Sustainability and the Profit Opportunity

Transcription

1 Sustainability and the Profit Opportunity Executive Roundtable Discussion May 23, 2012

2 BerryDunn Welcome Introduction How we view sustainability at BerryDunn Sustainability in action at BerryDunn

3 SymbioSus Sustainability Consulting Mission: To help small to medium-sized businesses increase profits and competitive advantage by integrating environmental sustainability actions with core business operations Reduce risk, cost, energy/resource use, waste, and environmental footprint Increaseresource efficiency, customer, employee, and community satisfaction, and profits Help organizations assess, plan, implement, measure, and report improvements that benefit: Company, community, environment Wide range of companies and industries Scale projects to specific client needs

4 Key topics The business case for sustainability Gaining financial and strategic advantage through sustainability Latest data & trends Framing the discussion Opportunities and challenges

5 Sustainability: The 21 st -century definition Sustainability The ability to meet today s economic, environmental, and social needs without compromising the opportunity for future generations to meet theirs. 1 A focus on being economically, environmentally, and socially responsible. 1 Brundtland, G. H. (1987). Our common future: The World Commission on Environment and Development. Oxford, U.K.: Oxford University Press.

6 Sustainability: Another way to think of it Sustainability The wise deployment of limited and valuable resources, for the enhancement of economic, environmental, and social well-being, so that business, society, and the environment in which they exist can thrive, now and into the distant future. -B. Sheehan

7 Sustainability: A broader stakeholder view Environment Customers & Community 2 Customers Employees Community Business Partners & Competitors 2 Suppliers B2B Partners Competitors Industry Associations Community Company Idea Generators & Opinion Leaders 2 Media Academia Research Centers Investors & Risk Assessors 2 Shareholders Insurers Banks Markets Rulemakers& Watchdogs 2 Regulators Legislators NGO s Legal System Thecompany is not separate from the community and the environment it operates within them Increasing awareness of the influence and expectations of multiple stakeholders. 2 Esty, D. C., & Winston, A. S. (2006). Green to gold: How smart companies use environmental strategy to innovate, create value, and build competitive advantage. New Haven, CT: Yale University Press.

8 Sustainability: becoming increasingly critical Economic Environmental Social

9 Sustainability: Why should business care? Value Creation Businesses pursue sustainability for any or all of these reasons Choose any 1, 2, or all 3 Each are valid Right Thing To Do Risk Reduction Business tends to prioritize RR & VC over RTTD AND THAT S OK There must be and is a business case for sustainability

10 The business case for sustainability key value sources Market Business Context Brand / Culture Positively influencing industry practices, regulatory environment, legislation, or other rules of the game Increasing customer, employee, community loyalty (& resulting financial benefits) due to sustainability culture/identity Penetrating new markets & opening new market opportunities based on sustainability; product-ofservice opportunities Product Product differentiation & new product opportunities based on sustainability Process Reducing energy & resource use, waste & cost; increasing resource efficiency & productivity; reducing, re-using, recycling resources Risk Reducing regulatory, legal, public relations, and business risks.

11 Real-world findings

12 Resilience and Risk Avoidance

13 Risks that can be avoided Increased business risk & cost Regulatory, legal, compliance, insurance; stakeholder pressure; license to operate Risk of lost revenue Customer demands; license to operate; physical infrastructure risks Increased resource scarcity, cost, risk Resource depletion; forced substitution (substances of concern, etc.) Decreased ability to compete

14 Increasing shareholder pressure Shareholder resolutions filed are up 40% since 2001; projected that 40% of 2011 resolutions will be CSR-related. 3 Trends in Recent CSR-Related Shareholder Resolutions (SHR s) # SHR s going to a vote Avg. percent voting in support 7.5% 9.9% 18.4% % SHR s gaining >10% support 16.7% 31.2% 52.1% 3 Ernst & Young (2011). Shareholders press boards on social & environmental risks -Is your company prepared?(ernst & Young). United Kingdom: Ernst & Young.

15 Increasing shareholder pressure Shareholders are paying closer attention to environmental and social matters, believing them to bear closely upon the risk to which investee companies are exposed and, ultimately, upon the financial performance of those companies. The upcoming proxy season will reflect this deepening trend. Driven by concerns about the financial and reputational risks associated with climate change, institutional investors will likely push harder for action on these matters. Forward-thinking companies will be prepared to address their concerns. 3 3 Ernst & Young (2011). Shareholders press boards on social & environmental risks -Is your company prepared?(ernst & Young). United Kingdom: Ernst & Young.

16 What do all of these organizations have in common?

17 Sustainability survey areas of focus Aspect Walmart P&G Kaiser Company A Sustainability / Environmental policy Energy Emissions Waste / recycling Water Toxins / substances of concern Environmental Management System Sustainability reporting Sustainable purchasing Certifications Facilities Compliance Workplace safety Social responsibility & community Other Low / none Moderate High

18 Sustainability and the competition for talent 81% of U.S. workers surveyed would prefer working for a company with a good reputation for environmental responsibility. 4 88% of Millennials seek employers with high social responsibility values. 5 Ipsos Mori Survey, 2007 PWC Survey, % of respondents said they wanted to work for a company that cares about its societal impact. 6 64% said their loyalty is related to how socially and environmentally responsible their company is. 68% said they would refuse to work for a company that is not socially or environmentally responsible. Cone & BC CCC Survey, 2008 The cost to replace a lost employee is estimated at 150% of annual salary 7 Study by Institute for Research on Labor & Employment, U.C. Berkeley

19 Sustainability: Proxy for managerial quality Becoming an INDICATOR of quality of overall managerial, financial, and company governance If building a sustainable enterprise was a fashionable trend five years ago, today it is a business imperative. Forward-looking corporations have figured out that a focus on environmental, social, and governance (ESG) factors is not just a bid to burnish their image, but rather is a necessity in today s marketplace. And if done well, it is a true competitive advantage what was a somewhat nebulous (but fashionable) movement 5 or 10 years ago has become a focused, integrated way of doing business at many firms. 8 Most executives know that how they respond to the challenge of sustainability will profoundly affect the competitiveness and perhaps even the survival of their organizations. 9 -Harvard Business Review Wharton Business School report 2011

20 Why sustainability is even more critical in lean economic times Sustainability is primarily based on good business fundamentals Risk reduction Process improvement Product improvement & differentiation Market opportunity Customer & employee loyalty Resiliency Leaner times and leaner, more efficient operations may be the new normal UNGC / Accenture Survey Question Economic downturn raised importance of sustainability as an issue for top management: Company reduced investment in sustainability as a result of the downturn: The downturn led company to align sustainability more closely with core business: % of Respondents 80% 12 % 74 %

21 Upside Opportunities: Top Line and Bottom Line

22 Companies driving multiple sources of value via sustainability

23 Sustainability: Driver of financial performance An 11-year study of corporations by Harvard University, which emphasized stakeholder management, found socially responsible and sustainable corporations had sales growth 4 times and employment growth 8 times that of shareholder first companies. 10 -KPMG, 2001 Companies that are considered leaders in environmental, social and governance (ESG) policies also lead the pack in stock performance - by an averageof25%. -Goldman Sachs, 2007 Over a 5-year period Dow Jones Group s Sustainability Index (DJGSI) performed an average of 36.1% better than did the traditional Dow Jones Group Index. -World Economic Forum, 2005 Innovest Strategic Value Advisors conducted a studyinmarch2008andfoundthattheir Global100 [MSCI companies that lead in ESG factors] outperformed the MSCI World Index by 7.2% (annualized). It also outperformed the Dow Jones Industrial Average by 7.5% and the Dow Jones Global Titans by 8.8%. -Innovest, 2008

24 Sustainability: Driver of financial performance 2008 HP Global Citizenship Report 11...latest research shows that customers are not acting like they did in other economic downturns. Rather than softening their activism, consumers are more demanding than ever that companies maximize their societal and ecological contribution. It seems clear that only the best corporate citizens will thrive in tomorrow s marketplace A.T. Kearney Study 12 Firms with true commitment to sustainability outperform industry peers in the financial markets. 8 "The most sustainability focused companies may well emerge from the current [economic] crisis stronger than ever. 8 In 16 of 18 industries, businesses deemed sustainability focused outperformed industry peers over three- and six-month periods and were well protected from value erosion. 8 3 month performance differential: +10% 6 month performance differential: + 15% Equals $650 million in market cap per company

25 Sustainability nears a tipping point research by MIT Sloan & BCG; reported in 2012 Leaders of ~ 3,000 companies around world; roughly 1/3 mid-sized & smaller 70% have made sustainability a permanent part of management agenda 13 20% of these have done so in past 2 years 13 Roughly 65% say sustainability is required to be competitive 13 Up from 55% in MIT Sloan Management Review (2012). Research report winter 2012: Sustainability nears a tipping point (MIT Sloan Management Review). North Hollywood, CA: MIT Sloan Management Review.

26 Sustainability nears a tipping point 13 Many companies are increasing their sustainability commitments despite (or because of) weak economy. Top drivers of sustainability focus mirror key business case elements How has your company s sustainability commitment changed from 2010 to 2011? 2% Driver % Customer request / preference 41% Regulatory/ legislative pressure 35% Resource scarcity / cost 30% 26% 68% Competition 28% Value chain partner(s) request(s) 26% Owners demands for value beyond profit 25% Competition for talent 23% Increased Stayed the Same Decreased Customers willing to pay premium for it 20% Current employee requests / expectations 19% License to operate 16%

27 Sustainability nears a tipping point 13 Companies proactively embracing sustainability are 3 times as likely to find it increasing profits 60% 50% 40% 30% 20% 10% 0% 60% 20% 25% 40% 5% Embracers 10% Others 30% 10% Embracers 13 Believe sustainability necessary to compete Have established the business case for it Have sustainability permanently on agenda Increased profit Neutral to profit Decreased profit Don't know Harvesters 13 Non-Harvesters

28 Sustainability nears a tipping point 13 Companies proactively addressing sustainability are significantly more likely to be increasing their profits through sustainability ( Harvesters ) 13 Link between sustainability performance & $ incentives Individual KPI's aligned with sustainability Company KPI's related to sustainability Clear communication of sustainability responsibility Chief Sustainability Officer Sustainability leader for each bus. Unit Separate sustainability function Separate sustainability reporting Strong CEO commitment 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Non-Harvesters Harvesters

29 Sustainability nears a tipping point 13 Companies with more collaborative relationships with stakeholders are significantly more likely to be increasing their profits through sustainability ( Harvesters ) 13 Competitors NGO's Contractors Local communities Internal geographical business units Industry associations Internal cross-functional business units Government / policy makers Suppliers Customers 0% 10% 20% 30% 40% 50% 60% 70% Non-Harvesters Harvesters

30 Sustainability: Driver of differentiation and upside Here s the thing. Sustainability has given my company a competitive edge in more ways than one. It has proven to be the most powerful marketplace differentiator I have known in my long career. Our costs are down, our profits are up, and our products are the best they ve ever been. It has rewarded us with more positive visibility and goodwill among our customers than the slickest, most expensive advertising or marketing campaign could possibly have generated. And a strong environmental ethic has no equal for attracting and motivating good people, galvanizing them around a shared higher purpose, and giving them a powerful reason to join and stay.they come and they stay, because we aren t just making carpets. We re making history Ray Anderson Interface Carpet

31 Key takeaways Sustainability is becoming ever more critical for businesses of all sizes Taking a proactive approach to sustainability optimizes ability to reduce business risk and maximize upside opportunities Done right, sustainability doesn t cost, it pays The proactive, leading companies are increasing their sustainability knowledge base and increasingly integrating sustainability into their core business strategies and actions

32 Roundtable Discussion Sustainability Opportunities and Challenges

33 References 1 Brundtland, G. H. (1987). Our common future: The World Commission on Environment and Development. Oxford, U.K.: Oxford University Press. 2 Esty, D. C., & Winston, A. S. (2006). Green to gold: How smart companies use environmental strategy to innovate, create value, and build competitive advantage. New Haven, CT: Yale University Press. 3 Ernst & Young (2011). Shareholders press boards on social & environmental risks -Is your company prepared?(ernst & Young). United Kingdom: Ernst & Young. 4 Widger, D. (2007). Going green to recruit and retain employees. GreenBiz.com. Retrieved from 5 Herrera-Wilkerson, J. (July 2, 2010). Corporate sustainability and employee engagement. Retrieved August 5, 2010, from 6 Wills, B. (2009). The business case for environmental sustainability (green). Retrieved August 5, 2010, from 7 Reh, F. J. (n.d.). What good people really cost. Retrieved August 17, 2010, from

34 References 8 Knowledge at Wharton (2011). Fashion or strategy? Why firms are jumping on the sustainability bandwagon. Retrieved January 21, 2011, from 9 Esty, D. C., & Lubin, D. A. (2010). The sustainability imperative. Harvard Business Review online. Retrieved from 10 KPMG (2001). The business case for sustainability(kpmg). Australia: KPMG. 11 Hewlett-Packard (2008). Global citizenship customer report 2008 (Hewlett-Packard). Palo Alto, CA: Hewlett-Packard. 12 Mahler, D., Barker, J., Belsand, L., & Schultz, O. (2009). Green winners (A.T. Kearney). Chicago: A.T. Kearney. 13 MIT Sloan Management Review (2012). Research report winter 2012: Sustainability nears a tipping point (MIT Sloan Management Review). North Hollywood, CA: MIT Sloan Management Review. 14 Anderson, R. C., & White, R. (2009). Confessions of a radical industrialist: Profits, people, purpose -doing business by respecting the earth. New York: St. Martin s Press.