1. Michigan State University • Understanding the impact of the supply chain • Dr. James Salo • SENIOR VICE PRESIDENT, NORTH AMERICA • TRUCOST 21st April 2014

2. INTRODUCING TRUCOST Trucost has been helping companies, investors and cities to understand the environmental impacts of their supply chains since 2000 Trucost has analysed the environmental performance of >500,000 suppliers representing$100B expenditure Trucost wrote environmental reporting guidelines for business forthe UK Government and Shanghai Stock Exchange Trucost models are supported by an International Academic Advisory Panel

3. Risks and opportunities Understanding the impact of the supply chain

4. SUPPLY CHAIN OPPORTUNITIES • REDUCE THE COST OF MATERIAL INPUTS • AVOID PASS THROUGH COSTS • ENSURE A CONTINUED SUPPLY OF RAW MATERIALS • AVOID SUPPLY CHAIN DISRUPTIONS ON AVERAGE, TRUCOST SUPPLY CHAIN SERVICES HAVE IDENTIFIED $1.8 MILLION IN POTENTIAL SUPPLY CHAIN ENERGY COST SAVINGS PER PROJECT.

5. SUPPLY CHAIN RISKS • "In the next 40 years we need to produce as much food as we produced in the past 8,000." WWF • 3bn more middle class consumers by 2030 • 40% water shortfall by 2030 • >100% increase in real commodity prices since 2000 • 3X increase in volatility of commodity prices since 2000

6. THE BIG PICTURE EEIO Model & Trucost Environmental Register l MEASURE RISKS MANAGE RISKS • Procurement policies, programs & projects • Reporting • e.g. investors, customers, CDP, NGOs • HOT SPOT IMPACT SPEND ANALYSIS • MATERIALITY & MAPPING • Annual Supplier Scorecards • Set & Track Performance Targets • QUANTIFY AND VALUE RISKS • SUPPLIER ENGAGEMENT Supplier Engagement Portal Natural Capital Analyzer

7. FOREST OR TREES YOUR COMPANY Tier 3 to n suppliers Raw material suppliers

8. ‘SEE’ THE FOREST “TRUCOST REGULARLY FINDS THAT JUST 10 – 20% OF SUPPLIERS ACCOUNT FOR 80 – 90 % OF SUPPLY CHAIN IMPACTS.”

9. WHY CARE: RISK OF PASS THROUGH COSTS 29% of profit warnings by FTSE companies due to rising raw material prices (Ernst & Young 2011) Potential risk of water pass through costs (magnitude + likelihood based on regional water scarcity and regulatory scenarios)

10. Michigan State University 2013 Assessment Understanding the impact of the supply chain

11. MICHIGAN STATE UNIVERSITY – 2013 ASSESSMENT OBJECTIVES

12. RESEARCH PROCESS Phase 1 Phase 2 Phase 3 30 – 45 days 2 – 3 months 1 – 2 months

13. Review of project findings Food services supply chain

14. SUPPLIER RESPONSE – FOOD SERVICES Supplier engagement results – data verification • 6 companies completed supplier engagement: • Michael Foods/Papettis Hygrade Eggs • Norpac Services • Ken’s Foods • Northern Lakes Seafood & Meats • Stone Circle Bakehouse • King & Prince Seafood • A further 18 companies were previously researched by Trucost

15. KEY SECTORS – FOOD SERVICES GREENHOUSE GAS EMISSIONS The top 3 spend categories account for 97% of the total carbon emissions across the supply chain – manufacturing alone accounts for 79% WATER CONSUMPTION The top 3 spend categories account for 97% of the total carbon emissions across the supply chain – manufacturing alone accounts for 80%

16. CARBON & WATER DISTRIBUTION – FOOD SERVICES The top 10 suppliers contribute to 59% of total carbon emissions and 55% of total water use The top 50 suppliers account for 95% of total carbon emissions and 96% of total water use

17. KEY FINDINGS – FOOD SERVICES Supply chain carbon intensity relative to other industries Supply chain water intensity relative to other industries

18. Review of project findings Purchase ledger supply chain

19. SUPPLIER RESPONSE – PURCHASE LEDGER Supplier engagement results – data verification • 6 companies completed supplier engagement: • BD Biosciences • NBS • Douglas Steel Christman Company • University of Michigan • Fishbeck, Thompson, Carr & Huber • Integrated Design Solutions • RKA Petroleum • Fisher Scientific • Wesco Distribution • Standard Electric • A further 33 companies were previously analyzed by Trucost

20. KEY SECTORS – PURCHASE LEDGER GREENHOUSE GAS EMISSIONS The top 5 spend categories account for 91% of the total carbon emissions across the supply chain – the top 3 alone accounts for 72% WATER CONSUMPTION The top 5 spend categories account for 88% of the total carbon emissions across the supply chain – the top 3 alone accounts for 77%

21. CARBON & WATER DISTRIBUTION – PURCHASE LEDGER The top 10 suppliers contribute to 70% of total carbon emissions and 63% of total water use The top 50 suppliers account for 94% of total carbon emissions and 91% of total water use

22. KEY FINDINGS – PURCHASE LEDGER Supply chain carbon intensity relative to other industries Supply chain water intensity relative to other industries

23. Assessing risk & opportunity Understanding the impact of the supply chain

24. EXAMPLES OF NATURAL CAPITAL RISK

25. METHODOLOGY: FOUR STEP PROCESS • Quantify environmental impact • Collect environmental data • Apply natural capital costs • Assess & prioritize measured risk 1 2 3 4

26. METHODOLOGY: FOUR STEP PROCESS Example framework Environmental performance in financial context Quantitative, physical & financial metrics Environmental impacts in comparable units Direct operations & supply chain

27. TRENDS IN NATURAL CAPITAL ACCOUNTING LEADERSHIP INITIATIVES INVESTORS SOVEREIGN NGOs CORPORATIONS MULTI-STAKEHOLDER GROUPS

28. CASE STUDY: PUMA EP&L

29. PRODUCT CATEGORY

30. Net benefit of new technologies Biomass Burner offers 30 - 40% natural capital savings

31. NET BENEFIT (WATER) Future

32. Why valuing natural capital? • Business case for environmental initiatives: cost-benefit ROI analysis of intangible issues to support decisions that have historically been value based. • Environmental context: understand business dependence on nature and identify what is material (e.g., water scarcity). • Quantify the risk of pass through costs. • Optimize investment portfolios or brand portfolio to manage risk. • Inform sourcing decisions to ensure a stable supply of raw materials. • Grow sales. • Lower cost of capital for a new technology. • Optimize product design.

33. THANK YOU Dr. James Salo SENIOR VICE PRESIDENT, NORTH AMERICA James.Salo@trucost.com +1 508 769-5053 @JamesSalo