Sustainability : Costly Inconvenience or New Business Paradigm?
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Transcript of Sustainability : Costly Inconvenience or New Business Paradigm?
Baruch CollegeBaruch CollegeApril 2, 2008April 2, 2008
Sustainability: Costly Inconvenience or New
Business Paradigm?
Sustainability: Costly Inconvenience or New
Business Paradigm?
Daniel Mahler, PartnerNew York Office
2
The challenge: billions of people globally aspire the western standard of living but resources are limited
Today
Five planetsFive planetsOne planetOne planet
Future, 20xx
• Resource prices indicate that demand already exceeds supply
• Regardless of environmental impact developing countries strive to increase standard of living20%
80%
Resources
20%
80%
# People
7 bn. 100 (indexed)
90% 98%
Resources# People
10%
7 bn. +x 500
3
The Sustainability Challenge is re-shaping the environment for doing business
Key drivers of the sustainability challenge
• Increasing resource prices: from 20$ to 100$ per barrel oil in 5 years
• Global Warming premium: pricing in of CO2 cost in energy prices
• Vulnerable supply chains: 70% of iron ore in the hands of three global players
• Increased policy risk: - Australia bans incandescent light bulbs- San Francisco bans plastic bags
• …
Emerging participationof developing countries
• Increasing material aspirations• Competition for resources• Migration
Scarcity of natural resources
• Increasing demand for oil & gas
• Scarcity of water
Business threats…
Environ-mental & social
problems• Global warming• Environmental
degradation• Child labor; poor
social standards
… and opportunities• New markets: 50% of Global GDP growth will
come from developing markets• Growth opportunity:
- UK demand for Fair Trade products growing over 40%/year- US demand for organic products up 20+% for past 10 years- strong growth of final demand from developing countries
• Differentiation opportunity: superior access to capital and talent for sustainability leaders
• …
4
In recent times, major companies have engaged in a flurry of activities around “Sustainability”
2005
2006
2007
Wal-Mart commits to being more environmentally conscious
McDonald’s introduces healthier menu items
Michael Dell announces hewill enable customers to plant a tree for every Dell PC sold
Goldman Sachs commits to investing $1 billion in clean energy technologies
CVS offers walk-in clinics that provide low-cost basic healthcare
G.E. will invest $1.5 billion in environmental technologies by 2010
UPS truck fleet has 1500 alternative fuel vehicles
Leading companies form U.S. Climate Action Partnership
Wendy’s stops using trans-fats in fries and fried chicken
Tesco invests $990MM to reduce carbon footprint
Examples
5
Sustainability is about creating competitive advantage from aligning financial, social and environmental goals
A.T. Kearney’s Sustainability Framework
Economic Development
Financial Performance
Environmental Protection
Environmental Impact of
Business Activities
SocialWellbeing
Enterprise Impact on Society
"For the business enterprise,
sustainable development means
adopting business strategies and
activities that meet the needs of the
enterprise and its stakeholders today
while protecting, sustaining and
enhancing the human and natural
resources that will be needed in the
future."1)
Maximum Benefit
Focus Area
Creating a Competitive Advantage and a sustainable shareholder return
Growth vs. Environment
Efficiency vs. Social
Definition of Sustainable Development
1) Book: Business Strategies for Sustainable Development: Leadership and Accountability
Environment& Welfare
6
17%
21%
21%
33%
46%
50%
54%
Does Your Company Have a Corporate Sustainability Strategy?
CEOs and the Boardrooms are beginning to discover sustainability as a “top line” opportunity
Prominently Expressed Objectives for Corporate Sustainability Strategy (1)
Improve brand
Differentiate products
Efficiency
Compliance
Risk Mgmt..
Retention
Cost
Notes: (1) Multiple responses allowed
Total = 100%
xx%
No42%
Yes58%
Source: A.T. Kearney and Institute for Supply Management TM (ISM) Sustainability Management Survey, January 2007
7
• New Products (e.g., Hybrid, Solar,Organic)
• New Markets (e.g., Micro-Business model)
• Price Premium (e.g., „green features“)
• Carbon Tax• Exploding Commodity Costs• Sustainability Administration• Localization of Supply Chains
• Declining relevance of current product portfolio (e.g., SUV)
• Boycott (e.g., Nike)• Safety Disaster (e.g., Schering)
"Revenue Threat"
"Cost Peril"
"Growth Platform"
"Efficiency Booster"Amplifier
Reputation
But: sustainability is a challenge representing opportunities and risks
Sustainability can be a …
Revenue
Costs
Risk Opportunity
• Energy Efficiency (e.g., WalMart)• Product Specification Optimization
(e.g., Packaging design, material usage)
• Value Chain Optimization (e.g., manufacturing/network design, service levels)
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Latest research indicates that companies excelling in all three dimensions command an evaluation premium
MSCI Index GS SustainCompanies
+25%
GS Sustain Companies
higher72%
28%
Companies good in all three dimensions…
….command a premium ….and outperform their peers more often
IndustryPeers higher
Shareholder Value Development (2003-2007)
Shareholder IncreaseGS Sustain vs. Industry Peers(2003-2007)
Source: Goldman Sachs, GS Sustain, May 2007, includes 120 companies from Energy, Mining, Food & Beverage, Pharmaceutical Industry
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Understanding the longer term value challenge is pivotal in developing a sustainability strategy
Company Sustainability Value Challenge
Sha
reho
lde
r/
Com
pan
y V
alue
Cre
atio
nD
estr
uct
ion
“Do-Nothing Path”:Maxium Value
Destruction Scenario
“Sustainability Champion Path”
SVCSustainability
Value Challenge
“Growth Platform”
“EfficiencyBooster”
“CostThreat”
“RevenueThreat”
2010 2015 2020
Sustainability Strategy
Pro
tect
+
Win
“Evaluation Premium”*
Source: Goldman Sachs
Illustrative
10
Conclusion –
“Going Green”….
… should be more than a PR effort repackaging existing efforts
… is more than fighting “global warming” -- the underlying issues are larger
…, if done correctly, is not “another initiative”
…. but the long term survival, health and fitness program of a company