1 UNGC Module 2 – Session 2 THE UN GLOBAL COMPACT MODULE 2 - THE BUSINESS CASE Session 2:...

1UNGC Module 2 – Session 2

THE UN GLOBAL COMPACT

MODULE 2 - THE BUSINESS CASE

Session 2: Understanding the Business Benefits of Corporate Environmentalism


“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


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



Demonstrating the link between sound economic, environmental, social and corporate governance performance and improved financial value


– 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


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



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



Licence toOperate

Cost/liabilityReduction

NewMarkets

Reward

Ris

k


Market Access


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



Licence toOperate


NewMarkets

Reward

Ris

k

The Licence to Operate:- Growing focus on accountability- Importance of intangible assets- Build reputation & brand value


Market Access


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



Ris

k

Reward

Licence toOperate


NewMarkets

Reducing Costs and Liability: - Good management benefits - Eco-efficiency savings - Risk / liability reduction - Process improvements


Market Access


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



“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


Ris

k

Reward

Licence toOperate


Market Access

NewMarkets

Market Access: - Better access to capital - Growth in SRI initiatives - Enhanced customer loyalty - Marketing benefits



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



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


Licence toOperate

Cost / liabilityReduction

InvestmentPotential

NewMarkets

Ris

k

Reward

New Markets: - Development of new products - First mover advantage - Innovation in addressing environmental concerns



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


“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

1 UNGC Module 2 – Session 2 THE UN GLOBAL COMPACT MODULE 2 - THE BUSINESS CASE Session 2:...

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