Route2 Company Introduction July2011

ROUTE2 SUSTAINABILITY COMPANY INTRODUCTION

INTEGRATED SUSTAINABILITY

ROUTE2INTEGRATES

SUSTAINABILITY INTO DAY-TO-DAY

BUSINESS MANAGEMENT

Route2Sustainability is an advisory company that works with

organisations to link sustainability to business performance, provide

clarity to decision making and create value for your business.

Route2 merges science, finance and strategy into a framework and tool-set that identifi es and

determines the fi nancial materiality of issues & opportunities, then sets

goals, evaluates investments and manages performance.

The outcome: An informed strategy that enhances, not compromises,

short and long term performance objectives and integrates

sustainability into an organisation.

KEY MESSAGES

OVERVIEW


1 Business is being challenged to grow sustainably

2 Sustainability initiatives are not as effective as they might be: no common language; tenuous link to performance; low level of integration to core business functions

3 Route2 aligns the pursuit of sustainability and value creation: impact of environmental and social pressures, expressed fi nancially, linked to performance; integrating sustainability into core business functions

4 Route2 achieves alignment through a unique framework based on decades of experience: sustainability science and economics; business planning and investment analysis

5 Route2 places your business on a sustainable footing: sustainability integrated not separated from your core business, enhancing not compromising both short and long term performance objectives

WORLD VIEWAn increasing global population chasing quantitative growth and consuming finite resources is creating a global squeeze.

Depletion of resources, social disruptions and rising input prices are driving increased regulation, new taxes, and shifting consumer and stakeholder expectations. Add to that the pressure for greater ‘social responsibility’ and transparency and it is clear that the way we do business is changing. The message is to keep growing, but grow sustainably.

However, the idea of ‘sustainable growth’ is creating confusion and confl icting goals for business, limiting progress toward a sustainable business footing.

Route2 transforms the challenge of sustainable business into the opportunity it represents. A Route2 engagement aligns the goals of business value creation and sustainability and leads to a sustainable business through innovation – in strategy, process and technology.


GLOBAL SQUEEZE

THE WAY WE DO BUSINESS IS CHANGING

‘COMPANIES THAT TAKE THE LEAD

ON SUSTAINABILITY WILL BE MARKET MAKERS RATHER

THAN MARKET TAKERS’WORLD

ECONOMIC FORUM



MAINTAINING CAPITAL STOCK, INDEFINITELY

Tomorrow’s winners are the organisations that optimise the mix

of revenue and cash fl ow whilst investing in capital stock such that it is maintained or enhanced, indefi nitely.

Route2 recognises four types of productive capital stock, each

contributing directly and indirectly to economic output: natural, human,

social and built capital. Each stock produces a fl ow of functions, which

input into production processes.

These stocks depreciate (through wear and tear) and appreciate

(through investment and sometimes use). Natural capital provides the

basis for all human activities.

From this platform human capital, facilitated by social capital,

transforms raw materials, into built capital and intermediate

goods (i.e. product components).

This is the real economy.

SUSTAINABILITYBUILT

MAN-MADEMATERIAL

RAWMATERIALS

INDIVIDUALCAPACITY

WASTE ABSORPTION

NETWORK &CONNECTIONS

CAPITAL

CAPITAL CAPITAL

CAPITAL

NATURAL

OTHER ECO-SYSTEM SERVICES

4 CAPITALS

HUMAN SOCIAL

REAL ECONOMY

HUMANCAPITAL

SOCIALCAPITALCAPITAL

NATURAL


CAPITALBUILT

CAPITALBUILT


NATURAL RESOURCES

The stock of natural resources, renewable and non-renewable, both tangible assets as in raw materials such a minerals and intangible services such as carbon dioxide absorption, soil formation and water purifi cation.

In construction, think of aggregates, sand and water.

CAPITALNATURAL

HUMANCAPITAL

SOCIALCAPITAL CAPITAL

BUILT

COMPANY INTRODUCTION

HUMANCAPITAL

SOCIALCAPITAL

CAPITALNATURAL

CAPITALBUILT


INDIVIDUAL CAPACITY

The stock of knowledge, physical labor and refi ned skills that transform natural resources (and previously produced intermediate goods and services) into economic goods and services.

In construction think of laborers, carpenters and electricians.

HUMANCAPITAL

SOCIALCAPITAL CAPITAL

BUILT



NATURAL

ROUTE2 SUSTAINABILITY

CAPITALNATURAL

CAPITALBUILT


NETWORKS & CONNECTIONS

The stock of trust between people (social networks) in the workplace, in the community and with public bodies that determines the ease at which anything is accomplished.

In construction think of the ease of interaction between architects, planners and builders.

CAPITALSOCIAL

CAPITAL

HUMANCAPITAL CAPITAL

BUILT


CAPITALNATURAL


HUMANCAPITAL

CAPITALNATURAL


INDIVIDUAL CAPACITY

The stock of knowledge, physical labor and refi ned skills that transform natural resources (and previously produced inter-mediate goods and services) into economic goods and services.

In construction think of laborers, carpenters and electricians.

NETWORKS & CONNECTIONS

The stock of trust between people (social networks) in the workplace, in the community and with public bodies that determines the ease at which anything is accomplished

In construction think of the ease of interaction between architects, planners and builders.

MAN-MADE MATERIALS

The stock of property, plant, equipment, infrastructure and inventory through which economic goods and services are produced, distributed, consumed, disposed, reused or recycled.

In construction think excavation machines, trucks and bricks.

CAPITALBUILT

HUMANCAPITAL


NATURAL


HUMANCAPITAL

SOCIALCAPITAL

SUSTAINABILITYRECONNECTING THE FINANCIAL AND PHYSICAL


RAWMATERIALS

INDIVIDUALCAPACITY

WASTE ABSORPTION

ECONOMICOperating alongside and supporting the real economy is the financial economy.

Within this fi nancial economy is another type of capital, Economic Capital, which is generated as the real economy output is translated into money.

The real economy and the fi nancial economy are in tune when the pricing of real economy goods and services is aligned to their underlying value. If the pricing of real economy outputs is not right or missing then there is an imbalance.

This mismatch creates distortion, which encourages organisation’s to inadvertently undermine the four capital foundations weakening the real economy itself. When fi nancial products such as derivatives lose

all connection with the real economy, this distortion is exaggerated causing signifi cant volatility.

Understanding, accounting for and managing the fl ows, depreciation and appreciation of these four capitals, is critical to removing the distortion between the real and fi nancial economy and key to sustainability and Sustained Value creation.

ACCOUNTING FOR THE FOUR CAPITALS IS KEY TO SUSTAINABILITY AND SUSTAINED VALUE CREATION

BROADENING THE LENS

VALUE


The pursuit of value creation is fundamental to resource allocation and therefore decision-making within organisations.

At Route2 value creation underpins our approach. We use familiar techniques to measure value creation and build classical discounted cash-fl ow models to support an organisation’s decision making whether that is to evaluate investment decisions, inform ambition or input into incentive programmes. The difference is

that we broaden the lens – panning out from the typical focus on built capital to incorporate natural, human and social capital.

Applying a four capitals lens to value creation is not easy, but the results are clear: better scenario planning and assumptions, better forecasts, better overall decision-making resulting in Sustained Value creation.

APPLYING A FOUR CAPITALS LENS TO VALUE CREATION


Route2 use science as the starting point to understand and quantify the association between, and the economic functions performed by, the four capitals.

The economic valuation of your organisation’s use of and investment in the four capital functions provides linkage to fi nance – and the many aspects of business planning. The four capital stock and fl ows understood in fi nancial terms enhance scenario planning and fi nancial forecasts that more readily inform

your organisation’s strategic direction. Execution of this wider strategy, with appropriate planning and performance management processes enhanced by our analysis, will deliver sustained value. Route2 have a combined twenty years worth of experience in developing these linkages - linking natural science and economic valuation - linking investment analysis to business planning and value creation. This deep expertise combines to form a unique, comprehensive (four capitals – direct, upstream & downstream) and fl exible framework (sector neutral, country to business unit to product) entitled Sustained Value Management.

KEY METHODS INCLUDE

Input-Output Analysis [IOA]

Material & Energy Flows Analysis [MEFA]

Process Analysis [PA]

Life Cycle Analysis [LCA]

Impact-Pathway Analysis [IPA]

Economic Valuation [EV]

Scenario Planning (SP)

Discounted Cash-Flow Modeling [DCF]

SCIENCE-FINANCE

LINKAGE

SUSTAINED VALUE MANAGEMENT [SVM] IS ROUTE2’S

FOUR-MODULE FRAMEWORK COMPRISING MEASURE,

MANAGE, MOVE AND MESSAGE.

The four modules aren’t necessarily sequential, as each

engagement requires a tailored set of solutions and tools.OUR OFFERSUSTAINED VALUE MANAGEMENT


MANAGE MESSAGEMEASURE MOVE

Manage is how we integrate sustainability into an organisation.

Speaking the language of the organisation merges sustainabilityinto the traditional business planning processes. Manage establishes, cements and maintains the link between sustainability and an organisation’s value.

DELIVERABLES

• Multi-year financial plans (P&L’s, balance sheet, cash-fl ow)

• Goals and metrics

• Agenda development

• Performance management tools

Move supports an organisation to implement solutions.

Route2 can identify established and cutting edge solutions and provide an organisation with the tools to evaluate, programme and measure the progress of your investments. Move is about executing the programme to realise your Sustained Value goals.

DELIVERABLES

• Identification and evaluation of solutions

• Cost-benefit and ROI analysis

• Project planning and performance management

Message supports engagement with employees, customers, consumers and stakeholders.

By demonstrating issue or opportunity materiality, quantifying benefi ts of a diverse set of sustainability initiatives or reporting against progress our approach assists organisation’s report and communicate their sustainability, plans and progress.

DELIVERABLES

• Sustainability metrics

• Sustainability labels

• Integrated reporting

MANAGE MESSAGEMEASURE MOVE

OUR OFFERSUSTAINED VALUE MANAGEMENT


Measure is core to our approach. Identifying where and how value is created across the four capitals.

We measure at all levels from national level to organisation to product. Quickly focusing efforts and resources on where the value lies.

DELIVERABLES

• Identifi cation and quantifi cation of material fi nancial, environmental and social issues and opportunities

• Top and bottom line performance impact on business

• Risks and opportunities to existing corporate goals

• Peer-set and portfolio performance


SUSTAINEDVALUE

NET PROFIT

OTHER CASHINCL. INVESTMENT, DEPRECIATION OF ALL FOUR CAPITALS

FREE CASH-FLOW

DISCOUNT RATERISK ADJUSTED COST OF CAPITAL

THE COMPONENTS OF INCOME, CASH-FLOW AND THE BALANCE SHEET INTERACT TO OVER TIME CREATE OR DESTROY SUSTAINED VALUE

VALUECREATING SUSTAINED VALUE

FINANCING & TAX COSTS

OPERATING COSTS

INCOMEBENEFITS FLOWING FROM ALL FOUR CAPITALS

COSTS FLOWING FROM ALL FOUR CAPITALS

= RESULT


SUSTAINEDVALUE

NET PROFIT

OTHER CASHINCL. INVESTMENT, DEPRECIATION OFALL FOUR CAPITALS

FREE CASH-FLOW




FINANCING & TAX COSTS

OPERATING COSTS

INCOMEBENEFITS FLOWING FROM ALL FOUR CAPITALS

COSTS FLOWING FROM ALL FOUR CAPITALS

• Lower risk, lower financing costs

• Improved stakeholder interaction, lower tax costs

• Continued right to trade

• Brand appreciation, increased market share

• Innovation, new markets

• Less exposure to resource scarcity / cost inflation

• Less exposure to regulatory burdens• Lower risk, lower insurance costs

Route2’s approach enhances each of the drivers of value resulting in sustained value creation = RESULT


SUSTAINEDVALUE

NET PROFIT

OTHER CASHINCL. INVESTMENT, DEPRECIATION OF ALL FOUR CAPITALS

FREE CASH-FLOW




• Greater insight, smarter investment

• Better solutions, better return on investment

• Enhanced scenario planning, better cash management

FINANCING & TAX COSTSS• Lower risk, lower financing costs

• Improved stakeholder interaction, lower tax costs


OPERATING COSTSCOSTS FLOWING FROM ALL FOUR CAPITAITALS

• Less exposure to resource scascarcity / cost inflation

• Less exposure to regulaulatory burdens• Lower risk, lower inr insurance costs

INCOMEBENEFITS FLOWING FROM ALL FOUR CAPCAPITALS


• Brand appreciation, increcreased market share

• Innovation, new markarkets


SUSTAINEDVALUE

NET PROFIT

OTHER CASHINCL. INVESTMENT, DEPRECIATION OFALL FOUR CAPITALS

FREE CASH-FLOW




• Greater transparency, resulting in higher investor confidence

• Lower risk, lower discount rate

smarter investmenment

• Better solutionions, better return on ininvestment

• Enhancnced scenario plananning, better cashmmanagement

FINANCING & TAX COSTSS

OPERATING COSTS

INCOMEBENEFITS FLOWING FROM ALL FOUR CAPCAPITALS

COSTS FLOWING FROM ALL FOUR CAPITAITALS

• Lower risk, lower financing costssts

• Improved stakeholder interaeraction, lower tax costs


• Brand appreciation, increcreased market share

• Innovation, new markarkets

• Less exposure to resource scascarcity / cost inflation

• Less exposure to regulaulatory burdens• Lower risk, lower inr insurance costs


PLAN

BUILD

PERFECT

DO


OUR APPROACH

HOW WE WORKWe recognise our clients as the dedicated experts they are. When clients state “understand our organisation and objectives”, “transfer your capabilities”, “breakdown the challenge into manageable phases”, we listen.

We only ask executives to visibly support the project and to foster collaboration as far as resources allow.

2. BUILD

This is where we work effi ciently to undertake the work however, we do not disappear (unless instructed to)

Our objective is to work as effectively as possible to meet our client’s challenges. We continually request and listen to feedback.

3. PERFECT

This is where we perfect the project output through workshops, teleconferences and if necessary in person meetings.

The result is work that delivers on objectives, achieved through the collective experience and ideas of the collaboration. Prior work is wasted unless this step is successful We therefore work hard to meet our objectives

4. DO

This is where we safeguard the continual meeting of our client objectives long after project completion.

During this handover stage, we support clients to integrate the work into their organisation’s systems and processes. We remain ‘on call’ to update and refresh as required.

1. PLAN

This is where we understand our client objectives and our client’s available resources.

We also familiarise ourselves with the organisation and sustainability programme. We then develop a project plan that refl ects our under-standing, clearly lays out what needs to be done, by when and by who - which we then all sign up to.

HOW WE WORKOUR APPROACH

PLAN

BUILD

PERFECT

DO


HOW WE WORKSECTOR EXAMPLES

What are the material environmental and social issues facing our business over the next 5 years and how will these impact the fi nancial performance of our business and the businesses we support locally?

• Perform quantifi ed four capital full value chain assessment (direct plus up- and down-stream operations)

• Assess the fi nancial materiality of identifi ed environmental and social issues and isolate the value drivers

• Develop scenario-based 5-year fi nancial plans for the business (P&L, balance sheet, cash-fl ow) incorporating value driver insights

• Achieve an objective and compre-hensive assessment of market & non-market costs / benefits

• Quickly focus resources on the material issues / opportunities

• Enhance scenario development and financial planning

Grower and exporter of fresh produce committed to creating a thriving local community but aware of signifi cant environmental pressures jeopardising the sustainability and performance of their business.


SECTOR AGRICULTURE CITRUS EXPORTER BEVERAGE PRODUCER COMMERCIAL BANK

BY HAVING A COMPREHENSIVE, OBJECTIVE AND FLEXIBLE APPROACH, ROUTE2 IS ABLE TO DEVELOP SOLUTIONS THAT DELIVER LASTING VALUE REGARDLESS OF SECTOR OR MATURITY OF THE SUSTAINABILITY PROGRAMME. SEE BELOW FOR A SNAPSHOT OF SOME OF THE CHALLENGES WE CAN SOLVE

QUESTION APPROACH BENEFIT


How do we bring our business leaders into the sustainability programme in order to ensure that we deliver on our internal and external commitments?

• Develop multi-year, multi-scenario fi nancial plans (P&L, cash-fl ow) to demonstrate fi nancial impact of achieving sustainability goals

• Identify key value drivers; Develop performance metrics and relevant goals / hurdle rates

• Understand current executive bonus scheme and capital expenditure approval process

• Recommend performance metrics for integration into current schemes and processes

• Gain competitive advantage over peer group

• Implement good practice across the business

• Embed sustainability into company culture



SECTOR MANUFACTURE Regional bottler of a portfolio of CSD brands with good understanding of their material sustainability issues with clear set of sustainability goals but struggling to integrate sustainability into the broader business

CITRUS EXPORTER BEVERAGE PRODUCER COMMERCIAL BANK



How exposed is our current loan book to the material environmental and social risks and opportunities, how do we best address that exposure now and how could we mitigate against these risks going forward?

• Perform high level assessment of current loan book (sector level only) to isolate ‘hotspots’ / ‘sweetspots’ within portfolio

• Identify and quantify fi nancial impact of material environmental and social issues / opportunities (within representative sample)

• Determine risk levels (and clearly identify drivers of risk) to loan book

• Understand current credit approval process and terms & conditions of loans

• Gain information advantage through deeper understanding of risk / opportunities faced by current and prospective credit customers

• Enhance credit approval process (data, metrics, hurdle rates) and T&Cs of loans (conditions, covenants, etc)

• Determine appropriate client engagement based on environmental and social risks


SECTOR SERVICE Commercial bank that understands broad environmental and social risks and opportunities within its customer base but not clear how these risks / opportunities may impact performance of its loan book now and in future

CITRUS EXPORTER BEVERAGE PRODUCER COMMERCIAL BANK



CONTACTCHALLENGE US


Route2 is at it’s best when tasked with

answering your specific needs.

Challenge us to fi nd a solution for you.

[email protected]

www.route2sustainability.com

Route2 Company Introduction July2011

Technology

Transcript of Route2 Company Introduction July2011