Building the business case for sustainability in SMEs

1. Building the business case for sustainability in SMEs A structured framework on how to build the business case in companies

2. IMD’s Center for Corporate Sustainability Management (CSM) CSM’s mission as a research and learning platform: Contribute to and propel the successful mainstreaming of social and environmental issues on the corporate strategic agenda through • Relevant and practical research • Cross-fertilization of corporate learning ... thus helping companies to “get things done” in developing and rolling out viable sustainability strategies

3. IMD’s Center for Corporate Sustainability Management (CSM) • The CSM platform is open to: • Companies that see business advantages in building social and environmental issues into their business strategy and aligning their organizations behind them • Companies that either are or wish to become sustainability leaders

4. CSM has a membership: Here are just a few of the companies and organizations we work with….. Philip Morris Tetra Pak Lombard OdierDarier Hentsch

5. CSM empirical research: examples 2004 2006 2008 2009

6. After consultation with corporate stakeholders, IMD’s CSM has a three pronged mission: • MAINSTREAMING: Ensuring that CSM research/learning is integrated in programs across IMD business school • GETTING THINGS DONE: Helping companies to overcome barriers and roll out sustainability strategies internally • PROVIDING A “FORWARD PERSPECTIVE”: Liaising with external institutions and acting as a facilitator/radar allowing companies to access knowledge in this field (helping with “early awareness” stakeholder consultation)

7. The value proposition of sustainability for companies • Sustainability is about • securing long-term supply of strategic resources while • allowing companies to stay in business to • keep producing what customers and consumers need • Sustainability is NOT ONLY a differentiator, but • a potential entry point to markets and • a key to securing existing markets

8. Some challenges of integrating sustainability into strategy • Different definitions and interpretations: Creating uncertainty in discussions • Lack of KPIs, metrics: Where and how to set the focus? • Closing knowledge gaps: Convincing colleagues of the value-added and how to integrate into products/services • Avoiding accusations of GREENWASH: and assure long-term success • Avoiding confusion with cause-related marketing

9. The smart zone Economic value generated Company creates economic value by improving environmental andsocial performance beyondcompliance Further improvements are associated with an economic loss Further improvements of environmental and social performance lead to decreases in economic performance The Smart Zone: Economic gain is high Level of environmentaland social performance Compliance levelof activity under consideration

10. Consumer How do stakeholders act as transmission belts? Stakeholders Sustainability issues

11. Shareholder Value Dividends and share prices Salesgrowthduration Value Contribution Costmanagement Capital deployed Value Drivers Innovationin product & services Operationalreadiness Stakeholdersatisfaction Strategy& vision Others… Sustainability Contribution (examples) EHS managementsystems,Resource efficiency Employee motivation,Working relation with regulators Openness to societyand new markets,Brand value and reputation More incentivesfor innovation, especially de-materialization services License to operate Value drivers - shareholder value pyramid * Adapted from Rappaport (1986)

12. Value drivers SA contribution (examples): SHAREHOLDERVALUE Working Capital Investments Fixed Capital Investments Reputation and brand value Sales Growth Rate Value Drivers Cost of Capital Efficient use of resources Operating Profit-Margin Value Growth Duration Income Tax Rate Employee motivation Influence on regulatory regimes

13. SA issues affecting operational risks and opportunities Incremental improvements in Economic performance Social performance Environmental performance • Brand value and reputation • License to operate • Attract and retain talent Net cost decreases through incremental innovation Net revenue increases through radical innovation Economic value Systemization of sustainability issues, value drivers and relevant corporate activities SA issues affecting strategic risks and opportunities eg Climate change eg Mortality/Poverty Radical innovation for new products and markets • Local air pollution • Biodiversity • Health • Safety • Human rights • Monetary flows

14. A business case is not found. It has to be built. Step 1: Understand the concept of the ‘SMART zone’ • Step 2: • ) Identify stakeholders and understand how do they act as transmission belts b) Identify economically relevant issues c) Assess the economic potential of these issues by rating them Step 3: Benchmark on relevant issues and how addressing them might contribute to the business strategy Step 4: Understand the concept of value drivers Step 5: a) Identify the value drivers b) Assess how the value drivers are pushing the agenda Step 6: Develop a set of narratives to communicate the business case to key internal decision-makers

15. Annexes

16. Traceability Obesity Nutrition/Health Allergies Responsible marketing Alcohol abuse Advertising to children Packaging Waste Recycling Pesticides Pollution Labor issues Traceability Pollution - chemicals/pesticides) Soil degradation Long term raw material supply Human rights Poverty Child labor Worker health and safety Farming systems Sustainable agriculture Prices/Farmers income Animal welfare Water security Sustainable aquaculture Fair trade Slavery Traceability Eco-efficiency/Energy Water security Food safety/traceability Emissions (air and water) Packaging waste /Recycling Health and safety of employees Diversity Corruption/bribery Quality Food safety/traceability Packaging waste Recycling Transport (‘food miles’) Human rights Work conditions Corruption/Bribery Fair trade Animal welfare Issues in the food and beverage industry