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Green Investing ™ Past, Present, & Future Jack Robinson Yale Club Thought Leaders in Business @ The Yale Club of New York June 28th, 2012 The Have More Plan Garden Way, Inc. TROY-BILT TILLER GARDEN CART • Tillers, carts, books, greenhouses, woodstoves, etc. • High margin, 1982: $125 million mail order company • Most profitable product: re-manufactured tillers • Responsible company: socially and environmentally Winslow Management Company • Green focus: metrics are quantifiable Negative Screening • Negative screen for harmful products/services • Avoided coal, oil, nuclear, weapons, chemicals • Eliminated about 40% of S&P 500 Green Investing Since 1983™ Winslow Management Company merged with Brown Advisory in 2009 Green/SRI* Investing: religious roots Negative Screening • 1750’s: “The Use of Money” sermon by Rev. John Wesley. Gain all you can but not at expense of life, working conditions, or health (arsenic, lead, and harmful chemicals) • 1758: Quakers prohibited slave trade • Other religions impose dogma related guidelines • 1977: Sullivan Principles (apartheid) *Socially Responsible Investing (SRI) Whole Foods IPO January, 1992 • Initial response: great skepticism • Microcap > large cap today: IRR of 20%* Positive Screening • The birth of the natural & organic foods industry • Organic, Natural and Local food with a focus on healthy living for customers, community, & team *Internal Rate of Return (IRR) of 20% for time frame 1992 through Q1 2012 Objectives of Positive Screening • Reduce Risks Financial Metrics • Lower Costs • Enhance Revenue Growth • Branding Other • Innovation • Employee Recruitment and Retention Green (Sustainable) Investing Today •Fossil Fuels •Resource Scarcity •Water Quality •Water Quantity Clean Energy Water Management Resource Efficiency Positive Green Solutions Environmental •Pollution Services •Waste Sustainable Living •Obesity •Toxins Green Building Products Green Transportation •Emissions • Inefficient Buildings U.S. Buildings: Energy Efficiency Retrofits • $279 Billion Energy Retrofits • Estimated Energy Savings over 10 years: >$1 trillion • CO2 mitigation 600 mil metric tons/year (10% total U.S. Emissions) • 3.3 million new jobs (cumulative) job years Source: The Rockefeller Fund & Deutsche Bank Climate Change Advisors, “United States Building Energy Efficiency Retrofits,” page 7 and figure 1,March 2012 Image Source: Bobby Mikul, http://www.publicdomainpictures.net/view-image.php?image=16166&picture=empire-state-building Natural & Organic Food Industry • • • • $41 billion in 2010 Past 10 Year Growth Rate: 10-12% Preliminary Estimate of 2011 Growth Rate: 9-10% (Nutritionals : $26 billion) “I used to be skeptical of organic, but the more reporting I do on our food supply, the more I want my family eating organic – just to be safe.” -Nicholas D. Kristof Sources: Data points from Canaccord Genuity Analyst Scott Van Winkle Quote from “Arsenic In Our Chicken?” The New York Times Op-Ed, April 5, 2012. Pink Slime aka LFTB* • Bad News • One known bankruptcy (AFA Foods) • 75% capacity reduction (Beef Products, Inc.) • Traditional supermarket chains • Good News • Local providers • Natural & Organic • Supply chain *Lean Finely Textured Beef Sources: John Bussey “Cows: The Innocent Bystanders”, The Wall Street Journal, April 5th 2012. Image Source: U.S. Department of Agriculture/Public Domain Annie’s, Inc. • Natural & Organic Foods • Current Annual Revenues $125 million (Est.) • I.P.O. on 3/28/12 @ $19/share for total market valuation of $323 million • Market Capitalization 5/31/12: $668 million Growth Outlook for Natural & Organics? Image Source: http://www.annies.com/products Data Source: Annie’s Inc. Preliminary Prospectus, March, 28 2012 Resource Scarcity “No compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.” -Jeremy Grantham1 “A new study from researchers at Jay W. Forrester's institute at MIT says that the world could suffer from ‘global economic collapse’ and ‘precipitous population decline’ if people continue to consume the world's resources at the current pace.” -Eric Pfeiffer2 Sources: 1.“Time to Wake Up: Days of Abundant Resources and Falling Prices Are over Forever”, GMO, April 2011 2. “Next Great Depression? MIT researchers predict ‘global economic collapse’ by 2030” Yahoo News, April 4, 2012 Schnitzer Steel • “Fishing for Energy” • Reclaim and recycle program • Partners: NOAA, NFWF, Covanta "This program has made it easy for fishermen to recycle their unusable, heavy equipment – they don't have to pay or go out of their way. Some have also found a new source of income in retrieving abandoned gear from the ocean floor.” -James Banigan, General Manager, Schnitzer Steel Hawaii Image and Quote Source: Schnitzer Steel Sustainability Website http://www.schnitzersteel.com/values_sustainability_2.aspx Climate Change “In 2011, we saw an unrelenting barrage of weather-related catastrophes all across the country. This resulted in a record number of homeowner claims – from fire and ice to droughts and floods.” -Robert A. DiMuccio Chairman, President and CEO, Amica Source: DiMuccio. “President’s Message.” Amica 2011 Annual Report. Image Source: NSSL Tornado Photos from SPC http://www.spc.noaa.gov/faq/tornado/torscans.htm April 10, 1979 “How strongly do you agree with the following statement? Global warming is affecting the weather in the United States.” National Average Strongly agree 26 Somewhat agree 43 Somewhat disagree 19 Strongly disagree 11 • 1,008 adults (18+) surveyed, survey conducted at a 95% confidence level, • Interview dates March 12, 2012 to March 30, 2012 Source: Leiserowitz, A., Maibach, E., Roser-Renouf, C., & Hmielowski, J. D. (2012) Extreme Weather, Climate & Preparedness in the American Mind. Yale University and George Mason University. New Haven, CT: Yale Project on Climate Change Communication. http://environment.yale.edu/climate/files/Extreme-Weather-Climate-Preparedness.pdf Climate Change: Only Three Options • Prevention: it’s too late • Mitigation: not enough, but not too late • Adaptation: occurring with all or none stakes “Adaptation at 1 or 2 degrees will be painful, but at 5 or 6 degrees, it’s catastrophic” -Steven Chu Source: Zakaria, Fareed. “In the Great Ship Titanic.” Newsweek, April 20, 2009 “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.” -Milton Friedman Source: Capitalism and Freedom, University of Chicago Press, 1962 Ideas and Alternatives • Government: broken and broke • NGO’s*: on task and seeking to enhance influence, but… • Corporations: must take a leadership position Capitalism to the rescue? *Non-governmental organization (NGO) Low Tech Start-ups Cleantech Private Equity Investments Billions Q1 1995 to Q4 2011 $4.5 323 292 $4.0 289 $3.5 248 Number of Deals $3.0 229 U.S. Dollars $2.5 $2.0 152 $1.5 $1.0 51 $0.5 35 48 52 42 55 61 50 81 87 56 $0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year MoneyTree definition of Clean technology: This designation crosses traditional MoneyTree industries and comprises companies that focus on alternative energy, pollution and recycling, power supplies and conservation. Data Source:PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters Q1 1995 – Q4 2011 Key Question for CEOs: Question: What is keeping you awake at night? Answer: Lack of educated/skilled/talented workers to take our company to the next level Is sustainability possible without employee engagement and the right human resources? “Lack of Skilled Workers Threat to Growth” -Alejandra Cancino Chicago Tribune, February 26, 2012 “Funds to Train Jobless in U.S. Are Drying Up” -Motoko Rich The New York Times Headline, April 9, 2012 Source: Reprint in the Providence Journal, March 11th, 2012 HR Education and Training Solutions • “Colleges to Careers” programs in Chicago: - Community colleges with corporations • Northeastern: Co-op model partnering with corporations • Wharton: - New Program: Business sustainability leadership cosponsored by SAP AG at San Francisco campus - Initiative for global environment leadership • Caterpillar University with > 100 online courses • Taco, Inc. (Rhode Island): education a core value with onsite college course program Sources: Rahm Emanuel, “Chicago’s Plan to Match Education with Jobs,” The Wall Street Journal, December 19, 2011 Caterpillar University Website < https://www.caterpillaruniversity.com/> January 17th, 2012 Safety a Core Value? Clean Harbors TRIR* 3.5 3.0 3.1 2.8 2.5 2.4 2.0 2.5 2.2 ■ - Actual ■ - Goals 2.2 1.5 1.7 1.0 1.0 0.5 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 - - - *Total Recordable Incident Rate (TRIR) “A new $70 million RFP rests on our safety record” -NYSE CEO, Fall 2011 How can you be sustainable if you are not safe? Data Source for Chart: Clean Harbors 2011 Annual Report, p 3, February 29, 2012 Alcoa’s Approach to Sustainability “Sustainability is not a catalog of processes, nor merely a philosophy at Alcoa. Rather, it is part of everything we do.” -Klaus Kleinfeld Alcoa Chairman and CEO Source: Alcoa Sustainability, “2011 Sustainability at a Glance” Accessed June 25, 2012 Clicksoftware Source chain & mobile field force management & optimization Sustainability • • • • • • Scheduling efficiencies Reduce fleet mileage Same set optimization Reduce wear & tear (people & equipment) Increase preventive maintenance visits Travel savings SAP AG “Software a critical component of sustainable solutions for our customers…and for a sustainable world Our corporate strategy is sustainable…as sustainability embedded in everything we do including for example diversity and CO2 emissions 90% of SAP AG employees say sustainability is important to team and should be important to company Employee engagement is absolutely critical for sustainability to work” -Rami Branitsky Senior Vice President of SAP AG Source: Eric Orts “Podcast: An Interconnected Wed: How Sustainability Relates to SAP’s Corporate Strategy” Wharton School of Business Unilever CEO’s three sustainability goals by 20201: • “Halve the environmental footprint of our products” • “Help more than 1 billion people take action to improve their well being” • “Source 100% of our agricultural raw materials sustainably” Transparency +: • All ingredients, all products sold in Europe • Example: Dove intensive beauty body butter, 48 ingredients listed Sustainability Includes Transparency Source: 1. Paul Polman, “Message From Our CEO”, Unilever Global Website http://www.unilever.com/sustainableliving/ourapproach/messageceo/ accessed June 13, 2012 Sustainability and Risk “The reality is that businesses of all sizes and types are facing unprecedented risk and volatility, for which sustainability strategy is a direct, timely, and effective countermeasure… Sustainability is fundamentally good governance – astute and prudent management of complex, multifaceted risk.” -Felice Kincannon and Julianne Zimmerman Source: Kincannon, Zimmerman. “Reframing the Sustainability Conversation to Risk and Resilience”. environmentalleader.com, October 10, 2011. “Sustainability Nears a Tipping Point” Sources: MIT Sloan Management Review and The Boston Consulting Group “Sustainability Nears a Tipping Point”. Winter 2012, Vol. 53, no.2, 69-74 . Sustainability Making a Difference at Nike • Stifel Nicolaus, June 1st sell-side report, “Innovation, Supply Chain and Sustainability Gains make NIKE Tough Act to Follow” • Benefits of sustainability identified: • Lowers energy costs, reduces waste, reduces worker turnover, improves productivity, decreases dependence on increasingly scarce resources, consolidates factory list, improves product quality, insures long-term access to sustainable materials, community reinvestment positively impacts brand • Benefit of near-sourcing identified: • Savings on transport, and duties, and shorter lead time Source: Duffy, Jim, Eric Alexander, Molly Iarocci, and Stifel Nicolaus.“Company Update: Nike, Inc.” June 1st, 2012. Stifel Nicolaus. Does Corporate Sustainability Favorable Stock Performance? HBS Working Paper: November 2011 % High Sustainability vs. % Low Sustainability (traditional) Companies • Other characteristics (size, ROA, ROE, leverage, inventory turnover, etc.) very similar • 18 years of composite performance • Sustainability: coherent set of policies related to environment, employees, community, product, and customers Incremental average annual return? 4.8% Source: Robert Eccles, Ioannis Ioannou, George Serafeim “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance” Working Paper #12-035. Harvard Business School. May 9, 2012 Your thoughts?