Sustainability Return on Investment

Redefining the Value of Emerging Market Multinationals' Investments in Brazil

This study, entitled Sustainability ROI, conducted by the Fundação Getúlio Vargas Center for Sustainability (GVces) in partnership with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is the outcome of the joint work of member companies of the Emerging Market Multinationals (EMM) Network for Sustainability.

The goal of this initiative is to measure the sustainable and financial return of sustainability projects implemented by companies in emerging markets. The initiative was driven by i) the need to incorporate sustainability aspects in financial choices and decision-making processes; and ii) to contribute to the advancement of formal and explicit incorporation of sustainability in projects’ financial assessments through a discussion that questions how these aspects impact projected cash flows and discount rates.

In order to meet the project’s overall goals, eleven case studies were developed with seven participating companies based in Brazil, considering that three companies carried out a multiple project implementation of different divisions. The presented case studies refer to: AES Brasil, Boticário Group, Odebrecht Defense and Technology, Construtora Norberto Odebrecht, Siemens Healthcare, Siemens Foundation, Adidas Brasil, CPFL Energia and Votorantim Cimentos.

In order to conduct the risk and return analysis, companies adopted either a static financial analysis model, such as the incorporation of project impacts into the Income Statement, or carried out a dynamic analysis, estimating the project’s economic value through a Discounted Cash Flow (DCF)1 model. The Internal Rate of Return (IRR), Payback Period and Return on Investment (ROI) were also calculated, as these measure the return of every project related investment.

The analysed Sustainability ROI case studies underline the importance of measuring/assessing the financial return of sustainability projects as a means to assist in the decision-making process, demonstrating that sustainability initiatives go way beyond their ethical domain: in fact, these initiatives demonstrate the existence of tangible financial gains of participating companies, that could even represent a competitive advantage.

All environmental initiatives in the present study reveal a potential for cost savings, as well as the generation of additional revenue. Some socio-environmental initiatives not only reduce costs and/or generate revenue, but also contribute to obtaining the social licenses to operate, which ultimately leads to corporate image gains.

Furthermore, the incorporation of sustainability aspects offers the possibility of accessing profitable opportunities, such as credit lines with competitive interest rates due to better corporate sustainability practices. From any standpoint, all cases illustrate the importance to consider sustainability aspects in decision-making processes, as well as the fact that the incorporation of such aspects strengthens and contributes to their value.

In light of this context, measuring sustainability results puts forth a challenge and opportunity for all companies that operate within this realm. In addition to supplying qualitative information about the implemented initiatives, the challenge to prove that individual engagement and sustainability investment positively contributes to the economic performance of businesses is imperative in order to build a new paradigm where these investments receive the acknowledgment they deserve.

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