Page 80 - Design for Environment A Guide to Sustainable Product Development

Business Value Drivers 59

in environmental and social performance can strengthen a com -

pany’s intangible assets in ways that lead to sustained long-te rm
shareholder value.
The third pathway, creating value for stakeholders, is especially
important to consider. As shown in Chapter 3, the demand for greater
transparency and improved corporate governance has led to an in -
crease in voluntary disclosure, as well as greater scrutiny from major
investors. In addition to customers, shareholders, and employees,
there is a broader collection of external stakeholders that can influ-
ence the success of a business and are interested in environmental
performance. These include suppliers and business partners; regula-
tors and government officials at the local, state, and federal levels;
neighboring communities; religious groups, advocacy groups and
other NGOs; academic and research organizations; and, of course, the
media (see Table 3.1). By responding to the diverse interests of these
stakeholders, companies can strengthen their key relationships, rep-
utation, and license to operate.
Figure 4.3 can serve as a template for companies to identify high-
priority pathways whereby DFE efforts can deliver shareholder value.
For example, one of the most important intangible assets is the ability
to attract talent. A Stanford University survey of about 800 graduat-
ing MBAs at 11 top business schools has shown that these future busi-
ness leaders rank corporate social responsibility high on their list of
personal values and are willing to sacrifice a significant part of their
salaries to find a similarly minded employer. Another important
intangible asset is brand equity, and it is no accident that the top
companies on Interbrand’s list of the most valuable brands—Coca-
Cola, IBM, Microsoft, GE, Nokia, Toyota, Intel, McDonalds, Disney
and Google—have all invested considerable effort in developing sus-
tainability programs.

Components of Shareholder Value

The components of Shareholder Value shown in Figure 4.3 merit
closer examination. Economic Value can be measured on an
annual basis through the following commonly used formula:*
Economic Value Added (EVA) =
After-tax operating profit – Capital charge
The basic concept is that additional value is created either
by increasing cash flow or by reducing the capital required to

*Some chief financial officers prefer to replace after-tax operating profit with
related measures such as earnings before interest, taxes, depreciation and
amortization (EBITDA) or return on net assets (RONA).