Conclusion

Amidst greater interest in how enterprises use different types of capital and generate value in a sustainable manner, LCM has to prove its value by illustrating linkages with corporate finance and strategic performance. Considering the core financial value drivers highlighted in this chapter, the necessary contribution of LCM is summarized below:

Sales growth and its duration: LCM has to be used effectively in the design of products or product portfolios, services and business models that are convincingly sustainable. LCC experts have recognized that new business models may be required to develop more integrated (not fragmented) value chain systems (Swarr et al. 2011). Mindful of the lead indicators of customer attraction and brand reputation, LCA applications also have to be used credibly and consistently in a manner that enables the communication of reliable information via labels and the like to customers.

Operating margin: The use of LCM standards, internally and through supply or value chains, need to effectively promote innovation and operational efficiency in order to boost operating margins. This is not simply about short-term profit. It is about defining avoided and opportunity costs in making business approaches that secure the longer-term sustainability of profit and cash flows.

Investment in fixed and working capital: LCA experts need to consider in how far their methodologies can be used to define the value of closed loop manufacturing (CLM), in particular remanufacturing, as well as product service systems (PSSs) in enabling more optimal and sustainable capital expenditure. CLM and PSSs are highly under-estimated.

Cost of capital: LCM needs to be effectively integrated with risk management, helping broadly to define hot spots in value chains and, specifically, through the collection of bottom-up data, risks of various kinds (including operational and regulatory) that may be associated with specific products, operations and organizational entities. In addition, the providers of financial capital need to be educated about the meaning of LCA findings.

Tax rate: The LCA community needs to illustrate how its research can be used by regulators to define convincing eco-tax regimes that succeed to reward early adopters and penalize enterprises that persist with damaging products, services and business models.

It is theoretically convenient to state that environmental LCC is different from financial LCC and activity-based costing (ABC) in management accounting (cf Rebitzer and Nakamura 2008). One is focused on the costs of environmental damage and the other on business costs. It is, however, imperative today to define the link between these two and not leaving this to regulators. It means that LCA experts will need to support cost benefit analysis in which the incentives and cost structures for individual actors involved in whole life cycle systems or value chains are assessed. Furthermore, analysis will also need to show an ability to assess future costs and benefits likely to occur in the short, medium or long term. While seeking to meet these expectations, the LCM community will need to take cognisance of the preference among the mainstream investment community for “using a handful of the most important indicators and proxies to capture risk (that) can minimize complexity” (IIRC 2012). The three hypotheses examined in this chapter suggest pathways to capture the attention of investors in tackling this difficult task.

 
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