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GREEN TO GOLDHOW SMART COMPANIES USE

ENVIRONMENTAL STRATEGY TO INNOVATE,

CREATE VALUE, AND BUILD COMPETITIVEADVANTAGE

Daniel C. Esty Hillhouse Professor of Environmental Law & Policy Yale University

The UNLV/JMBM

Hotel Developers ConferenceLas Vegas, Nevada

March 12, 2008

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Book cover

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GREEN BUSINESS = BIG NEWS

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WHY ENVIRONMENT IS NOW A KEYELEMENT OF BUSINESS STRATEGY

Natural

world

drivers

Green-

oriented

stakeholder

s

Evolving

regulation

+++

Energy

Prices

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ENERGY PRICES

Oil over $100/barrel

New energy efficiency logic

Conservation calculations of thepast must be redone

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EVOLVING REGULATION

Carbon controls EU cap and trade system

Changing U.S. political landscape

Emerging interest in China

Extended producer responsibility Waste regulations

Recycling rules

Packaging restrictions

Toxic exposures

Indoor air pollution

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NATURAL WORLD DRIVERS

Air Pollution Waste Management Ozone Layer

Depletion Oceans & Fisheries Deforestation

Climate Change Energy Water Quality & Quantity

Biodiversity&Land Use Chemicals, Toxics, Metals

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Regulators

NGOsBanks

MediaShareholders

Insurers

B2B Buyers

Competitors

Suppliers

Acquirers

The Future(Kids)

Communities

Consumers

Rule-makers &

Watchdogs

Consumers &

Community

Investors &

Risk Assessors

CEO Peers

Employees

IndustryAssoc.

Plaintiffs Bar

Company

Players in

traditional

economic and

business

analysis

Politicians

Business

Partners

& Competitors

NEW STAKEHOLDERS

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CHANGE CREATES OPPORTUNITY

Source: Cleantech Venture Network (2006)

CleanTech Venture Capital

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

CleanTech Venture Capital

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MAINSTREAMING OF GREEN BUSINESS

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NEED TO BE STRATEGIC

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ELEMENTS OF ANECO-ADVANTAGE STRATEGY

Issue spotting AUDIO analysis

Stakeholder mapping

Stakeholder engagement evaluation matrix

Eco-Advantage plays

Manage costs & risks

Develop upside opportunities

Environmental management best practices

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ENVIRONMENTAL AUDIO ANALYSIS

Issue Aspects Upstream Downstream Issues Opportunities

Environment

1. Climate Change

2. Energy

3. Water

4. Biodiversity

5. Chemicals/Toxics

6. Air Pollution

7. Waste

8. Ozone Layer

9. Oceans

10. Deforestation

11. Other(Industry-specific)

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Issue Aspects Challenge or Opportunity

WaterGuest use, back-of-house use, and

restaurants & water features

Opportunity for low-flowfixtures; conservation instandard operating practices

Carbon

Green house gas emissions, specificallycarbon dioxide: electricity use, fuel use,transportation emissions

Carbon strategy based oncarbon audit, targets, andongoing reduction program

Energy Lighting, HVAC, kitchen, laundry Systematic energy reduction

program

Waste Food, packaging, oils, carpeting, linens Recycling, composting, and

water extraction

Air Quality

HVAC Filters not maintained, mold growth inHVAC, not enough fresh air brought into thesystem

Diligence in qualitymonitoring and changingfilters, HVAC Upgrade

Greenprocurement

Large volumes of food, beverages, linens,containers, cleaning supplies, office supplies

Systematically shifting tolower environmental impactsupplies

Green building

Increasingly required by state/localauthorities; offers operational savings &better customer experience

Re-conceptualizing with theenvironment at the center

TOP ENVIRONMENTAL ISSUESFOR HOTELS

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STAKEHOLDER ENGAGEMENTEVALUATION MATRIX

CONNECT COLLABORATE

MONITOR DEFEND

HIGHERLOWER

LOWER

HIGHER

PO

TENTIAL

FOR

COOPERATION

ISSUE INTENSITY

Source: Esty and Winston (2006); based on Savage, et al. (1991)

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1. Cut costs

2. Lower eco-risks

3. Drive revenues Green consumers

New market space

4. Promoteintangiblevalue

Brand building

ECO-ADVANTAGE PLAYS

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ENVIRONMENTAL MANAGEMENTBEST PRACTICES

CEO commitment Environmental management systems

metrics

incentives

Be willing to take risks

learn from mistakes

Sustainable procurement

Green design (buildings, production, products)

Reporting and communications

Culture of concern

Regulatory strategy Partnering

Advisory board

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Leadership

Metrics

OperationsCommunications

PropertyPrograms

KEYS TO GOOD ENVIRONMENTAL AFFAIRSMANAGMENT FOR HOTELS

EnvironmentalAffairs

Management

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WHY ENVIRONMENTAL INITIATIVES FAIL

Failing to be strategic

Misunderstanding the market

Expecting a price premium

Middle management squeeze

Silo thinking

Over-promising

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BOTTOM LINE

1. Environmental concerns are here to stay

2. Societys approach to environmental protection isevolving:

- Information Age tools and opportunities

- move towards cost internalization and marketmechanisms

- private sector as the engine of innovation

3. Corporate environmental strategy is critical tocompetitive strength

4. Its not easy being green

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www.yale.edu/envirocenter

www.yale.edu/cbey

www.EstyEP.com