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