1. Sustainability: Costly Inconvenience or New Business Paradigm? Baruch College April 2, 2008 Daniel Mahler, PartnerNew York Office

2. The challenge: billions of people globally aspire the western standard of living but resources are limited 98 Today Future, 20xx 7 bn. 100 (indexed) 7 bn. +x 500 • Resource prices indicate that demand already exceeds supply • Regardless of environmental impact developing countries strive to increase standard of living 10% 20% 80% 98% 90% 80% 20% # People Resources # People Resources One planet Five planets

3. The Sustainability Challenge is re-shaping the environment for doing business Scarcity of natural resources Environ-mental & social problems • Global warming • Environmental degradation • Child labor; poor social standards • Increasing demand for oil & gas • Scarcity of water Emerging participationof developing countries • Increasing material aspirations • Competition for resources • Migration Key drivers of the sustainability challenge Business threats… • Increasing resource prices: from 20$ to 100$ per barrel oil in 5 years • Global Warming premium: pricing in of CO2 cost in energy prices • Vulnerable supply chains: 70% of iron ore in the hands of three global players • Increased policy risk: - Australia bans incandescent light bulbs- San Francisco bans plastic bags • … … and opportunities • New markets: 50% of Global GDP growth will come from developing markets • Growth opportunity: • - UK demand for Fair Trade products growing over 40%/year • - US demand for organic products up 20+% for past 10 years- strong growth of final demand from developing countries • Differentiation opportunity: superior access to capital and talent for sustainability leaders • …

4. In recent times, major companies have engaged in a flurry of activities around “Sustainability” Tesco invests $990MM to reduce carbon footprint Michael Dell announces hewill enable customers to plant a tree for every Dell PC sold 2007 Wendy’s stops using trans-fats in fries and fried chicken Leading companies form U.S. Climate Action Partnership CVS offers walk-in clinics that provide low-cost basic healthcare Goldman Sachs commits to investing $1 billion in clean energy technologies G.E. will invest $1.5 billion in environmental technologies by 2010 2006 Wal-Mart commits to being more environmentally conscious McDonald’s introduces healthier menu items UPS truck fleet has 1500 alternative fuel vehicles 2005 Examples

5. Sustainability is about creating competitive advantage from aligning financial, social and environmental goals A.T. Kearney’s Sustainability Framework Definition of Sustainable Development Economic Development Financial Performance "For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future."1) Growth vs. Environment Efficiency vs. Social Maximum BenefitFocus Area Environmental Protection Environmental Impact of Business Activities SocialWellbeing Enterprise Impact on Society Environment& Welfare Creating a Competitive Advantage and a sustainable shareholder return 1) Book: Business Strategies for Sustainable Development: Leadership and Accountability

6. CEOs and the Boardrooms are beginning to discover sustainability as a “top line” opportunity Does Your Company Have a Corporate Sustainability Strategy? Prominently Expressed Objectives for Corporate Sustainability Strategy (1) Total = 100% Improve brand Differentiate products xx% Compliance Risk Mgmt.. Efficiency Retention Cost Source: A.T. Kearney and Institute for Supply Management TM (ISM) Sustainability Management Survey, January 2007 Notes: (1) Multiple responses allowed

7. But: sustainability is a challenge representing opportunities and risks Sustainability can be a … "Revenue Threat" "Growth Platform" • New Products (e.g., Hybrid, Solar,Organic) • New Markets (e.g., Micro-Business model) • Price Premium (e.g., „green features“) • Declining relevance of current product portfolio (e.g., SUV) • Boycott (e.g., Nike) • Safety Disaster (e.g., Schering) Revenue AmplifierReputation "Cost Peril" "Efficiency Booster" • Carbon Tax • Exploding Commodity Costs • Sustainability Administration • Localization of Supply Chains • Energy Efficiency (e.g., WalMart) • Product Specification Optimization(e.g., Packaging design, material usage) • Value Chain Optimization (e.g., manufacturing/network design, service levels) Costs Opportunity Risk

8. Latest research indicates that companies excelling in all three dimensions command an evaluation premium +25% Companies good in all three dimensions… ….command a premium ….and outperform their peers more often Shareholder Value Development (2003-2007) Shareholder IncreaseGS Sustain vs. Industry Peers(2003-2007) GS Sustain Companieshigher 72% IndustryPeers higher 28% MSCI Index GS SustainCompanies Source: Goldman Sachs, GS Sustain, May 2007, includes 120 companies from Energy, Mining, Food & Beverage, Pharmaceutical Industry

9. Understanding the longer term value challenge is pivotal in developing a sustainability strategy Company Sustainability Value Challenge Illustrative “Sustainability Champion Path” “Evaluation Premium”* “Growth Platform” Creation “EfficiencyBooster” 2015 2010 2020 SVCSustainability Value Challenge Shareholder/ Company Value Protect + Win Sustainability Strategy “CostThreat” Destruction “RevenueThreat” “Do-Nothing Path”:Maxium Value Destruction Scenario Source: Goldman Sachs

10. Conclusion – “Going Green”…. • … should be more than a PR effort repackaging existing efforts • … is more than fighting “global warming” -- the underlying issues are larger • …, if done correctly, is not “another initiative” • …. but the long term survival, health and fitness program of a company