LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE: A North American Perspective Written by: John T. Ganzi Eric Steedman Stefan Quenneville September 2004 This background paper was prepared for the Secretariat of the Commission for Environmental Cooperation (CEC) and Environment Canada. The views and opinions expressed in this report do not necessarily state or represent the views, opinions or the stated policies of any of the project participants identified above, nor does mention of those project participants, their trade names or logos imply nor constitute an endorsement of the views expressed in this report. Reproduction of this document in whole or in part and in any form for educational or nonprofit purposes may be made without special permission from the CEC Secretariat, provided acknowledgement of the source is made. The CEC would appreciate receiving a copy of any publication or material that uses this document as a source. For more information: Commission for Environmental Cooperation of North America 393, rue St-Jacques Ouest, bureau 200 Montréal (Québec) Canada H2Y 1N9 Tel: (514) 350–4300 • Fax: (514) 350–4314 http://www.cec.org • [email protected] © Commission for Environmental Cooperation, 2004 Cite as: Ganzi, John T., Eric Steedman and Stefan Quenneville. Linking Environmental Performance to Business Value: A North American Perspective. Commission for Environmental Cooperation, Montreal. September 2004. 2 3 TABLE OF CONTENTS I. ACKNOWLEDGEMENTS.....................................................................................................................................6 II. EXECUTIVE SUMMARY ....................................................................................................................................7 KEY FINDINGS..........................................................................................................................................................8 Status of the Business Value Case........................................................................................................................8 Communication and Language Barriers..............................................................................................................9 North American Engagement in the Business Value Case...................................................................................9 Role of the Public Sector....................................................................................................................................10 III. INTRODUCTION...............................................................................................................................................11 METHODOLOGY .....................................................................................................................................................12 Structure of the Report.......................................................................................................................................14 IV. LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE..............................................14 A. CURRENT STATE OF EVIDENCE LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE..............14 Qualitative Research Context ............................................................................................................................15 Quantitave Research—Moving to Macro-level and Indices Studies ..................................................................16 Summary ............................................................................................................................................................21 B. INDUSTRY SECTOR RESPONSE TO THE BUSINESS VALUE CASE.......................................................................23 Environmental Performance and Business Value..............................................................................................23 Measuring, Communication and Disclosing......................................................................................................24 Connecting the Corporate and Financial Sectors..............................................................................................26 C. FINANCIAL SECTOR RESPONSE TO THE BUSINESS VALUE CASE.....................................................................28 Mainstream Equity Analysts ..............................................................................................................................28 Creditors ............................................................................................................................................................29 Socially Responsible Investment ........................................................................................................................29 D. PUBLIC SECTOR RESPONSE TO THE BUSINESS VALUE CASE: GEOGRAPHIC PERSPECTIVES.........................30 V. CONCLUSIONS: BARRIERS, GAPS AND OPPORTUNITIES ....................................................................35 A. RESEARCH AND ANALYSIS ................................................................................................................................35 B. MEASUREMENT, COMMUNICATION AND DISSEMINATION...............................................................................36 C. PUBLIC POLICY .................................................................................................................................................37 VI. RECOMMENDATIONS FOR FURTHER DEVELOPMENT OF THE BUSINESS VALUE CASE........40 ANNEX A: LIST OF INTERVIEWEES................................................................................................................43 ANNEX B: COMMENTS FROM EXPERT REVIEWERS.................................................................................44 GENERAL ASSESSMENT: ..........................................................................................................................................47 I. ACKNOWLEDGEMENTS...................................................................................................................................48 II. EXECUTIVE SUMMARY........................................................................................................................................48 Key Findings ......................................................................................................................................................48 III. INTRODUCTION ..................................................................................................................................................49 Methodology ......................................................................................................................................................49 IV. LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE ......................................................................50 A. Current State of Evidence..............................................................................................................................50 B. Industry Sector Response to the Business Value Case...................................................................................50 C. FINANCIAL SECTOR RESPONSE TO THE BUSINESS VALUE CASE ..........................................................................52 D. PUBLIC SECTOR RESPONSE TO THE BUSINESS VALUE CASE: GEOGRAPHIC PERSPECTIVES.................................52 V. CONCLUSION: BARRIERS, GAPS AND OPPORTUNITIES ......................................................................53 4 VI . RECOMMENDATIONS FOR FURTHER DEVELOPMENT OF THE BUSINESS VALUE CASE.......53 ANNEX C: AUTHORS’ RESPONSE TO EXPERT REVIEWERS....................................................................66 ANNEX D: TIMELINE OF MAJOR EVENTS RELATED TO THE BUSINESS VALUE CASE.................68 BIBLIOGRAPHY......................................................................................................................................................71 5 I. Acknowledgements One of the conclusions of the CEC meeting Financing and the Environment: Disclosure of environmental information in North America, held in New York in 2002, was that there is a need to work with experts from finance and business to analyze the business value case for taking environmental issues into account in financial and business decisions. In a follow-up meeting organized jointly with UNEP-FI in New York City in 2003, the identification of this need was repeated. In response, Environment Canada and the CEC forged a partnership to develop a baseline analysis of the current state of the business value case (i.e., the profitable financial performance for specific companies, industries, and the people who invest in and extend credit to these companies) for environmental performance. Conscious of the need for broader partnership on this issue, a network of organizations and individuals coordinated by Environment Canada and made up of experts and practitioners from the finance, business, academic and nongovernmental sectors was asked to participate in the development of the project, review the results of the study and provide recommendations on how to communicate the findings. The CEC and Environment Canada would like to thank the network for its support and review of this report. We would also like to thank all of the participants in the expert review process for their comments and guidance, which have increased the relevance and credibility of this report. The CEC and