From strategy to sustainable operations – the critical role of investment assessment

Nerine JoubertAurecon

3

Poor performance of strategic investment initiatives

70% - Fail to meet objectives

25% - Some success, but fail to meet full potential of the strategy

Forbes 2012

In Mining

97.5% - Fail to achieve objectives

PWC 2012

4

Current environment – a broken global economic system

“Something about our global

economic system seems broken”

John Fullerton, 2013

1. Credit Crisis:

- Cyclical driven contraction

2. Flawed underlying economic

principle:

- Infinite growth

BUT the world is FINITEA Safe Operating Space for Humanity

Rockstrom et al, 2009

5

Economics - simplified

Current premise

The planet

provides infinite

natural capital –

economist and

financiers

determine where

financial capital is

invested to delivery

financial growth

and prosperity.

Future premise

How can we use

the financial capital

available in the

economic system

to create prosperity

for people and

planet?

66

Shortcomings of GDP

• Short term based

• Excludes quality of life for people or the

health of the ecosystems on which life

depends into the indicator

• Success is only measured as Growth

(by default it assumes an infinite world)

Economics – measures

77

Strategic Investment Decision Evaluation Models (Joubert, 2014) Causes of project delays from a survey of 190 delayed projects

(Goldman Sachs, Xtrata, 2012)

Investment - measures

8

Sustain a future in a “Finite World”

Three key actions:

1. Create a new vision of value including internalisation of externalities

2. Shift the flow of investment from short term financial capital growth outcomes to

long term positive outcomes for people, planet and profit

3. Create new sets of rules and regulations—some local, some regional, some

global—to establish the necessary guardrails and mandates for the transition.

Extended from John Fullerton (2013)

99

Aurecon. (2014). Partnering for sustainable growth - bringing together our clients partners and communities.

Action1: Redefine Value – Account for holistic value

Delivering

Sustainable

Business Value

Impact

investment

outcome =

harmony over

the continuum

Complexity Harmony

1010 Adapted from A New Vision of Value - Connecting corporate and societal value creation

KPMG International. (September 2014).

Action 1: Redefine Value – internalise the externalities

11

Action 2: Shift Investment flow

Action 2: Shift the flow of investment from short term financial capital growth to

long term sustainable value for people, planet and profit

1. Investment assessment based on a holistic value definition

2. Change investor objectives, financing models and ownership models

1212Social Impact Investment Taskforce (G8) (September 2014)

Action 2: Changing investor objectives, financing models and

ownership models

13

Action 3: A new sets of rules and regulations

“Economic progress is obtainable only if we employ those

powerful human drives of selfishness, which religion and

traditional wisdom universally call upon us to resist. The modern

economy is propelled by a frenzy of greed and indulges in an orgy

of envy, and these are not accidental features but the very causes

of its expansionist success. The question is whether such causes

can be effective for long or whether they carry within themselves

the seeds of destruction”

John Maynard Keynes (1936) as quoted in Small Is Beautiful: A Study of Economics as if People

Mattered By E F Schumacher (2011)

14

Industries can change – Global Development Industry Perspective

Led by multilateral and bilateral financial institutions

Industry spends nearly US$500bn annually

• Overall, developing countries received US$474bn from DAC countries (2012)

• Overseas Development Assistance (ODA):

• Almost US$135bn in 2012

• Other official flows (~US$340bn)

• Finance provided by public bodies at close to market terms and/or with

commercial motive

• Private finance at market terms (such as foreign direct investment, includes some

mining finance)

• Private grants from philanthropic foundations and non-governmental

organisations (NGOs)

Industry shifted from input and supply driven to results/ outcomes/ impact

driven in a decade

15

Industries can change – Development Industry Perspective

The Busan Partnership principles making development co-operation effective:

• Ownership of development priorities by developing countries: Countries should

define the development model that they want to implement.

• A focus on results: Having a sustainable impact should be the driving force

behind investments and efforts in development policy making

• Partnerships for development: Development depends on the participation of all

actors, and recognises the diversity and complementarity of their functions.

• Transparency and shared responsibility: Development co-operation must be

transparent and accountable to all citizens

1616

Industries can change – Development Industry Perspective

1717

The next wave

1818

Beyond sustainability: Regenerative Capitalism

DEGENERATIVE SYSTEM

Adapted from J Fullerton (2014)

19

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