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Unblocking net zero towards a sustainable future
- 1. Dr Scott Kelly SVPModel Development, Risilience Unblocking the path forward Building a business case for sustainability
- 2. 1 Reducing costs Managingrisks Making markets Leading innovation Optimising value chains Making finance work Working for stakeholders Business 2.0: making the case for sustainability 2 3 4 5 6 7
- 3. Executives agree thatsustainability is a key value proposition In 2021, 40% of c-suite executives expect their companies to generate significant value from sustainability programs in the next five years1. In 2022, 89% of c-suite executives agree there is a climate crisis, and 79% believed we have reached a tipping point to address it2. In 2023, 87% of c-suite executives believed sustainability was crucial for the long-term success of the business3. In 2024, up from 22% last year, 63% of c-suite executives said they now see a clear business case for sustainability.4
- 4. 1 Reduce costs withnew technology and improved efficiency 2 3 4 5 Energy efficiency retrofits Renewable energy investment Water recycling systems Waste reduction and recycling Smart automation technologies Reducing costs 6 7
- 5. 1 Managing risk canavoid billions in losses 2 3 4 5 Deepwater Horizon Direct cost: US$65 b Market cap loss: $100 b Share price drop: -55% Managing risks Dieselgate Direct cost: €16 b Market cap loss: €35 b Share price drop: -40% 6 7
- 6. 1 Invest in marketmaking opportunities 2 3 4 5 Accelerate world’s transition to sustainable energy Making markets Create delicious plant- based alternatives to traditional meat products. 6 7
- 7. 1 Lead with sustainableinnovation 2 3 4 5 We’re in the business to save our home planet. Leading innovation To lead the industrial world in creating a sustainable environment while achieving superior business performance to benefit all stakeholders. 6 7
- 8. 1 Optimise value chainsfor sustainability 2 3 4 5 Optimising value chains +53% Revenue +15 % Higher prices +30 % Higher yields Sustainable Cocoa Sustainable Tea Sustainable coffee 6 7
- 9. 1 From shareholders tostakeholders 2 3 4 5 6 7 Working for stakeholders Shareholder model Stakeholder model Shareholders Firm Consumers Suppliers Employees Shareholders Firm Consumers Suppliers Employees Governments Civil society Competitors
- 10. 1 Use financial metricsto drive decision making 2 3 4 5 6 7 Making finance work Return on Investment (ROI) Focus on quantifiable financial metrics Saved $1.75 billion dollars over two decades Sustainability products now 30% of revenue Environmental P&L Prices the nature impacts from value chain In 2023, EP&L grew slower than sales Decoupling of nature impacts from profit Internal Carbon Pricing Pioneered in 2012 Assigns price to CO2 emissions Price covers global operations and supply chain $15 for Scope 1, $100 for business travel
- 11. 1 Risk-adjusted financial metrics 2 3 4 5 7Making finance work 6
- 12. 1 Reducing costs Managingrisks Making markets Leading innovation Optimising value chains Making finance work Working for stakeholders Business 2.0: Can your business afford not to be part of the transition? 2 3 4 5 6 7 The greatest threat to our planet is that someone else will save it. Robert Swan The greatest threat to your business is that someone else will solve your challenges.
Editor's Notes
- #2 Hi everyone. I’m Scott Kelly and I’m SVP of model development at Risilience. Today I’m going to talk about building the business case for sustainability. Getting internal buy-in and support for a sustainability strategy is a barrier to progress for many leaders. Today I hope to provide some practical guidance and case studies for moving the dial towards strategic sustainability planning.
- #3 Up until recently, the standard logic has been that pursuing reduction in emissions, or broader nature and sustainability objectives will be costly to business. This has reduced interest in pursuing sustainability initiatives and created artificially high barriers that must be overcome before a business will even consider the idea of pursuing an initiative that could have value-creating opportunities opportunities for the business. Evidence is now mounting from around the world, from companies across different sectors and sizes, when done right, sustainability can be good for the business. Sustainability has the potential to lower costs. It can effectively manage risks. It can create entire new markets. When innovation is targeted at new sustainable technologies and business models, sustainability can be a major disruptor to existing incumbents. When sustainability is used as a lens on value chains, new efficiencies and opportunities can be identified. When used to reform internal financial metrics and company KPIs, the opportunity that sustainability represents for business can brought into focus. And finally when businesses shift focus from a shareholder mentality to a stakeholder mentality – the opportunity for profitable sustainability for long-term value creation becomes possible.
- #4 There is now mounting evidence that c-level executives are shifting long-held view that sustainability is a cost to one where sustainability is seen as having a strong value proposition. Over the last several years multiple surveys have shown that C-suite executives are recognising this value. From a McKinsey survey three years ago 40% of c-suite executives expected sustainability to generate significant value over the next five years. Then two years later, a 2023 a survey from EY found that 87% of c-suite executives believed sustainability was crucial for the long-term success of the business. Around the same time, Delloitte found that 89% of c-suite executives agree there is a climate crisis, and 79% believed we are a tipping point to address it. Then this year, Capgemini, a strategic technology partner for business conducted a survey that showed c-suite executives now see a clear business case for sustainability, and the number of c-suite executives recognising the business case for sustainability has gone from 22% last year to 63% this year – almost a factor of three improvement. This brings me onto the main topic of my presentation. Which will be to provide you with the arguments, tools and examples for making a business case for sustainability. So lets get into it. Many business leaders have the erroneous perception that one can have profits or sustainability, but not both How companies capture the value of sustainability: survey findings (2021). McKinsey&Company. Online. How sustainability and ESG went from a trend to mission critical (2023). Online. Delloitte Sustainability Report. The disconnect between ambition and impact. Online. Embracing a brighter future: Investment Priorities for 2024. Capgemini. A survey of 2,000 businesses with $1billion in revenue. Online
- #5 The first topic for making the business case for sustainability is reducing costs. This is often the first thing that businesses do when they look to implement sustainability. Energy efficiency retrofits. Many companies have done energy efficiency retrofits. General motors underwent a significant energy efficiency retrofit program. Upgraded lighting systems, replaced HVAC, upgraded insulation. Renewable energy investments are reducing energy costs to business. Renewable energy requires significant upfront investment, so to save money with this strategy, businesses need to take a longer-term view on the costs to their business. Apple has converted many of facilities to using 100% renewable electricity. Apples datacentres have been powered by renewable electricity since 2013. Apple has invested Water efficiency and recycling systems are an essential consideration for many businesses. Intel is renowned for its microprocessor and semi-conductor business. The manufacture of micro-processors and semi-conductors use a lot of water. Intel has therefore invested heavily in water efficiency and water recycling initiatives. Intel has committed to restoring 100% of global water-use and has now claimed it has achieved ‘net-positive water’. In the USA intel is returning 106% of water used, in Costa Rica it returned 103%. In Bangalore in India they have claimed to have restored 394% of the water they used. Waste reduction and recycling is about scrutinising the materials that a business uses in its operations and production processes. It is about reducing the absolute volume of materials through improved design and production processes. This is achieved by reusing and recycling the waste that is produced by these processes. IKEA is a good example of this cost reduction strategy. IKEA uses recycled and renewable materials for its products. For example in 2024 IKEA announced that 90% of the waste generated by its stores and distribution centres was recycled or recovered. By focusing on circular design, IKEA has significantly reduced the waste it generates from its products Smart automation systems are about installing smart technologies to manage and monitor energy consumption and resources. Siemens is a global leader in smart automation to advance best practice in sustainability. Simens has demonstrated the financial value of cost savings through the implementation of smart technologies such as IoT, AI and data analytics. With their smart grid technology, they can optimise the integration of renewable energy with the grid to minimise emissions and lower costs. Analysis shows that Siemens technology has reduced energy building energy consumption by up to 30%. General motors: has introduced significant energy efficiency programs, upgrading HVAC, LEDs and optimising manufacturing processes. This has saved the business millions in energy costs. Apple: One study estimated that companies experience an average internal rate of return of 27% to 80% on low carbon investments. One study estimated that companies experience an average internal rate of return of 27% to 80% on low carbon investments.
- #6 Another area to make the business case for sustainability is through improved management of risk. There are many examples where companies could have avoided significant costs if they had implemented environmental risk mitigation controls. Here I show two. The first is the Deepwater Horizon disaster. The Deepwater Horizon Disaster happened on April 20 2010. It is one of the most catastrophic oil spills in history. The tragey resulted in the death of 11 workers, and oil being spilled into gulf of Mexico for 87 days. Releasing around 5million barrels of oil into the ocean. A post-mortem investigation found serious risk management failures. It was not a single mistake but a series of systemic failures. Multiple flaws across BPs risk management practices.. The direct cost to BP was estimated at 65 billion. They had a market capitalization drop of 100b and share price drop of 55%. In a second example, Dieselgate, brought about because Volkswagon made fraudulent claims about its tailpipe emissions. In 2015, the US EPA announced that VW had installed software in its diesel cars to manipulate emissions tests. The software, known as a ‘defeat device’ allowed the vehicles to pass emissions test while emitting pollutants far about legal limits. Approximately 11m vehicles globally were equipped with the device. Total costs to VW, including fines and vehicle buy-backs amounted to $30billion. Stock prices fell by 40%, resulting a market cap loss of around 35 billion. If VW had managed and understood the potential risks to the business, dieselgate could have been avoided.
- #7 The next example for making the business case for sustainability is to invest in market making opportunities. There are many examples where companies have defined whole new market segments within the sustainability space. Tesla We are all familiar with the success story of Tesla. Teslas commitment to sustainability has made it a pioneer in the electric vehicle and renewable energy industries. Tesla estimates its cars save over 4 million metric tons of CO2 annually. In 2013 Tesla had a market cap of $20 billion. By 2023 its market cap had surged to 800 billion. It is now one of the most valuable car manufacturers in the world. Teslas energy products, such as powerwall, solarroof and powerpack contribute to energy independence by enabling individuals and business to generate and store their own renewable energy. Sustainable manufacturing, through Teslas gigafactories, are designed to use renewable energy sources. Tesla is developing processes for recycling batteries to recover valuable materials and reduce waste. Beyond meat In 2013 Beyond meat started to establish itself in the market. The company aims to replicate the taste, texture, and nutritional profiles a meat using plant-based ingredients. Beyond Burger – launched in 2016 – became the first plant-based burger to be sold in the meat section of grocery stores. Beyond meat burgers generate 90% fewer emissions. 99% less water consumption and 93% less land usage. Beyond meat burgers are healthier and have no effect on animal welfare .. Beyond is now a market leader in sustainable meat alternatives and driving innovation across the plant-based sector.
- #8 The fourth way to make the business case for sustainability is by leading with innovation. For those of you working in sustainability, these will be familiar. Patagonia Patagonia is one of the world best known companies for implementing sustainable innovation and has been innovating in this space for decades. Patagonia has implemented a range of innovations such as Switching to organic organic, reducing the need for pesticides and synthetic fertilizers. Using recycled materials in its products such as making fleeces from recycled bottles. Encouraging customers to repair, reuse and recycle clothing through its worn wear program. And by introducing its Ironclad guarantee which offers customers to repair or replace damaged products, reducing the need for new purchases. They are also supporters of Fairtrade certification which ensures workers in their supply chain receive fair wages for work in safe conditions. They continue to innovate with new materials, such as Yulex rubber. They continue to be an industry leader in the apparel sector. Interface Interface began as a traditional carpet manufacturer but its founder Ray Anderson read Paul Hawken’s book “the ecology of commerce” and inspired him to to re-imagine his company. Interface developed the ReEntry program which recycled old carpet tiles and transforms them into new ones. This process significantly reduces waste and the need for virgin materials. It uses biomimicry to replicate the natural randomness of tiles to reduce waste. It 100% carbon neutral and has achieved zero waste to landfull by implementing comprehensive waste diversion and recycling programs. Interface’s business model shows it is possible to be profitable while achieving business success.
- #9 Fifth on the list is optimizing value chains for sustainability. The rainforest alliance is a registered NGO and certification program that was founded 1987 to help farmers deal with climate volatility, reduce land degradation, and increase resilience to drought and humidity. Mars, Unilever, and Nespresso are all corporate partners with the Rainforest Alliance as it allows them to have confidence that the products they purchase under this certification scheme meet minimum sustainability criteria. For Mars it ensure that cocoa sourced from certified farmers meet sustainable agriculturaland environmental standards. This is shown to increase revenues for these farmers by up to 53%. Unilever is one of the world’s largest purchasers of tea. Through Rainforest Alliance it ensures that tea is produced in ways that are environmentally sustainable and socially responsible. Sustainable tea is shown to have a price premium of 10-15% over non-certified tea increasing the revenue for farmers. This is because products with rainforest alliance certification stand-out to consumers, giving a competitive edge. Nespresso also sources coffee through Rainforest alliance. Research has shown that coffee coming from farmers with rainforest alliance certification, have yields that are 30% higher than non-certified coffee. Flooding in 2011 in Thailand, harmed 160 companies in the textile industry and halted nearly a quarter of the country’s garment production, increasing global prices by 28%. https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability.
- #11 Applying financial metrics and KPIs that drive internal decision making is key to building a strong business case. Financial metrics such Return on Investment, NPV, Internal Rate of Return and Payback Periods are all commonly used to assess investment in new sustainability initiatives. 3M has been a long-term proponent of using financial metrics to justify investment. In 1975, 3M launched its Pollution prevention pays program. The aim of this program was to prevent pollution at source. The program aimed to track the cost-savings from implementation of sustainability initiatives, to justify further investment. The projects were measured using Return on Investment which guaranteed investments made good financial sense for the business. It is estimated 3M has saved over 1.75 billion dollars in expenses. Sustainability products now represent 30% of 3M revenue streams. Puma Environmental Profit and Loss captures the social price of water, land-use and carbon across supply chain. Concept developed by then CEO, (Yohan) Jachen Zeitz to put financial metrics on the nature impacts across Puma’s value chain. In 2023 puma was able to show that environmental costs grew slower than sales, showing a shift towards sustainability. Microsoft Microsoft implemented an internal carbon price to drive emissions reductions across its business. Implementing an internal carbon price means carbon is priced across the business and the most efficient reductions can be identified. At Microsoft, price covers global operations and supplychain emissions.
- #12 One important metric that we have been developing at Risilience is the concept of nature and climate risk-adjusted metrics. Everyone here would be familiar with the MACC curve where the Y axis represents the Cumulative Cost per tonne of CO2 of an initiative and the horizontal axis represents the cumulative emissions abated. If we look at the same curve using the Risilience risk-adjusted metric, the risk adjusted costs reduce because through the avoidance of climate risks, there is a net reduction on the total cost of an initiative.