Presentation on theme: "How Would We Recognize It If We Saw It?"— Presentation transcript:
1 How Would We Recognize It If We Saw It? CAPITALISM 2.0:How Would We Recognize It If We Saw It?TSSS February 7, 2013
2 MY BACKBURNER QUESTIONS 2012200920052002Most sustainable enterprises?Characteristics of a sustainable enterprise?
3 Top 5 most sustainable companies on the planet? MIRROR MIRROR …Top 5 most sustainable companies on the planet?Thoughts from our TSSS audience on Feb. 7, 2013…Patagonia - 10Interface – 20Toyota – 1Vancity – 2GE – 1Seventh Generation – 7AutoShare, ZipCar – 2Suncor – 2Arcelor Metal Dofasco – 2Marks & Spencer - 1
4 http://www.sam-group.com/ … 2012 results SAM RANKING“Sustainability leaders” in 58 sectorsUsed by DJSIAssesses over 2,000 corporations… 2012 results
5 FORTUNE MAGAZINE RANKING Reputation Attributes “Most admired companies”Chosen by businessmenRankTop 101Apple2Google3Amazon.com4Coca-Cola5IBM6FedEx7Berkshire Hathaway8Starbucks9Procter & Gamble10Southwest AirlinesReputation AttributesInnovationPeople managementUse of corporate assetsSocial responsibilityQuality of managementFinancial soundnessLong-term investmentQuality of products/servicesGlobal competitivenessresults
6 http://www.thedailybeast.com/newsweek/2012/ … 2012 results NEWSWEEK RANKING“Green rankings”Helped by TrucostLook at Global 500 & U.S. 500RankTop 10 Global1Santander Brasil2Wipro3Bradesco4IBM5National Bank Australia6BT Group7Munich Re8SAP9KPN10Marks & SpencerCategoryWt’gEnvironmental Impact45%Environmental ManagementEnvironmental Disclosure10%100%… 2012 results
7 Key Performance Indicators GLOBAL 1003,500 global public companiesCompared to what is needed e.g. Factor Four improvementsKey Performance IndicatorsEnergy productivityCarbon productivityWater productivityWaste productivityInnovation capacity% Taxes paidCEO-to-Average-Worker PayPension fund statusSafety performanceEmployee turnoverLeadership diversityClean capitalism pay linklist
8 http://www.global100.org/; 2013 list GLOBAL 100: CANADATop in Canada21. Teck Resources40. Barrick Gold57. CN Railway60. TELUS71. Nexen79. Enbridge81. Suncor Energy85 Sun Life Financial87. Royal Bank88. Cenovus Energylist
9 MY BACKBURNER QUESTIONS 2012200920052002Stage 4 vs. Stage 5?Most sustainable enterprises?Characteristics of a sustainable enterprise?
10 SUSTAINABILITY JOURNEY 5. PURPOSE & PASSION4. INTEGRATED STRATEGY3. Beyond ComplianceAnimated to do a gradual build, when clicked.*****************************************Excerpt from “The Next Sustainability Wave,” as context for the discussion.The Stage 3 to Stage 4 Transformation and the Stage 5 DifferenceThe leap from Stage 3 to Stage 4 on the sustainability journey requires linking market opportunities with corporate responsibilities: creating positives like innovative products and services for the world’s poor while eliminating negatives like pollution, waste, and child labor; creating newvalue like sanitation, health, safe food, clean water, and new jobs while eliminating non-value; seeing partnerships with diverse stakeholders in themarket as a source of innovative solutions; seeing sustainability as an engine for growth as well as risk mitigation.Stage 3 is about incremental, continuous improvements in eco-efficiency. Stage 4 is about discontinuous, leapfrogging breakthroughs. It is aboutcreative destruction of existing manufacturing process and product design, and breakthroughs in new products, services, markets, and processes. It is a transformation from Stage 3, not a transition.Transformations are not trivial. Moving from Stage 3 to Stage 4 requires internalizing sustainability notions in profound ways, both personally andorganizationally. Environmental considerations move from the Environmental Affairs or Environment, Health, and Safety (EHS) department into the boardroom. Social considerations move from the Community Relations or Corporate Donations department into the strategy function. Sustainability-based thinking, perspectives, and behaviors are integrated into everyday operating procedures and the culture of theorganization.36 When these migrations happen, the metamorphosis is underway. The payoff is tapping into the revenue, innovation, andproductivity side of the sustainability business case rather than just the risk mitigation and cost-savings side.What about Stage 5? Stage 5 is very different, but simultaneously very similar. About 90% of what Stage 4 and Stage 5 companies do looks the same. They both deploy business strategies that respect the environment, the community, and the ongoing business health of the firm. Motivations differ. Stage 4 companies “do the right things” so that they are successful businesses. Stage 5 companies are successful businesses so that they can continue to “do the right things.” The line between Stage 4 and Stage 5 in [the slide] denotes this significant difference.The distinction is not meant to be a value judgment. Frankly, if we got to the tipping point of companies using sustainability as a managementdiscipline at Stage 4, I would be delighted. I am less concerned with the righteousness of motivations than I am with results.2. Compliance1. Pre-Compliance
11 “Over the last 10 years, the ‘Sustainability Imperative’ has emerged, magnified by escalating public and governmental concern about climate change, industrial pollution, food safety, and natural resource depletion, among other issues.”Lubin and Esty, HBR May 2010
12 “Expect the Unexpected: Building business value in a changing world,” KPMG, 2012
13 Porter and Kramer, HBR Jan-Feb 2011 “Capitalism is under siege … The purpose of a business must be redefined around creating shared value (CSV)…How to reinvent capitalism—and unleash a wave of innovation and growth”Porter and Kramer, HBR Jan-Feb 2011
14 CAPITALISM 2.0 Capitalism 1.0 Capitalism 2.0 Purpose of the Firm Maximize shareholder value; ROI; GrowthCreating shared stakeholder value, including the EnvironmentLegitimate capitalsFinancialFinancial, Natural, Human, SocialBottom linesProfit -firstProfit, People, PlanetSource of financial capitalStock market; Big financial institutions; Absentee ownersStock market; Smaller financial institutions; Customers; Employees; Local communitiesMarket focusGlobalLocalEnvironmental and social impactsExternalizedInternalizedAccountability boundariesThe FirmThe Firm’s value chain, over its products’ life cyclesTransparencyAs little as possibleNakedBusiness modelTake-Make-Waste; LinearBorrow-Use-Return; Circular
15 DOWN-TO-EARTH ECONOMY Wall Street’s Organizing PrinciplesNature’s Organizing PrincipleView of natural capitalLimitless free resource, to be exploitedFinite valuable resource, to be respected and restoredResource controlMonopolizedSharedGrowthInfinite growth of money and consumptionA stage in life’s endless regenerative cyclesTimeframeImmediate returnSustained yield over timeEfficiency measuresReturns on financial capitalReturns on social and natural capitalPrimary performance indicatorsGrowth in financial returns, assetsLife’s abundance, health, resilience, and creative potentialPrimary dynamicCompetition to maximize self-interestCooperation to optimize self- and community-interestBased on David Korten, “The Down-To-Earth Economy,” Yes! Magazine, Winter 2013
17 NESTED DEPENDENCIES Enough, for all, forever. Environment Human SocietyHuman EconomyXEnough, for all, forever.
18 TRULY SUSTAINABLE ENTERPRISE EnvironmentHuman SocietyA truly sustainable enterprise creates positive economic, environmental, and social value.Human EconomyXIf it were to operate forever, it would not only do no harm; it would do well by doing some good.
19 GOLD STANDARD FRAMEWORK ESGGovernanceEnvironmentalSocial
20 Breakout Group Discussion Question: ESG CRITERIABreakout Group Discussion Question:List 5 ESG criteriathat you would use to assess whether or nota company is a truly sustainable enterprise.“Mount Sustainability”
21 ESG CRITERIA Breakout Group Idea Harvesting: "Noble purpose" – but how do we measure this, what is/are the metric(s)Do consumers as well as investors understand the implications of supporting the company? Criteria for this could be direct or indirect, e.g. whether company is effective in educating/communicating investors/consumers to understand these effects/implicationsFair wages and distribution of wealth throughout value chain – inputs/outputsNo waste in network/ecosystem – if there is a product with waste must have way to reuse – closed loop process/concept
22 ESG CRITERIA Breakout Group Idea Harvesting: Degree of community/stakeholder engagement – sliding scale from hierarchy to cooperative (includes employees and broader community)Is it a ‘learning organization’ with ‘permission to fail’PUMA – Is it possible to estimate what the environmental impact of all our supply chain operations are and convert that into a financial number – eg material resources, carbon, water – if these costs are considered what was seen as a profitable company can easily be seen as a losing company. Puma was a leader in assessing actual costs when by internalizing what were previously seen as externalities - they 'gave themselves a bill' for environmental costs
23 ESG CRITERIA Breakout Group Idea Harvesting: Need to be positive on all three legs of ESG or is there allowance to be negative/neutral on 1-2, if positive on other(s) – parallel to this is carbon trading –> can you 'buy yourself out?' of being 'bad'100% of compensation for everyone in company not simply tied to shareholder value but aligned 100% to stakeholder valueEquity: i.e. no one is exploited through activities/operations of company – could be evaluated on many levels including legal, living wage if we dream big, let's look at company's whole value chain, not just the company (Big question – where does accountability end? How much is enough? When is enough enough?) And, if they ‘do too much good’, and put themselves out of business, then the G leg of the stool is broken, right?
24 ESG GOLD STANDARD CRITERIA EnvironmentalCarbon positiveEnergy positiveWater positiveMaterials positiveWaste positiveProvides services (vs. products)Restorative to ecosystemsSocialFair share of taxesLabor rights & safe working conditionsFair employee remunerationFamily-friendly benefitsEngaged employeesLocal workers, purchases, & investmentsProducts & services build social capitalGovernance / FinancialFinancially sustainableEthical business practicesDiverse senior leadershipTransparent / Engaged stakeholdersSustainable business model, policies, & systemsSustainable value chain / Life-cycle accountabilitySustainability champion / Leader of transformation
25 MY BACKBURNER QUESTIONS 2012200920052002Correlation with market value?Stage 4 vs. Stage 5?Most sustainable enterprises?Characteristics of a sustainable enterprise?
26 MARKET PERFORMANCERobert G. Eccles et al, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” HBS working paper , Nov. 25,
27 REPORTING COMPANIES OUTPERFORM 53% of S&P 500 companies are published sustainability- or CSR-type reports in 2011, up from 20% in 201063% follow the Global Reporting Initiative (GRI) frameworkBetween 2007 and 2011, companies that reported on their sustainability efforts outperformed the broad S&P 500 IndexGovernance and Accountability Institute, “2012 Corporate ESG / Sustainability / Responsibility Reporting: Does It Matter?” December 2012
28 IIRCWill create the globally accepted International <IR> Framework that includes financial, governance, management commentary, and sustainability reporting.Reports will include material sustainability impacts, and show how the company creates value in the form of financial, manufactured, human, intellectual, and natural capitals.December 2013: Version 1.0 of the FrameworkQ1-Q4 2014: Pilot Program with the Business Network (80 companies) and the Investor Network (30 investors)International Integrated Reporting Council (IIRC)
29 Sustainability Accounting Standards Board (SASB) http://www.sasb.org/ Will develop industry-specific standards to measure and disclose ESG performance on the top 10 material sustainability issues, for mandatory Form 10-K filings with the SEC.A complete set of standards covering all 10 sectors and 89 industries will be available in QSustainability Accounting Standards Board (SASB)
30 GISRWill create a world class corporate sustainability ratings standard, to embed sustainability into the capital markets worldwideGlobal Initiative for Sustainability Ratings
31 How Would We Recognize It If We Saw It? CAPITALISM 2.0:How Would We Recognize It If We Saw It?TSSS February 7, 2013