Post on 14-Dec-2015
1UNGC Module 2 – Session 2
THE UN GLOBAL COMPACT
MODULE 2 - THE BUSINESS CASE
Session 2: Understanding the Business Benefits of Corporate Environmentalism
2UNGC Module 2 – Session 2
“As the private sector has grown in size, influence and reach, so too have the demands for increased corporate responsibility. They are unlikely to go away. The ‘business case’ for corporate responsibility is becoming clearer, louder and more urgent.”
Jane Nelson - Prince of Wales International Business Leaders Forum
The Business Case for Environmental Management
3UNGC Module 2 – Session 2
Quantitative evidence for the business case?
• Statistical research on share price and financial performance
• Evidence from ethical rating and information organisations
• Case study evidence
• Arguments of leading sustainability thinkers/researchers
“There is a growing body of evidence to support the assertion that integrating sustainability principles into business practice can generate business benefits.
However to date none have been able to offer irrefutable evidence of ‘cause and effect’.
Importantly, however, none have found a negative correlation…”
To Whose Profit – Building a Business Case for Sustainable Development
The Business Case for Environmental Management
4UNGC Module 2 – Session 2
Demonstrating the link between sound economic, environmental, social and corporate governance performance and improved financial value
The Business Case for Environmental Management
– Saving costs through improved efficiencies
– Increased revenues by improving the environment and benefiting the local economy
– Reducing risks through stakeholder engagement
– Improved access to capital
– Building brand value and reputation
– Developing human and intellectual capital
– Improving access to capital through better governance
5UNGC Module 2 – Session 2
The Business Case for Environmental Management
6UNGC Module 2 – Session 2
Key Elements of the Business Case Argument
– Understanding the business benefits is necessary but not sufficient for addressing environmental concerns
– The full extent of the business case is more sophisticated than most business leaders realise
– There is growing emphasis on the importance of the role of intangible assets (such as brand value)
– Ultimately governments are responsible for framing the market conditions within which the business case is made – further intervention may be required to maximise the business case for sustainability
The Business Case for Environmental Management
7UNGC Module 2 – Session 2
Key constraints that hinder the business case:
– Corporate myopia
– Financial benefits not identified or not deemed sufficiently significant
– Insufficient integration of niche products in mainstream market
– Competing investment priorities with better returns
– Capital markets generally ill-equipped to evaluate a company’s business case for improved environmental management
– Predominant focus on short-term shareholder returns
The Business Case for Environmental Management
8UNGC Module 2 – Session 2
Licence toOperate
Cost/liabilityReduction
NewMarkets
Reward
Ris
k
The Business Case for Environmental Management
Market Access
9UNGC Module 2 – Session 2
Drivers of Corporate Change
Business Case Drivers– Licence-to-Operate– Reducing costs and liabilities– Improved investment potential– Accessing new markets
External Drivers– Environmental pressures – Social pressures (NGO,
community and investors)– Legal/Regulatory Trends– Technological Change– Market-related forces
•Risks and opportunities associated with environmental management exist throughout the value chain
•Aligning business strategy with the major drivers of change can increase growth and reduce uncertainty
•Improved social and environmental performance is increasingly becoming a competitive issues that is important in the context of intensifying competition within the global market
The Business Case for Environmental Management
10UNGC Module 2 – Session 2
Licence toOperate
Cost/liabilityReduction
NewMarkets
Reward
Ris
k
The Licence to Operate:- Growing focus on accountability- Importance of intangible assets- Build reputation & brand value
The Business Case for Environmental Management
Market Access
11UNGC Module 2 – Session 2
The Licence to Operate
– “Licence to operate” from government
– Improved community relations
– Proactive compliance with legislation
– Attracting, maintaining and developing talented employees
– Building brand image and reputation
The Business Case for Environmental Management
12UNGC Module 2 – Session 2
13UNGC Module 2 – Session 2
14UNGC Module 2 – Session 2
Ris
k
Reward
Licence toOperate
Cost/liabilityReduction
NewMarkets
Reducing Costs and Liability: - Good management benefits - Eco-efficiency savings - Risk / liability reduction - Process improvements
The Business Case for Environmental Management
Market Access
15UNGC Module 2 – Session 2
Reducing Costs and Liabilities
– Improved operating efficiencies (eco-efficiency)• Reduced waste and pollution disposal costs
• Lower resource/input costs
• Improved staff motivation from clean/safe working environment
– Risk and liability reduction • Proactive measures cheaper than subsequent remedial costs
• Reduce potential for legal liability from pollution damage
• Minimise potential for civil claims
Improved environmental management is often an indication of better management practices generally
The Business Case for Environmental Management
16UNGC Module 2 – Session 2
17UNGC Module 2 – Session 2
“Discounted present value of potential carbon
liabilities within a single emissions-intensive
manufacturing firm could represent as much as 40%
of its entire market capitalisation under certain
plausible scenarios”
CARBON DISCLOSURE PROJECT
18UNGC Module 2 – Session 2
Ris
k
Reward
Licence toOperate
Cost/liabilityReduction
Market Access
NewMarkets
Market Access: - Better access to capital - Growth in SRI initiatives - Enhanced customer loyalty - Marketing benefits
The Business Case for Environmental Management
19UNGC Module 2 – Session 2
Improved Market Access
– Improved market penetration• Competitive advantage from niche market goods
• Improved customer loyalty
– Improved access to capital• Growth in ethically screened funds
• Dow Jones Sustainability Index/FTSE4Good
• London Principles - financial institutions
• Equator Principles - sustainability consideration in project finance
The Business Case for Environmental Management
20UNGC Module 2 – Session 2
Is there more to money than Is there more to money than meets the eye?meets the eye?
Changing activity in the financial sectorChanging activity in the financial sector
21UNGC Module 2 – Session 2
22UNGC Module 2 – Session 2
Licence toOperate
Cost / liabilityReduction
InvestmentPotential
NewMarkets
Ris
k
Reward
New Markets: - Development of new products - First mover advantage - Innovation in addressing environmental concerns
The Business Case for Environmental Management
23UNGC Module 2 – Session 2
Key considerations– Growing population
– Increasing demands for resource-intensive lifestyles
– Resources are currently inappropriately priced
– Significant first mover advantages to be gained
Opportunities to be seized by the innovative managers
The Business Case for Environmental Management
“Over the next decade or so, sustainable development will constitute one of the biggest opportunities in the history of commerce.”
Stuart Hart – Harvard Business Review