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Corporate introductory materials for sustainability advisory company - Route2 Sustainability (www.route2sustainability.com)
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ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
INTEGRATED SUSTAINABILITY
ROUTE2INTEGRATES
SUSTAINABILITY INTO DAY-TO-DAY
BUSINESS MANAGEMENT
Route2Sustainability is an advisory company that works with
organisations to link sustainability to business performance, provide
clarity to decision making and create value for your business.
Route2 merges science, finance and strategy into a framework and tool-set that identifi es and
determines the fi nancial materiality of issues & opportunities, then sets
goals, evaluates investments and manages performance.
The outcome: An informed strategy that enhances, not compromises,
short and long term performance objectives and integrates
sustainability into an organisation.
KEY MESSAGES
OVERVIEW
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
1 Business is being challenged to grow sustainably
2 Sustainability initiatives are not as effective as they might be: no common language; tenuous link to performance; low level of integration to core business functions
3 Route2 aligns the pursuit of sustainability and value creation: impact of environmental and social pressures, expressed fi nancially, linked to performance; integrating sustainability into core business functions
4 Route2 achieves alignment through a unique framework based on decades of experience: sustainability science and economics; business planning and investment analysis
5 Route2 places your business on a sustainable footing: sustainability integrated not separated from your core business, enhancing not compromising both short and long term performance objectives
WORLD VIEWAn increasing global population chasing quantitative growth and consuming finite resources is creating a global squeeze.
Depletion of resources, social disruptions and rising input prices are driving increased regulation, new taxes, and shifting consumer and stakeholder expectations. Add to that the pressure for greater ‘social responsibility’ and transparency and it is clear that the way we do business is changing. The message is to keep growing, but grow sustainably.
However, the idea of ‘sustainable growth’ is creating confusion and confl icting goals for business, limiting progress toward a sustainable business footing.
Route2 transforms the challenge of sustainable business into the opportunity it represents. A Route2 engagement aligns the goals of business value creation and sustainability and leads to a sustainable business through innovation – in strategy, process and technology.
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
GLOBAL SQUEEZE
THE WAY WE DO BUSINESS IS CHANGING
‘COMPANIES THAT TAKE THE LEAD
ON SUSTAINABILITY WILL BE MARKET MAKERS RATHER
THAN MARKET TAKERS’WORLD
ECONOMIC FORUM
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
MAINTAINING CAPITAL STOCK, INDEFINITELY
Tomorrow’s winners are the organisations that optimise the mix
of revenue and cash fl ow whilst investing in capital stock such that it is maintained or enhanced, indefi nitely.
Route2 recognises four types of productive capital stock, each
contributing directly and indirectly to economic output: natural, human,
social and built capital. Each stock produces a fl ow of functions, which
input into production processes.
These stocks depreciate (through wear and tear) and appreciate
(through investment and sometimes use). Natural capital provides the
basis for all human activities.
From this platform human capital, facilitated by social capital,
transforms raw materials, into built capital and intermediate
goods (i.e. product components).
This is the real economy.
SUSTAINABILITYBUILT
MAN-MADEMATERIAL
RAWMATERIALS
INDIVIDUALCAPACITY
WASTE ABSORPTION
NETWORK &CONNECTIONS
CAPITAL
CAPITAL CAPITAL
CAPITAL
NATURAL
OTHER ECO-SYSTEM SERVICES
4 CAPITALS
HUMAN SOCIAL
REAL ECONOMY
HUMANCAPITAL
SOCIALCAPITALCAPITAL
NATURAL
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
CAPITALBUILT
CAPITALBUILT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
NATURAL RESOURCES
The stock of natural resources, renewable and non-renewable, both tangible assets as in raw materials such a minerals and intangible services such as carbon dioxide absorption, soil formation and water purifi cation.
In construction, think of aggregates, sand and water.
CAPITALNATURAL
HUMANCAPITAL
SOCIALCAPITAL CAPITAL
BUILT
COMPANY INTRODUCTION
HUMANCAPITAL
SOCIALCAPITAL
CAPITALNATURAL
CAPITALBUILT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
INDIVIDUAL CAPACITY
The stock of knowledge, physical labor and refi ned skills that transform natural resources (and previously produced intermediate goods and services) into economic goods and services.
In construction think of laborers, carpenters and electricians.
HUMANCAPITAL
SOCIALCAPITAL CAPITAL
BUILT
COMPANY INTRODUCTION
SOCIALCAPITALCAPITAL
NATURAL
ROUTE2 SUSTAINABILITY
CAPITALNATURAL
CAPITALBUILT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
NETWORKS & CONNECTIONS
The stock of trust between people (social networks) in the workplace, in the community and with public bodies that determines the ease at which anything is accomplished.
In construction think of the ease of interaction between architects, planners and builders.
CAPITALSOCIAL
CAPITAL
HUMANCAPITAL CAPITAL
BUILT
COMPANY INTRODUCTION
CAPITALNATURAL
ROUTE2 SUSTAINABILITY
HUMANCAPITAL
CAPITALNATURAL
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
INDIVIDUAL CAPACITY
The stock of knowledge, physical labor and refi ned skills that transform natural resources (and previously produced inter-mediate goods and services) into economic goods and services.
In construction think of laborers, carpenters and electricians.
NETWORKS & CONNECTIONS
The stock of trust between people (social networks) in the workplace, in the community and with public bodies that determines the ease at which anything is accomplished
In construction think of the ease of interaction between architects, planners and builders.
MAN-MADE MATERIALS
The stock of property, plant, equipment, infrastructure and inventory through which economic goods and services are produced, distributed, consumed, disposed, reused or recycled.
In construction think excavation machines, trucks and bricks.
CAPITALBUILT
HUMANCAPITAL
SOCIALCAPITALCAPITAL
NATURAL
ROUTE2 SUSTAINABILITY
HUMANCAPITAL
SOCIALCAPITAL
SUSTAINABILITYRECONNECTING THE FINANCIAL AND PHYSICAL
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
RAWMATERIALS
INDIVIDUALCAPACITY
WASTE ABSORPTION
ECONOMICOperating alongside and supporting the real economy is the financial economy.
Within this fi nancial economy is another type of capital, Economic Capital, which is generated as the real economy output is translated into money.
The real economy and the fi nancial economy are in tune when the pricing of real economy goods and services is aligned to their underlying value. If the pricing of real economy outputs is not right or missing then there is an imbalance.
This mismatch creates distortion, which encourages organisation’s to inadvertently undermine the four capital foundations weakening the real economy itself. When fi nancial products such as derivatives lose
all connection with the real economy, this distortion is exaggerated causing signifi cant volatility.
Understanding, accounting for and managing the fl ows, depreciation and appreciation of these four capitals, is critical to removing the distortion between the real and fi nancial economy and key to sustainability and Sustained Value creation.
ACCOUNTING FOR THE FOUR CAPITALS IS KEY TO SUSTAINABILITY AND SUSTAINED VALUE CREATION
BROADENING THE LENS
VALUE
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
The pursuit of value creation is fundamental to resource allocation and therefore decision-making within organisations.
At Route2 value creation underpins our approach. We use familiar techniques to measure value creation and build classical discounted cash-fl ow models to support an organisation’s decision making whether that is to evaluate investment decisions, inform ambition or input into incentive programmes. The difference is
that we broaden the lens – panning out from the typical focus on built capital to incorporate natural, human and social capital.
Applying a four capitals lens to value creation is not easy, but the results are clear: better scenario planning and assumptions, better forecasts, better overall decision-making resulting in Sustained Value creation.
APPLYING A FOUR CAPITALS LENS TO VALUE CREATION
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
Route2 use science as the starting point to understand and quantify the association between, and the economic functions performed by, the four capitals.
The economic valuation of your organisation’s use of and investment in the four capital functions provides linkage to fi nance – and the many aspects of business planning. The four capital stock and fl ows understood in fi nancial terms enhance scenario planning and fi nancial forecasts that more readily inform
your organisation’s strategic direction. Execution of this wider strategy, with appropriate planning and performance management processes enhanced by our analysis, will deliver sustained value. Route2 have a combined twenty years worth of experience in developing these linkages - linking natural science and economic valuation - linking investment analysis to business planning and value creation. This deep expertise combines to form a unique, comprehensive (four capitals – direct, upstream & downstream) and fl exible framework (sector neutral, country to business unit to product) entitled Sustained Value Management.
KEY METHODS INCLUDE
Input-Output Analysis [IOA]
Material & Energy Flows Analysis [MEFA]
Process Analysis [PA]
Life Cycle Analysis [LCA]
Impact-Pathway Analysis [IPA]
Economic Valuation [EV]
Scenario Planning (SP)
Discounted Cash-Flow Modeling [DCF]
SCIENCE-FINANCE
LINKAGE
SUSTAINED VALUE MANAGEMENT [SVM] IS ROUTE2’S
FOUR-MODULE FRAMEWORK COMPRISING MEASURE,
MANAGE, MOVE AND MESSAGE.
The four modules aren’t necessarily sequential, as each
engagement requires a tailored set of solutions and tools.OUR OFFERSUSTAINED VALUE MANAGEMENT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
MANAGE MESSAGEMEASURE MOVE
Manage is how we integrate sustainability into an organisation.
Speaking the language of the organisation merges sustainabilityinto the traditional business planning processes. Manage establishes, cements and maintains the link between sustainability and an organisation’s value.
DELIVERABLES
• Multi-year financial plans (P&L’s, balance sheet, cash-fl ow)
• Goals and metrics
• Agenda development
• Performance management tools
Move supports an organisation to implement solutions.
Route2 can identify established and cutting edge solutions and provide an organisation with the tools to evaluate, programme and measure the progress of your investments. Move is about executing the programme to realise your Sustained Value goals.
DELIVERABLES
• Identification and evaluation of solutions
• Cost-benefit and ROI analysis
• Project planning and performance management
Message supports engagement with employees, customers, consumers and stakeholders.
By demonstrating issue or opportunity materiality, quantifying benefi ts of a diverse set of sustainability initiatives or reporting against progress our approach assists organisation’s report and communicate their sustainability, plans and progress.
DELIVERABLES
• Sustainability metrics
• Sustainability labels
• Integrated reporting
MANAGE MESSAGEMEASURE MOVE
OUR OFFERSUSTAINED VALUE MANAGEMENT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
Measure is core to our approach. Identifying where and how value is created across the four capitals.
We measure at all levels from national level to organisation to product. Quickly focusing efforts and resources on where the value lies.
DELIVERABLES
• Identifi cation and quantifi cation of material fi nancial, environmental and social issues and opportunities
• Top and bottom line performance impact on business
• Risks and opportunities to existing corporate goals
• Peer-set and portfolio performance
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SUSTAINEDVALUE
NET PROFIT
OTHER CASHINCL. INVESTMENT, DEPRECIATION OF ALL FOUR CAPITALS
FREE CASH-FLOW
DISCOUNT RATERISK ADJUSTED COST OF CAPITAL
THE COMPONENTS OF INCOME, CASH-FLOW AND THE BALANCE SHEET INTERACT TO OVER TIME CREATE OR DESTROY SUSTAINED VALUE
VALUECREATING SUSTAINED VALUE
FINANCING & TAX COSTS
OPERATING COSTS
INCOMEBENEFITS FLOWING FROM ALL FOUR CAPITALS
COSTS FLOWING FROM ALL FOUR CAPITALS
= RESULT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SUSTAINEDVALUE
NET PROFIT
OTHER CASHINCL. INVESTMENT, DEPRECIATION OFALL FOUR CAPITALS
FREE CASH-FLOW
DISCOUNT RATERISK ADJUSTED COST OF CAPITAL
THE COMPONENTS OF INCOME, CASH-FLOW AND THE BALANCE SHEET INTERACT TO OVER TIME CREATE OR DESTROY SUSTAINED VALUE
VALUECREATING SUSTAINED VALUE
FINANCING & TAX COSTS
OPERATING COSTS
INCOMEBENEFITS FLOWING FROM ALL FOUR CAPITALS
COSTS FLOWING FROM ALL FOUR CAPITALS
• Lower risk, lower financing costs
• Improved stakeholder interaction, lower tax costs
• Continued right to trade
• Brand appreciation, increased market share
• Innovation, new markets
• Less exposure to resource scarcity / cost inflation
• Less exposure to regulatory burdens• Lower risk, lower insurance costs
Route2’s approach enhances each of the drivers of value resulting in sustained value creation = RESULT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SUSTAINEDVALUE
NET PROFIT
OTHER CASHINCL. INVESTMENT, DEPRECIATION OF ALL FOUR CAPITALS
FREE CASH-FLOW
DISCOUNT RATERISK ADJUSTED COST OF CAPITAL
THE COMPONENTS OF INCOME, CASH-FLOW AND THE BALANCE SHEET INTERACT TO OVER TIME CREATE OR DESTROY SUSTAINED VALUE
VALUECREATING SUSTAINED VALUE
• Greater insight, smarter investment
• Better solutions, better return on investment
• Enhanced scenario planning, better cash management
FINANCING & TAX COSTSS• Lower risk, lower financing costs
• Improved stakeholder interaction, lower tax costs
Route2’s approach enhances each of the drivers of value resulting in sustained value creation = RESULT
OPERATING COSTSCOSTS FLOWING FROM ALL FOUR CAPITAITALS
• Less exposure to resource scascarcity / cost inflation
• Less exposure to regulaulatory burdens• Lower risk, lower inr insurance costs
INCOMEBENEFITS FLOWING FROM ALL FOUR CAPCAPITALS
• Continued right to trade
• Brand appreciation, increcreased market share
• Innovation, new markarkets
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SUSTAINEDVALUE
NET PROFIT
OTHER CASHINCL. INVESTMENT, DEPRECIATION OFALL FOUR CAPITALS
FREE CASH-FLOW
DISCOUNT RATERISK ADJUSTED COST OF CAPITAL
THE COMPONENTS OF INCOME, CASH-FLOW AND THE BALANCE SHEET INTERACT TO OVER TIME CREATE OR DESTROY SUSTAINED VALUE
VALUECREATING SUSTAINED VALUE
• Greater transparency, resulting in higher investor confidence
• Lower risk, lower discount rate
smarter investmenment
• Better solutionions, better return on ininvestment
• Enhancnced scenario plananning, better cashmmanagement
FINANCING & TAX COSTSS
OPERATING COSTS
INCOMEBENEFITS FLOWING FROM ALL FOUR CAPCAPITALS
COSTS FLOWING FROM ALL FOUR CAPITAITALS
• Lower risk, lower financing costssts
• Improved stakeholder interaeraction, lower tax costs
• Continued right to trade
• Brand appreciation, increcreased market share
• Innovation, new markarkets
• Less exposure to resource scascarcity / cost inflation
• Less exposure to regulaulatory burdens• Lower risk, lower inr insurance costs
Route2’s approach enhances each of the drivers of value resulting in sustained value creation = RESULT
PLAN
BUILD
PERFECT
DO
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
OUR APPROACH
HOW WE WORKWe recognise our clients as the dedicated experts they are. When clients state “understand our organisation and objectives”, “transfer your capabilities”, “breakdown the challenge into manageable phases”, we listen.
We only ask executives to visibly support the project and to foster collaboration as far as resources allow.
2. BUILD
This is where we work effi ciently to undertake the work however, we do not disappear (unless instructed to)
Our objective is to work as effectively as possible to meet our client’s challenges. We continually request and listen to feedback.
3. PERFECT
This is where we perfect the project output through workshops, teleconferences and if necessary in person meetings.
The result is work that delivers on objectives, achieved through the collective experience and ideas of the collaboration. Prior work is wasted unless this step is successful We therefore work hard to meet our objectives
4. DO
This is where we safeguard the continual meeting of our client objectives long after project completion.
During this handover stage, we support clients to integrate the work into their organisation’s systems and processes. We remain ‘on call’ to update and refresh as required.
1. PLAN
This is where we understand our client objectives and our client’s available resources.
We also familiarise ourselves with the organisation and sustainability programme. We then develop a project plan that refl ects our under-standing, clearly lays out what needs to be done, by when and by who - which we then all sign up to.
HOW WE WORKOUR APPROACH
PLAN
BUILD
PERFECT
DO
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
HOW WE WORKSECTOR EXAMPLES
What are the material environmental and social issues facing our business over the next 5 years and how will these impact the fi nancial performance of our business and the businesses we support locally?
• Perform quantifi ed four capital full value chain assessment (direct plus up- and down-stream operations)
• Assess the fi nancial materiality of identifi ed environmental and social issues and isolate the value drivers
• Develop scenario-based 5-year fi nancial plans for the business (P&L, balance sheet, cash-fl ow) incorporating value driver insights
• Achieve an objective and compre-hensive assessment of market & non-market costs / benefits
• Quickly focus resources on the material issues / opportunities
• Enhance scenario development and financial planning
Grower and exporter of fresh produce committed to creating a thriving local community but aware of signifi cant environmental pressures jeopardising the sustainability and performance of their business.
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SECTOR AGRICULTURE CITRUS EXPORTER BEVERAGE PRODUCER COMMERCIAL BANK
BY HAVING A COMPREHENSIVE, OBJECTIVE AND FLEXIBLE APPROACH, ROUTE2 IS ABLE TO DEVELOP SOLUTIONS THAT DELIVER LASTING VALUE REGARDLESS OF SECTOR OR MATURITY OF THE SUSTAINABILITY PROGRAMME. SEE BELOW FOR A SNAPSHOT OF SOME OF THE CHALLENGES WE CAN SOLVE
QUESTION APPROACH BENEFIT
HOW WE WORKSECTOR EXAMPLES
How do we bring our business leaders into the sustainability programme in order to ensure that we deliver on our internal and external commitments?
• Develop multi-year, multi-scenario fi nancial plans (P&L, cash-fl ow) to demonstrate fi nancial impact of achieving sustainability goals
• Identify key value drivers; Develop performance metrics and relevant goals / hurdle rates
• Understand current executive bonus scheme and capital expenditure approval process
• Recommend performance metrics for integration into current schemes and processes
• Gain competitive advantage over peer group
• Implement good practice across the business
• Embed sustainability into company culture
QUESTION APPROACH BENEFIT
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SECTOR MANUFACTURE Regional bottler of a portfolio of CSD brands with good understanding of their material sustainability issues with clear set of sustainability goals but struggling to integrate sustainability into the broader business
CITRUS EXPORTER BEVERAGE PRODUCER COMMERCIAL BANK
BY HAVING A COMPREHENSIVE, OBJECTIVE AND FLEXIBLE APPROACH, ROUTE2 IS ABLE TO DEVELOP SOLUTIONS THAT DELIVER LASTING VALUE REGARDLESS OF SECTOR OR MATURITY OF THE SUSTAINABILITY PROGRAMME. SEE BELOW FOR A SNAPSHOT OF SOME OF THE CHALLENGES WE CAN SOLVE
HOW WE WORKSECTOR EXAMPLES
How exposed is our current loan book to the material environmental and social risks and opportunities, how do we best address that exposure now and how could we mitigate against these risks going forward?
• Perform high level assessment of current loan book (sector level only) to isolate ‘hotspots’ / ‘sweetspots’ within portfolio
• Identify and quantify fi nancial impact of material environmental and social issues / opportunities (within representative sample)
• Determine risk levels (and clearly identify drivers of risk) to loan book
• Understand current credit approval process and terms & conditions of loans
• Gain information advantage through deeper understanding of risk / opportunities faced by current and prospective credit customers
• Enhance credit approval process (data, metrics, hurdle rates) and T&Cs of loans (conditions, covenants, etc)
• Determine appropriate client engagement based on environmental and social risks
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
SECTOR SERVICE Commercial bank that understands broad environmental and social risks and opportunities within its customer base but not clear how these risks / opportunities may impact performance of its loan book now and in future
CITRUS EXPORTER BEVERAGE PRODUCER COMMERCIAL BANK
QUESTION APPROACH BENEFIT
BY HAVING A COMPREHENSIVE, OBJECTIVE AND FLEXIBLE APPROACH, ROUTE2 IS ABLE TO DEVELOP SOLUTIONS THAT DELIVER LASTING VALUE REGARDLESS OF SECTOR OR MATURITY OF THE SUSTAINABILITY PROGRAMME. SEE BELOW FOR A SNAPSHOT OF SOME OF THE CHALLENGES WE CAN SOLVE
CONTACTCHALLENGE US
ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION
Route2 is at it’s best when tasked with
answering your specific needs.
Challenge us to fi nd a solution for you.
challengeus@route2sustainability.com
www.route2sustainability.com
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