Investing in Sustainability. Professor Gordon L Clark August 2015

Transcription

1 Investing in Sustainability Prfessr Grdn L Clark August

2 Grdn L Clark is Prfessr and Directr f the Smith Schl f Enterprise and the Envirnment at Oxfrd University. He is als the Sir Luis Mathesn Distinguished Visiting Prfessr at Mnash University and a Visiting Prfessr at Stanfrd University. An expert in crprate envirnmental management and finance, he has published many bks and is regularly cnsulted by industry and gvernment. 2

3 Acknwledgements This presentatin is based n knwledge and experience f the dilemmas facing majr crpratins and insights gleaned frm investment institutins. The views and pinins expressed herein are entirely my wn and d nt reflect thse f the spnsrs, cllabratrs, and research partners f the SmithSchl. 3

4 Part I: Overview 4

5 Gals and Objectives Explain the envirnmental practices f majr crpratins Emphasising sustainability and the varius frms f sustainability Describe the investment prcess, time hrizns, pay- ffs f crprate envirnmental management etc. And identify the limits f incremental adaptatin cmpared t lng- term transfrmatin. 5

6 Definitins Invest allcate scarce financial resurces t the capital stck and prductin prcess f a cmpany Sustainability (1) invest s as t maintain and enhance the cmpetitive psitin f a cmpany Sustainability (2) invest s as t underwrite a cmpany s access t, and use f, scarce natural resurces Sustainability (3) invest s as t sustain the efficient use f natural resurces, cnsistent with sustainability (1) and (2). 6

7 Part II: Past and Present 7

8 Past Practices Thrugh the 20 th century, natural resurces (envirnment) were treated as a gift f nature In effect, a subsidy underwriting the grwth f manufacturing enterprises and the incme shared between emplyees and sharehlders On tw sides f the prductin prcess as inputs t prductin and as the utputs f prductin (e.g. pllutin) Where the price f such subsidies were t be paid by current and future generatins (health, wellbeing etc). 8

9 Challenging Circumstances I [scarcity] Natural resurces are increasingly scarce accessibility, quality, and quantity matter Natural resurces are increasingly valued in financial markets cycles f cmmdity- price bms & busts Natural resurces are increasingly valued by the public urbanisatin creates a sense f lss, even nstalgia Natural resurces are increasingly treated as strategic assets geplitics are expressed in terms f cntrl f natural resurces. 9

10 Challenging Circumstances II [cmpetitin] Crpratins cmpete fr access t desirable resurces The price paid is increasingly driven by factrs ther than their immediate use value Vlatility in resurce prices is just as imprtant, cutting against the lng- term sustainability f business mdels Cntrl ver resurces is increasingly disputed, especially in areas where grwth ptential is the highest. 10

11 Challenging Circumstances III [respnsibility] Public expectatins are changing as regards the rles and respnsibilities f crpratins Frm resurce users t custdians f the natural envirnment Frm treating the envirnment as a subsidy t paying the full- price (current and future) f the envirnment Frm use and abandn, t use and re- use in virtuus cycles. 11

12 Part III: Stages f Envirnmental Management 12

13 Envirnmental Management I [stage 1] Understand better crprate use, reliance upn, and access t natural resurces Create maps f crprate envirnmental vulnerability with respect t market strategy and reputatin Seek- ut expert advice regarding specific natural resurces (e.g. water, fertilizer etc.), and the markets fr resurces Integrate resurce management with crprate strategy, prductin systems, and reputatin- management prgrammes. 13

14 Envirnmental Management II [stage 2] Key issues include: Rutine cllectin f data n envirnmental perfrmance Benchmarking perfrmance against peers Setting perfrmance targets: ver time and space, abslute and relative Deciding n levels f disclsure, transparency and validatin. 14

15 Envirnmental Management III [stage 3] Integratin depends upn establishing a link between envirnmental perfrmance and executive cmpensatin Integratin depends upn ver- sight, the rle f senir managers, and the Bard Integratin depends upn a cmmitment t cntinuus imprvement nt just ne- ff slutins Integratin depends upn investing in sustainability making the envirnment an issue f ec- efficiency. 15

16 Part IV: Time and Value 16

17 Investing in Sustainability I [shrt term] If the target is relative perfrmance, significant results can be derived frm best- practice Where the crpratin utilises its resurces and capabilities t imprve perfrmance at pr- perfrming sites Accmpanied by changes in reward systems that pin- pint the respnsibilities f lcal managers Reinfrced by investment in slving prblems e.g. water distributin, retentin, and remediatin systems ver 1-3 years. 17

18 Investing in Sustainability II [medium term] With a CAPEX budget fr investment, the issue becmes ne f updating the capital stck Again, selective in that scarce resurces are allcated in accrdance with the map f vulnerability Again, utilises internal knwledge f best- practice, enhancing capital stck by reference t the best perfrming plants With expected pay- ffs against perfrmance targets and the availability f CAPEX ver 3-5 years. 18

19 Investing in Sustainability III [lnger term] Ging beynd relative perfrmance t ABSOLUTE perfrmance targets, majr prjects becme imprtant CAPEX budget may be less significant, shifting the investment decisin t senir executives and the Bard Must demnstrate a link between crprate strategy, investment, and envirnmental perfrmance Inevitably invlving investment in the future investment is lumpy, invlves risk and uncertainty, and is abut prject management ver 5-7 years. 19

20 Investing in Sustainability IV [lng term] Majr crpratins tend t be cnsumers f technlgy NOT prducers f technlgy Public crpratins are shrt- term riented, evaluated against reprted prfit: quarterly, yearly, etc. Mergers and acquisitins can prduce significant envirnmental prblems and/r transfrm capital stck Jint ventures, alliances with specialised cmpanies, and clser relatinships with suppliers can mitigate risk and uncertainty. 20

21 Part V: Summing up 21

22 Implicatins and Cnclusins I Investing in sustainability cmes in varius frms: Investing in crprate decisin- making Investing in crprate capabilities and resurces Investing in crprate reprting systems Investing in knwledge and expertise Investing in capital stck and technlgy. 22

23 Implicatins and Cnclusins II Investing in sustainability can have immediate benefits: Reap the value f best- practice Ratinalise/rganise what can be managed Slve prblems previusly ut- f- sight Mbilise lcal knwledge via incentives Set the agenda nw, and specify gals. 23

24 Implicatins and Cnclusins III Investing in sustainability can be a significant cmmitment: Requiring capital beynd CAPEX Requiring buy- in frm bards f directrs Invlving cnsiderable risk and uncertainty Transfrmatin f the capital stck f a cmpany A shift in the technlgical sphisticatin f the cmpany and its management. 24

25 Implicatins and Cnclusins IV Investing in sustainability is a challenge: Is this type f investment rewarded by cnsumers? Des this type f cmmitment give pr r high perfrming cmpanies advantage? Will the related challenges result in industry dminance by just a few cmpanies able and willing t pay the (envirnmental) price? What is the rle f gvernment, if any? 25

26 Cda Are public crpratins effective custdians f the envirnment? Sharehlders d nt always reward sustainability Cst- efficiency may be antithetical t investing in the future Senir executives are ften greedy, with little cmmitment t the lng- term Technlgical innvatin is expensive, uncertain as t its impact, and a threat t managers careers. 26

27 Financial Times, Cmpanies & Markets Mnday, 10 August 2015 Listed grups face lsing ut n best talent, says fund bss Richard Milne, Osl 27

28 Academic Literature Bansal, P. and Clelland, I. (2004). Talking trash: legitimacy, impressin management, and unsystematic risk in the cntext f the natural envirnment. Academy f Management Jurnal 47: Clark, G.L. and Hebb, T. (2005). Why shuld they care? Crprate respnsibility and glbal standards. Envirnment and Planning A 37: Clark, G.L. and Knight, E.R. (2009). Implicatins f the UK Cmpanies Act fr institutinal investrs and the market fr crprate scial respnsibility. University f Pennsylvania Business Law Review 11: Quattrne, P. and Hpper, T. (2005). A time space dyssey: management cntrl systems in tw multinatinal rganisatins. Accunting, Organizatins and Sciety 30:

29 Any Questins? 29