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Center for Business as an Agent of World Benefit

Rethinking the WORLD ECONOMY

Yamamoto Moss

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The Business Case for Sustainability

Is There Green in “Green” Business?


Yes, There Is!

Sources of Sustainable Value:• Customers

niche markets, planet-people-conscious consumers, BOP, traditional value-conscious consumers

• Other Stakeholders reputation and brand management, license to operate, investments in the supply chain

• Companyinternal improvements, cost/waste reduction, employee

engagement

• Investors and Financial Industrysocially responsible investing; sustainability indexes



Top 10 reasons why the business case for sustainability is strong

#10. Investors worldwide are investing over $180 billion in socially responsible

businesses•The # of SR mutual funds in the US has gone from 2 firms holding $66 million in assets in 1980 to nearly 200 funds today with assets over $150 billion (Stanford Social Innovation Review, Spring 2004)

•A survey by French CR group Novethic has revealed a 76% increase in the French SRI market in 2004. The market is now worth some €600 million. (Ethical Corporation, August 16, 2005)

•A study by UK-based Co-operative Financial Services has found ethical investments in the country broke the £10 billion mark in 2004, an 18% jump over 2003. (Ethical Corporation, August 16, 2005)





9.07%

12.50%

15.64%

12.56%

0.00%

5.00%

10.00%

15.00%

20.00%

Average Annual Returns For Period Ending 8/31/05

Domini Social EquityFund

Calvert SocialInvestment FundEquity

Pax World BalancedFund

S&P 500 Index



#9. Customers want people- and planet-conscious products

•Demand for Organic Dairy Products in USA Exceeds Supply; sales of such companies as Organic Valley Family of Farms went up 36%; the industry now satisfies 85% of demand (Organic Consumers Association, 2005)

•In January 2004, Prius Hybrid sales were up 82 percent from January 2003; For the 2004 model year, Toyota initially boosted production 50 percent to 36,000. But demand has been strong - production has already been increased to 47,000. And that's still not enough. (Slate.msn.com, 2005)




• The Toyota Motor Corporation plans for all its vehicles would eventually be run by hybrid gasoline-electric motors (GreenBiz, Sep 19 2005)

•42% of all Americans are willing to spend more for products branded as organic, environmentally friendly, or fair trade (50% of 18-29 year olds, 37% of 45-64 years olds) (Global Market Institute, Sep 2005)

•BOP model offers a new customer-based source of sustainable value creation – with a market of $12.5 trillion (Fortune at the Bottom of the Pyramid, 2005)




#8. Companies like Green Mountain Coffee Roasters show an example of company- and customer-driven value

creation

•Input: supply chain improvements; fair trade and organic coffee, appeal to nature-conscious consumers, public image, environmental innovations•Output: stock price grew from 9.063 in Sep 2000 to 37.100 in Sep 2005; revenue grew from $95.5 mil in 2001 to $137.4 mil in 2004 (BAWB Innovation Bank, 2005)




GMCR: Company-driven value:

•Going to source•Micro-finance and innovative cash flow models•Cost reduction and efficiency programs

GMCR: Customer-driven value

•Niche market: double certified coffee•Brand reputation•Partnerships with Paul Newman and Wild Oats




#7. Finance sector consider “intangible” aspects as core value drivers, suggesting

that “Who Cares Wins” (2004)

•50 to 90% of a firm’s market value can be attributed to intangibles like Environment, Health and Safety (GEMI: Clear Advantage: Building Shareholder Value, February 2004);

• 35% of institutional investors’ portfolio allocation decisions are based on intangibles like EHS performance (GEMI, 2004)




•81% of Global 500 executives rated environmental, health and safety issues among the top ten factors driving value in their businesses (Cap Gemini Ernst &

Young, 1996)

•78% of fund managers and analysts, the management of environmental and social risk has a positive impact on a company’s long-term market value (CSR Europe,

Deloitte, Euronext: Investing in Responsible Business, 2003)




#6. Stakeholder Approach and good Governance pay off

• A Harvard 11-year study of corporations that emphasized stakeholder management found these corporations had sales growth 4 times and employment growth 8 times that of “shareholder first” companies (KPMG, The Business Case for Sustainability, 2001).

•A new study which examined Governance Metrics International ratings on Japanese companies and their correlation to performance. Their key finding is that firms with good governance, significantly outperform firms with poor governance and have a risk adjusted out-performance of up to 15.12% annually (GMI, 2005).




In studies of this nature, economic performance is measured by any combination of:

• Revenue

• Stock price performance

• Firm value (e.g. measured by Tobin’s Q)

• Operating performance (measured by net profit margin and return on equity).




#5. Chef’s Garden story shows that you do not always need to reduce or

reuse – it is all about innovation

•Organic sustainable agriculture with innovative approaches such as field temperature raising mechanism;

•Products are niche-marketed to chefs only; Culinary Vegetable Institute supports that




•90 employees• 600 varieties of herbs and veggies• $2.5 + in revenues• Expansive facilities•For-profit and non-profit activity - Veggie U (BAWB

Innovation Bank, 2005)




#4. Sustainable operations save you big internally

• Interface: by 2004 the cumulative avoided costs from waste elimination activities since 1995 have totaled over $262 million (Interface Sustainability Report, 2004).

•Great Lakes Brewing Company: trash removal fees down by 40%; total savings from recycling and energy conservation efforts are between $15,000 and $20,000 (The Plain Dealer Sunday Magazine, 2005)

•Xerox: estimates $2 Billion Saved Through Eco-Design and Manufacturing, in addition to keeping 1.2 billion pounds of electronic waste out of landfills (GreenBiz, 2002).

• CO2 Reduction Efforts Save BP $650 Million (GreenBiz, 2005)Center for Business as an Agent of World Benefit



Internal efficiency can be achieved through:

•Closed-loop manufacturing (Xerox model)•Energy saving practices & energy efficient products (All companies)•Innovative supply chain practices (TerraCycle’s negative raw materials expense)•Employee engagement for innovation (Interface’s QUEST - Quality Utilizing Employee Suggestions and Teamwork )

•Turning “waste into food” by creating new products or services (BP’s cogeneration)




#3. Herman Miller’s story effective transition process towards sustainable

operations

•Zero Waste as a goal in 1991•Bottom-up Environmental Quality Action Team (EQAT) •Design for Environment (DfE) protocol, green buildings, etc

•Net sales of $262,000 in 1923 grew to $25 million in 1970, the year the company went public; net sales in fiscal year 2004 were $1.34 billion.




Herman Miller’s model


Fiscal year 2005:

Net Sales increased 13.2% to $1.516

millions

Net Earnings increased 60.8% to $68 Million



#2. Good companies simply do better overall

Over a five-year period the Dow Jones Group Sustainbility Index (DJGSI) performed an average of 36.1 % better than did the traditional Dow Jones Group Index (DJGI)

Energy companies in the DJGSI performed 45.3 % better than did those on the DJGI.

Back casting the (comprised of top 10% of companies in terms of sustainability performance) shows that these companies would have continually outperformed their conventional counterparts (World Economic Forum, 2005).




70 out of 127 major studies found positive relationships between social

and financial performance

•Only 20 found negative relationships•“A clear signal emerges from these 127 studies. A simple compilation of the findings suggests there is a positive association, and certainly very little evidence of a negative association, between a company’s social performance and its financial performance” (Margolis & Walsh, 2003).




#1. So, sustainability can provide business benefit in:

• Reputation management

• Risk profile and risk management

• Employee recruitment, motivation, and retention

• Investor relations and access to capital

• Learning and innovation

• Competitiveness and market positioning

• Operational efficiency

• License to operate




P.S.• There is enough evidence of economic attractiveness of the sustainability model•And, at the same time, profit is not a guarantee•As any business model, successful sustainable model requires:

• Great Strategy• Great Leadership• Great Planning• Great Management Practices




Thank you!


www.worldinquiry.orgOr

http://worldbenefit.case.edu


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