1 UNGC Module 2 – Session 2 THE UN GLOBAL COMPACT MODULE 2 - THE BUSINESS CASE Session 2: Understanding the Business Benefits of Corporate Environmentalism

2 UNGC Module 2 – Session 2 “As the private sector has grown in size, influence and reach, so too have the demands for increased corporate responsibility. They are unlikely to go away. The ‘business case’ for corporate responsibility is becoming clearer, louder and more urgent.” Jane Nelson - Prince of Wales International Business Leaders Forum The Business Case for Environmental Management

3 UNGC Module 2 – Session 2 Quantitative evidence for the business case? Statistical research on share price and financial performance Evidence from ethical rating and information organisations Case study evidence Arguments of leading sustainability thinkers/researchers “There is a growing body of evidence to support the assertion that integrating sustainability principles into business practice can generate business benefits. However to date none have been able to offer irrefutable evidence of ‘cause and effect’. Importantly, however, none have found a negative correlation…” To Whose Profit – Building a Business Case for Sustainable Development The Business Case for Environmental Management

4 UNGC Module 2 – Session 2 Demonstrating the link between sound economic, environmental, social and corporate governance performance and improved financial value The Business Case for Environmental Management –Saving costs through improved efficiencies –Increased revenues by improving the environment and benefiting the local economy –Reducing risks through stakeholder engagement –Improved access to capital –Building brand value and reputation –Developing human and intellectual capital –Improving access to capital through better governance

5 UNGC Module 2 – Session 2 The Business Case for Environmental Management

6 UNGC Module 2 – Session 2 Key Elements of the Business Case Argument –Understanding the business benefits is necessary but not sufficient for addressing environmental concerns –The full extent of the business case is more sophisticated than most business leaders realise –There is growing emphasis on the importance of the role of intangible assets (such as brand value) –Ultimately governments are responsible for framing the market conditions within which the business case is made – further intervention may be required to maximise the business case for sustainability The Business Case for Environmental Management

7 UNGC Module 2 – Session 2 Key constraints that hinder the business case: –Corporate myopia –Financial benefits not identified or not deemed sufficiently significant –Insufficient integration of niche products in mainstream market –Competing investment priorities with better returns –Capital markets generally ill-equipped to evaluate a company’s business case for improved environmental management –Predominant focus on short-term shareholder returns The Business Case for Environmental Management

8 UNGC Module 2 – Session 2 Licence to Operate Cost/liability Reduction New Markets Reward Risk The Business Case for Environmental Management Market Access

9 UNGC Module 2 – Session 2 Drivers of Corporate Change Business Case Drivers –Licence-to-Operate –Reducing costs and liabilities –Improved investment potential –Accessing new markets External Drivers –Environmental pressures –Social pressures (NGO, community and investors) –Legal/Regulatory Trends –Technological Change –Market-related forces Risks and opportunities associated with environmental management exist throughout the value chain Aligning business strategy with the major drivers of change can increase growth and reduce uncertainty Improved social and environmental performance is increasingly becoming a competitive issues that is important in the context of intensifying competition within the global market The Business Case for Environmental Management

10 UNGC Module 2 – Session 2 Licence to Operate Cost/liability Reduction New Markets Reward Risk The Licence to Operate: - Growing focus on accountability - Importance of intangible assets - Build reputation & brand value The Business Case for Environmental Management Market Access

11 UNGC Module 2 – Session 2 The Licence to Operate –“Licence to operate” from government –Improved community relations –Proactive compliance with legislation –Attracting, maintaining and developing talented employees –Building brand image and reputation The Business Case for Environmental Management

12 UNGC Module 2 – Session 2

13 UNGC Module 2 – Session 2

14 UNGC Module 2 – Session 2 Risk Reward Licence to Operate Cost/liability Reduction New Markets Reducing Costs and Liability: - Good management benefits - Eco-efficiency savings - Risk / liability reduction - Process improvements The Business Case for Environmental Management Market Access

15 UNGC Module 2 – Session 2 Reducing Costs and Liabilities –Improved operating efficiencies (eco-efficiency) Reduced waste and pollution disposal costs Lower resource/input costs Improved staff motivation from clean/safe working environment –Risk and liability reduction Proactive measures cheaper than subsequent remedial costs Reduce potential for legal liability from pollution damage Minimise potential for civil claims Improved environmental management is often an indication of better management practices generally The Business Case for Environmental Management

16 UNGC Module 2 – Session 2

17 UNGC Module 2 – Session 2 “Discounted present value of potential carbon liabilities within a single emissions-intensive manufacturing firm could represent as much as 40% of its entire market capitalisation under certain plausible scenarios” CARBON DISCLOSURE PROJECT

18 UNGC Module 2 – Session 2 Risk Reward Licence to Operate Cost/liability Reduction Market Access New Markets Market Access: - Better access to capital - Growth in SRI initiatives - Enhanced customer loyalty - Marketing benefits The Business Case for Environmental Management

19 UNGC Module 2 – Session 2 Improved Market Access –Improved market penetration Competitive advantage from niche market goods Improved customer loyalty –Improved access to capital Growth in ethically screened funds Dow Jones Sustainability Index/FTSE4Good London Principles - financial institutions Equator Principles - sustainability consideration in project finance The Business Case for Environmental Management

20 UNGC Module 2 – Session 2 Is there more to money than meets the eye? Changing activity in the financial sector

21 UNGC Module 2 – Session 2

22 UNGC Module 2 – Session 2 Licence to Operate Cost / liability Reduction Investment Potential New Markets Risk Reward New Markets: - Development of new products - First mover advantage - Innovation in addressing environmental concerns The Business Case for Environmental Management

23 UNGC Module 2 – Session 2 Key considerations –Growing population –Increasing demands for resource-intensive lifestyles –Resources are currently inappropriately priced –Significant first mover advantages to be gained Opportunities to be seized by the innovative managers The Business Case for Environmental Management “Over the next decade or so, sustainable development will constitute one of the biggest opportunities in the history of commerce.” Stuart Hart – Harvard Business Review