communicating the bu $ ine $$ case for $ustainability strategies bob willard [email protected]...

Communicating the Bu$ine$$ Case for $ustainability

Strategies

Bob [email protected]

www.sustainabilityadvantage.com

Business in the CommunityPlymouth, EnglandApril 12, 2007

Economy / Profits

Sustainable business

Profits

Taxes, R&D

Jobs

Expenditures

Training

Fair trade

Core values

The Sustainability “3-Legged Stool”

Environment / Planet

Eco-Efficiency

Manufacturing efficiencies

Operations efficiencies

Product efficiencies

Smart design

Cradle-to-cradle, take-back

Beyond compliance

Restorative to nature

Equity / People

Ethical business

• Internal Employees

Human Rights

Health & Safety

Respect, Caring

• Local Community &

Culture

• Rest of the World

Sustainable Development (SD) Sustainability

Triple Bottom Line (TBL)Environmental, Social, Governance (ESG)

Corporate Social Responsibility (CSR)

Corporate Responsibility (CR)

=

=

= ==

Financial

Capital

Manufactured

Capital

The Smart Business “3-Legged Stool”

Natural

Capital

Human

Capital

Social

Capital

Asset Management

5 Stages and Emerging Drivers

5. Purpose / Passion

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4. Integrated Strategy

3. Beyond Compliance

2. Compliance

1. Pre-Compliance

• Eco-efficiencies• Regulatory Threat• PR Crisis

• Passionate Founder / CEO

• Regulatory Pressure / Enforcement

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• Business Opportunities – “Carrots” • Risk Management – “Sticks”

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Stage 5: Purpose / ValuesWe want to be a successful business

… so that …we can contribute to environmental and

social well-being

Ends vs. Means

Stage 4: Integrated StrategyWe want to contribute to environmental

and social well-being … so that …

we can be a successful business

Means

Means

End

End

5 Stages and Emerging Drivers


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2. Compliance

1. Pre-Compliance




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The Company Value Iceberg

Company Value

Intangibles / Brand Image/ Nonfinancials / Reputation / / Stakeholder Relationships

Tangibles/ Financials

/ Balance Sheet

The Company Value Iceberg: 1981

17%

83%

Company Value

Intangibles / Nonfinancials

Tangibles / Financials

Arthur D. Little, The Business Case for Corporate Citizenship , 2002)

The Company Value Iceberg: 1998

71%

29%

Company Value

Intangibles / Nonfinancials

Tangibles / Financials

Arthur D. Little, The Business Case for Corporate Citizenship , 2002)

The Sea of Demanding Stakeholders

Company Value

Non-financials / Reputation

Financials

Employees

Customers

Mainstream Media

Economists

Scientists

NGOs / Civil Society

Competitors

Global Markets / EU

Governments at all levels

Banks & InsurersAwakened Public

Shareholders & Investors

Two-part Business Case

Company Value


Financials

Customers

Mainstream Media

Economists

Scientists

NGOs / Civil SocietyEmployees

Competitors

Global Markets / EU




The Perfect Storm

• All were dying out• Energy from the 3 systems combined • Sudden, unexpected, devastating

Cold front from Great Lakes

Cold front from Great Lakes

Warm front near Sable Island

Warm front near Sable Island

(Former) Hurricane

Grace

(Former) Hurricane

Grace

• Oct. 27 – Nov. 1, 1991• Worst storm in history …100’ waves

The Perfect Storm

The Perfect Storm

Mega-Issues + Stakeholders = New Market Forces

Company Value

Non-financials

Financials

Customers

Mainstream Media


Competitors ScientistsGovernments at all levels



PandemicsPandemicsErosion of Trust

Erosion of Trust

Water Crisis

Water Crisis

Pollution &

Health

Pollution &

HealthEnergy Crisis

Energy Crisis

Climate Crisis

Climate Crisis

Climate Crisis

Climate CrisisClimate

Crisis

Climate CrisisOther …Other …

Global Markets / EU

Economists

Mainstream Media / Awakened Public

• 67% of Canadians say would switch to “green” companies (Environics, Feb 07)

• 79% of Americans say they are Conscious Consumers; 20% are Advocates vs. 7% in 2004 (Egg, Mar 07)

• 18% of global consumers are Mainstream Activists (Globescan CSR Monitor, 2005)

The “Goracle” Factor + Hurricane Katrina + High gas prices + Weird weather + IPCC report + Stern Review + …

Economists’ Warnings about Risks

• Economists’ Statement on Climate Change (Feb 1997) Signed by 2,000 economists, including 6 Nobel Laureates

1. Humans causing CC; it presents significant environmental, economic, social, and geopolitical risks; preventive steps justified

2. Benefits to economy outweigh the costs3. Market-based mechanisms are most efficient way to slow CC:

international cap-and-trade system and carbon taxes (“Great Green Tax Shift”)

• Stern Review on Climate Change (Oct 06) By former World Bank chief economist Nicholas Stern

1. Humans causing CC; cost of mitigation is 1% of annual global GDP by 2050 if act now; 5-20% of annual GDP if act later

2. Benefits of $2.5T if act now; global depression if do not3. Stabilize GHGs; deployment low-carbon technologies; remove

barriers to energy efficiency; implement regulations, carbon taxes, and / or a cap-and-trade system

Investors Worried about Risks

Investors

Climate Crisis

Climate Crisis

Carbon Disclosure Project 2003 2006

Institutional Investors 35 225

Value of Assets Held $4.5T $31T

Companies Surveyed FT500 1,800

Manufacturer impact: -40%; Bank impact: -29%

Physical RisksLitigation RisksCompetitive RisksReputation Risks • Investor Network on Climate Risk (INCR):

65 institutional investors, $4T in assets;

•Ask SEC to require listed companies to disclose CC risks to their financial performance (June 06);

•Climate Watch List of worst 10 companies get shareholder resolutions on CC (Feb 07);

•Request Congress cut GHGs 60-90% below 1990 levels by 2050 (Mar 07)

Banks and Investors Taking Action

• Citigroup: largest U.S. bank; (Jan 06) will reduce GHGs from its 13,000 properties by 10% by 2011

• Bank of America: second largest U.S. bank; (Apr 05) $3K rebates on employee hybrids; (Mar 07) $20B over 10 years to support growth in environmentally friendly activities and reduce global warming; reduced mortgage rates on energy efficient homes

• Goldman Sachs: (Nov 06) first major investment bank to adopt a comprehensive environmental policy; investing $1B in clean energy projects

• JP Morgan Chase: (Apr 05) adopted Equator Principles

• 348 shareholder resolutions on ESG issues 2005 (up 16% from 2003); 177 social resolutions reached a vote (up 22% from 2003)

EU Market Forces

EU Market

Pollution & Health

Pollution & Health

RegulationsMarket Access

• Restriction on Hazardous Substances (RoHS)

• Waste from Electrical and Electronic Equipment (WEEE)

• End of Life Vehicles Directive (ELVD)

• Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)

• Energy-using Products (EuP)

• Climate Change Plan: (Mar 07) By 2020, cut CO2 by 20% below 1990 level; 20% of electricity from renewable sources vs. 6% now; 10% of vehicles on biofuels

• Big Retailers: Tesco, Marks & Spencer, Asda

Climate Crisis

Climate Crisis

US Position on Climate Change?

• US States• US Cities• Corporations

Climate Crisis

Climate Crisis

Energy Crisis

Energy Crisis

• 20 States: Renewable energy targets

• 9 States: Suing Feds for lax fuel efficiency standards

• 5 West-coast States: Western Regional Climate Action Initiative

• 7 East-coast States: Regional Greenhouse Gas Initiative (RGGI)

• 33 States: Climate Registry of baselines

• 425 US Cities: Climate Protection Agreement: Kyoto at city level; -7%

• Big Corporations: Wal-Mart, GE, DuPont

• Combat Climate Change (3C) Initiative: 18 US energy corps; want carbon trading

• US Climate Action Partnership (USCAP): 10 major corps + 4 NGOs; want cap-and-trade and 15% GHG reduction in 15 years

RegulationsCarbon caps

Unusual Co-drivers of Sustainability

National Security

National Security

War for Talent

War for Talent

Alternative energy: Investment in the USprojected to be $6B by 2008; $167B by 2015

Sustainability reputation: 70% of NA gradswould not apply to company with a poor CSRreputation

Revenue Pressure

Revenue Pressure

Transparency

Transparency

Carbon trading: $29.8 B global market in 2006 and set to double in 2007; Opportunity for additional revenue?

Environmental reporting: Sarbanes Oxleyrequires material risks be identified; CICA guidance on MD&A discussion of risks; GRI guidelines; 64% of Global 250 do SD reports

Two-part Business Case

Company Value


Financials

Customers

Mainstream Media

Economists

Scientists


Competitors

Global Markets / EU




Business Priorities

ProductivityBrand Image

Profit

Growth

Attracting & Retaining Top Talent

Managing Risks Innovation

Speed to Market

Leadership

Market Share

Motivation

Share Price

CompetitiveAdvantage

Governance

Expense Savings

New MarketsComplying withNew Regulations

Attracting & Retaining Customers

Responding to Emerging Market Forces

Revenue

Potential profit increase: 66%

+ Energized employees

+ Improved corporate image

+ Competitive advantage

+ Positioned for the future

Benefits to “SME Ltd.”

Revenue: $4,000,000Profit: $200,000 (5% of Revenue)Workforce: 50 (43 + 7 Managers)Avg. Employee Salary: $25,000Avg. Manager Salary: $55,000

1. Show senior leadership Include SD in vision / mission / strategies

Reinforce it is a business strategy vs. a compliance or philanthropy issue

Avoid “green-washing” hype

Visible support: speeches, questions, actions

2. Educate the whole company Solicit employee ideas

3. Align with measurement systems Align with measurement / management systems

Integrate into recognition / reward systems

The Catch

1. Reduced electricity, fuel, and waste costs

2. Reduced recruiting costs

3. Reduced attrition costs

4. Increased employee productivity

5. Increased revenue / market share

6. Reduced risk, easier financing

6 Benefit Areas

Usual

focus

1. Reduced electricity, fuel, and waste costs -10%

2. Reduced recruiting costs -1%

3. Reduced attrition costs -2%

4. Increased employee productivity +6%

5. Increased revenue / market share +5%

6. Reduced risk, easier financing -5%

6 Benefit Areas … % Improvement

… yielding a profit increase of +66%







What if …


+3%

+48%







What if …


-5%

+56%







What if …

… yielding a profit increase of +66% +64%

+2.5%







What if …


+3%

+35%

+2.5%

-5%

Tipping Point?


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2. Compliance

1. Pre-Compliance




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20% at Stage 4 or 5

Closing Thoughts

• Sustainability is smart business

• New market forces / risks are in play

• Public expectations are rising

• Talk their language

• Show relevance to existing priorities

• You are not alone; find partners

• Opportunity for leadership

Communicating the Bu$ine$$ Case for $ustainability

Strategies

Bob [email protected]

www.sustainabilityadvantage.com

Business in the CommunityPlymouth, EnglandApril 12, 2007

communicating the bu $ ine $$ case for $ustainability strategies bob willard [email protected]...

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