WEBVTT 00:00:00.000 --> 00:00:02.485 align:middle line:90% [MUSIC PLAYING] 00:00:02.485 --> 00:00:06.662 align:middle line:90% 00:00:06.662 --> 00:00:08.370 align:middle line:84% ANDREW WINSTON: There's only so many ways 00:00:08.370 --> 00:00:10.610 align:middle line:84% that we create value in business. 00:00:10.610 --> 00:00:12.610 align:middle line:84% We're either reducing the downsides in business, 00:00:12.610 --> 00:00:15.710 align:middle line:84% reducing costs, reducing risk or building the upside. 00:00:15.710 --> 00:00:18.840 align:middle line:84% You're driving revenues, you're building intangible value. 00:00:18.840 --> 00:00:21.240 align:middle line:84% And the sustainability lens, the way 00:00:21.240 --> 00:00:23.820 align:middle line:84% of seeing the world through this question of, 00:00:23.820 --> 00:00:24.960 align:middle line:90% what's our impact-- 00:00:24.960 --> 00:00:27.840 align:middle line:84% how do we, as a business, impact the world throughout our value 00:00:27.840 --> 00:00:30.480 align:middle line:84% chain in environmental and social ways, 00:00:30.480 --> 00:00:33.780 align:middle line:84% which ties, intimately, to financial performance, 00:00:33.780 --> 00:00:36.000 align:middle line:84% that question yields a lot of potential value. 00:00:36.000 --> 00:00:39.930 align:middle line:84% And there's many studies over years that list dozens of ways 00:00:39.930 --> 00:00:43.140 align:middle line:84% that companies create value with this sensibility. 00:00:43.140 --> 00:00:46.180 align:middle line:84% I'm going to highlight just a handful in these four buckets. 00:00:46.180 --> 00:00:49.290 align:middle line:84% So first, the kind of obvious category, the one that's 00:00:49.290 --> 00:00:52.260 align:middle line:84% been known for many years is everything 00:00:52.260 --> 00:00:53.760 align:middle line:84% called cost reduction, everything 00:00:53.760 --> 00:00:56.250 align:middle line:84% called eco-efficiency, reducing your energy footprint, 00:00:56.250 --> 00:00:57.630 align:middle line:90% your water, your waste. 00:00:57.630 --> 00:00:59.537 align:middle line:84% That just, fundamentally, saves money, 00:00:59.537 --> 00:01:01.620 align:middle line:84% being much more efficient, getting a better return 00:01:01.620 --> 00:01:02.394 align:middle line:90% on your assets. 00:01:02.394 --> 00:01:04.019 align:middle line:84% And then there's kind of specific costs 00:01:04.019 --> 00:01:05.940 align:middle line:84% that get reduced, like insurance costs, 00:01:05.940 --> 00:01:07.830 align:middle line:90% if you're a lower-risk business. 00:01:07.830 --> 00:01:09.750 align:middle line:84% Second, I think the other one that people 00:01:09.750 --> 00:01:11.860 align:middle line:84% get is everything that falls under risk. 00:01:11.860 --> 00:01:15.270 align:middle line:84% And traditionally, that was around regulatory risk, 00:01:15.270 --> 00:01:16.184 align:middle line:90% government risk. 00:01:16.184 --> 00:01:18.600 align:middle line:84% But I think there's a broader sense of risk that companies 00:01:18.600 --> 00:01:20.700 align:middle line:84% are measuring now, just reliability 00:01:20.700 --> 00:01:23.689 align:middle line:84% and resilience in the business supply chain reliability. 00:01:23.689 --> 00:01:25.230 align:middle line:84% Where are we getting everything from? 00:01:25.230 --> 00:01:28.430 align:middle line:84% Is extreme weather disrupting our business? 00:01:28.430 --> 00:01:29.610 align:middle line:90% What are our input prices? 00:01:29.610 --> 00:01:31.410 align:middle line:84% There has been unbelievable volatility 00:01:31.410 --> 00:01:33.940 align:middle line:84% in commodity prices over the last 15 years, 00:01:33.940 --> 00:01:35.520 align:middle line:90% but especially the last couple. 00:01:35.520 --> 00:01:37.530 align:middle line:84% And then just resilience in general. 00:01:37.530 --> 00:01:39.960 align:middle line:84% Not managing these risk issues can cost you 00:01:39.960 --> 00:01:41.434 align:middle line:90% an awful lot of money. 00:01:41.434 --> 00:01:44.100 align:middle line:84% I think what gets people excited about the sustainability agenda 00:01:44.100 --> 00:01:46.308 align:middle line:84% now, though-- and you hear CEOs talking more and more 00:01:46.308 --> 00:01:47.610 align:middle line:90% as the revenue side-- 00:01:47.610 --> 00:01:50.670 align:middle line:84% is being much more innovative, helping customers and clients 00:01:50.670 --> 00:01:52.710 align:middle line:84% solve their environmental challenges, 00:01:52.710 --> 00:01:55.020 align:middle line:84% increasing your market share, and sometimes getting 00:01:55.020 --> 00:01:55.710 align:middle line:90% higher prices. 00:01:55.710 --> 00:01:57.334 align:middle line:84% I mean, that can be hard at times. 00:01:57.334 --> 00:01:59.250 align:middle line:84% I think there's a lot of conflicting evidence. 00:01:59.250 --> 00:02:00.660 align:middle line:84% But certainly, in some categories 00:02:00.660 --> 00:02:03.000 align:middle line:84% like organic foods, certain cars, 00:02:03.000 --> 00:02:05.520 align:middle line:84% people are getting higher prices for the greener product. 00:02:05.520 --> 00:02:08.250 align:middle line:84% Tesla is a great example of building revenues 00:02:08.250 --> 00:02:10.410 align:middle line:90% from a sustainability lens. 00:02:10.410 --> 00:02:12.480 align:middle line:84% And then, finally, there's this intangible story. 00:02:12.480 --> 00:02:14.850 align:middle line:84% And this is really, maybe the most important and the hardest 00:02:14.850 --> 00:02:17.350 align:middle line:84% to measure, and that's what I'm going to spend some time on, 00:02:17.350 --> 00:02:19.260 align:middle line:84% which is how are you building value 00:02:19.260 --> 00:02:20.730 align:middle line:84% that's very difficult to measure, 00:02:20.730 --> 00:02:22.650 align:middle line:84% but has real value to the business? 00:02:22.650 --> 00:02:25.230 align:middle line:84% You're differentiating your product and your business. 00:02:25.230 --> 00:02:26.782 align:middle line:84% You're building customer loyalty. 00:02:26.782 --> 00:02:28.740 align:middle line:84% And you're attracting and retaining the talent. 00:02:28.740 --> 00:02:30.420 align:middle line:84% When I talk to executives at companies, 00:02:30.420 --> 00:02:31.710 align:middle line:90% this last one is very big. 00:02:31.710 --> 00:02:35.250 align:middle line:84% And you hear this from companies like PWC and SAP 00:02:35.250 --> 00:02:37.440 align:middle line:84% that have measured the value of retention 00:02:37.440 --> 00:02:40.200 align:middle line:84% of their sustainability-minded employees. 00:02:40.200 --> 00:02:42.090 align:middle line:84% And it has saved them, and is worth, 00:02:42.090 --> 00:02:44.020 align:middle line:90% hundreds of millions of dollars. 00:02:44.020 --> 00:02:47.070 align:middle line:84% So I'm on kind of the mega value creation here. 00:02:47.070 --> 00:02:49.710 align:middle line:84% And there's kind of a cross-bucket set of issues, 00:02:49.710 --> 00:02:53.070 align:middle line:84% which is that taking on this sustainability lens 00:02:53.070 --> 00:02:55.564 align:middle line:84% makes your business more innovative in general. 00:02:55.564 --> 00:02:56.980 align:middle line:84% It gives you a license to operate. 00:02:56.980 --> 00:02:59.139 align:middle line:84% That's a very valuable thing in many communities. 00:02:59.139 --> 00:03:01.180 align:middle line:84% And you get some first-mover advantage from that. 00:03:01.180 --> 00:03:04.650 align:middle line:84% And, you know, all of this boils down to, in a very simple 00:03:04.650 --> 00:03:07.819 align:middle line:84% terms, spending less money-- that's always good-- 00:03:07.819 --> 00:03:10.110 align:middle line:84% making your money flows, your cash flows more reliable, 00:03:10.110 --> 00:03:13.620 align:middle line:84% reducing risk, making more money, ensuring future money-- 00:03:13.620 --> 00:03:16.342 align:middle line:84% that's what brand value really is, future revenues-- 00:03:16.342 --> 00:03:18.300 align:middle line:84% and then, of course, just higher business value 00:03:18.300 --> 00:03:19.350 align:middle line:90% and investor value. 00:03:19.350 --> 00:03:21.740 align:middle line:84% Now I just wanted to highlight something really important 00:03:21.740 --> 00:03:25.740 align:middle line:84% now, which is, if you think about these issues 00:03:25.740 --> 00:03:27.540 align:middle line:84% and these ways of generating value, 00:03:27.540 --> 00:03:29.520 align:middle line:84% just the ones I highlighted here, all of them 00:03:29.520 --> 00:03:31.680 align:middle line:84% are very hard to put numbers on, right? 00:03:31.680 --> 00:03:33.106 align:middle line:90% Very hard. 00:03:33.106 --> 00:03:34.980 align:middle line:84% But I would argue that what we do in business 00:03:34.980 --> 00:03:36.990 align:middle line:84% is we often put a zero value on these things 00:03:36.990 --> 00:03:38.790 align:middle line:84% because we can't put a good number on them. 00:03:38.790 --> 00:03:42.120 align:middle line:84% And we ask businesses to justify everything 00:03:42.120 --> 00:03:44.207 align:middle line:84% they do in the name of sustainability 00:03:44.207 --> 00:03:45.790 align:middle line:84% in ways that are very hard to measure, 00:03:45.790 --> 00:03:48.010 align:middle line:84% even though there's tremendous value creation. 00:03:48.010 --> 00:03:50.190 align:middle line:84% So let me just give you a very simple framework. 00:03:50.190 --> 00:03:51.930 align:middle line:84% Basically, in very simple terms, there's 00:03:51.930 --> 00:03:56.030 align:middle line:84% two big things that we don't put value on very well in business. 00:03:56.030 --> 00:04:00.090 align:middle line:84% There's externalities, there's the classic economic 00:04:00.090 --> 00:04:02.850 align:middle line:84% externalities like pollution, both positive and negative 00:04:02.850 --> 00:04:03.720 align:middle line:90% externalities. 00:04:03.720 --> 00:04:05.531 align:middle line:84% And when people talk about sustainability, 00:04:05.531 --> 00:04:07.530 align:middle line:84% they think we're really just talking about this. 00:04:07.530 --> 00:04:08.988 align:middle line:84% It's about helping the polar bears. 00:04:08.988 --> 00:04:11.370 align:middle line:84% It's about helping the planet in some removed way 00:04:11.370 --> 00:04:14.790 align:middle line:84% from the planet that we live on and drive all of our resources 00:04:14.790 --> 00:04:17.970 align:middle line:84% from and have business and economy from. 00:04:17.970 --> 00:04:19.980 align:middle line:84% But we treat it like it's external. 00:04:19.980 --> 00:04:23.010 align:middle line:84% But for me, I think what's potentially more interesting, 00:04:23.010 --> 00:04:26.370 align:middle line:84% is the idea of all of this value that's created internally, 00:04:26.370 --> 00:04:28.470 align:middle line:84% that is value to the business, that we 00:04:28.470 --> 00:04:29.730 align:middle line:90% don't put good numbers on. 00:04:29.730 --> 00:04:32.009 align:middle line:84% And there's a couple of ways to deal with that. 00:04:32.009 --> 00:04:34.300 align:middle line:84% But first, I just want to highlight a couple of things. 00:04:34.300 --> 00:04:36.330 align:middle line:84% One, I mentioned the value of intangibles. 00:04:36.330 --> 00:04:38.100 align:middle line:84% Just to put that in perspective-- there's 00:04:38.100 --> 00:04:40.740 align:middle line:84% a consultancy, Ocean Tomo that works 00:04:40.740 --> 00:04:44.070 align:middle line:84% with financial companies that does intangible asset, 00:04:44.070 --> 00:04:45.510 align:middle line:90% intellectual property work. 00:04:45.510 --> 00:04:47.100 align:middle line:84% And they've done this study for a number of years 00:04:47.100 --> 00:04:48.600 align:middle line:84% where they do something very simple. 00:04:48.600 --> 00:04:51.090 align:middle line:84% And they said, in 1975 if you looked 00:04:51.090 --> 00:04:55.590 align:middle line:84% at the S&P 500 and the market cap, the total value, 00:04:55.590 --> 00:04:58.530 align:middle line:84% and said OK, what percentage of that is tangible assets, 00:04:58.530 --> 00:05:00.780 align:middle line:84% Like book value assets, hard assets? 00:05:00.780 --> 00:05:03.580 align:middle line:90% It was around 17% in 1975. 00:05:03.580 --> 00:05:05.490 align:middle line:84% So everything you're measuring in the stock 00:05:05.490 --> 00:05:08.260 align:middle line:84% market in market cap is getting at the value of the business. 00:05:08.260 --> 00:05:12.220 align:middle line:84% Now what's changed dramatically, is by 2015, 00:05:12.220 --> 00:05:18.574 align:middle line:84% the intangible amount is something like 84%. 00:05:18.574 --> 00:05:19.740 align:middle line:90% I'm sorry I misspoke before. 00:05:19.740 --> 00:05:22.050 align:middle line:90% The 17% is the intangible. 00:05:22.050 --> 00:05:23.970 align:middle line:90% The 83% was the tangible. 00:05:23.970 --> 00:05:25.590 align:middle line:90% I flipped that by mistake. 00:05:25.590 --> 00:05:28.620 align:middle line:84% What I meant to say was 84% now is intangible. 00:05:28.620 --> 00:05:29.130 align:middle line:90% OK? 00:05:29.130 --> 00:05:30.780 align:middle line:84% And there's a lot of reasons for this. 00:05:30.780 --> 00:05:32.363 align:middle line:84% It's the movement from a manufacturing 00:05:32.363 --> 00:05:33.660 align:middle line:90% to a service-based economy. 00:05:33.660 --> 00:05:36.570 align:middle line:84% But it's just the value we're putting on brands, in general, 00:05:36.570 --> 00:05:39.210 align:middle line:84% and things like customer loyalty and employee loyalty. 00:05:39.210 --> 00:05:42.270 align:middle line:84% So everything we're doing in accounting, arguably, 00:05:42.270 --> 00:05:44.800 align:middle line:90% is just pointed at this 16%. 00:05:44.800 --> 00:05:45.300 align:middle line:90% Right? 00:05:45.300 --> 00:05:46.950 align:middle line:90% So that's a problem. 00:05:46.950 --> 00:05:48.630 align:middle line:84% And everything I think that we do 00:05:48.630 --> 00:05:51.090 align:middle line:84% under the banner of sustainability, some of it's 00:05:51.090 --> 00:05:54.390 align:middle line:84% very hard assets like reducing energy, improving your assets. 00:05:54.390 --> 00:05:57.690 align:middle line:84% But a lot of it falls into this 84% of the things that 00:05:57.690 --> 00:05:58.530 align:middle line:90% are hard to measure. 00:05:58.530 --> 00:06:00.630 align:middle line:84% And so then, I think the challenge we have is 00:06:00.630 --> 00:06:04.852 align:middle line:84% that in business, we use this very classic idea of ROI, 00:06:04.852 --> 00:06:06.060 align:middle line:90% right, some version of that-- 00:06:06.060 --> 00:06:08.760 align:middle line:84% IRR or ROI to make investment decisions. 00:06:08.760 --> 00:06:10.480 align:middle line:90% Where do we put our capital? 00:06:10.480 --> 00:06:13.110 align:middle line:84% And I would argue that this tool is very broken. 00:06:13.110 --> 00:06:15.870 align:middle line:84% And the reason is that we're incredibly good at the I, 00:06:15.870 --> 00:06:16.590 align:middle line:90% right? 00:06:16.590 --> 00:06:20.640 align:middle line:84% How much, in terms of money and people time, 00:06:20.640 --> 00:06:22.710 align:middle line:90% are we putting into Investment? 00:06:22.710 --> 00:06:23.550 align:middle line:90% Right? 00:06:23.550 --> 00:06:24.119 align:middle line:90% Very basic. 00:06:24.119 --> 00:06:24.660 align:middle line:90% We know that. 00:06:24.660 --> 00:06:25.550 align:middle line:90% We can measure it. 00:06:25.550 --> 00:06:28.440 align:middle line:84% What we're bad at is the R, the Return. 00:06:28.440 --> 00:06:30.720 align:middle line:84% And it comes back to all those buckets. 00:06:30.720 --> 00:06:33.360 align:middle line:84% What is the value of things that are hard to measure? 00:06:33.360 --> 00:06:35.970 align:middle line:84% Let's go back to this idea of employee engagement, 00:06:35.970 --> 00:06:36.780 align:middle line:90% for example. 00:06:36.780 --> 00:06:38.280 align:middle line:90% I mentioned Unilever. 00:06:38.280 --> 00:06:40.260 align:middle line:84% They're probably the most sustainably-minded 00:06:40.260 --> 00:06:41.920 align:middle line:90% large company in the world. 00:06:41.920 --> 00:06:44.550 align:middle line:84% And they have seen one very big change over the last five 00:06:44.550 --> 00:06:45.780 align:middle line:90% to six years. 00:06:45.780 --> 00:06:48.450 align:middle line:84% They have become one of the most in-demand employers 00:06:48.450 --> 00:06:51.591 align:middle line:84% in the world in a company that makes, some would argue, 00:06:51.591 --> 00:06:53.340 align:middle line:84% fairly boring products, just personal care 00:06:53.340 --> 00:06:57.847 align:middle line:84% products, everyday products, not as supposedly exciting as tech. 00:06:57.847 --> 00:07:00.180 align:middle line:84% And of course, when you look at just something as simple 00:07:00.180 --> 00:07:02.300 align:middle line:84% as the measure of how many people follow 00:07:02.300 --> 00:07:04.656 align:middle line:84% a company on LinkedIn, the tech companies in blue 00:07:04.656 --> 00:07:05.280 align:middle line:90% are big, right? 00:07:05.280 --> 00:07:08.084 align:middle line:84% This is a tech platform for linking to companies. 00:07:08.084 --> 00:07:09.750 align:middle line:84% So, of course, Google, Apple, Microsoft, 00:07:09.750 --> 00:07:11.440 align:middle line:84% they're sexy, exciting companies. 00:07:11.440 --> 00:07:12.840 align:middle line:90% But then you've got Unilever. 00:07:12.840 --> 00:07:13.470 align:middle line:90% Right? 00:07:13.470 --> 00:07:16.140 align:middle line:84% And Unilever has measured this as the most in-demand 00:07:16.140 --> 00:07:19.290 align:middle line:84% in the fast-moving consumer goods, the most in-demand 00:07:19.290 --> 00:07:22.830 align:middle line:84% employer in 34 countries, basically the OECD countries. 00:07:22.830 --> 00:07:24.825 align:middle line:84% And by the way, this six-year plan 00:07:24.825 --> 00:07:26.700 align:middle line:84% they've been on, the sustainable living plan, 00:07:26.700 --> 00:07:30.330 align:middle line:84% they hit their stock all-time high this year. 00:07:30.330 --> 00:07:32.220 align:middle line:90% So this is working. 00:07:32.220 --> 00:07:35.100 align:middle line:84% And you can see, versus some of these really big, very popular 00:07:35.100 --> 00:07:37.734 align:middle line:84% brands, they've got over 2 million followers now. 00:07:37.734 --> 00:07:39.150 align:middle line:84% So how do you put a value on that? 00:07:39.150 --> 00:07:40.410 align:middle line:90% What is the value of that? 00:07:40.410 --> 00:07:43.470 align:middle line:84% And that's part of my point that if you're doing things 00:07:43.470 --> 00:07:45.510 align:middle line:84% that, yes, you can measure the investment, 00:07:45.510 --> 00:07:46.920 align:middle line:84% but you're making your business more resilient. 00:07:46.920 --> 00:07:48.540 align:middle line:84% You're moving to all renewable energy, say. 00:07:48.540 --> 00:07:50.480 align:middle line:84% Or you're changing something about your supply chain, 00:07:50.480 --> 00:07:52.396 align:middle line:84% maybe you're paying people more, a living wage 00:07:52.396 --> 00:07:53.677 align:middle line:90% throughout the value chain-- 00:07:53.677 --> 00:07:55.260 align:middle line:84% people growing coffee around the world 00:07:55.260 --> 00:07:57.750 align:middle line:84% or other agricultural products or people 00:07:57.750 --> 00:07:59.700 align:middle line:84% making your apparel, whatever it is. 00:07:59.700 --> 00:08:01.320 align:middle line:90% It may raise your costs. 00:08:01.320 --> 00:08:02.970 align:middle line:90% But what's the return on that? 00:08:02.970 --> 00:08:04.800 align:middle line:84% What is the return to your brand to people 00:08:04.800 --> 00:08:06.591 align:middle line:84% being attracted to your business to wanting 00:08:06.591 --> 00:08:07.800 align:middle line:90% to work for your business? 00:08:07.800 --> 00:08:10.480 align:middle line:84% And this is, I think, where we have trouble measuring. 00:08:10.480 --> 00:08:11.700 align:middle line:90% But the real value is there. 00:08:11.700 --> 00:08:13.410 align:middle line:90% And so currently we call it 0. 00:08:13.410 --> 00:08:15.280 align:middle line:84% That isn't the right way to do it. 00:08:15.280 --> 00:08:16.780 align:middle line:84% So these are the problems with ROI. 00:08:16.780 --> 00:08:18.870 align:middle line:84% So I want to make one final point, which 00:08:18.870 --> 00:08:21.930 align:middle line:84% is, given this challenge, I think 00:08:21.930 --> 00:08:24.450 align:middle line:84% it's very strange that we're even asked repeatedly, 00:08:24.450 --> 00:08:26.460 align:middle line:84% what's the business case for sustainability? 00:08:26.460 --> 00:08:28.170 align:middle line:84% Nobody really asks that about marketing. 00:08:28.170 --> 00:08:29.544 align:middle line:84% You don't have someone go, what's 00:08:29.544 --> 00:08:32.299 align:middle line:84% the business case for all of marketing, or all of R&D, 00:08:32.299 --> 00:08:34.622 align:middle line:90% or all of new market ventures. 00:08:34.622 --> 00:08:36.330 align:middle line:84% The question is, what's the business case 00:08:36.330 --> 00:08:38.711 align:middle line:90% for a particular initiative? 00:08:38.711 --> 00:08:39.210 align:middle line:90% Right? 00:08:39.210 --> 00:08:41.970 align:middle line:84% All of sustainability shouldn't be questioned in this way. 00:08:41.970 --> 00:08:44.770 align:middle line:84% We should be questioning it with tools like ROI, sure. 00:08:44.770 --> 00:08:46.770 align:middle line:84% We should be questioning individual initiatives. 00:08:46.770 --> 00:08:48.103 align:middle line:90% Where should we put our capital? 00:08:48.103 --> 00:08:51.681 align:middle line:84% What's the best place to put our capital, not the entire domain. 00:08:51.681 --> 00:08:53.430 align:middle line:84% And that, I think, has been a big mistake. 00:08:53.430 --> 00:08:55.645 align:middle line:84% There is a ton of value we can measure, 00:08:55.645 --> 00:08:57.270 align:middle line:84% literally billions of dollars companies 00:08:57.270 --> 00:08:59.019 align:middle line:84% are making in all these different buckets. 00:08:59.019 --> 00:09:01.800 align:middle line:84% But we don't always measure the things we should. 00:09:01.800 --> 00:09:04.250 align:middle line:90% [MUSIC PLAYING] 00:09:04.250 --> 00:09:10.010 align:middle line:90%