© 2010 IMD International. Not to be used or reproduced without permission. Building the business case for sustainability in SMEs A structured framework on how to build the business case in companies

© IMD 2010 IMD’s Center for Corporate Sustainability Management (CSM) CSM’s mission as a research and learning platform: mainstreaming Contribute to and propel the successful mainstreaming of social and environmental issues on the corporate strategic agenda through  Relevant and practical research  Cross-fertilization of corporate learning thus helping companies to “get things done” in developing and rolling out viable sustainability strategies... thus helping companies to “get things done” in developing and rolling out viable sustainability strategies

© IMD  The CSM platform is open to:  Companies that see business advantages in building social and environmental issues into their business strategy and aligning their organizations behind them  Companies that either are or wish to become sustainability leaders IMD’s Center for Corporate Sustainability Management (CSM)

© IMD Lombard Odier Darier Hentsch Philip Morris Tetra Pak CSM has a membership: Here are just a few of the companies and organizations we work with…..

© IMD CSM empirical research: examples

© IMD After consultation with corporate stakeholders, IMD’s CSM has a three pronged mission:  MAINSTREAMING: Ensuring that CSM research/learning is integrated in programs across IMD business school  GETTING THINGS DONE: Helping companies to overcome barriers and roll out sustainability strategies internally  PROVIDING A “FORWARD PERSPECTIVE”: Liaising with external institutions and acting as a facilitator/radar allowing companies to access knowledge in this field (helping with “early awareness” stakeholder consultation)

© IMD The value proposition of sustainability for companies  Sustainability is about  securing long-term supply of strategic resources while  allowing companies to stay in business to  keep producing what customers and consumers need  Sustainability is NOT ONLY a differentiator, but  a potential entry point to markets and  a key to securing existing markets

© IMD Some challenges of integrating sustainability into strategy  Different definitions and interpretations: Creating uncertainty in discussions  Lack of KPIs, metrics: Where and how to set the focus?  Closing knowledge gaps: Convincing colleagues of the value- added and how to integrate into products/services  Avoiding accusations of GREENWASH: and assure long-term success  Avoiding confusion with cause-related marketing

© IMD Compliance level of activity under consideration Level of environmental and social performance Economic value generated Company creates economic value by improving environmental and social performance beyond compliance The Smart Zone: Economic gain is high Further improvements of environmental and social performance lead to decreases in economic performance Further improvements are associated with an economic loss The smart zone

© IMD Consumer How do stakeholders act as transmission belts? Stakeholders Sustainability issues

© IMD Value drivers - shareholder value pyramid * Adapted from Rappaport (1986) Value Drivers Stakeholder satisfaction Operational readiness Strategy & vision Innovation in product & services Others… Dividends and share prices Shareholder Value Cost management Sales growth duration Capital deployed Value Contribution Employee motivation, Working relation with regulators EHS management systems, Resource efficiency Openness to society and new markets, Brand value and reputation More incentives for innovation, especially de-materialization services Sustainability Contribution (examples)

© IMD SA contribution (examples): Reputation and brand value Efficient use of resources Employee motivation Influence on regulatory regimes SHAREHOLDERVALUESHAREHOLDERVALUE Value Drivers Cost of Capital Value Growth Duration Operating Profit-Margin Sales Growth Rate Income Tax Rate Working Capital Investments Fixed Capital Investments Value drivers

© IMD SA issues affecting strategic risks and opportunities Radical innovation for new products and markets Economic performance Social performance Environmental performance Incremental improvements in SA issues affecting operational risks and opportunities Economic value Brand value and reputation License to operate Attract and retain talent Net cost decreases through incremental innovation Net revenue increases through radical innovation Systemization of sustainability issues, value drivers and relevant corporate activities Local air pollution Biodiversity Health Safety Human rights Monetary flows eg Mortality/Povertyeg Climate change

© IMD Step 1 : Understand the concept of the ‘SMART zone’ Step 2 : a) Identify stakeholders and understand how do they act as transmission belts b) Identify economically relevant issues c) Assess the economic potential of these issues by rating them Step 3 : Benchmark on relevant issues and how addressing them might contribute to the business strategy Step 4 : Understand the concept of value drivers Step 5 : a) Identify the value drivers b) Assess how the value drivers are pushing the agenda A business case is not found. It has to be built. Step 6 : Develop a set of narratives to communicate the business case to key internal decision-makers

© IMD Annexes

© IMD Issues in the food and beverage industry Pesticides Pollution Labor issues Traceability Obesity Nutrition/Health Allergies Responsible marketing Alcohol abuse Advertising to children Packaging Waste Recycling Pollution - chemicals/pesticides) Soil degradation Long term raw material supply Human rights Poverty Child labor Worker health and safety Eco-efficiency/Energy Water security Food safety/traceability Emissions (air and water) Packaging waste /Recycling Health and safety of employees Diversity Human rights Work conditions Corruption/Bribery Fair trade Animal welfare Corruption/bribery Quality Food safety/traceability Packaging waste Recycling Transport (‘food miles’) Sustainable agriculture Prices/Farmers income Animal welfare Water security Sustainable aquaculture Fair trade Slavery Traceability Farming systems