No, I don't mean the "sensitive guy" thing. I mean,
"How vulnerable is your company to the risks associated with your sustainability strategy?" -- or, more to the point, that strategy's gaps, shallowness or lack of integration with your business.
Consider this list -- which is either
on your CFO's mind, or should be:
How much are you wasting on materials, energy, labor, occupancy, management and opportunity that wind up as
non-product -- the stuff you produce that you ship to a smokestack, sewer line, landfill or hazardous waste site, instead of to a customer?
InterfaceFlor found nearly
half-a-billion dollars in extra profit by asking that question. How does your
Product-To-NonProduct Ratio compare with your competitors'? Don't know? You should.
What's your financial risk in a possible future in which there's a
price on carbon? (As with all risk analysis, you have to consider the potential scale of the risk as well as its likelihood.) Riskmetric's (now part of
MSCI) Carbon Beta calculates that monetized risk, divides it by EBITDA, and compares that ratio between companies in a sector, and between sectors. The gap can be 10:1 or more.
Would you consider that "material"?What's your financial risk in a possible future in which there's a price on water, biodiversity, and other
"nature's services" (as well as carbon)? Puma's
Ecological P&L was the first to attempt this analysis, and estimated a potential impact equivalent to nearly 50% of net income.
How exposed would your company be?What's your most important asset? Most of you are smart enough to say "people" -- but
where are people on your financial statements? R. Paul Herman of
HIP Investor Inc has discovered a handful of companies in India -- from infosystems to oil & gas -- that account for human capital as an asset, not a liability, and calculate
Return on Human Capital. Yet no company in the US or Europe reports this metric.
Will you be the first -- and gain the acclaim? How much of your business depends on public subsidies? Yes, I know that one man's subsidy is another's social investment, and I'm not arguing that all subsidies should go away (though I would say that public subsidies to the fossil fuel and nuclear industries have long outlived their societal benefit) -- but what if they did? What impact could that have on your business? How much are you investing in
eliminating your dependence on subsidies vs lobbying to preserve or expand them?
The list could go on --
license to operate, brand/reputation risk, resilience, just to name a few. (And I'll address those another time) But it's probably sufficient to get your juices flowing -- to recognize that there is significant business value on the table here, that can either
make you a lot of money, or cost you a lot of money.Don't you owe it to your management, your shareholders and yourself to
consider the bottom line impacts of these all-too-plausible possibilities?
