Sustainable Value - EABIS Research Project

22 September 2009:

For many years there have been ultimately inconclusive attempts to prove that improved ESG (Environmental, Social, Governance) performance (frequently referred to as Corporate (Social) Responsibility [CSR] performance or, in brief, Corporate Social Performance (CSP)) affects overall business performance.This report argues that a more fruitful approach is to identify how improved ESG performance can improve individual elements of non-financial performance, and thereby, create future value. Specifically the report proposes that value is redefined in terms of ‘sustainable value’.A ‘value creation’ framework is proposed. ThisValue Creation Framework – and an operationalised management version of it, developed by the EU CSR Alliance laboratory – can be used both by business itself to help embed a commitment to Corporate Responsibility and Sustainability; and by the investment community to refine their business valuation models. It should stimulate further dialogue between companies and investors. Growing sustainability pressures worldwide are likely to make these arguments even
sharper in future.

TheValue Creation Framework and other recent work on sustainable development and business challenge the existing dominant convention of shareholder value; and of how value is created or destroyed. As such, there are many obstacles both in business and in the investment community (owners, fund-managers, analysts) which would currently work against widespread adoption of this new approach.

Amongst the investor community, the obstacles include lack of evidence for or understanding of, the potential linkages; limited or non-existent data and certainly of anything which would be comparable across companies; confusion of terminology and shifting definitions; and few incentives to change.
For companies, the obstacles include all the above, as well as disconnects between Corporate Responsibility / Sustainability specialists and the Investor Relations function; perceived lack of investor interest; and lack of actual performance data.