Business Tools for Transformation: A Sustainability SWOT and Creating a Step-Change toward Sustainability

Business Tools for
Transformation: A Sustainability
SWOT and Creating a Step-
Change toward Sustainability
Eliot Metzger, WRI
Sally Uren, Forum for the Future
Katie Dillon, Target

WORKING DRAFT
Last Modified 5/31/2013 10:36 PM Pacific Standard Time
Printed
Context for Cross-Sector
Collaboration
Sheila Bonini, McKinsey & Company
June, 2013
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Sustainable Brands Conference
SOURCE: McKinsey analysis

LastModified5/31/201310:36PMPacificStandardTimePrinted
McKinsey & Company | 2
The accelerating GDP growth brings 3 billion new middle-class consumers
and the next era of opportunity for consumer companies
3 billion
Asia-Pacific
Europe
North America
Central and South America
Middle East and North Africa
Sub-Saharan Africa
2030
3.23
0.68
0.32
4.88
0.31
0.23
0.11
2020
3.25
1.74
0.70
0.33
0.25
0.17 0.06
2009
1.85
0.53
0.66
0.34
0.180.11 0.03
SOURCE: OECD
▪ Global car fleet to double to 1.7 billion by 2030
▪ China and India could every year add floor space totalling 3.5 times the
entire residential and commercial square footage of the city of Chicago
1 Based on daily consumption per capita ranging from $10 to $100 (in purchasing power parity terms)
Global middle class1, Billions of people

McKinsey & Company | 33333333333333333SOURCE: McKinsey Global Institute
Next 10 years should be an unprecedented opportunity for consumer
companies
World consumption
$ trillion, real
26
34
12
30
2010 2025
Emerging
Developed
38
64 3.5
6.3
1.8
CAGR
Percent

40
60
80
100
120
140
160
180
200
220
240
260
201120009080706050403020101900
Commodity prices have increased sharply since 2000, erasing all
the declines of the 20th century
McKinsey Commodity Price Index
Resource markets are changing fundamentally
SOURCE: McKinsey Resource Revolution; OECD
World
War I
Post-war
depression
Great
depression
World
War II
1970s
oil shock ▪ Prices are
increasing
▪ Resource prices
are becoming
more volatile
▪ Resources are
increasingly
inter-linked
▪ Resource risks
straining even
large balance
sheets

Widespread regional water shortages are likely by 2030 Surplus
0–25%
25–50%
50–100%
0.25
-0.50
0
SW
Song
Liao
NW
Pearl
Huai
Yangtze
Huang
SE
Hai
Basins in China
-75%
-50%
-25%
25%
0
Krishna
WFR1
Ganga
Godavari
Brahmaputra
Basins in India
WFR2
Indus
-0.25
-100%
50%
0
100%
world
population
China
India
Japan
Bangladesh
Indonesia
Tanzania
Ethiopia
Nigeria
Sudan
Mexico
Russia
Pakistan
Brazil
South Africa
Estimated water surplus and shortage by country; 2030
Today, roughly 925 million people are undernourished in the world and
about 884 million people lack access to safe water

The CPG supply chain also significantly affects biodiversity
   
  
  
  
 
Amazon
Coral Triangle
Borneo
Coastal East
Africa
Congo Basin
SOURCE: Jason Clay WWF

Many of your current & future consumers will live in places affected by
climate risk
High Medium LowChronic resource stresses 2025

These resource trends pose new risks for companies
Impact Examples
▪ Production delay or
cancellation due to lack
of access
▪ Especially for “local”
resources – water, power
Supply chain
disruption
▪ Restricted licence to
operate
▪ Reputational damage
based on perceived
misuse of resources
Regulation/
reputation
▪ Raw material costs
driven up by supply /
demand
▪ True cost of water or
carbon reflected in prices
Rising
operating
costs
ProbabilityImpact
Potential impact1
% of EBITDA
1 Based on several client studies across multiple industries
70
25
60

Value is migrating and consumer margins are
being compressed
Index – product price and raw-material price in 1980 = 100
90
100
110
120
130
140
150
160
170
180
190
200
210
200019901980
Raw materials
prices
Consumer
goods prices
2010
CAGR 2004-10
5%
3%

There is an opportunity to drive a $3 trillion resource
productivity prize
135
Other 823
Road freight shift 108
Irrigation techniques 115
Land degradation 134
Renewable energy
Transport efficiency 138
Smallholder farm yields 143
Food waste 252
Large scale farm yields 266
Building energy efficiency 696
Total resource benefit
$ billion (2010 dollars)
Energy
Water
Land
Societal perspective, 2030
McKinsey & Company 10|
Applicability
to FMCG

As business leaders you can draw on several resource-related value-
creation levers
Improve revenue through
increased share and/or price
premiums by marketing
resource efficiency attributes
Mitigate risks and
capture opportunities
from regulation
Manage risk of operation
disruptions (from resource
scarcity, climate change
impacts, or community risks)
Reduce operating costs through
improved internal resource
management (e.g., water, waste,
energy, carbon, hazardous material)
Guide investment/
divestment decisions
at portfolio level based
on resource trends
Develop resource productivity products
and technologies to fill needs of
customers and company (R&D function)
Build a better understanding of
resource-related opportunities in new
market segments and geographies and
develop strategies to capture them
Reduce reputation
risks and get credit
for your actions
(e.g., through proper
stakeholder
management)
Improve resource
management and reduce
environmental impact across
value chain to reduce costs
and improve products’ value
propositions
Regulatory
manage-
ment
Composition
of business
portfolio
Innovation
and new
products
New
markets
Green
sales and
marketing
Sustainable
value
chains
Return
on
capital
Growth
Risk
manage-
ment
Sustainable
operations
Operational
risk
management
Reputation
manage-
ment

«Green» consumers are still limited in number
5
15
37
28
15
Agree strongly
Agree slightly
Disagree slightly
Neither agree or
disagree
Disagree strongly
Percentage willing to pay extra for
ethical or environmentally friendly
products and services

The most attractive technology breakthroughs achieve a “quadruple win”
SOURCE: McKinsey
Cheaper
▪ Cheaper to produce
▪ Better Total Cost of Ownership
▪ Turn product into service
(boosting utilization)
▪ Lower supply chain costs
▪ No disposal costs
Greener
▪ Consumes less energy (or water)
in use
▪ Less material or new eco material
▪ No or less waste or biodegradable
▪ Less packaging or transport
▪ Emits less CO2
Backward compatible
▪ Works with existing
infrastructure
▪ Complementary with other
products
▪ Easy to use (no or minimal
learning required)
▪ Looks, smells, feels familiar
Surprisingly better
▪ Quieter (EcoRock, EVs)
▪ More comfortable (new
HVAC that adjust humidity)
▪ No hunt for parking or
HOV access
▪ Solar power in remote
locations
▪ Convenient automation

Determining whether to tackle the issue independently or collectively
Social
issue
Act alone Collaborate
Collective response
appropriate when …
▪ A combined approach
can accomplish ends
that no one single
player can achieve
▪ The complexity of the
targeted social issue
requires broad skills
and experience
▪ A large constituency
(of which the company
is a member) benefits
from unified action
Act alone if the
company …
▪ Derives a competitive
advantage from being
the first among their
peers to get involved
▪ Has an opportunity to
play a unique catalytic
role
▪ Must respond
immediately to protect
the company from an
impending threat

12 June 2013 WHIRLPOOL
Ron Voglewede
North American Sustainability
Lead
Whirlpool Corporation

12 June 2013 WHIRLPOOL
Looking back

Sustainability/
Footprint
Performance
Cost
Current Equation
Individual “Value”
Typical Sustainable Program
“Efficiency”
Our Leadership
“Worthy” Products
Eliminating trade-
offs

+20% capacity
+70% efficiency

From 60% to <20%

12 June 2013 WHIRLPOOL 22
Smart Grid
appliances

McKinsey & Company | 2312 June 2013 WHIRLPOOL 23
Fewer brown-outs +
power stations

Reaching out

Together: (60%) Energy
cost
(50%) CO2 footprint

12 June 2013 WHIRLPOOL 27
What’s next?

Cooperation Across:
Industries | Gov’ts | Utilities
| NGOs

McKinsey & Company | 2912 June 2013 WHIRLPOOL 29
Systems of systems

WORKING DRAFT
Last Modified 5/31/2013 10:36 PM Pacific Standard Time
Printed
Ford Sustainability Strategy
John Viera
Director
Sustainability & Vehicle Environmental Matters

Sustainability at Ford
Environmental
CO2
Energy Security
Economic
Profitability
Cash Flow
Social
Human Rights
Working Conditions
Meeting the needs of
the present without
compromising the
future.
Sustainable
Product
Process
Manufacturing
Dealers

Sustainable Mobility
“We are beginning to sell electric cars – and developing
alternative powertrains – that will make cars affordable in every
sense of the word – economically, socially and
environmentally.” Bill Ford

2007 2011 2020 2030
Near Term
Begin migration to
advanced technology
Mid Term
Full implementation of
known technology
Long Term
Continue leverage of Hybrid
technologies and deployment of
alternative energy sources
Near Term Mid Term Long Term
Ford’s Path to Sustainability
Advanced
Gasoline
Engines
Weight Reduction
Electrified
Vehicles
Fuel
Cells
Hydrogen Powered
Engines
Natural Gas/LPG
Hybrids
CAFE Requirements 54.5 MPG27.6 MPG

The Power of Choice

Range, destinations and charge
points
Brake Coach displays regenerative
brake performance
Butterfly icons represent
additional range beyond
one’s charge point
destination – the more there
are, the greater the range
In-Car Info with
MyFord TouchTM
Electric Lifestyle
Stay connected, monitor/control
vehicle via Smartphone
Locate charging stations and send
destination to the vehicle
Program to charge when electricity
prices are lowest
Receive alerts if the vehicle isn’t
charging when it’s scheduled to,
or if charging stops
unexpectedly
Smartphone Access with
MyFord Mobile
Value Charging powered by
Microsoft
3-4 hour charge on 240v home
outlet
Compact and easy-to-install
charging station
Installation partnership
At Home Charging

McKinsey & Company |
Time of Use Rates
 Prices vary by the hour and when
electricity is consumed
 Enabled by the installation of a
smart meter
 Allows customers to vary their
usage in response to such prices
and manage their energy costs by
shifting usage to a lower cost period
 Differential between day and night
rates can be significant (10x)
 Complexity in TOU rates is
increasing, including Summer vs.
Winter TOU tariffs, multi and mid-
peak rates, and TOU tiers.
Value Charging solution shields the customer from this complexity.

*Based on Energy Charges Only using an average annual electricity consumption for a U.S. residential
of 11,496 kWh (EIA - http://www.eia.gov). (WASHINGTON, January 28, 2013) Today’s national average pri
of regular unleaded gasoline is $3.35. (AAA).
CHARGE MORE, PAY LESS
GAS VS. ELECTRIC (20 MILE TRIP)
Driving on electricity is about ¼ the cost of driving on gasoline – and could be
even less if vehicle is charged during off-peak rates (~$1 - $2 per charge).

Ford, Georgia Tech, and other
cross-industry companies
worked together to show our
strong commitment to
sustainability and strong
interest in improving the
environment.
MyEnergi Lifestyle: Collaboration is Key

Go Further: MyEnergi Lifestyle
MyEnergi Lifestyle Key Trends
• Electric vehicles efficiency
• Appliance efficiency
• Connected appliances
• Smart Thermostats
• Affordable rooftop solar
• Connected devices enable smarter
use of energy
• Deployment of smart meters
The MyEnergi Lifestyle Project considered current technological advances to explore
energy saving opportunities for the typical US home.
US % Smart Meter Usage
0%
10%
20%
30%
40%
50%
2008 2009 2010 2011 2012 2013 2014 2015
Year
%UsageofSmartMeters
Edison Foundation; Smart meter deployments, planned deployments, and proposals by investor-owned utilities and some public
power utilities. http://www.edisonfoundation.net/IEE

Georgia Tech modeling results predicts a 60% reduction in energy costs.
and over 8,000kg of CO2 saved from a single home. (~56% improvement)
MyEnergi Lifestyle: Project Details

Product Contributions
C-Max Energi
79% Reduction in CO2
74% Reduction in Energy Costs
51% Additional Electricity Cost using Value Charging
SunPower Solar
Almost 4000kg of CO2 saved/avoided
Almost $1,800 saved in electricity bill
Whirlpool Appliances
60%+ Reduction in CO2
60%+ Reduction in Electric Bill
26%+ Additional Electricity Cost using Off-Peak electricity

Consumer Electronics Show
KB Home
Katie Show Contest
Satellite Media Tour with Danny Seo
Getting the Word Out

Ford chooses to address sustainability issues in the
products we make, how we make them and the people who
are impacted by them
We understand that consumers have these same choices.
We strive to offer mobility solutions that support
our customers, both present and future.
The Future of Ford
Strong Business, Great Products, Better World

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Business Tools for Transformation: A Sustainability SWOT and Creating a Step-Change toward Sustainability

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