Analysis: Ranking the Stars of Your Product Portfolio

On top of business drivers such as cost savings and top line growth, increased regulations and reporting standards stimulate companies to enhance their sustainability performance. In this line of activities, a new technique has made its way into Strategy and Investor Relations departments as Social Responsible Investment (SRI) principles have been adopted by significant swarms of (private) investors. This requires companies to re-think the sustainability performance of their product portfolios. The recent introduction of the framework for Portfolio Sustainability Assessment by the WBCSD further implies the importance of the emerging phenomenon and provides useful tools for implementation.

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Portfolio Sustainability Assessments (PSA) - WBCSD

By ranking the stars, companies can screen and evaluate product portfolios on sustainability performance to optimize decision-making, reduce risks, improve brand reputation and use the results for different purposes – decision making as well as communication towards investors improving the attractiveness of a company for a vast audience. The US SIF (Forum for Sustainable and Responsible Investment) has reported that between 2014 and 2016 the amount of SRI investments in assets have increased by 33% in the US alone.

WBCSD’s Framework for Portfolio Sustainability Assessment

The World Business Council for Sustainable Development (WBCSD) has developed a common framework for companies to create unified understanding on Portfolio Sustainability Assessments (PSAs). Their framework, developed together with a host of member companies such as Solvay, Clariant, and DSM, describes a 5-step process for PSAs:

Define objectives, process, and scope: Conduct screening of the portfolio to create an understanding of sustainability risks are located in the business
Define assessment segments: Determine the context and value chain of the product
Detect market signals: Identify key social and environmental opportunities and challenges
Categorize the portfolio: Use the sustainability signals to order the segments. The results can be used to evaluate the product portfolio
Using the reports and external reporting: Use the results for corporate communication and act upon results to accelerate sustainability performance

WBCSD’s ambition is to use the framework to further stimulate conduction of portfolio assessments. Evaluating sustainability performance of product portfolios can ultimately steer companies towards improved sustainability performance and support investor decision making.

The Solvay Way

One of the early examples of sustainable portfolio management to determine the sustainability performance of its product portfolio is Solvay. The Belgian specialty chemicals giant has set itself the goal of generating at least 50% of its annual revenue from sustainable solutions by 2025. Their ambitions are well brought to life by the claim of J-P. Clamadieu, Solvay’s CEO, that:

“Sustainability is not some kind of add-on that comes on the side. It is really something that must guide the way we act on a daily basis to manage a Group like Solvay, at the highest level, but also on the operational level on the ground”.

In order to accomplish this, Solvay maps its product portfolio on two evaluation criteria: environmental footprint and sustainability-related market challenges and opportunities.

For the vertical axes, Solvay conducts a quantitative assessment using 19 impact indicators to determine a product’s environmental footprint.
For the horizontal axes, a qualitative assessment using 60 questions on environmental and social topics is used to identify market challenges and opportunities.

Based on this assessment, each product can be plotted in a matrix not dissimilar to the GE McKinsey matrix developed in 1970. Solvay is already well underway is assessing its portfolio this way. Starting in 2016, by now the sustainability performance of 84% of the total turnover has been analyzed using their SPM tool. Of this, 43% consists of sustainable solutions, compared to just 18% in 2013. For more information on Solvay’s SPM approach, please visit Solvay’s corporate website.

Developing your approach for Portfolio Sustainability Assessment?

Is your company planning to start measuring and evaluating the sustainability performance of your product portfolio? Finch & Beak can help you design your tailor-made approach following the 5-step process from WBCSD's Framework for Portfolio Sustainability Assessment. Please contact Jan van der Kaaij, Managing Partner, at jan@finchandbeak.com or call +31 6 28 02 18 80 for more information.