The Business Case for Sustainability

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The Business Case for Sustainability
Bob Willard bobwillard_at_sympatico.ca www.sustainabi
lityadvantage.com
Schulich Net Impact Chapter York University March
1, 2006
2
Definitions
Sustainable Development Meeting the needs of the
present without compromising the ability of
future generations to meet their own needs.
-- Brundtland Commission,
1987 --
Corporate Social Responsibility The overall
relationship of the corporation with its
stakeholders. Elements of social responsibility
include financial performance, creation and
maintenance of employment, environmental
stewardship, employee relations, and investment
in community outreach. -- Conference Board of
Canada --
Corporate Social Responsibility The commitment
of business to contribute to sustainable economic
development working with employees, their
families, the local community and society at
large to improve their quality of life. --
WBCSD --
Sustainability The possibility that we all
flourish forever. -- John
Ehrenfeld, International Society for Industrial
Ecology --
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TNS 4 Systems Conditions
In a sustainable society, nature is not subject
to systematically increasing 1. concentrations
of substances from the earths crust 2.
concentrations of substances produced by
society 3. degradation by physical means
(unsustainable harvesting) and 4. people
are not subject to conditions that systematically
undermine their capacity to meet their needs

-- The Natural Step --
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The Sustainability 3-Legged Stool
Sustainability
Sustainable Development (SD)

Corporate Social Responsibility (CSR)

Triple Bottom Line (TBL)
Corporate Responsibility (CR)


Environmental, Social, Governance (ESG)

• Economy / Profits
• Sustainable business
• Profits
• Taxes, RD
• Jobs
• Expenditures
• Training
• Fair trade
• Core values

• Environment / Planet
• Eco-Efficiency
• Manufacturing efficiencies
• Operations efficiencies
• Product efficiencies
• Smart design
• Cradle-to-cradle, take-back
• Beyond compliance
• Restorative to nature

• Equity / People
• Ethical business
• Internal Employees
• Human Rights
• Health Safety
• Respect, Caring
• Local Community
• Culture
• Rest of the World

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The Smart Business 3-Legged Stool
Asset Management
Natural Capital
Human Capital Social Capital
Financial Capital Manufactured Capital
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5 Stages and Emerging Drivers

5. Purpose / Passion
-------------------------------
4.
Integrated Strategy
3. Beyond Compliance 2.
Compliance 1. Pre-Compliance

• Passionate Founder / CEO

P r o a c t I v e

• Business Opportunities Carrots
• Risk Management Sticks

• Regulatory Threat
• PR Crisis

Reactive

• Regulatory Pressure / Enforcement

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Ends vs. Means
--------------------------------------------------
-----------------------
Stage 5 Purpose / Values We want to be a
successful business so that we can
contribute to environmental and social well-being
Means
End
Stage 4 Integrated Strategy We want to
contribute to environmental and social well-being
so that we can be a successful business
Means
End
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5 Stages and Emerging Drivers

5. Purpose / Passion
-------------------------------
4.
Integrated Strategy
3. Beyond Compliance 2.
Compliance 1. Pre-Compliance

• Passionate Founder / CEO

P r o a c t I v e

• Business Opportunities Carrots
• Risk Management Sticks

• Regulatory Threat
• PR Crisis

Reactive

• Regulatory Pressure / Enforcement

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The Company Value Iceberg
Tangibles / Financial Capital / Balance Sheet
Intangibles / Nonfinancials / Stakeholder
Relationships
Market Capitalization
10
The Company Value Iceberg 1981
83
Tangibles / Financials
17
Intangibles / Nonfinancials
Market Capitalization
Arthur D. Little, The Business Case for Corporate
Citizenship , 2002)
11
The Company Value Iceberg 1998
29
Tangibles / Financials
71
Intangibles / Nonfinancials / Stakeholder
Relationships
Market Capitalization
Arthur D. Little, The Business Case for Corporate
Citizenship , 2002)
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The Business Case
OPPORTUNITIES
Tangibles / Financials
Intangibles / Nonfinancials
Regulators
Community
RISKS
Customers
NGOs
Employees
Competitors
Developers
Market Capitalization
The Media
Unions
Suppliers
Investors
Biosphere
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The Perfect Storm

• Oct. 27 Nov. 1, 1991
• Hurricane Grace near Bermuda
• Cold front over the Great Lakes
• Old warm front near Sable Island
• All were dying out
• Energy from the 3 systems combined
• Worst storm in history 100 waves
• Sudden, unexpected, devastating

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Perfect Storm of Business Risks
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Carbon Disclosure Project

• 90 say climate change poses commercial risks
  and/or opportunities profit impact varies by
  sector
• 63 are assessing their climate risk and
  instituting strategies to reduce GHGs
• 5 Risks, depending on sector and location
  Regulatory Physical Litigation
  Competiveness Reputational

www.cdproject.net
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10 Market Forces
Sea Change Of Rising Expectations
Reputation / License to Operate
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A Perfect Storm of Opportunities
Innovation
Business Value
Growth
Productivity
Brand Image
Revenue
aving
Competitive Advantage
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The Business Case
OPPORTUNITIES
Tangibles / Financials
Intangibles / Nonfinancials
RISKS
Market Capitalization
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Business Priorities
Revenue
Governance
Brand Image
Productivity
New Markets
Complying with New Regulations
Profit
Attracting Retaining Top Talent
Share Price
Attracting Retaining Customers
Growth
Leadership
Motivation
Innovation
Managing Risks
Competitive Advantage
Market Share
Speed to Market
Responding to Emerging Market Forces
Expense Savings
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Dow Jones Sustainability Index - 4 years
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Jantzi Social Index
Source Jantzi Research Inc.
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Benefits to SME Ltd.
Revenue 4,000,000 Profit 200,000
(5 of Revenue) Workforce 50 (43 7
Managers) Avg. Employee Salary 25,000 Avg.
Manager Salary 55,000
Potential profit increase 66 Energized
employees Improved corporate image
Competitive advantage Positioned for the future
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The Catch

• 1. Show senior leadership
• Include SD in vision / mission / strategies
• Avoid green-washing hype
• Visibly support SD speeches, questions, actions
• 2. Educate the whole company
• Visibly sponsor and support the sessions
• 3. Establish an SD Profit Center
• Led by a top person
• Reinforces that it is business strategy vs. a
  compliance or philanthropy issue

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6 Benefit Areas
Usual focus

• Reduced electricity, fuel, and waste costs
• Reduced recruiting costs
• Reduced attrition costs
• Increased employee productivity
• Increased revenue / market share
• Reduced risk, easier financing

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6 Benefit Areas Improvement

• Reduced electricity, fuel, and waste costs -10
• Reduced recruiting costs
  -1
• Reduced attrition costs
  -2
• Increased employee productivity
  6
• Increased revenue / market share
  5
• Reduced risk, easier financing
  -5

yielding a profit increase of 66
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6 Benefit Areas Relative Sizes
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6 Benefit Areas Improvement

• Reduced electricity, fuel, and waste costs -10
• Reduced recruiting costs
  -1
• Reduced attrition costs
  -2
• Increased employee productivity
  6
• Increased revenue / market share
  5
• Reduced risk, easier financing
  -5

yielding a profit increase of 66
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What if

• Reduced electricity, fuel, and waste costs -10
• Reduced recruiting costs
  -1
• Reduced attrition costs
  -2
• Increased employee productivity
  6
• Increased revenue / market share
  5
• Reduced risk, easier financing
  -5

3
48
yielding a profit increase of 66
29
What if
-5

• Reduced electricity, fuel, and waste costs -10
• Reduced recruiting costs
  -1
• Reduced attrition costs
  -2
• Increased employee productivity
  6
• Increased revenue / market share
  5
• Reduced risk, easier financing
  -5

56
yielding a profit increase of 66
30
What if

• Reduced electricity, fuel, and waste costs -10
• Reduced recruiting costs
  -1
• Reduced attrition costs
  -2
• Increased employee productivity
  6
• Increased revenue / market share
  5
• Reduced risk, easier financing
  -5

2.5
64
yielding a profit increase of 66
31
What if
-5

• Reduced electricity, fuel, and waste costs -10
• Reduced recruiting costs
  -1
• Reduced attrition costs
  -2
• Increased employee productivity
  6
• Increased revenue / market share
  5
• Reduced risk, easier financing
  -5

3
2.5
35
yielding a profit increase of 66
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The Business Case
OPPORTUNITIES
Tangibles / Financials
Intangibles / Nonfinancials
RISKS
Market Capitalization
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5 Stages and Emerging Drivers

5. Purpose / Passion
-------------------------------
4.
Integrated Strategy
3. Beyond Compliance 2.
Compliance 1. Pre-Compliance

• Passionate Founder / CEO

P r o a c t I v e

• Business Opportunities Carrots
• Risk Management Sticks

• Regulatory Threat
• PR Crisis

Reactive

• Regulatory Pressure / Enforcement

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4 Inhibiters to Next Wave

• 1. Lack of support from senior leaders
• Too busy not strategic no pressure from
  important people not our problem too hard to
  change personal credibility issue
• 2. Fear of backlash
• Dont want to blow own horn green-washing
  accusations open the floodgates
  guilt-by-association skeletons in our closet
• 3. Weak business case
• Doing enough WIIFM short-term
  perverse subsidies payback criteria insulting
  too good to be true
• 4. Mindset
• What problem anti-capitalistic govts
  problem -ve baggage new idea MBA legitimacy

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Mental Models
Extreme business view
Extreme sustainability view
Society
ENVIRONMENT
ECONOMY
Society
Environment
Economy
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The Business Case for Sustainability
Bob Willard bobwillard_at_sympatico.ca www.sustainabi
lityadvantage.com
Schulich Net Impact Chapter York University March
1, 2006