233
indicated they examine product labels to fi nd the parent company, and 56 % would
think twice if they could not fi nd information about the company behind it. This
illustrates possible limitations of only applying LCA to products, and the advantages of broadening the scope and applying life cycle thinking transparently to the
broader enterprise.
Supporting duration of sales and continual improvement in quality is of course
the training of employees and incentives for management in the use of LCM tools.
Consider the example of life sciences and material sciences company Royal DSM
( 2010 /2012). It links almost one-quarter of management compensation to the company’s performance in eco-product development, energy effi ciency and employee
engagement. The company’s 23,000 employees deliver annual net sales of more
than €9 billion. ECO+ products constituted 40 % of running business sales in 2010
and 43 % in 2012.
2.3 Operating Margin and Capital Expenditure
Hypothesis on Profi t and Capital Through (i) the use of recognized standards
and cleaner technologies in its own operations to use resources more sustainably, as
well as advancing those through its supply chain, a business can (ii) improve its
operational effi ciency – its ability to turn inputs into productive outputs in a costeffective manner – as a result of which (iii) it will improve its net profi t margin and
optimize its capital expenditure.
The key role of resource effi ciency in operations and its impact on earnings
before interest and taxes (EBIT) is recognized today, especially in industries in
highly competitive markets such as information and communications technology,
car manufacturing and consumer goods. Traditional analysis on the business case
has tended to start off by highlighting cost savings, in particular savings related to
energy use. In as far as resources are wasted and polluting emissions not avoided,
business earnings will additionally be taxed in more economies world-wide. An
analysis of the carbon exposure of an emerging markets investment portfolio benchmarked against the S&P/IFCI LargeMidCap Index is illustrative. For 16 fi rms from
emerging markets, analysis by Trucost ( 2010 ) has found that at US$108 per metric
ton of carbon dioxide equivalent (CO 2 e) by 2030, carbon costs could equate to more
than 100 % of their EBIT (Carbon Disclosure Project 2010 ).
The costs of penalties for inaction contrasts with the benefi ts of preventative
action. 3M has been running its Pollution Prevention Pays (3P) program for 40
years by 2015. In 2013 it estimated that since its inception the program has served
to avoid 1.9 million metric tons of pollutants (waste, air and water pollution) and
saved the company nearly US$1.8 billion based on aggregated data from the fi rst
year of each 3P project (3M Sustainability Report 2014 ). LCM is applied to all its
products. Furthermore, LCM evaluation as a required component of its New Product
Introduction process. It is also building on its LCM experience to develop new sus16 Taking Life Cycle Management Mainstream: Integration in Corporate Finance…
indicated they examine product labels to fi nd the parent company, and 56 % would
think twice if they could not fi nd information about the company behind it. This
illustrates possible limitations of only applying LCA to products, and the advantages of broadening the scope and applying life cycle thinking transparently to the
broader enterprise.
Supporting duration of sales and continual improvement in quality is of course
the training of employees and incentives for management in the use of LCM tools.
Consider the example of life sciences and material sciences company Royal DSM
( 2010 /2012). It links almost one-quarter of management compensation to the company’s performance in eco-product development, energy effi ciency and employee
engagement. The company’s 23,000 employees deliver annual net sales of more
than €9 billion. ECO+ products constituted 40 % of running business sales in 2010
and 43 % in 2012.
2.3 Operating Margin and Capital Expenditure
Hypothesis on Profi t and Capital Through (i) the use of recognized standards
and cleaner technologies in its own operations to use resources more sustainably, as
well as advancing those through its supply chain, a business can (ii) improve its
operational effi ciency – its ability to turn inputs into productive outputs in a costeffective manner – as a result of which (iii) it will improve its net profi t margin and
optimize its capital expenditure.
The key role of resource effi ciency in operations and its impact on earnings
before interest and taxes (EBIT) is recognized today, especially in industries in
highly competitive markets such as information and communications technology,
car manufacturing and consumer goods. Traditional analysis on the business case
has tended to start off by highlighting cost savings, in particular savings related to
energy use. In as far as resources are wasted and polluting emissions not avoided,
business earnings will additionally be taxed in more economies world-wide. An
analysis of the carbon exposure of an emerging markets investment portfolio benchmarked against the S&P/IFCI LargeMidCap Index is illustrative. For 16 fi rms from
emerging markets, analysis by Trucost ( 2010 ) has found that at US$108 per metric
ton of carbon dioxide equivalent (CO 2 e) by 2030, carbon costs could equate to more
than 100 % of their EBIT (Carbon Disclosure Project 2010 ).
The costs of penalties for inaction contrasts with the benefi ts of preventative
action. 3M has been running its Pollution Prevention Pays (3P) program for 40
years by 2015. In 2013 it estimated that since its inception the program has served
to avoid 1.9 million metric tons of pollutants (waste, air and water pollution) and
saved the company nearly US$1.8 billion based on aggregated data from the fi rst
year of each 3P project (3M Sustainability Report 2014 ). LCM is applied to all its
products. Furthermore, LCM evaluation as a required component of its New Product
Introduction process. It is also building on its LCM experience to develop new sus16 Taking Life Cycle Management Mainstream: Integration in Corporate Finance…