Value Creation and Life Cycle Management

Value creation and differentiation are keys for companies. Today, the strong correlation between good financial performance and sustainability is widely accepted and recognized (DB Climate Change Advisors 2012). It is clear that businesses strategy that includes sustainability programs contribute to strong corporate performances.

A growing number of examples show that sustainability initiatives are a great catalyst to creating profit as well as new business opportunities. How to link sustainability to business value is, however, still poorly understood by a large majority of companies (Accenture and United Nations Global Compact 2013).

Companies seeking to pursue the sustainability path need to ensure that they do so while creating value for the company itself and along its value chain. Sustainability for the sake of sustainability is well-meaning, but likely to be ineffective. Without expressing the value creation of sustainability, companies will remain in “pilot projects” or small-scale sustainability projects, only able to engage and motivate those internal sponsors and team members that “buy-in” to the sustainability mission as a matter of personal conviction and unable to find the right strategies to leverage to core power of the business. Identifying the business value created by sustainability and the way to get there is thus essential. The value has to be perceived along the whole value chain, i.e. managers and collaborators at different levels of the company as well as external stakeholders whose expectations and potential influence must be identified and accounted for. Finally, this value creation must be measurable and measured in order to be acknowledged and communicated.

A key step each company should consider before embarking on the path of sustainability is answering the question “What is the value this strategy will generate for our organization?” Recognizing that each company's path to capturing value from sustainability will be unique, Bonini and colleagues (2011, 2014) proposed a framework that can serve as a universal starting point to understand the relationship between sustainable initiatives and value creation. It captures value in three key areas:

Risk management linked to sustainability – encompass risks due to operational disruptions such as, for example, resource scarcity, extreme events from climate change; risk due to reduced reputation from relationship issues with stakeholders along the value chain; and regulatory risk from current restrictions and regulations to come.

Return on capital – by onsite operational efficiency through improved resource management, e.g. energy efficiency, water reuse and byproduct valorization; by developing sustainable value chains expanding improved resource management efficiency through the supply chain or downstream extending producer responsibility; by increasing employee motivation through internal involvement and identification to company and its values; and by green sales and marketing seeking increased revenue from sustainability attributes.

Growth – by innovation and the development of new sustainability driven product/service development; by developing strategies opening the door on new markets; and by regularly revisiting the composition of business portfolios to determine trends and potential risks and improve appeal for investors, as well as by competing better with existing products/services, as customers and consumers place increasing emphasis on sustainability in their purchasing decisions.

It is very important to remember that sustainability in itself is not necessarily generating value for an organization, unless it becomes aligned with the company's core business strategy.

 
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