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1、ESG:L AST CALL TO TAK E EFFEC TIVE AC TIONHow innovation unlocks economic opportunities in a volatile world2023COLLECTIONCONTENTFOREWORD 4WALKING THE TALK ON CORPORATE SUSTAINABILITY 10NAVIGATING THE SUSTAINABILITY JOURNEY A NEW SCENARIO-BASED APPROACH TO DECISION-MAKING 24ACTIVELY SHAPING THE FUTUR
2、E THE NEW IMPERATIVE FOR FINANCIAL SERVICES 34SUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDS 46EUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCE 53TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMS 61FROM GREEN FINANCE TO GREENING FINANCE 722ARTHUR D.LITTLEMARCUS B
3、EARDPartner,Risk ANDREAS BUELOWPartner,Financial SMARTIJN EIKELENBOOMManaging Partner,Strategy&OFLORIAN FORSTPartner,Financial SALEXANDER KRUGPartner,ADR.MICHAEL KOLKManaging Partner,Global Leader,Technology&Innovation MSTEFANO MILANESEPartner,Energy&UTOM TEIXEIRA Partner&Global Leader,RJOHAN TREUTI
4、GERPartner,Strategy&OFRANOIS-JOSEPH VAN AUDENHOVEManaging Partner,Global Leader,Travel&Transporation FREDERIK VAN OENEAssociate Director,Technology&Innovation MRODRIGO P.NAVARROPrincipal,Technology&Innovation MDOMINIK NITTNERPrincipal,Financial SDR.PHILIPP SEIDELPrincipal,AGEORG VON PFSTLPrincipal,F
5、inancial STHOMAS BLACKManager,Risk STEFANO DECADRIManager,Energy&UtilitiesDLINA LUKOSEVICIUTEManager,Strategy&OKATHRIN STENNERManager,Financial SBEN HANSENConsultant,RAUTHORS3Environmental,social,and governance(ESG)factors are urgently redefining the business landscape across many industries.They th
6、reaten traditional models and sectors,making them obsolete seemingly overnight.But,more importantly,they provide vast new opportunities for those that can successfully understand and act in a volatile,fast-moving world,enabling them to redefine the rules of the game.Achieving excellent ESG performan
7、ce and improving competitive differentiation is not simple or predictable.Hence,Arthur D.Little(ADL)offers this collection of seven articles to share our experience and help organizations embrace ESG and its benefits.“WELL GO DOWN IN HISTORY AS THE FIRST SOCIETY THAT WOULDNT SAVE ITSELF BECAUSE IT W
8、ASNT COST-EFFECTIVE.”Kurt VonnegutWHY ESG RISKS ARE ACCELERATING RAPIDLYThe pace of change and pressure on companies around ESG are increasing exponentially.It is impossible to overstate the speed of transformation in ESG and the different manifestations of risk from consumer boycotts and citizen ac
9、tion to investor lawsuits and reduced access to capital.Public opinion,in particular,has propelled companies to divest themselves of businesses deemed unethical,change strategy,or close previously profitable plants due to outside pressure,whether directly from consumers/citizens or via litigation an
10、d legal challenges.ESG is a fundamental threat to revenues and regulatory/public license to operate if action isnt taken.Meeting regulations is not enough as these are behind the ESG curve and can even prevent the innovation required to become more sustainable as a planet.We see explosive growth in
11、requirements for ESG screening in every due diligence transaction we undertake as well as accelerating demand for portfolio sustainability screening and externality assessments as organizations scramble to reduce risk and deliver on ESG.FORE WORD4COLLECTION:ESG:L AST CALL TO TAKE EFFECTIVE ACTIONUND
12、ERSTANDING&SEIZING ESG OPPORTUNITIESESG is more than compliance.It provides an unparalleled opportunity that companies need to embrace.Those that build the right capabilities early to detect and correctly interpret sustainability trends and“translate”them into concrete,measurable action will reap re
13、wards.Businesses with strong ESG performance experience:-Higher profitability-Ability to create a share price premium-Access to a broader base of investors,providing capital on better terms-Greater loyalty from B2B and B2C customers,partners,and employees-Better reputation in the market,guaranteeing
14、 license to operate-First mover advantages-Ability to access new markets and revenue streams -Increased protection from external shocksBy taking a holistic approach that looks beyond decarbonization to cover the entirety of ESG including ethical business behavior,transparent sourcing across the supp
15、ly chain,and enabling the circular economy ESG leaders are more innovative than peers who focus solely on meeting the growing thicket of regulations.THE PRESSING NEED TO OPERATIONALIZE ESGMost organizations have committed publicly to long-term goals around sustainability.Delivering on these is more
16、difficult than it seems,requiring transformational change in both culture and mindset as well as operating against a backdrop of market volatility,immature technology,and the difficulty in agreeing on short-term actions to meet long-term targets.Essentially,most companies have not yet operationalize
17、d ESG.ADL research shows that only half of surveyed companies have modified how they manage their organization,and just 8%have changed their business models.1 The clock is ticking companies need to embed ESG across business operations,moving beyond compliance.It must be an integral part of overall s
18、trategy with a shared understanding and common language across the organization.1 Milanese,Stefano,et al.“Overcoming the Challenges to Sustainability.”Arthur D.Little Report,July 2022.5ARTHUR D.LITTLECultures and incentives must change and put ESG first,creating economically sustainable business mod
19、els.Despite current uncertainty around the speed of change required,stakeholder pressure,and technology readiness,organizations must make the right decisions and invest now to safeguard their(and the worlds)future.BEST PRACTICE CONSULTANCY TO ACCELERATE ESG PROGRESSADL has been at the forefront of E
20、SG consulting for many decades,helping clients and organizations understand and meet sustainability imperatives.This collection of articles provides a holistic view of ESG,illustrating the scale of the challenge and exploring how and why organizations must act now to unlock opportunities across thei
21、r wider ecosystems.Moving from talk to actionWe start by looking to understand where organizations currently find themselves.ADL recent research looks at organizational maturity when it comes to integrating sustainability into business models.Todays picture is of a business world in transition,strug
22、gling to“walk the talk”when it comes to sustainability.According to our research,while 80%had a sustainability strategy in place,just 29%felt it was understood across the organization.No wonder that 27%said their strategy had no impact on the company.Chapter 1 outlines these research findings,provid
23、ing concrete examples of how to drive effective,fast change around ESG and walking the talk on corporate sustainability.How are companies progressing in embedding sustainability into their strategy,governance,and organization?Predicting the future with sustainability scenario planningA major factor
24、that holds back ESG decision-making is its sheer complexity and lack of clarity.It is difficult to understand or predict the pace of change,the adoption of regulations across the globe,or technology maturity all against a backdrop of potentially long implementation timescales for new plants and proc
25、esses.6COLLECTION:ESG:L AST CALL TO TAKE EFFECTIVE ACTIONComplexity must not be an excuse for inaction.It simply increases risks and means that competitive opportunities are overlooked.Many“no regret”decisions can and must be taken now,however the future evolves.Undertaking robust sustainability sce
26、nario planning exercises is key to understanding and predicting the future.Chapter 2 explains how organizations can use this technique to successfully model the possibilities and uncover and seize opportunities before competitors.Financing the transitionIt is estimated that it will require US$12-$20
27、 trillion in investment to be net zero by 2050,70%of which will come from the private sector.Despite short-term disruptions,such as the war in Ukraine,the long-term importance of sustainability investing to financial markets is still growing strongly.Financing the transition to an ESG world requires
28、 transformation within the banking sector.It needs to step up and become the driver of green change,using its position to influence customers and ecosystems to achieve a sustainable future.Customers are increasingly looking for financial services companies to both improve their sustainability perfor
29、mance and offer the right products to help them transition.Chapter 3 explains how financial services companies need to radically change themselves to seize the opportunity of financing ESG,including the key areas to focus on moving forward.Take an ecosystem approach&look across the supply chainConsu
30、mers and regulators increasingly hold companies to account for ESG performance across their entire supply chain.That means organizations need to clearly understand and manage risks such as:-Scope 3 emissions-Working practices of suppliers when it comes to pay,conditions,and child labor,particularly
31、in sectors such as fashion-Sourcing of materials,whether rare earth minerals used in batteries and consumer electronics or cotton within clothing7ARTHUR D.LITTLEAt the same time,the only way to solve ESG challenges is to take an ecosystem approach,based on adopting a more open,collaborative culture
32、and mindset.Organizations need to partner across their supply chains to understand,monitor,and increase ESG progress,breaking down barriers and sharing data.But what are the boundaries of these new ecosystems?And who do you need to partner with?How do you position yourself to capture your fair share
33、 of the profit pool within the ecosystem?Chapter 4 outlines the risks and opportunities around managing sustainability in the supply chain.The pressing need to build a circular economyGlobally,humanity uses around 1.8x the biological resources that Earth regenerates during the entire year.2 We need
34、to build circular economies to narrow and eradicate this gap through greater recycling(particularly of rare/difficult-to-source materials),reducing waste from end-of-life products,making fewer new products,and therefore lowering production emissions all while meeting increasingly stringent regulator
35、y requirements.The battery industry is a perfect example of where embracing the circular economy is vital.Production is growing rapidly due to the rise of electric vehicles and use of batteries for energy storage.Batteries have a finite life and are costly to produce,requiring many rare/expensive ma
36、terials from across the globe.Dumping them increases pollution and poses major risks to public health.Regulations are consequently coming into force to mandate recycling,assigning clear responsibilities to producers and OEMs.All this delivers opportunities across the ecosystem.Chapter 5 maps the eme
37、rging European circular economy for batteries and how players can become involved.2“How Many Earths?How Many Countries?”Earth Overshoot Day,accessed May 2023.8COLLECTION:ESG:L AST CALL TO TAKE EFFECTIVE ACTIONThe ESG lessons for vertical markets Mobility&bankingWe close our collection with two piece
38、s that focus on specific vertical markets and how they can successfully seize the opportunities around ESG.In the mobility sector,transport providers must meet three,sometimes conflicting,risks and become more:1.Sustainable demonstrating a positive impact on society by widening access to transport a
39、s well as delivering on environmental requirements2.Efficient maximizing usage of ageing,capital-intensive assets3.Resilient when facing threats that range from extreme weather to supply chain collapsesChapter 6 sets out a framework for managing these three risks in a holistic way to meet all goals.
40、Finally,in finance,for too long ESG has been seen as a compliance risk,rather than an opportunity.It is time for a shift in mindset to embrace the potential it brings.Chapter 7 therefore explains how greening finance and focusing on economic as well as ESG factors drives innovation and opens up sign
41、ificant revenues for banks.Time is running out to take effective action around ESG.As this collection outlines,organizations across all sectors need to act now,innovate,and embrace the opportunities if they are to differentiate themselves in a fast-changing world.9ARTHUR D.LITTLECOLLECTION:ESG:L AST
42、 CALL TO TAKE EFFECTIVE ACTIONPRISM:WALKING THE TALK ON CORPORATE SUSTAINABILITYWALKING THE TALK1 0ARTHUR D.LITTLEON CORPORATE SUSTAINABILITY1 1ARTHUR D.LITTLE The COP26 summit saw progress in some areas and disappointment in others.The agreement seeks to keep the hope of maintaining temperature ris
43、e within 1.5C alive by inviting countries to submit new plans.However,it seems clear that reliance on national governments and supranational organizations alone will not be enough.Business has a crucial role to play,accounting for some two-thirds of global greenhouse gas emissions.1 Most businesses
44、in the developed economies have already taken at least some measures,however limited,to reduce carbon footprints in the last 20 to 30 years.Today the pace of action within businesses is rapidly accelerating though some observers would criticize business for achieving too little,too late.In the last
45、edition of Prism(second semester 2021),we published an article on why corporate sustainability was now genuinely at the top of the business agenda,and how a partner ecosystem-based approach was key.(Refer to“Corporate Sustainability Using Your Ecosystem to Sustain the Ecosystem,”Prism S2 2021.)Undou
46、btedly,we are seeing a new level of activity,driven by a combination of increased customer awareness and demand,developing government policies,rising emission costs,technological progress and plentiful green finance.21 World Resources Institute,2020,excluding agriculture,residential,waste.2 See also
47、:“Actively Shaping the Future The New Imperative for Financial Services”in this Report and“Growth in a Net Zero World”in Prism S1 2021.AUTHORSStefano Milanese,Stefano Decadri,Martijn Eikelenboom,Frederik van Oene1 2PRISM:WALKING THE TALK ON CORPORATE SUSTAINABILITYARTHUR D.LITTLE Yet despite the new
48、 impetus,skepticism about the ability of business to deliver on its promises remains.For example,Al Gore wrote in his 2021 Sustainability Trends Report that there“remains a yawning gap between long-term climate goals and near-term action plans.”National consumer protection authorities(source:Bloombe
49、rg,GIM)estimate that 42 percent of environmental claims have been“exaggerated,false or deceptive,”and might even violate fair practice rules established by the European Union.Separately,data from Climate Action 100+shows that about 53 percent of the 159 companies it tracks which include the worlds l
50、argest emitters of greenhouse gases dont have appropriate short-term targets for Net Zero emissions.Is this criticism fair?Behind all the public messages,to what extent is business really“walking the talk”on sustainability?In this article we consider how companies are progressing in embedding sustai
51、nability into their strategy,governance and organization.Drawing on the results of a recent Arthur D.Little company survey on this topic,we look at some of the main challenges that companies are facing and how they can be best overcome.HIGHLIGHT S AND LES SONS FROM THE SURVE YIn the third quarter of
52、 2021,ADL conducted an anonymous questionnaire-based survey focusing on the degree of integration of sustainability into business models and organizations across more than 85 large and medium-sized companies.The coverage was pan-sector and pan-geography,although with a stronger focus on Europe-based
53、 organizations.Some 40 percent of companies come from the process industries(the chemicals,construction,industrial goods&services and oil&gas sectors).1.COMPANY EMPLOYEES STILL DO NOT UNDERSTAND SUSTAINABILITY STRATEGIES WELLBy now there are few companies of any size that do not have any sustainabil
54、ity strategy at all.However,its one thing to have a strategy,and another to translate it into action.One of the most common challenges companies face is that sustainability strategies are not well understood by employees.For example,our survey indicated that less than one-third of companies had a su
55、stainability strategy whose impact was clear to all employees(see Figure 1).NATIONAL CONSUMER PROTECTION AUTHORITIES(SOURCE:BLOOMBERG,GIM)ESTIMATE THAT 42 PERCENT OF ENVIRONMENTAL CLAIMS HAVE BEEN“EXAGGERATED,FALSE OR DECEPTIVE”1 3The main reason for this lack of understanding is that companies stru
56、ggle to create a common language on sustainability across the entire organization,in a way that conveys to employees across different functions and levels what it means for the business day to day.This is also evident in the fairly limited extent to which sustainability strategy has affected the cor
57、e business of the companies in our survey(see Figure 2).Figure 1.Maturity of sustainability strategyWE DO NOT HAVE A SUSTAINABILITY STRATEGY YETWE DO NOT HAVE A SUSTAINABILITY STRATEGY,BUT WEHAVE LAUNCHED AN INITIATIVE TO DEFINE ITWE HAVE A SUSTAINABILITY STRATEGY,BUT IT IS NOTFULLY UNDERSTOOD BY EM
58、PLOYEESWE HAVE A SUSTAINABILITY STRATEGY,AND ITS IMPACT IS CLEAR TO ALL EMPLOYEES8%12%51%29%HOW MATURE IS YOUR COMPANYSSUSTAINABILITY STRATEGY?Figure 2.Impact of sustainability strategyNO IMPACTKPIS HAVE BEEN MODIFIED TO THE LOWEST LEVELPRIORITIES HAVE BEEN MODIFIED REGARDINGTHE WAY BUSINESS IS MANA
59、GEDTHE ORGANIZATION HAS CHANGEDITS BUSINESS MODEL27%23%42%8%HOW MUCH DOES THE SUSTAINABILITY STRATEGY AFFECT YOUR COMPANY?1 4PRISM:WALKING THE TALK ON CORPORATE SUSTAINABILITYARTHUR D.LITTLEIt can be seen that less than half(42 percent)of the companies have modified their ways of managing the busine
60、ss as a result of implementing a sustainability strategy,and only 8 percent have gone as far as actually changing their business model.Only one-quarter have modified their full range of key performance indicators(KPIs).Lessons learned Create a common language through adopting better tools to define
61、sustainability performanceSo,what approaches have companies taken to help create a common language that employees understand?Some sustainability leaders have tackled this problem by implementing approaches and tools to define and measure sustainability performance transparently at the product and po
62、rtfolio level.For example,the chemicals and materials industry has created an accepted global industry standard for conducting portfolio sustainability assessments(PSAs),using a set of tools developed by the World Business Council for Sustainable Development,with assistance from ADL.This approach al
63、lows an objective assessment of the sustainability performance of a product in a specific application and/or region.This is invaluable for creating alignment on sustainability in very practical terms,both internally across the staff and externally to other stakeholders.It also forms the basis for fo
64、cused dialogues with suppliers and customers on how to collaborate better to jointly improve sustainability performance.In this way it highlights potential risks,but also substantially contributes to innovation.Once the language is understood and shared,it becomes much easier to demonstrate how good
65、 sustainability management creates business value,for example,through improved customer satisfaction,reduction of product portfolio risk,boosting of activities with an excellent sustainability rating,better focus of R&D and CAPEX investments,and timely adaptation of supply chains.2.SUSTAINABILITY CO
66、MMITMENTS ARE NOT GETTING THE SAME PRIORITY AS OTHER BUSINESS OBJECTIVESOne of the clearest indicators of the extent to which sustainability is embedded into the business is how it is reflected in senior management incentives and bonuses.Our survey showed that nearly two-thirds(65 percent)of compani
67、es did not link sustainability performance to senior management incentives.A very small minority(6 percent)reflected sustainability in terms of 15 percent or more of the managerial bonus(see Figure 3).LESS THAN HALF(42 PERCENT)OF THE COMPANIES HAVE MODIFIED THEIR WAYS OF MANAGING THE BUSINESS AS A R
68、ESULT OF IMPLEMENTING A SUSTAINABILITY STRATEGY1 5Whats more,many companies have a bonus system that involves some form of cascade from senior management down to employees.Influencing employees and changing culture,which is key for success,is not easy unless incentives are properly aligned across mu
69、ltiple levels in the hierarchy.Of course,not every company needs to have a significant part of executive bonuses linked to sustainability performance.Businesses are diverse,and some sectors have an innately bigger sustainability impact than others for example,companies that offer services generally
70、have a lower impact than those that make or process things.The way in which sustainability performance is reported publicly is also an indicator of its perceived importance to the business (see Figure 4).Figure 3.Linkage of sustainability to incentivesNOLIMITED INCENTIVES(5%OF MANAGEMENT BONUS)INCEN
71、TIVES BETWEEN 5%AND 15%OF THEMANAGEMENT BONUSINCENTIVES CORRESPONDING TO MORE THAN 15%OF THE MANAGERIAL BONUS65%13%16%6%ARE SENIOR MANAGEMENTS INCENTIVES LINKED TO SUSTAINABILITY PERFORMANCE?SED QUASSEDIA CON REST EXPED MODI NIMODIT,OD EX ET ETURFC_Box_Subheading Sed quassedia con rest exped modi ni
72、modit,od ex et etur aut erum quiFC_Box_Intro_Para Sed quassedia con rest exped modi nimodit,od ex et etur aut erum qui dolupta quaspis sitibus esse quat.Andiani minvendent am,tempor am,iunte plani veribus ut eum re es et pernatem aut poribusdae magnis qui ent.SUSTAINABILITY IN THE SUPPLY CHAIN:THE R
73、ISKS AND THE REWARDSSupply chain sustainability risk managementSupply chain risk management is a key challenge for many companies and can be plagued by inadequate transparency,difficulty of control,and,in many cases,a lack of trust.As companies are urged to develop and publish sustainability policie
74、s,managing the risk of noncompliance against these policies to avoid reputational damage and associated financial losses is receiving senior management attention.Over the past decade,there have been numerous high-profile cases of poor sustainability in supply chain risk management.AUTHORSTom Teixeir
75、aThomas BlackKurt BaesMartijn EikelenboomVIEWPOINTSUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDSsafe work,fair wages and hours,education,infrastructure improvements,and protection from child labor/modern slavery and discrimination(see sidebar“Case study:Child labor class action lawsuit
76、”).-Ethics effectively governing over poor business conduct that could take the form of bribery,fraud/embezzlement,or misconduct.-Regulatory ensuring compliance with laws and legislation to protect the organization from loss of critical operations/business licenses and legal proceedings.-Reputation
77、and finance providing the organization with a positive brand image and reputation attracting customers,investors,and employees and enhancing competitiveness;ultimately protecting a company from a damaged reputation and financial loss.But the upside is the potential for true value creation in an incr
78、easingly sustainability-aware business environment.Indeed,companies are asking some fundamental questions today about why they exist(other than simply for creating wealth for investors)and are looking at sustainability across the entire supply chain.In a global landscape where sustainability is cons
79、idered by some as an essential part of business but to others as just a second thought,how can a company manage the risks and upsides associated with sustainability across their supply chain?SUPPLY CHAIN COMPLEXITYSupply chains can be extremely complex.They are often multitiered,sometimes spanning m
80、ultiple geographies and often requiring highly specialized raw materials and subcomponents that in turn rely on other parties for parts or services.As the complexity of a supply chain increases,so does the potential for a lack of transparency and a weakened level of control and influence.Across the
81、supply chain,organizations struggle to foresee and control risks,such as varying regulatory environments,political landscapes,national cultures and patterns of behavior,and societal expectations.THE CONFUSION SURROUNDING SUSTAINABILITY RISKA recurring theme surrounding sustainability risk is the ide
82、a that companies should focus solely on environmental risk.Supply chain sustainability risk is broad,however,and encompasses a range of different aspects and sources,including:-Health and safety preserving health and well-being to employees,contractors,and those exposed to supply chain operations.-E
83、nvironmental minimizing damage to the environment through pollution/resource reduction,waste management,sustainable sourcing,and biodiversity conservation.-People working alongside suppliers to enhance local communities in the form of Case study:Child labor class action lawsuitTech giants Apple,Goog
84、le,Microsoft,Dell,and Tesla are all being sued by a human rights group International Rights Advocates for alleged poor oversight of their Cobalt supply chains,which enabled the use of child labor in mining operations in Democratic Republic of Congo(DRC).The class action lawsuit claims that,although
85、each company has specific policies prohibiting the use of child labor in its supply chains,they all have failed to effectively implement such practices.The DRC produces around 60%of the worlds cobalt and,with a history of poor working conditions and labor practices,tech groups and car makers face a
86、growing dilemma around how to effectively manage this emerging risk in their supply chain.The tech groups are currently investigating the claims but are at risk of significant reputational and financial damage.With impending new laws(see“A business case for sustainability”),the potential for damage
87、from such activity increases.VIEWPOINTARTHUR D.LITTLE47SUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDSSUPPLIER QUALIFICATION&PERFORMANCE MANAGEMENTOrganizations must perform pre-assessment and due diligence before considering a supplier.Pre-assessment usually involves an initial materia
88、lity assessment to establish an understanding of any potential sustainability supply chain risks.The pre-assessment includes data gathered from annual reports,websites,news reports,remote interviews,small questionnaires,and so on.It is not focused on sustainability supply chain risk alone but on a s
89、uppliers overall ability to be a reliable supplier.Due diligence consists of gathering detailed information,usually through a detailed questionnaire,and includes specific company data and records.Questionnaire responses and transparency of data depend on:-Procurer/supplier engagement strategy.-Suppl
90、ier capability,which depends on product category,company size,location,language,etc.-Supplier willingness,which depends on volume,existing relationship,dependency,supplier market dominance,etc.-Availability of alternative suppliers.Similar to pre-assessments,due diligence is not entirely focused on
91、sustainability supply chain risk but is related to a suppliers overall ability to be a reliable supplier that fits it with a companys strategic priorities.Questionnaires are commonly used in procurement processes but often omit sustainability aspects,which risks ignoring deal-breaking questions that
92、 could identify key sustainability risk.These initial assessments of potential suppliers can encompass the whole supply chain without requiring much time or effort from an organization and means suppliers who are deemed too high-risk can be ruled out early,although a large pool of potential supplier
93、s may remain.COMBATTING SUPPLY CHAIN SUSTAINABILITY RISKImplementing a supply chain sustainability risk management framework(including a defined risk appetite)and supplier engagement strategy require collaboration and communication between numerous functions and stakeholders across the supply chain.
94、A risk appetite and supplier engagement strategy will determine an organizations capability and capacity to engage with suppliers in terms of:-Number of suppliers to engage with includes direct suppliers as well as Tier 2 and beyond.-Contract management depth of contractual agreements with suppliers
95、 e.g.,dedicated contracts for certain types of supplier or individual suppliers,mandatory requirements,termination agreements).-Supplier relationship management dedication to work alongside suppliers to improve sustainability performance(e.g.,incentives,joint activities,joint KPIs).-Performance mana
96、gement monitoring supplier performance against contractual commitments(e.g.,corrective action plans,mandatory training).-Internal practices establishing internal practices to support sustainability culture across own organization(e.g.,setting and adhering to internal targets and KPIs,internal codes
97、of conduct).VIEWPOINTARTHUR D.LITTLE4 8SUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDSThe prioritization process can be optimized using:-Data references external stakeholder review,expert consultation,peer/competitor opinion,law and regulation review,media coverage analysis,etc.-Data ba
98、cked tools detailed sustainability risk questionnaires for suppliers,geo-location assessments based on sustainability indices,etc.-Technology performance dashboards(including artificial intelligence/machine learning platforms),heat mapping to enable effective decision making,etc.RISK ASSESSMENT OF P
99、RIORITIZED SUPPLIERSOnce an organization has determined a pool of prioritized suppliers,it can identify,assess,evaluate,control,and monitor sustainability supply chain risks:-Identification.Potential sustainability supply chain risks can be identified based on various sources,including data referenc
100、es and data-backed tools like those used in the prioritization phase,highlighting potential areas of noncompliance,current and emerging industry risk,and historical loss data.Techniques such as cause-and-effect analysis and carefully constructed workshops can be used to identify relevant sustainabil
101、ity supply chain risks.-Risk assessment and evaluation.This stage requires the formulation of likelihood and consequence criteria.Consequence criteria should be formulated by combining the knowledge of internal and industry experts.These criteria can be adjusted by region and business unit to align
102、with local business conditions and regulatory environments.Likelihood criteria should be based on a combination of historical data and relevant industry expertise.Sustainability supply chain risks can then be mapped against these criteria for each prioritized supplier.PRIORITIZING SUPPLIERS BASED ON
103、 RISKThe size of a supply chain varies by organization,based on the type of industry and number of tiers within the supply chain.It is not uncommon for the supply chain to be vast,and in such cases,it is not feasible to risk assess each supplier.This creates a dilemma around which suppliers to prior
104、itize for an“intensive care”approach and what type of prioritization would be most effective in capturing the suppliers exposed to the highest level of sustainability risk.Organizations should consider the following dimensions when prioritizing suppliers within a supply chain:-Category typology sele
105、cting suppliers based on strategy such as volume/expenditure,sustainability risks,criticality to operations,policy changes,future operations,etc.-Supplier typology selecting suppliers based on perceived sustainability risks related to their geo-location,sources of raw materials and labor,historical
106、performance,etc.-Sustainability issue typology selecting suppliers within specific“high-risk”categories against key sustainability risks(e.g.,emissions,child labor,poor cybersecurity)based on key stakeholder consultation.Organizations can combine multiple dimensions into their prioritization framewo
107、rk to make it robust and tailored to their business environment.This is a better than the“finger in the air”approach that some companies rely on,which heavily depends on the opinion of internal“experts”to prioritize an entire supply chain.These methods can lack any credible scoring criteria that is
108、backed by data or tool-based assistance and may lead to a lack in clarity on those suppliers that potentially carry the most sustainability risk.VIEWPOINTARTHUR D.LITTLE4 9SUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDSA draft report by the European Parliament Committee on Legal Affairs
109、 released in September 2020 states unequivocally that“minimum requirements for undertakings to identify,prevent,cease,mitigate,monitor,disclose,account,address and remediate the human rights,environmental and governance risks posed by their own operations and also their value chain,including busines
110、s relationships.”The report goes on to say state:“Member States should designate national authorities to share best practices as well as to supervise and impose sanctions,including criminal sanctions in severe cases.”This is a significant step in the enforcement of environmental,social,and governanc
111、e(ESG)requirements as well as punishment for those who do not comply.This will have an impact on companies and suppliers across the world.As suggested in the draft legislation,companies should promptly act to eradicate sustainability risk from their supply chains.Sustainable investing is becoming a
112、prominent feature across various investment banks and investment management firms.John McKinley,director of BlackRock Sustainable Investing Team,states,“We observe an increasing positive correlation between effective management of ESG-indicators and the longer-term value creation by a company.”This
113、is corroborated by global investment research firm MSCI,which has identified that ESG leaders return significantly greater gross returns than average ESG performers.-Mitigation and control.The next step is to identify potential mitigation measures.Control and mitigation strategies come in the form o
114、f contract management,supplier relationship management,performance management,and internal practice.-Monitoring.An effective escalation and aggregation process ensures that supply chain sustainability risks are escalated appropriately to provide transparency of risk and enable corrective actions to
115、be taken by the appropriate level of management.Organizations can optimize monitoring by developing effective threshold limits and identifying and monitoring key risk indicators(KRIs)(see“Transforming business resilience”).A BUSINESS CASE FOR SUSTAINABILITYThe global sustainability landscape is cons
116、tantly evolving,with(some)governments and multinational companies leading the way to generate real business advantage.On the other hand,there is evidence that poor sustainability performance is becoming very costly,and proposed regulations will potentially make it more so(see sidebar“Being proactive
117、 over reactive”on next page).Source:Arthur D.LittleFigure 1.Sustainability KRI dashboard1Sustainability KRI dashboardSource:Arthur D.Little analysisPrimary view of supplier risk exposureKey drivers of supply chain risk and consequencesSupplier KRI analysis vs appetite and limitsCorresponding KRI dia
118、l viewLower limitActualKRIUpper limitTargetUpper triggerSub-standard receiptsUpper limitAppetiteNew laws:European Commissioner for Justice Didier Reynders recently announced that legislation will be introduced on mandatory sustainability due diligence for companies as part of the Commissions 2021 wo
119、rk plan and the European Green Deal.VIEWPOINTARTHUR D.LITTLE5 0SUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDSFinancial institutions such as Standard Chartered are also providing a greater emphasis on sustainability risk by setting specific lending requirements for certain industries.On
120、e such case is shipbreaking(ship disposal and recycling),where lending is agreed only if shipyards follow internationally recognized environmental,health,and safe working practices.These practices include providing safety training programs,protective clothing,fair working hours,and regular health ch
121、ecks.Being proactive over reactive Those skirting the moral lines on sustainability performance are starting to feel the effects of updated regulation and corporate/public perception.Various existing and emerging markets have been exposed from fast fashion with its issues with waste management,resou
122、rce usage,and material toxicity to electric vehicles and its issues with modern slavery and child labor used in the mining of essential elements.With further crackdowns imminent,organizations must be proactive in their response to sustainability risk issues in their supply chain before they become t
123、oo exposed.VIEWPOINTARTHUR D.LITTLE5 1SUSTAINABILITY IN THE SUPPLY CHAIN:THE RISKS AND THE REWARDSWITHOUT CAREFUL MANAGEMENT AND CONTROL,ORGANIZATIONS MAY BE EXPOSED TO SIGNIFICANT FINANCIAL AND REPUTATIONAL RISK THAT COULD CAUSE VERY SERIOUS DAMAGEThe global sustainability landscape is ever more co
124、mplex,and sustainability is becoming increasingly important due to an ever-changing regulatory environment,higher societal and shareholder expectations,greater scrutiny,and competitors that gain advantages by exploiting the positive aspects of sustainability in the supply chain.This complexity can l
125、ead to a lack of transparency in sustainability risks across the supply chain,putting organizations in danger of unwitting exposure to risks.Without careful management and control,organizations may be exposed to significant financial and reputational risk that could cause very serious damage.At the
126、same time,organizations that do have an effective sustainability strategy that covers both internal and external supply chains,combined with effective and proactive risk management systems,will become more competitive and attractive as business partners in the future.CONCLUSIONEXPLOITING THE POSITIV
127、E ASPECTS OF SUSTAINABILITY IN THE SUPPLY CHAIN5 2VIEWPOINTARTHUR D.LITTLEAUTHORSRodrigo P.NavarroPhilipp SeidelLuca LenzMichael KolkAlexander KrugEUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCEThe need for partnering in a heterogeneous value chainThe rise of electric vehicles(EVs)
128、and associated battery gigafactories is pushing forward the creation of a European closed-loop battery recycling value chain.Increased recycling demand,intensified EU regulations,and a strong desire to localize supply chains and safeguard critical raw materials is driving multiple opportunities.In t
129、his context,as we explore in this Viewpoint,new ecosystems are emerging,and players interested in scaling need to act quickly to take advantage of the current environment.VIEWPOINTEUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCE-Manufacturing scrap.The complexity of battery producti
130、on results in very high scrap rates(about 10%-30%),especially during production ramp-up in newly established gigafactories.As soon as production scales,a significant amount of scrap will need to be recycled on an ongoing basis.We believe this will be the strongest driver of recycling demand during t
131、he coming decade,before the large-scale return of end-of-life batteries increases.Annually,around 70 GWh of European scrap is expected to require recycling by 2025.Taken together,ADL estimates that by 2030 the total annual European Li-ion battery recycling market will reach about 130 GWh,which repre
132、sents more than 700 kilo tons(ktons)of recycling capacity need.It will then increase three-fold by 2040 as more EV batteries reach the end of their usable lives.REGULATIONS ARE CURRENTLY UNDERGOING SIGNIFICANT REVISIONS2.New regulations set targets&mandate recyclingThe EU has existing,but outdated,l
133、egislation in place that sets efficiency targets for recycling specific battery types and minimum rates for battery collection.These recycling regulations do not adequately cover the growth in Li-ion vehicle batteries.Consequently,the regulations are currently undergoing significant revisions,which
134、encompass the following key points:-These regulations will be EU-wide,entering into force immediately in all countries.DRIVING MARKET OPPORTUNITYWhile the race to create more and more EV lithium-ion(Li-ion)battery factories in Europe is accelerating,with investments regularly making the headlines,th
135、e recycling of EV batteries has yet to generate similar volumes of coverage.This is changing rapidly as three interconnected factors create a need for EV Li-ion battery recycling across Europe.1.Growing demand created by switch to EVsAccording to Arthur D.Little(ADL)analysis,70%of newly registered p
136、assenger vehicles are expected to be battery-powered by 2030,accelerated by the combination of government legislation and increasing consumer demand for greener transport.By that date,there will be an estimated 61 million passenger EVs on Europes roads,making up 30%of the total vehicles in use.This
137、unprecedented growth is driving the enormous expansion of Li-ion battery manufacturing within the EU,as described in a previous Viewpoint,“Building the Battery Ecosystem of Tomorrow.”In addition to powering vehicles,batteries will also be central to the growth of energy storage systems(ESS)used for
138、grid storage of power generated by renewables for future use.The increased battery stock for recycling will come from two sources:-End-of-life.The average life of an EV battery is between eight and 15 years.With a rapidly growing EV fleet,an increasing number of batteries will need to be returned,an
139、d possibly recycled,moving forward.ADL estimates less than 4 GWh will be returned annually in Europe by 2025,with a dramatic rise to more than 200 GWh by 2040.VIEWPOINTARTHUR D.LITTLE5 4EUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCEprices.Graphite,lithium,and cobalt are already on
140、 the European Commissions list of critical raw materials(flagged as of potential high importance and with supply risks).Nickel was already being monitored for inclusion even before current Russia-related risks.As global battery production increases,combined demand is expected to continue growing,wit
141、h supply increasingly perceived to be a risk to the growth of an independent EU battery industry.A strong recycling ecosystem is therefore seen as a way to mitigate risk,as well as an avenue to lower the environmental impact of mining new minerals in the EU.FOR SOME PLAYERS DEMONSTRATING A RECYCLING
142、 APPROACH IS A CENTRAL PART OF THEIR STRATEGIC PLANNINGDYNAMIC,EMERGING ECOSYSTEMDiverse range of sectorsThe emerging recycling opportunity is attracting a wide range of players with diverse backgrounds and industrial capabilities.Potential entrants range from metals processing and chemicals compani
143、es to automotive and waste management businesses.Some are positioning themselves via subsidiaries or joint ventures,while others are focusing on specialist battery recycling.Some have a rich industrial heritage,and others are European small and medium-sized enterprises finding themselves at the hear
144、t of this new ecosystem.-For the first time,specific targets will be attached to lithium-based batteries and will include recovery rates of specific materials,including cobalt,nickel,and lithium.-The framework will reinforce extended producer responsibilities for original equipment manufacturers(OEM
145、s),such as automotive or grid storage manufacturers,while increasing tracking,diligence,and visibility across the supply chain and via coordination mechanisms.-Targets are expected to increase and tighten in the coming decade.The European Parliament recently voted on current amendments to these targ
146、ets,which are expected to begin implementation by 2023.These amendments highlight a trend toward more ambitious recycling requirements and will increase the scope and need for battery recycling.3.Desire for circular&independent EU battery industryThe growing strategic and environmental importance of
147、 EVs to the wider EU economy along with the supply chain disruptions caused by the COVID-19 pandemic,the war in Ukraine,and sanctions on Russia have further increased the need to create a circular and ideally more resilient and independent EU battery industry.Generous subsidies and incentives have l
148、ed to a wave of announcements of new battery manufacturing facilities,from both new entrants and existing international players.National governments,as well as the EU,are investing heavily to attract these plants,with capacity expected to reach more than 1,100 GWh by 2030 if all plans are fully real
149、ized.Access to materials is increasingly vital for all these plants to succeed in a market currently suffering from significant material pricing volatility(especially metals).This is leading to a reversal of the trend of annual declines in cell VIEWPOINTARTHUR D.LITTLE5 5EUROPEAN BATTERY RECYCLING:A
150、N EMERGING CROSS-INDUSTRY CONVERGENCEMOST RECYCLING FACILITIES IN EUROPE ARE PRESENTLY OPERATING AT A PILOT OR TEST SCALEThough the battery production industry currently has enormous momentum,most recycling facilities in Europe are presently operating at a pilot or test scale.They are in the process
151、 of scaling up and transitioning toward 20+kton plants as market demand increases.As Figure 2 indicates,most recyclers are planning operations close to the core central European automotive industry,which is unsurprisingly where key battery gigafactories are also emerging,as they provide easy,short-d
152、istance access to production scrap materials.The Nordic countries are another focus;they possess the ability to leverage cheap renewable energy and hold a potentially significant position in metals processing,linked to their relatively large mineral resources.For some players,such as those in the ba
153、ttery and automotive sectors,demonstrating a recycling approach is a central part of their strategic planning.Others are more opportunistic,looking to leverage their specific capabilities in this new,potentially attractive market.Need for partnerships that combine capabilitiesAs Figure 1 demonstrate
154、s,players aim to use their individual capabilities to contribute to specific steps of the supply chain,although they recognize that cross-industry partnering with complementary businesses is required to cover the entire value chain.Alliances created by multiple players,such as the Renault-Veolia-Sol
155、vay cooperation(feedstock supply,mechanical processing,and hydrometallurgy hydro)and chemical processing),seem to be forming.Valmet-Fortum-Nornickel-BASF and Volkswagen-Northvolt-Hydro are other notable examples.Many industrial players can also benefit from the accumulated expertise of focused batte
156、ry recycling players,some of which have been involved in recycling non Li-ion batteries for many years.Figure 1.Convergence of industries in the EU Li-ion battery recycling ecosystemSource:Arthur D.LittleSource:Arthur D.LittleFigure 1.Convergence of industries in the EU Li-ion battery recycling ecos
157、ystemA variety of cross-industry partnerships take shapeFOCUSED BATTERY RECYCLERSMETAL PROCESSINGCHEMICALWASTE&RECYCLINGAUTOMOTIVE OEMBATTERY MANUFACTURERSSelectionCollection&mechanical processingHydro&chemical processingHydro&chemical processingFeedstockFeedstockVIEWPOINTARTHUR D.LITTLE5 6EUROPEAN
158、BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCEFigure 2.Recycling players prepare for European battery gigafactoriesplants in Korea),while some are recently well-funded with global ambitions or intellectual property(e.g.,Li-Cycle).Europe has become the latest and hottest arena for the globa
159、l Li-ion recycling industry.In addition to homegrown players,a growing number of companies from outside Europe have also spotted the opportunity and are starting to compete in the EU.Some bring connections in the battery value chain(e.g.,Redwood has links to Tesla),others expect to leverage global c
160、apabilities(e.g.,SungEel has hydro processing Source:Arthur D.LittleSource:Arthur D.LittleFigure 2.Recycling players prepare for European battery gigafactoriesNORTH AMERICA NEW ENTRANTSCORE EUROPEAN PLAYERSASIA NEW ENTRANTSSelectionThe battery recycling processLi-ion battery recycling follows a four
161、-stage process:1.Collection/sorting.Spent batteries are collected/transported to operating hubs,where they are sorted.2.Pretreatment.Batteries can be mechanically processed for discharging and disassembling.Alternatively,some processes perform thermal pretreatment.3.First-material extraction.Batteri
162、es are first processed to extract a mix of valuable materials through either a mechanical or pyrometallurgical route.This results in either black mass(mechanical)or alloy/slag(pyrometallurgical)as primary intermediary products.4.Second-material extraction.Primary intermediary products are processed
163、via hydro by using chemical solvents and reagents to produce individualized metal streams.Additional refining steps are potentially necessary for higher-grade results.VIEWPOINTARTHUR D.LITTLE5 7EUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCEMost players are adopting a combined mech
164、anical and hydro route,based on expectations that this route maximizes recovered material efficiencies(e.g.,avoids burning potentially recoverable organic material),while reducing the associated environmental burden(e.g.,through lower energy use).The type of mechanical separation facilities needed a
165、re also potentially easier to replicate and could favor a more decentralized initial processing step.However,this route is also more sensitive to feedstock chemistry and potentially brings greater complexity in terms of the range of process variations available.For example,some mechanical steps allo
166、w for energy recovery from discharged batteries,followed by shredding under inert atmosphere conditions,while others opt for submerged shredding.The optimal process choice will vary depending on the capabilities,ambitions,and position of the player in the value chain.This is especially true of new e
167、ntrants that are likely to consider the mechanical step the most straightforward to replicate and scale,while others may stop at this stage and simply trade the resulting black mass.CHALLENGES IN BATTERY RECYCLING ECOSYSTEMPlayers need to quickly decide with whom to partner,what types of strategic p
168、artnerships to form,and where in the ecosystem to operate.This is due to the speed at which the opportunities are developing,the time frames required to develop capabilities and build large-scale plants,and the need to secure material flows along the supply chain.However,some key considerations must
169、 still be factored into decision making,as we discuss below.1.Choosing the right recycling technology processA variety of process pathways are currently being explored in the market.These primarily involve combinations of mechanical separation,pyrometallurgical,and hydro methods(see Figure 3).Figure
170、 3.Simplified comparison of recycling technology process routesSource:Arthur D.LittleSource:Arthur D.LittleFigure 3.Simplified comparison of recycling technology process routesIndicative playersUmicore,RedwoodAccurec,Redux,SnamMajority of all othersPYRO+HYDROPYRO+MECH+HYDROPre-treatMaterial extracti
171、on processProcess simplicityInput feedstock sensitivityRecovered materials rangeEnvironmental impactIndustrial scalability/replicabilityMECHANICAL+HYDRO-Positive-NegativeBlack massAlloyHydrometallurgyPyrometallurgyMechanical separationEUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCE
172、VIEWPOINTARTHUR D.LITTLE5 8EUROPEAN BATTERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCE2.Preparing for the economics of changing battery chemistryThe chemistries used in battery cells are becoming increasingly diverse,with a widening variety of cathode material usage.This is driven by the const
173、ant need for battery makers to optimize performance specs,while balancing costs and expected material availability.There has been a noticeable reduction in cobalt-rich chemistries,with trends toward nickel-rich,manganese-rich,or nickel/cobalt-free cells.All of these potential feedstock combinations
174、must be processed efficiently by recyclers the same way and will inherently provide different associated revenue streams.Figure 4 provides indications of expected revenue streams(per ton of recycled batteries)for a typical recycling plant.It shows that processing high-value chemistries,using nickel
175、manganese cobalt NMC as a benchmark,already provides a profitable business case.In Europe,OEMs are also reportedly paying a“disposal fee”to recyclers.Along with extended producer responsibility legislation,this serves as an additional revenue stream and incentive to the recycling ecosystem.The dispo
176、sal fee for processing low-value chemistries(e.g.,lithium iron phosphate LFP)is higher than fees paid for NMC,balancing the overall recycling business case.We believe the existence and stability of disposal fees will be critical for recyclers financial returns,as the recycling ecosystem will need to
177、 effectively process a variety of chemistries.3.Picking a logistics model that scales effectively Strategically planning recycling operations means not just choosing between extraction technologies;organizing logistics and sites is necessary.Essentially the choice spans two models:-Centralized model
178、:-End-of-life batteries are transported to a central location,where they are processed and refined.-This method leads to greater transport and storage costs,primarily because of tight regulations around transporting hazardous lithium batteries.-However,this model delivers greater operational efficie
179、ncy as recyclers can process and refine on a larger scale.-Decentralized model:-End-of-life batteries are processed locally,creating the intermediary product,black mass.-Black mass is less hazardous and both easier and cheaper to transport for final refining.-While this model results in lower transp
180、ort costs,it reduces economies of scale as recyclers are unable to process centrally.The industry seems to be leaning toward a decentralized model for initial processing and a more centralized model for hydro and final refining steps.Collection and mechanical separation hubs close to production site
181、s will favor recyclers with strong partnerships with battery makers and OEMs,while securing a stable feedstock supply of materials.Hydro and refining will likely center around traditional industrial chemical and metal processing sites.Figure 4.Battery recycler EU revenue streams by feedstock chemist
182、ry(modeled result)Source:Arthur D.LittleSource:Arthur D.LittleFigure 4.Battery recycler EU revenue streams by feedstock chemistry(modeled result)LFPNMCOPEXMech+HydroRevenue from recovered materialsRevenue from disposal fee 3.5k/ton 5k/tonVIEWPOINTARTHUR D.LITTLE5 9EUROPEAN BATTERY RECYCLING:AN EMERG
183、ING CROSS-INDUSTRY CONVERGENCEThe European battery recycling ecosystem is developing quickly driven by the need to recycle battery scrap and supported by a strong regulatory framework.Competition will be intense,with partnerships,ambition,and funding all required for success.Thus,players need to tak
184、e the following actions:1 Form the right partnerships across the ecosystem,which are ready to scale up.Find the most attractive complementary technology and business partners with aligned ambitions and interests.2 Build knowledge and physical capabilities.Creating new facilities and skills requires
185、an investment of money and time.Most players are still early in their journey.3 Position flexibly.This ecosystem is in the process of being formed,with multiple moving parts in terms of technologies,business,and financial models.COMPETITION WILL BE INTENSE,WITH PARTNERSHIPS,AMBITION,AND FUNDING ALL
186、REQUIRED FOR SUCCESSCONCLUSIONCREATING STRATEGIC FOUNDATIONS FOR RECYCLING SUCCESS6 0VIEWPOINTARTHUR D.LITTLE2022FC_BOX_HEADINGSED QUASSEDIA CON REST EXPED MODI NIMODIT,OD EX ET ETURFC_Box_Subheading Sed quassedia con rest exped modi nimodit,od ex et etur aut erum quiFC_Box_Intro_Para Sed quassedia
187、con rest exped modi nimodit,od ex et etur aut erum qui dolupta quaspis sitibus esse quat.Andiani minvendent am,tempor am,iunte plani veribus ut eum re es et pernatem aut poribusdae magnis qui ent.AUTHORSTom TeixeiraMarcus BeardFranois-Joseph Van AudenhoveMartijn EikelenboomBen HansenTOWARD SUSTAINAB
188、LE,EFFICIENT&RESILIENT MOBILITY SYSTEMSAn integrated approach to manage opposition and reinforcement across objectives at the system and enterprise levelMost transportation systems and companies have defined elements of their sustainability strategy and launched initiatives related to improving effi
189、ciency and strengthening resilience.However,we believe these concepts sustainability,efficiency,and resilience(SER)should be considered not in isolation but with a holistic and integrated view.VIEWPOINTTOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMS-Resilient operating in the face of multipl
190、e threats and disruptions,such as extreme weather,collapse of key supply chains and energy supplies,loss of service,or incidents.The companies that comprise a resilient transport system must be able to anticipate opportunities and threats to ensure they can survive rapid changes in demand and use pa
191、tterns.The COVID-19 pandemic and ongoing recovery have highlighted the importance of resilience.TR A N S P O R T A ND MOBILITY SYSTEMS ARE UND ER IN C RE AS IN G PRE S S UREMany companies we have spoken to are struggling to tackle the interrelated challenges between these high-level SER goals.Nearly
192、 all companies have specific plans and objectives relating to these individual goals,but they are too often considered in isolation,with different senior managers accountable for them and a lack of holistic governance and communication.For example,transport companies have carbon-zero strategies to v
193、arying levels of maturity,typically led by a sustainability director,that place significant demands on all aspects of the business going forward,including operations,engineering,asset management,and supply chain from providing low-carbon energy to power vehicles to ensuring communities get fair and
194、equal access to transport services.Transport and mobility companies must acknowledge that SER goals are not always compatible and can hamper strategic business objectives,leading to misalignment across stakeholders and organizational inertia.Instead,the aim should be to use a systematic approach to
195、strike a balance among these three often competing areas,identifying areas of mutual benefit to maximize the positive impact to the business.DEFINING PRIORITIES FOR THE COMPANY OF THE FUTURE We live in a world where change is increasingly fast-paced,constant,and unpredictable,driven by a wide range
196、of interrelated trends.Examples are not hard to find:the COVID-19 pandemic has caused huge disruption in the transport sector,geopolitical challenges are ever more present and unpredictable,and the ongoing energy crisis is stressing global economies and supply chains.Transport and mobility systems a
197、re under increasing pressure to deliver in this context.To survive and grow,transport systems and companies must become more:-Sustainable being inclusive and socially geared in meeting the access and development needs of society while minimizing impact on both human and environmental health.Many tra
198、nsport systems and companies are working to reduce their carbon footprint and create more long-term value as passengers,regulators,and governments demand more sustainable mobility.The ongoing energy crisis has brought this into even sharper focus.-Efficient delivering the output required with reduce
199、d or minimal expenditure,resource consumption,and use of human capital.Efficiency goals are further complicated by transportation systems typically being asset-and energy-intensive,and many companies have an aging asset base with significant capital budgets required to maintain or replace them.VIEWP
200、OINTARTHUR D.LITTLE6 2TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSActivities under these different goals are rarely integrated but can often undermine each other,so companies and systems are often left with dilemmas and tradeoffs(see sidebar,“Dilemmas&tradeoffs Examples”).The solutions to
201、 these conflicts are often multifaceted and nontrivial.How can a balance be achieved,and the overall position improved,while keeping the internal and external stakeholders happy?How can SER objectives be analyzed to identify tensions(reinforcement/opposition)and maximize benefits in terms of overall
202、 impact as well as time to impact?Arthur D.Little(ADL)has developed an SER framework and approach that can help a company to identify the issues and opportunities that either block or accelerate an organizations ability to achieve its strategic objectives and deliver on its commitments,as well as ta
203、ke action to ensure long-term success.Transport companies are not new to risk management,and some are embracing the broader topic of resilience,including operational resilience(the transport system has a high level of redundancy and can continue to operate effectively with multiple disruptions,such
204、as alternative routes and power supplies)and financial/business resilience(the system and constituent companies can continue to function with rapid changes to demand and revenue,such as by having multiple diverse sources of revenue).However,resilience is growing in relevance and necessity.For exampl
205、e,in October 2022,the EU Commission instructed member states to carry out stress testing on transport infrastructure after the sabotage of the Nord Stream gas pipelines as part of an effort to increase the resilience of critical infrastructure.Efficiency gains will often take the form of initiatives
206、 to reduce head count,extend asset life,and so on,rather than necessarily being under the governance of a single part of the organization.Dilemmas&tradeoffs Examples-Sustainability and efficiency blocking resilience.A pared-down supply chain with a high dependence on a small number of sustainable su
207、ppliers may help deliver efficiency and sustainability but exposes the company to single points of supply chain failure.-Sustainability and resilience blocking efficiency.Utilizing multiple renewable energy sources increases diversity and reduces dependence on the unstable oil market but is expensiv
208、e to operate and maintain.-Efficiency and resilience blocking sustainability.Ground-level construction(instead of tunneling)is cheaper and increases resilience by expanding operations to new profitable areas but causes significant environmental damage and disrupts communities.-Sustainability blockin
209、g resilience.Increasing public transport ridership has obvious environmental benefits,but if operating costs are not covered by passengers fares and require public subsidies,costs for public authorities are significantly increased,damaging system resilience.-Sustainability blocking efficiency and re
210、silience.Pursuing social inclusion objectives(in terms of network coverage and fares)is often not financially viable,particularly for isolated and remote communities.-Sustainability reinforcing resilience.Optimizing the wider economic benefits of public transport can increase revenue for public auth
211、orities,which can be used to further fund public transport,diversifying revenue sources and increasing contributions from indirect beneficiaries.VIEWPOINTARTHUR D.LITTLE6 3TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSFigure 1.Sustainability,efficiency,and resilience tradeoffs or adjust spe
212、cific delivery objectives to achieve this goal.Failure to meet public commitments to sustainability,imposed efficiency measures,or to be sufficiently resilient to survive the next“COVID event,”however,are significant reputational and,in some cases,existential risks all transport systems and companie
213、s face.The key question is,can a transport system or company survive,and thrive,if any of the S,E,and R dimensions are not delivered upon?STRATEGIC OBJECTIVES FOR ESG OFTEN COMPETE WITH EFFICIENCY AND RESILIENCE GOALSTHE SER FRAMEWORKAs the three high-level pillars of SER are not new in isolation,pl
214、ans,frameworks,and strategies exist to address specific elements under each of the pillars,some of which have been subject to cost/benefit analysis.It is neither feasible nor desirable simply to replace these plans,so conflicts must be carefully managed to ensure they can support the achievements of
215、 strategic objectives and stakeholder expectations.The SER framework allows transport companies and authorities to consider the three pillars holistically and in an integrated fashion,aiming to increase the chance of system and company success across the three areas through a more integrated approac
216、h and improving the opportunities for identifying and acting on appropriate synergies.FROM ESG TO SER All companies are familiar with the strategic importance of managing environmental,social,and governance(ESG),prompting them to define ESG strategic objectives and corporate commitments to varying d
217、egrees of maturity and sophistication and in line with internal capabilities and priorities.Some have created detailed plans and are committed to action,while others have outlined future aspirations that are not yet concrete.However,strategic objectives for ESG often compete with efficiency and resi
218、lience goals(see Figure 1).ADLs SER framework builds on ESG(effectively ESG+)by taking existing plans,frameworks,and strategies and reconciling them to remove conflicts so that companies can meet strategic objectives and commitments without compromising overall efficiency and resilience aims.It is l
219、ikely that it will be necessary to revise Source:Arthur D.LittleSource:Arthur D.LittleFigure 1.Sustainability,efficiency,and resilience tradeoffs EnvironmentgoalsSocialgoalsResiliencegoalsEfficiencygoalsRESILIENTEFFICIENTOptimaloutcomeGOVERNANCENot resilient?Not sustainable?Not efficient?VIEWPOINTAR
220、THUR D.LITTLE6 4TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSand ease of use of multiple mobility options by providing real-time multimodal information considering user preferences and prevailing circumstances).It is not the aim of the SER framework to comprehensively cover all the objecti
221、ves of a transport system or company.Many transport companies will have strategic objectives relating to other key areas such as growth,quality,and customer experience.However,these objectives are often closely linked or highly synergistic with SER objectives,and successfully reconciling tensions wi
222、thin SER will improve the likelihood of meeting other critical business objectives(e.g.,improving system resilience often leads to more reliable service,which improves customer experience,leading to higher satisfaction and loyalty,and ultimately leading to increased revenue streams,and so on).Succes
223、sfully managing competing objectives in a dynamic environment will require the development of strong,holistic,and cross-functional governance arrangements to drive and oversee progress.Therefore,the fourth element of the framework is governance,which underpins the three SER pillars.The framework tak
224、es an organizations specific goals across the three pillars of SER and includes 20 generic goals in the areas of environment,social,efficiency,and resilience that we expect will align with most transport companies existing plans,frameworks,and strategies(see Figure 2).These goals are then operationa
225、lized through effective governance arrangements,when tensions,blockers,and enablers can be uncovered.Helpfully,the approach can identify key enablers as well as blockers.Multiple enablers are important,as any plans or objectives that can positively contribute to all three high-level SER pillars are
226、likely to be an obvious choice.For example,transport systems that embrace mobility as a service(MaaS)may find ways to combine benefits across all three pillars:improved sustainability through social inclusion(through easing access to and understanding of multiple mobility actions)and reduced environ
227、mental footprint(through fostering a shift to more environmentally friendly transport modes);increased efficiency(by optimizing mobility flows at system level,including ensuring a better utilization of assets);and increased system resilience(through improving choice Figure 2.ADL SER framework 20 goa
228、ls Source:Arthur D.LittleSource:Arthur D.LittleFigure 2.ADL SER framework 20 goals Environment goals1.Decarbonization(toward net zero)2.Biodiversity/ecosystem protection3.Reduce air pollution 4.Optimize resource consumption(use&mix)5.Reduce wasteSocial goals1.Zero harm(health and safety)2.Social inc
229、lusion 3.Equal opportunity for all staff4.Ethical supply chain5.Increase macroeconomic valueEfficiency goals1.Reduce complexity of processes&operating models2.Utilize existing data to optimize functions3.Increase productivity of staff4.Increase reliability of assets5.Minimize use of resource includi
230、ng energyResilience goals1.Enhance planning&scheduling(incl.demand-responsive transport)2.Secure workforce3.Diversify revenue streams4.Diversify&strengthen supply chain5.Improve commercial offering&pricing Strategic&financial planningDecision makingBusiness continuity plansAccountabilities&responsib
231、ilitiesEnterprise risk managementOrganizational arrangementsReporting,monitoring&KPIsRESILIENTEFFICIENTOptimaloutcomeGOVERNANCENot resilient?Not sustainable?Not efficient?VIEWPOINTARTHUR D.LITTLE6 5TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSPUTTING THE FRAMEWORK TO WORKApplying the SER f
232、ramework involves deploying a four-stage process(see Figure 3).The framework can be applied as a one-off diagnostic to act as a trigger for business planning decisions,or it can be integrated into the wider business planning cycle and used routinely(including continuous monitoring and reporting).Und
233、erstand The first step is to understand the current position and what is already planned.This means mapping all external/internal drivers and collecting and collating individual SER visions,goals,and plans.At a high level of abstraction,these goals are likely to be similar for all transport organiza
234、tions,such as achieving net-zero carbon by 2050.Where they will differ is in the delivery plans used to achieve them.Some companies will have specific plans,such as a switch to 100%renewable power or retiring old rolling stock.Some companies may not yet have tangible or realistic plans,and the way t
235、hey plan to achieve their high-level goals remains to be determined.AssessOnce the delivery plans have been collated,they need to be assessed under their respective SER pillar.Companies can rate each specific delivery objective in terms of its:-Scale of delivery and application.How ambitious is the
236、plan?For the part of the system in which it is being implemented,what percent of revenue,emissions,resource consumption,workforce,people,and service are affected?How much of the transport system is the plan targeting?This could range from a pilot program to a full global rollout.-SER interaction.How
237、 does each delivery objective interact with the high-level sustainability(environment,social),efficiency,and resilience goals?Do they block or enable SER?Once each specific delivery objective under the high-level SER goals has been rated,companies can use the SER heatmap to identify where tensions a
238、nd blockers exist(see Figure 4).Figure 3.Four-step SER process Source:Arthur D.LittleSource:Arthur D.LittleFigure 3.Four-step SER process 04ACTIVATEOutline plan to address weaknesses in SER strategy01UNDERSTANDOutline key driversMap SER vision,goals,plans02ASSESSAnalyze impact of plans on SEREvaluat
239、e enabling/blocking of SER03OPTIMIZEIdentify key blockers/enablers to SERWhat-if scenarios to eradicate blockersVIEWPOINTARTHUR D.LITTLE6 6TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSThe SER framework is likely to uncover a wide range of blockers across all high-level goals.Therefore,comp
240、anies should start by creating a roadmap that addresses all blockers and their relative impact.The removal of high-impact blockers should be prioritized,although the complex nature of transport operations and the maturity of existing corporate strategies and commitments mean it is unlikely to be pos
241、sible to remove all blockers from all high-level goals.Organizations must also create new strategies to mitigate/minimize other significant blockers that cannot be removed.(For examples,see the sidebar,“Management of opposition&reinforcement Three examples”).OptimizeBy analyzing the results of the a
242、ssessment,companies can identify where current plans may block the achievement both of specific SER pillars and individual goals.An SER dashboard can be used to highlight and understand areas of concern.The company can then use scenario modeling to target the removal of key blockers.Optimization dec
243、isions must factor in any current progress/investment in specific plans and the impact of external drivers(e.g.,legislation)on the flexibility of plans.ActivateUnderstanding what needs to be changed to remove blockers can look simple in theory,but when put into practice,complications and conflicts w
244、ill inevitably arise.Solutions to the problems caused by tensions between sustainability,efficiency,and resilience are often multifaceted and span large elements of the organization.Figure 4.The SER heatmap Net-zero carbon example Source:Arthur D.LittleSource:Arthur D.LittleFigure 4.The SER heatmap
245、net-zero carbon example SER IMPACTSustainabilityEfficiencyResilienceGOALS&DELIVERY PLANGoalsDelivery planEnvironmentSocialHigh-level objectives determined in Step 1Specific activities to achieve high-level goalsImpactMinimize emissions,waste&resource useIncrease social&economic valueMake best possib
246、leuse of resourceRespond&adaptto threats&opportunitiesNet-zero carbon by 2050100%of transport energy from renewables3(1)(4)(2)All suppliers must have a net-zero strategy2(3)Phase out old rolling stock and replace3(5)(6)Reduce use of concrete in capital projects by 30%5(1)(7)Electrification of busies
247、t routes4Stop unnecessary business travel1(1)Utilize demand-responsive transport5(1)(8)(1)The specific elements of the net-zero carbon delivery plan have obvious strong sustainability benefits.(2)Reducing diversity in the organizations energy mix will leave the organization exposed to supply issues.
248、(3)Highly prescriptive procurement requirements significantly reduce supplier diversity.(4)Incremental benefit from reducing the organizations overall energy demand.(5)Significant investment of resource and capital to upgrade fleet.(6)A more modern energy-efficient fleet will reduce overall operatio
249、nal risk.(7)Reliance on alternate construction methods requiring specialized resource and expertise exposes the organization to single points of failure.(8)Significantly improves operational efficiency by removing underutilized services.EnablingNeutralBlockingVIEWPOINTARTHUR D.LITTLE6 7EUROPEAN BATT
250、ERY RECYCLING:AN EMERGING CROSS-INDUSTRY CONVERGENCETOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSManagement of opposition&reinforcement Three examples1.A public transport operator decided to update to compressed natural gas(CNG)-based buses and streamlined its supplier base,only using supp
251、liers that were implementing a net-zero strategy.This left it highly dependent on a small number of suppliers for critical components.It was essential to balance these goals against the resilience goal of diversifying and strengthening its supply chain.After considering opposition with its resilienc
252、e goals,the company developed a probation period strategy with suspensive conditions for suppliers to increase the number of potential suppliers for critical components without impacting environment and efficiency goals and developed a long-term partnership with a local resource company to place ext
253、ra CNG stations.2.A major railway undertaking significantly increased its health and safety requirements during maintenance as part of delivering its zero-harm strategy.It needed to balance its zero-harm objectives against an efficiency goal of minimizing resources and optimizing asset utilization.T
254、he enhanced safety arrangements had a drastic impact on capacity,with a high risk of creating bottlenecks on specific routes with mixed traffic.Considering this,it carried out a detailed review of the specific work plans to optimize asset utilization while respecting the zero-harm strategy goals.3.S
255、everal organizing authorities and public transport operators were each aiming to implement their own MaaS strategy to improve the attractiveness of their offering and to build in greater resilience.The different parties realized that developing MaaS ecosystems in isolation would not allow them to ef
256、ficiently utilize data or optimize mobility flows in the systems interest.After considering those goals,they developed a joint plan across all authorities and operators to facilitate a coordinated approach.This improved both efficiency(by optimizing data and minimizing use of resource)and resilience
257、(by improving the commercial offering and enhancing multimodal scheduling).Figure A.Managing opposition&reinforcement Three examplesSource:Arthur D.LittleSource:Arthur D.LittleFigure A.Managing opposition&reinforcement three examplesDecarbonization(environment)Cost of resources(efficiency)Operating
258、model(efficiency)vs.Diversify&strengthen supplychain(resilience)Adaptation of requirements(probation period)to extendsupplier basePartnership with a localresource company to placeextra CNG stationsCOMPANY GOALSREVISED STRATEGYA PTO decided to upgrade to CNG-based buses&request supplierscommitment to
259、 net-zerostrategiesRefueling capacity identified as abottleneck,putting service levelsto PT users at riskManagement of oppositionSustainabilityEfficiencyResilienceINITIAL STRATEGYZero-harm health&safety(social)vs.Minimal use of resources/optimal use of assets(efficiency)Review of works planningallow
260、ed to mitigate risks ofcapacity bottlenecks while respecting zero-harmstrategy goalsRailway undertaking increasedoccupational safety requirementsas part of zero-harm strategyImpact on capacity,with a highrisk on creating bottlenecks onspecific routes with mixed trafficSustainabilityEfficiencyResilie
261、nceManagement of oppositionA joint plan is being developedacross authorities&operatorstoward a more coordinatedapproach for MaaS regulationsand deploymentImprove commercial offering(resilience)vs.Optimizing data for efficiencyMinimal use of resources(efficiency)Enhanced multimodal scheduling(resilie
262、nce)Separate initiatives from OA andPTOs to develop MaaS to enhanceattractiveness&resilience ofofferingsIsolated implementation wouldnot allow proper data sharing&system-level mobility flowsoptimizationSustainabilityEfficiencyResilienceSecuring reinforcementVIEWPOINTARTHUR D.LITTLE6 8TOWARD SUSTAINA
263、BLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSThe right levelIn practice,material changes to organizational governance are nontrivial,expensive,and time consuming.However,the SER framework can still be used to add value without full deployment and significant changes to governance.A one-off exercise,focus
264、ed on a specific company(or even division or business unit)or subset of objectives,can identify opposition and reinforcement relatively easily and be used to identify both short-and long-term actions to better the companys overall position(and will not require going through the four-step process).An
265、other approach is to use the SER framework as a tool to enhance and reinforce the robustness of the ESG strategy,ensuring the company meets its ESG commitments while positively impacting efficiency and resilience.This approach will inform the ESG strategy without requiring significant changes to org
266、anizational governance.MATERIAL CHANGES TO ORGANIZATIONAL GOVERNANCE ARE NONTRIVIAL,EXPENSIVE,AND TIME CONSUMINGMOVING TO THE END STATE:GETTING IT RIGHTThe need for robust governanceBecause transport companies and systems are functioning in a fast-changing world,SER calibration must be an ongoing ac
267、tivity.It therefore requires the development of strong,holistic,and cross-functional governance arrangements to drive and oversee progress.Companies that implement the SER framework are likely to have to change their organizational structure and decision-making processes to ensure competing S,E,and
268、R objectives are robustly and consistently balanced.Individuals or committees with holistic oversight over the three different SER strategies can avoid the siloed decision making many companies have today,where the impact of SER initiatives on other strategic objectives is not visible to or consider
269、ed by key stakeholders.When creating new governance arrangements,it is important to design efficient and effective committee structures to avoid duplication and inertia,while maintaining agility within the organization to deliver its strategic goals.Individuals and committees need a degree of author
270、ity to act and require the setting of clear terms of reference,roles,and responsibilities,with predefined escalation rules to ensure there is accountability and visibility over the SER framework and that adjustments can be made in a timely manner.Therefore,a comprehensive approach to SER involves em
271、bedding the framework in the organization,conducting the exercise multiple times as part of the annual planning process,and making sure accountable individuals have the visibility and authority to influence strategy to remove tensions and blockers and promote reinforcement across the three pillars.V
272、IEWPOINTARTHUR D.LITTLE6 9TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSWith the benefit of hindsight after a significant change in external context,it is easy to say the right timing for the SER exercise would have been before the events unfolded.Clearly,there are significant benefits in i
273、ntegrating the SER framework into the annual planning cycle,but fortunately,there are other ways to benefit from the SER framework as well.As recent experience in the European rail and mobility markets shows,if companies or systems have not yet fully assessed the scale and impact of their plans on t
274、he SER pillars,the best time to start is always now,even if budgets and planning are close to being finalized.The relative priorities of SER constantly change,and significant changes in external context are never far away.There is always a benefit from considering different scenarios,trigger points,
275、and contingency plans.The right timing Recent years have seen significant changes in the relative importance of sustainability,efficiency,and resilience to key stakeholders in transportation systems.For example,the opening of the European national rail market in 2016 led to many companies focusing o
276、n increasing customer satisfaction and reducing costs to fight growing competition from long-distance operators.However,over the course of a few years,with escalating pressure from environmental groups(e.g.,Fridays for Future)and new European legislation,environmental sustainability moved up the lis
277、t of priorities until it was seen as the key issue by many companies in Europe.The COVID-19 pandemic meant that most European rail and infrastructure providers had to refocus on efficiency,as demand declined significantly.Today,in post-COVID Europe,the combination of increased demand(exacerbated by
278、government environmental schemes in response to the ongoing energy crisis,such as Germanys 9-Euro ticket pass),supply chain interruptions,and high inflation has brought the need for resilience into sharp focus and put significant pressure on efficiency,be it energy sources,other parts of the supply
279、chain,or cybersecurity.Figure 5.How SER can add value to your organizationSource:Arthur D.LittleSource:Arthur D.LittleFigure 5.How SER can add value to your organizationSER for strategic tradeoffs&reinforcementReinforcing ESG strategy through SER(“ESG+”)SER-based strategic decision making(ERM+)Why?Y
280、our company often finds itself considering objectives that are in opposition and is struggling to set the right prioritiesYour company aims to develop an ESG strategy in a more comprehensive and virtuous way,also considering efficiency and resilience componentsYour company wants to ensure decision m
281、aking and strategy are systematically based on proper understanding of tradeoffs and synergiesWhat?Use the SER framework as a concept to help identify reinforcement and opposition across critical company objectives and define shaping and mitigation actions to enhance synergies and reduce oppositionU
282、se the SER framework as a tool to enhance and reinforce the robustness of the ESG strategy,ensuring the company meets its ESG commitments while positively impacting efficiency and resilienceUse the SER framework as an embedded process to improve strategic planning and decision making through better
283、understanding of required tradeoffs and removal of organizational silos How?Apply the SER framework during a strategic exercise/retreat Use SER as part of a business plan review exercise(company or BU/function level)Apply four steps of SER approach(understand,assess,optimize,activate)to develop the
284、ESG+strategy Ensure proper monitoring and reportingIntegrate and embed the SER framework into:Strategic planning cycleDecision-making processes(e.g.,ERM)Governance arrangementsVIEWPOINTARTHUR D.LITTLE7 0TOWARD SUSTAINABLE,EFFICIENT&RESILIENT MOBILITY SYSTEMSAt the individual organization level(i.e.,
285、transport operator or infrastructure manager)as well as at the system level(transport authority or city),transport ecosystems must manage a growing number of priorities,requiring a holistic and integrated approach.In short:1 The SER framework can enhance an organizations ability to achieve strategic
286、 objectives and deliver on its commitments by maximizing reinforcement and handling opposition across critical company objectives,allowing for acceleration of alignment for optimal outcome and long-term success.2 The SER framework can be used comprehensively as an embedded process to improve strateg
287、ic planning and decision making through better understanding of required tradeoffs and removal of organizational silos,requiring changes to governance arrangements.3 The SER concept also works as a tool to enhance and reinforce the robustness of the ESG strategy(i.e.,ensuring the company meets its E
288、SG commitments while positively impacting efficiency and resilience)or as a one-off exercise to identify opposition and reinforcement among critical objectives and pinpoint concrete improvement actions to refine the overall position.TRANSPORT ECOSYSTEMS MUST MANAGE A GROWING NUMBER OF STRATEGIC PRIO
289、RITIESCONCLUSION NAVIGATING THE PATH AHEAD7 1VIEWPOINTARTHUR D.LITTLEFC_BOX_HEADINGSED QUASSEDIA CON REST EXPED MODI NIMODIT,OD EX ET ETURFC_Box_Subheading Sed quassedia con rest exped modi nimodit,od ex et etur aut erum quiFC_Box_Intro_Para Sed quassedia con rest exped modi nimodit,od ex et etur au
290、t erum qui dolupta quaspis sitibus esse quat.Andiani minvendent am,tempor am,iunte plani veribus ut eum re es et pernatem aut poribusdae magnis qui ent.2022AUTHORSGeorg von PfoestlFlorian ForstDominik NittnerKathrin StennerFROM GREEN FINANCE TO GREENING FINANCEESG innovations can accelerate green ch
291、ange and increase revenuesEnvironmental,social,and governance(ESG)provides financial services businesses with a framework for funding and de-risking the shift to a greener world.It offers banks an enormous revenue opportunity by introducing green products and services to new and existing customers.H
292、owever,greening finance requires changes in culture and mindset and expanding ESG considerations to include an economic perspective,thus creating ESGE(environmental,social,governance,and economic).This Viewpoint explains how banks can innovate and unlock ESGs revenue potential.VIEWPOINTFROM GREEN FI
293、NANCE TO GREENING FINANCE2.Offensive Grow client base.Over 60%of clients in the ADL/Erste Group study wanted their bank to do more on ESG by becoming greener as well as offering additional green products and services.Using ESG innovation to launch new products and widen portfolios gives banks the ch
294、ance to reposition themselves in the market and win new business.Expanding ESG capabilities extends their reach and increases revenue potential.Making the shift to offering ESG products and services entails a multistage process,which begins with focusing on clients and their specific needs,as outlin
295、ed below.1.Identify your starting pointEvery banks ESG situation will differ,shaping the strategy and structure they need to adopt.How a bank embraces ESG and derives value will depend on multiple factors,including:-The banks business model.-The ESG goals(i.e.,does the bank want to be a leader,follo
296、wer,or merely defend its existing customer base?).-The distribution of client segments,such as retail and corporate,which includes micro-enterprises,small and medium-sized enterprises(SMEs),large organizations,and private banking(including affluent clients).-Client demographics,their access to capit
297、al,and how they impact awareness of and interest in ESG.-Business lines(e.g.,lending,investments,services)identified as the most important for top-line growth,and how ESG can be factored in.-Operational geography and ESG awareness in countries and/or regions where the bank operates.FROM BUZZWORD TO
298、BALANCE SHEETIn recent years,banks have aspired to become more sustainable by investing heavily in resources for greening their own operations and meeting regulatory targets,as detailed in the Arthur D.Little(ADL)Prism article,“Actively shaping the future The new imperative for financial services.”M
299、AKING THE SHIFT TO OFFERING ESG PRODUCTS AND SERVICES ENTAILS A MULTISTAGE PROCESSBanks now need to move their attention beyond compliance and take concrete steps to reap the economic benefits of innovating and launching new ESG products and services.Like a game of football,they must think both offe
300、nsively and defensively.This approach addresses two client-related challenges:1.Defensive Keep existing clients.Corporate and retail clients are increasingly asking for green and sustainable products and services,on both the investment and lending sides.Corporates are also looking to work with like-
301、minded partners,such as banks,as they accelerate and fund their own sustainability and green transition journeys.In research carried out by ADL and leading Austrian financial services provider Erste Group,80%of Austrian corporates said that sustainability was of very high or high importance.However,
302、76%were unaware if their bank offered ESG products and services despite half the respondents(46%)citing sustainability as very important to their relationship with their bank.Half the companies that were aware of their banks ESG products were using them.Studies in other countries and our client work
303、 indicate similar results.Can you afford to lose nearly half your corporate clients through inaction?VIEWPOINTARTHUR D.LITTLE7 3FROM GREEN FINANCE TO GREENING FINANCE3.Cultivate new ESG capabilitiesAfter identifying opportunities and seeing how they link to overall strategy,banks need to focus on wh
304、ich initiatives and tools will help generate ESG success.Launching green versions of existing products through existing channels is not sufficient.Instead,banks must analyze the factors that lead to ESG lending leadership with target customers.These might include a stronger focus on user experience;
305、integration to new ecosystems or partnerships;or promoting specific,need-based solutions.Planning successful products involves identifying multiple factors,such as key performance indicators(KPIs),governance,processes,and data.Growth cannot happen without understanding the necessary actions and inve
306、stments.After defining KPIs,the next step is deciding which initiatives and products to prioritize,taking the following factors into consideration:-ESG impact.-Economic impact.-Implementation time and effort.-Availability of required resources and expertise.4.Build an ESG-first cultureESG has evolve
307、d within financial services.It began as a niche area,before becoming a compliance responsibility,linked to a banks license to operate.Next,it evolved again as an essential piece of reputation management and corporate social responsibility(CSR).Now,further transformation will be brought on by embraci
308、ng ESGs business relevance and economic impact and treating these capabilities as levers for value creation.Banks should therefore use their understanding of client expectations and ESG value drivers to create and define concrete use cases in specific areas,such as SME lending.However,it is one thin
309、g to understand client needs,and another to effectively position and sell new ESG products.Alongside these factors,a whole ecosystem of new green technology players is emerging.These businesses feature a broad range of services from providing ESG data to supplying consumer products like solar panels
310、.Banks can partner with these companies both to meet their own ESG transition and reporting requirements and to equip their customers with solutions for better sustainability and to support them with green transition finance.Partnerships help increase engagement with customers and cement the banks p
311、osition as a trusted provider of ESG products and services.Extending client relationships and opening new revenue streams are two additional advantages of partnerships.2.Make the customer the heart of your ESG strategyA growing global interest in ESG among retail and corporate customers provides ban
312、ks with a clear opportunity to grow their offerings.However,every banks customer base varies in ESG awareness and large variances exist within demographics,countries,and sectors.BANKS MUST FOCUS ON THEIR OWN CUSTOMERS AND WHAT THEY EXPECTSo start by talking to customers and listening to their needs;
313、this will inform value creation by developing and delivering the right products and services.Rather than relying on generic surveys of the wider market,banks must focus on their own customers and what they expect.Gathering this information requires in-depth research and listening exercises to gain a
314、 clear understanding of opportunities based on what customers require.Upon accomplishing this task,banks should then repeat the exercise across the wider market to learn what potential customers expect and are looking for in ESG products.VIEWPOINTARTHUR D.LITTLE74FROM GREEN FINANCE TO GREENING FINAN
315、CE-Incentives and bonuses.Explore new forms of compensation that encourage relationship managers to engage with and responsibly sell ESG products.Be transparent and publish clear remuneration policies for all staff that involve ESG and CSR objectives as part of overall governance.For example,BNP Par
316、ibas has outlined on its website the rules it follows when calculating the annual variable remuneration of executive corporate officers,including factors such as the banks ranking for extra-financial performance in independent league tables.-Senior-level visibility.Demonstrate that ESG,and more impo
317、rtantly ESG products,form the core of the banks future.Lead programs from the top and heavily involve senior management and the board.Bring in a chief sustainability officer and other employees with the right skills at the senior level,backed by ESG product managers.5.Tailor metrics to your programT
318、here are manifold KPIs for measuring ESG progress,success,and its impact on the business.These ESGE KPIs can be split into four main groups,as illustrated in Table 1:1.Regulatory KPIs:-Contribute products to regulatory metrics,such as the EUs Green Asset Ratio(GAR).This indicator defines the proport
319、ion of green financed economic activities and investments as a share of total assets.Often,the issue is cultural,with bank staff,particularly relationship managers,remaining focused on previous product lines that they know,understand,and feel confident about.TRANSFORMATION CAN ONLY COME OUT OF A BEH
320、AVIORAL SHIFTTransformation therefore relies on a cultural change that can only come out of a behavioral shift.The following factors are key when involving and engaging relationship managers with ESG:-Training and education.Invest in training and certification for relationship managers by accessing
321、the growing number of courses and exams administered by organizations such as the United Nations Environment Programme Finance Initiative(UNEPFI),banking associations,universities,and other financial trade bodies.For example,Deutsche Bank has committed to training its product experts to standards ce
322、rtified by the Chartered Financial Analyst(CFA)Institute or the European Federation of Financial Analysts Societies(EFFAS).In addition,J.P.Morgan runs an ESG Masterclass Series and Goldman Sachs provides ESG training globally to relevant employees.Source:Arthur D.LittleTable 1.Examples of ESGE KPIs
323、Source:Arthur D.LittleTable 1.Examples of ESGE KPIs CATEGORYSELECTED KPIsRegulatoryGreen Asset Ratio(GAR),Banking Book Taxonomy Alignment Ratio(BTAR),etc.ESGEGHG emissions,energy efficiency,use of renewable energy,etc.SEmployee satisfaction,number of solidarity hours,training hours,etc.GWoman as boa
324、rd members,litigation risks,corruption cases,etc.Financial/economicTop-lineOperating income from ESG products/services,revenue increase from ESG products/services,client number with ESG products/services,etc.ProfitabilityShare of profit coming from ESG products/services,return on assets from ESG pro
325、ducts/services,return on equity from ESG products/services,etc.RiskRisk exposure from ESG products,expected loss from ESG products,risk parameters of ESG products,etc.Capital marketsShare price,investor outreach,volume of ESG bonds issued,etc.Non-financialEmployee satisfaction,retention,branding,rep
326、utation,etc.VIEWPOINTARTHUR D.LITTLE7 5FROM GREEN FINANCE TO GREENING FINANCEPUTTING ESG INTO PRACTICE WITH SME LENDINGBanks should acknowledge increased interest from SMEs in ESG products and take action to meet their needs.After all,doing nothing leads to top-line reduction,while doing something p
327、rovides a good chance of increasing revenues.We have derived a business case for ESG within SME lending from our past project experience and discussions with clients that have expanded our knowledge.This business case example,outlined in Figure 1,shows the potential financial opportunity within a co
328、untry with an annual volume of SME loans valued at US$250 billion.A bank with a 5%market share(equivalent to$12,500 million)and a 2.5%interest rate will earn$313 million in interest income.This market share can be increased to$13,125 million without changing pricing through a combination of:-Attract
329、ing new clients from rivals.Offering ESG investments increases loan volume by a conservative 5%(+$625 million).-Preventing churn of existing clients.Removing the risk of income loss of 10%in the medium-to-long term decreases(-$1,250 million).This equals a 15%ESG impact on SME loan volume and a rise
330、in interest income to$328 million.Further revenues can be gained through cross-selling opportunities,which could include offering CO2 certificates and ESG advisory services.2.Non-regulatory ESG KPIs:-May vary based on sector but could include:-Environmental KPIs(e.g.,CO2 footprint,use of renewable e
331、nergy,and energy efficiency).-Social KPIs(e.g.,diversity,equity,and inclusion;training and education;and qualifications earned).-Governance KPIs(e.g.,actions taken against corruption and litigation risks).-External ESG ratings,although there are wide differences among these standards.3.Financial/eco
332、nomic KPIs:-Top-line indicators(e.g.,revenue increase,new customers).-Profitability(e.g.,return on assets,return on equity).-Meeting risk KPIs(e.g.,expected loss from ESG products).-Capital market metrics(e.g.,share price).4.Non-financial KPIs:-Employee satisfaction with company progress on sustaina
333、bility.-Retention.-Branding and reputation.Source:Arthur D.LittleFigure 1.ESGs impact on SME loan revenues Source:Arthur D.LittleFigure 1.ESGs impact on SME loan revenues Volume&interest income in millions of dollars1,87512,500-1,250Forecast13,125As-is SME loan volume“Do nothing”impact on SME loan volume+625ESG impact on SME loan volume11,250$328$313ESG impact15%Interest income$281ESG impact15%VIE