1. Carbon performance assessment with the
Sustainable Value approach
Dr Tobias Hahn
Euromed Management School, Marseille (France)
Prof Frank Figge
Queen’s University Management School, Belfast (UK)
Euromed Management School Queen‘s University
Marseille Management School Belfast

2. Overview
The quest for a truly integrative analysis of corporate carbon
performance
Measuring corporate carbon performance using the
opportunity cost based Sustainable Value approach
Practical application to some car manufacturing companies
Main implications
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3. Different ways of looking into corporate
carbon performance
Isolated Integrated
Focus: Economic benefit Focus: Economic benefit
Instrumental Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Focus: Environmental or social Focus: Economic, environmental and
benefit social benefit
Fundamental
Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Source: Figge & Hahn 2008
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4. Different ways of looking into corporate
carbon performance
Isolated Integrated
Focus: Economic benefit
Is carbon performance related to Focus: Economic benefit
Does carbon performance
Instrumental Analysis based on: Environmental
financial performance? improve based on:performance?
Analysis financial Environmental,
OR social performance social AND financial performance
Focus: Environmental or social Focus: Economic, environmental and
Is carbon performance
benefit Is the bundle benefit
social of carbon and
Fundamental
acceptable?
Analysis based on: Environmental financial performance positive?
Analysis based on: Environmental,
OR social performance social AND financial performance
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5. Instrumental vs fundamental and isolated
vs. integrated
Instrumental approaches subordinate environmental and social aspects
to financial performance.
To which degree does environmental and/or social performance
contribute to financial performance?
From a fundamental perspective environmental and social performance
is assessed independently of whether it supports financial performance.
To which degree are companies environmentally and/or socially
responsible?
Isolated approaches analyse environmental, social and economic
performance aspects separately from each other. This means that they
the environmental or social performance of a company separately from
the financial performance.
Integrated approaches to sustainable investment analysis assess
environmental, social and economic aspects together. They cover and
assess all three domains of sustainable performance.
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6. Isolated instrumental approaches
Isolated Integrated
Focus: Economic benefit Focus: Economic benefit
Instrumental Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Focus: Environmental or social Focus: Economic, environmental and
benefit social benefit
Fundamental
Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Separate assessment of the environmental and social
performance on the one hand and financial performance on
the other hand
Assessment of environmental and social aspects conducted
from an instrumental perspective:
It is assessed if environmental and/or social performance
contributes to financial performance.
Studies that investigate the correlation between corporate
environmental and/or social performance and corporate
financial performance (Margolis & Walsh, 2003; Orlitzky et al., 2003)
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7. Integrated instrumental approaches
Isolated Integrated
Focus: Economic benefit Focus: Economic benefit
Instrumental Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Focus: Environmental or social Focus: Economic, environmental and
benefit social benefit
Fundamental
Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Address the causal link between corporate environmental
and social performance and firms’ financial performance
It is assessed if environmental and/or social performance
contributes to financial performance.
Environmental and social aspects are only considered, if and
to the degree to which they contribute to a better financial
performance.
Approaches that analyse environmental and social aspects
as possible value drivers that enhance corporate value and
increase risk-adjusted free cash flows (Figge, 2005; Hart & Milstein, 2003;
Schaltegger & Figge, 2000)
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8. Isolated fundamental approaches
Isolated Integrated
Focus: Economic benefit Focus: Economic benefit
Instrumental Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Focus: Environmental or social Focus: Economic, environmental and
benefit social benefit
Fundamental
Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Assess corporate environmental and social performance
independent of their support to financial performance
Environmental and social aspects are considered as an end
in themselves.
Fall short of integrating and balancing the different
dimensions of corporate sustainable performance
Screening and rating approaches (between positive and
negative SRI screens) (e.g. Figge, 2000; Kinder & Domini, 1997; Schepers & Sethi, 2003)
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9. Integrated fundamental approaches
Isolated Integrated
Focus: Economic benefit Focus: Economic benefit
Instrumental Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Focus: Environmental or social Focus: Economic, environmental and
benefit social benefit
Fundamental
Analysis based on: Environmental Analysis based on: Environmental,
OR social performance social AND financial performance
Assess the return on a bundle of economic, environmental
and social resources
Environmental and social issues on a par with financial and
economic outcomes no instrumental subordination
Environmental and social aspects are considered as
productive assets next to economic capital for the creation of
value.
Sustainable Value approach (Figge, 2001; Figge & Hahn 2004; 2005)
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10. Sustainable Value: An extended
opportunity cost perspective
Financial performance and shareholder value analyses are
based on the notion of opportunity cost.
Economic or shareholder value is created whenever the
return on capital is higher than the opportunity cost of
capital.
Sustainable Value adopts opportunity cost thinking and
extends it to cover also environmental and social resources.
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11. David Green, 1894
Green 1894
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12. Opportunity cost based analysis of corporate
carbon performance
To create value the use of the bundle of economic,
environmental and social resources must earn its
opportunity cost.
Economic or shareholder value: Capital efficiency of the
company > capital efficiency of the market
Carbon value: Carbon efficiency of the company > carbon
efficiency of the market
Fundamental analysis of environmental and social
performance that complements shareholder value analysis
Sustainable Value is created whenever the bundle of
economic, environmental and social resources is used more
efficiently than on the market
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13. Allocation of economic capital
The traditional perspective
BMW Daihatsu GM Renault
ROC 5.8% 3.7% 0.4% 2.4%
Market 2.79%
Decision
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14. Allocation of environmental capital
The Carbon Value perspective
BMW Daihatsu GM Renault
ROCO2 3,230 €/t 625 €/t 111 €/t 1,950 €/t
Market 784 €/t
Decision
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15. Here’s how we have allocated our
resources
“Economic” capitalists “Environmental” capitalists
Economic performance
High
Economic performance
High
Daihatsu BMW Daihatsu BMW
Low
Low
GM Renault GM Renault
Low High Low High
Environmental performance Environmental performance
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16. We are stuck!
Economic performance
High
Daihatsu BMW
Low
GM Renault
Low High
Environmental performance
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17. Assessing Economic Performance...
Car
BMW manufacturing
sector
Capital efficiency
5.81% 2.97%
[EBIT / Total assets]
Value spread 2.84%
Capital use € 62.09bn
Value contribution € 1.76bn
Sources: Annual Report BMW Group 2005, Annual Reports of other car manufacturers, own calculations.
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18. … and Carbon Performance, analogously.
Car
BMW manufacturing
sector
CO2-Efficiency
3,231 784
[EBIT / t of CO2-emissions]
Value spread
2,447
[EBIT / t of CO2-emissions]
CO2-emissions [t] 1,113,379
Value contribution € 2.72bn
Sources: Annual Report BMW Group 2005, Sustainability Report BMW Group 2007/2008,
Annual and Sustainability/Environmental Reports of other car manufacturers, own calculations.
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19. Integrated fundamental assessment of capital
and CO2 in the automobile sector
Economic
Economic performance
Economic performance
e2 profit
profit
2.97%
[EBIT/Total Assets]
Environ-
e2 loss mental
profit
784 €/t
[EBIT/ t of CO2-emissions] Environmental performance
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20. Integrated fundamental assessment of capital
and CO2 in the automobile sector
Daihatsu BMW
Econ. value: Econ. value:
Economic
Economic performance
Economic performance
€ 0.04bn e21.76bn
€ profit
profit
CO2-value: CO2-value:
2.97% € –0.06bn € 2.72bn
[EBIT/Total Assets]
GM Renault
Econ. value: Environ-
Econ. value:
e2 loss
€ –9.77bn mental
€ –0.33bn
CO2-value: CO2-value:
profit
€ –8.66bn € 0.84bn
784 €/t
[EBIT/ t of CO2-emissions] Environmental performance
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21. Main Implications
With Sustainable Value, corporate carbon performance is
neither analysed separately nor are they instrumentally
subordinated to financial performance.
Integrated fundamental monetary measure of carbon
performance that is
(a) based on opportunity cost thinking and
(b) takes into account financial performance and carbon
performance at the same level.
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22. Conclusions
Sustainable Value is the first value-oriented approach for
the assessment of corporate sustainable performance.
Sustainable Value builds on well established opportunity
cost thinking.
At the same time it expands its use and application beyond
the singular focus on economic capital.
It shares the value-orientation of existing tools and
techniques of the financial markets.
Sustainable Value allows to measure and manage carbon
performance in an integrative manner with financial
performance.
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23. Two recent studies
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24. More information:
www.sustainablevalue.com
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25. Thank you very much!
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26. Contact information
Dr Tobias Hahn Professor Frank Figge
Associate Professor of Corporate Professor of Management and
Sustainability, CSR and Sustainability
Environmental Management Queen's University Management
Euromed Management School School
Domaine de Luminy 25 University Square
13288 Marseille Belfast BT7 1NN, Northern Ireland,
France UK
E-Mail: tobias.hahn@euromed- E-Mail: figge@sustainablevalue.com
management.com
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