Business value – the esg imperative
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Too often environmental, social and governance (ESG) initiatives are simply looked at through a compliance and risk management prism. But this ignores the real opportunity that embracing and managing ESG issues presents - that of enhancing business value. This presentation lays out the service value chain and brand value linkages while illustrating how strong ESG performance translates to superior market performance.
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Business value – the esg imperative
- 1. Business Value – The ESG Imperative Caux Round Table Global Dialogue Noel Purcell Group General Manager, Stakeholder Communications October 2007
- 2. Presentation Title & DateCaux Round Table Global Dialogue - 20072 Pre-1990s Westpac’s latest 20 years – a snapshot of major change 1990s •Beginning of engagement •Values and principles re-emerge •Reality, not rhetoric mattered •New media begin dominating Stakeholder aware •Improved governance •Risk reduction •Focus on restoring balance sheet •Lower volatility 2000 on •Engagement and responsiveness •Principles and values driven •Focused on reputation and legitimacy •Complex trade-offs Stakeholder responsive •Strong governance •Risk optimisation •Focus on medium term value drivers •Consistency & resilience •All about perception management •Message driven •Control the agenda •Reactive issues management •Plenty of spin Self-interested •Poor governance •Aggressive risk taking •Focus on the short term •Higher volatility FinancialStakeholder
- 3. Presentation Title & DateCaux Round Table Global Dialogue - 20073 Extended performance (ESG) management at Westpac • Mandate from Board to manage ‘wide and long’ • Governed through clear values & principles • Aligned through formal stakeholder engagement • Embedded in systems, processes, decision-making and remuneration • Enhanced through new competencies and leadership development • Integrated into supply chain management • Measured, assured and reported both internally and externally
- 4. Presentation Title & DateCaux Round Table Global Dialogue - 20074 risk reduction recognition value enhancement reputation management market differentiation innovation & value extension • governance & principles for doing business • external reporting, measurement & verification • stakeholder engagement 20071998 • refinement of business model • sustainable supply chain management • environmental management and performance • systematic embedding • extend value via brand, products and services • risk optimization and focus on materiality Westpac’s sustainability journey overview strategicagendaoperationalagenda
- 5. Presentation Title & DateCaux Round Table Global Dialogue - 20075 WBC’s strategic framework for total value management Stakeholder responsive Enhance ability to deliver existing business strategy Maximise intangible value Drive strategic differentiation Enhanced market valuation Drivers of future organisational performance, value and capacity • Reduced regulatory and other operational risk • Improved reputation and social licence to operate • Enhanced operational efficiency •Enhanced product innovation and creativity Sustainability as a strategic organisational competence • Embedded in values, culture, systems and processes • Responsible & ethical decision-making • Stakeholder responsive • Product and service design consistent with sustainable development Improved employee attraction, retention and commitment Improved customers experience, retention, loyalty and wallet share Earnings growth, resilience, and sustainable profitability
- 6. Presentation Title & DateCaux Round Table Global Dialogue - 20076 The Service Value Chain in action • The impact of improving customer satisfaction of all customers by one level is a NPV gain of $52m economic profit • The impact of reducing the customer satisfaction of all customers by one level is a loss of $145m economic profit $25M $20M $15M $5.0M $10M 1st yr 2nd yr 3rd yr 4th yr 5th yr Yearly Impact Total Impact78% 69% 55% 40-60 60-80 80-100 91% 82% 72% 61% 37% 0-20 20-40 40-60 60-80 80-100 Increasing satisfaction by one level for every for every WBC customer NPV = $52M CustomerExperience Employee Commitment CustomerSatisfaction Customer Experience Employee Customer Shareholder EconomicProfitImpact
- 7. Presentation Title & DateCaux Round Table Global Dialogue - 20077 Drivers of customer value Customer Satisfaction 40% Customer Experience 20% Product Experience ADVOCACYLOYALTY 40% Brand Perception Recent experience with core elements of service through individual touchpoints Brand perceptions built by experiences over time, marketing communication and word-of-mouth Experience with complete product offering (including features and price)
- 8. Presentation Title & DateCaux Round Table Global Dialogue - 20078 60% Established and Reliable 10% Westpac heritage 30% CSR Customer Satisfaction Customer Experience Consumer (40%) Product Experience Consumer (20%) Brand Perception Consumer (40%) Responsible business practices Community investment Marketplace practices Workplace practices Supply chain management Westpac 190 year history in Australia Being open and honest Acknowledging customer loyalty Protecting customer’s best interests Delivering consistent experiences regardless of touchpoint Fees reflecting service value Customers confident they have the best solution Westpac’s brand perception drivers
- 9. Presentation Title & DateCaux Round Table Global Dialogue - 20079 The drivers of customer satisfaction & advocacy ECONOMIC PROFIT • Retention • No of products per customers • Needs Met • Growth in average footing CSat Advocacy • Retention • No of products per customers • Needs Met • Growth in average footing Customer Satisfaction Advocacy Employee Commitment Humanness 50% Systems and Process 30% Other 20% Product Quality 34% Rates & Fees 66% Established and Reliable 60% CSR 30% Heritage 10% Recent Customer Experience 23% Recent Product Experience 11% Brand Perception 26% Employee Commitment Humanness 50% Systems and Process 30% Other 20% Product Quality 34% Rates & Fees 66% Established and Reliable 60% CSR 30% Heritage 10% Recent Customer Experience 40% Recent Product Experience 20% Brand Perception 40%
- 10. Presentation Title & DateCaux Round Table Global Dialogue - 200710 Some Westpac examples of value enhancement Employee Turnover Lost Time Injury Frequency Rate Electricity Consumption • Accrued benefits • Recruitment costs • Training costs • Productivity impacts • Claim payments • Lost time • Productivity impacts • Support costs • Operating costs • Emissions reductions • $40-$50m pa of avoided costs • $3m reduction over past 2 years • Greenhouse gas emissions reductions would equate to $2.5 m of implicit value based on current carbon prices in the EU Emissions Trading Scheme Non-financial Metric Estimated Financial Benefit Cost Reduction & Value Drivers • Reduced by 3.5 percentage points or 18% since 2001 Sustainability Result • Reduced by 29% percents since 2003 • Emissions cut 45% since 1996
- 11. Presentation Title & DateCaux Round Table Global Dialogue - 200711 Overview of three sustainability assessments • Assesses a company’s ability to create long-term shareholder value • Based around assessed opportunities and risks deriving from economic, environmental and social developments • Professional ratings analysts using company and public data. • Assesses a company’s corporate governance practices • Looks at value drivers not revealed through financial analysis • Based on publicly disclosed governance practices and GMI research • Assesses a company’s ability to integrate and improve sustainability performance • Looks at effectiveness of company management of impacts on society and the environment • Based on company response with independent assurance
- 12. Presentation Title & DateCaux Round Table Global Dialogue - 200712 Snapshot of Westpac’s 2006 DJSI rating Ranked number 1 in the global banking sector, five years in a row
- 13. Presentation Title & DateCaux Round Table Global Dialogue - 200713 Relative performance: DJSI World vs MSCI World
- 14. Presentation Title & DateCaux Round Table Global Dialogue - 200714 Relative performance: DJSI World vs MSCI World
- 15. Presentation Title & DateCaux Round Table Global Dialogue - 200715 GMI governance ratings correlate with credit rating GMI HOME MARKET OVERALL RATING (GMI SCORE) Number of companies Mean Credit Rating* Median Credit Rating* 1 (low GMI SCORE) 8 2.75 3.00 2 18 3.44 3.00 3 31 3.29 3.00 4 50 3.30 3.00 5 80 3.63 4.00 6 212 3.54 4.00 7 248 3.98 4.00 8 182 4.14 4.00 9 89 4.33 4.00 10 (high GMI SCORE) 18 4.44 4.50 • Higher GMI Rated firms had better credit ratings. • Suggests that firms with higher GMI Ratings face lower debt costs. Ashbaugh-Skaife & Ryan LaFond 2006 * Based on S&P Debt Ratings
- 16. Presentation Title & DateCaux Round Table Global Dialogue - 200716 GMI - low ratings led to negative SHV outcomes GMI reviewed the financial performance of 10 low rated companies, all with significant corporate governance issues “Had you invested $100,000 in each of the 10 securities, for a total of $1 million, you would have seen the portfolio decline by 41.4%, representing a loss of over $410,000. Of the 10 companies, only one saw a marginal increase in its share price, and this at a time when markets overall have risen. Moreover, of the companies that experienced a decline in stock price, half saw their share price decrease in excess of 60% over the time period studied.”
- 17. Presentation Title & DateCaux Round Table Global Dialogue - 200717 Total value Market value Intangibles The future: rethinking value Book Value