Investment Viability Model
Long-term sustainable value creation
The Challenge
The world is changing fast and is getting more and more complex every day. The increasing complexity is driven by IT innovations, climate change and a changing political landscape that forces companies to re-think their long-term strategies, but also the expectations of a new generation employees and customers about sustainability and the impact of the COVID-19 crisis requires a new way of managing the day of tomorrow.
Expectations are rapidly changing and this will require for most companies a significant and transformative change to their business model and organisation. Including making sustainability integral to portfolio constructions and risk management for investors.
In the day after tomorrow, companies must manage complexity, create long term value and have a purpose that contributes to a better society people live in. However, this also means that profit maximization cannot be the main goal. Purpose and sustainability is not a lip-service or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits, but the dynamic force for achieving them. This also means a business culture needs to change to a more value- driven culture because purpose and the values that people hold are the most important factor in deciding whether they endorse sustainable development.
Value-driven companies have a culture that creates viability to balance profit with purpose to achieve long term sustainable value creation. Understanding the dynamic state of an organisational performance system that drives viability is critical for investors and management teams to predict whether the company is capable of adapting to the challenges of tomorrow successfully. The dynamic state will determine if a company can deal with the stress of a changing environment and can manage this accordingly to continue long-term value creation for all its stakeholders.
Insight in the dynamic state of a business performance system will help to understand what drives viability, but it is also important to make the right resource allocation decisions to support the transformational change that is required for sustainable growth. Resource allocation decisions are dependent among others the stress level of the finance structure (e.g. required leverage ratio), product lifecycle dynamics (e.g., pricing and R&D requirements) and the dynamic state of the organisational performance system (e.g. culture, integrity and organisational structure). All these growth potentials are interconnected and equally important for long-term sustainable value creation.
Next to the resource allocation challenges, there is also the ESG measurement and disclosure challenge for investors and management teams. The dynamics of a business performance system is very difficult to measure or quantify due to its non-linear characteristics as social-economics lack a clear paradigm. This might be the reason for the gap between investors and companies’ expectations on ESG related disclosures (especially the Governance related one that deals with long term value creation). Investors want clear statements around their desire to understand the company's long-term value creation model and their need to receive information to assess and support their long-term value creation monitoring and risk assessments. However, many companies with robust processes to manage ESG risk, are not giving investors the right information.
Our model provides this information as it quantifies and measures the business-related sustainability risks to the dynamics of organisations, so you can better price risk in the net return on investment calculation. Now, this risk is the most subjective risk factor in valuation calculations. It will also improve disclosure for shareholders as the information will help a company with managing sustainable related questions.
Furthermore, the outcome of the model can also be used to support dynamic resource allocation decisions that can help management teams to improve the success rate of projects and change management programs that are required to meet the challenge of tomorrow.
Jeffrey Bekkerin
Founder
The financial corporate world in London and the dynamics of the offshore-industry health and safety culture has served as my living lab to study, measure and operate the dynamic forces of companies that drive or destroy sustainability and long term value creation. The model is practical and tested in companies that operate in changing
environments.
Eco system
Purpose driven people
Many people contributed and provided feedback on the model. What all these people have in common is that they are purpose- driven and open-minded to a new way of thinking.