Can Today s Business deliver Tomorrow s Economy?

Transcription

1 Bocconi University Milan, 20 th May 2015 Can Today s Business deliver Tomorrow s Economy? Pavan Sukhdev Author, Corporation 2020 & CEO, GIST Advisory

2 A Green Economy is defined as one that results in improved human well being and social equity, whilst significantly reducing environmental risks and ecological scarcities. Source: Towards a Green Economy, UNEP, 2011 T 21 Model: Results for 2% of GDP invested in Greening vs 2% more in BAU

3 Is a Green Economy possible without greening the Private Sector? U.S. Gross Value Added 7,1% 5,5% Private Business 12,5% Households 74.9% Nonprofit institutions serving households Government Total = GDP (US$14,526.5 billion) 2010 data. Source: U.S. Bureau of Economic Analysis

4 Green Economy is the right economic vehicle to achieve Sustainable Development Corporation 2020 is the right economic agent to achieve a Green Economy

5 Corporation 1920 Four Defining Behaviours Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics

6 Corporation 1920 Four Defining Behaviours Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics

7 Big Is Beautiful?

8 Big Is Beautiful?

9 The Success of World Trade?

10 Corporation 1920 Four Defining Behaviours Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics

11 1920 Smoke & Mirrors!

12 ..Fifty Years On You ve come a long way, baby

13 Corporation 1920 Four Defining Behaviours Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics.. Leading to Negative Externalities

14 Why change? Negative externalities of top 3,000 companies estimated at US$2.15 trillion per annum Source: Trucost for UNPRI, 2010.

15 Why change?

16 Eg: Change in Land Use About Rainforests and Rainfall ml

17 Negative Corporate Externalities.. Top 3,000 Listed Companies Source: Trucost for UNPRI, 2010.

18 .. Pushing Planetary Boundaries Greenhouse Gases Greenhouse Gases Natural Resources Natural Resources Natural Resources Water Abstraction

19 Theory of Change Macro Issues Micro Drivers Micro Solutions Excessive Demand Underpriced Supply Culture of Consumerism fuelled by Marketing/ Advtg Leverage without Limits Advertising Ethics & Accountability [Advertising Associations] Controls to Limit Leverage [Central Banks..] Resource Depletion Public Capital Losses Underpriced resources (Low royalties / perverse subsidies) Externalized costs Resource Taxes / Corp n Tax Offsets [Finance Ministries] Measure & Disclose Corp Externalities [Accountancy Regulators]

20 Accountable Advertising Two principles Treat all consumers equally, irrespective of market Improved disclosure of advertising practices Annual Accountable Advertising Report Four strategies Disclose life span of product on packaging and in ads Disclose countries of origin Recommend how to dispose of product Disclose the footprint of the product on its packaging (GHG emissions, freshwater, etc)

21 Accountable Advertising : PUMA

22 Jochen Zeitz Executive Chairman, Puma

23 Limiting Leverage There are many Tools for Limiting Leverage: Capital adequacy ratios for TBTF corporations Consortium banking (info sharing between banks) Segregate lending/clearing institutions from investment/ insurance (re visit Glass Steagall?) Limit tax deductibility of interest beyond caps Constrain leverage from M&As Re align performance bonus systems

24 walton biography.html Rob Walton Chairman, Walmart

25 See Interview with Rob Walton on Limiting Leverage to see why Wal mart went public

26 Resource Taxation Example US coal fired power: half of US electricity $0.08/kWh price, but $0.17 /kwh health & other damages* Resource Usage Fees for just one tenth of that damage, i.e. of $0.017/kWh $30 billion in tax revenues This could provide (for example) a tax refund of $3,400 to every middle income American taxpayer ($75,000 $100,000). Note : Average American uses 12,000 kwh/year of electricity Tax imposes a direct cost of $200/person ** *Epstein et al, 2011, Harvard University ** Indirect costs (in terms of higher product prices) can be compensated by directing some of the tax revenue towards efficiency improvements and worker training eg. new, efficient technologies

27 Resource Taxation Norway s Experience Erik Solheim, earlier Norway s Minister for Environment & Development. on Norway s 79% Resource Taxation for Oil & Gas, & their GPFG See 1%E3%82%A4%E3%83%AB:Erik_Solheim.jpg

28 Why Stakeholder Reporting? Business today depends on, and/or has impacts on, ALL dimensions of private & public wealth but.. EXAMPLES Physical Capital Human Capital Social Capital Natural Capital Private Factories Health Gardens Ownership Buildings Education Fields Securities Job Skills Forests Cash Community Community Traditional Community Community Ownership * Centres knowledge Norms and Forests (club goods) Community Customs Grazing Schools Commons Public Ownership * (public goods) Roads Bridges Public Law & Order High Seas databases Taxation fisheries Non patent Social Equity National knowledge & Inclusion Parks/ Forests * Creating community wealth and public wealth creates shared value

29 Why Stakeholder Reporting? Business today generally measures & reports only shareholder wealth impacts: private physical capital EXAMPLES Physical Capital Human Capital Social Capital Natural Capital Private Factories Health Gardens Ownership Buildings Education Fields Securities Job Skills Forests Cash Community Community Traditional Community Community Ownership Centres knowledge Norms and Forests (club goods) Community Customs Grazing Schools Commons Public Ownership (public goods) Roads Bridges Public Law & Order High Seas databases Taxation fisheries Non patent Social Equity National knowledge & Inclusion Parks/ Forests

30 Why Stakeholder Reporting? Business for a sustainable tomorrow will measure & report on LL dimensions of its impacts EXAMPLES Physical Capital Human Capital Social Capital Natural Capital Private Factories Health Gardens Ownership Buildings Education Fields Securities Job Skills Forests Cash Community Community Traditional Community Community Ownership * Centres knowledge Norms and Forests (club goods) Community Customs Grazing Schools Commons Public Ownership * (public goods) Roads Bridges Public Law & Order High Seas databases Taxation fisheries Non patent Social Equity National knowledge & Inclusion Parks/ Forests

31 See Interview with Jochen Zeitz on to see why PUMA disclosed its Externalities

32 Disclosing Externalities : PUMA PUMA Press Release, November2011

33 TEEB for Business Coalition: Measuring, Valuing, Disclosing Externalities WBCSD GRI CEF CDP, WDP Quantifying Usage, Discovering Dependencies & Impacts TEEB for Business Coalition & Network Standardizing & Valuing Impacts IIRC, SASB, & Accountancy Regulators Disclosing Impacts in One Report Emissions /tcoe Freshwater / CuM Forests LUC / Ha Pollution / Waste / (Value Chain Impacts Cradle to Gate ) Economic Costs of Emissions, Freshwater Use, Deforestation, Pollution, Waste Framework for Integrated Reporting of All Externalities incl Social & Human Capital..

34 TEEB for Business Coalition: Measuring, Valuing, Disclosing Externalities TEEB4BC Report (15 th April 2013) on Measuring & Valuing Externalities by Business Sector & Region..

35 What will define a Corporation 2020? Social Purpose: Goals Aligned with Society Capital Factory: Positive Externalities Institute: Creating Human Capital Community: Creating Social Capital

36 How Stake Holder Reporting? GIST 360 o TM Assessment.. Financial Value Addition Natural Capital Externalities Human Capital Externalities Social Capital Externalities Measuring Value Addition holistically, including all material Externalities

37 Redefining Corporate Performance From Shareholder Performance to Stakeholder Performance From Reporting Financial Capital Impact to Reporting All Capital Impacts Moving forward from Directive 2014/95/EU (22 Oct 2014) of the European Parliament & Council, which requires national implementation by AkzoNobel: Measuring Impact in 4D 1 AN carried out a pilot study during 2014 at their Pulp and Performance Chemicals business in Brazil with the help of GIST Advisory and TruePrice, which specifically looked at their environmental, human, social and financial impact. By measuring these four dimensions across the whole value chain. attaching an economic value to the positive and negative aspects of each, they were able to identify where they can improve. This new insight will enable them to make better business decisions by reducing the negatives and building on the positives financial_reporting/index_en.htm 2. studies/sustainable business/measuring our impact in 4d.html

38 Corporation as Institute : Infosys World class Training for 30,000 per year

39 Infosys Externalities Disclosure Financial Statements Y/e March 2012 Source: Annual Report,

40 Corporation as Community : Google

41 Corporation as Community : Natura Greater Economic Security for Women jolieapero chez natura brasil/ Source: in well being

42 Alessandro Carlucci Pavan Sukhdev CEO, Natura Author, Corporacao 2020

43 In Summary : Reforms for Corporation 2020 to become the DNA of Business Accountable Advertising : Making advertising responsible & accountable via norms & standards Limiting Leverage : Introducing rules & limits to govern financial leverage Resource Taxation : Replacing Corporation Tax (profits) with Taxes on Resource Use & Extraction Disclosing Externalities : Measuring & disclosing all major corporate externalities (+ve & ve) From : Source: Why Corporation 2020?, Island Press, 2012

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