Environment as a strategic issue and the role of the board.

October 5, 2007Sirpa Juutinen

Environmental risks, standards, activities, responsibilitiesChair of the Year

Slide 2Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Corporate Involvement in Society: A strategic Approach (by Michael E.Porter and Mark R. Kramer (Harvard Business Review, Dec 2006))

Generic Social Impact

Value Chain Social Impacts

Social Dimensions of Competitive Context

Good Citizenship Mitigate harm from value chain activities

Responsive CSR

Transform value chain activities to benefit society while reinforcing strategy

Strategic philantrophy that leverages capabilities to improve salient areas of competitive context.

Strategic CSR

1 Corporate Responbility aspects as part of the strategy

OperationalEffectiveness

OperationalEffectiveness Strategic

Positioning

StrategicPositioning

Slide 3Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

The Board is interested in mega trends – both in terms of risks and opportunities

Low-carbon economy

Slide 4Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Toyota:Eco-innovation the New Market Differentiator

Eco-Product Programme

Use of recyclable materials

Zero waste to landfill

Phase out substances of environmental concern

Toyota Prius

Launched: Japan 1997, USA 2000 & UK 2004

CO2 emissions are 32% lower than normal petrol powered cars

In NZ hit the zero waste to landfill target

Market performance

Total global sales as of April 2006 : 504,700

Global profit increased by 39%, to £3.2 billion in Q2 of 2006

GM and Ford losses of $3.4mill & $254 million in the same period

Company Examples

Source: Jonathan Porrit, Forum for the Future

Slide 5Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Sustainability And (Shareholder) Value

FCFF:Free cash flow to the firmWACC:Weighted average costs of capital

2 Corporate Responbility reporting

Slide 6Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Extended Rule Base – what to include in it

Main input comes from market and from stakeholders

Market

CompetitorsGeographic

location

Sosio-politicalenvironment

Stakeholders

InternalEmployeesSuppliers

Customers

ExternalShareholdersRegulators Customers

Corporate Strategy and Objectives Rule BaseRule Base

Slide 7Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Environment in the Reports of the Board of Directors – a review of the 50 biggest Finnish companies

Well reported

Something

No information 20%

40%

40%

Slide 8Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Case Rautaruukki – a risk approach

“… Rautaruukki is committed to the principles of sustainable development. The environmental risks arising from operations are assessed as part of planning when modernising production processes or building new ones. Internal environmental risks were mapped at 30 operating sites during 2006. Environmental due diligence studies to assess the standard of environmental protection were carried out at sites acquired in conjuction with acquisitions.…”

Slide 9Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Case Ahlstrom – a risk approach

“

…“

Slide 10Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Case Kemira Growhow – a compliance approach

“

…“

Slide 11Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

Case Fortum – a strategic approach

“

…“

Slide 12Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

The role of the Board is to ensure that….

Market

CompetitorsGeographic

location

Sosio-politicalenvironment

Stakeholders

InternalEmployeesSuppliers

Customers

ExternalShareholdersRegulators Customers

Corporate Strategy and

ObjectivesRule BaseRule Base

The role of the Board is to decide on…

all (environmental) facts and weak signals together with risks have been identified and that they have been interpreted in wide enough contex.

all relevant stakeholders have been identified, prioritized and weak signals listened to.

the corporate strategy and objectives, the desired risk appetite, and depending on these, the relevant content of the Rule Base.

Slide 13Environment as a strategic issue on board agenda?PricewaterhouseCoopers

October 6, 2007

The Rule Base has to be proactive and the compliance processes need to be well integrated

Reactive Rule Basenot integratedcomplianceprocesses

“Grasshoppers”

Reactive Rule Basenot integratedcomplianceprocesses

“Grasshoppers”

“Ants”“Ants”

Extended, proactive Rule Base

and integrated compliance processes

“Agility champions”

Extended, proactive Rule Base

and integrated compliance processes

“Agility champions”

Extended, proactive Rule Base,

separate compliance processes

“Peacocks”

Extended, proactive Rule Base,

separate compliance processes

“Peacocks”

Degree of integration

Rul

e B

ase

Ext

end

Reactive Rule Base, integrated compliance processes

Differentiation

1 Corporate Responbility aspects as part of the strategy

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