Implementing an All-Encompassing

Sustainability Strategy – The Key

Challenges

Christopher ShanahanFood Industry Analyst

Chemicals, Materials and Food

San Antonio, Texas USA

June 4th, 2009

2

Agenda

• What is Sustainability?

• The Current Economy and the State of

Sustainability

• Review of Sustainability Business

Strategies Currently Adopted by

Companies

• Sustainability Strategies Assessment

and Recommendations

3

What is Sustainability?

Objective ���� Generation, Evaluation and Implementation of an Effective Sustainability

Strategy

• Sustain Profitability Margin

• Sustain Competitive Advantage

• Sustain Revenue Growth

• Adopt strategies that will minimize/maximize the production of

negative/positive externalities produced by the company over time

• Minimize wasted inputs and unusable byproduct

• Avoid/minimize use of non-renewable resources

• Resources that have a virtually fixed amount (petroleum)

• Resources that have a virtually fixed amount

���� harvest rate > renewal rate (corn ethanol)

4

What is Sustainability?Optimization of the bottom lines over time

Ch

an

ge

in

Bo

tto

m L

ine

Time

Economic Bottom Line

Social Responsibility

Environmental Awareness

Ch

an

ge

in

Bo

tto

m L

ine

Time

Economic Bottom Line

Social Responsibility

Environmental Awareness

Yesterday’s Objective Today’s Objective

5

What is Sustainability?Recognizing the interaction of the economic, social and environmental bottom lines over

Economic Bottom Line = Maximize Profit

Social Responsibility = Maximize/Minimize

Positive/Negative Impact on the Community

Environmental Awareness = Minimize Waste and/or Negative Impacts on the

Environment

-

--

+

++

∆ ∆ ∆ ∆ Yesterday < ∆∆∆∆ Today

6

The Current Economy State Reviewing the Recession Genesis and its Impact on Sustainability Policy

Defaults Lack of Trust in Financial Institutions

Tightening Credit Markets

Banks Slow Lending Down

Slower Growth

Financial InstitutionsLosses

Lack of Lending forSmall Business

Lack of RetailCredit

Consumers Reduce Spending

Economy Slows Down/Contracts

Sub-Prime Mortgages

$

Lack of Capitalfor Companies

Suspension of Interbank Lending

$

$

$

$

Defaults Lack of Trust in Financial Institutions

Tightening Credit Markets

Banks Slow Lending Down

Slower Growth

Financial InstitutionsLosses

Lack of Lending forSmall Business

Lack of RetailCredit

Consumers Reduce Spending

Economy Slows Down/Contracts

Sub-Prime Mortgages

$

Lack of Capitalfor Companies

Suspension of Interbank Lending

$

$

$

$

• Cap and Trade

• $100bn toward more efficient private homes and government buildings

• Development of wind and solar power

• Increased spending money on public transport

• More fuel-efficiency under GM bankruptcy plan

• 30% increase in fuel efficiency standards

Private SectorGovernment’s Green

Response

7

The Current Economy and the State of Sustainability What will happen in 2009…we have a better idea in 2010/11

Source: Global Reporting Initiative

Note the flat growth in the number of

companies choosing to report

sustainability performance during the

2001/02 recession

Likely Independent of Economic Environment

Likely Not Independent of Economic Environment

??

8

Source: Frost & Sullivan

The State of Food Safety Sustainability The Changing Face of Food Safety in the United States

Changing Face of Changing Face of

Food Safety in the Food Safety in the

USUS

Food Safety Standard Food Safety Standard

Confusion and Confusion and

RedundanciesRedundancies

Mistrust of 3Mistrust of 3rdrd Party Party

AuditorsAuditors

Growing Power of Growing Power of

RetailersRetailers

Heightened Awareness of Heightened Awareness of

Food Security Food Security

9

Sustainability Strategies Currently Adopted by CompaniesUsing The Warm Glow to Drive Demand

• Some consumers experience ‘a warm-glow’ when they buy a product with an icon that reports social responsibility or increased environmental awareness.

• Thus, some people are willing to pay a greater premium for a given socially-beneficial, firm-provided, service

• Consumers are motivated by the desire to receive praise and social acceptance, or avoid ridicule

• Thus just like any other product, consumer motivation is driven by both altruistic and egotistic factors.

10

Raw Material Supplier

Sustainability Strategies Currently Adopted by CompaniesEffectively Communicating Your Sustainability Practices Involves the Entire Supply Chain

Source: Frost & Sullivan

Distributors and

Retailers

Final ConsumersFinished Good

Manufacturer

We Are Still

GreenAre We

Green?

Is this

Green?

Distributors and

RetailersFinal Consumers

Finished Good

Manufacturer

Raw Material Supplier

We Are Still

GreenWe Are Still

Green

We Are Still

Green

We Are Still

Green

3rd Party Verified

Without a clear industry icon…

With a clear industry icon…

We Are Still

Green

Product Flow

$ and Feedback Flow

11

The Current Economy and the State of Sustainability When Adopting Sustainability Strategies Can Lead to Unintended Economic Consequences

Factory Yield End User Benefits

1st Generation (Corn Ethanol) 2.7 Gallons per Bushel 5,670 Mile/ac/yr

3rd Generation Cellulosic – ZeaChem

Process135 Gallons per Bone Dry Tons 28,350 Mile/ac/yr

ZeaChem: the “Food vs. Fuel” Debate is Null and Void with New Sustainable Technology

Source: ZeaChem

• The bioethanol industry was believed to have been a motivating factor in increased corn production and

increases in grain product prices in late 2007 through 2008

• Increased speculation that farmers had a new incentive to switch away from other crops such as wheat and

soybeans � Industry experts believe that speculative activity rooted in is accounting for approximately 20 to

30 percent of price growth during this period

• Summary: In an effort to move away from resources that have a virtually fixed amount of

global inventories such as petroleum, consumption moved to renewable sources at such

a fast rate that the resource effectively became a nonrenewable resource in the short

run, as shown in the growth in market prices.

12

Sustainability Strategies Currently Adopted by CompaniesThe Objective is to Offer a Product that Consumers will Buy No Matter What…

• Invest in marketing strategies that focuses on your

core product offering

• Exploit opportunities from consumer feedback

• Have a complete 360 degree perspective on your

market’s external environment

• Establish partnerships with other suppliers

• Adopt proactive product and service

differentiation strategies � understand the

consumer’s motivation for buying your product

13

Sustainability Strategies Assessment and Recommendations

vDefine the

Problem and System

Identify Strategic Options

Identify End Markets and

Potential

Identify Market Dynamics and

Constraints

Construct and Run the Model

Select Optimal Plan of Action

based on Model Results

Implement Plan of Action

Source: Frost & Sullivan

Total RevenuesTotal Revenues

SUPPLY = OutputSUPPLY = Output

<+ +Initial InvestmentsInitial Investments

Renewable InputsRenewable Inputs

WasteWaste

Market

Demand

Complex Business UniverseComplex Business Universe

Marketing and Logistic CostsMarketing and Logistic CostsProduction CostsProduction Costs

NonNon--renewable Inputsrenewable Inputs

Social

Benefits

Social

Benefits

Sustainable

Production

System

Profit

The more Green we

are the more

Green we make

14

Next Steps

Request a proposal for a Growth Partnership Service to support you and your team to accelerate the growth of your company. (myfrost@frost.com)1-877-GoFrost (1-877-463-7678)

Join us at our annual Growth, Innovation, and Leadership 2009: A Frost & Sullivan Global Congress on Corporate Growth, September 13-16 2009, Hyatt Scottsdale Resort & Spa at Gainey Ranch, Scottsdale, AZ(www.gil-global.com)

Register for the next Chairman’s Series on Growth:Growth Acceleration System: Leveraging the Growth Diagnostic Blueprint (July

9th) (http://www.frost.com/growth)

Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities(www.frost.com/news)

15

Your Feedback is Important to Us

•Growth Forecasts?

•Competitive Structure?

•Emerging Trends?

•Strategic Recommendations?

•Other?

Please inform us by taking our survey.

What would you like to see from Frost & Sullivan?

Frost & Sullivan’s Growth Consulting can assist with your growth strategies

16

For Additional Information

Melinda Meyer

Director of Sales, NA - Chemicals,

Materials & Food

(210) 348-1000

Melinda.Meyer@frost.com

Johanna Haynes

Corporate Communications

Chemicals, Materials & Food

(210) 247-3870

Johanna.hayes@frost.com

Steve LeeStrategic Account ManagerChemicals, Materials and Food, Asia Pacific(65) 6890 0914steve.lee@frost.com