Linking Corporate Sustainability and Financial Performance Don Reed, CFA Ecos Corporation October 20, 2002 SRI in the Rockies Copyright Ecos Corporation.

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Presentation transcript:

Linking Corporate Sustainability and Financial Performance Don Reed, CFA Ecos Corporation October 20, 2002 SRI in the Rockies Copyright Ecos Corporation © 2002

- poverty- loss of biodiversity- lack of basic freedoms - climate change - hunger- resource depletion- environmental degradation - inequity The World’s Problems - companies are essential to solving these problems Social Responsibility - society can withhold their license to operate if they don’t TBL reporting Corporate Sustainability - statistical correlations - case studies of select companies Happens to be Good for Business SRI Consumers Gov Employees Moral Imperative Approach

Copyright Ecos Corporation © 2002 Same World Problems plus: - increasing power of civil society - globalization - changing role of gov’t - rise of market forces & corps - connectedness Market Forces - more complexity & risk- increasing expectations, scrutiny & pressure - more opportunities- good products are no longer enough Changed Operating Environment Corporate Sustainability Value at Stake - value creation is the goal - plan, measure & report value from sustainability -sustainability integrated as - create shareholder & societal value together business issue - appeal to mainstream investors Value Centered Sustainability

Copyright Ecos Corporation © 2002 Best Arguments for the Value Case for Sustainability Empirical Evidence –event studies –regression studies –model portfolios Live Portfolios of Best-in-Class Financial Analysis Incorporating Sustainability Case Studies Logical Connections

Copyright Ecos Corporation © 2002 How to Make Good Decisions: Screen for Value Margin Improvement productivity, footprint reduction, product differentiation pursuit of knowledge intensity safety, due diligence, licence to operate, directors and legal liability Capital Efficiency Growth Enhancement Risk Reduction DRIVERS OF VALUEAPPLICATION TO COMPANY new product insight, preferred partner, and access to talent

Copyright Ecos Corporation © 2002

However, a Values Component is also Critical Value is an essential component … But it’s not sufficient to meet changes in societal & employee expectations A values component is critical to success Safety is an ideal partner

Workplace safety is a vital subset of the sustainability challenge Copyright Ecos Corporation © 2002 Source: ILO Global Estimate of Fatalities million deaths a year (5,000 a day) This is far greater than the 650,000 deaths from warfare, and also exceeds deaths from alcohol and drugs combined 355,000 of these deaths are from accidents & violence For every fatal accident there are 1,000 non-fatal accidents

Unsustainable Society – Workplace Safety Copyright Ecos Corporation © 2002 Source: ILO Global Estimate of Fatalities 2002 Workplace Safety Fatalities – Causes of 2.3 million deaths a year Copyright Ecos Corporation © 2002 Source: ILO Global Estimate of Fatalities 2002 Communicable Diseases 27% Malignant Neoplasms 27% Respiratory System Diseases 6% Circulatory System Diseases 22% Accidents & Violence 16% Other 2%

Copyright Ecos Corporation © 2002 Fatality Data for Selected Oil, Chemical Companies Deaths per 10,000 Employees & Contractors Shell BP Conoco Dow DuPont 0 0 Sources: respective company EH&S reports

Copyright Ecos Corporation © 2002 The Safety-Sustainability Continuum Eco-efficiency Safe products Safe communities Precautionary principle to guide safe R&D Environmentally safe Closed loop production Safe processes WORKPLACE SAFETY & HEALTH – THE ENTRY POINT SUSTAINABILITY – THE ASPIRATION POINT SAFE/SUSTAINABLE GROWTHTHE CHECKPOINT Safety enhancing products & processes Sustainable market development Zero ‘footprint’ (e.g. No accidents, waste, pollution Environmentally restorative products and processes The positive footprint company – adds social, economic and environmental value and safety ‘SAFE COMPANIES’ TRAJECTORY

Copyright Ecos Corporation © 2002 Sustainability as Investment Insight: Our Conclusions CSR is not an adequate lens for investors How companies are creating value through sustainability strategies is a good lens Focusing on safety (and/or other core values) provides an entry point, and a crucial values framework for driving efforts Failure to consider value creation through sustainability and safety can lead to investment disaster