234
tainability solutions. Clearly this is no longer just about operational effi ciency in the
name of cost savings. More companies have also started to focus on increased
revenues and competitive market position.
McKinsey ( 2011 ) has found that 70 % of productivity opportunities today have
an internal rate of return (IRR) of more than 10 % at current prices. As a result,
some argue that business fi nds itself in the era of the Resource Revolution (Heck
and Rogers 2014 ). Alongside opportunities are growing risks related to resource
use. The cost of raw material inputs is impacted by growing natural resource constraints, which puts at risk the profi t margins and EBIT of a range of sectors. The
past decade alone has reversed a 100-year decline in resource prices. Analysis of
fast-moving consumer goods companies by WRI and ATKearney in the late 2000s
considered the impact of commodity price rises (Callieri et al. 2008 ). They calculated an ecofl ation scenario in which natural resource constraints cause a reduction
of 13–31 % in EBIT by 2013, and 19–47 % by 2018 for companies that do not
develop strategies to mitigate the risks posed by environmental pressures. Examining
data from six fi rms with a global presence in producing food, beverages, personal
care and household care items, they found that, on average, raw materials and packaging costs each equaled 15 % of revenues (Von Falkenstein et al. 2010 ).
What then is the connection between cleaner production standards, operational
effi ciency and capital expenditure ? Improved effi ciency in the use of resources will
drive more optimal use of fi xed assets (e.g., land, buildings, equipment, machinery,
vehicles). A challenge for the LCM community is to defi ne how life cycle management of fi xed assets can bring effi ciency improvements through the use of approaches
such as remanufacturing. There also exists an LCM opportunity with respect to
working capital , a fi nancial value driver with respect to which limited research on
the green business case exists. It is related to the use of product service systems
(PSSs) in the form of leasing rather than buying equipment, which can bring signifi -
cant savings alongside its environmental benefi ts. This includes effi ciencies due to
services provided at scale, onsite or offsite, by an external business partner (see
Willard 2012 ). In how far is LCA able to capture such benefi ts with different system
boundaries involved? If LCA and LCC can quantify the benefi ts of PSSs in physical
and monetary terms, the fi ndings will also be of special relevance to working capital
expenditure. PSS-related effi ciency improvements can serve as a driver for innovation in the way inventory and customer or supplier relations (receivables or payables) are managed.
3 Conclusion
Amidst greater interest in how enterprises use different types of capital and generate
value in a sustainable manner, LCM has to prove its value by illustrating linkages
with corporate fi nance and strategic performance. Considering the core fi nancial
value drivers highlighted in this chapter, the necessary contribution of LCM is summarized below:
C.T. Van Der Lugt
tainability solutions. Clearly this is no longer just about operational effi ciency in the
name of cost savings. More companies have also started to focus on increased
revenues and competitive market position.
McKinsey ( 2011 ) has found that 70 % of productivity opportunities today have
an internal rate of return (IRR) of more than 10 % at current prices. As a result,
some argue that business fi nds itself in the era of the Resource Revolution (Heck
and Rogers 2014 ). Alongside opportunities are growing risks related to resource
use. The cost of raw material inputs is impacted by growing natural resource constraints, which puts at risk the profi t margins and EBIT of a range of sectors. The
past decade alone has reversed a 100-year decline in resource prices. Analysis of
fast-moving consumer goods companies by WRI and ATKearney in the late 2000s
considered the impact of commodity price rises (Callieri et al. 2008 ). They calculated an ecofl ation scenario in which natural resource constraints cause a reduction
of 13–31 % in EBIT by 2013, and 19–47 % by 2018 for companies that do not
develop strategies to mitigate the risks posed by environmental pressures. Examining
data from six fi rms with a global presence in producing food, beverages, personal
care and household care items, they found that, on average, raw materials and packaging costs each equaled 15 % of revenues (Von Falkenstein et al. 2010 ).
What then is the connection between cleaner production standards, operational
effi ciency and capital expenditure ? Improved effi ciency in the use of resources will
drive more optimal use of fi xed assets (e.g., land, buildings, equipment, machinery,
vehicles). A challenge for the LCM community is to defi ne how life cycle management of fi xed assets can bring effi ciency improvements through the use of approaches
such as remanufacturing. There also exists an LCM opportunity with respect to
working capital , a fi nancial value driver with respect to which limited research on
the green business case exists. It is related to the use of product service systems
(PSSs) in the form of leasing rather than buying equipment, which can bring signifi -
cant savings alongside its environmental benefi ts. This includes effi ciencies due to
services provided at scale, onsite or offsite, by an external business partner (see
Willard 2012 ). In how far is LCA able to capture such benefi ts with different system
boundaries involved? If LCA and LCC can quantify the benefi ts of PSSs in physical
and monetary terms, the fi ndings will also be of special relevance to working capital
expenditure. PSS-related effi ciency improvements can serve as a driver for innovation in the way inventory and customer or supplier relations (receivables or payables) are managed.
3 Conclusion
Amidst greater interest in how enterprises use different types of capital and generate
value in a sustainable manner, LCM has to prove its value by illustrating linkages
with corporate fi nance and strategic performance. Considering the core fi nancial
value drivers highlighted in this chapter, the necessary contribution of LCM is summarized below:
C.T. Van Der Lugt