February 16, 2017 Profit, People, and Planet: Incorporating Sustainability in the Classroom Paul Buller, Kent Hickman, & Erica Johnson
Sustainability and Jesuit Education Why is sustainability relevant at a Jesuit business school? Catholic Social Teaching: Care for the Planet Recent Encyclical Laudato Si Distinguishes Jesuit business education from other business programs Students can incorporate these ideals into their careers We can build responsible business leaders February 16, 2017 GONZAGA UNIVERSITY 2
Adding Sustainability Concepts to Courses Should be added to all sections of one or more principles level courses All students get exposure Happens early, so students can use the concepts in later classes Integrates sustainability with business concepts (sustainability is not a separate theme) Use sustainability examples to illustrate concepts from class Not teaching more material, just using a different example or homework assignment February 16, 2017 GONZAGA UNIVERSITY 3
Econ 202 Macroeconomics: Alternative Measures to GDP Robert Kennedy speech from 1968 about the shortcomings of GDP February 16, 2017 GONZAGA UNIVERSITY 4
Econ 202 Macroeconomics: Alternative Measures to GDP Human Development Index Genuine Progress Indicator Social Progress Index Gross National Happiness World Bank Wealth Estimates February 16, 2017 GONZAGA UNIVERSITY 5
Econ 202 Macroeconomics: Alternative Measures to GDP Source: Henrickson and Johnson (2015) Figure 4 February 16, 2017 GONZAGA UNIVERSITY 6
BUSN 430 Sustainable Business: Negative Externality Example Units Demanded: Q = 500-40P Total Cost = 300 + Q Price Per Unit = 6 Find: Q, Revenue, and Profit Negative Externality Unit Cost = 2 Recalculate Revenue and Profit if Costs are Internalized and i) passed on to consumers, or they are ii) absorbed by the firm. February 16, 2017 GONZAGA UNIVERSITY 7
BUSN 430 Sustainable Business: Political Power and Wealth Negative externalities: polluters make too much $$ Political power is correlated with wealth Those who benefit from unsustainable systems may be inhibit the resolution of the market failures e.g., oil companies and a carbon tax, etc. February 16, 2017 GONZAGA UNIVERSITY 8
BUSN 430 Sustainable Business: Decision Bias Prospect Theory: People exhibit risk aversion in gains but risk-seeking in losses, contrary to expected utility theory. Overconfidence and hubris are we overconfident that we will find a climate change solution in the future? Or is there a religious hubris that we are placed here to exploit resources? February 16, 2017 GONZAGA UNIVERSITY 9
BUSN 430 Sustainable Business: Intergenerational Equity Future generations cannot bargain or express preferences. What is the appropriate discount rate to apply to future generations? Cost-benefit analysis?? How does risk play into the cost-benefit analysis of the impact on future generations? February 16, 2017 GONZAGA UNIVERSITY 10
BUSN 481 Strategic Management: Concepts and Cases Competitive Advantage (cost leadership and differentiation) Redefine long-term superior performance to include triple bottom line. Stakeholder Analysis Incorporate a broad array of stakeholder interests in decisions. Value Chain and Value Creation System All activities in the value creating system contribute to the triple bottom line. Strategy Implementation Develop structures, systems, processes, people, and culture to support sustainability. Use business cases and current events to facilitate discussion and application February 16, 2017 GONZAGA UNIVERSITY 11
Competitive Advantage Triple Bottom Line Shared Value (Porter & Kramer, 2011) Sustainable Value (Laszlo & Zhexembayeva, 2011) Sustainable Effectiveness (Lawler & Worley, 2011) February 16, 2017 GONZAGA UNIVERSITY 12
Stakeholder Model February 16, 2017 GONZAGA UNIVERSITY 13
Value Chain (Porter,1985) February 16, 2017 GONZAGA UNIVERSITY 14
Value System (Porter, 1985) February 16, 2017 GONZAGA UNIVERSITY 15
McKinsey Seven-S Framework (Peters and Waterman, 1982) February 16, 2017 GONZAGA UNIVERSITY 16
Application Cases and Current Events Cases and Teaching Modules: WDI Publishing (formerly GlobaLens) http://wdi-publishing.com/search.aspx?q=sustainability Greenleaf Publishing http://greenleaf-publishing.com/ Learning Edge (Sloan Management Review) https://mitsloan.mit.edu/learningedge/sustainability/pages/default.aspx Harvard Business Publishing for Educators https://cb.hbsp.harvard.edu/cbmp/search? term=sustainability&n=&navigation=&coursepackname=&libraryitemid= Teaching Module for Laudato Si Pope Francis Encyclical http://www.scu.edu/ethics/practicing/focusareas/environmental_ethics/encyclical.html? utm_source=scu&utm_medium=email&utm_campaign=4213& February 16, 2017 GONZAGA UNIVERSITY 17
Q & A We Invite Your Questions and Discussion At the End of the Session February 16, 2017 GONZAGA UNIVERSITY 18
Sustainability Accounting Cathy DeHart, CPA FSA Credential Holder February 16, 2017 GONZAGA UNIVERSITY 19
The Sustainability Accounting Standards Board (SASB) A 501(c)(3) organization founded in 2011 SASB s mission is to set industry-specific standards for corporate sustainability disclosure, with a view towards ensuring that disclosure is material, comparable, and decision-useful for investors. Source: SASB website February 16, 2017 GONZAGA UNIVERSITY 20
Other Sustainability Reporting Initiatives February 16, 2017 GONZAGA UNIVERSITY 21
Just as the markets have a standard for material financial information US GAAP the markets need a standard for material sustainability information. Alan L. Beller, SASB Board Member and Former Director of Corporate Finance at SEC Source: Nasdaq: Making Sustainability Reporting Work for Investors and Companies by Alan L. Beller July 27, 2016. https://listingcenter.nasdaq.com/clearinghouse.aspx#outsideinsight February 16, 2017 GONZAGA UNIVERSITY 22
SASB s CEO & Founder Jean Rogers holds a PhD in Environmental Engineering from Illinois Institute of Technology & has 20 years of sustainability and management consulting experience. Named one of the Top 100 Most Influential People in Accounting in 2015 & 2016 by Accounting Today. February 16, 2017 GONZAGA UNIVERSITY 23
Members of SASB s Board of Directors Michael Bloomberg, Chair Robert Herz Mary Schapiro, Vice Chair Elisse Walter February 16, 2017 GONZAGA UNIVERSITY 24
Why do we need SASB? 81% of companies in the S&P 500 publish voluntary CSR reports* However, a 2013 study found that 90% of 23 companies studied who had received an A or A+ grade from the Global Reporting Initiative for their CSR reports had experienced significant negative sustainability-related events that were not reported.** *Governance and Accountability InsFtute, Inc. 2016 Research; hlp://www.ga-insftute.com/research-reports/research-reports-list.html **AccounFng, AudiFng & Accountability Journal, 2013, Sustainability reports as simulacra? A counter-account of A and A+ GRI reports February 16, 2017 GONZAGA UNIVERSITY 25
Why we need SASB Michelle Edkins, Managing Director, Global Head of Investment Stewardship at BlackRock is deeply distrustful of CSR reports & says there is an inverse relationship between the volume of CSR reporting & ESG performance. February 16, 2017 GONZAGA UNIVERSITY 26
SASB standards are designed to work within the framework of existing U.S. securities laws SASB is not advocating for new legislation or regulation Regulation S-K guidance for disclosure in the MD&A: Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. Regulation S-K also calls for disclosure of risk factors. February 16, 2017 GONZAGA UNIVERSITY 27
ESG issues represent risks, trends, and uncertainties that are reasonably expected to have a material financial impact Industry Disclosure Topic Examples of Financial Impact Semiconductors Water Management in Manufacturing Operating expenses Restaurants Food Safety Loss of revenue and damage to reputation Metals & Mining Workforce Health, Safety, and Well-Being Contingent liabilities from legal action and/or regulatory penalties Pharmaceuticals Counterfeit Drugs Loss of public confidence and reduced revenue Source: SASB Provisional Standards February 16, 2017 GONZAGA UNIVERSITY 28
75% of SASB disclosure topics are already being disclosed in the 10-K Source: SASB Webinar for Financial ExecuFves InternaFonal, June 9, 2016 February 16, 2017 GONZAGA UNIVERSITY 29
Boilerplate vs. Metrics Source: SASB Webinar: Overview of the SEC Concept Release and its Significance, June 8, 2016. February 16, 2017 GONZAGA UNIVERSITY 30
SASB s industry-specific metrics enable peer-to-peer and benchmark comparisons Industry Auto Parts Disclosure Topic Metrics Example Products Safety Number of recalls and total units recalled Restaurants Food Safety Number of confirmed foodborne illness outbreaks & percentage resulting in CDC investigation Agricultural Products Climate Change Impacts on Crop Yields Pharmaceuticals Counterfeit Drugs Biotechnology Source: SASB Provisional Standards Affordability & Fair Pricing Average crop yield and five-year standard deviation per major crop type by major operating region Description of methods and technologies used to maintain traceability of products throughout the supply chain and to prevent counterfeiting. Ratio of weighted average rate of net price increases (for all products) to the annual increase in the U.S. Consumer Price Index February 16, 2017 GONZAGA UNIVERSITY 31
SASB s Vision: With SASB industry-specific standards in place. Companies will compete and improve performance on the sustainability issues that matter most. Investors will drive capital to the most sustainable outcomes. Source: SASB Briefing Book, April 2014 February 16, 2017 GONZAGA UNIVERSITY 32
For more information, go to sasb.org or follow SASB on Twitter @SASB February 16, 2017 GONZAGA UNIVERSITY 33