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Tnc Presentation#1


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Role of Corporate Environmental & Social Governance
as Drivers to Company Stock Value Growth

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Tnc Presentation#1

  1. 1. On Corporate Strategy: Role of Corporate Environmental & Social Governance as Drivers to Company Stock Value Growth Presented at the TNC Board Members Meeting São Paulo, 05/05/2010 Jose Antonio Chaves Professor at Fundação Dom Cabral DBA Candidate at Business School Lausanne Chair of the Committee of Sustainability and Corporate Responsibility at The Regional Council of Business Administration, MG, Brazil I n st i t u t i o n a l S u p p o r t i n g
  2. 2. Empirical evidences that ESG policies and strategies can influence Companies Stock Growth E1SGI DJI 2003 2004 2005 2006 2007 D o w J o ne s S us t a i na b i l i t y E ur o p e C o m p o s i t e Ind e x v e r sus D o w J o ne s Ind us t r i a l A ve r a g e Ind e x S o ur c e : Y a ho o ! F i na nc e
  3. 3. Research Main Objective Level of Corporate Environmental & Social Governance - ESG High S&P 500 Low Low High L e v e l o f S t o c k Va l u e G r o w t h
  4. 4. Targeted Industries Selected from Industry 20 th Largest Listed Companies by Market Capitalization First Quartile Companies Ranked by Last Five-Year Stock Growth %
  5. 5. Iron & Steel Industry Leaders Stock Price Growth (%) Gerdau Posco Mechel Simec S&P 500 So u r c e : F r e e S t o c k C h a r t s . c o m i n t e r a c t i v e p l a t f o r m
  6. 6. Metal & Mining Industry Leaders Stock Price Growth (%) Vale Southern Cameco Alum China S&P 500 So u r c e : F r e e S t o c k C h a r t s . c o m i n t e r a c t i v e p l a t f o r m
  7. 7. Electric Utilities Industry Leaders Stock Price Growth (%) CPFL Eletricidad Enersis Sempra S&P 500 So u r c e : F r e e S t o c k C h a r t s . c o m i n t e r a c t i v e p l a t f o r m
  8. 8. Oil & Gas Integrated Industry Leaders Stock Price Growth (%) Petrobras Hess Suncor China P&C PetroChina S&P 500 So u r c e : F r e e S t o c k C h a r t s . c o m i n t e r a c t i v e p l a t f o r m
  9. 9. Early Findings From credible ESG Surveys Consolidation
  10. 10. 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
  11. 11. Early Findings from the Research Provided by Morphological Analysis From the internal Perspective From the external perspective
  12. 12. Knowing a Sustainable Company from Looking Within Managers at all level 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 their sustainability performance; Changing management terminology: accountability, environmental accounting, shareholder engagement; water and carbon footprint; etc.; Company regularly partners with outside stakeholders; New products originated from environmental and social initiatives.
  13. 13. Knowing a Sustainable Company from the External Perspective Improve and enhance accountability, transparency and investor trust; Evolve risk-management to a corporate sustainability-risk perspective; Develop new sources of competitive advantage in the entire value-chain by differentiation, from innovating in ESG product and service development; Assure capital markets prime access by ESG achieving standards; Outperform shareholder’s ROSS – Return on Sustainability Strategy; Create visible, measurable, reportable ESG value for all stakeholders; Measure ESG reputation in terms of cost of capital, exports revenue, etc; Institutional shareholders are engaged in company’s environment-social governance.
  14. 14. Research Perspective: Sustainability Value -Based Strategy ESG Strategy Value-Creation Financial Goals Measuring Business Strategy Executive Compensation Strategy Parameters Shareholder Engagement Investor Strategy Project Cash Flow Private Equity IPO, M&A Divestiture Finance Contribution
  15. 15. Return on Sustainability Strategy Framework Sustainabilit y Value-B as ed ROI Net Profit & Free Cash Valuation Dividend Flow Multiple Margin Cost of Capital Revenue Growth Improvement Reduction Risk New Market Differentiation Operation Cost Reputation Market Market s Entry Share Growth Price Premium & Productivity Premium Ratings Grade ESG ESG Image-Based Public Capex-Opex Knowledge Reputation Power Pricing Support Modeling Capital Branding ESG ESG Ecotech-Based Social-Focused Stakeholder Risk Mapping Accounting Products Products Engagement & Strategy & Reporting ESG Value-Chain ESG ESG ESG Innovation & ESG Risk & Long-Term Performance Leadership Adaptability Opportunities Strategic View Standards Initiatives ... Capturing Sustainability Value -Creation Drivers and Levers
  16. 16. Corporate Sustainability-Risk Framework
  17. 17. Value-Chain Sources of Sustainability Advantages Support Activities & Knowledge Capital Company Sustainability BI & analytics platform; Capex-Opex sustainability-based decisions; Corporate Infrastructure Sustainability Governance Structure Creating and internalizing a culture for sustainability; Developing capabilities on sustainability-based Human Capital management ; Corporate Sustainability Education; Sustainability-oriented Compensation System Innovation and Environmental-based design; Clean technologies development; Environmental material specifications R&D Capital Leadership Promptness and ability to convert Sustainability Strategy into Shareholders/Stakeholders Value; Capital Stakeholder-Based Management Approach; Stakeholder Sustainability Education initiatives C orporat e Sust ain ab ilit y Main st ream Corporate image Life-cycle process Responsible suppliers, Distributors & outsourcers & reputation Carbon & Water Stimulating less-harmful material safe storage, Footprint transportation , packaging and waste disposal Stimulating ethical and anti-corruption competing practices, fraud prevention, striving for upstream-downstream ESG internationally acceptable standards adoption Primary Activities Upstream Inbound Downstream Logistic & Marketing End-Cycle Logistic & Logistic & Supply Chain & Sales Services Operations Channels
  18. 18. Corporate Sustainability Strategy Framework Be nchmark in g Financing-Based ESG Risk Assessment Goals Setting Corporate Sustainability-Risk Strategic Mapping ESG Legal & Compliance Framework Risk Strategy Strategy Project Financing-Based ESG Assessment Stakeholder-Based Management Action Plan Investor-Based Management Governance Framework External Impacts Measuring and Accounting Detailing & Goals’ Detailing Métrics & Metrics Sustainability Dashboarding Business ESG Strategy Perspective Drivers Implementation & Monitoring Sustainability Shareholders Business Value-Based Engagement Stakeholder Strategy Goals Perspective ROI Engagement Value-Creation Financial Goals Measuring Business Strategy Strategy Stakeholders Executive Compensation Balanced Parameters Corporate Finance Sustainability Engagement ScoreCard Finance Goals Perspective Communication Framework Communication Sustainability Competitive Investor-Based Shareholder Reporting Reporting Scope Shareholder Engagement Management Goals Perspective Investor Strategy Creating and Internalizing the Culture of Corporate Sustainability
  19. 19. Responsible Investment Paradigm We will incorporate ESG issues into We will be active owners and investment analysis and decision- incorporate ESG issues into our making processes ownership policies and practices We will seek appropriate disclosure on We will promote acceptance and ESG issues by the entities in which we implementation of the Principles within invest the investment industry We will work together to enhance our We will each report on our activities effectiveness in implementing the and progress towards implementing Principles the Principles Sh are h o ld e r En g ag e m e n t To I m p ro ve I n ve s t e e ’s Sus t ain ab ilit y Go ve rn an ce
  20. 20. Findings from the FDC T h e C e n t r e f o r S u s t a i n a b i l i t y a n d C o r p o r a t e R e s p o n s i b i l it y The Sustainability Challenge and the Corporate Strategy Planning of Brazilian Companies 2009’s Research
  21. 21. FDC’s Next Research Shareholder Engagement Effectiveness: The Best Practices on Environmental & Social Governance in the Investee Companies. Targeted Public: Pension Funds and its Investee Companies. Responsible Investment Best Practices Responsible Investment Program for Program for Investee Pension Funds and Asset Paper Companies’ Board Members Management Professionals Publication and C-Suite Managers
  22. 22. Thank you! Jose Antonio Chaves Rua Carvalho de Almeida, 48 Conj. 23 – Cidade Jardim CEP 30380-160 – Belo Horizonte – MG – Brazil Phone: +55 31 3231-4688 - Mobile: +55 31 9312-4688 Email: