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energy, mining, steel, food, beverages, and media “ companies that are con-
sidered leaders in implementing environmental, social and governance
(ESG) policies to create sustained competitive advantage have outperformed
the general stock market by 25 per cent since August 2005. In addition, 72 per
cent of these companies have outperformed their peers over the same
period;
Size of the Market: The market opportunities for ˜sustainable™, ˜ethical™ and
˜environmental™ products and services is increasing:
A survey prepared by the former UK Department of Trade and Industry™s Joint
Environmental Marketing Unit (JEMU) in the forecasted that global environ-
mental markets would grow to £439 billion in 2010. Certain geographical
market areas, especially those with expanding or developing economies,
show significantly higher projected annual growth rates of environmental
expenditure, among them China (12%), Southeast Asia (14%), Russia and
Eastern Europe (10%) and South America (9%). These figures clearly indi-
cated that there would be an unprecedented demand for long-term solutions
to pollution and other environmental problems.
Future revenue: increased customer loyalty and faith and trust in the prod-
ucts and services offered can help ensure that there is a market for the organ-
isations offerings in the future;
Marketing niches: There are still first mover advantages to be achieved in
the market place. For example Dell announced that it was the first global
Part E “ Case Studies of Business Risks
624



technology company to offer customers the opportunity to offset the emis-
sions associated with the electricity used to power their computers, thus try-
ing to cost effectively boost their potential sales levels and reputation with
customers (see also Chapter 10);
Market leadership: Marks and Spencer has announced that it will spend
£200 million (US$392 million) going “green”, as it seeks to become the fron-
trunner among British retailers seeking favour with increasingly environ-
mentally conscious shoppers. Its five years plan and budget aims to make
sure that:
They become carbon neutral by 2012;
They will trial using food waste to power their stores;
Their packaging and clothing will be biodegradable or compostable;
All products that have been flown in from growers are labeled thus; and
None of its waste will be dumped in landfill sites.
Revenue growth and potential for increased profitability: improved profitabil-
ity can be gained from the reduction of waste or reduced turnover of trained
key staff, the increased loyalty and reputation for quality with customers can
also have an impact upon profitability through increased sales and the ability
to charge premiums over other competitors; and
Protection of reputation: Corporate identity and reputation, integrity and sus-
tainability performance and thus the organisation™s standing in the commu-
nity are likely to be key areas of competitive advantage. This was reviewed in
detail in Chapter 9. Ethical due diligence issues include money laundering,
bribery and corruption (Chapter 10), examples include:
Intangible value is quite often of higher value than tangible value, according
to Interbrand 2000, 96% of the market value of Coca Cola, 97% of Kellogg and
84% of American Express is ˜intangible™. (Quoted in Business Case for
Corporate Responsibility, by Arthur D. Little and Business in the Community,
2003);
Reputation and the view of stakeholders is now a critical competitive advan-
tage in an age of instantaneous communications. This affects all organisa-
tions not just those with shareholders. It can even affect key elements of
governments, as the former UN Representative to Bosnia, Paddy Ashdown,
has noted. He said that even¦: ˜Modern warfare is won on the battlefield of
public opinion™; and
Suppliers™ and business partner integrity can impact upon the purchaser.


Social
These risk issues are particularly reviewed in part C. Benefits include:
Ethical and cultural due diligence (Chapters 5, 7 and 13) and its related areas
of corporate responsibility, environmental and sustainability due diligence is
becoming increasingly important;
Communities™ investment and involvement benefits are reviewed in Chapter
12, including the potential for organisations to link their business plans with
Cause Related Marketing. The ability to deal with local communities “ quite
Chapter 24 “ Conclusions and future trends 625



often where staff emanate from “ can also bring a more stable basis to opera-
tions and more constructive dealings with this stakeholder group;
Human resources and employment policy (Chapter 14): employees that are
treated with equal opportunities measures are staff that gives their best. Fair
remuneration, skill training and consultation schemes may well help to
achieve staff loyalty and retention of the best talent, and may even assist in
attracting high calibre employees in the future;
Human Rights benefits are discussed in Chapter 15;
Health and safety: it is also possible to have healthier, safer and cleaner work-
ing conditions that will help establish a happier work force for the provision
of safer and high quality products that customers are happy to purchase
(Chapter 16); and
Customer health, safety and service: good relations with customers are fun-
damental to a long term business strategy, with good customer service opera-
tions and product and service offerings ensuring that customer trust and
loyalty can be maintained.

Environmental
These are reviewed in depth in part D. Benefits include:
Cost reduction: the benefits of a Sustainable ERM system is that, as well as poten-
tially reducing costs and overheads associated with waste, pollution, energy use,
there is a reduced likelihood and severity of future “sustainability” related taxa-
tion. Any countermeasures already taken thus embed competitive advantage.
While there is the likelihood that there will be the internalisation of otherwise
external costs this can be turned into a competitive advantage at times;
An enlightened approach to sustainability can benefit both core objectives
and the bottom line. A good example is the International Chamber of
Commerce (ICC) Business Charter for Sustainable Development which was
developed to demonstrate business commitment to sound environmental
management (see http://www.iccwbo.org/home/environment/charter.asp);
Environmental expenditure continues to accelerate at an even greater rate
among developing countries as they struggle to adopt the environmental pro-
grammes now regularly required for access to western aid programmes, or
entry to global trade alliances and economic zones such as the EU; and
In the last decade of the 20th Century, the environment caught the public
imagination, harnessed public awareness and exerted public pressure to
force governments to implement increasing national and trans-national envi-
ronmental legislation, which prompted accelerating investment. Organisa-
tions can benefit from this trend.


Implementing the business case
Difficulties mastered are opportunities won Winston Churchill

The next step is working towards the sustainable development of your organi-
sation, ensuring sustainable risk management systems are in place and working
Part E “ Case Studies of Business Risks
626



towards the wider sustainability of our marketplaces. The goal is a huge chal-
lenge to ensure that our actions today do not limit the economic, environmen-
tal and social possibilities for future generations and ourselves.
If as organisations we are not in greater balance with our market places,
economies, communities and ecosystems then we will be poorer for it and the
opportunities to prosper and make this prosperity durable and sustainable will
be missed.
An approach for implementing a sustainable risk management system
throughout the organisation is by a value-adding chain approach. The value
chain (also known as the business system) is a sum of the activities that an organ-
isation conducts. A typical system begins with: inbound logistics (materials and
energy and other resources); which are then used by operations during the pro-
duction process; outbound logistics facilitates the products/services transfer to
customers through the sales and marketing functions and then the after sales
service functions ensures the consumer remains satisfied and is a potential repeat
customer.
Each part of this process is supported by secondary organisational activities:

Management of operations (e.g. controls, monitoring system, planning and
corporate governance);
Organisational infrastructure (e.g. Accounting and financing);
Human resource management (e.g. Recruitment, training and incentives);
Technological infrastructure and development (e.g. IT systems, product
research and design);
Procurement (e.g. sourcing of materials, components and suppliers); and
Communications (e.g. Stakeholder relations like: Investor and public rela-
tions, internal marketing).
The value chain can provide advantage if: a company is superior in one or
more elements of the chain; their co-ordination of the value chain is more
Chapter 24 “ Conclusions and future trends 627



streamlined and the management of the process ensures faster cheaper or better
quality results. There is the view that the value chain can add value by manag-
ing the “values chain” at each stage.
It is hoped that the chapters go some way to help organisations add to
implementing a sustainable risk management system to increase and protect
their reputational, human, social and environmental capital, as well as preserv-
ing, and even adding to their economic capital resources.
The table below indicates which chapters can assist with the implementa-
tions of a Sustainable and Economic Risk Management System (SERM) at each
value chain stage.




Sustainability factors

Value chain Governance Economic, Social Environment
function and factors factors factors
engagement
issues

Chapter 1“5 & 21“23 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
numbers

“ “ “ “ “ “ “ “ “
Logistics
“ “ “ “ “ “ “ “
Operations
and Production
“ “ “ “ “ “ “ “ “ “
Marketing
and Sales
“ “ “ “ “ “ “ “
After sales
service
“ “ “ “ “ “ “ “ “ “ “ “ “ “ “ “
Management
of Operations
“ “ “ “ “ “ “ “ “ “
Organisational
infrastructure
i.e. Finance
and strategy
“ “ “ “ “ “ “ “ “
Human
Resources
“ “ “ “ “ “
Environment,
Health and
Safety
“ “ “ “ “ “
Technological
infrastructure
and R&D
“ “ “ “ “ “
Purchasing/
procurement
“ “ “ “ “ “ “ “ “
Communications,
including IR
and PR
Part E “ Case Studies of Business Risks
628



What is economic?
During implementation of plans there is the key question of financial viability
of the drive towards sustainability. Risk itself cannot be removed and many
resources are dedicated towards the task. The economic justification for each
risk reduction strategy is included within the chapters of this book, and specif-
ically the introductory chapters 1 and 2. The essence is that there is an opti-
mum point where risk is reduced without undue or overly expensive
investment. We would argue that there is an increased level of risk that is
emerging and this would necessitate a proactive approach to investment to
counter future hazards and risk.
This can be expressed in the following diagram:


1. Compliance 2. Early “Win, 3. Mature “Win, 4. Marginal 5. Moving to
Costs Win, Win” Win, Win” returns negative
reducing returns
Economic Performance
Absolute




end rn
e
Compliance to




etu
itur
on ative r f
o
Win Win




neg Point
exp
Additional Sustainability Risk Expenditure


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