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					           Sustainability in the Corporate World
              California Polytechnic State University
                          27 January 2006

How Can We “Profit” from Sustainability??
 Balancing economic, social and environmental opportunities

                   J. Alexander Sloan
                     Blackwolf Partners
I.     My background and perspective

II.    Shifting consumer attitudes and demands

III.   “Sustainability” and a useful framework

IV.    Pulling companies to sustainability

V.     Opportunities in under-developed markets

VI.    Q&A
            My Experience and Perspective

1992 - 1993: U.S. Agency for International Development
1993 - 1996: The Vietnam Fund Limited
1996 - 1998: Cornell MBA
1999 - 2002: Hambrecht & Quist venture capital unit
     Merged into J.P. Morgan Partners
     Invested in many younger private technology companies
2004 on: Founding Partner, Blackwolf Partners
     Early stage venture fund focus on Cleantech: healthier, cleaner,
      more energy efficient products & services.
Board Member, Center for Sustainable Global Enterprise at Cornell U.

                      Let’s Take a Quick Poll
 How many of you…

 expect your career to be involved directly with developing new technologies?

 want your career to have a direct positive effect on environmental and/or
  social issues (health/wellness, poverty, expanded access to opportunities, etc.)?

 expect your career to be primarily in an NGO, government, public sector,
  university, or research organization?

 expect your career to take place in or be focused on developing countries?

 think that a profit can be made by working on environmental and social issues?

 think that a profit should be made by working on environmental and social issues?
Where is the Demand?

                    Where is the Demand?
•   Consumers are increasingly sophisticated and aware of
    what they are buying.

•   Consumers value:
      1.   Their own time and money,
      2.   Product performance,
     and increasingly…
      3.   Values: growing importance of “health and wellbeing” (of self,
           family, community, nation, planet).

•   Strong demand recently for organic and natural foods,
    healthy/sports drinks, hybrid cars, alternative energy, holistic and
    complementary healthcare options, etc…

                   A Faustian Bargain?
• Must there be a trade off?: cost/values; performance/health, etc.
   –The legacy of socially responsible investment funds, the EV-1, rice cakes
   and wheat grass...

• Companies are responding with more attractive products with fewer
  compromises and trade offs.

• We define this growing demand as Consumer Awareness:
       consumer preference and demand for cleaner, healthier,
       more resource efficient, less wasteful, and more sustainable
       products and service.

    Responding to Shifting Consumer Attitudes
         Rapidly growing interest in healthy choices
        Increasing concern
            for health and                                          Established
              environment                                           patterns and
                                   Consumer                         behavioral change
    Driven by health &
             wellbeing             Awareness
                                      24%             Traditional         Driven by faith, tradition,
  >$250 billion                                                           conservatism
market segment

     Materialism and                      Oriented
            products                           47%
                                                                          Source: LOHAS Journal &
                                                                          Paul Ray, The Cultural Creatives
        Driven by consumption,
           personal satisfaction
Growing Awareness of our collective “Health”

Growing Awareness of our collective “Health”

Growing Awareness of our collective “Health”

Concern and interest are growing over pollution, waste, the
environment, health & wellness, consumption, and the
need for a new approach…

  “Sustainability” is a good rubric for this new approach.
           So, what is “Sustainability”?
                 A textbook definition…

Paul Hawkin's book, The Ecology of Commerce

"Sustainability is an economic state where the demands
placed upon the environment by people and commerce can be
met without reducing the capacity of the environment to provide
for future generations. It can also be expressed in the simple
terms of an economic golden rule for the restorative economy:
leave the world better than you found it, take no more than you
need, try not to harm life of the environment, make amends if
you do."

Who are the leaders in promoting Sustainability?
 • Traditional leaders from academia, nonprofit, government, NGO,
   media, public advocacy... All play a role:

 • However Hawkins’ definition addresses an Economic State: demands,
   commerce, consumers, resources, production, consumption, etc.
 • Solutions need to involve companies, technology and innovation.
 • Cooperation or parallel efforts, but all must participate.
 A Corporate View on “Sustainability”

“Ability of an company to sustain itself… to grow, develop
new products and markets, and increase shareholder
•To stay in business…!

    Can we merge these two
      approaches to “sustainability”?

       Sustainability in the Corporate World

• Must be of self interest to and desired by mainstream consumers.

• Cannot only be about less consumption.

• Consumer demand = perceived/real “value” to consumers = Pull.

• Sustain./Environ. must be “profitable” for producers and
  consumers, not only the “right thing” to do.

• Opportunity abound for innovative companies to find growth,
  redefine the products/service and to redefine “profit”.

How do we see Sustainability implemented in
            business practices?
     •   Environmental Management          •   Clean Technology
     •   Corporate Social Responsibility   •   Eco-efficiency
     •   Greening                          •   Eco-effectiveness
                                           •   Biomimicry
     •   Industrial Ecology
                                           •   Triple Bottom Line
     •   Stakeholder Management
                                           •   Inclusive Capitalism
     •   Life Cycle Management
                                           •   Base of the Pyramid
     •   Pollution Prevention (P2)         •   Community Capitalism
     •   Sustainable Development           •   Corporate Citizenship
     •   Design for Environment (DfE)      •   Voluntary Regulation
     •   Green Design                      •   Civic Entrepreneurship
     •   Urban Reinvestment                •   Full Cost Accounting
     •   Brownfield Redevelopment          •   Risk Management
     •   ISO 14001                         •   Leapfrog Technology       Source: Stu Hart,

     •   Waste Reduction                   •   Cradle to Cradle          Capitalism at the Crossroads

                                           •   Restorative Technology
     •   Closed Loops
                                           •   B24B
     •   Resource Productivity
                                           •   Take-Back
     •   Sustainable Technology
                                           •   Transparency
     •   Radical Transactiveness
     •   Systems Thinking                  •   A company that stays in
     •   Corporate Governance                  business….                         16
                 Sustainable Value Framework
            Trends toward sustainability in business
           Strategy: Clean Technologies             Strategy: Sustainable Vision
           Development of sustainable               Create a shared roadmap for meeting
           competencies of the future               unmet needs
           Corporate payoff:                        Corporate payoff:
           Innovation & Repositioning               Growth & Trajectory
Internal                                                                                    External

           Strategy: Pollution Prevention           Strategy: Product Stewardship
           Minimize waste and emissions             Integrate stakeholder views into
           from operations                          business processes
           Corporate payoff:                        Corporate payoff:
           Cost & Risk Reduction                    Reputation and Legitimacy       Source: Stu Hart,
                                                                                    Capitalism at the Crossroads

                                            Today                                             17
Many Companies Doing Well by Doing Good

Many Companies Doing Well by Doing Good

• So the trend is positive and growing. But is it fast/broad enough?

• Negative forces of change: government regulation, negative media
  attention, shareholder backlash, consumer boycott.

• Better force: consumer pull, which innovators, big companies and
  financial backing will follow.

                 Technology & Innovation
     Often comes from entrepreneurial companies

• Big companies, have big budgets…but also have current product/market
  issues (fear cannibalizing current products) and are bureaucratic, short
  term focused, slow to move, and resistant to change.

• Innovation often comes from smaller/entrepreneurial companies,
  especially in the field of technology.
   – Venture capital funds seek to back these innovators.

• They develop innovative solutions, even disruptive advances, then sell
  their product or entire company to larger company.

Blackwolf’s Focus is on Clean Technology
 As applied across various industries and sub-sectors

        Healthy         Natural       Transportation    Differentiated
       Consumer        Resources                         Healthcare

      Organic Food      Water           Hybrid Car        Products &
                      Conservation        Inputs           Services

      Clean Water     Alternative &     Vehicle         Complementary
                       Renewable        Batteries          Medicine

       Air Quality     Recycling       Alternatives    Clean/sustainable

                     Clean Technology
         The Growing Cleantech Opportunity
        Technology advances serve as a key driver

 Food: packaging that discloses exposure to chemicals and pesticides by changing color.
     Investment driver: increasing concern for food quality.

 Transportation: new polymers as a lighter replacement for auto glass.
     Investment driver: increasing demand for hybrid cars.

 Power: more efficient wind power conversion technologies.
     Investment driver: concern for environment and cost of energy.

 Water: Embedded sensors in lawn sprinklers for need-based watering.
     Investment driver: efficient use of water and lower cost to consumer.

 Conservation: recyclable processes and agents in drug production.
     Investment driver: less waste in production and lower cost to consumer.

               Blackwolf Investment Focus
Technologies that enhance proven consumer-driven trends

                               Blackwolf Ventures
                               Blackwolf Ventures
                                  $100 m. Tech Fund
                                 $100 m. Tech Fund
                                 driven by demands of:
                                driven by demands of:

                   Clean Technologies
           Healthy                   Natural Resource
                                    Natural Resource              Differentiated
          Consumer                      Sensibility
                                       Sensibility                  Healthcare
            (~33%)                        (~33%)
                                         (~33%)                        (~33%)

     • Food quality & choice      • Air & water utilization    • Healthcare solutions
     • Clean water                • Energy efficiency          • Complementary medicine
     • Personal development       • Environmental management   • Sustainable/healthy Pharma.

 Cleaner, healthier, more sustainable, more energy efficient,
  more resource efficient products and services…
         New Opportunities and Outcomes

• Opportunity for “Triple bottom line” accounting.
   – Financial, social and environmental benefit.
   – All three are deemed important, all three must be measured.
   – Not a trade off (hopefully).

• In mature markets, there are larger dollar customers, but also:
   –   large investment and development cost,
   –   more competition,
   –   more product incumbency, and
   –   slower growth rates.

• Where else should we look for innovation, growth and market

                  Developing Economies
                4 billion people underserved

• Huge human, social and environmental needs, but also untapped
  market opportunities for smart and innovative companies.

• Compare saturated mature markets (3-4% growth) versus high growth
  (8-10%) in new, developing markets at the “Base of the Pyramid”.

• “B24B” = Business to 4 Billion

                   Base of the Pyramid
              untapped but unique market

Annual Purchasing Power Parity!!             Population in Millions

                   >$15,000        Wealthy     800

                               Emerging              1500
       $1,500 - $15,000
                              Middle Class

        <$1,500        Low income markets                   4000

                   “Base of the Pyramid”
                  Vast needs and opportunities                        Source: Stu Hart,
                                                                      Capitalism at the Crossroads

  Opportunities at the Base of the Pyramid

• “The Great Leap Downward”: competing against non-consumption
  and inefficient processes with creative destruction and innovation.

• Requires appropriate “localized” strategies and business models, not
  just downsized packaging and a “global approach”.

• Build the model from the bottom up. Listen and learn from local
  communities. Micro experiments can become macro successes.

• Many examples of transportation, appliances, financial services,
  water purification, telecom, production and distributions systems
  that serve local needs, systems and cultural norms.
        Quick Examples of BOP Successes

• Galanz: Chinese company started making microwave ovens for local
  market, not just another cheap version for export to mature markets.
     2% to 76% domestic market share in 7 years. First purchase by buyers.

     Then global 35% market share. Leading worldwide manufacturer.

• Grameen in Bangladesh: micro credit and new model for rural telecom
     Loans for $175 solar powered mobile “village phones” managed by women
      entrepreneurs. Shared service, per call fees. Saves time & money for farmers.

     By 2004, $500 million in revenue and service to 50 million people, inc. half of
      Bangladesh’s rural population.

New Mode for International Development
• Sustainable technologies can play a key role in opportunity and
  access, as well as provide triple bottom line results.

• Chance to do it right the first time. Introduce more sustainable
  approaches from the start.

• This is one form of International Development, in a new and
  better way. It’s commerce not government programs, and it’s
  local pull not outside push.

• Cooperation or parallel strategies between government aid, non-
  profit and NGO work, and private industry.

• Yes, we are making an impact, more than ever.

• Consumer demand is pulling companies to make more healthy and
  sustainable products and services.

• Smaller companies often develop technology innovations that help
  larger companies provide solutions to consumers.

• Underserved markets offer:
   – New customers and growth potential.

   – Opportunity to create sustainable solutions from the start.

• Many opportunities to promote and balance economic, social and
  environmental needs.

Thank you.
         Some Recommended Reading
• Stu Hart, Capitalism at the Crossroads

• Paul Hawken, Amory & Hunter Lovins, Natural Capitalism

• Paul Ray, The Cultural Creatives

• Clyde Prestowitz, Three Billion New Capitalists

• Thomas Friedman, The World is Flat

• C.K. Prahalad, The Fortune at the Bottom of the Pyramid

• William McDonough, Cradle to Cradle

• Janine Benyus, Biomimicry

• Shoshanan Zuboff, The Support Economy
        Alex Sloan
    Blackwolf Partners