Turning Green - Chong Junjie - Choy Wei Feng - Dorothy Poon - - Justin Choo - Lin Zhaowei - Yang Yaosheng - Why going green is good for business into Gold

Reasons against Going Green Lowers economic efficiency and profits Imposes unequal costs among competitors Costs of going green will eventually be shifted to stakeholders Social issues are best solved by the government. Business of business is business.

Lowers economic efficiency and profits

Imposes unequal costs among competitors

Costs of going green will eventually be shifted to stakeholders

Social issues are best solved by the government. Business of business is business.

Defining the topic Two central questions to answer Is there a trade-off between Going Green and profitability ? Should firms take the initiative to Go Green?

Two central questions to answer

Is there a trade-off between Going Green and profitability ?

Should firms take the initiative to Go Green?

Surveys on what companies and consumers think about Going Green Are companies’ decisions to Go Green solely (or largely) dependent on consumers’ expectations?

Are companies’ decisions to Go Green solely (or largely) dependent on consumers’ expectations?

How do companies view Going Green? Survey by McKinsey Quarterly, February 2008 60% of global executives view climate change as important to consider within their companies’ overall strategy About 61% of the respondents view the issues associated with climate change as having a positive effect on profits if well managed

Survey by McKinsey Quarterly, February 2008

60% of global executives view climate change as important to consider within their companies’ overall strategy

About 61% of the respondents view the issues associated with climate change as having a positive effect on profits if well managed

How do consumers view going green? Stanford Social Innovation Review, Fall 2008 Only 33% of consumers are ready to buy green products or have already done so Nutrition Business Journal: Organic foods accounted for less than 3% of all food sales in 2006 (consumers buy more for their own health than for the environment’s)

Stanford Social Innovation Review, Fall 2008

Only 33% of consumers are ready to buy green products or have already done so

Nutrition Business Journal: Organic foods accounted for less than 3% of all food sales in 2006 (consumers buy more for their own health than for the environment’s)

What can we say from these surveys? Meeting consumers’ expectations not the sole reason as to why firms take the initiative to go green Short-sighted to focus merely on satisfying the needs of the consumers

Meeting consumers’ expectations not the sole reason as to why firms take the initiative to go green

Short-sighted to focus merely on satisfying the needs of the consumers

1. Arguments for Going Green Ethical Obligations to Go Green Regulation and Standards of Going Green Financial Incentives 2. How Green Should Businesses Be? 3. The Ethics of Money-Driven Environmentalism Presentation Scope

1. Arguments for Going Green

Ethical Obligations to Go Green

Regulation and Standards of Going Green

Financial Incentives

2. How Green Should Businesses Be?

3. The Ethics of Money-Driven Environmentalism

Ethical Obligations to Go Green In the absence of financial motives First Argument for Going Green

Obligations to Go Green Stakeholder theory Social contract argument Environment ethic

Stakeholder theory

Social contract argument

Environment ethic

Stock holder vs. Stake holder Stockholder theory : firms are obliged only to the stockholders Stakeholder theory : firms have obligations to any person who is affected by a firm’s actions

Stockholder theory :

firms are obliged only to the stockholders

Stakeholder theory :

firms have obligations to any person who is affected by a firm’s actions

All operating within the FINITE natural ecosystem BUSINESS FIRM Direct economic transactions No less important than market stakeholders MARKET STAKEHOLDERS - Employees - Customers Stockholders - Suppliers Creditors - Wholesalers/retailers

MARKET STAKEHOLDERS

- Employees - Customers

Stockholders - Suppliers

Creditors - Wholesalers/retailers

Stakeholders’ arguments Firms are obliged to address any environmental issues that affect the stakeholders. More realistic description of how firms operate - managers are not only concerned with stockholders. Right thing to do because it corrects environmental problems caused by business.

Firms are obliged to address any environmental issues that affect the stakeholders.

More realistic description of how firms operate - managers are not only concerned with stockholders.

Right thing to do because it corrects environmental problems caused by business.

Social contract Contractual obligations with the society Society expects that firms engage in socially acceptable practices in return for “allowing” them to conduct business activities. Firms who do not use power (in ways that society deems responsible) will tend to lose it.

Contractual obligations with the society

Society expects that firms engage in socially acceptable practices in return for “allowing” them to conduct business activities.

Firms who do not use power (in ways that society deems responsible) will tend to lose it.

Source: Mckinsey Quarterly (2006), number 2.

Green is entering social contract 90% of executives and consumers expect environmental issues to be top sociopolitical issue for the next five years (Mckinsey Global Survey 2008) Singapore aims to be carbon trading hub (worth US$25b in 2006) in Asia (CNA 17 Nov 07) FORTUNE 500 CEOs, including GE's Immelt and Wal-Mart's Lee Scott have initiated going green (Fortune 2 Apr 2007)

90% of executives and consumers expect environmental issues to be top sociopolitical issue for the next five years (Mckinsey Global Survey 2008)

Singapore aims to be carbon trading hub (worth US$25b in 2006) in Asia (CNA 17 Nov 07)

FORTUNE 500 CEOs, including GE's Immelt and Wal-Mart's Lee Scott have initiated going green (Fortune 2 Apr 2007)

New ethic: Environment ethic “… if a society’s ethic did not take into account whatever was needed for survival, the society would cease to exist.” ~ Peter Singer Environmental degradation - a rising threat to our survival Environmental ethic would find virtue in going green “ A thing is right when it tends to preserve the integrity, stability and beauty of the biotic community . It is wrong when it tends otherwise.” ~ Aldo Leopold

“… if a society’s ethic did not take into account whatever was needed for survival, the society would cease to exist.” ~ Peter Singer

Environmental degradation - a rising threat to our survival

Environmental ethic would find virtue in going green

“ A thing is right when it tends to preserve the integrity, stability and beauty of the biotic community . It is wrong when it tends otherwise.” ~ Aldo Leopold

Regulation and Standards of Going Green Second Argument for Going Green

United Nations Framework Convention on Climate Change (UNFCCC) Treaty initiated by United Nations (UN) Aims To stabilize greenhouse gas concentration level such that it will not harm the climate Not legally binding Includes provisional updates (Protocols) Kyoto Protocol Legally binding

Treaty initiated by United Nations (UN)

Aims

To stabilize greenhouse gas concentration level such that it will not harm the climate

Not legally binding

Includes provisional updates (Protocols)

Kyoto Protocol

Legally binding

Kyoto Protocol Updates to UNFCCC 182 countries accepted (including Singapore) Legally binding Cap-and-trade approach Violation

Updates to UNFCCC

182 countries accepted (including Singapore)

Legally binding

Cap-and-trade approach

Violation

Control Of Vehicular Emissions Diesel Vehicle registered after 1 Oct 2006 Comply Euro VI emission standard Lower CO 2 and particulate matter Impact Taxi companies Bus companies

Diesel Vehicle registered after 1 Oct 2006

Comply Euro VI emission standard

Lower CO 2 and particulate matter

Impact

Taxi companies

Bus companies

Control Of Vehicular Emissions Alternatives for taxi and bus companies Natural gas (CNG) vehicles

Alternatives for taxi and bus companies

Natural gas (CNG) vehicles

ISO 14000 Productivity and Standards Board (PSB) started the certification Framework to manage operations to achieve both environmental and corporate goals Sustainable development Environment Management System Help to comply with regulations

Productivity and Standards Board (PSB) started the certification

Framework to manage operations to achieve both environmental and corporate goals

Sustainable development

Environment Management System

Help to comply with regulations

ISO 14000 Any drawbacks? Short-term costs Short-term inefficiency Affected down the supply chain

Any drawbacks?

Short-term costs

Short-term inefficiency

Affected down the supply chain

TETRA PAK IS0 14000 Certified Recycle unwanted coated paper Long term sustainability

IS0 14000 Certified

Recycle unwanted coated paper

Long term sustainability

Why Going Green makes cents Third Argument for Going Green

Going Green Makes Cents Short term costs Long term Profitability+Sustainability $ $ $

Going Green as Essential Corporate strategy “ The effects of climate on companies’ operations are now so tangible and certain that the issue is best addressed with the tools of the strategist , not the philanthropist.” ~Porter & Reinhardt Cap-and-trade system of carbon trading Works like any commodities market

“ The effects of climate on companies’ operations are now so tangible and certain that the issue is best addressed with the tools of the strategist , not the philanthropist.” ~Porter & Reinhardt

Cap-and-trade system of carbon trading

Works like any commodities market

Cap and Trade: How it works Government issues permits Regulators limit pollution by controlling number of permits allocated (variable) System allows for buying and selling/trading of permits (new form of “carbon currency”) Firms face trade off between permits and abatement technologies

Government issues permits

Regulators limit pollution by controlling number of permits allocated (variable)

System allows for buying and selling/trading of permits (new form of “carbon currency”)

Firms face trade off between permits and abatement technologies

Rise of Green Capital Arrival of a new set of stakeholders on environmental issues

Wall Street & Green The “Equator Principles” All things being equal, firms which are green will have easier access to capital Bank of America Barclays plc Citigroup Inc. HSBC Group JPMorgan Chase The Royal Bank of Scotland Share prices of greener firms command higher premiums. (Harvard Business School Review)

The “Equator Principles”

All things being equal, firms which are green will have easier access to capital

Bank of America

Barclays plc

Citigroup Inc.

HSBC Group

JPMorgan Chase

The Royal Bank of Scotland

Share prices of greener firms command higher premiums. (Harvard Business School Review)

Pre-emptive Actions Firms’ initiatives to implement green standards to avoid future higher costs Beyond reliance on governmental regulations Walmart goes Green (in China) “ We will favour - and in some cases even pay more - for suppliers that meet our standards”- Lee Scott Firms influencing future regulations through environmental leadership

Firms’ initiatives to implement green standards to avoid future higher costs

Beyond reliance on governmental regulations

Walmart goes Green (in China)

“ We will favour - and in some cases even pay more - for suppliers that meet our standards”- Lee Scott

Firms influencing future regulations through environmental leadership

Why Firms should go Green Summary Green as strategic issue Allows firms to take proactive stance in shaping governmental regulations Stakeholder engagement Long term profits & sustainability

Summary

Green as strategic issue

Allows firms to take proactive stance in shaping governmental regulations

Stakeholder engagement

Long term profits & sustainability

How Green Should Businesses Be?

How Green Should Businesses Be? Going Green is definitely important for all businesses. How Green? No fixed set of standards. Decision varies according to business conditions, size and industry.

Going Green is definitely important for all businesses.

How Green? No fixed set of standards.

Decision varies according to business conditions, size and industry.

Recognize the Differences in the Nature of Various Businesses Quadrant 1: Mere compliance with laws. Quadrant 2: Going against the laws. Quadrant 3: Developing measures that better comply with regulations. Quadrant 4: Developments beyond regulations.

Quadrant 1: Mere compliance with laws.

Quadrant 2: Going against the laws.

Quadrant 3: Developing measures that better comply with regulations.

Quadrant 4: Developments beyond regulations.

Recognize the Difference in Scale of Businesses Quadrant 1: Firms in stage of infancy with little resources and low leveraging potential from Going Green Quadrant 2: Developed firms but with little leveraging potential from green initiatives Quadrant 3: Firms in stage of infancy but with strong leveraging powers from Going Green. Dubbed “Green Gamble” Quadrant 4: Developed firms with strong leveraging potential from green initiatives

Quadrant 1: Firms in stage of infancy with little resources and low leveraging potential from Going Green

Quadrant 2: Developed firms but with little leveraging potential from green initiatives

Quadrant 3: Firms in stage of infancy but with strong leveraging powers from Going Green. Dubbed “Green Gamble”

Quadrant 4: Developed firms with strong leveraging potential from green initiatives

How Green? Low Green Deep Green

Low Green

Deep Green

Low Green Can be applied by firms of the smallest scale does not involve expenditure, emphasis is on conservation Achievable through the day-to-day running of the company

Can be applied by firms of the smallest scale

does not involve expenditure, emphasis is on conservation

Achievable through the day-to-day running of the company

Low Green Improve resource productivity Development of “Green” company culture from top management Cut environmental costs and rectifying negative externalities

Improve resource productivity

Development of “Green” company culture from top management

Cut environmental costs and rectifying negative externalities

Deep Green For more mature businesses with capital and ability to leverage considerably from promoting green initiatives. A further step from low green involves expenditure on green initiatives to rectify any possible environmental problems caused by the firm’s business operations.

For more mature businesses with capital and ability to leverage considerably from promoting green initiatives.

A further step from low green

involves expenditure on green initiatives to rectify any possible environmental problems caused by the firm’s business operations.

Deep Green Eco-Design: Designing products that suit customers tastes using environmentally friendly means of production Research and development : align production methods towards greater environmental friendliness

Eco-Design: Designing products that suit customers tastes using environmentally friendly means of production

Research and development : align production methods towards greater environmental friendliness

Deep Green Allocation of funds to environment conservation Community development programs

Allocation of funds to environment conservation

Community development programs

How Green? Going Green does not mean merely paying lip service to environmental regulations Yet, active measures can be undertaken by companies to ensure congruency between Going Green and profitability

Going Green does not mean merely paying lip service to environmental regulations

Yet, active measures can be undertaken by companies to ensure congruency between Going Green and profitability

Money-driven Environmentalism Have we forgotten the ethics?

Mixing money with ethics Many reasons why companies should Go Green The most compelling- the financial ones Is that ethical? Deontological and Teleological schools of thought

Many reasons why companies should Go Green

The most compelling- the financial ones

Is that ethical?

Deontological and Teleological schools of thought

Deontological school: Do it right Kant’s categorical imperative An interpretation: Damaging the environment is wrong, so companies should Go Green because of that solely Else action has no moral worth Ross’ prima facie obligations An interpretation: At first sight, protecting the environment is a duty of businesses However, maintaining profits is the primary duty of business managers

Kant’s categorical imperative

An interpretation:

Damaging the environment is wrong, so companies should Go Green because of that solely

Else action has no moral worth

Ross’ prima facie obligations

An interpretation:

At first sight, protecting the environment is a duty of businesses

However, maintaining profits is the primary duty of business managers

Deontological school: Do it right Rawl’s difference principle An interpretation: Businesses should be allowed to make profit in a competitive market, based on merit Difference principle is met if businesses make profits and the least advantaged benefits too Environmentally-friendly practices lead to an improvement in life for all levels of society Therefore, difference principle met

Rawl’s difference principle

An interpretation:

Businesses should be allowed to make profit in a competitive market, based on merit

Difference principle is met if businesses make profits and the least advantaged benefits too

Environmentally-friendly practices lead to an improvement in life for all levels of society

Therefore, difference principle met

Teleological School: Do it good Utilitarianism – for the greater good A broad cost-benefit analysis: Costs : Loss of morality (from Kantian perspective) Benefits : Improvement/Protection of Environment, Profiting by companies

Utilitarianism – for the greater good

A broad cost-benefit analysis:

Costs : Loss of morality (from Kantian perspective)

Benefits : Improvement/Protection of Environment, Profiting by companies

Our stand Going green for the money: Motivation – Doing the “business of business” Consequences – The environment benefits, the company profits Kantian view : Too rigid Foolhardy to ignore the duty of business to sustain itself entirely Ross’ and Rawls’ views : Offer flexibility Accommodate the financial motive Utilitarianism : Supports financial motive Because it could be most effective in driving the green wave

Going green for the money:

Motivation – Doing the “business of business”

Consequences – The environment benefits, the company profits

Kantian view : Too rigid

Foolhardy to ignore the duty of business to sustain itself entirely

Ross’ and Rawls’ views : Offer flexibility

Accommodate the financial motive

Utilitarianism : Supports financial motive

Because it could be most effective in driving the green wave

Our Stand

Conclusion

Going back to our central questions Is there a trade-off between Going Green and profitability? No. Financial incentives (green capital, higher profits) Links between non-financial and financial incentives: Business Ethics and Company Reputation Pre-emption against regulations

Is there a trade-off between Going Green and profitability?

No.

Financial incentives (green capital, higher profits)

Links between non-financial and financial incentives:

Business Ethics and Company Reputation

Pre-emption against regulations

Conclusion Does it make sense for companies to take the initiative to Go Green? Yes, it makes sense (regulations, standards, ethical obligations) and cents (financial incentives) Green for all – concept of low and deep green Even if motivation primarily financial, not unethical

Does it make sense for companies to take the initiative to Go Green?

Yes, it makes sense (regulations, standards, ethical obligations) and cents (financial incentives)

Green for all – concept of low and deep green

Even if motivation primarily financial, not unethical

Last words “ Money is the language of business… translating environmental and social issues into financial terms is a vital element in motivating business to take action . ” Jan-Olaf Willum Senior vice president Storebrand, Norway

“ Money is the language of business… translating environmental and social issues into financial terms is a vital element in motivating business to take action . ”

Jan-Olaf Willum Senior vice president Storebrand, Norway

Q & A

Thank you for your attention!

What About small firms? Low Green Short term investments lead to long term profitability

Low Green

Short term investments lead to long term profitability

Which type of firms should care the most? Prominent brands Firms that impact the environment largely Firms dependent on natural resource Talent centric Firms

Prominent brands

Firms that impact the environment largely

Firms dependent on natural resource

Talent centric Firms

What if the financial incentives do not exist? Research shows that financial incentives are the primary motivating factor to go green. There are also ethical obligations. Government can still take the initiative to set regulations to push for the green movement

Research shows that financial incentives are the primary motivating factor to go green.

There are also ethical obligations.

Government can still take the initiative to set regulations to push for the green movement

What happens if green = bankruptcy If a firm cannot survive going green, are they efficient enough to survive in a business climate They should be left to fail

If a firm cannot survive going green, are they efficient enough to survive in a business climate

They should be left to fail

Climate change could create company value in the long term

Equator Principles Principle 1: Review and Categorisation Principle 2: Social and Environmental Assessment Principle 3: Applicable Social and Environmental Standards Principle 4: Action Plan and Management System Principle 5: Consultation and Disclosure Principle 6: Grievance Mechanism Principle 7: Independent Review Principle 8: Covenants Principle 9: Independent Monitoring and Reporting Principle 10: Equator Principles Financial Institutions (EPFI) Reporting

Principle 1: Review and Categorisation

Principle 2: Social and Environmental Assessment

Principle 3: Applicable Social and Environmental Standards

Principle 4: Action Plan and Management System

Principle 5: Consultation and Disclosure

Principle 6: Grievance Mechanism

Principle 7: Independent Review

Principle 8: Covenants

Principle 9: Independent Monitoring and Reporting

Principle 10: Equator Principles Financial Institutions (EPFI) Reporting

Sustainable development Growing in a responsible way Protecting the environment Conserving resources for future generations.

Growing in a responsible way

Protecting the environment

Conserving resources for future generations.

Why it matters? Limits to growth hypothesis Increasing world population and rapid urbanization stretching the limited capacity ofecosystem Pollutions by firms at critical levels “ You can fool some people at some time but you cannot fool all the people all the time.” Ultimately, we are living within a finite natural ecosystem.

Limits to growth hypothesis

Increasing world population and rapid urbanization stretching the limited capacity ofecosystem

Pollutions by firms at critical levels

“ You can fool some people at some time but you cannot fool all the people all the time.”

Ultimately, we are living within a finite natural ecosystem.

ISO 14000 Environment Management System Set of management tools, principles and procedures Protect environment from potential impacts Measures to avoid adverse effects + comply with environmental regulations Reduce waste

Environment Management System

Set of management tools, principles and procedures

Protect environment from potential impacts

Measures to avoid adverse effects + comply with environmental regulations

Reduce waste

ISO 14000 Reduce material wastage Reduce operating costs Improve workers’ welfare Increase competitiveness and productivity Improve company procedures Contribution to protecting environment Avoid infringement of regulations Too costly No tangible benefits Benefits don’t outweigh cost Insufficient qualified personnel No client / customer support No government support Firms environmentally-friendly enough Reasons for Reasons against

Reduce material wastage

Reduce operating costs

Improve workers’ welfare

Increase competitiveness and productivity

Improve company procedures

Contribution to protecting environment

Avoid infringement of regulations

Too costly

No tangible benefits

Benefits don’t outweigh cost

Insufficient qualified personnel

No client / customer support

No government support

Firms environmentally-friendly enough

Reasons for

Reasons against