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Internal and Internal and
Internal and
Value Drivers and External External
External
Pressures Economic Social, Ethical and
Environmental
(Tool 1) and Technological Political
Value Drivers
Value Drivers Value Drivers




There is an increased measurement of benefits, reporting of the results and
verification of these reports.
The SERM rating system estimates that just over half of all the ˜sustainable™ risk
to organisations™ value is due to indirect risks and pressures for change emanat-
ing from the wider ˜external™ environment. The resultant figures are that com-
panies have an average sustainability risk of 12.5% of value environmental
issues, representing a 5.4% risk to market value; followed by social and ethical
issues at 5.1% (including health and safety issues) and economic ˜sustainability™
factors at 2.0%.
Part A “ Overview of Risk Management
32



Tool 2
An ˜Environmental™ Audit
Tool 1 in the Sustainable
An Assessment of Development format of
the Value Drivers Economic, Social and
for an organisation Environmental Trends



Economic Drivers
Value Drivers
Value Drivers
Economic Trends
Technological/Scientific Trends


Social Drivers
An
Society and Population Trends
Analysis of
Stakeholder
Political/Governmental
Trends and
Assessment
Legal/Legislative
Drivers
Ethical




Tool 3 Environmental Drivers
An Assessment of
Stakeholder Drivers
will have an effect
in the future



How to use the tools?
The tools for trends analysis can be used to cross-reference each other for level
of effect upon your organisation. The key stakeholders from tool 3 can be
viewed for significance against the main trends and drivers from tools 1 and 2.


1. Value and Internal Drivers (tool 1)
This section reviews some of the trends and drivers of value creation within
organisations in the context of sustainability and risk management. Sustainability
issues can be economically relevant to all the main management decisions compa-
nies undertake, from strategies to investment decisions. These decisions can have
effects upon the economic levers which in turn influence the competitiveness and
value drivers of an organisation (Schaltegger and Wagner, 2006).
Sustainability management and risk management have an effect on opera-
tions and productions and are therefore related to revenue and profits.
Costs: costs are increasing as demand for resources spirals and resources™
base prices increase if supply cannot expand sufficiently to meet demand and
this is having an inflationary effect upon entire supply chains. Costs are being
decreased by not investing in fixed assets where possible, although estimates
are for continued increases in costs.
The enhanced communication that is often part of corporate accountability
efforts can help build trust between companies and stakeholders, which can
Environmental scanning categories (tool 2)
Economic Social Environment
indicates key
drivers drivers drivers
significance




Environmental
Technological



demographics


governmental
Value Drivers




Political and
and scientific

Society and
Economic
(Tool 1)




Ethical
trends




trends
Legal
Academic and
research
organisations
Business
partners,
suppliers and
trade bodies
Customers and
representatives
Direct actions
Stakeholder analysis (tool 3)




groups and NGOs
Employees and
representatives
Financial
institutions
Governmental
organisations
Local and
regional
government
International
government
Journalists and
media
Key competitors
Local
communities

Value drivers


Management Economic Competitive- Value Drivers
Elements Levers ness
Costs

Resources
Financing Capital
Overheads
Revenue
Value
Operations Market Share growth
Sales
Strategy Employee Profit margins
Sales Value
retention and
Sustainability attraction Tax rate
Risk Levels
Management
Reputation Investments
Part A “ Overview of Risk Management
34



reduce costly conflict and improve decision making. For example, companies that
proactively and effectively engage shareholders and address their concerns can
reduce the costs associated with shareholder proposals. Also, according to Ann
Svendsen, author of The Stakeholder Strategy (Berrett-Koehler Publishers, 1998),
˜When firms and their suppliers trust each other, the costs of monitoring and man-
aging contracts are lower. Companies experience less conflict with their suppliers,
resulting in fewer lawsuits, and there is a heightened capacity for innovation.™
Some trends are:
There have been near doublings of costs relating to many naturally occurring
primary resources within the last year or two, like: coal, oil, gas, copper and
other metals;
This has had a direct impact upon secondary resources that require large nat-
ural inputs to their processes: paper pulp and construction and building
materials have all increased in price;
Natural hazard incidence and insurance premiums for liabilities cover with
regard to sustainability issues are increasing as claims increase, i.e. flood risk
cover is becoming expensive or has been removed entirely in large parts of
the developed world, even years before hurricane Katrina; and
Due to the dropping price of green building materials and other supplies,
many businesses find that renovations to increase sustainability pay for
themselves in only a few years.
Resource availability: the other side of the market equation is that supply cannot
always be increased. The scarcity of resources is having an effect upon revenue
as the natural world™s capacity for production is exceeded by consumption.
Current estimates are that we would need two and a half planet Earths to meet
current demand for materials in a sustainable manner. Some industries like fish-
ing will require over three planets to meet current demand in a sustainable way.
This leads eventually to crisis points in the supply chain, i.e. frozen food produ-
cers are finding fish increasingly scarcer unless farmed.
Some trends are:
Economic, social and environmental accounting and measurements will con-
verge more;
Business process changes. The following trends will continue to occur:
Dematerialisation: fewer natural resources require less expenditure;
Decarbonisation: the energy required for processes will need to be progres-
sively decarbonised, especially as carbon taxes increase;
Eco-efficiency: increases will improve productivity increases as fewer
materials will be required to produce each unit of production of service.
This is referred to as moving from the value chain to the value loop empha-
sising the close system nature of resource use;
Innovation and eco-design: this also includes industrial metabolism and
increased efficiency from chemical reactions and materials flows in systems
as most leaks of materials are as a result of poor design or from accidents;
Miniaturisation: fewer resources will be required to make the same item;
Simplification: fewer items, parts and materials will be required;
Chapter 3 “ Drivers and trends in sustainability risk management 35



Substitution: switching to cheaper or more sustainable materials will bring
stability to processes over the long term. Where rare natural material depend-
ency occurs this has caused large delays in meeting financial targets, like
game systems missing their launch dates due to shortages of rare metals; and
Waste reduction: if you are purchasing resources and then not using them
all, this is in effect throwing away money. In the Japanese business philoso-
phy of Kaizen (Japanese for ˜change for the better™ or ˜improvement™) an
important goal is the elimination of wasteful processes which are viewed
as ˜activities that add cost but do not add value™.
Purchasing of fewer fixed assets in the form of premises, etc.; and
Improved organisational effectiveness through improved self-assessment and
evaluation as a result of increasing accountability. For example, social and
environmental auditing and reporting can give companies the opportunity to
assemble and assess more comprehensive information on operations and
impacts. This information can help improve efficiencies and collaborations
across departments, facilities and business units.
Revenue growth: sales and profits could move towards durable/sustainable
sales and profits.
Some trends are:
Towards building customer loyalty as a compensation against price competi-
tion with the rest of the world;
Reputation has become an influence upon organisational value “ either directly
from product boycotts, etc., or from damage to corporate reputation from media,
NGO campaigns, shareholder activities and changing customer preferences;
Growth of niche markets in the developed world. The European market for
environmental goods and services is now worth ‚¬227bn and is increasing
rapidly. Increased competitive advantage and sales from ˜green™ and ˜social™
embedding within the marketplace. Mainstream businesses are purchasing
these types of niche players rapidly to brand build in emerging markets for
these products and services, examples include Unilever™s purchase of Ben &
Jerrys, L™Or©al Group™s purchase of the Bodyshop, and Cadbury™s purchase of
Green & Black™s organic chocolates;
Growth of developing world markets. There has been a realisation that although

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