JetBlue & AT Kearney explore ecological business case

29 December 2014

The Caribbean is considered by many as a natural paradise that provides a rich bounty of exploration and relaxing possibilities. In a research project by Caribbean airline JetBlue, The Ocean Foundation and A.T. Kearney, the researchers strive to identify whether negative environmental impacts need to be incorporated into business models, on the basis that the ecological purity of that environment stands at the heart of the long term success of the businesses.

Environmental value
The Caribbean, with its pristine coast lines, warm crystal-clear corralled sea and rich plant diversity, has long been a destination for tourists from many walks of life. Yearly 22 million visitors are attracted to Caribbean destinations, where they are free to explore its beaches and dive in the seas. Visitors however, especially ones that lack a refined consciousness that extends over their environment, tend to leave things behind. Yearly, in the Caribbean, 100 million tons of trash finds its way into the ocean, with 89% of it created by shoreline activities that facilitate and involve visiting tourists. The trash washes up on beaches, contaminates fragile ecosystems, and is a health hazard to animals and humans alike.

JetBlue & AT Kearney explore ecological business case

Against the background of environmental considerations, JetBlue, a Caribbean airline that flies 1.8 million people to various Caribbean destinations per year, created a research project ‘Eco Earnings: A Shore Thing’, to, among other things, find out how negative impacts on the local ecology affects their business model. JetBlue’s reasoning for directly coupling environmental concerns with their business model, is that the majority passengers that fly with them come to the Caribbean to enjoy its ecological purity – the environment is therefore a key value in their in their model and effects on its quality may need to be quantified for their long term success.

To understand the environment’s value to the firm’s business model, a relatively new research avenue, the airline company joined forces with NGO The Ocean Foundation and management consulting firm A.T. Kearney, and together the researchers analysed the following question: is there is a causal relationship between revenue per available seat mile (RASM) and three environmental variables: mangrove health, beach trash and water quality. The research found that the biggest statistical effect on RASM from the variables considered came from beach trash, however, a direct causal link between variables could not be made from the information available to the project.

RASM and the Environment

The concluding remarks from the researchers is that “as may be expected with a project that charts relatively new territories, we ended up in a decidedly gray area somewhere between supported and not supported. There was a clear correlation between environmental health and RASM but insufficient data to do an adequate regression analysis. Therefore, we cannot reach any definitive causation and conclusions.”

Further research
A major challenge, the researchers found, for ocean conservation is the lack of consistent and comparable data to measure and monitor progress. While an abundance of environmental data exists, definitions are too inconsistent and information is often not robust enough to develop business cases and action plans with the environment as a basis. The researchers argue however that there is much more to be done before a clear causal case can be made. They recommend a broad approach, between scientists, environmental NGOs and businesses to create a more robust data set with clearly defined parameters. Once this is in place, scientific conclusions about the simple hypothesis that clean, clear beaches and oceans sell, and that businesses that depend on a healthy environment benefit in the long term from protecting the environment they service, can be shown either way. The intrinsic value of the environment need not be forgotten, the business model approach just adding a further dimension to a broad approach to environmental protection.


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Private equity firms ramp up sustainability focus

19 April 2019

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.