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Transcript of Tnc Presentation#1
On Corporate Strategy:Role of Corporate Environmental & Social Governance
as Drivers to Company Stock Value Growth
Presented at the TNC Board Members Meeting São Paulo, 05/05/2010
Jose Antonio ChavesP r o f e s s o r a t F u n d a ç ã o D o m C a b r a l
DBA Candidate at Business School LausanneChair of the Committee of Sustainability and Corporate Responsibility at
The Regional Council of Business Administration, MG, Brazil
I n st i tut ion a l Sup p or t in g
2003 2004 2005 2006 2007
DJI
E1SGI
Dow Jones Sustainabi l i ty Europe Composite Index versus Dow Jones Industrial Average Index
Source: Yahoo! Finance
Empirical evidences that ESG policies and strategies can influence Companies Stock Growth
Research Main Objective
L e v e l o f S t o c k Va l u e G r o w t h
Le
ve
l o
f C
or
po
rate
En
vir
on
me
nta
l &
So
cia
l G
ov
ern
an
ce
-E
SG
Hig
hL
ow
L o w H i g h
S & P 5 0 0
Targeted Industries
Selected from Industry 20 th
Largest Listed Companies byMarket Capitalization
First Quartile CompaniesRanked by Last Five-Year
Stock Growth %
Iron & Steel IndustryL e ader s Stoc k P r i c e G r owth (% )
Source: FreeStockC har ts .co m interact i ve p lat form
Mechel
Simec
Posco
Gerdau
S&P 500
Source: FreeStockC har ts .co m interact i ve p lat form
Metal & Mining IndustryL e ader s Stoc k P r i c e G r owth (% )
Vale
Southern
Alum China
Cameco
S&P 500
Source: FreeStockC har ts .co m interact i ve p lat form
Electric Utilities IndustryL e ader s Stoc k P r i c e G r owth (% )
S&P 500
CPFL
Sempra
Eletricidad
Enersis
Source: FreeStockC har ts .co m interact i ve p lat form
Oil & Gas Integrated IndustryL e ader s Stoc k P r i c e G r owth (% )
Petrobras
Hess
SuncorChina P&C
S&P 500
PetroChina
Early Findings
From credible ESG Surveys Consolidation
Some companies does not understand what sustainability is
Making sustainability work is the very challenge
Semiotic communication misleading sustainability undertanding
There is a visible gap between the sustainability strategy (when it exists) and its execution
Findings from ESG Surveys Consolidation
Managers at all levels don’t know about:
The correlations between sustainability risk and financial performance
How to track sustainability value from where it is created
How it sustainability initiatives are converted into shareholder value
How to measure return on sustainability strategy
Early Findings from the Research
Provided by Morphological Analysis
From the internal Perspective
From the external perspective
Managers at all level consider sustainability initiatives as part of their job;
Corporate strategy includes ESG goals and makes money from that;
Sustainability goals are detailed, quantified and monitored;
Sustainability performance is attached to financial performance;
Managers are rewarded for their sustainability performance;
Changing management terminology: accountability, environmental accounting, shareholder engagement; water and carbon footprint; etc.;
Company regularly partners with outside stakeholders;
New products originated from environmental and social initiatives.
Knowing a Sustainable Company from Looking Within
Improve and enhance accountability, transparency and investor trust;
Evolve risk-management to a corporate sustainability-risk perspective;
Develop new sources of competitive advantage in the entire value-chainby differentiation, from innovating in ESG product and service development;
Assure capital markets prime access by ESG achieving standards;
Outperform shareholder’s ROSS – Return on Sustainability Strategy;
Create visible, measurable, reportable ESG value for all stakeholders;
Measure ESG reputation in terms of cost of capital, exports revenue, etc;
Institutional shareholders are engaged in company’s environment-social governance.
Knowing a Sustainable Company from the External Perspective
Business
Strategy
Value-Creation
Goals MeasuringExecutive Compensation
Parameters
Financial
Strategy
ESG Strategy
Shareholder Engagement
Investor Strategy
Private EquityProject
FinanceIPO, M&A Divestiture
Cash Flow
Contribution
Research Perspective: Sustainability Value-Based Strategy
Return on Sustainability Strategy Framework
Sustainabilit y Value-B ased ROI
Net Profit & Dividend
Valuation Multiple
Free Cash Flow
Capturing Sustainability Value-Creation Drivers and Levers
Revenue GrowthCost of Capital
ReductionMargin
Improvement
ESG Innovation &Adaptability
Value-Chain ESG Risk &
Opportunities
ESG Long-Term
Strategic View
ESG Leadership Initiatives
ESG Performance
Standards. . .
Ecotech-Based Products
Social-Focused Products
Stakeholder Engagement
ESG Risk Mapping
& Strategy
ESG Accounting & Reporting
Public Support
ESG Capex-Opex
ModelingReputation
Branding
Image-Based Power Pricing
ESG Knowledge
Capital
Market Share Growth
Differentiation Price Premium
Risk Reputation Premium
Market Ratings Grade
New Market s Entry
Operation Cost & Productivity
Corporate Sustainability-Risk Framework
Value-Chain Sources of Sustainability Advantages
Company Infrastructure
Human Capital
Innovation andR&D Capital
LeadershipCapital
Upstream Logistic &
Supply Chain
Inbound Logistic &
Operations
Downstream Logistic & Channels
Marketing & Sales
End-Cycle Services
Primary Activities
Promptness and ability to convert Sustainability Strategy into Shareholders/Stakeholders Value; Stakeholder-Based Management Approach; Stakeholder Sustainability Education initiatives
Sustainability BI & analytics platform; Capex-Opex sustainability-based decisions; Corporate Sustainability Governance Structure
Environmental-based design; Clean technologies development; Environmental material specifications
Life-cycle process
Creating and internalizing a culture for sustainability; Developing capabilities on sustainability-based management ; Corporate Sustainability Education; Sustainability-oriented Compensation System
Responsible suppliers, Distributors & outsourcers
Carbon & Water Footprint
Corporate image & reputation
Stimulating ethical and anti-corruption competing practices, fraud prevention, striving for upstream-downstream ESG internationally acceptable standards adoption
Stimulating less-harmful material safe storage, transportation , packaging and waste disposal
C o r p o r a t e S u s t a i n a b i l i t y M a i n s t r e a m
Support Activities & Knowledge Capital
Corporate Sustainability Strategy Framework
Goals Setting
Goals’ Detailing & Metrics
Implementation & Monitoring
Stakeholder Engagement
SustainabilityCommunication
Sustainability Reporting
Financing-Based ESG Risk AssessmentCorporate Sustainability-Risk Strategic Mapping
ESG Legal & Compliance FrameworkProject Financing-Based ESG Assessment
Stakeholder-Based ManagementInvestor-Based Management
External Impacts Measuring and Accounting
Risk Strategy
Benchmarkin g
Investor-Based Management Goals
Corporate Finance Goals
Business Strategy Goals
Governance Framework
Competitive Scope
Business Drivers
Creating and Internalizing the Culture of Corporate Sustainability
Business
Strategy
Value-Creation
Goals MeasuringExecutive Compensation
Parameters
Financial
Strategy
ESG Strategy
Shareholder Engagement
Investor Strategy
Action Plan
Risk Strategy
Sustainability
Value-Based ROI
Balanced ScoreCard
Framework
Shareholder
Perspective
Finance
Perspective
Business
Perspective
Sustainability
Perspective
Detailing &
Métrics
Dashboarding
Shareholders
Engagement
Communication
Reporting
Stakeholders
Engagement
Responsible Investment Paradigm
We will incorporate ESG issues into investment analysis and decision-
making processes
We will be active owners and incorporate ESG issues into our
ownership policies and practices
We will seek appropriate disclosure on ESG issues by the entities in which we
invest
We will promote acceptance and implementation of the Principles within
the investment industry
We will work together to enhance our effectiveness in implementing the
Principles
We will each report on our activities and progress towards implementing
the Principles
Sh areh old er En g ag em en t
To Im prove In vest ee’s Sust ain ab ilit y Govern an ce
The Sustainabi l ity Challenge and the Corporate Strategy Planning of Brazi l ian Companies
2009’s Research
Findings from the FDC
T he C e ntr e for Sus ta i nab i l i ty and C or por ate R e s pons i b i l i ty
FDC’s Next Research
Shareholder Engagement Effectiveness: The Best Practices on Environmental & Social
Governance in the Investee Companies.
Targeted Public: Pension Funds and its Investee Companies.
Best Practices Paper
Publication
R e s p o n s i b l e I n v e s t m e n t P r o g r a m f o r
P e n s i o n F u n d s a n d A s s e t M a n a g e m e n t P r o f e s s i o n a l s
R e s p o n s i b l e I n v e s t m e n t P r o g r a m f o r I n v e s t e e
C o m p a n i e s ’ B o a r d M e m b e r s a n d C - S u i t e M a n a g e r s
Thank you!
Jose Antonio Chaves
Rua Carvalho de Almeida, 48 Conj. 23 – Cidade JardimCEP 30380-160 – Belo Horizonte – MG – Brazil
Phone: +55 31 3231-4688 - Mobile: +55 31 9312-4688 Email: [email protected]