1. Competitiveness-Sustainability
Links
Lawrence Pratt
INCAE Business School
Lawrence.Pratt@incae.edu

2. Basic Stakeholder Framework
IMPACTS
COMPANY
Customers
(current, future)
(Community)
Owners/Banks
Government
NGOs
Workers
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3. Environmental Value Drivers
 Process efficiency
 Buyer preferences
 Access to more “ecological” international markets
 Official business relationships
 Environmental performance and competition in the
domestic market
 Incentive for innovation
 Lower-risk profiles for funding and investment
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4. Driver # 1: Process Efficiency
 Ecoefficiency
 material used/in product material
 new concept:
energy and material quantity per
“service unit” ==> “dematerialization”
 Thousands of well-known examples
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5. Driver # 2:
Buyer preferences
 Trend toward customers looking for better
performance
 for customers and other stakeholders (both current
and future)
 due to requirements from markets
 by philosophy and conviction
 Good and bad news
 Challenges for those not seeing them
 Exciting opportunities
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6. Driver # 3: Access to more “ecological”
international markets
 Fairly new trend
 “Market rules” set the guidelines
 Non-official
 No GMOs, organic
 recycled content
 ISO 14001
 more sustainable tourism
 More official
 “product take-back” requirements
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7. Driver # 4: Official
business relationships
 The most complex
 Particularly important in relation to product
content
 traces of carcinogenic substances
 Also process issues
 WTO role? UNFCC?
 Obviously, governments can protect the
population
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8. Driver # 5: Environmental competition in the
domestic market
 Local companies are already worried
 Multinational companies in industrial countries
have up to 30-year experience in creating and
using environmental development as a market
position.
 They are not afraid to use it against local
rivals.
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9. Driver # 6: Incentive for Innovation
 Less evidence than other areas
 Companies under environmental pressure
innovate faster (“Porter Hypothesis”)
 cases: Bacardi, de-icing, paper and pulp
 Rate of change is accelerating
 few companies have experience in this area
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10. Driver # 7: Lower-risk profiles for funding
 International banks acknowledge risk
 Evidence for serious problems due to a lack of
in-depth evaluation
 Up to 50 basis points premium with ISO 14001
(10% of leading banks?)
 Relation with IFC and The World Bank,
multinationals
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11. Opportunities in “Products for the Future”
 Good and bad news
 Favored versus un-favored sectors
 However, performance is important in all
 Alternative energy
 willing to pay up to 15% extra for non-fossil energy
 Agriculture -- organic has 20% annual increase
 Tourism -- fastest growing segments?
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12. Are companies creating value
from their environmental performance?
 Solid supporting evidence
 Case studies
 Solid theory
 Evidence in research on historical performance
at market level
 Emergence of “Ecoefficient” or “Sustainable”
Funds
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13. Company Valuation
Costs
Strategic
And
Earnings
Cash
Policy
Change
Flow
Decisions
In
Value
Risks
Cost of Capital
Source: Adapted from Rappaport1976
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14. Valuation: Environmental Elements
• Energy Efficiency
• Material Efficiency
• “Dematerialization”
• Reduction of Toxicity
Costs
Strategic
And
Earnings
Cash
Change
Policy
Flow
In
Decisions
Value
Risks
Cost of Capital
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15. Valuation: Environmental Elements
• New products
• New markets
• New clients
• Price premium
Costs
Strategic
And
Earnings
Cash
Change
Policy
Flow
In
Decisions
Value
Risks
Cost of Capital
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16. Valuation: Environmental Elements
• Regulatory Risk
• Risk of Direct action
• ”Social license”
• Site contamination
Costs
Strategic
And
Earnings
Cash
Change
Policy
Flow
In
Decisions
Value
Risks
Cost of Capital
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17. Valuation: Environmental Elements
• Special credit lines
• Company image
• Lower risk profile
• Venture Capital (high growth
companies)
Costs
Strategic
And
Earnings
Cash
Change
Policy
Flow
In
Decisions
Value
Riskis
Cost of Capital
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