Navigating Sustainability Frameworks and Tools: A Practical Guide and Tips from Leading Experts

NavigatingSustainabilityFrameworksandTools:A

PracticalGuideandTipsfromLeadingExperts

Daniel Aronson, Valutus @danielaronsonJason Jay, MIT Sloan @jasonjjay

Michael Corrigan, Corporate Value MetricsPhillip Clawson, MassMutual @csrphil

Michael Kraten, Providence College @mkraten

Besuretoengageintheapp:sb16app.com

1)Checkintothesessionbyselectingsession fromthe

programandselecting'checkin'

2)Poseand'up-vote' questions tobeposedduringQ&A:In

session description, select'submitaquestion'

Tools

[email protected]

Context: Why Tools

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Consulting Other

Source: Verdantix

Sustainability Activity

Part 1: Organizational Need

Source: Verdantix, 2013

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Consulting Technology Ad Hoc / Manual

Part 2: Global Need

12%-20% of companies’ goals are in line with what science says we need.

How do we get moving fast enough?

Source:AndrewWinston, PivotGoals

Part 2: Global Need

12%-20% of companies’ goals are in line with what science says we need.

How do we get moving fast enough?

Catalyzing action, internally and externally – and tools are a big part of that.

Source:AndrewWinston, PivotGoals

Part 2: Global Need

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Valuation Goal Setting Research Assesment

Duration (Weeks): Status Quo vs. Using Tools

Status Quo Using Tools

Part 2: Global Need

The majority of an organization’s impact (typically 60%-80%+) is in its value chain – suppliers, customers, partners.

One of the most powerful practices for improvement: Providing tools and processes

Source:ASQ,Deloitte, ISM,CRA

Source:DanielAronson

Measuring & Modeling Sustainability Benefit

SustainabilityValue

CustomerBehavior

EmployeeBehavior

ValueNetworkBehavior

RiskProfile

• Whatistheimpacton

customerbehavior?

• Howistherelationship

betweenorganizationand

thecustomerimpacted?

• Dotheytalkdifferentlyto

others?

• Arebusinessrisksaffected

bytheprogram?

• Regulatoryrisks?

• Doemployeesjoin,

stay,orengage

differentlybecauseof

theprogram?

• Dotheyinteract

differentlywith

customers?

Sustainability initiatives, such as recycling, have effects on customer behavior, employee behavior, value network behavior, and on risk.

• Dosuppliersbehave

differently?

• Dopartners?

• Docompetitors?

Source:DanielAronson

SustainabilityMeasures(Prove)

External:Activity&Results(Prove)

External:Value(Prove)

Internal:Value(Prove)

Internal:Activity&Results(Prove)

• Isthecompanyagoodcitizen?

• Shouldweworkwith/sellto/

buyfromthem?

• Whatarewedoing?

• Areweactinginconcert

withourvalues?

• Arecompanyactivities

protecting investors’

interests?

• Isthecompanydoingwhat

isnecessaryforitssuccess?

• Iswhatwe’redoing

worthwhile?

• Dowedeserveour internal

’licensetooperate’?

Measuring & Modeling Sustainability Benefit

Measurement can help prove sustainability’s value by supplying answers to key questions.

Examples

Examples

Examples

Corporate Social Responsibility: Components, ROI and MeasurementSelected Slides for Sustainable Brands New MetricsNovember, 2016

18 © CSR Lab 2010-2016

Strategic Corporate Social Responsibility is the art of making responsibility profitable and making profitability responsible.

© CSR Lab 2010-2016

1CSR

Framework

2Ways To Measure

3Internal

ROI

4External

ROI

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1 Framework: Winning Combination

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ExternalROICSRInternalROI

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1 Framework: Winning Combination

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ExternalROI

CSR

InternalROI

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Corporate Social

Responsibility Strategy

IEnvironmen

tal Sustainabilit

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Money, Resources

& Time

IIIEthics &

Transparency

IVPeople

(internal)

VLeveraging Value Chain

VIBusiness Practices

1 Corporate Social Responsibility Components

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Corporate Social Responsibility

Strategy

Business Practices

Environmental

Sustainability

Money, Resources &

Time

Ethics & Transparency

People (internal)

Leveraging Value Chain

1 CSR Component: Environmental Sustainability

Carbon Footprint

GHGEmissions

Waste Water

Pollution Energy

Customers’ Impact

Supply/Value-chain’sImpact

© CSR Lab 2010-2016

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How would we recognize these results in measurable terms if we fell over them? So, for example, the rate of low-birthweight babies helps quantify whether we're getting healthy births or not. Third grade reading scores help quantify whether children are succeeding in school today, and whether they were ready for school three years ago.

—Karen Finn, Partner, Results Leadership Group

© CSR Lab 2010-2016

1CSR

Frameworks

2Ways To Measure

3Internal

ROI

4External

ROI

24 © CSR Lab 2010-2016

2 Measurement Drives Strategy

3 Design strategies to achieve desired results

6 Adjust and continuously improve

2 Develop “Theory of Change”

5 Measure and evaluate the impact

1 Identify desired results

4 Invest, and test “TheoryofChange”

Somemeasurewhattheyalreadydoandtrytocapturetheiroutputsandimpacts.Buttoreallydrivechange,youneedto:

© CSR Lab 2010-2016

25 © CSR Lab 2010-2016

2 Types of Measures: Broadly Speaking

• Eg, $20M invested over 5 years in financial education for middle and high school students

• Eg, 5,000 employees volunteered in classrooms

Inputs (things you

do)

• Eg, $20M enabled intensive school-based co-curricular digital financial education course to reach 2M students in 5 years, for 10M hours of aggregated learning

• Eg, 10,000 employee volunteer hours

Outputs (what is done

with the resources)

• Eg, students showed a 53% knowledge gain• Eg, HS graduation rates of participants 27%

higher• Eg, 40% increase in morale indicators and

20% increase in retention rates for employee volunteers

Outcomes (what has changed, impacts)

© CSR Lab 2010-2016

26 © CSR Lab 2010-2016© CSR Lab 2010-2016

“The new currency of legitimacy for business will be outcomes. It’s all about action, delivery and real impact."

—Paul Polman, CEO, Unilever

1CSR

Frameworks

2Ways To Measure

3Internal

ROI

4External

ROI

27 © CSR Lab 2010-2016

3 Pools of Internal ROI

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JDirectROIA. Corporate PerformanceB. Efficiencies &CostReductionsC. NewProducts &MarketsD. IncreasedSalesE. ChallengesSolved

IndirectROIF. Brand, Image&ReputationG. InnovationH. TalentI. KeyInfluencersJ. Risk&LicensetoOperate

28 © CSR Lab 2010-2016

3 Internal ROI: Examples of Direct ROI

• Oxford analyzed 200 academic studies: 90% show good ESG lowers cost of capital; 80% show stock price performance positively correlated with good CSR

A. Corporate Performance

• McKinsey survey: 1994-2011 Dow invested ~$2B to increase resource efficiency and saved $9.8B from reduced energy & wastewater consumption

B. Efficiencies & Cost Reductions • Unilever generates >1/2 of its sales from

developing markets. Signature BOP product, Pureit, a countertop water-purification system (India, Africa & Latin America)

C. New Products & Markets • Unilever “brands with purpose” are growing

at 2X rate• GE Ecomagination has generated $232B in

revenue• IKEA’s “Sustainable Life at Home” line

generates $1B

D. Increased Sales

• The CISCO Networking Academies initiative has solved a key barrier to CISCO’s growth―lack of qualified workers to administer their networks

E. Challenges Solved

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29 © CSR Lab 2010-2016

3 Internal ROI: Examples of Indirect ROI

• A study of what types of news coverage affected evaluation of a firm and intent to purchase and CSR was the only significant factor

F. Brand/Image/ Reputation • United Technologies new jet engine cuts

fuel burn & CO2 emissions by 16%, cuts release of particulates 50%, dramatically muffles engine roar – It’s the future

G. Innovation

• Study found that morale was 55% higher in companies with strong sustainability programs, compared to those with poor ones, and employee loyalty was 38% higher

H. Talent• A study of the gold mining industry found

stakeholder relations can heavily influence land permitting, taxation, & regulatory environment

I. Key Influencers

• In a study of 8K suppliers (to 75 multinationals): 72% said climate change risks could significantly impact their operations, revenue, or expenditures

J. Risk & License to Operate

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30 © CSR Lab 2010-2016

"To be successful in the long term, we must create value not only for our shareholders but also for society."

—Paul Bulcke, CEO, Nestlé S.A

© CSR Lab 2010-2016

1CSR

Frameworks

2Ways To Measure

3Internal

ROI

4External

ROI

31 © CSR Lab 2010-2016

4 External ROI: UN SDGs Lens

© CSR Lab 2010-2016

32 © CSR Lab 2010-2016

4 External & Internal ROI – Theory of Change

Activities Expected ResultsTheory of Change

“TheoryofChange”=“Ifwedo this,weexpecttogetthese results.”

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33 © CSR Lab 2010-2016

4 External ROI

• Based on existing research, current best practices and fresh creative thinking, identify a “Theory of Change”

How Can We Move the Needle?

• Test the “Theory of Change.” Did the strategic actions achieve the desired results?

Is This Theory of Change Correct?

• How much was achieved? Is there a way to improve effectiveness?

How Much Did We Move the Needle?

• This process will help prove and improve the change generatedExternal ROI

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CSRComponentsI Environmental SustainabilityII Money,Resources &TimeIII Ethics&TransparencyIV People(Internal)V LeveragingValueChainVI BusinessPractices

Direct ROIA CorporatePerformanceB EfficienciesC NewProducts/MarketsD IncreasedSalesE ChallengesSolved

‘Intangible’ ROIF Brand/ReputationG InnovationH TalentI KeyInfluencersJ Risk&License toOperate

4 CSR, External & Internal ROI

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§ Nikeembedded sustainability intoitsinnovationprocessandcreated the$1B+Flyknit line,whichusesaspecializedyarnsystem, requiringminimal laborandgenerating largeprofitmargins

§ Flyknit reduceswaste by60% comparedwithregularcutandsew footwear

§ Sinceits launchin2012,Flyknit hasreduced 3.5millionpoundsofwaste andfullytransitioned fromyarntorecycled polyester, diverting182millionbottles fromlandfills

4 External & Internal ROI Case: Nike Flyknit

B.Efficiencies &CostReductions

C.NewProducts&Markets

G.Innovation

ISustainability


VLeveragingValueChain

B. Efficiencies &CostReductionsC. NewProducts&Markets

G.Innov

ation

36 © CSR Lab 2010-2016

CSR Lab Contact

phillipclawsonmanagingdirectorCSRLab

t+16172977001m+16174298677

[email protected]/in/PhillipClawsontwitter:@csrphil

© CSR Lab 2010-2016

YOUR ROADMAP TO MAXIMIZING BUSINESS VALUEWWW.CORPORATEVALUE.NET

WWW.CORPORATEVALUE.NET

• Acloudbasedconsultingandvalueenhancementplatform

• Quantifiesthequalitativefactorsthatdrivefinancialresults,

providingvisibilityontheimpactofenterprisevalue

• Generatesprioritizedroadmapsofrecommendedinitiatives

toimproveunderdevelopedoperations

• Designedtohelpprivatelyheldbusinessownersstrengthen

businesses,achievesustainableprofitablegrowthandincrease

Enterprisevalue70%to100%overaperiodof2to5years.

Market Opportunity

• AM&AA

• Pepperdine Private Market

Research


• 80% turned away

• 40% fail

• 7% at or above Val.

• 60%+ mergers fail


TheOpportunity

ForAdvisoryProfessionalsinAccounting,M&A,PrivateEquity,

Valuation,ExitPlanning&TurnaroundManagementfirms

• Generatesignificantnewadvisory revenuestreamsinValueGrowthServices

• Deliverabroader reviewofqualitativeandquantitativeissues

• Toconverttypicallyretrospectivehistoricalcomplianceservicestoamoreprospectiveforwardthinking growthservices

• Toposition firmastheClient’sMOSTValuedAdvisor

Market Opportunity


Market Opportunity


Market Opportunity


To resolve the Problem

It’s Not all Financial


Focusingonthequalitativefactors

drivingfinancialresultscan:

• alignandstrengthentheorganization;

• improveprofitability;

• enhanceaccesstocapital;

• reduceoverallrisk,andmaximizevalue.

Chasing Quantitative results directlycan adversely impact an organization

Revenue Growth : Cost Cutting : Margin Increases

Morecontrollable,morepredictable,

moresustainable,andmoreeffective

To resolve the Problem

It’s Not all Financial


Focusingonthequalitativefactors

drivingfinancialresultscan:

• alignandstrengthentheorganization;

• improveprofitability;

• enhanceaccesstocapital;

• reduceoverallrisk,andmaximizevalue.

Chasing Quantitative results directlycan adversely impact an organization

Revenue Growth : Cost Cutting : Margin Increases



Market Opportunity


Market Opportunity


Market Opportunity


Market Opportunity


Qualitative Performance

Impact

On

Qualitative Results


• EnableForwardthinkingStrategy

• AccuratelyAssessRisk

• IdentifyUn-Systematic

• Improvedpositionforinnovation

Benefits of Holistic Assessments

Measuring value on improvement

• ProvidesAnalysis&Toolforend-to-endimpact

assessmentinsupplychain

• Methodformeasuringandimprovingsupplychain

transparency



VOP Practitioners around the

country


Methodically,Measurably,Maximizing

Value…ItallbeginswiththeVOP!

[email protected]: 508-870-5805C: 774-244-0909

The VOP


Round 2

CSR LAB CORE COMPETENCIES

CSRStrategy&

Implementation

Strategic

Planning toDrive

ExternalImpact

&InternalROI

Rigorous

Measurementof

ExternalImpact

&InternalROI

Internal&

External

Stakeholder

Engagement

Communication

withExternal

Stakeholders,

Employees,&

Executives

Implementation

(eg,Flagship

Partnership

Management)

Creative

Solutions toCSR

Challenges

Measurement Strategy

EngagingStakeholders

Measuring Outputs & Outcomes

Developing Measures

External ROI Measurement

InternalROIMeasurement

Direct,Proxy, &AnecdotalMeasures

Sampling,Census, &Experiments

DataExcavation& Triangulation

Statistical Analysis

© CSR Lab 2010-2016

© CSR Lab 2010-2016

1

CSR

Frameworks

2

WaysTo

Measure

3

Internal

ROI

4

External

ROI

EXTERNAL ROI EXAMPLES

EXTERNAL ROI EXAMPLES

§ NovoNordisk Diabetes inChina,between 2005and2010:o 14,600jobso Improvedproducts/services providedsaved140Klifeyrs

§ Cemex “Patrimonio Hoy” – Microcredit &supportforhomeimprovement andconstruction inLatin America. 2000-15:o Home improvement for1M,350Knewhomeso Participants build3Xfasterat1/3cost, worth20%moreo Jobsforlocalcraftsmen, andsalesforce(95%women)

§ NovartisSocial Ventures Novartisrecruitsandtrainslocals inremote villages tobecome “health educators” (India,Vietnam,Kenya,Indonesia). InIndia2010-15:o 11Indianstates, health educationà 24Mpeopleo Direct healthbenefits 2.5Mpatients: diagnosis/treatment

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EXTERNAL ROI: BASF EXAMPLE

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EXTERNAL ROI: WALMART EXAMPLE

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ISustainability


VLeveragingValueChain


G.Innov

ation

EXTERNAL & INTERNAL ROI CASE: 3M

© CSR Lab 2010-2016

§ 3M integrates sustainability intoitsinnovationpipeline through“PollutionPreventionPays”program

§ 3M’sNovec firesuppressionfluidsarethefirst viable,sustainable alternative tohydrofluorocarbons

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4 EXTERNAL & INTERNAL ROI CASE: 3M

© CSR Lab 2010-2016

G.Innov

ation§ 3M integrates sustainability intoitsinnovationpipeline through“PollutionPreventionPays”program

§ 3M’sNovec firesuppressionfluidsarethefirst viable,sustainable alternative tohydrofluorocarbons

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EXTERNAL ROI: UN SDGS LENS ACCENTURE RESEARCH

© CSR Lab 2010-2016

"Overthenextthreetofiveyears,howimportant willeach ofthefollowingbeinenablingbusiness tobeatransformative forceforachieving theSDGs?"

© CSR Lab 2010-2016

1

CSR

Frameworks

2

WaysTo

Measure

3

Internal

ROI

4

External

ROI

INTERNAL ROI

INTERNAL ROI EXAMPLES

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Performance§ McKinsey, Deutsch Bank’s analysisof56academic studies:

o HighratingsforESGà lowercostofdebt&equityo 89%ofthestudies showcompanies w/highESGratings

outperformmarket inmid&longterm.1

§ Companies intheCDP’sCarbonDisclosure Leadership Indexsubstantially outperformed theFTSEGlobal5002 between 2005and2012.Companies intheCarbonPerformance LeadershipIndexalsodidbetter.3

§ Arabesque&UofOxford reviewed academic literature onsustainability andcorporateperformance: found90%of200studies analyzedconclude that goodESGstandardslowerthecostofcapital; 88%showthat goodESGpractices result inbetteroperational performance; and80%showthatstockpriceperformance ispositivelycorrelatedwithgoodsustainabilitypractices.


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§ JournalofBusinessEthicsstudyfoundthatfrom2006to2010,thetop100sustainableglobalcompaniesexperienced significantlyhigher meansalesgrowth,returnonassets,profitbeforetaxation,andcashflowsfromoperationsinsomesectorscomparedtocontrol

§ Companiescommittedtosustainabilityachieved“aboveaverage”performanceinfinancialmarketsduring2008recession,translatinginto anaverageof $650millioninincrementalmarketcapitalizationpercompany.Companieswithsuperiorenvironmentalperformanceexperienced lowercostofdebtby40-45basispoints

§ StudiesshowcompanieswithstrongCSRreputations“experiencenomeaningfuldeclinesinsharepricecomparedtotheirindustrypeersduringcrises”vsfirmswithpoorCSRreputationswhosereputationsdeclinedby“2.4-3%;amarketcapitalizationlossof$378Mperfirm”

A. CorporatePerformance


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§ 2015EYGlobal Institutional Investor Surveyof>200institutionalinvestors:

o 59%viewnonfinancial disclosuresas“essential” or“important” toinvestment decisions, upfrom35%in2014

o 62.4%ofinvestors areconcerned about theriskofstrandedassets (i.e. assets that losevalueprematurely duetoenvironmental, social,orotherexternalfactors) andover1/3respondents reportedcutting theirholdingsofacompanyinthepastyearbecause ofthisrisk

§ Since CVSHealth shifted itspurposetoimprovinghealth, itsstockhasoutperformedthat ofitsclosest rival, Walgreens, beating itby50%overthelast fiveyears. Newbusiness andimprovedemployee motivationmorethancompensated forthelossof$2Binrevenue intobacco products

A. CorporatePerformance


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§ "WeMeanBusiness" study estimated averageinternal RORof27%-80%onlowcarboninvestments

§ McKinsey survey:1994-2011Dowinvested ~$2Btoincreaseresourceefficiency andsaved$9.8B fromreduced energy&wastewater consumption

§ In2013,GEhadreduced GHGemissions by32%andwateruseby45%compared to2004and2006baselines,respectively, resulting in $300Minsavings

§ Wal-Martaimed to2Xfleet efficiency 2005à 2015throughbetter routing,truckloading,drivertraining,&advancedtech. Byendof2014:improvedfuelefficiency ~87%compared to2005baseline. In2014,improvements resulted in 15Kmetric tonsofCO2emissionsavoidedandsavings ofnearly$11M

B. Efficiencies &CostReductions

C. NewProducts&Markets


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§ Unilevergenerates >1/2ofitssales fromdevelopingmarkets,withmuchofthat comingfromtheemergingmiddleclass. Itssignature BOPproductisPureit,acountertopwater-purificationsystem soldinIndia,AfricaandLatinAmerica

§ Proctor&Gamble conducted aLCAofitsproductsandfound3%ofUShouseholdelectricityà heating watertowashclothes. In2005,theylaunched aU.S. andEuropean lineofcold-water detergents that require50%lessenergy thanwarmwater washing

C. NewProducts&Markets


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§ Assolarandbatterycosts continue tofall,&mobilemoneychanges thewaypeoplecanpay,off-gridenergy companies insub-SaharanAfricaarehitting commercial scale andattractingsignificant international investment

§ BankofAmericahasissued“green bonds,”whichfundlow-carbonorsustainable businessprojects. Ithandleda$1BbondforSouthernPower,asubsidiaryofcoal-dependent utilitySouthernCompany,tofunditscleanenergy projects; italsobacked a£400MbondtoaidtheLondontransportnetwork’ssustainability upgrades. BOAalsotookabigstep forwardlastyearwithitsCatalytic Finance Initiative (CFI),whichitexpandedthrougheightnewpartnerships withfinancialinstitutions thathavepledged acombined $8Btowardavarietyofsustainable investments aimed at lower-incomecommunities.


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Sales§ Pricepremiums basedonpositiveCSRcanreach20%

§ MIT/Harvard studiesshowthat overallsales revenuecanincrease upto20%duetoCSRpractices

§ AConference Boardstudyfoundrevenues fromsustainableproducts&services grewat6Xtherateofoverallcompanyrevenues 2010-2013,for12members ofS&PGlobal100sampled (Singer,2015)

§ Unileversaysthat their“brandswithpurpose”aregrowingat twice therate asothers intheirportfolio

§ Through2015,GEinvested $17Binclean tech R&DthroughEcomagination generating $232Binrevenue

§ IKEA’s“Products foraMoreSustainable LifeatHome” linenowgenerates $1B asdetailed inGreenGiants


© CSR Lab 2010-2016

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TheCISCONetworking Academies initiative hassolvedakeyrestrictortoCISCO’sgrowth―schools lacked financialandhumanresources tomanage theirnetworks.


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Reputation§ Accenture’s consumer studyfoundthatconsumers expect

more transparency &tangible globalimpact fromcompanies&canchoose frommanysustainable, competitively priced,highqualityproducts

§ AstudypublishedinCorporateReputation Review foundthatnews coverage onenvironmental &social responsibilitywas theonlysignificant factor (amongmanycategories ofnewscoverage) thataffected respondents’ evaluation ofafirm&intenttobuy

§ Nearly2/3 ofconsumers across6internationalmarketsbelieve they“have aresponsibilitytopurchaseproductsthataregoodfortheenvironment andsociety” — 82%inemergingmarkets and42%indevelopedmarkets, accordingtoaGlobeScan/SustainAbility/BBMG survey


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Reputation§ InaDeloitte studyonthefood&beverage industry,23%of

consumers surveyedchoose oneormoreoftheirshoppingdestinations basedonSocial Impact attributes (suchas safety, social impact, andtransparency)

§ InaJournalofConsumerResearch study,consumers perceive ahigherlevelofproductperformance inproductsfromsustainable companies andsustainabilityinformationhasasignificantly positive impact onconsumers’evaluation ofacompany, which translates intopurchaseintent accordingtoresearchpublishedintheJournalofBusiness Ethics

§ Consumers inapost-recession era areshiftingpurchasingdecisions tobrandswithintegrity,social responsibility,andsustainability attheircore


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Innovation§ UnitedTechnologies hasanewcommercial jetenginethatcutsfuelburnandcarbondioxideemissionsby16%,slashesthereleaseofparticulates inhalf,anddramatically mufflesengine roar.Foreachplane,thatmeans3,600fewermetric tonsofcarbondioxidegeneratedannually,$1million inannualsavingsonfuel,and500,000fewerairportneighborswhowillheareachtakeoff.

§ UTCspent20yearsand$10billiondevelopingthetechnologyforcommercial aircraft.UTChasreceivedorderstoequip4,100planes,from70customersinmorethan30countries.A GE partnershiphasdevelopedacomparablyefficientconventionalengine,called theLeap.


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TalentCSRcanincrease employee loyalty,efficiency, andproductivityandimproveHRstatistics related torecruitment, retention,andmorale.

§ Research inthe JournalofOrganizational Behaviorfoundthat 21st century employees arefocusingmoreonmission,purpose,andwork-lifebalance. Companies that invest insustainability initiatives tendtocreate sought-after cultureandengagement duetocompany strategy focusingmoreonpurposeandprovidingvaluetosociety

§ Thesame studyfoundthatcompanies thatadoptedenvironmental standards haveseen a16%increase inproductivity overfirmsthat didnot


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TalentCompanies whoembedsustainability incorebusinessstrategytreat employees ascritical stakeholders. Employees are proudtoworkthere andfeel partofa broadereffort.

§ SHRM/BSR/Aurosooya studyfoundthatmoralewas 55%better incompanies withstrongsustainability programs,compared tothosewithpoorones, andemployee loyaltywas38%better

§ Companies withgreater CSRperformance:o Canreduceaverage turnover overtimeby25-50%o Can reduceannualquitrates by3-3.5%, saving

replacement costs upto90%-200% ofanemployee’sannualsalaryforeach retained position


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InfluencersA study ofthegoldminingindustryintheStrategicManagement Journalfoundthat stakeholder relationscanheavily influence landpermitting, taxation, andtheregulatoryenvironment, thusplayingasubstantial roleindeterminingwhether afirmhastherighttotransformgoldintoshareholdercapital.1

Fromthe abstract: “Weprovidedirect empirical evidenceinsupportofinstrumental stakeholder theory'sargument thatincreasingstakeholder supportenhancesthefinancialvaluationofafirm,holdingconstanttheobjective valuationofthephysicalassets underitscontrol.”2


© CSR Lab 2010-2016

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IJ J. Risk&License to

Operate§ McKinsey reports risk/valueatstake fromsustainability

concerns canbeasahighas70%ofEBIT

§ InaCDP/BSRstudyof8Ksuppliers(to75multinationals):72% saidclimate change riskscouldsignificantly impacttheiroperations, revenue,orexpenditures

§ Companies (eg,Mars,Unilever, Nespresso) invest incertification (eg,Rainforest Alliance)tomitigate risks&helpsuppliersdealwithsustainability challenges. Increasesstability, butalsoimprovesproductivity &NetIncome. AstudyfoundRainforest Alliancecertified cocoa farmersfromCote d’Ivoirehad:o 72% increase inyield/hectareo 257% increase innet income/hectare


© CSR Lab 2010-2016

AB

C

DEF

G

H

IJ J. Risk&License to

Operate§ Bunge, reported a$56millionquarterly loss initssugarand

bioenergysegments duetodroughtin2010

§ 2011floodinghurt160Thaitextile cos,halted~1/4ofThailand’s garment production, increasing globalprices by28%

§ Water-related risksthreaten tostrandbillionsformining,oil,&gascompanys. Eg,socialconflict related todisruptionstowater supplies inPeruhasresultedintheindefinite suspensionof$21.5billion inminingprojectssince 2010

§ Thereisalitanyofcompanies whofelldownononeaspectofCSRandhadtheir license tooperate seriouslyimpaired(eg,WellsFargo,Toyota, BP)orlost itcompletely (eg,Enron,Andersen,WaMu)

APPENDIX

Corporate Social

Responsibility

Strategy

I

Environmenta

l

Sustainability

II

Money,

Resources&

Time

III

Ethics&

Transparency

IV

People

(internal)

V

Leveraging

ValueChain

VI

Business

Practices

CORPORATE SOCIAL RESPONSIBILITY COMPONENTS

© CSR Lab 2010-2016

I

II

IIIIV

V

VI

CorporateSocial

Responsibility

Strategy

Business

Practices

Environment

al

Sustainability

Money,

Resources&

Time

Ethics &

Transparency

People

(internal)

Leveraging

ValueChain

CSR COMPONENT: ENVIRONMENTAL SUSTAINABILITY

Carbon Footprint

GHGEmissions

Waste Water

Pollution Energy

Customers’ Impact

Supply/Value-chain’sImpact

© CSR Lab 2010-2016

CorporateSocial

Responsibility

Strategy

Environmental

Sustainability

Money,

Resources&

Time

Ethics&

Transparency

People

(internal)

Leveraging

ValueChain

Business

Practices

CSR COMPONENT: MONEY, RESOURCES & TIME

Strategic Philanthropy

Non-$Resources

GrassrootsVolunteering

Skills-basedVolunteering

Cause Marketing

Strategic Spend

Sponsorships In-kind Giving

© CSR Lab 2010-2016

CorporateSocial

Responsibility

Strategy

Money,

Resources&

Time

Ethics &

Transparency

People

(internal)

Leveraging

ValueChain

Business

Practices

Environmental

Responsibility

CSR COMPONENT: ETHICS & TRANSPARENCY

Business Ethics Governance

ReportingSocial&Environmental

Impact

HumanRights

ResponsibleInvesting

Advocacy

© CSR Lab 2010-2016

CorporateSocial

Responsibility

Strategy

Ethics&

Transparency

People

(internal)

Leveraging

ValueChain

Business

Practices

Environmental

Responsibility

Money,

Resources&

Time

CSR COMPONENT: PEOPLE (INTERNAL)

Fair Pay & Benefits

Work-LifeBalance

Development &Advancement

Diversity&Inclusion

Employee Health&Safety

Supporting Volunteerism

Employee Assistance

Training

© CSR Lab 2010-2016

CorporateSocial

Responsibility

Strategy

People

(internal)

Leveraging

ValueChain

Business

Practices

Environmental

Responsibility

Money,

Resources&

Time

Ethics&

Transparency

CSR COMPONENT: LEVERAGING VALUE CHAIN

B2C Customers B2BCustomers

Suppliers Vendors

Sphere ofInfluence

Competitors

Leading Collaborations

InspiringOthers

© CSR Lab 2010-2016

CorporateSocial

Responsibility

Strategy

Leveraging

ValueChain

Business

Practices

Environmental

Sustainability

Money,

Resources&

Time

Ethics&

Transparency

People

(internal)

CSR COMPONENT: BUSINESS PRACTICES

Loan Portfolio DepositPortfolio

CRA Values-basedProducts

Thisisabouttheimpactofcoreoperations,products andservicesandassuch,variesgreatlybybusiness.Forabankthiscouldinclude towhomandhowtheylend, wheretheylocatebranches,whether theyhelpunbankedpopulations orarepredatory, iftheysupport greenbuilding,etc.

© CSR Lab 2010-2016

TYPES OF MEASURES: MORE SPECIFICALLY

• Eg,inputs,outputs,directoutcomeslikenumberofparticipantsgettingintocollege,dollarssaved,etc.

Direct

Measures

• Eg,thereisno“employeemoralethermometer”tomeasuremorale,buttherearecausallyrelatedmeasuresliketimeliness,attritionandsickdays

Proxy

Measures

• Proxymeasuresalonecanbeimperfect.Individually, timeliness,attritionandsickdaysdon’tmeasuremorale,buttheyhavedifferent“noisepatterns”andtriangulatingthemcancreateagoodindicatorofmorale

Triangulated

Measures

• Therecanbedeeppersuasivepowerinanecdotes.Individualstoriesoftheimpactonpeople,communities,departments,etc.canbeincrediblypotent

Anecdotal

Measures

© CSR Lab 2010-2016

TECHNIQUES FOR GATHERING & ANALYZING DATA

• Sampling:Identifyrepresentativesubgroupsandusedatagatheringtechniques(eg,observationorsurveys)togleandatathatcanbeappliedtothewholegroup

• Census:Collectdatafromanentirepopulation

Sampling&

Census

• Identifyanexisting“longitudinaldivergence”inthepopulation thatyoucanuseasanaturalexperiment―or―designanintentionalexperiment,comparingawell-matchedcontrolgroupandexperimentalgroup

Experiments

• Often,relevantdataisalreadybeingcollected(eg,annualemployeesurveys,anonprofit’sownresearchontheirimpact,datacollectedbygovernmentagenciesandadvocacygroups,etc.)

FoundData

• Regression• BayesianStatistics• DifferenceinDifferencesAnalysis,etc.

Statistical

Analysis

© CSR Lab 2010-2016

KEY MEASUREMENT CHALLENGES & HOW TO OVERCOME

• Manyorganizationslacktheexpertiseandcapacitytomeasureimpact,andoftenfacedemandsforvaryingmetricsfrommultiplestakeholders

• Manycompanieshavelimitedbudgetformeasurement

Capacity/

Resources

• Itappearsdifficulttomeasurethevalueoflesstangiblevariables(eg,morale),butitispossible

• Notmeasuringgivesthemtheonlyvaluethatweabsolutelyknowtheycan‘thave:zero

Intangibility

• Eg,decisionsonhavingmoreefficientdatacentersthatonlylookatthepowercostreductionsmissmostofthebenefit(75%oftheROIisfromrent/spacesavings)

• Unknownrelationships(eg,treecoveragereducescrime)

HiddenValue

• Standardization• SystemsIntegration• Establishing&Refining

NewMetrics

Overcoming

These

Measurement

Challenges

• Triangulation• DataExcavation• Uncovering HiddenValue• Investment&Training

© CSR Lab 2010-2016

KEY MEASUREMENT CHALLENGES & HOW TO OVERCOME

• Itcanbechallengingtoattributespecificimpact• Itcanbedifficulttodemonstratedirectcausality

Attributing

Impact&

Causality

• Manylargerchallenges(eg,persistentpoverty)arecomplexandareinfluencedbyawidesetoffactors(eg,education,transportation,jobavailability,etc.)andactors(government,foundations,nonprofits,etc.)

Complexityof

Challenges

• Toooften,thoseaskedtomeasurearenotinvolvedindesigningthemeasurementandevaluationplanLackofBuyIn

• Makelargerinvestments• Utilizeproxymeasures• Acknowledgeuncertainty

Overcoming

These

Measurement

Challenges

• Finddiscreteindicators• Engageallstakeholders• Fundmeasurement

© CSR Lab 2010-2016

BUILDING EXCELLENCE: KEY SCOPING QUESTIONS

• Whydoyouwanttomeasureandevaluateyourefforts?Confirmation?Improvement?Credibility?Publicity?Whatdoyouwanttoseeinreturn?

Why

• Whatdoyouwanttomeasureandevaluate?Outputsandinputs?Externalimpact?InternalROI?Overallimpactand/orimpactofspecificinitiatives?

What

• Whatdepthofmeasurementdoyouwanttoengageinforeachofthese?Depth

• Howmuchmoney/timedoyouwanttoinvestinmeasurement/evaluation?Investment

© CSR Lab 2010-2016

BUILDING EXCELLENCE: KEY SCOPING QUESTIONS

• Whatareothersimilarcompaniesdoingvis-à-vismeasurement?Doyouwanttoleadorfollow?

Competitive

Benchmarking

• Whatisthecapacityofyourpartnerstohelpyoumeasureyouractivityandimpact?

Partner

Capacity

• Whatareyoualreadymeasuring?Wherecanyou findexistingmeasures(founddata)?Whatisyourcurrentbaseline?

Existing

Measures

• Forallyourexistingdata(andanynewmeasuresyoudecidetocreate),howgoodaretheABCDEs?Availability;Believability;Coverage(broadenough?);Depth (canyoudrilldownfarenough?);Execution

ABCDEs

© CSR Lab 2010-2016

BUILDING EXCELLENCE: KEY STEPS FOR SUCCESS

• Basedontheanswerstothepreviousscopingquestions,buildintothenextstrategicplancomprehensivemeasuresandevaluationalignedwiththeplan’sspecificgoalsandtargets

Building

aPlan

• Startbymeasuringinputsandoutputs• Ifdesired,measureexternalimpactandinternal

ROI• Evaluatethesuccessofyoureffortsagainstgoals

Measuring&

Evaluating

• Usemeasurementandevaluationtoinformstrategyadjustmentsandcontinuousimprovements

• Reportandcommunicateyour resultstransparently

Continuous

Improvement

&Reporting

• RobustmeasurementandevaluationthatdrivesROI(internal&external),supportscontinuousimprovementandhelpscapturecompellingstories

EndGame

© CSR Lab 2010-2016

RESOURCES & LINKS, PAGE 1Resources andLinks:§ TheComprehensive BusinessCaseforSustainability(HBR10.21.16)

1. CreatingSharedValue(HBRJan2011)2. TheGood,theBad,andtheSuccessful–HowCorporateSocialResponsibilityLeadstoCompetitiveAdvantageandOrganizationalTransformation(JournalofChangeManagement2013)3. CSRAnImplementationGuideforBusiness(IISD2007)4. Spinninggold:Thefinancialreturnstostakeholderengagement(StrategicManagementJournal,9.20.2013)5. Profitswithpurpose:Howorganizingforsustainabilitycanbenefitthebottomline(McKinsey,July2014)6. MobilizingSuppliersforClimateResilience:CDP2015-2016SupplyChainReport(BSR,1.25.2016)7. Howcanresiliencepreparecompaniesforenvironmentalandsocialchange?(PWCResilience,AJournalofStrategyandRisk,2014)8. PhysicalRisksFromClimateChange- Aguideforcompaniesandinvestorsondisclosureandmanagementofclimateimpacts(CERES,May2012)9. FromtheStockholdertotheStakeholder:HowSustainabilityCanDriveFinancialOutperformance(Arabesque,March2015)10. RainforestAllianceCertificationOnCocoaFarmsInCôteD’Ivoire(RainforestAlliance,8.6.2012)11. Water shortageshutsCoca-ColaplantinIndia(FinancialTimes,6.19.2014)12. Aworldwithoutwater(FinancialTimes,7.14.2014)13. IsEnvironmentalPerformanceaDeterminantofBondPricing?EvidencefromtheU.S.PulpandPaperandChemicalIndustries(ThomasSchneider,6.27.2011)14. 3M’sSustainabilityInnovationMachine(HBR,AndrewWinston,5.15.2012)15. 3M™Novec™productsaddresstheneedforsafe,sustainableandsmartchemistry- withoutcompromisingworldclassperformance(3m.com)16. GreenGiants:HowSmartCompaniesTurnSustainabilityinto Billion-DollarBusinesses(FreyaWilliams,2015)17. FourYearsofNikeFlyknit(nike.com,2.21.2016)18. Tide+ColdwaterCleanProductPage(tide.com)19. GreenandCompetitive:EndingtheStalemate(HBR,Sept1995)20. McKinseyonSustainability&ResourceProductivity,Number4(McKinsey.com,November2016)21. TheClimateHasChanged:Whybold,lowcarbonactionmakesgoodbusinesssense(WeMeanBusiness,2014)22. Thebusinessofsustainability:McKinseyGlobalSurveyresults(McKinsey,2011)23. GEReducesFreshwaterUse45%(EnvironmentalLeader,4.9.2015)24. Walmart2015GlobalResponsibilityReport

RESOURCES & LINKS, PAGE 2Resources andLinks:§ TheComprehensive BusinessCaseforSustainability(HBR10.21.16)

25. SustainabilityPracticesandCorporateFinancialPerformance:AStudyBasedontheTopGlobalCorporations(JournalBusinessEthics,June2012)26. "Green"Winners:Theperformanceofsustainability-focusedcompaniesduringthefinancialcrisis(atkearney.com,2009)27. ProjectROIReport:DefiningtheCompetitiveandFinancialAdvantagesofCorporateResponsibilityandSustainability(IssueLab - FoundationCenter,7.9.2015)28. Tomorrow’sInvestmentRules2.0:Emergingriskandstrandedassetshaveinvestorslookingformorefromnonfinancialreporting(EY,2015)29. Theconsumerstudy:Frommarketingtomattering:howcompaniescancreategreaterawarenessandtrustinconsumersaroundsustainabilitybyusingthreeimperatives(Accenture,2016)30. UnderWhatConditionsDotheNewsMediaInfluenceCorporateReputation?TheRolesofMediaDependencyandNeedforOrientation(CorporateReputationReview,Jan2010)31. Re:ThinkingConsumption-- ConsumersandtheFutureofSustainability(Globescan,Nov2012)32. Capitalizingontheshiftingconsumerfoodvalueequation(Deloitte,2016)33. DoingWellbyDoingGood:TheBenevolentHaloofCorporateSocialResponsibility(JournalofConsumerResearch,1.21.2015)34. EnvironmentalandEconomicDimensionsofSustainabilityandPriceEffectsonConsumerResponses(JournalofBusinessEthics,Dec 2011)35. SpendShift:HowthePost-CrisisValuesRevolutionisChangingtheWayWeBuy,Sell,andLive(JGerzema,MD'Antonio,2011)36. Unileversays'brandswithpurpose'aregrowingattwicethespeedofothersinportfolio(Campaign,5.5.2015)37. Corporatesocialresponsibilityandconsumers'perceptionofprice(SocialResponsibilityJournal,2010)38. BuyingGreen?FieldExperimentalTestsofConsumerSupportforEnvironmentalism(MITPoliticalScience,May2012)39. 9WaysGEExecutedItsRadicalGreenReinvention(Fastcoexist,12.10.2015)40. Environmentalstandardsandlaborproductivity:Understandingthemechanismsthatsustainsustainability(JournalofOrganizationalBehavior,9.11.2012)41. BuildingaCultureforSustainability:People,Planet,andProfitsinaNewGreenEconomy(JeanaWirtenberg,Jan2014)42. AdvancingSustainability:HR’sRole.AResearchReportbytheSocietyforHumanResourceManagement,BSRandAurosoorya (2011)43. CSRasaDriverofEmployeeEngagement(CBSRBlog,3BL,5.18.2012)44. Corporatesocialresponsibilityandlaborturnover(CorporateGovernance:Theinternationaljournalofbusinessinsociety,2010)45. RetainingTalent:AGuidetoAnalyzingandManagingEmployeeTurnover(SHRMFoundation,2008)

RESOURCES & LINKS, PAGE 3Resources andLinks:§ https://sustainabledevelopment.un.org/post2015/transformingourworld§ AcceleratingAction:CDPGlobalWaterReport2015§ https://www.accenture.com/us-en/insight-ungc-sustainable-development-goals§ https://www.accenture.com/us-en/insight-un-global-compact-ceo-study§ https://www.accenture.com/us-en/insight-ungc-valuing-sustainability§ https://www.accenture.com/t20160920T213357__w__/us-en/_acnmedia/Accenture/next-gen-2/insight-ungc-ceo-study-page/Accenture-UN-Global-Compact-Accenture-Strategy-CEO-Study-

2016.pdf#zoom=50§ https://www.basf.com/en/company/sustainability/management-and-instruments/sustainable-solution-steering.html§ https://www.cdp.net/en/articles/climate/walmarts-science-based-target-a-game-changer§ http://www.cbsnews.com/news/walmarts-big-green-bet-local-produce-locavore-sustainable-goods-human-dignity-workers/§ http://news.walmart.com/2016/11/04/walmart-offers-new-vision-for-the-companys-role-in-society§ McKinsey-- Profitswithpurpose:Howorganizingforsustainabilitycanbenefitthebottomline§ http://www.sustainablebrands.com/news_and_views/waste_not/sustainable_brands/dupont_pg_now_powering_tide_cold_water_laundry_detergent§ http://us.pg.com/sustainability/environmental-sustainability/brand-efforts§ https://www.theguardian.com/sustainable-business/prahalad-base-bottom-pyramid-profit-poor§ http://csr.cisco.com/casestudy/networking-academy§ http://www.cisco.com/assets/csr/pdf/NetAcad_Exec_Brief.pdf§ http://www.unesco.org/education/hed/quality/h_muraj.pdf§ http://www.3m.com/3M/en_US/sustainability-us/goals-progress/§ http://www.3m.com/3M/en_US/sustainability-report/goals-and-results/§ https://www.greentechmedia.com/articles/read/Meet-the-Optimistic-Entrepreneurs-Serving-the-Energy-Poor-in-Africa§ http://beta.fortune.com/change-the-world/?iid=sr-link1§ http://fortune.com/2016/08/18/change-world-companies-profit/?iid=recirc_ctwlanding-zone2§ http://fortune.com/2016/08/18/change-the-world-essay/?iid=recirc_ctwlanding-zone2

Sustainability Risk and Enterprise Risk Management: Impact on Valuation Estimates

Decision Analysis

Michael Kraten, PhD, CPA ! All Rights Reserved Under Copyright Law

Agenda(risk and value)

✔ Scenario Analysis

✔ Catastrophic Risk

✔ Prevention Activities

✔ Response Activities

What is the color of the energy storage batteries on the international space station?

Michael Kraten, PhD, CPA All Rights Reserved Under Copyright Law

Scenario Analysis(cash flows)

The sum of the discounted future cash flows of an investment

opportunity is $100.

If Irving Fisher were alive today, what valuation would he assign to

this opportunity?

Fisher (1867 – 1947) first formalized the NPV formula in his 1907 classic text “The Rate Of Interest.” He also gained infamy for his 1929 pre-crash assertion that the stock market had

reached “a permanently high plateau.”


Scenario Analysis(single value scenario)

The U.S. Coast Guard conducted “controlled burns” during the Deepwater Horizon crisis.

ScenarioProbability

ScenarioValue

ExpectedValue

100% $100 $100

How would the assessment of a 10% risk of a catastrophic event with a scenario value of negative

$800 affect your decision?


Catastrophic Risk(single risk scenario)

ScenarioProbability

ScenarioValue

ExpectedValue

90% $100 $90

10% ($800) ($80)

$10


Vladimir Lenin (1870 – 1924) was the first national leader in history to nationalize energy assets during a time of extreme social instability.

How would the assessment of an independent 1% risk of a

catastrophic event with a scenario value of negative $5,000 affect your

decision?

Catastrophic Risk(double risk scenario)

ScenarioProbability

ScenarioValue

ExpectedValue

89% $100 $89

10% ($800) ($80)

1% ($5,000) ($50)

($41)


The Exxon Valdez oil spill hastened the advent of double hull design technologies.

What if existing preventive control technology can reduce the 10%

scenario to 9%? What if that control costs $10?

Prevention Activities(existing technology)

ScenarioProbability

ScenarioValue

ExpectedValue

90% $90 $81

9% ($810) ($73)

1% ($5,010) ($50)

($42)


Advanced sensors can automate the nuclear plant shutdown process.

What if new preventive control technology can reduce the 10%

scenario to 4%? What if that control costs $15?

Prevention Activities(new technology)

ScenarioProbability

ScenarioValue

ExpectedValue

95% $85 $81

4% ($815) ($33)

1% ($5,015) ($50)

($2)


World Trade Center reconstruction lagged for years while insurers debated whether the insurable event constituted one event or two.

What if a “political event” insurance policy can improve the value loss of the 1% scenario to $5? What if the

policy premium costs $40?

Response Activities(insurance)

ScenarioProbability

ScenarioValue

ExpectedValue

95% $45 $43

4% ($855) ($34)

1% ($35) ($0)

$9


“Chairman Mao is the great savior of the revolutionary peoples of the world.”

What if a series of social investments are made in place of the insurance policy?

What if these investments only cost $10, but only improve the scenario value to negative

$1,000?

Response Activities(social investments)

ScenarioProbability

ScenarioValue

ExpectedValue

95% $75 $71

4% ($825) ($33)

1% ($1,010) ($10)

$28


How badly would we have misjudged the expected value of the investment opportunity without this decision analysis involving risk?

Content Credits(thank you, wikipedia!)

With the exception of the images that are included in this slide set, all rights to the intellectual content are reserved by Michael Kraten, PhD, CPA.

All images that have been included in this slide set are available for public use, in accordance with the terms and conditions that are described on the following web pages:

> http://en.wikipedia.org/wiki/File:ISS_impact_risk.jpg.

> http://en.wikipedia.org/wiki/File:Irvingfisher.jpg.

> http://en.wikipedia.org/wiki/File:Defense.gov_photo_essay_100506-N-6070S-346.jpg.

> http://en.wikipedia.org/wiki/File:Lenin_CL.jpg.

> http://en.wikipedia.org/wiki/File:Exval.jpeg.

> http://en.wikipedia.org/wiki/File:Reactor_shutdown_xe_chart_en.png.

> http://en.wikipedia.org/wiki/File:Twin_Towers-NYC.jpg.

> http://en.wikipedia.org/wiki/File:World_revolution1.jpg.
