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06/26/2013

Economics and "Glow"

The Pinch, Push, and Shift Model for Building Value

We recently blogged about important mindset shifts taking place with regard to environmental, social, and government (ESG) business imperatives.  As members of the Shared Value Initiative and principals at Deloitte LLP, we are positioned to put a spotlight on the persuasive interplay between practicing good corporate citizenship and bolstering the bottom line.  And at the end of the day, isn’t this the very essence of shared value? 

Our experience indicates--that growing numbers of citizens, consumers, employees, and governments expect that companies will partner with other businesses, government entities, and NGOs in a collective effort to protect our environment and deliver positive societal impact.

Indeed, when consumers were asked how important a company’s “social consciousness” was in determining what they buy, 74% of the consumers surveyed said it was either very or somewhat important, according to a NPD and Civic Science March 2013 survey. And as revealed in several recent Deloitte surveys, business leaders are seeing a real connection between upgraded ESG practices and better economic performance. In one late 2012 study Deloitte conducted of 250 senior executives from companies with $500 million+ revenues on a wide range of ESG issues, results showed 64% of those surveyed expect future annual revenue growth to come from products and services that reduce environmental and social impacts. About half anticipate this growth will account for 5% of greater future revenue, while the other half expect between 1 and 5% of future revenue growth will come from environmental and social products and services.1

We may no longer need to look prospectively to see how companies are enhancing shareholder value through better alignment of ESG issues and traditional commercial pursuits.  One
large sports apparel manufacturer, for instance, has recycled 82 million plastic bottles into high-performance sportswear, reducing waste by 19% in its footwear business, increasing the use of environmentally preferred materials by 20%, and achieving a 95% reduction in volatile organic compounds.  To better describe this blend of traditional shareholder value analysis and the emerging science of environmental and social impact measurement, we’ve created a shorthand: pinch, push and shift.

Pinch—Downside risks can be reduced, or “pinched,” as needed in today’s increasingly volatile, resource-constrained, and socially engaged world.  One way to do this is by integrating ESG and financial reporting to increase transparency, improve understanding of risks, and drive targeted migration strategies. It can also enhance what we call “glow”-- the trust and respect earned from customers, investors, and employees for doing the right things right. 

Push—Companies can leverage ESG issues to create new product and service innovations that drive revenue and reduce operating costs—“pushing” shareholder value up.  Our recent research shows that companies that lead in ESG issues are more than 400% more likely to be considered innovation leaders as well.2

Shift—Making ESG factors an integral part of the company’s makeup can improve shareholder value by shifting the expected share price to a higher level, creating a valuation premium.  Pinch and push can contribute to this by strengthening the company’s brand, reducing risk, and fueling innovation.  This shift also comes from achieving greater operating efficiency and reduced waste, lowering costs and increasing profitability. 

We see growing evidence that effective integration of ESG issues into core business activities—risk management approaches, business operations, and strategy formulation—can have a positive impact on a company’s ability to compete now and for the future.  That’s good news for society and for shareholders. 

Stay tuned for more from our end; and we welcome tuning into your point of view as well… 


Cathy Benko
Vice Chairman

Deloitte LLP

Chris Park
Principal

Deloitte Consulting LLP


Sources:
1 250 US executives, ranging from vice president to board member, working in companies with over $500 million in global annual revenues, were survey by Deloitte on sustainability matters in
November-December 2012.

2Deloitte research, “The Sustainability-Innovation Connection—Making It Work,” reported by Daniel Aronson in Deloitte Dbriefs, May 1, 2012. 

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

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Copyright © 2013 Deloitte Development LLC. All rights reserved.

 

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