Value Driver Model_Report

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A TOOL FORCOMMUNICATING THE

BUSINESS VALUE OF

SUSTAINABILITY

THE VALUE DRIVER MODEL:

A PRI-UN Global Compact LEAD

collaboration on creating long-term value

inter

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The work presented here is part of the ESG Investor Briefing Project, a collaborationbetween Global Compact LEAD and the UN-supported Principles for Responsible Investment(PRI). Using the model of a quarterly financial call, the ESG Investor Briefing Project aims to:

Provide a baseline model for companies to enhance their communication on howenvironmental, social and governance (ESG) strategies and performance translateinto financial value.

Help overcome the silos that often exist regarding sustainability within companiesand financial institutions, as well as between the various actors along the investment

value chain.

Not all companies featured participate in LEAD. However, their examples serve as illustrativecases for all companies. Utilising the Value Driver Model as a tool, companies are invited tojoin the ESG Investor Briefing Project and create a tailored method for communicating theirown ESG value drivers, internally and with investors.


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This report seeks to evolve and operationalise the Value Driver Model as an approach to engagingall investors based on the following assertions:

If investors do not perceive the potential business impact of sustainability both opportunity andrisk they are unlikely to undertake efforts to integrate sustainability data into their existinginvestment processes.

The absence of broad based investor engagement can undermine corporate progress inadvancing sustainability.

Investors are more likely to value and integrate sustainability data if results are framed in financiallanguage (potential for revenue growth, ability to drive productivity gains that improve earnings,and capacity to track and manage key risks), provided the impacts are significant.

If positive financial impacts linked to sustainability are significant and easily understood, thenthere is likely to be greater interest by investors in considering sustainability as a businessperformance driver, and greater interest by companies in advancing and featuring theirsustainable business strategies.

Leading companies are already experimenting with more direct attempts to communicate thebusiness value of sustainability in common sense terms, and others can learn much from theirefforts.


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Direct versus Indirect Value Drivers

The Value Driver Model is composed of two types of drivers: direct and indirect. Direct drivers are

those with links to top or bottom line results that require no intervening variables to have a measurable

effect. For example, with respect to revenue growth, sales of sustainability-advantaged products is

considered a direct driver and R&D spending an indirect driver because the former translates into

revenue and the latter presumes the company has some intervening process for effectively converting

R&D into revenue. Similarly, productivity improvements can result from direct drivers, such as reduced

material or energy costs, reduced employee absenteeism and turnover, or process changes. This is

distinct from indirect gains related to brand and reputational benefits of community engagement, for

example, which may indirectly translate to being an attractive employer, and therefore reduce

recruitment costs, or to increased customer loyalty, which may increase customer base and reduce

marketing costs. This initial effort to identify value driver innovators has focused on direct drivers of

revenue growth, productivity gains and risk mitigation. This is not to say that indirect value drivers are

not important factors for companies to measure and report. It is believed that if investors are better

able to see the direct links first, then increased attention and interest may follow on the various indirect

sources of value.


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1This report uses the UN Global Compacts definition of sustainability, which is the delivery of long-term value in financial,social, environmental, and ethical terms.2Financial performance refers to any corporate security and not only specifically to equities3Demystifying Responsible Investment Performance UNEP-FI and Mercer. (2007).

http://www.unepfi.org/fileadmin/documents/Demystifying_Responsible_Investment_Performance_01.pdf4Fulton, Mark and Kahn, Bruce M. and Sharples, Camilla, Sustainable Investing: Establishing Long-Term Value andPerformance. June 12, 2012.https://www.db.com/cr/de/docs/Sustainable_Investing_2012.pdfThe UN Global Compact-Accenture. CEO Study on Sustainability 2013. Architects of a Better World.http://www.accenture.com/Microsites/ungc-ceo-study/Documents/pdf/13-1739_UNGC%20report_Final_FSC3.pdfSustainability: The Embracers Seize Advantage. 2011.http://www.bcg.com/documents/file71538.pdfThe Business of Sustainability: McKinsey Global Survey Results.2011.http://www.mckinsey.com/insights/energy_resources_materials/the_business_of_sustainability_mckinsey_global_survey_results.


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