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GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel
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GRI Conference - 28 May - Hahn and Figge - Carbon Performance and Measurement Panel

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  • 1. Carbon performance assessment with the Sustainable Value approach Dr Tobias Hahn Euromed Management School, Marseille (France) Prof Frank Figge Queen’s University Management School, Belfast (UK) Euromed Management School Queen‘s University Marseille Management School Belfast
  • 2. Overview The quest for a truly integrative analysis of corporate carbon performance Measuring corporate carbon performance using the opportunity cost based Sustainable Value approach Practical application to some car manufacturing companies Main implications © Hahn & Figge 2010 -2-
  • 3. Different ways of looking into corporate carbon performance Isolated Integrated Focus: Economic benefit Focus: Economic benefit Instrumental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Focus: Environmental or social Focus: Economic, environmental and benefit social benefit Fundamental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Source: Figge & Hahn 2008 © Hahn & Figge 2010 -3-
  • 4. Different ways of looking into corporate carbon performance Isolated Integrated Focus: Economic benefit Is carbon performance related to Focus: Economic benefit Does carbon performance Instrumental Analysis based on: Environmental financial performance? improve based on:performance? Analysis financial Environmental, OR social performance social AND financial performance Focus: Environmental or social Focus: Economic, environmental and Is carbon performance benefit Is the bundle benefit social of carbon and Fundamental acceptable? Analysis based on: Environmental financial performance positive? Analysis based on: Environmental, OR social performance social AND financial performance © Hahn & Figge 2010 -4-
  • 5. Instrumental vs fundamental and isolated vs. integrated Instrumental approaches subordinate environmental and social aspects to financial performance. To which degree does environmental and/or social performance contribute to financial performance? From a fundamental perspective environmental and social performance is assessed independently of whether it supports financial performance. To which degree are companies environmentally and/or socially responsible? Isolated approaches analyse environmental, social and economic performance aspects separately from each other. This means that they the environmental or social performance of a company separately from the financial performance. Integrated approaches to sustainable investment analysis assess environmental, social and economic aspects together. They cover and assess all three domains of sustainable performance. © Hahn & Figge 2010 -5-
  • 6. Isolated instrumental approaches Isolated Integrated Focus: Economic benefit Focus: Economic benefit Instrumental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Focus: Environmental or social Focus: Economic, environmental and benefit social benefit Fundamental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Separate assessment of the environmental and social performance on the one hand and financial performance on the other hand Assessment of environmental and social aspects conducted from an instrumental perspective: It is assessed if environmental and/or social performance contributes to financial performance. Studies that investigate the correlation between corporate environmental and/or social performance and corporate financial performance (Margolis & Walsh, 2003; Orlitzky et al., 2003) © Hahn & Figge 2010 -6-
  • 7. Integrated instrumental approaches Isolated Integrated Focus: Economic benefit Focus: Economic benefit Instrumental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Focus: Environmental or social Focus: Economic, environmental and benefit social benefit Fundamental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Address the causal link between corporate environmental and social performance and firms’ financial performance It is assessed if environmental and/or social performance contributes to financial performance. Environmental and social aspects are only considered, if and to the degree to which they contribute to a better financial performance. Approaches that analyse environmental and social aspects as possible value drivers that enhance corporate value and increase risk-adjusted free cash flows (Figge, 2005; Hart & Milstein, 2003; Schaltegger & Figge, 2000) © Hahn & Figge 2010 -7-
  • 8. Isolated fundamental approaches Isolated Integrated Focus: Economic benefit Focus: Economic benefit Instrumental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Focus: Environmental or social Focus: Economic, environmental and benefit social benefit Fundamental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Assess corporate environmental and social performance independent of their support to financial performance Environmental and social aspects are considered as an end in themselves. Fall short of integrating and balancing the different dimensions of corporate sustainable performance Screening and rating approaches (between positive and negative SRI screens) (e.g. Figge, 2000; Kinder & Domini, 1997; Schepers & Sethi, 2003) © Hahn & Figge 2010 -8-
  • 9. Integrated fundamental approaches Isolated Integrated Focus: Economic benefit Focus: Economic benefit Instrumental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Focus: Environmental or social Focus: Economic, environmental and benefit social benefit Fundamental Analysis based on: Environmental Analysis based on: Environmental, OR social performance social AND financial performance Assess the return on a bundle of economic, environmental and social resources Environmental and social issues on a par with financial and economic outcomes no instrumental subordination Environmental and social aspects are considered as productive assets next to economic capital for the creation of value. Sustainable Value approach (Figge, 2001; Figge & Hahn 2004; 2005) © Hahn & Figge 2010 -9-
  • 10. Sustainable Value: An extended opportunity cost perspective Financial performance and shareholder value analyses are based on the notion of opportunity cost. Economic or shareholder value is created whenever the return on capital is higher than the opportunity cost of capital. Sustainable Value adopts opportunity cost thinking and extends it to cover also environmental and social resources. © Hahn & Figge 2010 - 10 -
  • 11. David Green, 1894 Green 1894 © Hahn & Figge 2010 - 11 -
  • 12. Opportunity cost based analysis of corporate carbon performance To create value the use of the bundle of economic, environmental and social resources must earn its opportunity cost. Economic or shareholder value: Capital efficiency of the company > capital efficiency of the market Carbon value: Carbon efficiency of the company > carbon efficiency of the market Fundamental analysis of environmental and social performance that complements shareholder value analysis Sustainable Value is created whenever the bundle of economic, environmental and social resources is used more efficiently than on the market © Hahn & Figge 2010 - 12 -
  • 13. Allocation of economic capital The traditional perspective BMW Daihatsu GM Renault ROC 5.8% 3.7% 0.4% 2.4% Market 2.79% Decision © Hahn & Figge 2010 - 13 -
  • 14. Allocation of environmental capital The Carbon Value perspective BMW Daihatsu GM Renault ROCO2 3,230 €/t 625 €/t 111 €/t 1,950 €/t Market 784 €/t Decision © Hahn & Figge 2010 - 14 -
  • 15. Here’s how we have allocated our resources “Economic” capitalists “Environmental” capitalists Economic performance High Economic performance High Daihatsu BMW Daihatsu BMW Low Low GM Renault GM Renault Low High Low High Environmental performance Environmental performance © Hahn & Figge 2010 - 15 -
  • 16. We are stuck! Economic performance High Daihatsu BMW Low GM Renault Low High Environmental performance © Hahn & Figge 2010 - 16 -
  • 17. Assessing Economic Performance... Car BMW manufacturing sector Capital efficiency 5.81% 2.97% [EBIT / Total assets] Value spread 2.84% Capital use € 62.09bn Value contribution € 1.76bn Sources: Annual Report BMW Group 2005, Annual Reports of other car manufacturers, own calculations. © Hahn & Figge 2010 - 17 -
  • 18. … and Carbon Performance, analogously. Car BMW manufacturing sector CO2-Efficiency 3,231 784 [EBIT / t of CO2-emissions] Value spread 2,447 [EBIT / t of CO2-emissions] CO2-emissions [t] 1,113,379 Value contribution € 2.72bn Sources: Annual Report BMW Group 2005, Sustainability Report BMW Group 2007/2008, Annual and Sustainability/Environmental Reports of other car manufacturers, own calculations. © Hahn & Figge 2010 - 18 -
  • 19. Integrated fundamental assessment of capital and CO2 in the automobile sector Economic Economic performance Economic performance e2 profit profit 2.97% [EBIT/Total Assets] Environ- e2 loss mental profit 784 €/t [EBIT/ t of CO2-emissions] Environmental performance © Hahn & Figge 2010 - 19 -
  • 20. Integrated fundamental assessment of capital and CO2 in the automobile sector Daihatsu BMW Econ. value: Econ. value: Economic Economic performance Economic performance € 0.04bn e21.76bn € profit profit CO2-value: CO2-value: 2.97% € –0.06bn € 2.72bn [EBIT/Total Assets] GM Renault Econ. value: Environ- Econ. value: e2 loss € –9.77bn mental € –0.33bn CO2-value: CO2-value: profit € –8.66bn € 0.84bn 784 €/t [EBIT/ t of CO2-emissions] Environmental performance © Hahn & Figge 2010 - 20 -
  • 21. Main Implications With Sustainable Value, corporate carbon performance is neither analysed separately nor are they instrumentally subordinated to financial performance. Integrated fundamental monetary measure of carbon performance that is (a) based on opportunity cost thinking and (b) takes into account financial performance and carbon performance at the same level. © Hahn & Figge 2010 - 21 -
  • 22. Conclusions Sustainable Value is the first value-oriented approach for the assessment of corporate sustainable performance. Sustainable Value builds on well established opportunity cost thinking. At the same time it expands its use and application beyond the singular focus on economic capital. It shares the value-orientation of existing tools and techniques of the financial markets. Sustainable Value allows to measure and manage carbon performance in an integrative manner with financial performance. © Hahn & Figge 2010 - 22 -
  • 23. Two recent studies © Hahn & Figge 2010 - 23 -
  • 24. More information: www.sustainablevalue.com © Hahn & Figge 2010 - 24 -
  • 25. Thank you very much! © Hahn & Figge 2010 - 25 -
  • 26. Contact information Dr Tobias Hahn Professor Frank Figge Associate Professor of Corporate Professor of Management and Sustainability, CSR and Sustainability Environmental Management Queen's University Management Euromed Management School School Domaine de Luminy 25 University Square 13288 Marseille Belfast BT7 1NN, Northern Ireland, France UK E-Mail: tobias.hahn@euromed- E-Mail: figge@sustainablevalue.com management.com - 26 -

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