon.

To achieve true leadership companies need to demonstrate robust sustainability measurement and performance with forward thinking innovative approaches to tackling global environmental, social and economic challenges. No easy task, but the ability to link innovation and sustainability objectives gives a sense of accountability in response to the question: are you doing all you can to be ready for the risks, challenges and opportunities ahead?

methODOlOgy


pETERGRAfChief Sustainability Officer SAp

PEOPLE IN FOCUS

INSIDE THE wORLD

OF A CSOIn March 2009, Peter Graf was

appointed SAP’s first Chief Sustainability Officer, reflecting the company’s strategic commitment to

sustainability. Karen Deignan spoke to Peter to find out more about his role

– specifically how SAP is improving its own operations to become more

sustainable and how it is helping its customers do the same.


Internally, our aim is to be an exemplar for our customers so we need to make sure we have our own house in order. we have a ten-year plan with very ambitious targets. we’re aiming to reduce our carbon footprint to the level of 2000, by the year 2020. This roughly means cutting it in half from our 2007 emissions peak. Per employee this is equivalent to a 64% reduction. It’s a tough challenge, but I strongly believe that if we’re to be credible as a leader we have to be a role model and show what can be achieved.

How is SAP’s sustainability work delivered across the organisation?

we have a matrix organisation structure at SAP. People report into their lines of business – product development, operations, marketing etc. – and also into me, so we’re executing sustainability initiatives across the whole company. Each area has its own specific budget set aside for sustainability. we also have a small core team which sits outside of the business areas to drive and coordinate the overall approach to sustainability. In total there are about 1,000 people focused on driving sustainability at SAP.

SAP clearly sees sustainability as part of its core business. What was the business case for making it such a strategic priority?

The business case is straightforward: Some of our biggest clients demand that their suppliers have a sustainability strategy. we believe their number will increase significantly in the future. Also, we can save costs through resource efficiency, as well as gaining competitive edge in what is a fast growing market for sustainability software. Finally, sustainability energises our workforce behind a great purpose. why wouldn’t we go for it?

Peter, tell us about the role of a CSO – what are the key areas of focus?

As CSO I’m responsible for ensuring that sustainability is embedded across SAP and integrated into our core business strategy. This typically means focusing on two main areas:

Improving SAP’s own operations so we become a more sustainable company;

Creating products that enable our customers around the world to become more sustainable.

Look at carbon, for example, to put these two into context: SAP’s own footprint is about 423,000 tonnes per year, whereas the combined footprint of our clients is 10,000 times bigger – about five gigatonnes. So clearly, the area where we can have the biggest impact is by enabling our customers to operate more sustainably. However, we would not be credible if we didn’t pursue the same practices that we enable through our solutions.

So the role is quite external facing, as opposed to the traditional CR Director role, which in the past would have been primarily internal facing?

I would say about 70% of my time is focused on our customers’ sustainability, working with our developers, partners and customers to bring new products to market and to maintain SAP’s position as a market leader in sustainable business solutions. A lot of what I do is about helping customers to size and explain the business case around energy and carbon, product and people safety, environmental compliance and successful overall sustainability performance management.

I often see that establishing the baseline is a big challenge, as there are so many things to measure and so many assumptions to build in. However, understanding your current sustainability performance is a prerequisite to seeing where opportunities for improvements lie. Look at carbon. Your initial footprint will unveil many opportunities to save energy and cost for example. So you have to monitor, analyse, and optimise your operations accordingly.

Internally, our aim is to be an exemplar for our customers so we need to make sure we have our own house in order.


Now, that’s the theory. In practice it means that we are driving for a culture change within SAP, because our employees make decisions every day that have a strong impact on our sustainability as a company. It is a long journey and we have just started.

Last but not least, what would you say to other businesses looking to make sustainability a strategic priority in the way that SAP has done?

For SAP and for any business that wants to be successful in shifting to a more sustainable future, the key is to move from having a sustainability strategy to having a corporate strategy that is sustainable.

The bit that goes beyond the business case and that requires longer-term thinking is about sustaining the business model. In the same way that globalisation and the internet have transformed business in the past, sustainability has the power to do that now. It will fundamentally change the way business processes work. Companies will re-assess every part of their value chain to build in sustainability. As the power behind so many business processes in the world, we have no choice but to embrace sustainability to remain the world’s most successful provider of enterprise software in the future.

The SAP Board was completely behind this strategic focus from the outset. They understand that it’s not about being ‘green’ or philanthropic; it’s about driving business success by taking responsibility for environmental and social issues, managing those alongside the economic challenges, and creating opportunities for growth and competitive advantage.

You mention the importance of taking a holistic, long-term view of sustainability. What implications does this have for how SAP does business?

It means that every business decision needs to take economic, environmental and social risks and opportunities into account. This is new, because businesses understand that they do not operate in a vacuum. with consumers being aware and connected via the internet and regulation proliferating on a global basis it is clear that environmental and social implications can’t continue to be ignored. If you do ignore these implications, it will hit your business results.

The key is to move from having a sustainability strategy to having a corporate strategy that is sustainable.

You’ve summed it up perfectly Peter. Thank you very much for taking the time to talk to us and for giving us an insight into sustainability at SAP.

Key Numbers

30%of my time is focused on managing SAP’s own sustainability performance

70%of my time is externally focused – driving SAP’s continued leadership in the market and helping our clients find sustainable business solutions

50%reduction in carbon emissions by 2020, based on 2007 levels, is our target

PEOPLE IN FOCUSContinued


wHAT’S ON THE mINDS OF

SUSTAINABILITY PRACTITIONERS

ACROSS THE wORLD?

It’s all very well assessing sustainability trends and theories but

what are the practitioners on the ground actually focusing on? We asked

our panel of ten experts from different companies around the globe to tell us

about the five big issues they’ll be focusing on next year.


waterWhile managing carbon emissions remains on the agenda for most companies, water stands out as a big area of focus for our panellists. This is not surprising – water scarcity is one of the most immediate climate related risks businesses face.

As a consequence it is an area that requires urgent step-change innovation.

As our panellists are finding, this means ‘upgrading’ water from an operational to a strategic issue and engaging suppliers and employees in finding solutions.


BIODIvERSITYIn a trend that is certain to increase in 2011, people are getting back to assessing their overall environmental footprint rather than just carbon. For us, increasing attention will be paid to designing energy systems that are in sync with local ecosystems.

wATERBioenergy stands at the intersection of agriculture and energy – the two largest users of water – and with clean energy, we can’t afford to trade one challenge (carbon) for another (water). Although primarily a local issue, we are addressing water through an aggressive corporate-wide initiative, which will be a big focus next year.

GOvERNmENTAlways the 800lb gorilla in the energy industry, government will continue to play the leading role in 2011. will the US Congress pass a cap and trade? If they don’t, will the Environmental Protection Agency fill the void? will there be legislation to promote clean energy? will infrastructure be expanded for biofuels? Like this year, much of next year will be spent reacting to the prevailing winds of washington.

PUBLIC ADOPTIONIn the future, how can renewable energy become less dependent on government? Go straight to the people. Although expensive and challenging, the biofuels industry knows that its long-term survival depends on millions of individual choices at the pump rather than millions of dollars in government support. In 2011, we will spend more time taking our case directly to consumers.

mAINSTREAm mEDIA DECLINEIn 2011, our company will break ground on the first commercial-scale plant to make ethanol from agricultural leftovers. It will likely be one of hundreds of clean energy innovation stories next year and the challenge of telling a story will get harder as mainstream media continues to shed reporters and institutional knowledge. The job of sustainability communicators will be more important than ever.

NATHANSCHoCKPR Director POET


BEHAvIOURAL SAFETYwe constantly review leading practice on safety from within and outside our industry and work with leading academics to improve our understanding of ‘behavioural safety’. we are focusing on managing how our people respond to perceived exceptions to safety rules. Through openly discussing the circumstances where it is considered acceptable to break a rule we determine the best way to manage these situations.

COmmUNITY RESETTLEmENTxstrata is currently developing a number of multi-billion dollar greenfield projects. Community resettlement can be one of the biggest challenges. At Las Bambas in Peru, six years of extensive consultation recently resulted in the community signing a resettlement agreement. The resettlement will start in 2011 and will follow leading practice International Finance Corporation guidelines.

CLImATE CHANGEwe will continue our research into co-generation and biofuel opportunities. One project in South Africa is using CO2 from our furnaces to grow algae, which can be used as a biofuel. we will also continue to invest in research into low emissions technologies.

wATERIn some regions there is increased competition for water. we will continue to develop opportunities to reuse or recycle water, reduce our use of water and improve our water accounting methodology. we will look for innovative design improvements and use the expertise within our technology businesses to ensure new plant and equipment is as water and energy efficient as possible.

HOLISTIC ImPACT ASSESSmENTwe take a holistic approach to assessing the risks and impacts of mining on a given region or community. Some areas are facing an ‘aggregation of impacts’ where activities such as mining, farming, and gas exploration can put excessive pressure on resources like water supply. Finding solutions to these issues and facilitating dialogue with all stakeholders in these regions will be even more of a focus for xstrata in 2011.

pAULJoNESGroup General Manager, Sustainable Development Xstrata

wATERAs well as seeking water efficiencies within our manufacturing and products we’ll be focusing a lot on water in the supply chain – the impact of water scarcity on crops and on water prices. In some countries we have seen companies lose their licence to operate because of bad water management – it’s becoming a crucial issue for our industry.

CLImATE CHANGEwe’ll continue to seek ways to reduce emissions from manufacturing. Beyond that we’ll be looking at influencing the policy framework and making capital investments to accelerate progress towards our carbon targets. I’d like to see cheaper access to capital for companies that are managing environmental, social and governance risks well. Investors need to pay more attention to these factors.

SUSTAINABLE AGRICULTURE AND FOOD SECURITYOur business is dependent on an agricultural food supply chain and the challenges, both environmental and socio-economic, are growing. Engaging farming communities is paramount. we need to invest more in 2011 in long-term programmes of work with these communities so that their livelihood, and therefore our supply chain, is sustainable.

ECONOmICS OF BIODIvERSITYwe’re starting to understand the risks and opportunities around biodiversity and in 2011 aim to develop a business case. we’re asking ourselves things like: could the farming communities we work with be paid for eco-system services? Could they benefit from this?

SOFT COmmODITY SPECULATIONwe need to look more closely at the impact of hedge fund speculation on food commodity markets. Is it driving prices up beyond what would otherwise happen? Some are calling for the UK stock exchange to investigate, others want tougher regulation. It’s something we and our industry need to explore and understand more in 2011 so we’ll be encouraging government and other stakeholders to get involved in dialogue.

DAvIDCRofTDirector of Conformance and Sustainability Cadbury



SUSTAINABLE RAw mATERIALS AND TRACEABILITYThe search for alternative raw materials with limited impact on the environment remains top of our agenda. we hope to move closer to our goal of all cotton coming from sustainable sources by 2020, by introducing Better Cotton 2011. we will also continue to invest in sourcing other sustainable raw materials and increasing traceability.

REDUCED OvERTImEExcessive and incorrectly compensated overtime remains one of the most common compliance problems in our industry. Our goal is that overtime at our suppliers’ factories should be within legal limits and correctly compensated. But this won’t happen overnight. Lack of transparency is part of the problem and we will continue to address this with our suppliers in 2011.

wAGES IN BANGLADESHAs a big buyer of ready-made garments from Bangladesh we have a responsibility to act on the unstable situation in the country caused by dissatisfaction with the wages in the textile industry. we will be continuing our efforts to influence government to introduce yearly revisions of the legal minimum wage.

INCREASED SUPPLIER RESOURCE EFFICIENCYIn 2011, we’ll be expanding our efforts to increase water and energy efficiency to our first tier suppliers who account for about 7% of the CO2 emissions in our value chain.

BROADENING OUR SCOPEOur aim is to gradually broaden our scope to take into account every part of our product’s life cycle. In 2011, we’ll be engaging more with our customers to help them understand how they can reduce the impact of our products. we will also be continuing our ‘All for Children’ initiative with UNICEF, which protects the rights of children in cotton producing areas of southern India.

BJöRNMAGNUSSoNHead of CSR H&M

COLLABORATIONIn 2011 we will further leverage sustainability issues within our industry by driving greater collaboration and sharing practices. we will actively promote this goal by using and extending supplier data management systems like the Fair Factory Clearing House that offers effective features for sharing and collaboration.

SUPPLY CHAINKnowledge and expertise is fundamental for sustainable change. By partnering up with other players we aim to further strengthen tools and platforms for capacity building in our global supply chain that will support self-governance and sustainability.

wATERwater shortages are a major challenge for the global apparel industry. As one step to address this, we will continue and extend our support of the Better Cotton Initiative that aims to reduce water consumption in global cotton farming.

RESOURCE EFFICIENCYNext year we will expand and intensify our measures to more systematically record the company’s environmental footprint across our value chain. we will do this by detailing our programmes targeted to reduce resources, emissions and waste through more efficient and intelligent design, and by developing improved administration solutions.

EmPLOYEE ENGAGEmENTEmployee engagement is critical to drive awareness and commitment for sustainability issues among our workforce. we will continue to exploit the assets and passion of our people in driving the sustainability agenda in 2011, through our internal communication systems.

fRANKHENKEGlobal Director, Social & Environmental Affairs adidas AG


supply ChaIN

Whether it’s H&M increasing suppliers’ resource efficiency, adidas Group enabling capacity building, ArcelorMittal encouraging knowledge transfer, or Cadbury working with local farmers, supply chain is a seriously hot topic for 2011. This is a real sign of the times – as companies increasingly get their own house in order they can move to engaging others up and down the supply

chain in tackling big sustainability issues. This links to another big trend highlighted by our panel – collaboration. Whether it’s across the supply chain, with NGOs or through participating in industry-wide partnerships, collaboration is key to demonstrating leadership and unlocking innovation.

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did

as

Gro

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ARCELORmITTAL ORBITThe ArcelorMittal Orbit, which is being built for the London 2012 Olympic and Paralympic Games will showcase the central role of steel as a material for the future. I’ll be working with the design team to ensure the project meets strict sustainability criteria and demonstrates our commitment to the Games and to sustainable design and construction.

EmPLOYEE ENGAGEmENT AND CAPACITY BUILDINGIn 2011, we’re running a big programme of employee engagement and training on sustainability. we want to empower and incentivise employees to take clear action in support of our goals. One specific focus area will be incorporating human rights principles into how we operate our business.

PROmOTING PARTNERSHIPSThis year we worked with global NGO Habitat for Humanity to develop and build steel-framed earthquake-proof housing for vulnerable regions. In 2011, we’ll be looking to establish more multi-sector partnerships to contribute thinking and actions on big issues like human rights and biodiversity. many of these issues are too big for a single company to tackle on its own, so collaboration is vital.

CLImATE CHANGE AND wATEROne of the strengths of Arcelormittal is our ability to share best practice across the organisation. In 2011, we want to apply this approach to climate change and water. It will involve finding the best practice case studies and facilitating cross-country exchanges. So a worker from Bosnia might go to see best practice water management in the US, or vice-versa.

STRENGTHENING LOCAL ECONOmIESworking through the supply chain, we aim to build the skills and capacity of local economies. In Liberia, we co-founded the Corporate Responsibility Forum in 2010, where multi-national companies mentor local firms on health and safety, bribery and corruption, and other issues. we’ll continue to do more in 2011 to encourage our major suppliers to transfer their knowledge to local businesses.

CHARLoTTEwoLffGroup Corporate Responsibility Manager ArcelorMittal


SUSTAINABILITY STANDARDSEnsure the establishment of certifiable standards for sustainable salmon farming that are widely accepted by industry, retailers and stakeholders. During 2010 we participated in the Salmon Aquaculture Dialogues run by wwF, which made excellent progress towards establishing one possible standard for salmon. In total 12 such standards are now under development for different species.

STRUCTURED STAKEHOLDER DIALOGUEmove from ad hoc stakeholder involvement based on reaction to specific events, to structured ongoing dialogues on the big issues. Better dialogue with NGOs and others will lead to more agreement on the facts around salmon farming, which in turn will lead to improvements in our industry and better public communications based on truth rather than hearsay and anecdote.

COmPETITIvE ADvANTAGEmaximise the competitive advantage from taking on the role of industry leader on sustainability. we aim to leverage our work on sustainability and our reputation as a sustainability leader to achieve better customer relations. we want key customers to feel that it is simply too risky to choose one of our competitors.

TwO-wAY DIALOGUETo achieve change, the whole organisation needs to be involved, so we are looking at mechanisms to involve more employees. Broadening the dialogue exposes stakeholders to people other than ‘corporate suits’ and improves the quality and credibility of the conversation. It also gives stakeholders a better understanding of our organisation.

REGULATIONS AND STANDARDSAddressing the widening gap between public regulations resulting from political processes, with industry standards resulting from voluntary dialogues between stakeholders and industry. we’ll be encouraging government officials to play a bigger part in voluntary dialogues in 2011 so that over time voluntary standards and government regulations will hopefully converge.

JØRGENCHRISTIANSENCommunications Director Marine Harvest


CROSS-COmPANY COLLABORATIONIn 2011 we’ll be fostering increased co-operation between millicom CSR managers in different markets, so that we take ideas from one country and execute them in others. we can make a greater impact by focusing on fewer, more strategic projects. At the same time we need to allow local managers to address the sustainability challenges of their own markets.

PROGRESS OUR vISION FOR EmPLOYEE ENGAGEmENT AND vOLUNTEERING

we operate in emerging markets, so our people are acutely aware of the social imbalances in their local communities. There is enormous pent-up energy and a desire to help that we need to exploit more fully through volunteering. Our markets don’t just face a single ‘big sustainability issue’, but a range of issues. So we will stand out not through what we do, but how we do it – by tapping into the energy and enthusiasm of our people.

LAUNCH TIGO HOURTigo Hour is a platform for raising both funds and awareness for local social programmes. During a Tigo Hour, our employees hit the streets to promote a cause with customers, while encouraging them to buy our services. The value of the services sold in that hour are donated to the cause in question. In 2011 we will be launching Tigo Hour in the majority of our markets.

EmBED STRATEGIC SUSTAINABILITY THINKINGAs solar energy becomes cheaper and more effective, and diesel costs are on the rise, we will be encouraging a strategic re-appraisal of our network power sources that takes into account both cost and carbon reduction.

mEASUREmENTwe plan to publish our first dedicated CSR report in early 2011. In it we will set out ambitious targets and KPIs to measure our performance in corporate responsibility.

pEREGRINERIvIEREHead of External Communications Millicom International Cellular S.A.


wATER

SUPPLY CHAIN SUSTAINABILITY

COLLABORATION AND PARTNERSHIPS

CLImATE CHANGE AND RESOURCE EFFICIENCY

EmPLOYEE ENGAGEmENT

BIODIvERSITY

STAKEHOLDER DIALOGUE

POLICY AND REGULATION

PRODUCT INNOvATION

EmPOwERING LOCAL COmmUNITIES

ACCELERATE PROGRESS TOwARDS mISSION zEROOur mission is to eliminate all negative impacts by 2020. Over the next two years we need to generate a sense of urgency if we’re to meet the tough targets we’ve set. we’ll be doing lots of employee engagement in 2011 to re-energise our workforce behind this great mission.

GROw OUR NEw COmPANY zELFO TECHNOLOGYzelfo converts cellulose waste into high end flat panels and bioplastics. In 2011 we’ll be developing the strategy and communications and sourcing commercial partners.

GOvERNmENT LOBBYINGwe recently launched a big campaign to ban flooring waste going to landfill. The problem is that in some European countries, sending waste to landfill is extremely cheap so there is little incentive to avoid it. In 2011 we’ll be promoting the campaign and engaging stakeholders – other flooring companies, NGOs and government regulators – in the debate.

INCREASE THE UPTAKE OF vERSAFLExThis is our innovative flooring system for modular, flexible hard floor installations. It’s based around a ready-made grid that allows the flooring material to be clipped into place without the need for any mortar or water. It has great benefits for customers – for example you can mix and match carpet and ceramic tiles – but some people struggle to ‘get it’. In 2011 I’ll be helping our sales teams develop their marketing strategy aimed at changing customers’ mindsets.

DEvELOP A PAN-EUROPEAN CLOSED LOOP PROCESSIn the US we already have a closed loop process in place where each flooring component – yarn and backing – is recycled and turned into new products. In 2011 we aim to set up a similar process in Europe. It will require looking at best practice and organising pan-European systems and logistics across our network.

RAMoNARRATIASustainability Director EMEAI InterfaceFLOR

tOp Issues wATER

water is becoming a crucial issue for our industry. Experts predict a 300% increase in water costs and a major gap between future supply and demand. In 2011 we’ll continue mapping our water ‘hotspots’ and develop a water strategy across our supply chain.

PACKAGINGwe are constantly looking at ways to reduce the impact of our packaging. we are looking into the sustainability aspects of different packaging materials (e.g. plastic versus glass) and are developing a tool that allows local markets to assess the environmental impact of different packaging options.

RESPONSIBLE DRINKINGwe are moving towards a more proactive agenda on responsible drinking and next year we’ll continue to collaborate with the Brewers Associations and NGOs. we’ll be promoting responsible drinking through targeted campaigns in different regions.

CLImATE CHANGE AND ENERGY USEClimate change remains high on our agenda. we are working on a range of initiatives to reduce our carbon footprint, from improving the environmental performance of our fleet to finding innovative ways to improve energy efficiency on site at our plants.

COLLABORATIONIn 2011, global partnerships will become increasingly important in helping us develop innovative solutions to challenging issues like water management. we will be looking to work with NGOs, academics as well as our consumers to inform how we tackle these big issues.

woUTERJooSTDEGRooTCSR ManagerCarlsberg


PEOPLE IN FOCUS Continued

Spotlight awards

MARCGUNTHER,Journalist Nominated by: Nathan Schock, POET

In an era where declining revenues for mainstream media has led to cutbacks in the number of reporters who cover the environment, marc Gunther has shown that the internet provides the only forum a good journalist needs to succeed today. Trimmed from the ranks of Fortune magazine’s full-time employment he remains a contributing editor but also writes for several well known green business blogs. He tackles issues of sustainability in a serious and thoughtful, yet accessible way and shows that we don’t necessarily have to fear the loss of the mainstream media watchdog. www.marcgunther.com

MUHAMMADYUNUS, Economist Nominated by: Frank Henke, adidas Group

In the late 1970s, muhammad Yunus pioneered the concept of microfinancing and founded the Grameen bank whose first loan for US$27, which came direct from Yunus’ pocket, enabled 42 women in a village in Bangladesh, to buy bamboo for their furniture enterprise. Since then the Grameen model has inspired similar initiatives around the world and helped create truly grass roots sustainable development. I have had the honour of meeting muhammad in person and he is an inspiring leader. He has a very clear agenda and a remarkable ability to convince people to rethink mainstream approaches to doing business.

We asked our panel to nominate people who they

think deserve recognition for leadership in sustainability –

inspirational individuals who are really making things

happen. We’ve profiled six of the best here and they are a

great mix of newcomers and established leaders.


KATHERINEBoSTICK, WWFNominated by: Jørgen Christiansen, marine Harvest

I would like to nominate wwF, represented by Katherine Bostick of wwF US, for their vital and wide-reaching efforts on sustainable seafood. Based on the success of the marine Stewardship Council (mSC) in securing a standard for sustainable wild fish, the Salmon Aquaculture Dialogues are, in 2010, finally resulting in certifiable, science-based, multi-stakeholder standards for sustainable salmon aquaculture (farming). The mSC and the upcoming Aquaculture Stewardship Council (ASC) are among the most powerful and effective mechanisms ever launched for promoting sustainability in global food production.

GEoRGKELL, United Nations Global Compact (UNGC)Nominated by: Charlotte wolff, Arcelormittal

The UNGC has come a long way since its establishment ten years ago. It may have its critics but no one can deny that it has been extremely successful in engaging businesses across the globe in tackling sustainability issues. It is now the largest corporate citizenship and sustainability initiative in the world, with over 8,000 corporate participants from over 130 countries. Executive Director Georg Kell, who has been at the helm since 2000, has directed support towards the companies and regions that need it the most and in doing so has ensured the UNGC has become a genuinely global initiative.

HUGoSpowERS,River SimpleNominated by: Ramon Arratia, InterfaceFLOR

Hugo Spowers is developing an approach to car design that could revolutionise the auto industry. Last year his company River Simple launched its prototype design – a lightweight two-seater car, which runs on a hydrogen fuel cell and combines several high efficiency innovations. River Simple’s business model is to make the design available online to all potential developers so that it can be enhanced and the cars built locally. Around 50 cars will be in production by 2013. These will be leased to local customers, with a fuel and repair cost included, at a cost of around £200 a month. Gas supply company BOC will install hydrogen stations for the cars.

MoHAMEDNASHEED, President of the MaldivesNominated by: salterbaxter

The maldives cabinet members attended a meeting with a difference last October – they were wearing scuba diving gear and the meeting was held underwater. This is just one of the imaginative ways in which President Nasheed has highlighted the dangers that rising sea levels pose for his island nation. Since becoming President he has shown remarkable leadership, pledging to make the maldives the first ever carbon-free country, running entirely on renewable energy sources within ten years. He has also brought attention to the plight of the vulnerable and the poor in the face of global warming and shown that all nations, regardless of size, can help prevent climate change.

KareN DeIgNaN, salterbaxter

These nominations highlight that the sustainability challenge requires innovation and leadership from many different types of people and places.


PRODUCTS IN FOCUS

Palm oil: the hidden

truth


You may not realise it, but palm oil is everywhere.

Walk around your average supermarket and it’ll be in

at least half of the products on the shelves.

Sustainability team Salterbaxter

Sources:BBC Panorama: http://news.bbc.co.uk/panorama/hi/front_page/newsid_8517000/8517093.stmThe Independent: http://www.independent.co.uk/environment/green-living/palm-oil-in-britains-top-brands-1677467.htmlRainforest Action Network: http://ran.org/fileadmin/materials/rainforest_ag/tpwpo/list_of_palm_products_20090917.pdfPalm oil free shopping list: http://www.docstoc.com/docs/15724828/Palm-Oil-Free-Shopping-List

As a consumer, how are you supposed to know which products contain palm oil and which don’t? Looking at some of the labels here you’d need a science degree and some serious detective skills to figure it out.

Palm oil has been a big issue on the sustainability agenda for many years now. Despite the best efforts of the Roundtable on Sustainable Palm Oil (RSPO) and genuine improvements in responsible sourcing by several major brands, there are still

serious issues around lack of transparency, deforestation, and threats to biodiversity.

In April this year palm oil was the subject of a high profile NGO campaign. Greenpeace put its weight behind tackling Nestlé’s palm oil sourcing practices and used Nestlé’s flagship brand Kit Kat as the target. Six months on we wanted to investigate whether the drama was still unfolding, or whether it had simply fizzled out. Here’s what we found.

mAYBELLINE mASCARA Hydrogenated palm oil

GILLETTE SHAvING CREAm Palmitic acid

DOvE SOAPSodium palmitate

HOvIS BREADvegetable fat

CARR’S TABLE wATER BISCUITSvegetable oil (palm)

vASELINEIsopropyl palmitate

CETYL PALmITATE AND OCTYL PALmITATE

ELAEIS GUINEENSIS (TAxONOmIC NAmE FOR PALm OIL)

HExADECYLIC OR PALmITIC ACID

HYDRATED PALm GLYCERIDES

PALm OIL KERNEL

PALmATE/PALmITATE

ANYTHING wITH PALmITATE AT THE END

Other Names fOr palm OIl

vEGETABLE OIL/FAT

CETEARYL ALCOHOL

EmULSIFIER 422, 430–36, 470–8, 481–483, 493–5

GLYCERYL STEARATE

SODIUm DODECYL SULPHATE (SDS OR NADS)

SODIUm ISOSTEAROYL LACTYLAYE

SODIUm LAURETH SULPHATE

SODIUm LAURYL SULPHATE

STEARETH-2 AND STEARETH-20

STEARIC ACID

lIKely tO CONtaIN palm OIl


s:tarSalterbaxter has developed a service to track and analyse relevant online conversations and content over a range of online media, blogs and social media.

S:TAR (Sustainability: Track, Analyse, Respond) is powered by semantic technology software provided by Open Amplify to track online conversations and exchanges across thousands of online international media sources and social media platforms. It follows how a sustainability topic or issue is being discussed, who it involves, what is being said and who the main actors in the story are. Salterbaxter then use this information to determine what that means for the sustainability issue in question and the companies and organisations involved.

We put S:TAR to work on palm oil with the intention of tracking big brands and their manufacturers who use palm oil in their products. And we also kept an eye on other players in the palm oil picture – like producers. Over the time we were tracking the issue (August 1 2010 to September 27 2010) a storm blew up over Sinar Mas, the major Indonesian palm oil producer that Greenpeace has been targeting. The following pages profile our findings. We have gathered a wealth of detail on palm oil and the influential online stakeholders, so if you would like to discuss the issue further, or have an issue you would like us to track for you, do get in touch.

PRODUCTS IN FOCUSContinued

Greenpeace’s campaign against Nestlé was rolled out with a hard-hitting viral ad campaign, social media campaign and traditional on-the-ground activism targeting the company’s AGm and offices in the UK and Europe. Nestlé responded with changes to policy and with direct action, severing contracts with Sinar mas, a major palm oil producer and supplier, heavily criticised by Greenpeace for its questionable practices.

Greenpeace celebrated a successful outcome and moved the focus to HSBC, who invest in Sinar mas, by lampooning the global bank’s advertising messages. Again, the pressure was successful, and HSBC dropped their investment. Greenpeace’s campaign against Sinar mas continued with a focus on other areas of its business – the paper and pulp industry. The combined effects have caused other multi-national companies to protect their brands and reputations by distancing themselves from alleged irresponsible behaviour in the supply chain.

This campaign brought the issue of palm oil back to the top of the materiality list for many companies. Palm oil is an issue that plays out all the interlocking complexities and trade-offs that make sustainability so challenging. It is big business, a global supply chain, and an ingredient in big brand consumer products. Irresponsible production damages the environment, influences climate change and affects biodiversity – but local communities and economies depend on the trade. Plus it is in the full glare of the NGO spotlight and the media, making the brands involved decidedly uncomfortable.

we wanted to explore how this recent rise in profile for palm oil is affecting brands, companies and the palm oil value chain in general. we have honed in on how stakeholders are responding online – but wanted to look beyond the standard commentary from sustainability specialists. So we have put our tracking service S:TAR to the test to see how a range of online reporters and commentators view the issue.

Palm oil goes viral


The big story: All roads lead to Sinar MasAs early as December 2009, Sinar mas was exposed by Greenpeace and accused of violating Indonesian law and RSPO (Roundtable on Sustainable Palm Oil) codes of practice in its production methods. In August 2010 the situation snowballed into a succession of claims and counterclaims, played out with official statements, news releases and reports commissioned to assess the validity of each party’s claims. Sinar mas’s customers – big consumer brand organisations – began cutting ties and the mud slinging continued. A third party audit report commissioned by Sinar mas to counter Greenpeace’s claims was apparently ‘spun’ by Sinar mas with misleading statements to the stock market and the government, necessitating public clarifications by the auditors. The situation escalated with another report by ITS Global, commissioned and released by Sinar mas, which Greenpeace duly discredited. Knowing the

uncertainty around how these reports have been presented to the world, the coverage online about this part of the Sinar mas saga has to be read with circumspection. To all intents and purposes the clash became quite a dirty fight.

Sinar mas’s operations, the subsequent attempts to refute Greenpeace’s accusations and the volume of stakeholder commentary clearly unsettled big consumer brands. many severed relationships, feeling themselves to be at serious risk. Unilever, Burger King, Carrefour, Kraft Foods and General mills all cancelled contracts. Other brands were mentioned in negative coverage of the issue – such as Pizza Hut, Dunkin Donuts and KFC. Even the Norwegian Government came under fire for not divesting.

At the end of our monitoring period the RSPO issued statements threatening Sinar mas with exclusion from the group – tough tactics from a body that has never expelled a member before. However even this step was not without its

drama as the letters written to Sinar mas were mistakenly uploaded to the RSPO’s site, instead of the official statement – giving us (and Greenpeace) more insight into events than was originally intended!

Interestingly the two other main stories that come through during the monitoring period (investment in the palm oil industry and the importance of palm oil to local Indonesian communities – see ‘satellite stories’ on p56), were also inextricably linked to Sinar mas. It seems that, over this time scale at least, all roads lead to Sinar mas.

So who were the stakeholders involved in discussing and influencing these issues online?

As these events unfolded S:TAR gave us insight into who was discussing them, in what terms. The voices online were specialist media, as would be expected, as well as mainstream media such as The Guardian and newswires like Reuters. There was also a large amount of commentary

on blogs and of course, the NGOs were vocal and influential. The combined effect of all these voices on Sinar mas was a hit to the bottom line with departing customers, and a hit to reputation. There was also a dip in share price – though not all financial analysts gave the issue the same level of importance. (Deutsche Bank: “The comments by RSPO will further complicate Golden Agri and Sinar mas’ efforts to regain customer confidence”, versus BNP Paribas: “The market is unwilling to pay a premium for the RSPO-certified CPO”.)

What follows is an overview of the results from S:TAR. We have shown two ‘influence maps’ and an overview of the information gathered by the tracking software. Together these give a broad view of how the issue appeared online. For more detail and sources please visit our website, www.salterbaxter.com, or give us a call.


AN INFLUENCE mAP TAKES A SNAPSHOT OF THE ONLINE CONvERSATIONS AND INFLUENTIAL SOURCES REvOLvING AROUND A SPECIFIC ISSUE OR TOPIC AT A CHOSEN mOmENT IN TImE.

IT INDICATES wHICH wEBSITES AND ARTICLES ARE DEEmED INFLUENTIAL, HOw SITES ARE REFERENCING EACH OTHER’S CONTENT AND wHICH PHRASES, INDIvIDUALS AND ORGANISATIONS ARE mOST mENTIONED. wE CAN USE THIS INFORmATION TO TAKE A vIEw ON HOw STAKEHOLDERS INFLUENCE AN ISSUE ONLINE, AND THAT INFORmATION CAN FEED INTO A COmPANY’S DECISIONS ABOUT ITS SUSTAINABILITY STRATEGY AND STAKEHOLDER DIALOGUE.

BY RUNNING A NUmBER OF mAPS AT DIFFERENT TImES wE CAN SEE HOw AN ISSUE OR STORY IS EvOLvING AmONGST vARIOUS ONLINE COmmUNITIES.


Sinar Mas mapThis map confirms that this is a high profile story. The map is dense, there are lots of phrases referenced (green squares), a range of sites of varying influence (circles of differing sizes) and a good level of involvement from organisations and brands (pentagons and octagons). So what findings can we extract from the detail?

The range of phrases, their specialist nature and their size indicate that the chatter around Sinar mas and palm oil goes into the detail behind the story and gives readers the context about palm oil. That confirms this is a complex issue so stakeholders need a constant flow of explanatory information.

There are a significant number of individuals involved, and these individuals include senior executives and leaders in their fields, not to mention the President of Indonesia. So the palm oil agenda is placed firmly in the boardroom. Sinar mas (and other organisations) would need to engage stakeholders at a very senior

level to be credible. Some of those mentioned include:

Daud Dharsono, CEO, Sinar mas

Peter Brabeck-Letmathe, CEO, Nestlé

marc Engel, CPO, Unilever

Susilo Bambang Yudhoyono, President of Indonesia

Rolf Skar, Senior Campaigner, Greenpeace

KEY NAmES Sinar mas’s corporate

websites (sinarmas.com and smart-tbk.com) do not feature highly. This suggests that, apart from statements made by the CEO and the corporate affairs team, Sinar mas was not encouraging stakeholders to visit its sites to gain influence in the debate. It seems it relied more on a PR and lobbying approach to crisis management. If its aim was to reassure its key customers, that tactic was not successful.

what Is aN INflueNCe map?

mentions of specific phraseswebsitesmentions of brand names or company namesmentions of organisations – governmental or non-governmentalNamed individuals

PALM OIL PLANTATION

SOCIAL MEDIA SITES

ENERGY

OIL

http://www.alertnet.org

LONGER BUY PALM OIL

HTML

FINANCE

GREENHOUSE GAS EMISSIONS

http://www.terradaily.com

SINAR MAS

http://forests.org

EUROPEAN UNION

http://www.orangutanprotection.com

GANDI SULISTIYANT

NATURAL SERVICES

GAVIN NEATH

JOSE LOPE

MANUFACTURING

MARC ENGEL

OIL PRODUCERS

ANNETTE COTTER

JOHN SAUVEN

http://www.reuters.com HAMBURGER CHAINSFAJAR REKSOPROD

IMAGE

PALM OIL GROWER

OIL PALM PLANTATIONS

GREENHOUSE GAS EMITTED

PALM OIL CROPS

http://www.smart−tbk.com

http://www.fastcompany.com

SUSTAINABLE

FOOD CONGLOMERAT

SOURCE GREENHOUSE GAS EMISSION

CRUDE PALM OIL

PAPER PRODUCT

PALM OIL GIANT

http://www.bakeryandsnacks.com

IAN DUFF

http://www.bloomberg.com

UNITED NATIONS

OIL GIANT

OIL PALM CULTIVATION

http://biz.thestar.com.my

http://www.nestle.com

PALM OIL PRODUCTION

http://www.huffingtonpost.com

BANK

PALM OIL BUYERS

http://www.guardian.co.ukhttp://thestar.com.my

EKA TJIPTA WIDJAJ

SUPPLY CHAIN

http://www.greenpeace.org.uk

PARENT

http://www.leaderpost.com

FOOD PRODUCTS

YUDHOYONO

PALM OIL EXPANSION

PUBLIC RELATIONS

ROLF SKAR

FOOD GIANT

PLANTED OIL PALM

http://www.treehugger.com

http://www.asiancorrespondent.com

http://www.thejakartaglobe.com

AGRIBUSINESS GIANTS

PALM OIL OPERATIONS

KFC

PALM OIL SUPPLY

PALM OIL SUPPLY

OIL PALM

ENVIRONMENTAL

SUSTAINABLE PALM OIL PRODUCTION

AIDA GREENBURY

SELF−COMMISSIONED AUDIT

FOODLONGER SOURCE PALM OIL

FOOD CHAIN

NEWS MEDIA

USE PALM OIL

PALM OIL ARM

PALM OIL PRODUCTS

PAPER SUPPLIES

PAT VENDITTI

PALM OIL PRODUCER VEGETABLE OIL

SUSILO BAMBANG

VALERIE LEE

RECENT INDEPENDENT AUDIT

PIZZA HUTPALM OIL INDUSTRY

PALM OIL CONTRACTS

http://news.mongabay.com

http://www.cosmeticsdesign−europe.com

LONGER PURCHASE PALM OIL

UNIDENTIFIED SUPPLIER

PALM OIL SECTOR

BIOFUELS

http://www.globalpost.com

INDONESIAN GOVERNMENT

http://www.examiner.com

http://www.greenbiz.comDUNKIN

PALM OIL PLANTATIONS

OIL PALM TREES

http://bigpondnews.com

PALM OIL

OIL PRODUCER

PALM OIL EXPORTS

PALM OIL PRODUCERS

FOREST MANAGEMENT

PALM OIL FIRMS

http://uk.reuters.com

http://weblog.greenpeace.org

ROUNDTABLE ON SUSTAINABLE PALM OIL

GREENPEACE

http://www.watoday.com.au

http://www.orangutans−sos.org

http://members.greenpeace.org

FRIENDS OF THE EARTH

PALM OIL SUPPLIES

PETER BRABECK−LETMATHE

ED DAVIES

FOOD MAKER

http://www.abc.net.au

http://www.thejakartapost.com

SUSTAINABLE PALM OIL

INDONESIA

DIRECT PALM OIL CONTRACT

DAUD DHARSONO

http://inform.com


ARROwS INDICATE THAT A PERSON/PHRASE/wEBSITE HAS BEEN REFERENCED BY THE ICON THAT THE ARROw ORIGINATES FROm. THE ARROwS SHOwN ON THIS AND THE FOLLOwING mAP ARE A REPRESENTATIvE SELECTION OF THE FULL DATA, GIvING THE OvERALL SENSE OF HOw THE ICONS CONNECT TO EACH OTHER. FOR THE COmPLETE mAP AND mORE INFORmATION PLEASE CONTACT US.

THE SIzE OF THE ICONS RELATES TO vOLUmE OF mENTIONS AND/OR LEvEL OF INFLUENCE

hOw tO reaD aN INflueNCe map

PALM OIL PLANTATION

SOCIAL MEDIA SITES

ENERGY

OIL

http://www.alertnet.org

LONGER BUY PALM OIL

HTML

FINANCE


http://www.terradaily.com

SINAR MAS

http://forests.org

EUROPEAN UNION

http://www.orangutanprotection.com

GANDI SULISTIYANT

NATURAL SERVICES

GAVIN NEATH

JOSE LOPE

MANUFACTURING

MARC ENGEL

OIL PRODUCERS

ANNETTE COTTER

JOHN SAUVEN

http://www.reuters.com HAMBURGER CHAINSFAJAR REKSOPROD

IMAGE

PALM OIL GROWER


GREENHOUSE GAS EMITTED

PALM OIL CROPS

http://www.smart−tbk.com


SUSTAINABLE

FOOD CONGLOMERAT

SOURCE GREENHOUSE GAS EMISSION

CRUDE PALM OIL

PAPER PRODUCT

PALM OIL GIANT

http://www.bakeryandsnacks.com

IAN DUFF

http://www.bloomberg.com

UNITED NATIONS

OIL GIANT

OIL PALM CULTIVATION

http://biz.thestar.com.my

http://www.nestle.com

PALM OIL PRODUCTION

http://www.huffingtonpost.com

BANK

PALM OIL BUYERS

http://www.guardian.co.ukhttp://thestar.com.my

EKA TJIPTA WIDJAJ

SUPPLY CHAIN


PARENT

http://www.leaderpost.com

FOOD PRODUCTS

YUDHOYONO

PALM OIL EXPANSION

PUBLIC RELATIONS

ROLF SKAR

FOOD GIANT

PLANTED OIL PALM

http://www.treehugger.com

http://www.asiancorrespondent.com


AGRIBUSINESS GIANTS

PALM OIL OPERATIONS

KFC

PALM OIL SUPPLY

PALM OIL SUPPLY

OIL PALM

ENVIRONMENTAL

SUSTAINABLE PALM OIL PRODUCTION

AIDA GREENBURY


FOODLONGER SOURCE PALM OIL

FOOD CHAIN

NEWS MEDIA

USE PALM OIL

PALM OIL ARM

PALM OIL PRODUCTS

PAPER SUPPLIES

PAT VENDITTI

PALM OIL PRODUCER VEGETABLE OIL

SUSILO BAMBANG

VALERIE LEE


PIZZA HUTPALM OIL INDUSTRY

PALM OIL CONTRACTS


http://www.cosmeticsdesign−europe.com

LONGER PURCHASE PALM OIL

UNIDENTIFIED SUPPLIER

PALM OIL SECTOR

BIOFUELS

http://www.globalpost.com

INDONESIAN GOVERNMENT

http://www.examiner.com

http://www.greenbiz.comDUNKIN


OIL PALM TREES

http://bigpondnews.com

PALM OIL

OIL PRODUCER

PALM OIL EXPORTS

PALM OIL PRODUCERS

FOREST MANAGEMENT

PALM OIL FIRMS

http://uk.reuters.com

http://weblog.greenpeace.org

ROUNDTABLE ON SUSTAINABLE PALM OIL

GREENPEACE

http://www.watoday.com.au

http://www.orangutans−sos.org

http://members.greenpeace.org

FRIENDS OF THE EARTH

PALM OIL SUPPLIES

PETER BRABECK−LETMATHE

ED DAVIES

FOOD MAKER


http://www.thejakartapost.com

SUSTAINABLE PALM OIL

INDONESIA

DIRECT PALM OIL CONTRACT

DAUD DHARSONO

http://inform.com



OvER 70% OF THE CONvERSATIONS wE FOUND ABOUT PALm OIL HAPPENED ON BLOGS

LESS THAN 0.5% OF mENTIONS wERE ON COmPANY wEBSITES

APPROxImATELY 3% OF THE mENTIONS wERE FROm SPECIALIST PRESS SOURCES

GREENPEACE HAD LESS THAN 1% OF mENTIONS

SUSTAINABLE PALm OIL wAS mENTIONED IN 3.5% OF ALL THE CONvERSATIONS wE FOUND

30% OF THE COvERAGE wAS NEGATIvE IN ITS SENTImENT

BRANDS AND COmPANIES mENTIONED:TESCOUNILEvERKRAFTPIzzA HUTKFCDUNKIN DONUTSBURGER KINGNESTLÉCARGILL

A SELECTION OF THE mORE vOCAL BLOGS:HTTP://GLOBALNEwSBLOG.COm

HTTP://GREENPEACE.ORG.UK/BLOG

HTTP://ASIANCORRESPONDENT.COm

HTTP://LES4ELEmENTS.TYPEPAD.FR

HTTP://BULLFAx.COm

HTTP://SOLvECLImATE.COm

ANTARA INDONESIAN NEwS AGENCY

BIOFUELS DIGEST

BUSINESS TImES

EARTH STREAm

FINANCIAL TImES

GREENPEACE

GUARDIAN

mONGABAY

JAKARTA GLOBE

JAKARTA POST

mALAYSIAN NEwS AGENCY

REUTERS

Find more online at www.salterbaxter.com

Mainstream media

(The Guardian)

Greenpeace

Specialist sources

(Huffington Post, Greenbiz,

Treehugger)

Regional media

(The Jakarta Post, The Jakarta

Globe)

Other companies are being drawn into the conversation, exposing them to reputational risk by association: Pizza Hut, KFC, Dunkin Donuts. However none of these brands took action against Sinar mas.

The RSPO appears small, indicating that at that time it wasn’t vocal in the debate – which it should have been as the issue was, at this point, in full flow. However it did later take steps against Sinar mas.

An economic angle appears, with the word ‘finance’ and the importance of bloomberg.com. So online commentary does position palm oil as affecting the bottom line. If we were advising a company involved in this value chain, we would recommend more analysis of this point.

The paper industry is referenced, which might point to the initial Greenpeace report on Sinar mas, or might be an indicator that other parts of Sinar mas’s business are being affected by its adverse reputation. If we were analysing this information for Sinar mas, we would advise further exploration of the effect of stakeholder opinion in the paper industry.

SOmE OF THE mORE INFLUENTIAL SITES

s:tar: OvervIew Of the traCKINg sOftware results fOr the whOle palm OIl stOry

KEY COmmENTATORS ON SINAR mAS


Burger King mapBurger King took the decision to sever relationships with Sinar mas and engaged customers via Facebook receiving good feedback on their decision. This coincided with the purchase of Burger King by 3G Capital for $3.26 billion. It could be inferred that 3G Capital appreciate the damage this story could have on Burger King’s brand – and the subsequent devaluation of the organisation. So what does the influence map tell us about what stakeholders were saying?

The map is less dense than the Sinar mas map as Burger King is not the main protagonist in the overall story. However there are plenty of common elements, meaning Burger King’s brand has been clearly linked with the palm oil issue in stakeholders’ minds.

The phrases ‘recent independent audit’ and ‘self commissioned audit’ are reasonably large, so Burger King is definitely being linked with the scandal surrounding Sinar mas’s claims and counterclaims against Greenpeace.

Though small, the words ‘law-breaking’ and ‘activist’ also appear which link Burger King with the very negative sentiments of the Sinar mas story.

Greenpeace is influential as an organisation and a website source, as we would expect. And Rolf Skar from Greenpeace who appeared on Sinar mas’s map is also influential. was this just because of general commentary on Burger King or was there a risk that Burger King might become a target for Greenpeace (this map was generated before Burger King announced it was severing relationships with Sinar mas)?

Interestingly Burger King’s own site features quite well and is referred to by a specialist source, greenbiz.com. This indicates Burger King is being proactive in engaging online stakeholders, more so than Sinar mas.

A number of the influential sources are specialist sustainability sources. The most influential source (mongabay.com) is an environmental news site. Local websites also appear, but few national sites do.

ENERGY

http://www.justmeans.com

ROLF SKAR

OIL

FOOD GIANT



KFC

PALM OIL SUPPLY

OIL PALM

ENVIRONMENTAL

http://forests.org

http://www.bk.com

http://www.wtopnews.com


FOOD

http://bnd.vrvm.com

FOOD CHAIN

PALM OIL PR

BOGOR AGRICULTURAL INSTITUTE

PALM OIL PRODUCER

MANUFACTURING

http://www.google.com/hostednews/afp/article

http://ofwnow.com

LAW−BREAKING

OIL SUPPLIER

HAMBURGER CHAIN


PALM OIL CROPS



PIZZA HUT

PALM OIL INDUSTRY


BIOFUELS

PALM OIL GIANT

http://www.greenbiz.com

DUNKIN


PALM OIL

http://en.vivanews.com

http://www.khaleejtimes.com

FOREST MANAGEMENT

http://www.climateark.org

PALM OIL PRODUCTION

http://www.kval.com

WORLD BANK

GREENPEACE

SUPPLY CHAIN


PALM OIL SUPPLIES

ACTIVIST


DAUD DHARSONO


Satellite storiesTwo other stories came to our attention during the monitoring period. The first was investment in the palm oil industry, specifically in Liberia. The main leader in this investment push is Golden Agri-resources, the parent company of Sinar mas. was the release of this information timed to reassure the investment community and the palm oil commodity market that the line of Sinar mas customers heading for the door was not going to have any long-term effect on the group’s businesses? There certainly wasn’t the same volume of coverage on the investment story as on Sinar mas in general, but the news of increased investment was generally well received.

The other angle covered was the local and social impact of the palm oil industry – the positive side of a local industry supporting jobs and community infrastructure. It is a part of the palm oil issue that should not be ignored. But again, knowing that Sinar mas hired global PR firm, Bell Pottinger, its appearance in this monitoring period may not be by chance. Sinar mas clearly used their support of local communities in official statements to defend their behaviour and reputation. No doubt a company should be able to draw on the reserves of a positive reputation in times of crisis, but aggressive promotion of ‘the good bits’ can serve to reinforce suspicion of the ‘bad’.

From tracking to responseThe Sinar mas story highlights the scale and depth of the palm oil issue, and the global interest it can capture. we can justifiably say that there is a significant level of interest in how companies behave here, demonstrated by high profile NGO activity, significant online conversations, and decisive action by big brand owners. So, broadly, how have companies continued to respond?

Prior to our monitoring period, leaders were already making clear statements around their standards and goals for working towards sustainable palm oil. As the Sinar mas crisis hit, there were a range of responses. Some companies stepped up their efforts, disassociated themselves from Sinar mas, and took crisis management action. Some brands seemed to keep their heads down – KFC, Dunkin Donuts, Pizza Hut. Cargill, no strangers to NGO campaigns itself, went for a policy of continued engagement with all parties, Sinar mas included.

most of the companies’ responses were conducted via traditional corporate statements, which were then picked up by media sources and commented on in blogs. Some used specialist newswire channels to reach more specialist audiences but it seems that only Burger King took the initiative to engage directly with consumers via Facebook.

Unilever and General mills have recently released information on the improvements they have made around striving for sustainable palm oil. The Body Shop has announced it is severing commercial ties with a supplier in Colombia who is forcing resettlements of local communities.

These responses point to a robust and considered approach, based on having longer-term experience of the issue and its challenges. The same can be said about Nestlé and Burger King’s communications. Though originating in crisis, they came across as measured, and contained their exposure to negative commentary.

That is all the opposite of how Sinar mas’s responses came across. Steeped in claim and counterclaim, their words fed the fury of an already highly charged NGO campaign. The crisis communications strategy seemed routed in old-fashioned faceless PR tactics and little importance was placed in engaging online stakeholders. This was compounded by a distinct impression that the satellite stories about positive investment in the palm oil industry were seeded to attempt to patch up the damage to reputation.

The power of the webwhat is all this information telling us? The palm oil issue has been getting a lot of attention amongst online stakeholders, and companies

and brands have been either forced or strongly encouraged to respond to that weight of opinion. The web is a powerful tool to track progression of an issue and stakeholder mood. It can be used to identify where and when risks to brand, reputations and company operations are peaking. Clever dovetailing of sustainability strategy and communications strategy can then be deployed to address those risks and find opportunities.

Top tips for engaging stakeholders online:

BE AwARE: IF YOU KNOw wHAT ONLINE STAKEHOLDERS ARE SAYING ABOUT YOU, YOU CAN RESPOND

BE GENUINE: TRANSPARENCY IS ALL THE mORE ImPORTANT HERE AS INFORmATION SPREADS FAST AND FREELY, AND IT’S EASY TO BE CAUGHT OUT

BE COLLABORATIvE: wORKING wITH OTHERS HELPS, ESPECIALLY wITH wELL-ESTABLISHED PARTNERSHIPS. ARGUABLY THE RSPO SHOULD HAvE BEEN mORE vOCAL IN THE PALm OIL ISSUE, BUT mAYBE IT NEEDED ENCOURAGEmENT FROm THE mEmBERS

BE FIRST: IT’S BETTER TO BE UP TO SPEED ON AN ISSUE BEFORE A CRISIS HITS, THAN RESPOND TO THE AFTERmATH

tOp tIps



pret a maNger paCKagINg

The best natural stuff you’d want to use at home

I don’t know about you but I don’t choose chicken that’s been mass-farmed in Brazil, frozen, then flown all the way to the UK.

pret a maNger paCKagINg

Traditional, well-sourced, sustainable, chemical-free unadulterated goodness. No air miles, no shelf life, no sell-by dates

So do the chickens walk from Brazil then?

To be fair to Pret, we note that they have now started using ‘British chicken’ in some of their range. At least those chickens don’t have too far to walk.

Communicating sustainability

can be a slippery slope towards

greenwash. Here we look at a few classic

cases, from the slightly vague to the

downright outrageous.

Sustainability team Salterbaxter

Product label

The greenwash

gallery



fur COuNCIl Of CaNaDa: fur Is greeN CampaIgN

Fur is eco-logical

This one really doesn’t need any commentary, does it? It might not be as black and white as the activists claim but to go as far as positioning fur as an ethical, sustainable product?

CrÉDIt agrICOle: greeN baNKINg CampaIgN

For Crédit Agricole, green is not just a colour or a trend

Possibly one of the most ridiculous campaigns of the year. we’re sorry, but for Crédit Agricole, green is just a colour. And they’re trying to claim a whole ethos and philosophy that’s actually got very little substance.

And why Sean Connery?

Website


1

These three pieces of information – species, source, catch method – are what Greenpeace and others have called for the tuna industry to disclose on every tin of tuna. Princes don’t even disclose one. “Fully committed”? we don’t think so.

prINCes CaNNeD tuNa

Princes is fully committed to fishing methods which protect the marine environment and marine life

Tell us which fishing method you used to catch this tuna, Princes, because some methods (pole and line) are a lot better than others (fish-attracting devices that kill turtles, sharks, rays and juvenile tuna). And while you’re at it, tell us which type of tuna we’re eating (endangered yellowfin or sustainable skipjack) and where it came from.

Product label


We are creative communications and strategy advisers to many of Europe’s largest and most exciting organisations. Our work covers five areas: sustainability, digital communications, branding, corporate reporting and employee engagement.

The bit that makes us different is our strength in sustainability. with a truly international perspective, we are increasingly seen as Europe’s leading sustainability communications consultancy.

we offer a full range of corporate responsibility and sustainability communications services – covering strategy development, branding (consumer and corporate), transparency, disclosure, stakeholder engagement and employee engagement. Our multi-lingual team of sustainability consultants is basically designed to be able to help major corporations tackle every aspect of the sustainability agenda.

SUSTAINABILITY CLIENTS

Across Europe and Scandinavia we work with multinationals such as adidas Group, Carlsberg Group, Coca-Cola, E.ON, Fortum, LEGO, marine Harvest, Nokia, and UPm. we also have indepth experience of working in Africa and Latin America.

CONTACT US

Nigel Salter – [email protected] Deignan – [email protected] Davies – [email protected]

Tel +44 (0)20 7229 5720

UKAnglo AmericanArcelormittalAxA UKBacardiBAE SystemsCamelotCoca-Cola GB & CCEDe BeersE.ON UKHammersonmorrisons02 UKRolls-RoyceTullow Oilvodafone

INTERNATIONALadidas GroupCarlsberg GroupE.ON GroupFortumH&mING GroupInterfaceFLORKnaufLEGOmarine Harvestmillicom International (Tigo)NokiaOrkla Telefónica 02 EuropeUPm

ABOUT SALTERBAxTER

rObert hOrNe grOup lImIteD aND muNKeN

Robert Horne Group Limited in the UK supplies munken paper and is one of the UK’s specialists on environmental papers.

Arctic Paper’s munken design range is manufactured at the environmentally conscious munkedals mill, located in natural surroundings adjacent to the nature reserve of the Gullmars Fjord in Sweden. Arctic Paper has a long tradition of certified environmental work at this sensitive natural site.

Today, Arctic Paper munkedals is one of the foremost mills in the world with regard to low water usage and natural purification processes: where other mills may use 10–16 litres per kilogram of paper, the mill in munkedal uses between three to four litres of water, setting a global standard. Today Arctic Paper munkedals is contributing with its knowledge collected over the years to an ISO standard for ‘water footprinting’.

The environment is an important issue at all levels to Arctic Paper. Accordingly, suppliers are chosen who use the best possible raw materials that include all environmental considerations. Using clean transport to reduce emissions into the air is a high priority and waste products are separated at source to enable the most effective recycling.

The environmental engagement in Arctic Paper has been focused increasingly in the last decade on the global effects of paper making. Forest certification has the aim of ensuring that forests are managed in a sustainable way and today the complete standard range of munken paper grades are available as FSC and PEFC certified.

In the UK, Robert Horne Group are the stockist merchants for the design munken range. For samples or environmental advice please call: 08457 443322.

2001 trends in Csr reporting

2007 Cutting through the noise of the climate change debate


2009 mapping the landscape of european Cr

2006 Is Cr in your blood?

Trends in CSR reporting 2003-2004A joint report by salterbaxter and Context

04

social

environmenta contex

Directions No


2005 best in show of this year’s crop


2008 sustainability gets tough

OTHER FEATURES INCLUDE:

GS SUSTAIN on ‘Crossing the Rubicon’ The sustainability year – winners, losers and highlights ING’s Third Industrial Revolution Palm oil – myths, facts and some scary research

Directions 10 The Innovation Edition

INSIDE Lord Nicholas Stern explains that if we want to keep growing, we need to keep innovating

2010 the Innovation edition

abOut DIreCtIONs

Directions is in its tenth year. It is widely viewed as the leading annual publication on trends in sustainability and communications. Salterbaxter also produces regular supplements on key topics throughout the year.

teN years Of DIreCtIONs

Cert no. TT-COC-002226

Copyright © salterbaxter. Directions is a registered trademark of salterbaxter

salterbaxter 202 Kensington Church Street, London w8 4DP Tel +44 (0)20 7229 5720 www.salterbaxter.com

with special thanks to:FulmarColour, an ISO14001 certified printers, CarbonNeutral®, Alcohol Free, FSC and PEFC chain of custody certified, www.fulmarcolour.comRobert Horne for supplying the paper, munken Polar Rough which is FSC/PEFC/ISO14001/EmAS certified and acid free, www.roberthorne.co.ukJohn Edwards, product photography, [email protected] Neill, illustrations, pages 16–23, www.garyneill.com Julian Hicks, imagery retouching, www.retouchthis.co.uk

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