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Corporate Sustainability Main Stream Strategy

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How to inculcate corporate governance practices in an organization\’s mainstream strategies to give it a sustainable competitive advantage

How to inculcate corporate governance practices in an organization\’s mainstream strategies to give it a sustainable competitive advantage

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  • 1. Corporate Sustainability and Main Stream Strategies - Siddharth Setia
  • 2. Objective of an Organization
    • Maximizing Shareholder’s wealth
    • Maximizing Stakeholder’s wealth
    • Maximizing value for Shareholders
    • Maximizing value for Stakeholders
    • According to Nestle’s Shared Value report
      • For a business to be successful in the long term it has to create value, not only for its shareholders but also for society
  • 3. How Do you create Long term Value
    • Topic of discussion today
      • Mainstreaming Corporate responsibility and sustainability
      • Or
      • CSR + corporate sustainability + organizational strategies = Long Term Profits
  • 4. FEW NON-TATA EXAMPLES
    • Steve Jobs has written an open letter about Apple's sustainability initiatives.
    • He notes, that among many other things, they have cut way back on lead and heavy metals and recycle almost three times as much e-waste as HP and Dell.
    • According to bill gates, Every company needs a plan for integrating sustainability into its marketing
    • 3 P’s – People, Planet and Profits
  • 5. GREEN PROFITS “Money Does Grow on Trees” Corporate Sustainability Mainstream Strategy CSR OBJECTIVE ANALYSIS LONG TERM PROFITS
  • 6. pptPlex Section Divider STRATEGY The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 7. Strategy
  • 8. The Strategic Growth
  • 9. Strategies
  • 10. Strategic Management
  • 11. GREEN PROFITS “Money Does Grow on Trees” Corporate Sustainability Mainstream Strategy CSR OBJECTIVE ANALYSIS LONG TERM PROFITS
  • 12. pptPlex Section Divider CSR and CORPORATE SUSTAINABILITY The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 13. CSR is about how companies manage the business processes to produce an overall positive impact on society.
  • 14. What is
  • 15. Decide where to focus your efforts and resources
  • 16. X 5~10
  • 17. Ecological Footprint
  • 18. GREEN PROFITS “Money Does Grow on Trees” Corporate Sustainability Mainstream Strategy CSR OBJECTIVE ANALYSIS LONG TERM PROFITS
  • 19. pptPlex Section Divider MEASURING CSR and CORPORATE SUSTAINABILITY The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 20. Measuring CSR and Corporate Sustainability
    • Understanding CSR and Sustainability beyond words
    Corporations that address social, environmental, and economic issues… Are more likely to have good management… Which may result in superior financial performance.
  • 21. Measuring CSR and Corporate Sustainability
    • SRI – Social Responsible Investing
    • Corporate Sustainability Indices
  • 22. The Might of SRI
    • The 2007 report on SRI Trends identifies $2.71 trillion in total assets under
    • management that uses SRI investment strategies. More than two times India’s GDP
    Source: 2007 report on socially responsible investment trends in US Mutual Funds The largest share of socially and environmentally screened funds are mutual funds, with $171.7 billion in total net assets ETF Eight socially and environmentally screened exchange-traded funds (ETFs) with $2.25 billion in total net assets Closed Ended Funds Three socially and environmentally screened closed-end funds with assets of $850 million Alternate Investment Funds An estimated $5.3 billion in capital were identified under the management of 46 different socially or environmentally screened alternative investment vehicles, such as social venture capital, double- and triple-bottom-line private equity, and hedge funds
  • 23. SRI Models Source: Henderson, M. Fox 2003 4 common investment criteria as a competitive differentiator: - Negative screening driven by client values - Thematic investing in businesses with direct social or environmental benefit - Shareholder engagement to alter company behavior - Sustainability analysis to establish a business case for SRI SRI Model Description Firms Characteristics SRI Funds Firms that offer institutional and/or retail SRI funds and employ in-house SRI teams to conduct non-financial research. Calvert, CIS, Jupiter, Morley, Henderson and Sustainable Asset Management Branded SRI Retail Funds Proprietary Investment Criteria Separation of financial and SRI research SRI Research Providers Firms that provide research and indices on social, environmental, and corporate governance issues KLD Analytics, Ethibel, and Innovest Also: EiRIS, TruCost and CoreRatings Conduct no financial research Employ social and environmental analysts Traditional Financial Institutions New To SRI Typically global financial institutions serving a broad base of clients focused singularly on performance who view SRI as a value-add Fidelity Investments, HSBC Investment Bank, Merrill Lynch Investment Managers, U.S. Trust, and participants in UNEP * No Branded SRI Retail Funds Established traditional investment managers New to SRI
  • 24. HOW DOES SRI Strategies increase in Profitability SOURCE: Team analysis, Mckinsey and Company 4 dimensions Sub-dimensions Examples
      • Invested $1 billion over 10 years to reduce its energy consumption and improve its efficiency and has saved $7 billion in last 5 years
    Operational efficiency Return on capital
      • Engaged with local stakeholders and built trust with local communities by being responsive to community needs. Has allowed Intel to be proactive about managing concerns, avoiding zoning delays and fines, and benefiting from tax incentives
    Reputational risk Risk manage-ment
      • Developed “Corporate Service Corps” to send emerging leaders to work pro bono in emerging markets to foster economic growth. Has led to improvements in five areas: global leadership skills, cultural intelligence and global awareness, employee retention and commitment to IBM, new knowledge and skill contribution to IBM, and intrapersonal growth
    Leadership development Manage-ment quality
      • Novo Nordisk: Engaged in emerging economies like India, China, and Bangladesh to help build clinics, national diabetes programs, systematic education for doctors, nurses and patients, and comprehensive patient support initiatives. As a result, in China, Novo Nordisk has earned market leadership (e.g., market share above 70%)
      • Verizon: Launched a new product for elderly and disabled to meet social needs of population. Has resulted in increased sales and 100,000 new customers
    New customers/ market share Growth
  • 25. VIDEO
    • Verizon
  • 26. Source: social investment forum
  • 27. Sustainability Indices Categories of ESG metrics, measurement and ratings systems Examples Indices developed by financial index companies ESG Initiatives and learning networks Reputation indices produced by media/ polling/PR firms Rankings and data produced by SRI information providers ESG-related standards 1 Analysis of ESG metrics systems based only on information publicly available on relevant websites SOURCE: McKinsey Analysis
  • 28. Source: www.sustainabilityindices.com
  • 29. S&P ESG India Index provides an opportunity to invest in 50 best stocks as rated by their ESG practices
    • Conventionally CSR practices are perceived as a moral or legal obligation which deviates the organizations from it’s purpose of creating profits for the shareholders.
    • The modern day concept :- compliance based CSR to Need based best practices which increases operational efficiency by reducing risk and creating a sustainable competitive advantage
    • An index will lead to
      • Linking company’s performance to stock market performance
      • Creating an incentive for companies to improve their ESG practices
    Number of companies 50 Total Market Cap ($,Billion) 337.56 Company Size ($ Billion) Average 6.75 Smallest 0.15 Largest 48.45 % Weight of Largest Company 2.88 Top 10 holdings (Index weight) 26.10
  • 30. ESG India Index is weighted by ESG scores irrespective of the market capitalization ESG India index is weighted by ESG scores and not by market capitalization This will ensure that a company with smaller market cap but better practices in terms of operational risk, stakeholders relations and sustainable competitive advantage Reliance Industries weight in index is 9 th despite maximum market cap
  • 31. pptPlex Section Divider SUMMARY The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 32. SBM Mutual Fund Corporate Sustainability Mainstream Strategy CSR OBJECTIVE ANALYSIS LONG TERM PROFITS
  • 33. 4 CR Model
  • 34. SBM Mutual Fund Corporate Sustainability Mainstream Strategy CSR OBJECTIVE ANALYSIS LONG TERM PROFITS
  • 35. OBJECTIVE ANALYSIS
  • 36. pptPlex Section Divider IIM INDORE and SBM The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 37.
    • VIDEO ON ENVIRONMENT SUSTAINABILITY AT IIM Indore
        • Speaker: Gardner at the Campus lawns
    • VIDEO ON Social Responsibility
        • Speaker: Aamal Amrit Mishra from Pragati
  • 38. IIM INDORE EFFORTS (1996-2006)
  • 39.  
  • 40.  
  • 41. pptPlex Section Divider Non-environment, Non-social, Non-economic :- NANDIGRAM Fiasco The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 42. Proposed chemical Hub at Nandigram
    • 28 December 2006 – SEZ notice by Haldia Authority
    • Chemical hub for Salem group -4,000 hectares
  • 43. Demographics
    • Nandigram is situated in Midnapore district in Westbengal.
    • A majority of the inhabitant in Nandigram were farmers
    • Paddy, potatoes and other vegetables were being cultivated in its fertile lands.
  • 44. Corporate: Salim group, Indonesia
    • Controversy - Govt. of West Bengal proposed to acquire those lands
    • Governments intention was to boost up foreign investment.
  • 45. Resistance
    • BUPC
      • formed to protest against forced eviction.
      • consisted of political activists as well as common people of Nandigram.
  • 46. Violation of Human rights
    • Mass Killing
    • Forced evictions
    • Widespread violence against women
    • Denial of access and information to the media and human rights organizations.
  • 47. Reactions
    • Gopalakrishna Gandhi, Governor, described the situation as a “civil war” and quoted“armed recapture is unlawful and unacceptable.
    • India’s National Human Rights Commission (NHRC) sought a report from the Government of West Bengal
    • NHRC chairperson Justice Rajendra Babu has stated, in a reply to CPI-M members of the Indian parliament that human rights abuses on a mass scale took place at Nandigram.
  • 48. Environmental Impact on Nayachar
    • Nayachar falls under the core area of Coastal Regulation Zone-i (CRZ-i).
    • The centre has banned industries in such zones.
    • According to Geological Survey of India (GSI) the land is vulnerable to earthquakes, cyclones and tsunami.
    • Effluents from chemical factories polluting the delta and affecting marine life.
  • 49. Major stakeholders in a sustainable development process
    • State Authority(Government)
    • Companies (Corporates)
    • Society / community
  • 50. Questions
    • Was the intended process of development sustainable?
    • Is Salim Group morally obliged to cease its venture?
  • 51. pptPlex Section Divider NESTLE CASE The slides after this divider will be grouped into a section and given the label you type above. Feel free to move this slide to any position in the deck.
  • 52. Nestle Case
  • 53. History
    • Found in 1860 by Henri Nestle
    • First product :-A mix of milk sugar and wheat flour for babies
    • Diversified into condensed milk in 1870’s
    • During first half of 20 th century, diversified into chocolate, instant coffee and tea
    • After second world war forayed into prepared foods, pet foods, cosmetics,
  • 54. Scope of Nestle
    • Headquartered in Vevey
    • Factories in 86 countries
    • By 2003 had sold 65bn worth of goods
    • Decentralized management structure
  • 55. Decentrslised Management Structure
    • Divided into 3 zones - each zone has a MD
    • SBUs organised on the basis of product lines
    • SBUs part of Nestec – responsible for entire matrix of organization
  • 56. Strategy and marketing
    • Sought to deepen consumer trust of company and its product
    • Strengthen customer loyalty toward its product
    • Safety and quality could not be deemphasized
    • Differentiation on the traditional line of taste and covenience
  • 57. Nestle in controversy
    • Introduced infant formula in third world countries
    • Activists against it as water contaminated in these areas
    • Company accused of contributing to infant mortality
  • 58. Nestle’s Reaction
    • Changed its marketing strategy
    • Started working with governments and NGOs to develop an international code of marketing breast milk substitutes
    • Published ‘Nestle’s corporate business Principles’
  • 59. Malthus and Sustainable Development
    • Malthus predicted population growth will outgrow food supplies
    • Neo – Malthsusians predict a shortage of resources like land, water, energy, fertilizers etc..
    • Sustainable development has its roots in Neo – Malthusian concerns
  • 60. Nestle initiative for sustainable Agriculture
    • 1930:-waste water treatment plant
    • 1992:-established formal environmental policy
    • 1995:-Environmental management system to track environmental expenditures and result
    • 1998:-devote about 100 million swiss francs a year to environmental investments
  • 61. Sustainable agriculture Initiative Nestle(SAIN)
    • SAIN started in 2000
    • To ensure sustainability and competitiveness in supply of raw materials
    • To minimize existing risks in raw material sourcing
    • Also intended to focus on traditional business fundamentals
  • 62.
    • VIDEO
  • 63. Case Situation
    • Hans Joehr – corporate head of agriculture required to come up with a sustainable agriculture model
    • Proposes SAIN for coffee, Milk and Cocoa
    • Benefits
      • competitive costs for raw material
      • better communication with growers, consumers, politicians
  • 64. Issues regarding SAIN
    • Relationships between the firm’s overall strategy and its activities in the sustainability arena
    • Decide which department’s behavior to be changed and how
    • Decide how fast to expand the projects the initiatives covered
  • 65. Present situation
    • Farmers trained through capacity-building programmes
    • Reduction of packaging weight over 5 years
    • Sites audited through CARE programme (since July 2005)
    • Reduction of indirect CO2 emissions
    • Reduction of waste over 10 years
  • 66. EXTRA SLIDES
  • 67. The Might of SRI Principles for responsible Investment
    • UN led initiative encouraging institutional investors to more actively factor ESG issues into their investments.
    • 180 signatories representing $8 trillion in AUM
    • An organization representing 284 institutional investors with AUM = $41 trillion which requests 2400 largest companies in world by market cap to provide investment related disclosures concerning risks and opportunities due to climate change
    • International collaboration aimed at encouraging investment research taking account of ESG and other non-financial factors on long term investment. AUM=$ 2.4 trillion
    • Voluntary code of conduct sponsored by UN which has 2900 signatories from business in over 100 countries
    Carbon Disclosure Project Enhanced Analytics Initiative UN Global Impact
  • 68. WHY is SRI Important
    • Access to capital - appropriate ESG disclosure can help companies to get access to funds
    • Equity pricing – investors integrate material ESG issues it their stock selection
    • Shareholder engagement – long term investors engage with investee companies on ESG issues
    • Access to markets, license of operate
    • Increasing demands for disclosure
    • Reputation
    • Source: PRI report 20 Jan 2009,Bangkok
  • 69. CSR + Corp Sustainability + MainStream Strategy Environmental Strategy Resource Strategy Networking Strategy Corporate Responsibility Strategy Knowledge Management Strategy Stakeholder Strategy Financial and Responsibility Performance