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Sustainable Development (SD):
An Investment or a Cost?
Canadian Centre for Ethics in Public Affairs
February 26, 2008
Dr. Blair W. Feltmate
Ph: 416-592-1708, blair.feltmate@opg.com
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Objectives
• Define sustainable development (SD)
• Identify which industry sectors are
embracing SD
• Profile the business case for SD
• Profile emerging SD business drivers
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Sustainable Development…
“meeting the needs of the present without
compromising the ability of future generations
to meet their own needs”
World Commission on Environment and Development, 1987
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Society
Environment
- increase recycling efforts
- produce less waste
- support energy efficiency
- reduce spills
- lower SO2, NOx,
greenhouse gas
emissions
- support biodiversity
- manage nuclear waste
- ISO 14001
Sustainable
Development
- support door-to-door
community outreach, plant
tours, etc.
- support work/family life
balance programs (e.g.
flexible work hours)
- recognize value of a
diverse workforce
Economy
- support local procurement
- support local hiring
- support training and
scholarship programs
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Alcan
Coca Cola
Rio Tinto
Ricoh
Canfor
Baxter
Shell Canada
Rezidor
L’Oreal
Suncor
Royal Bank
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Sustainable Development, Quality of Management
and Shareholder Value
Causal Factors/
Direct “Bottom Line” Impact
• access to markets/new build
• employee attraction/productivity
• discount on borrowed capital/
lower insurance premiums
• address customer demands
• facilitate partnerships
• increase efficiency
• inclusion in “SD” Funds
Correlational Factors/
“Quality of Management”
• corporate governance
• product innovation
• financing options
• manufacturing processes/
production line efficiency
• skills upgrade
• continuous improvement
SHAREHOLDER VALUE
Sustainable Development Index -- SDI
Method
• Quantitative
• Comprehensive
• Proprietary
Measures
• Practical
• Meaningful
• Cost Effective
Analysis
• Industry Specific
• Rigorous
Level 1
Metric
Level 2 Metric
Ranking
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General
Environment
Economy
Society
SD Policy
Goals and Targets
Contact Persons
Stakeholders Identified
etc., etc.
Waste Production
Energy Consumption
Energy Conservation
Water Consumption
Land Remediation
etc., etc.
Share Best Practices
Local Procurement
Local Hiring
Contribution to Research
Wage Based Economy
etc., etc.
Town Hall Meetings
Odour Control
Community Support
Transferable Skills
Development
Recreational Support
Aesthetic Values
Heritage Sites
etc., etc.
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Avg. g = 3.5
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3
4
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ng = 4
Evaluating
Performance



Avg.e = 3.8
ne = 5
Avg. ec = 3.4
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nec =
40 - 160
Performance
Measures
Avg. s = 3.7

site visits
questionnaires
interviews
reviews of SD and
Environmental Reports
SDI = weighted average
score
SDI > 70% = SD Company
= Superior Quality
of Management
ns = 7
ABC Co. = 72.3%
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 33 countries, 318 companies, 57 sectors
 $5 billion in investment vehicles
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The sdEffect:
Translates environmental, social and economic
performance (eg. metals recycling, community
outreach programs) for 6 mining companies into
impact on share price, using:
- Ratio Analysis
- Discounted Cash Flow
- Rules of Thumb Valuations
- Economic Value Add (EVA)
- Options Pricing
"The report provides the first steps in using
financial language to measure the impact
of sustainable development on the bottom
line. This report… lays the foundation in
linking sustainable development to
company performance and provides
another tool for financial professionals to
use in their on-going analysis.“
Donald Reed, President and CEO
Franklin Templeton Investments Corp.
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Emerging SD Drivers
a. UK Turnbull Report -- as of 2000, required companies listed on
London Stock Exchange to disclose all risk -- financial,
environmental, social, ethical.
Companies listed on the Toronto Stock Exchange (TSE) will be
required to produce a “sustainable development” style report in the
not-too-distant future (Barbara Stymiest, former President, TSE)
b. Pension Legislation Changes -- as of 2000, UK required pension
plans to disclose the degree to which they factor the
“environmental, social and ethical” performance of companies into
their investment decision-making -- since then… France,
Germany, Belgium, Sweden, Australia adopted similar legislation.
c.
Canadian SRI Assets Under Management -- 2004 = $65 billion,
2006 = $504 billion : increase due primarily to SRI mandates by
several major pension funds.
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d. Canada Pension Plan -- created the position of “Manager,
Responsible Investing” -- CPP manages > $100 billion.
e. MBA Programs -- most MBA programs now feature “Corporate
SD” courses. Ivey School of Business, University of Western
Ontario, all students are required to take course in corporate SD.
f.
Global Reporting Initiative (GRI) and ISO 26000 Guidelines -International standards have been developed to guide corporate
SD reporting. Standards are now in place for industry sectors.
[2,000 - 2,500 companies produce SD Reports]
g. Cost of Carbon -- CO2 at $15 - 30 per tonne
h. Al Gore -- An Inconvenient Truth : James Lovelock -- Gaia
i.
World Population Growth -- another 2.25 billion people by 2025 2030
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Conclusions
• An “environmental” focus is out-of-date -sustainable development is the new business
imperative, regardless of industry sector.
• SD is a long-term trend, not a fad.
• SD, properly applied, is a revenue generator -not a “cost” -- that correlates with quality of
management.