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Case Studies | Friday June 3, 2011

Creating Business Opportunity by Tackling Sustainable Consumption

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The Challenge

In China, economic growth is perpetuating a multitude of challenges, including a lack of human rights protection for migrant workers, environmental degradation, and income disparity—and government is not fully able to address these issues. There is an opportunity for civil society to fill these gaps, but without business’ help in strengthening the country’s nascent nonprofit sector, that progress has dramatically less potential.

BSR founded CiYuan to address the biggest barriers to the development of China’s nonprofit sector: limited strategic partnerships and opportunities for dialogue between nonprofits and business; a foundation sector with limited experience in partnering with and supporting grassroots organizations; a restrictive environment for nonprofit registration and fundraising; and weak governance and transparency, which generates a lack of public trust in nonprofits.

By nearly any measure, the way we consume natural resources is unsustainable: Research suggests that we are currently using 50 percent more natural resources than the Earth can sustain.

As the global population continues to grow, from almost 7 billion today to 9 billion in 2050, it is imperative that we develop new ways to enable all of the world’s people to live a dignified life, with access to basic products and services, while also preserving healthy ecosystems.

That challenge is at the core of an initiative BSR began in 2010 to raise business awareness of this issue, and to recast it as an opportunity for innovation. To explore how business can lead the shift from “super” consumption to sustainable consumption, we launched a series of work that includes applied research, collaborative learning opportunities, and consulting pr

Defining the Issue, Identifying the Opportunity

We kicked off our sustainable consumption initiative with the release of “The New Frontier in Sustainability: The Business Opportunity in Tackling Sustainable Consumption,” which identified business pathways in three parts of the “value chain cycle” that often have been overlooked in sustainability efforts to date:

• Product design: using sustainability to guide design approaches to products from the earliest stages of conception and development
• Consumer engagement: influencing what and how people consume
• End-of-use: recapturing products at the end of their useful lives and converting them to serve as raw materials for other purposes

To test the ideas outlined in our research, we held two workshops with member companies and experts in the field of closed-loop systems and consumer insight. A number of key themes emerged:

• Sustainable product design is not just a matter of reducing the impact of existing products, but rather rethinking how to deliver the equivalent value in new ways.
• Sustainable consumption means that business models encouraging the quick disposal of products, or “rapid obsolescence,” will have to change.
• Influencing consumer behavior will require that we tap into social networks, peer groups, and communities. It also will demand that companies broaden their understanding of consumers—not just as “shoppers” but as citizens.

What’s Next

Feedback from the workshop and other discussions with members has sharpened our focus for 2011, when we plan to look at rapid obsolescence, its problems, and potential solutions. Also in 2011, we will conduct an interview series with design thought leaders to examine some of the emerging approaches to sustainable products. Ultimately, we hope this work will provide our members with practical guidance for designing more sustainable products, inspiring consumers to shift their purchasing habits, and developing end-of-use solutions.

Case Studies | Friday June 3, 2011

Actionable Research on Sustainability

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Our Research team tracks emerging trends and solutions central to building sustainable business. We aim to help business leaders stay ahead of the curve and shape future-oriented decisions on a wide range of challenges, from energy management, to sustainable consumption, to human rights.

We produce our research with two key business audiences in mind: executives responsible for shaping corporate strategy and practitioners in charge of implementation. Over the past three years, our output has grown considerably, and so, too, have the ways we convey our findings. Like many organizations, we have expanded the media through which we deliver our research, relying on traditional channels like reports, events, the BSR Insight, and external publications in the field of sustainability. In 2010, we also expanded our influence through the addition of social media channels such as Twitter, Facebook, YouTube, and Youku (a Chinese video-sharing site), allowing us to reach new audiences with our research.

Research in 2010

In 2010, we focused on climate and energy, ecosystem services, human rights, and sustainable consumption.

In addition to offering insight on emerging trends and solutions, BSR’s Research efforts focus on applied learning designed to promote and accelerate innovative efforts across our member company network, the wider business community, and the public. We achieve this by marrying lessons learned through project work with research and analysis that allows for wider adoption of good practices.

Our climate and energy initiative provides one example of how this works. After working on Walmart’s supply chain energy-efficiency program in China, we produced a research guide showing companies how to replicate Walmart’s work with their own Chinese suppliers. Based on that research, we launched our Energy Efficiency Partnership (EEP) initiative, which brings BSR member companies together with major suppliers to improve energy management. The group has three objectives:

1. Create a platform to share investments and think collectively about emerging issues.
2. Train suppliers in the Guangdong and Shanghai regions on energy management.
3. Collect effective energy information for reporting to sponsoring companies.

Initially comprising 10 companies and nearly 80 suppliers in the consumer products; ICT; and food, beverage, and agriculture industries, EEP trained suppliers to develop energy-management plans and introduced them to local energy-service companies to help them pinpoint opportunities for improvement. As a result, suppliers started more than 100 projects that will help them conserve energy and reduce greenhouse gas emissions. In 2011, we will broaden EEP participation and develop tools for bringing energy-efficiency innovations to scale.

Also in 2011, we will focus on a new initiative related to sustainability futures—identifying the key trends that shape business success in the industries with which we work. We will also explore the business opportunities in making sustainable consumption a reality, and we will build on our previous work looking at how the world is responding to sustainability challenges and the implications for the future of business.

Case Studies | Friday June 3, 2011

BSR Membership: A Global Network of Sustainability Leaders

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BSR is proud to support and partner with our powerful network of member companies, who share with us a focus on building a just and sustainable world. We work every day to provide our member companies with value based on the insights, expertise, and relationships we’ve built through years of hands-on work in the field.

In recent years, we have invested in becoming a more global organization to be closer to our member companies and to secure the expertise and network to serve our members well. In 2010, we continued on this path, and, as such, our member network has become more geographically diverse. The highest levels of growth in BSR membership in 2010 came outside the United States, with our membership base in Asia growing by 47 percent, and our base in Europe and the Middle East growing by 29 percent. Our U.S. membership grew by 6 percent. Globally, we ended 2010 with 285 companies in our membership, and our annual retention rate remained high, at 90 percent. A full list of BSR members is available at www.bsr.org/members.

Membership by Industry Sector

• Consumer Products
• Energy
• Financial Services
• Food, Beverage, and Agriculture
• ICT
• Media and Entertainment
• Mining
• Pharmaceuticals and Biotechnology
• Transportation and Logistics
• Travel and Tourism
• Other

2010 BSR Member Survey

In June 2010, we conducted a member-satisfaction survey to improve our understanding of the value and quality of BSR membership. Results indicate that a strong majority of members is satisfied with membership. Respondents indicated that they highly value two particular benefits: our insight and analysis on sustainable business, and the network and collaboration opportunities that BSR provides. In 2011, we will take steps to reach more people in our member companies and to individualize the member experience on our website.

In 2011, our member events—including webinars, meetings, and working groups—covered a wide range of topics, including:

• CSR and Government Affairs: Conflict or Convergence?
• Climate Adaptation
• The New Frontier in Sustainability: The Business Opportunity in Tackling Sustainable Consumption
• ICT and Human Rights
• Local Content in Emerging Markets

Case Studies | Friday June 3, 2011

Sumitomo Trust and Banking: A Sustainable Investment Strategy for China

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The Challenge

Sustainable investing, the integration of ESG factors into investment analysis, helps mitigate risks, drive long-term financial returns for investors, and create an effective lever to shift companies toward greater environmental and social responsibility. Building on 10 years of sustainable investing experience in its home country of Japan, Sumitomo Trust and Banking sought a partner to help apply its investment model to China, where ESG risks are high.

China has a more complicated ESG landscape for many reasons, including its relatively basic environmental and social regulations in certain areas, low levels of ESG information disclosure, and few financial professionals with knowledge of ESG factors. Sumitomo’s objective was to create a sustainable investment fund composed of Chinese equities. The formation of this fund required in-depth understanding of the Chinese market and the identification of high- and low-performing companies based on ESG factors. Sumitomo asked BSR to support this project with research and advice on ESG integration in China.

Our Strategy

We identified the lack of credible and comprehensive ESG data in China as the major barrier to running a successful ESG fund. In response, we created a customized monthly ESG news screener that analyzed publicly traded companies across more than 90 ESG issues. To provide the information Sumitomo needed to make investment decisions, the news screener incorporated both international norms and standards for financial analysis and China-specific context. The system covers developments related to China’s main sustainability concerns, tracks local regulations and laws, and is available in both Mandarin and English.

To help Sumitomo react quickly to changes in the performance of portfolio companies and other associated investment risks, we created a real-time news feed that delivers color-coded information on high-risk developments. This additional layer of information helps measure how portfolio companies are actually performing rather than merely which ESG data they are disclosing.

Because screening services alone are not sufficient for analyzing and measuring companies’ ESG awareness, management quality, and performance, we provided Sumitomo with in-depth research on specific portfolio companies, events, and ESG issues. The research findings served as strategic inputs for Sumitomo’s stock selection.

Our Impact

In March 2010, Sumitomo successfully launched the “China Good Company” stock fund, the first sustainable investment fund offered in the country by a non-Chinese financial institution. Within 12 months of operation, the portion of A-shares in the fund outperformed the market benchmark by 4.5 percent. This new investment model and good performance has attracted significant attention and serves as a role model for domestic and international investors in China. For the next step, Sumitomo is looking for opportunities to go beyond ESG information analysis and will leverage the company’s shareholder rights to engage with its portfolios to nurture sustainable performance in the long run.

Case Studies | Friday June 3, 2011

Maersk Line: Developing a ‘Future-Proofed’ Sustainability Strategy

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The Challenge

As the world’s largest container shipping company, Maersk Line transports more than 15 percent of all shipped containers. In an industry that transports more than a third of the value of global trade—and accounts for about 4 percent of the world’s carbon emissions—Maersk Line has a tremendous economic, social, and environmental footprint. Facing pressure to reduce the company’s environmental and social impacts, Maersk Line leaders viewed this challenge as an opportunity to offer customers a value proposition on sustainability that could not be matched by competitors. Company leaders asked BSR to help develop a “future-proofed” sustainability strategy.

Our Strategy

BSR and Maersk Line collaborated to build a comprehensive sustainability approach that supports the corporate strategy and responds to long-term trends. Our work fell into three phases:

1. Internal Review and Current State

   Through interviews with executive management, regional leaders, and sustainability professionals, BSR gathered details about Maersk Line’s corporate objectives, strategy, business model, and existing sustainability efforts. This work clarified company strengths and weaknesses and defined key drivers for the company’s sustainability performance. We discovered that Maersk Line lacked a comprehensive approach to working on and communicating about sustainability, which made it difficult for company managers to establish a business case for new programs.

2. External Review and Future State

   Next, we built a set of future trends such as “hypertransparency,” regulated carbon, and resource constraints that business leaders would need to consider in strategic planning for the next seven to 10 years. We then tested these trends with employees and management teams to ensure a global perspective and identify specific regional challenges. Together with consultations with the company’s major customers and key industry stakeholders, this input helped company leaders articulate the near-term changes in the business environment, including the direction of key customers’ expectations.

3. Build Vision and Strategy

   BSR helped Maersk Line define a strong sustainability vision supported by objectives such as reducing carbon-dioxide emissions by 25 percent by 2020 and striving for zero sulfur-dioxide emissions. This strategy will raise the bar for sustainability in the industry. BSR also helped Maersk Line develop objectives, strategies, and key performance indicators to guide the company’s future work in the core areas of environment, social responsibility, health and safety, security, and business ethics. In what is a first for this industry, Maersk Line integrated sustainability into its customer value proposition, underlining the idea that sustainability strengthens the company’s competitive edge and serves as a means of market differentiation.

Our Impact

BSR’s work has helped give Maersk Line a new, comprehensive direction for sustainability—and the company has reaped positive results from this course. In 2010, the management team declared that environmental sustainability would be one of the company’s top three future differentiators. In September 2010, company leaders announced that Maersk Line would switch to low-sulfur fuel when calling port in Hong Kong, thus contributing to an 80 to 95 percent reduction of local sulfur-dioxide emissions that have a damaging impact on port communities’ health. In part because of these efforts, in November 2010, the company received the European Business Award for Environmental Awareness for integrating sustainability into its business strategy and operations.

Case Studies | Friday June 3, 2011

KKR: Boosting ESG Performance Through a Supply Chain Strategy

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The Challenge

A US$61 billion global investment firm, Kohlberg Kravis Roberts & Co. L.P. (KKR) has more than 60 private-equity portfolio companies that operate in 15 general industries in the United States, Europe, the Middle East, and Asia. The firm’s value-creation model includes active management of ESG issues as part of its efforts to build stronger companies.

In late 2009, KKR joined BSR, seeking a comprehensive partner for managing ESG issues within its portfolio, and looking to gain from our expertise in responsible supply chain management. KKR recognized that labor and environmental conditions in the supply chain were growing in importance for a number of its portfolio companies, and company leaders saw an opportunity to provide guidance and resources on this topic as part of the company’s management of risks across its portfolio.

Our Strategy

Recognizing that KKR had a unique opportunity to help firms in its portfolio learn from proven practices and one another, BSR created a “Supply Chain Sustainability Resource Guide” and subsequent workshops covering best practices, international standards, industry collaborations, established certification processes, and resources to help with the implementation of supply chain efforts. The workshops included an in-person event at a Responsible Sourcing Summit and subsequent web-based programs to get buy-in from and raise awareness among portfolio companies’ general counsel and senior procurement or merchandising officers. The attendees were able to share the guide with colleagues who are responsible for developing or improving their own supply chain programs.

BSR’s approach—built on nearly two decades of experience in responsible supply chain management across industries and geographies—included the basic elements of a program as well as more innovative elements drawn from our Beyond Monitoring initiative.

Our Impact

This project—which helped KKR build a community of practice within its portfolio—was a valuable opportunity to leverage the partnerships that a leading investment firm has with multiple companies to highlight sustainable practices and improve ESG performance overall, on a large scale.

Since our project began, more than half of KKR’s portfolio companies have participated in one of the training events, with direct executive engagement, and KKR has followed up with its holdings to determine specific issues of interest for further education. Additionally, many companies have used the resources to initiate a responsible supply chain program or to enhance their current supplier requirements, monitoring programs, or participation in industry efforts.

BSR is now working with KKR to take the next step and assess supply chain risks across its portfolio, identify gaps, and develop specific action plans for high-priority companies. We believe that KKR’s innovative approach to creating a community of practice and identifying supply chain management as a key opportunity for value creation in its portfolio can set an important precedent for private equity more broadly.

Case Studies | Friday June 3, 2011

ExxonMobil: Early Planning for Sustainable Economic Development

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The Challenge

As the operator of the Papua New Guinea Liquefied Natural Gas Project (PNG LNG)—a large-scale, integrated development project that includes gas production and processing facilities in the highlands, as well as onshore and offshore pipelines and liquefaction facilities in the Port Moresby region—ExxonMobil has the potential to greatly impact the economy of the PNG. Independent assessments anticipate that the project may double the PNG’s gross national product, greatly increasing government and landowner revenues, creating jobs, and stimulating related industry developments.

Early in the project, to ensure delivery of these long-term local benefits, ExxonMobil created a robust “national content” program that seeks to develop a qualified and globally competitive local workforce and supplier base. The program also aims to identify opportunities for strategic investments in health, education, and infrastructure. The company engaged BSR to assist with an early assessment of the in-country capabilities.

Our Strategy

In the first phase of our work, BSR conducted a review of the local context to provide ExxonMobil with an early indication of existing workforce, supplier, and civil society capacities and needs. We then began research and interviewed approximately 100 representatives of:

1. Vocational and academic institutions, to assess existing local workforce qualifications and potential focus areas for ExxonMobil training initiatives
2. Local suppliers and businesses that could be eligible to support project construction and operations, as well as capacity-building alternatives
3. NGOs focused on education, health, and community development, for possible partnerships with ExxonMobil in deploying strategic investment projects

BSR then created a preliminary database of PNG-based organizations in the three categories above, and we gave ExxonMobil an assessment of the wide-ranging perspectives on existing local capacity for the company to integrate into its national content planning.

In the second phase of our work, we used a tool designed with ExxonMobil to assess locally owned supplier companies against eight specific business criteria to provide a third-party view of the companies’ performance, training requirements, and initial eligibility for supporting the PNG LNG project. Our phase-two activities helped ExxonMobil assess prospective local supplier companies in order to:

• Lay the groundwork for ExxonMobil to constructively engage with local suppliers early in the project-planning phase.
• Identify local training needs and capacity-building opportunities.
• Match supplier capabilities with project needs.
• Set local supplier expectations regarding ExxonMobil’s standards for business conduct.
• Promote accountability by focusing on suppliers’ corporate governance improvements.

Our Impact

Many of BSR’s recommendations were incorporated into ExxonMobil’s comprehensive national content plan. Our phase-one work helped provide the groundwork for the company to determine workforce training objectives and supplier-development strategies, to formulate strategic community-investment priorities, and to enter into partnerships early in the project life cycle. In phase two, BSR’s assessments allowed ExxonMobil to engage early with local suppliers to discuss their areas of strength and opportunities for development. It also allowed for local companies to improve their business performance and potentially become eligible for engagement in the PNG LNG project.

Both phases of our work helped establish tangible baselines, early activities, and long-term focus areas for sustainable economic development programs focused on workforce development, supplier development, and strategic community investments in the PNG.

Case Studies | Friday June 3, 2011

Best Buy: A Focus on Delivering Solutions and Sustainability

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The Challenge

In an industry facing growing concerns about e-waste, the “rapid obsolescence” of products, and continued supply chain human rights issues, the senior leaders at Best Buy aim to transform the company’s business model from one based on selling only products to one that focuses on delivering “digital connections”—those technologies and services that help “connect customers to people, knowledge, ideas, and fun.” Recognizing that sustainability is key to that future, Best Buy partnered with BSR to turn that vision into a practical strategy aligned with the company’s other key priorities.

Our Strategy

Our three-phase approach allowed Best Buy to set a clear direction for its sustainability objectives:

1. Assessment

Given Best Buy’s rapid growth in sales and its move into new services and businesses, we began by conducting interviews with 40 Best Buy executives and more than 20 external sustainability experts and stakeholders. We used this information to examine Best Buy’s business direction, management perspectives on sustainability, and current gaps in the company’s sustainability-related activities. Next, we mapped near-term trends affecting the consumer electronics industry, such as new regulations and the increasing costs of input materials. We also reviewed outside perspectives on Best Buy’s role in developing more sustainable products and the opportunities associated with the company’s desire to transition from products to solutions.

2. Materiality

We analyzed more than 60 sustainability issues—from digital privacy, to access to technology, to product safety, to transportation—based on how they affect Best Buy’s business and based on their importance to consumers, communities, governments, NGOs, and others. We presented the results to Best Buy’s Sustainability Team and Advisory Group, which used the presentation to agree on four priority areas: Product Stewardship, Sustainability Solutions, Access, and Inspired Workplace.

3. Strategy Development

Once Best Buy's senior leaders validated BSR’s conclusions, BSR and the sustainability team defined goals for each area:

• Product Stewardship: to lead the industry from product design to end-of-use solutions
• Sustainability Solutions: to provide products and services that allow customers to lead more sustainable lives
• Access: to build business models that enable people who don’t have it today to access all the benefits of the connected world
• Inspired Workplace: to become the preferred place of work because of sustainability efforts

We also helped Best Buy develop specific targets for each area, and we proposed a sustainability governance structure that creates clear leadership and accountability within the company and a structured review process that incorporates external input.

Our Impact

By nature, strategy projects set the direction for changes that come into practice fully over the medium to long term. Best Buy has made significant progress in establishing its sustainability strategy and a foundation for progress. To begin implementing this strategy, company leaders have started to develop relationships with consumer products manufacturers that are focused on sustainability and are key to the achievement of Best Buy’s sustainability goals.

Case Studies | Friday June 3, 2011

Leading Business Action on Conflict Minerals

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The Challenge

In the eastern Democratic Republic of the Congo (DRC), where armed conflict has claimed more than 5.4 million lives over the past 15 years, militant groups controlling most of the region’s mines use the trade in tin, tantalum, tungsten, and gold as important sources of funding. At the same time, this trade—which feeds into complex supply chains for products ranging from cell phones and cutting tools to jet engines and jewelry—is an important source of income for a million people in the region.

The situation presents a dilemma: How can business support the people who rely on these minerals for their livelihoods without perpetuating the use of “conflict minerals” in this war zone? Campaigning NGOs, development organizations, governments, and industry working groups are addressing this important situation in a variety of ways. BSR is promoting collective action to reduce human suffering and advance economic development through a working group that began in 2009 with companies including Dell, HP, Intel, and Motorola.

Our Strategy

The complexity of these issues—the need to improve supply chain transparency, sever the link between the minerals trade and conflict, and continue to support local communities—requires multidimensional solutions involving business, governments, and others working toward a common goal. Using BSR’s experience building collaborative solutions to human rights dilemmas, and working with our extensive network of NGO partners, we developed a plan to raise companies’ awareness of the issues and facilitate constructive dialogue among business, investors, government, and NGOs. This necessary step laid the groundwork for further work in 2011 focusing on identifying actions companies can take to reduce their use of conflict minerals.

Following an initial BSR-led forum in 2009 that gathered nearly 50 people to strategize potential actions, we partnered with the GE Foundation to expand our efforts and bring in additional industries. In May 2010, we published a report highlighting critical supply chain issues, opportunities to support diplomatic peace-building efforts, and ways to promote local economic empowerment. We concurrently convened a second forum with more than 100 industry, investor, and NGO representatives to explore action in these areas.

Our Impact

Already, our efforts have increased business leaders’ awareness, promoted action on the DRC conflict and its link to the minerals trade, and helped build a shared understanding between civil society and business on how the private sector can contribute to conflict reduction. In collaboration with the shareholder advocacy group As You Sow, we catalyzed new partnerships among companies, investors, and NGOs to address these challenges.

BSR worked with these organizations to prepare the only multi-stakeholder input to the U.S. Securities and Exchange Commission’s (SEC) regulations requiring publicly listed companies to report on their use of conflict minerals. More than 20 companies, investors, and NGOs signed the consensus document, which included recommendations for reliable supply chain due diligence processes, third-party auditing, and company disclosures.

While our work has supported company initiatives and the development of strong, consensus-based SEC requirements, we are acutely aware that there is no easy solution to the conflict minerals issue. We continue to advise companies on ways to address conflict minerals in their supply chains and support ongoing multi-stakeholder engagement to solve this complex challenge.

Case Studies | Thursday January 27, 2011

IAMGOLD: Integrating Human Rights Management Throughout the Business

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The Challenge

BSR’s internal team of human rights and extractives-industry experts worked with key IAMGOLD staff to scope a multilevel training on the full spectrum of human rights relevant to mining operations. BSR developed interactive presentations, as well as facilitators’ guides and reference materials, for two levels of human rights trainings to be incorporated into a formal program for company staff and contractors.

Our Strategy

1. A 30-minute training course on human rights awareness for all 3,000 employees and contractors
2. A detailed, full-day interactive human rights training workshop for managers and supervisors

We designed the awareness-level training to be delivered initially to all employees and contractors, and then to be incorporated into employee on-boarding and annual training updates at individual mine sites. We designed the more intensive training for managers and supervisors to furnish relevant staff with an in-depth understanding of the business importance of and corporate responsibility for human rights, key risk factors, integration of human rights considerations into company management systems, and company policies related to the respect of human rights.

Our Impact

At IAMGOLD’s 2009 Sustainability Workshop in Cuenca, Ecuador, BSR reached more than 50 senior and executive staff members who have worldwide responsibility for facilitating the company’s human rights training. The company next plans to deliver the human rights training program to its global workforce by the end of 2011.