ValueWalk Video: Managing Investor Expectations & Risk – How to Establish a Responsible Supply Chain

ValueWalk Video: Managing Investor Expectations & Risk – How to Establish a Responsible Supply Chain

Companies are investing in creating more sustainable and responsible supply chains to meet demand from consumers and employees. In a session at Natural Products Expo East 2017, Meredith Reisfield, Senior Project Manager, Responsible Sourcing, NSF International and Gabriel Thoumi, CFA, FRM, Director Capital Markets, Climate Advisers unpack one reason we don’t hear much about for the growing demand from current and potential investors.

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In this video, Meredith and Gabriel discuss financial case studies that address supply chain risk management concerns as well as the steps that companies can take to become aware of, monitor and mitigate risk within their supply chain. Investor risk starts in operations and migrates as indirect risk to other areas of the firm. This means risk control in imperative to effective risk management.

Eight recent case studies demonstrate this paradigm shift discussed by Meredith and Gabriel. They are:

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  1. Operational Risk: Sime Darby was unable to expand as budgeted into a Liberian 220,000 hectare (ha) plantation with up to 165,000 ha stranded leading to a Q2 ‘17 $48 million impairment.
  2. Reputation Risk: JBS planned 2017 IPO, which was canceled because of bribery allegations.
  3. Legal / Regulatory Risk: Felda Global Ventures violates RSPO principles, leading to $5 million RSPO forest restoration liability now equal to Felda’s Q2 ‘17 net income.
  4. Market Risk: JBS was alleged to have bribed politicians and food safety officials, and bought cattle from ranches with illegal deforestation and slave labor, leading to shares down 35 percent.
  5. Credit Risk: Noble Group deforested biodiverse forest, key creditor HSBC complained, and Noble devalued palm oil investment $60 million Q2 ‘17.
  6. Liquidity Risk: IOI Corporation losses 27 corporate buyers after RSPO suspension, can’t sell sustainable palm oil, leading to Q2 2016 earnings of negative $14.8 million with equity valuation decrease of $800 million.
  7. Business Risk: United Cacao delisted by LSE, leading investors to lose $42 million.
  8. Strategic Risk: Sawit Sumbermas Sarana violated Unilever’s policy, so Unilever ceased procurement Q2 ’17. Sawit lost 8% revenue with shares down 15 percent.

For investors, risk is broadly defined as the volatility of returns that could generate unexpected losses or profits associated from supply chain uncertainty. These risks, as shown above, can impact share price, influence loss of market access, firm’s brand equity and result in regulatory issues. Overall, these risks impact a company’s balance sheet (assets, liabilities, equity, valuation), income statement (revenues, costs, profitability, net income), and cash flow. This is why it is important for global investors to learn to address and model supply chain risks if they wish to achieve financial outperformance.

Managing Investor Expectations & Risk: How to Establish a Responsible Supply Chain - Expo East 17' from Informa Engage on Vimeo.

NSF International, a global, independent organization that works to protect the environment and human health by developing public health and safety standards, and providing certification and testing services.

Climate Advisers is a mission-driven policy and politics shop working to deliver a strong low-carbon economy. In the United States and around the world, we create and implement large-scale, cost-effective strategies to strengthen climate action and improve lives.

Gabriel Thoumi, CFA, FRM works as Director Capital Markets at Climate Advisers where he manages global financial analytics focusing on mitigating systemic climate risk while advising on “greening” capital markets. He has 18 years of experience managing and deploying frameworks to improve global capital markets sustainability through risk mitigation and return enhancement. Previously, for Calvert Investment Management, he valued global equity, index, and fixed income portfolios and their component positions in the utilities, energy, materials, chemicals, and financial sectors. He worked on quantitative index construction and asset allocation strategies. He engaged Fortune 500 CEOs on approaches to mitigating climate risk using financial risk management tools. He led initiatives to improve financial accounting of exchange-listed products and incorporated natural capital into financial tools. He has also worked at Morgan Stanley's carbon offset company, Wells Fargo Capital Management, and American Express. He is an adjunct at John Hopkins University.
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