Benchmarking Sustainability for the Chemical Industry: The AIChE Sustainability Index

Calvin Cobb Former Chair, Institute for Sustainability Beth Beloff President, BRIDGES to Sustainability Institute Sustainability Consultant, Golder Associates SEF - August 29, 2008

The Institute for Sustainability

A community of sustainability practitioners
Companies Professionalsindustry and academic Youth

Organized under the American Institute of Chemical Engineers (AIChE)

Professional membership organization Non-profit 501c(3)

Sustainability is a path of continuous improvement, wherein the products and services required by society are

delivered with progressively less

negative impact upon the Earth

Defined by AIChE Institute for Sustainability November 04-July 05 Grassroots Project, Earl Beaver, Chair IFS

Purpose of a Sustainability Index

Investment guides
Ethical investment/SRI Long-term return (stock picks)

Stock market indices Stakeholder ratings Benchmarks for company management

Examples of Financial SIs

Investment Guide? Market Index? Management Benchmark? Consult to Companies?

DJSI FTSE4Good GS- Sustain Innovest

An Example The Dow Jones Sustainability Index (DJSI)

Investment guide
Includes only companies that meet DJSI criteria governance, transparency, accountability

Stock market index

Track market performance of DJSI components
Subset of corresponding broader indexes
DJSI World, subset of Dow Jones World Index

Benchmarking
Inclusion, being sector leader
Consulting services through SAM analysis and recommendations for companies who want to be included, improve ratings

Used for Market Tracking

Source: SAM, Dec 2007

Focus of Financial SIs

Dow Jones Sustainability Indices Governance, transparency, accountability FTSE4Good Management and reporting processes commensurate with ESG (environmental, social, governance) risk exposure GS SUSTAIN Stock picks based on ESG performance, industry positioning, and financial returns Innovest ESG risk/opportunity assessment

Reporting of Financial SIs

Dow Jones Sustainability Indices
Inclusion (in or out), Supersector Leaders Individual company scores & analysis to licensees only

FTSE4Good
Inclusion (in or out) Individual company scores & analysis to licensees only

GS SUSTAIN
Ratings: leaders, average, and laggards Analysis for sector leaders energy, mining & steel, food & beverage, pharmaceutical, alternative energy, environmental technologies, biotechnology

Innovest
Top companies sector leaders & Global 100 list Ratings (AAA to CCC) and analysis, for

investor clients only

What a Company Can Get from Financial SIs

Dow Jones Sustainability Indexes
Benchmarking with peers, advisory Guidance and support for companies to work towards inclusion in FTSE4Good through EIRIS (none specific to sustainability and its ESG analysis) Confidential custom benchmarking studies for companies operational efficiency and business opportunities per peer analysis

FTSE4Good

GS SUSTAIN

Innovest

Concept of the AIChE Sustainability IndexTM

Based on the Wright Killen Refinery Survival Index (Oil and Gas Journal) Meant to fill a gap:
Relies more heavily on quantitative performance indicators Provides a heavier weighting applied to various indicators of safety and environmental performance and to technological innovation towards SD Available to range of sectors, company size The scoring: robust methodology designed to account for subjectivity in a transparent manner.

Designed to avoid the black box problem of other indices Intended for executives and directors to manage company business lines Global, initially focusing on major chemical companies Publication remains silent on individual company ratings Companies find it useful to benchmark themselves relative to a set of companies
Research funded by United Engineering Foundation

Advisory Panel

Mission
to protect and promote the soundness, credibility and utility of the AICHE Sustainability Index

Advisors:
International financial community Industrial sector experts Media Non-governmental Organizations (NGOs)

Status
Needs analysis completed in the Fall of 2005 Pilot study performed in 2006 Launch
Methodology Published June 07 Index for Fortune 500 CPI November 07

Additional pilots underway for Engineering Construction and Energy/ Power Sectors underway Companies are interested in participating on individual basis First industry roundtable on SI Nov. 19 in Philadelphia
Research funded by United Engineering Foundation

Elements of the Index

Strategic Commitment Safety Performance Environmental Performance Resource Use Waste & Emissions Environmental liabilities Product Stewardship Innovation Product and service innovation meeting social needs Process innovation Value Chain Management EHS Management Supply Chain Management Stakeholder Engagement

Unique Elements
Strategic Commitment Safety Performance Environmental Performance Resource Use Waste & Emissions Environmental liabilities Product Stewardship Innovation Product and service innovation meeting social needs Process innovation Value Chain Management EHS Management Supply Chain Management Stakeholder Engagement

Calculations Use Existing Data Sources

Company reports
Annual Corporate Reports SEC 10-K Filings Sustainability/EHS Reports

Government Agencies
EPA CSB U.S. Patent & Trademark Office

Company websites Media reports Independent NGO reports

AIChE Sustainability IndexTM for the Chemical Industry

November 2007
Strategic Commitment
7 6

Environmental Performance
4 3

Safety Performance

Product Stewardship

Social Responsibility

Sustainability Innovation

Value Chain Management

Net Revenue > $10 Billion USD Net Revenue < $10 Billion USD

Effects of Size
Strategic Commitment
7 6

Environmental Performance
4 3

Safety Performance

Product Stewardship

Social Responsibility

Sustainability Innovation

Value Chain Management

Net Revenue > $10 Billion USD Net Revenue < $10 Billion USD

Comparing Sub-Sectors
Strategic Commitment
7 6

Environmental Performance

Safety Performance
4 3

Product Stewardship

Social Responsibility

Sustainability Innovation

Value Chain Management

Major Diversified Specialty Materials Industrial Gases Commodity Chemicals

Drill Down View

Strategic Commitment to Sustainability

Strategic Commitment to Sustainability

Stated Commitment Stated Commitment

Stated Commitment Stated Commitment Commitment to Commitment to Voluntary Codes Voluntary Codes Commitment to Commitment to Voluntary Codes Voluntary Codes Sustainability Reporting Sustainability Reporting Sustainability Reporting Sustainability Reporting Sustainability Goals & Sustainability Goals & Program Programs Sustainability Goals & Sustainability Goals & Program Programs rdThird-Party Ratings 3 -Party Ratings

3rdThird-Party Ratings -Party Ratings

0 1 2 3

Overall Overall

Overall Overall
4

AIChE Sustainability IndexTM

Drills down, but remains broad enough Based on public data Targeted for managers and corporate executives, not investors Focused on Environmental performance metrics Safety performance metrics (workplace, process) Product stewardship mgmt system, history Value chain management mgmt system Sustainability innovation initiatives, tools, results Social performance and strategic management also covered Less than other indexes Benchmarked to peers and best practices

Corporate Subscription Program

Annual individual company benchmark reports
Benchmark sustainability performance to peers Comparison of companys performance to industry best practices Third-party feedback on public information on the company Provide a reference for sustainability planning and review activities

A Comparison of Scope
FTSE4Good GS Sustain AIChE SI
Some Some

Innovest

DJSI

Governance Reporting Investment risk Environmental performance Social performance (incl. H&S) Product stewardship Value chain management Sustainability innovation

Some Some

Some Some

Some

Some Some

PSI

Some

Some

? ? ?

? ? ?

How is your Companys Sustainability Performance Viewed?

By the community? By your shareholders? By your customers? Versus your peers? The AIChE Sustainability IndexTM

Contact
Darlene Schuster darls@aiche.org 410-458-5870

For subscription information email ifs@aiche.org