WORKING DRAFT Last Modified 4/14/2009 10:39:00 PM Pacific Standard Time Printed 3/25/2009 4:10:23 AM India Standard Time Valuing Corporate Social Responsibility and Sustainability March 2009 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited BCCCC Presentation DRAFT
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WORKING DRAFT
Last Modified 4/14/2009 10:39:00 PM Pacific Standard Time
Printed 3/25/2009 4:10:23 AM India Standard Time
Valuing Corporate
Social Responsibility
and Sustainability
March 2009
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
BCCCC Presentation
DRAFT
McKinsey & Company
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Objectives of the research
▪ Focus on financial link between ESG
activities and financial value creation
▪ Develop understanding of what it
takes to:
– Create value through ESG
activities
– Develop more sophisticated
metrics to capture the financial
value
– Build better tools and methods to
communicate that value to internal
and external stakeholders
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Key findings
▪ ESG activities create value along the four
areas traditionally valued by the market:
– Growth
– Return on Capital
– Risk Management
– Management Quality
▪ Investors and CFOs believe ESG activities create
value, but are not fully taking it into account
▪ Many companies create real value from ESG
activities, but most do not measure that value,
and even fewer communicate the value
▪ There is a real opportunity for ESG professionals
to fill this gap
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Research methodology
▪ Examination of ESG
programs today, the
challenge of measuring
value, and methods for
assessing and
communicating value
▪ Examined existing metric
systems
▪ 238 CFOs and investment
professionals
▪ 127 ESG professionals and
socially responsible
institutional investors
through BC CCC
▪ Range of industries
and regions
▪ 135 interviews across
20 companies
▪ 11 industries
▪ U.S. and Europe
▪ Range of functions: ESG
professionals, human
resources, environment,
strategy, finance, and
investor relations
▪ Tie ESG to value along
4 dimensions typically used
by market: growth, return on
capital, risk management,
management quality
▪ Develop 10 best practices
for designing strategic ESG
programs
Initiative white paper, with analysis of ESG
measurement issues and recommendations
CFO, Investor, ESG Professional
McKinsey Quarterly survey
Company interviews and case studies
Framework for linking ESG activities
to Value Creation
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License to operate ▪ Facilitate uninterrupted operations and entry in new markets using local ESG efforts and
community dialogue to engage citizens and reduce local resistance
Supply chain/security of
supply
▪ Secure consistent, long term, and sustainable access to safe, high quality raw materials and
products by engaging in community welfare and development
▪ Mitigate risks by complying with regulatory requirements, industry standards, and NGO demandsRegulatory risk
Reputational risk ▪ Avoid negative publicity and boycotts by addressing ESG issues
Workforce efficiency ▪ Reduce costs generated by employee attraction and turnover by using ESG to build morale
▪ Develop employees’ skills and increase productivity through participation in ESG activities
▪ Enable bottom line cost savings through environmental operations and practices (e.g., energy and
water efficiency, less raw materials needed, etc.)Operational efficiency
Reputation/Price premium ▪ Develop reputation on ESG that garners customers’ willingness to pay price increase or premium
▪ Gain access to new markets and market share through exposure from ESG programsNew markets
Reputation/differentiation ▪ Foster brand loyalty, reputation and goodwill with stakeholders by engaging with them on
ESG programs
Innovation ▪ Develop cutting edge technology and innovative products and services for unmet social or
environmental needs that could translate to business uses, patents, proprietary knowledge, etc.
New customers/market share▪ Use ESG to engage consumers and build knowledge of expectations and behaviors
New products ▪ Create products to meet unmet social needs and increase differentiation
ILLUSTRATIVE
SOURCE: Team analysis
Leadership development ▪ Develop leadership skills and improve employee quality through ESG participation
Adaptability ▪ Build ability to adapt to changing political and social situations by engaging local communities
Long term strategic view ▪ Develop long term strategy encompassing ESG issues
Manage-
ment
quality
Risk
manage-
ment
Return
on capital
Growth
CSR creates value along 4 business dimensions
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What are your “pain points” as an ESG practitioner?