Sustainable Development (SD), Value Creation and the Capital Markets

Following a meeting of the CBBF (Canadian Baha’i Business Forum, Dec 2008) where Dr. Blair W. Feltmate, Director, Sustainable Development, OPG, spoke passionately about the move toward SD (Sustainable Development) as a philosophy for future governance and business management, I knew that as an Executive coach and leadership trainer, I couldn’t ignore the subject of Sustainability with any of my future clients.

As Executive Coaches, we go to our clients with their agenda in mind to help them focus on what’s working for them, what’s not working for them and what they consider to be important development factors for leading their organization forward. But as former executives we also know something about running a business. The senior coaches I work with including my Associates go into organizations with much more than just life coaching skills. They have practical business leadership experience. We do all the standard coaching activities; working with assessment tools, workshop facilitation, assisting in goal setting, helping clear limiting beliefs, assisting in team development, improving relationship skills and developing leadership’s consultation and communication skills. But we also have our own business experience to share and are capable mentors as well as coaches. We utilize the skill of questioning, but we can also provide in-sight and mentoring when it is necessary.

After hearing Dr. Feltmate’s presentation, I realized that not incorporating SD into my skill set and business model would be a disservice to my clients.

Thinking about Sustainability strategies is becoming more than just a good idea. It’s becoming an imperative for every responsible business owner or executive to at least know something about SD. Clients always have the option to stick to their own agenda items, and there are many, but very few responsible business leaders are blind to the emerging trends toward SD. Most just need a hand in learning about their options, thinking about the implications, raising awareness, planning for cultural shifts, a little encouragement in taking their first steps or someone to walk with them as they move into their future. And that’s what we do!

After following up the CBBF meeting and sitting down one-on-one with Dr. Feltmate, to share my own strategies around Sustainability, the subject area was incorporated permanently as a component in the HBI leadership model. Dr. Feltmate acknowledged the need to reach out to local businesses and municiple offices and encouraged the initiative.

As background information, the following information is from Dr. Feltmate’s CBBF presentation which focused on a few important messages and the reasons for his advocacy of Sustainability.
(The remaining portion republished from my previous blog and content from Dr. Feltmate’s presentation published with his permission Dec 2008)
As a long time student and teacher of the subject, Dr. Feltmate pointed out that historically, early advocates of Sustainable Development began their advocacy of SD using altruistic arguments that in the end tended not to gain support. Eventually, they moved away from these motivations towards those based in Value creation in the Capital Markets. In other words, recognizing that business leaders wouldn’t buy the message just because it was the right thing to do, they reasoned that it must also be the practical thing to do. As it turns out, there are more than enough arguments to accept SD as the next logical step in the development of good business practices, as well as having that added bonus of being the right thing to do.

The definition for Sustainable Development given by the World Commission on Environment and Development in 1987 was “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

According to Dr. Feltmate, intelligent people everywhere are adopting Sustainable Development (SD) methods, not because they are good, but because they make sense to the bottom line. His message was that the current issue is not one of lack of acceptance of SD. When presented with the arguments for SD, business leaders are easily persuaded that SD is the right direction.

The primary issues are: 1) getting the word out, there are simply not enough advocates to reach every business leader 2) helping people to learn and re-focus their every-day business practices to incorporate SD, like every other change, it takes time and education and 3) helping people to understand the long and short term business benefits.

Standards such as ISO 14000 and especially the ISO 26000 standards which are currently under development take businesses a long way toward SD and, purely by practical business drivers, will eventually be adopted by companies everywhere.

As a practical example of how SD can impact the supply chain, Walmart, in order to restore some of the negative press it was getting regarding production of goods, imposed severe restrictions on it’s suppliers to ensure that they were following ethical practices and improving on sustainability.

While there is progress, Dr. Feltmate pointed out that no matter how fast these and other SD practices are adopted, they won’t be fast enough to avert serious ramifications to the world’s economy and infrastructure. SD is an inevitable requirement for the world and the faster we can adopt SD practices, the better off we will all be.

Dr. Feltmate also pointed out that SD goes beyond environmental concerns.

Although becoming an SD practitioner is no easy task, it is a step which many companies are taking. The first step in the process is to conceptually adopt the idea of not damaging the environment. But this is only the beginning.

Steps such as increasing recycling efforts, producing less waste, supporting energy efficiency, reducing spills, lowering SO2 and NOx emissions, reducing greenhouse gas emissions, supporting biodiversity, managing nuclear waste, and adopting ISO14001 standards are all part of the process.

But SD goes further than just environmental concerns and also incorporates economic efforts to support local procurement, local hiring, SD training and scholarship programs as well as contributions to society such as door-to-door community outreach, plant tours, support of work/family life balance programs (e.g. flexible work hours),recognizing the value of a diverse workforce and community and worker health and safety.

Dr. Feltmate demonstrated that many large Cap companies are already well on their to implementing SD plans and through critical evaluation have proven themselves to outperform similar companies in all respects, noting causal factors such as direct “Bottom Line” Impacts, greater access to emerging markets, employee attraction and productivity, discounted capital, lowered insurance premiums, better ability to address customer demands, facilitate partnerships, increase efficiency, and inclusion in “SD” Funds.

He also pointed out that Cor-relational Factors such as the “Quality of Management” were seen by investors as being much higher for Sustainable companies than for companies which were not as forward thinking. Corporate governance, product innovation, financing options, manufacturing processes, production line efficiency, skills upgrade and continuous improvement are all built into the SD governance process.

He further spoke about factors used to measure the SD Index and demonstrated through these measures the relative success of companies that adopted SD practices and were better SD practitioners were proven to outperform companies who were just starting on that path.

A 2006 report entitled “The SD Effect: Translating Sustainable Development into Financial Valuation Measures” highlights how SD translates environmental, social and economic performance for 6 mining companies into impact on share price, using:

  • Ratio Analysis
  • Discounted Cash Flow
  • Rules of Thumb Valuations
  • Economic Value Add (EVA)
  • Options Pricing

The report was recognized by Investment Management companies as a significant indicator of future performance.

Dr. Feltmate pointed out a number of different emerging SD drivers which are pushing companies toward SD adoption including:

  • Requirement for companies listed on Stock Exchanges to have an SD plan and reporting. The UK Turnbull Report indicated that as of 2000, companies listed on London Stock Exchange were required to disclose all risks- financial, environmental, social and ethical. Companies listed on the Toronto Stock Exchange (TSE) will be required to produce a “sustainable development” style report in the not-too-distant future (Barbara Stymiest, former President, TSE)
  • Pension Legislation Changes as of 2000 in the UK required pension plans to disclose the degree to which they factor the “environmental, social and ethical” performance of companies into their investment decision-making. Since then, France, Germany, Belgium, Sweden, Australia adopted similar legislation.
  • Growth in Canadian SRI Assets Under Management which in 2004 were at $65 billion and which increased to $504 billion by 200 due primarily to SRI mandates by
  • The move of other several major pension funds. The Canada Pension Plan which manages about $100B also created the position of “Manager, Responsible Investing” to ensure that SD factors were taken into account.
  • The adoption by most MBA programs of required “Corporate SD” courses
  • A Global Reporting Initiative (GRI) and ISO 26000 International standards which have been developed to guide corporate SD reporting.
  • Standards are now in place for various industry sectors and 2,000 – 2,500 companies produce SD Reports
  • Development of  the Dow Jones Sustainability Index

Other factors which are foreseen to push the SD initiative include:

  • Cost of Carbon — CO2 at $15 – 30 per tonne and growing
  • Initiatives such as Al Gore’s “An Inconvenient Truth” and James Lovelock’s Gaia
  • World Population Growth — another 2.25 billion people by 2025 -2030

Dr. Feltmate concluded with the idea that an “environmental” focus is out of date and that sustainable development is the new business imperative, regardless of industry sector. He points out that:

  • SD is a long-term trend, not a fad.
  • SD, properly applied, is a revenue generator .
  • It is not a “cost” and that it correlates with quality of management.

Dr. Feltmate stayed after to answer many questions about SD initiatives and indicated that the information about SD although it could potentially be seen as a strategic advantage to companies employing such methods, also recognize the moral imperative of SD and noted that the information was widely shared amongst participating companies. The goal of all such initiatives, to make the world better through better business practices.

In writing this article, much of the information was borrowed from Dr. Feltmate’s presentation with his permission.

Other articles by Dr. Feltmate can be found at the following links:

http://www.ethicscentre.ca/EN/resources/april 2000 methics.pdf
http://www.alternativesjournal.ca/index.php?option=com_content&task=view&id=408

If you wish to further explore your own adoption of SD initiatives, please contact myself, Garth Schmalenberg at 416-919-6598 or at Garth@hbi-leadership.com

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