greening business
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Copyright 2004 by Peter A. Hess and CHANGE Partners, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the Publisher.
Grow, Profit and Reduce Risk
Through Radical Resource Efficiency
2 © 2007
AgendaAgenda
Business Case
Cost/Benefit Comparison
Specific Issues
Solutions
Recommended Next Steps
3 © 2007
Business Case: You’re in Good CompanyBusiness Case: You’re in Good Company
”The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate change is conclusively proven, but when the possibility cannot be discounted.”
John Browne, BP Chairman
“I am convinced that we can build a global plan of action on climate change in ways that create more economic opportunities than risks. Actually, there is no other option.”
Alain Belda, Alcoa Chairman and CEO
“…climate change is a serious emerging risk…”
Clement Booth, Allianz SE Executive Board Member
4 © 2007
Business Case: Boost Shareholder ValueBusiness Case: Boost Shareholder Value
Sustainable companies have:
4% higher ROI
9% higher sales growth
17% higher income growth
“Social & environmental risk management has significant positive impact on long-term market value” 1
73% SRI funds earned top marks “Stakeholder Superstars” = 43% return vs. 19% for S&P 500 FTSE 250 Co’s. w/ ethical code outperformed on economic
& market value-added3
Corp. governance, share price performance / volatility, and profitability3 linked
5 © 2007
Operational efficiency
Productivity
Innovation
Employee productivity
‘Human Capital’ leverage
Improved decision-making
Enhanced leadership
Workforce attraction/retention
Organization effectiveness
Teamwork
Business Case: Operational BenefitsBusiness Case: Operational Benefits
Access to capital Access to capital
New market development New market development
Resource utilizationResource utilization
Brand image / customer retentionBrand image / customer retention
Lower riskLower risk
Access to capital Access to capital
New market development New market development
Resource utilizationResource utilization
Brand image / customer retentionBrand image / customer retention
Lower riskLower risk
6 © 2007
Driving ForcesDriving Forces
Consumer concerns
Market-related forces
Reputational risk
Legal/Regulatory Trends
Investor demands
Call for increased transparency
Externalities incorporated into pricing
Social pressures (NGO, community and investors)
Technological Change
Long-term business strategy
Company values
7 © 2007
Financial BenefitsFinancial Benefits
$1B savings & 1B tons emissions prevented
$100-200 million sales required to offset anticipated electricity cost increases, saving ~ $9M/yr
204% ROI = $110M/yr from energy-saving projects
$3B energy costs , 72% greenhouse gas emissions
>$500M energy savings
$10M annual energy efficiency cost savings
But Wait! There’s More…But Wait! There’s More…
3M
8 © 2007
Benefits (cont’d)Benefits (cont’d)
Interface: $400M Efficiency savings
Southern Co’s: $108M/yr Thermal efficiency savings
Greenville Tube: 15% Productivity 30% Energy efficiency 15% Scrap $77,000/yr saved; 5-month payback
Southwire: 40% Electricity use 60% Gas use 2-year payback
Calculate IRR
9 © 2007
94% waste before product sold
4.8% waste within 6 weeks
1.2%
Source: Robert Ayres, Industrial Metabolism
CostsCosts
Resource Product
10 © 2007
Versus…Versus…
Emissions to water
Emissions to air
Total incoming material
Hazardous waste To landfill
(non-hazardous) Material &
energy recycling
Finished product
11 © 2007
Electricity Flow (Quadrillion BTUs)
Costs (cont’d)Costs (cont’d)
12 © 2007
Evolving Business Behaviouron Sustainability Issues
13 © 2007
Escalating Degree of ImpactEscalating Degree of Impact
14 © 2007
CEO Buy-inCEO Buy-in
Most important business case factors
Highest value-add from sustainability
15 © 2007
VALUES AND VALUE: Communicating the Strategic Importance of Corporate Citizenship to Investors. RichardSamans, Klaus Schwab GENEVA, JANUARY 2004
Risks and OpportunitiesRisks and Opportunities
Protecting and enhancing reputation, brand equity and trust
Attracting, motivating and retaining talent
Managing and mitigating risk
Improving operational and cost efficiency
Ensuring licence to operate
Developing new business opportunities – new products and services, new markets, new alliances, new business models
Creating a more secure and prosperous operating environment.
16 © 2007
Hierarchy of ImpactHierarchy of Impact
Decrease energy use
“Green” the supply chain
Decrease material use
Reuse materials
Recycle
Boost efficiency
17 © 2007
Specific Next StepsSpecific Next Steps
1. IDENTIFY RISKS AND OPPORTUNITIESManage social risks; maintain license to operate; increase brand value, access to capital, market share; facilitate reporting
2. ENGAGE 'SIGNIFICANT' STAKEHOLDERSGovernments; customers, communities; affected by operation; employees; minorities; others
3. DEFINE STRATEGY TO IMPROVE IMPACTTarget specific operations, stakeholder issue, business unit & geographic regions
4. DEVELOP INDICATORS & IMPLEMENTKey priority areas based on stakeholder engagement
5. MANAGE AND IMPROVE IMPACTCollect data & evaluate progress against agreed objectives
18 © 2007
Additional ActivitiesAdditional Activities
Bring top management on board
Customize the business case
Establish benchmarks and measure progress
Educate employees and create cross-functional teams
Employ life-cycle analysis
Develop BU-specific strategies
Involve suppliers and customers
Seek outside perspectives and expertise
Celebrate successes and share lessons learned
19 © 2007
Activities (cont’d)Activities (cont’d)
Identify profitable improvements, evaluate trade-offs and select strategies
Catalog organizational, policy, and market barriers and act to overcome them
Align sustainability goals with core business objectives
Identify specific actions with timelines and deadlines
Assess client-specific regulatory issues and tailor business decisions to anticipate evolving regulations
Craft communications to educate, enroll and inspire
Copyright 2004 by Peter A. Hess and CHANGE Partners, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the Publisher.
Greening YourBottom Line
Achieving
Triple Bottom Line Benefits
21 © 2007
External DriversExternal Drivers
Legal/Regulatory Trends
Market-related forces
Externalities incorporated into pricing
Growing demands to consider second and third-order impacts
Social pressures (NGO, community and investors)
Technological Change
22 © 2007
–Enhance recyclability &
durability
From Efficiency to EffectivenessFrom Efficiency to Effectiveness
–Minimize energy, water, materials &
land use
–Minimize emissions, discharges, disposal
& toxics
–Use renewable resources
Enhance value
–Provide product as service
–Create new markets
Reduce consumption
Reduce impact
23 © 2007
–Enhance recyclability & durability
–Provide product as service
–Create new markets
Industry Maturity
Sec
tor
Sop
hist
icat
ion
Regul
ator
y/Con
sum
er
Pro
file
–Minimize energy, water,
materials & land use
–Minimize emissions, discharges,
disposal & toxics
–Use renewable resources
24 © 2007
Action StepsAction Steps
Assess Current
State
Gauge Risks &
Opportunities
Evaluate Options
Weigh Benefits & Costs
Set Targets
Formulate Strategy
Assess Plan Engage
Manage External RelationsEngage the Organization
25 © 2007
Examples (cont’d)Examples (cont’d)
Xerox
Interface Carpet
Southern Company
Greenville Tube
Southwire
• Sales exceed forecasts• $250M one-year savings
• $140M 4-year savings
• $108M/yr savings • productivity up 15% • energy effic. up 30%
• 15% scrap reduction • five-month payback
• 40% electricity use cut • 60% gas use cut
But Wait! There’s More…But Wait! There’s More…
26 © 2007
Life Cycle Management OverviewLife Cycle Management Overview
LIFE CYCLE MANAGEMENT
Objective
Concept
Strategies
Tools
SUSTAINABILITY
LIFE CYCLE THINKING
Pollution Prevention Product- and supply chain management
Systems ISO 9001, TQM , EFQMISO 14001 & POEMS
Cleaner Production , LCA , EcoDesign ,
Management Level
Social dimension Environmental dimension Economical dimension
EMA & LCC
Explanations : OHSAS = Occupational Health And Safety , POEMS = Product Oriented Environmental Management System , TQM = Total Quality Management , EFQM = European Foundation for Quality Management , LCA = Life Cycle Assessment , EMA = Environmental Management Accounting , LCC = Life Cycle Cost Analysis .
Work place assessment
Corporate social responsibility
OHSAS 18001
27 © 2007
LCM - Areas of FocusLCM - Areas of Focus
Ref: Wuppertal Institute
28 © 2007
• Comply with requirementsDeficientDeficient
• provide information• no feedback incorporatedUnilateralUnilateral
• exchange information and experiencesBilateralBilateral
• interactive dialogue with stakeholder groups to realize a common goalConsultativeConsultative
• ongoing stakeholder discussion • participatory decision-makingCollaborativeCollaborative
Fully Realized
Minimal
Stakeholder RelationshipsStakeholder Relationships
Ref: wuppertal
29 © 2007
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30 © 2007
Measurement & ReportingMeasurement & Reporting
INITIATIVES
UN Global Compact
Global Reporting Initiative
Sarbanes-Oxley
UK Ethical Trading Initiative
Coalition for Environmentally Responsible Economies
Zero Emissions Research Initiative
CRITERIA
Transparency
Inclusiveness
Auditability
Completeness
Relevance
Accuracy
Neutrality
Comparability
Clarity
Timeliness
31 © 2007
IF you could buy them!
$ value of Ecological Services$ value of Ecological Services
32 © 2007
Pollution Prevention BenefitsPollution Prevention Benefits
Environmentally proactive companies have:
4% higher ROI
9% higher sales growth
17% higher operating-income growth
Improve operational efficiency
Increase innovation
Improve risk management
Better access to information
Enhance reputation and credibility
Leverage ‘Human Capital’
33 © 2007
Benefits: Case StudiesBenefits: Case Studies
IBM - > $500 million in energy savings in the 1990s
Johnson & Johnson - $10 million annual energy efficiency cost savings
Raytheon - $100-200 million of un-forecasted sales required to offset anticipated electricity cost increases, saving ~ $9M/yr
Dow Chemical’s Louisiana division energy-saving projects averaged 204% audited ROI, paying Dow’s shareholders $110M/yr
DuPont saves ~ $31M/yr
But Wait! There’s More…But Wait! There’s More…
34 © 2007
Examples (cont’d)Examples (cont’d)
Xerox - first fully digitized copie, 90% remanufacturable and 97% recyclable. Sales exceeded forecasts. remanufacturing and and waste reduction saved Xerox $250 million in one year.
Interface Carpet - $140 million in sustainable waste reductions over 4 years
Southern Company’s improvements in thermal efficiency saved $108M/yr
Greenville Tube Corporation - boosted productivity 15% and energy efficiency 30%, reduced scrap 15%, and saved $77,000 a year with a five-month payback
Southwire cut electricity use 40%, gas by 60%
35 © 2007
SRI in the U.S.SRI in the U.S.
$2.2 trillion total U.S. SRI assets
> one of every nine dollars under management
SRI assets have 40% faster growth than than all U.S. managed investment assets
75% of SRI funds > $100 million in assets earned top scores from Morningstar and/or Lipper Analytical Services
36 © 2007
Changing ViewpointChanging Viewpoint
Management quality leading determinate of share performance
Environmental performance: excellent proxy for management quality
Most studies show environmental stock market performance correlation
37 © 2007
Changing ViewpointChanging Viewpoint
Environment and social issues are among the most complex challenges facing management
issues, stakeholders and non-financial measures
High level of technical, market and regulatory uncertainty
Success in this high complexity area implies ability to excel in other business areas, earning superior returns
38 © 2007
Sustainability IssuesImpact on the Bottom LineSustainability IssuesImpact on the Bottom Line
Aventis – Starlink Corn
Union Carbide – Bhopal
Exxon – Valdez
Sandoz – Pollution of the Rhine
Royal Dutch/Shell – Brent Spar, Nigeria
Nike – “Sweatshops”
Monsanto – Genetically Modified Foods
Ford – Bridgestone tire recall on “Explorer”
Norsk Hydro – Utkal Project in India
ABB - Bakkun dam in Malaysia
GE – PCB in the Hudson River
Elf Aquitaine – Erika tanker wreckage
Need dollars
here
39 © 2007
Works for enterprises, too.Works for enterprises, too.
40 © 2007
Corporation of the FutureCorporation of the Future
© Interface
41 © 2007
Financial Institutions ABN-AMRO ABP Investments Alliance Capital Management Bank Julius Baer Bank Sarasin BNP Paripas BP Investment Management Brown Brothers Harriman Capital Guardian Cazenove Fund Management Collins Stewart (CI) Ltd. Contra Costa County Employees’
Retirement Association Daiwa Securities Dreyfus Investment Advisors Frontier Capital Management Green Cay Asset Management Glenmede Trust
Hermes Pensions Management (British Telecom Pension)
IBK Capital Corp. ING/Aeltus Investment Management Legg Mason Funds Management Lombard Odier & Cie Mellon Equity Neuberger Berman (Lehman
Brothers) Rockefeller & Co. Schroders Investment Management Société Générale SNS Asset Management Swiss Re State Street Global Advisors T. Rowe Price UBS Investment Bank World Bank
Innovest investment research has been used by:
Partial Client List
42 © 2007
QuestionsQuestions
What are your reputation and brand image worth?
43 © 2007
FootnotesFootnotes
1 Taylor Nelson (2001) European Survey on SRI and Financial Community (302 financial analysts and fund managers across Europe)
2 > $100 million assets
3 In place for > 5 yrs.4 Beyond the Numbers Corporate Governance: Implication for Investors Deutsche Bank Research
Report. April 20045 Citizens, consumers, public authorities and investors
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