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Role of Corporate Environmental Governance and Strategy as Drivers to Company Stock Value Growth

Role of Corporate Environmental Governance and Strategy as Drivers to Company Stock Value Growth

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  • 1. United Nations Principles for Responsible Investment
  • 2. oikos PRI Young Scholars Finance Academy 2010:Mainstreaming responsible investment
    January 31 – February 05, 2010, Gais (Switzerland)
    On Corporate Strategy:
    Role of Corporate Environmental Governance and Strategy
    as Drivers to Company Stock Value Growth
    Jose Antonio Chaves
    Candidate at Business School Lausanne
  • 3. Empirical evidences that ESG policies and strategies
    can influence Companies Stock Growth
    E1SGI
    DJI
    2003
    2004
    2005
    2006
    2007
    Dow Jones Sustainability Europe Composite Index versus Dow Jones Industrial Average Index
    Source: Yahoo! Finance
  • 4. Research Main Objective
    Can High Stock Price Growth % be correlated to the High Level of Corporate Environmental Governance & Strategy?
    Can Low Stock Price Growth % be correlated to the Low Level of Corporate Environmental Governance & Strategy?
  • 5. Research Methods and Tools
    Fundamental Analysis
    Morphological Analysis
    Fuzzy Logic
  • 6. Research Work Steps
    Testing Hypotheses
    First Surveys’ Morphological Consolidation
    Second Surveys’ Morphological Consolidation
    Early Findings
    Seminaries
    Literature Review
    Fundamentalist Analysis
    Fuzzy Logic Analysis
    Conclusions & Final Procedures
    Seminaries
    Corporate Papers
    Industry & Companies Targeting
    Publication of Papers
    & Corporate Conferences
    Benchmarking & ESG Standards Consolidation
  • 7. Targeted Industries
    Selected from the 20th
    Largest Companies by
    Market Capitalization
    Leaders
    Laggards
    Ranked by Last Five-Year
    Stock Growth %
  • 8. Iron & Steel Industry
    Leaders Stock Price Growth (%)
    Gerdau
    Posco
    Mechel
    Simec
    S&P 500
    Source: FreeStockCharts.com interactive platform
  • 9. Iron & Steel Industry
    Laggards - Stock Price Growth (%)
    Arc Mittal
    Carpenter
    S&P 500
    Haynes
    Worthington
    China Steel
    Source: FreeStockCharts.com interactive platform
  • 10. Metal & Mining Industry
    Leaders Stock Price Growth (%)
    Vale
    Southern
    Cameco
    Alum China
    S&P 500
    Source: FreeStockCharts.com interactive platform
  • 11. Metal & Mining Industry
    Laggards Stock Price Growth (%)
    S&P 500
    HorseHead
    Alcoa
    Alumina
    Palladium
    Denison
    Source: FreeStockCharts.com interactive platform
  • 12. Electric Utilities Industry
    Leaders Stock Price Growth (%)
    CPFL
    Eletricidad
    Enersis
    Sempra
    S&P 500
    Source: FreeStockCharts.com interactive platform
  • 13. Electric Utilities Industry
    Laggards Stock Price Growth (%)
    American
    S&P 500
    Progress
    Edison
    DTE
    Source: FreeStockCharts.com interactive platform
  • 14. Oil & Gas Integrated Industry
    Leaders Stock Price Growth (%)
    Petrobras
    Hess
    Suncor
    China P&C
    PetroChina
    S&P 500
    Source: FreeStockCharts.com interactive platform
  • 15. Oil & Gas Integrated Industry
    Laggards Stock Price Growth (%)
    BP
    Conoco
    Eni SPA
    S&P 500
    Shell
    YPF
    Source: FreeStockCharts.com interactive platform
  • 16. Early Findings from ESG Surveys Consolidation
    McKinsey – Boston College joint Survey
    Valuing corporate social responsibility
    238 CFOs
    127 CSRs and institutional investment professionals
    December 2008.
    Source: The McKinsey Quarterly, January 2009 Edition
    McKinsey Global Survey Results: Valuing corporate social responsibility
  • 17. Early Findings from ESG Surveys Consolidation
    Boston Consulting Group – MIT Sloan School of Management
    The Business of Sustainability:
    What It Means to Managers Now
    Interviewed:
    50 global thought leaders
    1,500 worldwide executives
    fall of 2009.
    Source: MIT Sloan Management Review, Fall 2009.
  • 18. Early Findings from ESG Surveys Consolidation
    Some companies does not understand what sustainability is
     
    Making sustainability work is the very challenge
    Semiotic communication misleading sustainability undertanding
    There is a visible gap between the sustainability strategy (when it exists)
    and its execution
    Managers at all levels don’t know about:
    The correlations between sustainability risk and financial performance
    How to track sustainability value from where it is created
    How it sustainability initiatives are converted into shareholder value
    How to measure return on sustainability strategy
  • 19. Next ESG Surveys Consolidation
    Modeling Investment Strategists Perspective
    A shareholder value-based survey will be
    Conducted addressing to capture the
    Investment strategists perspective.
     
    Consolidation process ends with a morphological
    analysis seminar - Lausanne, Switzerland.
    Modeling C-Suite Executives Perspective
    A shareholder value-based survey will be
    conducted addressing to integrate C-Suite
    executives perspective, mainly CEOs and CFOs.
     
    Consolidation process ends with a morphological
    analysis seminar – Venue to be defined.
  • 20. Research Perspective:
    Sustainability Value-Based Strategy
    ESG Strategy
    Value-Creation
    Goals Measuring
    Executive Compensation Parameters
    Business Strategy
    Financial Strategy
    Shareholder Engagement
    Investor Strategy
    IPO, M&A
    Private Equity
    Project
    Finance
    Divestiture
    Cash Flow
    Contribution
  • 21. Return on Sustainability Strategy Framework
    Sustainability Value-Based ROI
    Net Profit & Dividend
    Valuation Multiple
    Free Cash Flow
    Revenue Growth
    Cost of Capital Reduction
    Margin Improvement
    Market
    Share Growth
    New
    Market s Entry
    Differentiation
    Price Premium
    Risk
    Reputation Premium
    Market
    Ratings Grade
    Operation Cost & Productivity
    Public
    Support
    Image-Based Power Pricing
    ESG
    Capex-Opex Modeling
    Reputation Branding
    ESG
    Knowledge Capital
    Ecotech-Based Products
    Social-Focused Products
    Stakeholder Engagement
    ESG
    Risk Mapping
    & Strategy
    ESG
    Accounting
    & Reporting
    ESG
    Innovation &
    Adaptability
    Value-Chain ESG Risk & Opportunities
    ESG
    Long-Term Strategic View
    ESG
    Leadership Initiatives
    . . .
    ESG Performance Standards
    Capturing Sustainability Value-Creation Drivers and Levers
  • 22. Corporate Sustainability-Risk Framework
    Corporate Sustainability-Risk Map
    Company’ BI Platform
    Human Capital
    Operation Protection
    Technology
    Financial
    Business
    Continuity
    Implementation
    Funding
    Feasibility
    Operation
    Divestiture
    IPO, M&A
    Legal & Financial
    Diligences
    Organisation & Legal
    Arrangements
    Marketing & Sales
    Project Finance
    Local Arrangements
    Plant Building
    Production
    Private Equity
    Global Feasibility
    Logistics Up & Down
    Infrastructure
    Equipment & Facilities
    Core Business Design
    Value-Chain Design
    Domain of the Traditional Risk Management
    Sustainability-Based ROI Performance Metrics System
    Domain of Corporate Sustainability-Risk Management
    Value-Chain Stakeholders
    Legal & Regulatory
    Changing Leadership
    Global-Local Reputation
    ESG Strategies
    Benchmarking
  • 23. Value-Chain Sources of Sustainability Advantages
    Support Activities & Knowledge Capital
    Company Infrastructure
    Sustainability BI & analytics platform; Capex-Opex sustainability-based decisions; Corporate Sustainability Governance Structure
    Human Capital
    Creating and internalizing a culture for sustainability; Developing capabilities on sustainability-based management ; Corporate Sustainability Education; Sustainability-oriented Compensation System
    Margin
    Innovation and
    R&D Capital
    Environmental-based design; Clean technologies development; Environmental material specifications
    Leadership
    Capital
    Promptness and ability to convert Sustainability Strategy into Shareholders/Stakeholders Value;
    Stakeholder-Based Management Approach; Stakeholder Sustainability Education initiatives
    Corporate Sustainability Mainstream
    Life-cycle process
    Corporate image
    & reputation
    Responsible suppliers, Distributors & outsourcers
    Carbon & Water Footprint
    Stimulating less-harmful material safe storage, transportation , packaging and waste disposal
    SV-B ROI
    Stimulating ethical and anti-corruption competing practices, fraud prevention, striving for upstream-downstream ESG internationally acceptable standards adoption
    Upstream
    Logistic &
    Supply Chain
    Primary Activities
    Inbound
    Logistic & Operations
    Downstream
    Logistic & Channels
    Marketing
    & Sales
    End-Cycle
    Services
  • 24. Corporate Sustainability Strategy Plan Framework
    Benchmarking
    Goals Setting
    Financing-Based ESG Risk Assessment
    Corporate Sustainability-Risk Strategic Mapping
    ESG Legal & Compliance Framework
    Project Financing-Based ESG Assessment
    Stakeholder-Based Management
    Investor-Based Management
    External Impacts Measuring and Accounting
    Risk Strategy
    Risk Strategy
    ActionPlan
    Governance Framework
    Detailing & Métrics
    Goals’ Detailing
    & Metrics
    Sustainability
    Value-Based
    ROI
    Balanced ScoreCard
    Framework
    Sustainability Perspective
    Business Drivers
    Dashboarding
    Implementation & Monitoring
    Business Strategy Goals
    Business Perspective
    Shareholders Engagement
    Stakeholder
    Engagement
    Stakeholders Engagement
    Corporate Finance Goals
    Finance
    Perspective
    Sustainability
    Communication
    Communication
    Competitive Scope
    Investor-Based Management Goals
    Shareholder Perspective
    Sustainability
    Reporting
    Reporting
    Creating and Internalizing the Culture of Corporate Sustainability
  • 25. Knowing a Sustainable Company from looking within
    Managers at all level naturally consider sustainability initiatives as part of their job;
     
    Corporate strategy includes ESG goals and makes money from that;
     
    Sustainability goals are detailed, quantified and monitored;
     
    Sustainability performance is attached to financial performance;
     
    Managers are rewarded for its sustainability performance;
     
    Changing management terminology: accountability, environmental accounting, shareholder engagement; water and carbon footprint; reputation management, etc.;
     
    Company regular partnership with outside stakeholders;
     
    New products originated from environmental and social initiatives.
  • 26. Knowing a Sustainable Company from an External Perspective
    Improve and enhance accountability, transparency and investor trust;
     
    Evolve corporate risk-management to a corporate sustainability platform perspective;
     
    Identify and explore in the entire value-chain new sources of competitive advantage by differentiation throughout ESG innovative product and service development;
     
    Assure capital markets prime access by sustainability governance standards achievement;
     
    Outperform shareholder’s ROSS – Return on Sustainability Strategy;
     
    Create visible, measurable, reportable and communicable ESG value for all stakeholders;
     
    Measure reputation in terms of cost of capital, exports revenue increases and brand value;
     
    Develop the best practices on knowledge and talent capital attracting and retention.
  • 27. Jose Antonio Chaves
    Doctor of Business Administration Candidate at
    Business School Lausanne, Switzerland
    Thesis Advisor
    Dr Alkis Tsiklis, Professor at the Business School Lausanne, Switzerland
     
    Thesis Co-Advisor
    Dr Katrin Muff, Dean at the Business School Lausanne, Switzerland
     
    Advisory Committee
    Dr Laércio Couto, Adjunct-Professor at the University of Toronto, CA
    Dr Carlos Alberto Nunes Cosenza, Professor Emeritus at the Federal University of Rio de Janeiro, BR
    Business School Lausanne
    www.bsl-lausanne.ch
    Av. Dapples 38 - P.O. Box 160 - 1001 Lausanne - Switzerland
    Phone: +41 21 619 06 06 – Fax: +41 21 619 06 00 –
    Email: info@bsl-lausanne.ch
    Jose Antonio Chaves
    Rua Carvalho de Almeida, 48 Apto 23 – Cidade Jardim
    CEP 30380-160 – Belo Horizonte – MG – Brazil
    Phone: +55 31 3231-4688 - Mobile: +55 31 9312-4688
    Email: jose.antonio.chaves@gmail.com