Business Case Development
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Research
Research on Business Value from Sustainability
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Accelerating to net-zero emissions (WBCSD) — This brief explains how integrating and bundling decarbonization solutions can unlock synergies and greater environmental and financial benefits (including operational emissions reductions of up to 50%). The brief defines integrated approaches, provides examples, and outlines three practical recommendations for implementation. It was co-authored by several companies and organizations, including CEF member Schneider Electric. (Dec 2023)
The Case for Beyond-Value-Chain Actions (WBCSD and Bain & Company) — Highlights the value of Beyond-Value-Chain Actions (BVCA) — actions or investments outside a company’s physical value chain — in mobilizing private finance for climate change mitigation, biodiversity conservation, and addressing inequality. The guidance makes the business case for BVCA (such as achieving brand differentiation and securing a social license to operate) as well as detailing three types of BVCA: direct impact initiatives (e.g. ecosystem restoration), capacity-building programs (e.g. skills development), and innovative solutions (e.g. program design enhancements and R&D). (Dec 2023)
ESG and Global Investor Returns Study (Kroll) — Analyzes the historical returns of more than 13,000 publicly traded companies and their ESG ratings to determine the correlation. The study looked at companies in four geographic regions, 12 countries/markets, and 11 industries. It found that companies with better ESG ratings had annual returns 50% higher than those with lower ratings over the 2013−2021 period. (Sept 2023)
Africa Environment Outlook for Business (United Nations Environment Programme (UNEP)) — Explores sustainable business opportunities in Africa that address the “Triple Planetary Crisis” of biodiversity loss, climate change, and pollution. The report focuses particularly on circularity, providing solutions that simultaneously address each of the three crises while also supporting social inclusiveness and contributing to economic prosperity. The report discusses several realms of opportunity, including: renewables and critical minerals; the marine ecosystem and ecotourism; and circularizing sectors like agriculture, automotive, and fashion. The report also explores the significant potential of climate financing to help fill Africa’s annual funding gap of $213.4 billion and improve the continent’s resilience. (Aug 2023)
Do ESG Efforts Create Value? (Bain & Company and EcoVadis) — Investigated how ESG activities (such as setting ESG targets, embedding sustainability into management processes, sustainable procurement) correlate with both ESG outcomes and financial performance. The research found that along with environmental and social benefits, ESG activities are associated with encouraging revenue growth and EBITDA margins. Essentially, ESG activities affect ESG outcomes and improve financial and operational results, including profitability, and customer and employee satisfaction. Some examples (April 2023):
- Leaders in sustainable procurement have a median EBITDA margin of 14% while laggards have 11%;
- Those with the most women on executive teams have a median EBITDA margin of 12% vs. 9% for the least women;
- Companies where 81% of employees or more would recommend their workplace to a friend have a median EBITDA margin of 16%, vs. 10% where 60% or less would.
The ESG Conundrum (IBM) — Reports that more than 70% of executives view ESG as a revenue enabler, and 45% expect ESG efforts to add to profitability. The study surveyed 2,500 executives on ESG strategy, approach, and operationalization, and 20,000 consumers regarding their attitudes toward sustainability. Two-thirds of consumers surveyed said that environmental sustainability and social responsibility are very or extremely important to them. More than 40% said they were willing to accept a lower salary to work for a company that shares these values. But only 20% of consumers reported that they trust company statements about environmental sustainability, down from 48% in 2021. (April 2023)
The Global Green Economy: Capturing the opportunity (Arup and Oxford Economics) — The green economy could create new industries worth $10.3 trillion to the global economy by 2050, according to a new report by Arup and Oxford Economics. This includes climate change mitigation and adaptation, biodiversity and preservation, circularity and other aspects of sustainability. The report explores five major new green markets that are emerging: electric vehicle manufacturing; renewable electricity generation, clean energy equipment, renewable fuel production, and green finance. (Jan 2023)
Winning in Green Markets: Scaling Products for a Net Zero World (Alliance of CEO Climate Leaders) — Demonstrates how green market leaders can thrive by taking an early market position and investing in green technologies, even if they currently come at a cost premium. With consumers willing to pay more for sustainable products, early adopters in both upstream and downstream parts of key value chains are already capturing price premiums. Demand for green materials could also outpace supply. This “green scarcity” may mean producers of green materials could capture premium prices for these highly demanded materials. The report argues that to succeed in green markets, companies should design a green target portfolio, shape their value proposition, identify target segments, create a green pricing strategy, and work to unlock scaling barriers. (Jan 2023)
Emission reductions influencing equity value (Lazard Climate Center) — Analyzes data from 16,000 global companies from 2016-2020 and finds that “the more greenhouse gases a company emits, the lower its stock price relative to its earnings,” according to Lazard's Peter Orszag and Zachery Halem. The effect is more pronounced with large companies, and European industrial companies with a market cap over $50 billion see the price-earnings multiple fall 18% for every 10% increase in carbon emissions. (Dec 2021)
US companies that signed the 2019 Business Roundtable (BRT)
“Statement on the Purpose of a Corporation”
have seen 41% of financial returns, whereas companies on the Russell 1000 Index have seen 31% of returns, according to JUST Capital.
BRT signatories also have 22.3% less GHG emissions, are twice as likely to tie ESG performance to executive compensation, are 3x more likely to report having DEI targets, pay their workers 5.3% more, and give 370% more in charitable contributions. (Aug 2021)
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“Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation” (World Economic Forum, September 2020) presents 21 core and 34 expanded metrics that offer a common approach for companies to measure sustainable value creation. The metrics were developed during a six-month open consultation process.
“Does It Pay for Firms to Go Green?” (LSE Grantham Research Institute on Climate Change and the Environment, June 2020) examines whether there are linkages between environmental policy and economic performance, the impact environmental innovation has on the bottom line, and how financial markets respond to more stringent environmental regulations. Key findings included the following:
- Policies that help create clearly distinguished green goods and production processes may further encourage the shift into green markets, but governments must support financing costs for green investments and encourage investment in new technologies along the supply chain to ensure ‘going green’ is economically viable.
- Firms that diversify into the green market space have higher profit margins than other firms, but not higher profitability as measured using accounting rate of return. However, firms producing green goods and services tend to have lower asset turnover than other firms. The lower operating efficiency of assets explains why higher profit margins do not translate into higher profitability (return on investments).
- Financial markets responded positively to the signing of the Paris Agreement. However, the Paris Agreement has not triggered investors to divest substantially from fossil fuel firms, which is a signal that additional policies are likely needed to establish clear incentives for decarbonization.
"Five ways that ESG creates value" (By Witold Henisz, Tim Koller, and Robin Nuttall, McKinsey, Nov 2019)
"Corporate Sustainability at a Crossroads: Progress Toward Our Common Future in Uncertain Times” (MIT Sloan Management Review and The Boston Consulting Group, May 2017). An eight-year corporate sustainability research effort with responses from more than 60,000 business practitioners and 150 thought-leader interviews. Findings:
- Companies that focus on material issues reported up to 50% added profit from sustainability activities, compared to those that do not.
- Building sustainability into business units can double an organization’s chance of profiting from its sustainability activities.
“22 Research Studies Proving the ROI of Sustainability” (Sustainable Brands, 2016) offers a collection of research studies that demonstrate the positive return on investment (ROI) of sustainability. In particular, the studies demonstrate the value of sustainability to company revenue, stock performance, product-level profitability, and brand reputation, as well as the benefits of accounting for externalities, reducing risk exposure, and more.
Tools
Building the Business Case
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Sustainable Business Now (GlobeScan, Leaders on Purpose, and SAP) — This new platform showcases how leading companies from around the world are tackling sustainability challenges, providing replicable, scalable best practices to users. The platform provides case studies from a variety of industries, addressing issues such as decarbonization, inequality, and how to improve and scale social programs. (Jan 2023)
Board Playbook: The Case and Process for Adopting Benefit Governance as a Requirement for B Corp Certification (B Lab) helps business leaders navigate the journey to adopt the legal structure of becoming a benefit corporation by laying out the process and demystifies the risks. (February 2021)
“The Decarbonizing Portfolio'' (Credit Suisse) presents the investment case for preparing portfolios for the shift to a low-carbon economy. The report also outlines various types of sustainable and impact investing approaches to ensure decarbonized portfolios actually benefit the planet and the bottom-line. “Decarbonizing your portfolio is not the same as building a portfolio that helps to decarbonize the world. While investors should seek to do both, these goals can come into conflict.” (February 2021)
Essential Guide to Management Information (A4S, July 2020)) offers guidance to help finance professionals integrate social and environmental information into core management information processes.
NYU Stern Center for Sustainable Business "Return on Sustainability Investment” (ROSI) Framework and tools
Measuring ROI+ and Building More Effective Business Cases: Summary of Lessons Learned to Date (CEF, 2017)
Building the Business Case for Sustainable Business Decisions (Special in-person CEF meeting, November 2017) Meeting Notes
Driving Sustainable Decisions - Outlines a methodology developed with NYU Stern for making stronger business case. Includes a free, self-directed online learning modules - walk you through the "Building a Better Business Case for Investments in Sustainability" curriculum
Measuring ROI+ and Building More Effective Business Cases, John Platko webinar presentation to CEF members (February 2018) Presentation recording | Slides
Sustainability Advantage (Bob Willard methodology) - Willard, a former GE executive, pioneered work in this area.
HDR Inc.'s Sustainability ROI (SROI) Model. A methodology that helps companies to evaluate the full economic, social, and environmental value of projects by assigning monetary values to all costs and benefits.
True Impact Web-based ROI Calculator and Other Software Tools. True Impact developed a web-based software that helps companies measure and monetize social, financial and environmental impacts of current or prospective programs.