Sustainable Development: A Business Opportunity - One Publisher’s Perspective
David J. Refkin, Director of Sustainable Development, Time Inc.

John Mutter: I'd like to thank the moderator and the speakers for this morning. We're a little bit behind time, so we can take a break and there is some elasticity in the schedule, but if you could take ten minutes or so of break and come back, there will be an announcement. Thank you.

So we are a little bit behind schedule, so without reintroducing David Nissen all over again, I'd like him to come to the podium and manage the remainder of this panel. Thanks, David.

David Nissen: I think our last speaker, Stuart, began a discussion of the view of the world from the bottom of the pyramid. Our next speaker I think will return to the perspective of the top of the pyramid. David Refkin is Director of Sustainable Development and Time, Incorporated, overseeing the company's environmental and sustainable development activities. In particular he focuses on forestry, including Time's Certified Sustainable Forestry Program, recycling, global climate change and on promoting the economic, environmental and social responsibility components of sustainable development through the company. David has a CPA, a BS in Accounting from State University of New York at Albany, an MBA in Finance from Iona College, and has attended the Strategic Management Program at New York University, and he will speak to us on Sustainable Development: A Business Opportunity—One Publisher's Perspective. David Refkin.

David Refkin

Thank you, David. And good morning, everybody. It's good to be here today and thanks for being invited to speak here today.

We've had some great speakers. The last A+. What I'm going to try and do today is talk about the practical application…

…So first just a little background about Time Warner. We are a 44 billion dollar company, with Warner Bros., Time Warner Cable, AOL, that's another discussion for another day, CNN, HBO and then the division that I work at, Time, Incorporated. We are the world's largest publisher based right here in New York City, 23% of all advertising revenue, over 150 titles, and you can see some of our favorite covers on the right there. Of course the Planet of the Earth which was edited by Charles Alexander who is with us today, January 1989, Time magazine naming the Earth as the planet of the year. Fortune magazine. I use that cover because there are seven companies there. Five of the seven have sustainability as a key part of who they are and what they are, and I think there's a correlation between the quality of management and companies' commitments to sustainability. Life magazine. My favorite cover, for all those Yankee fans in the audience my apologies, but you know, once every eighty-six years they are due a little bit of happiness. And then oddly enough Princess Diana who was on the cover of People magazine just this week, some things don't change. We're nearly a six billion dollar company, we make 1.3 billion a year, and we're also the largest publisher in the UK with our ownership in IPC.

We buy a lot of paper, over 600,000 tons of paper annually, mostly in the United States, but about 30% of that comes from European mills, largely in Finland. We're on a very lightweight paper, frankly much lighter than our competitors in the vast majority of cases, and our wood basket, where the fibers are coming from, plays a critical role in our sustainability strategy. And you can see, we're in Maine, Wisconsin, Minnesota, eastern and western Canada, Finland, Scotland, and increasingly Russia.

Now if we think about the sustainability, it's not a term that a lot of people in business have been using for a long time. The terminology a lot that we've heard is stewardship. And you could think of the old annual report where a CEO, often wearing a plaid shirt, would be talking about the stewardship of their company. Now my father and my grandfather, for the last 100 years we've taken care of the forest. You can count on us, we're the stewards of the land. Well that's changing in a lot of ways. Sustainability is a very different concept. It's not about father knows best, it's about all of us being part of the solution. So if you look in the old model it was about stewardship, the environment was part of the environment, health and safety department, it was legislation, regulation, costs, all bad things, all threats that people had to manage. Now, however, leadership companies are looking at it in a much more enlightened approach, it's all about sustainability and the three legs of the stool, and understanding that social responsibility in the environment are there as well as making money for shareholders. It's about transparency and candor, and you have to have both. We're seeing companies be a lot more open about their supply chain, about their policies and practices. And frankly it's a never-ending journey, which is one of the depressing but also great things about sustainability, you're always trying to get to a better place and you never quite get there, but you're always trying. And frankly it's about seizing opportunities. And Abby Joseph Cohen and others have talked about it, this is an opportunity for business. We'll talk more about that.

So a little bit about our production cycle. This is the life cycle of a magazine, starting in the forest, to the papermaking, to the production of the magazine, creating the magazine, the printing of the magazine, and then the recycling and disposal of the magazine. And you can see the issues that challenge us from an environmental perspective every day, and certainly energy is involved with all of these segments.

Let me say also that we manage and control virtually none of this. This is all of our suppliers. We don't own any forest lands, we don't own paper mills, we don't own printing plants, this is all working with our supply chain to make this happen.

So what's our approach to sustainability? First, measurement. As was said earlier if you don't measure things how can you make progress? So, we have an annual sustainable development record card with our suppliers. We have also just recently released our sustainable paper purchasing policy. We've talked about it for many years but now we have a formal policy that we're issuing today. Forestry, we've established a program called Certified Sustainable Forestry, we'll talk more about that, an effort to dramatically increase sustainable forestry practices from our wood baskets, as well as a project in Russia. Recycling, something called remix, to promote magazine recycling throughout the United States. Climate change, we'll talk about our carbon footprint study which is soon to be published. And then working also with other leadership companies, because there are many companies, many people, who care about this Earth, who want to do the right thing, who view sustainable development as a balancing act but something that can be done. And lastly, as I said before, this is a business opportunity for leadership companies.

So, on the purchasing side. You probably can't read it but off on the right that's our sustainable purchasing policy. It will be available later. We're proud of this, it's been a lot of work, it's a balancing act, but we think there are some real teeth in this policy. Our strategy for years has been to reward people who are leaders, encourage laggards, and for those who are doing egregious things either we have stopped doing business with those companies, or we don't ever start doing business with those companies. And you can see the scoring on your report card. The energy number has been going up and up and up, and I think next year it will pass forestry, because certainly it is the challenge for our society in the future.

On the forestry side, we have a lot of challenges in front of us that we were facing. The first one was sustainable forestry. How do we know that sustainable forestry is really happening out there in the woodlands of the United States, Canada, Finland, etcetera? The other challenge, the huge challenge, we were facing was that the vast majority of wood does not come from forest product company owned land, it comes from ten plus million landowners throughout the United States who have very limited knowledge and interest in forestry. In those cases the land turns over every seven years. How do you get them to care about harvesting trees the right way and making sure that streams are protected and wildlife doesn't get harmed, etcetera? In addition, companies were coming under attack by NGOs, and these attacks were often not understood by the people being attacked. They were making agreements, they didn't understand what they were doing. We said to ourselves there must be a better way to all of this. So we said to ourselves what are our strategic imperatives, what do we believe in? We believe in sustainable forestry, we want the forests to be productive, to be healthy, and to be available for future generations. We thought certification with a third party was important. There's been a lot of debate about which certification scheme is best. We've tried to focus on efforts on promoting sustainable forestry, making sure the certification schemes are credible, and not getting involved in a big debate about which one is best, better, etcetera.

We have a social component here certainly. There have been communities in the north woods of Maine, Wisconsin and other places that have been supplying wood for the paper mills for our magazines since Time was started in 1923. What's our responsibility to those communities where their children are leaving, their culture is dying, and the value of their homes is declining? We have a responsibility to those people also, and certification gives them a way to sell their product and to market their product. We also needed bold solutions, and we also needed to have a clear message to the public. This isn't an easy issue for most people to understand, and our mantra has always been on these issues play offense, don't play defense, it's a lot more fun to play offense on these issues, and if you play defense on the environment you will lose.

So we set out a goal. Again, it's about measurement. In 2002 we were at 25% certified fiber. We set out a stretch target that by 2006 we wanted 80% of the fiber to be certified. People looked at us like we were crazy, because basically we had to lead a revolution in forestry, we had to get these ten million people to care about what they do.

So we've had some significant improvements along the way. We've found political partners to work with. The Governor of Maine, John Baldacci and his administration, Governor Doyle in Wisconsin. We've also worked with mayors on other projects. But one of the key events in this whole process what when Governor Baldacci held a press conference in July of 2003 and committed the state to go from six and a half to ten million acres of certified forest lands. I'll talk more about that in a second, about how sustainable development can work. We've seen innovative programs to get small landowners certified, with some amazing leadership people in the states of Maine and Wisconsin. We've seen tax incentives to get people certified in Wisconsin. We've seen public lands in Minnesota, Wisconsin, in Canada get certified. It's happening, it's developing. You get people's competitive juices flowing, they saw what was happening in Maine, they said wow, if we don't do something fast in Wisconsin we're going to fall behind. People are competitive, they don't want to lose. That's been part of our strategy.

Canada a lot of good things. In Ontario, New Brunswick, Quebec is a laggard, but hopefully they're catching up, and in Europe they've been a real leader in forestry certification. The challenge there is in the Baltic states, and especially in Russia.

So, sustainable development can work, and here's an example of it in the State of Maine. In the 1990s they lost 30% of their forest product industry jobs, the highest paying jobs in a high tax state. They need the revenue from this industry. Governor Baldacci comes into office in January of 2003. The largest mill in the state in Millinocket shuts down that day. Thirteen hundred jobs in the middle of nowhere gone. What is the Governor going to do? He was walking into a disaster. Two months later L.L. Bean, who's like God in the State of Maine, and Time, Inc. walked into the state capitol. We met with the head of the Department of Conservation and the Governor's Special Assistant in Economic Development, and we said, “Governor, there's another path. It's called sustainable development. If you do the right thing environmentally we'll do the right thing by you economically.” Well a lot of work went into making that happen. The Governor made his announcement four months later. Four months after that, speaking to a crowd in Augusta, Maine, I told them that we're going to be increasing our purchases in Maine from 90,000 tons, which is about eighty-odd million dollars, to 120,000 tons. That's an increase in market share from 13 to 18%. That is real dollars in people's wallets, it makes them understand that sustainability can work, you can do the right thing environmentally and you'll be rewarded economically.

So where are we? Because measurement again is part of this. We're at 25% in '02, we're at 58% by the end of 2004, we haven't accounted for all of the numbers by the end of '05 but we're in excess of 65%. We may not hit that 80% number, but we've come a long way from 25%, and in some places we will hit that 80% target.

Then there's Russia. If we thought Maine and Wisconsin were challenging, just try Russia. I won't spend a lot of time on this because we're limited, but we do have this major partnership with many other players. You can see who they are up on the screen here. We have some enormous challenges here, legality, worker health and safety, which is absolutely archaic, legality, and then my favorite subject of corruption. It's out there, it's real, it's bad in western Russia, it's even worse in eastern Russia, there's no rule of law in eastern Russia. Luckily we're not there but we have enough challenges in western Russia. You'll be hearing more about this. We will be holding our second press conference in January of 2007. If you want more you can go to tikvenproject.ru [??], it's in English, or Russian, if you want to read it in Russian.

Magazine recycling. We as Americans are not doing a good job of recycling paper. We're only at 49% in this country. Germany is at 75, Finland is at 72, we can do a heck of a lot better. And one of the things we found out was magazine recycling was particularly low, only one out of every six magazines are recycled. So we started a partnership with International Paper and the National Recycling Coalition to encourage people, to educate people, that yes, magazines can be recycled. We have now run 3.5 million dollars' worth of advertising. We've reached an audience of 85 million people, a lot of repeats, but that's okay because we're drilling the message in their head, you can recycle your magazine. We've also sent magnets to every homeowner in Boston, Time Warner Cable, our sister company, is running ads in the greater Milwaukee area, and we have other promotional efforts. So we're again seeing some success here. The City of Boston is up 23%, Prince George's County, Maryland up 11, we're seeing some good results from Wisconsin, and we will launch our fourth remix city, Portland, Oregon on April, just in a few weeks.

We've heard a lot about climate change, and without a doubt this is the issue we all need to be concerned about. Four or five years ago we started talking about this issue with our paper supplier, Stora Enso, and we said no one has actually measured the carbon footprint of magazine production. So we hired Dr. Tom Gower from the University of Wisconsin, we partnered with Canfor, the pulp company, Home Depot, and the Hines [?] Center, the NGO responsible for doing some great science work related to economics, environment, this is one of Theresa Hines' [?] organizations, they do a lot of great work, to measure our carbon footprint, everything from A to Z. And our book “Following the Paper Trail” will be published next month.

What are the results of that study? Well, I can't stand here and tell you that we have the world's greatest carbon footprint for this supply chain that we've studied. What we do know is that there is a lot of energy that used when pulp is made, especially the thermomechanical pulping process, and if that energy is coming from power plants powered by fossil fuel, specifically coal, you don't have a great carbon footprint. Well now we've measured something, now we can act on it. We're already starting to do that. The remix program means fewer magazines emitting methane from landfills. We've had a source reduction with our very lightweight paper in our magazines. We've just recently moved Time, People and Sports Illustrated to 28-pound paper. We're also talking with the CEOs of power companies about energy efficiency, about energy mix, and we're looking at other opportunities. There's a lot to do here, but you have to at least identify the issue as a starting point.

We are not the only company who was looking at these issues, who is concerned about this. If you look at this slide here this is really a Who's Who of corporate America. People like Toyota, Bank of America, Nike, HP, Starbucks, Staples, we too are concerned about these issues. We started something three years ago called the Paper Working Group to increase the availability of environmentally preferable paper. The tool we're releasing to do this is called the EPAT. The EPAT, environmental paper assessment tool, is organized around the desired outcomes on the left. You look at those desired outcomes and you say well, you know, those are things that all make sense. Well, those are desired outcomes you would commonly see in European companies. Those aren't desired outcomes you would have seen three years ago coming out of many companies in the United States. But we're committed to working on these issues. So we're creating the EPAT, the mother of all environmental scorecards which will weight and measure companies' performance in various issues, related to forestry, energy, recycling, etcetera. It will be released at the Forest Leadership Forum in Portland, Oregon on May 5th of this year, and we hope that hundreds of companies will be utilizing this in the not too distant future.

Well, Kermit says “I guess it's easy being green.” Well, of course we know what Kermit used to say. I would say, “Kermit, it's getting easier to be green, but it's not easy yet.” But what we are seeing is we are seeing companies start to advertise the environmental attributes of their products, whether it's Ford Motor Company, BP, Unilever, many other companies, certainly General Electric has been a leader here. GE has now spent over 100 million dollars promoting Ecomagination. Now for those of you who grew up in New York State like I did, GE doesn't have the world's greatest rep. But they've realized that there's an opportunity for them to. And as Jeff Immelt says, “It's a commitment, it's a pledge, it's a marketing initiative and a growth strategy.” GE was afraid they were going to lose their technological edge because companies are asking them to come up with new products. It was time for them to stop fighting environmental initiatives and become part of the solution. Now I'm not going to tell you that everything they do is perfect, or everything Ford Motor Company does is perfect, but companies are starting to get it, they're realizing that there's a market for this out there, that they should stop fighting City Hall, they can do good things, and they can be rewarded for it.

Here's an example for Time, Incorporated. Aveda, the women's healthcare products company. They sent out a questionnaire to publishers about eighteen months ago saying what are you doing about forestry, recycling, climate change, etcetera? And they started rewarding ad pages to companies. We said we think we're far ahead of our competitors, we should be part of this. So to make a long story short, Stephanie George, the President of In Style, myself [and I] went out to Minneapolis, we met with the President of Aveda, and I have to tell you they were pretty impressed by what we were doing. For the first time in five years Aveda bought advertising in In Style. That's just one example. There needs to be many, many more of those.

So getting back to our theme of old versus new, if you looked at the environment in the past all you saw were threats, higher production cost, product scarcity, reduced product acceptance, the risk of market campaigns, government regulations, social responsibility, investors coming after you, all those things that businesspeople just love. Well, there is another side to it, and this is really the opportunity side of this equation here. Products can be sold with their environmental attributes. We can find new customers, people who have similar philosophies to ourselves. We can be rewarded for that. It's also a way to attract employees, especially among those of you who are in your twenties. It's something that Starbucks and others do as a way to bring new employees into their companies. We care about this Earth also, we're just not a big, bad corporation which unfortunately many of us are tarred with in the post-Enron era. We can go to the investors and say okay, you can punish us for doing bad things, but what about rewarding us for doing good things? And it was encouraging to hear some of Abby Joseph Cohen's comments today that this is starting to seep into the thinking of some social responsibility investors, and maybe more general investors. And frankly, it's also a way to enhance our brands, because what is magazine publishing company? It's a company based on the credibility of their journalists and the value of those brands.

So the outlook for sustainable development. Yes, it is feasible. Yes, it is a business opportunity. Our projects are promoting, I think, some positive changes, and the advertising marketplace represents a big opportunity for us because we do think we can differentiate ourselves from our competitors.

So I just want to close out by mentioning that today at this conference we are releasing the Time, Incorporated's first ever sustainability report. Thank you. We are the first publisher in the United States to have a report like this. There's only one other in the world. And copies will be available for you outside during the lunch break today. And if you have any questions or comments we'd be happy to hear those.

And lastly, the timing couldn't have been better on this one, I came to my office Monday and there is was, Time magazine, all of twenty-four pages about global climate change. I'm sure many of you have seen it. Those of you who haven't please buy it, not only for the sake of the bottom line of our company, but frankly it's also okay to pass it onto people too, because it's sending a very important message. The mainstream media is going to be doing more of this. This is a really important salvo in getting the message out. We all need to be thinking about this issue. Please promote these ideas with your friends, and thank you for having me here today.