Andrew J. HoffmanHolcim (US) Professor of Sustainable Enterprise

Associate Director, Erb Institute for Global Sustainable EnterpriseUniversity of Michigan

Mid-America Regulatory Conference June 15, 2009

The Business Strategy of Sustainability

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"Scientists make meaningless or ambiguous statements.

Advocates and media translate statements into alarmist

declarations. Politicians respond to alarm by feeding scientists more money…[the accepted

evidence is] entirely consistent with there being virtually no

problem at all."Dr. Richard Lindzen, Massachusetts

Institute of Technology, 2006

“Global atmospheric concentrations of carbon

dioxide, methane and nitrous oxide have increased markedly as a result of human activities since 1750 and now far exceed

pre-industrial values determined from ice cores spanning many thousands of years. The global

increases in carbon dioxide concentration are due primarily to fossil fuel use and land-use

changes, while those for methane and nitrous oxide are primarily due to agriculture.” The United Nations Intergovernmental

Panel on Climate Change, 2007

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“Over the past 2 hours, I have offered compelling evidence that catastrophic global warming is a

hoax. That conclusion is supported by the painstaking

work of the nation's top climate scientists.”

James M. Inhofe, United States Senator, 2003

“The debate is over. There's no longer any debate in the

scientific community about this. But the political systems

around the world have held this at arm's length because it's an

inconvenient truth, because they don't want to accept that

it's a moral imperative." Al Gore, Former United States

Vice President, 2006

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“[Global warming is] Satan's attempt to redirect the church's

primary focus…I believe the church must quickly get serious

about denouncing the accelerating effort to promote

the alleged catastrophic of human-caused global warming.”

Jerry Falwell, 2007

“I have not been one who believed in the global warming. But I tell you, they are making a

convert out of me as these blistering summers. They have

broken heat records in a number of cities already this year and

broken all-time records and it is getting hotter and the ice caps are melting and there is a build up of carbon dioxide in the air.”

Pat Robertson, 2006

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Market Shift

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The Third Wave

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The Third Wave

• Climate change

• Resource prices

• Globalization

• Economic competitiveness

• Information technology

• Income inequality

• National security

• Religious morality

Environment

Economy

Equity

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Sustainability Risk

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Sustainability Risk

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2 Questions…and why they’re the wrong ones.

1. How much will it cost?

2. Does it pay to be green?

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Report Data Sources

Study based on:• 100 question survey of 31 companies.

Advanced Micro Devices, AEP, Air Products, Alcan, Alcoa, Baxter, BP, Calpine, Cinergy, DTE Energy, DuPont, Entergy, Exelon, Fairchild Semiconductors, Georgia-Pacific, Holcim, IBM, Intel, Interface, Maytag, PG&E, Rio Tinto, Rohm and Haas, SC Johnson, Shell, Staples, Sunoco, TransAlta, United Technologies, Whirlpool, and Wisconsin Energy

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Report Data Sources

Study based on:• 100 question survey of 31 companies.• 6 Case studies:

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1 2 3 4 5

Accessing new sources of capital

Enhancing human resourcemanagement and corporate culture

Identifying new marketopportunities

Improving risk management

Social responsibility

Elevating corporate reputation

Protect the global climate

Anticipating and influencing climatechange regulation

Cost savings

Operational improvement

Energy efficiency

Average Response

Why take Action?Once begun, how important are the following measures of success in undertaking your climate-related strategy? (Rate their level of importance: 1 = not important; 3 = neutral; 5 = important).

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1 2 3 4 5

Accessing new sources of capital

Enhancing human resourcemanagement and corporate culture

Identifying new marketopportunities

Improving risk management

Social responsibility

Elevating corporate reputation

Protect the global climate

Anticipating and influencing climatechange regulation

Cost savings

Operational improvement

Energy efficiency

Average Response

Why take Action?Once begun, how important are the following measures of success in undertaking your climate-related strategy? (Rate their level of importance: 1 = not important; 3 = neutral; 5 = important).

1. Increase Profits

3. Enhance Corporate Reputation

2. Pending Government Regulation

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Why take Action?

1. Increase Profits

2. Pending Government Regulation

3. Enhance Corporate Reputation

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Why take Action?

1. Increase Profits– Uncertain energy costs

2. Pending Government Regulation

3. Enhance Corporate Reputation

Source: Bloomberg

$0

$20

$40

$60

$80

$100

$120

$140

$160

May-83 May-87 May-91 May-95 May-99 May-03 May-07

WTI

$/bbl Crude Oil Price

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Why take Action?

1. Increase Profits– Increasing energy costs– Investor interest

2. Pending Government Regulation

3. Enhance Corporate Reputation$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

1 2 3 4 5 6

Growth in SRI Funds in U.S.$ billions, 1995-2005

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Why take Action?

1. Increase Profits– Increasing energy costs– Investor interest– Greentech sector

2. Pending Government Regulation

3. Enhance Corporate Reputation$0.6 $0.9

$1.9

$5.1$6.5

$10.6

$7.9

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

2002 2003 2004 2005 2006 2007 2008 YTD

77% CAGR

Global New Investment in Clean Energy

Source: New Energy FinanceNote: Includes buyouts, excludes projects

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Why take Action?

1. Increase Profits– Increasing energy costs– Investor interest– Greentech sector– Growing consumer demand

“In the 1980s, energy efficiency was number ten, eleven or twelve in consumer priorities. In the last four or five years, it has come up to number three behind cost

and performance, and we believe these concerns will continue to grow.” Casey Tubman, Brand Manager of Fabric Care Products,

Whirlpool

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Why take Action?

1. Increase Profits– Increasing energy costs– Investor interest– Growing greentech sector– Growing consumer demand

2. Pending Government Regulation

3. Enhance Corporate Reputation

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Why take Action?

2. Pending Government Regulation

[If you believe that federal standards on climate change are imminent] when do you believe these standards will take effect?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Beyond 2020

2015-2020

2010-2015

2005-2010

Percentage of Respondents

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Why take Action?

1. Increase Profits– Increasing energy costs– Investor interest– Growing greentech sector– Growing consumer demand

2. Pending Government Regulation

3. Enhance Corporate Reputation

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A Market Transition

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“The future is already here. It’s just unevenly distributed.”

William Gibson (1948 - )

A Market Transition

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A Market Transition

“The key is both influencing the rules of the game and timing your shift to a new carbon-constrained strategy. It’s knowing what the next technology for

energy production is, and shifting when the market is ready to reward it. We’re not going to get out of the oil business in the near term.” But, you have to ask,

“What is the iPod® for energy? Is it out there? You have to be on watch.”

David Hone, Group Climate Change Advisor, The Shell Group

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“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.

The device is inherently of no value to us.”Western Union internal memo (1876)

“Who the hell wants to hear actors talk?”H. M. Warner, Warner Brothers (1927)

“I think there is a world market for maybe five computers.” Thomas Watson, chairman of IBM (1943)

“We don't like their sound, and guitar music is on the way out.”

Decca Recording Co. rejecting the Beatles (1962)

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“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.

The device is inherently of no value to us.”Western Union internal memo (1876)

“Who the hell wants to hear actors talk?”H. M. Warner, Warner Brothers (1927)

“I think there is a world market for maybe five computers.” Thomas Watson, chairman of IBM (1943)

“We don't like their sound, and guitar music is on the way out.”

Decca Recording Co. rejecting the Beatles (1962)

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“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.

The device is inherently of no value to us.”Western Union internal memo (1876)

“Who the hell wants to hear actors talk?”H. M. Warner, Warner Brothers (1927)

“I think there is a world market for maybe five computers.” Thomas Watson, chairman of IBM (1943)

“We don't like their sound, and guitar music is on the way out.”

Decca Recording Co. rejecting the Beatles (1962)

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“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.

The device is inherently of no value to us.”Western Union internal memo (1876)

“Who the hell wants to hear actors talk?”H. M. Warner, Warner Brothers (1927)

“I think there is a world market for maybe five computers.” Thomas Watson, chairman of IBM (1943)

“We don't like their sound, and guitar music is on the way out.”

Decca Recording Co. rejecting the Beatles (1962)

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“I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait

until oil and coal run out before we tackle that.”Thomas Edison (1931)

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Source: Enkvist, Naucler, & Rosander. “A Cost Curve for Greenhouse Gas Reduction.” McKinsey Quarterly, no. 1 (2007): 1–7

Climate Cost Abatement Curve

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A Market Transition

Market Shift

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“To be truly radical is to make hope possible, not despair convincing.”

Raymond Williams (1921-1988)

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“When others show fear, be aggressive.”Warren Buffet (1930 - )

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Thank you

Andrew HoffmanHolcim (US) Professor of Sustainable Enterprise

University of Michigan734-763-9455

ajhoff@umich.eduhttp://www.andrewhoffman.net

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