Opportunities for CSR in the Midst of the Financial Crisis

Transcription

1 Opportunities for CSR in the Midst of the Financial Crisis June 11, 2009 Dafna Tapiero, IFC CommDev

2 Outline How do Companies View CSR What happens during a Financial Crisis Opportunities for CSR Improving the understanding of ROI of CSR 2

3 Sustainable Approach to Oil, Gas & Mining No Longer an Altruistic Endeavour: It is a Business Imperative Oil, gas and mining companies are guests in remote, impoverished areas Increased NGO activism and reputational risk A Social License to Operate does affect the bottom-line A condition of finance/investment IFC Performance Standards, Equator Principles For long-term success, operations must be strategic, transparent & equipped with qualified human resources Investors Government (local, provincial, national) Nongovernmental organizations Oil & Gas Company Community Local business Effective local stakeholder management happens by design Uninterrupted operations

4 Evolution of how to acquire a social license to operate Old Approach Do No Harm Environmental & Social mitigation Keep a low profile Unilateral decisions Thinking About Development New Global Best Practice Handouts Ad hoc philanthropy programs No results measurement Understand local needs, but not preferences Few links to other local development plans (govt, NGO, donors) EX: Building Schools, Clinics without knowing if teachers, student, doctors, supplies will come Strategic sustainability & community investment Conduct social baseline study Participatory methodologies (consultation) Identify metrics for monitoring and learning Communicate good and bad results throughout

5 Benefits of Sustainability Investments Long-term investors Operating License Retention, Productivity Open markets Export market Regulators Shareholders Community Employees Government Renewal, expansion Reduced cost Company Financiers NGOs Cooperation Insurers Media Reduced premiums Clients Reputational benefits Stable markets, premium pricing

6 What do people inside companies think about the value of CSR McKinsey Research: How much do you think that Environmental, Social and Governance (CSR) ESG activities add to shareholder value? 6

7 Percentage of respondents Effect of ESG programs on organization s shareholder value in typical times 2 Value add Investors and CFOs believe ESG¹ drives value > <2 No effect Reduced value Don t know Environmental, social, and governance 2 Excluding any changes stemming from the current economic crisis SOURCE: S. Bonini, N. Brun, and M. Rosenthal, Valuing corporate social responsibility, The McKinsey Quarterly, February CFOs, n = 84 Investment professionals, n = 154 ESG professionals, n = 87 Complementary findings from the survey: A large majority of ESG professionals think that ESG programs create value in the short and the long term CFOs and investors professionals are more likely than ESG professionals to see the long term benefit of these activities

8 Impacts on CSR from financial and economic crisis In an economic downturn, companies look for the essentials and cut back on the rest.this is what we are seeing: If CSR. is embedded and contributes toward the bottom line If CSR is simply a PR and philanthropic function Flat is the new up.so far 8

9 Surprisingly CSR Staff CSR spend 9

10 Competition Opportunities for CSR CSR policies can contribute to greater profits (such as in retail) Help maintain relationships with stakeholders Become more strategic and aligned with business objectives Become more integrated More emphasis on stakeholder perceptions Management is looking for value 10

11 Planning & Financial Valuation Model for Sustainability Investments

12 Financial Valuation of Sustainability Tool: Challenge Being Addressed Challenge Sustainability (CSR/local/social development) investments are not well-integrated into extractives operational/financial models No current way to assess financial value and rationalize/optimize sustainability investments Difficult to communicate value of sustainability investments in terms that internal and external constituencies can understand Solution Excel-based tool that estimates expected net present values (NPVs) for mining project s sustainability investment portfolios Evidence-based customization and plug-and-play usability Provide framework for prioritizing, structuring, timing and resourcing sustainability investments 12

13 Architecture of the Model Architecture : The model is structured like a traditional business case, it estimates the difference between the value of two user-defined scenarios: Scenario A is defined as base case Scenario B is defined as the proposed sustainability program NPV of Scenario B with scenario MINUS NPV of Scenario A without scenario NPV of Sustainability Investment Value Creation Cost of inputs decreases or productivity rises Value created can be readily calculated e.g., workforce training enables substitution of local hires for expensive expatriates Value Protection Less risk of delay, disruption, and/or expropriation Value protected is not readily calculated e.g., investments in social cohesion, reputation, cultural heritage, etc. 13

14 Financial Valuation Tool -- What to Expect What it can do: Estimate (based on a range of probability) the expected NPV of a given portfolio of sustainability investments, including valuecreation and value-protection components Show relative benefit of specific investments (workforce vs. resettlement), to facilitate rational analysis and strategizing > provide a strategic framework for decisions Best used for comparing different portfolios and scenarios within one project by one company What it can t do: It cannot accurately predict the precise NPV Not really useful for comparing across companies or contexts, because assumptions would generally vary considerably Provide an unbiased assessment of the quality of a sustainability investment 14

15 Rank Sharpe Ratio Switch Added value of Sustainability Details SUSTAINABILITY ISSUE MODEL OUTPUT Assessment Total SD/CR added value (NPV) In % of Project NPV Stand alone standard deviations StDev in % of its Mean Value Protection NPV Calculations Initiatives X X X X X X Value Creation NPV Calculations Workforce 1. 6,49 on ,9% % Local Suppliers 2. 2,47 on ,1% % Health 3. 1,13 on ,1% % Housing 4. 0,97 on ,3% % Access to Water 5. 0,95 on ,5% % Electrification 6. 0,95 on ,8% % Legal 7. 0,94 on ,0% % Food Supply 8. 0,92 on ,2% % Primary Education 9. 0,90 on ,2% % Community Development 10. 0,77 on ,9% % Biodiversity 11. 0,59 on ,0% % Resettlement 12. 0,43 on ,3% % Total Possible NPV %

16 Now more than ever Communities need private sector engagement to address environmental, social and governance issues. CSR results need to be more accurately valued and understood. With fewer resources, the CSR needws to be integrated more and funds should be allocated more wisely. 16

17 Thank you! Dafna Tapiero Manager IFC CommDev Washington, DC