Unlocking Hidden Value: Sustainability Strategies That Work

Of the very earliest notable pieces of research on this goes all the way back to the 90s when Lockheed Aerospace discovered that when they improved the lighting in their buildings with more energy efficient lighting, not only did they save money with a handsome roi, but the productivity of their employees increased and absenteeism went down. And that wasn't included in the ROI calculation of the business case for the lighting strategy. Daniel has expanded this in a book called the Value of Values that identifies the enormous submerged value that can come along with well constructed sustainability strategies. And the flip side of that, of course, is the risks that you don't notice, that you don't take into account, that you don't monetize. That's why I've been working with the company that's built an AI based platform for deeply identifying benefits and risks across global enterprises in relation to climate and water and biodiversity, representing that in the language of the cfo, so that they can actually see these factors on their dashboards in a way they couldn't before. Another problem is that we're fragmentary. We look at projects in isolation, we look at activities in isolation. We worked with a large national retailer some years ago, had a very sophisticated, experienced person brought in as their CSO. He identified 50 strategies that they could do to improve their sustainability performance. We got folks in the waiting and we asked them how are they going to decide what to do out of all these 50 strategies? And he said, well, we've rank ordered them by roi. I'm going to move down the list from top to bott bottom until we hit, you know, until we exceed our capital hurdle rate and we'll stop there. Which is an entirely sensible strategy. Nothing wrong with that at all. Except, and we asked, have you calculated the ROI of doing number seven first and then number two and then number 11 in combination? He said no, actually there's, you know, it's very hard to do that, but if you did that, the ROI would be higher than number one. And so the challenge of doing systemic integrated strategies rather than fragmented doesn't show up on the radar. And the radar isn't even very good at handling that. And then last and certainly not least is the question of the background. Individual enterprises are operating in the world of what Randy Hayes calls cheater economics. An economic system, a market system that doesn't adequately value costs and benefits and risks, doesn't show up in prices, doesn't show up in cost of capital, although it starts to, and I think Paul may speak to that.