And The Winner Is...

The winner is team SNJV from SMU. Maroon 4 from NUS was their worthy opponent and runner up of our 2021 Intervarsity Panvest® Case Competition.


Capacity building is an integral part of our contribution to growing the sustainable investing eco-system, and this starts with inspiring the youth. In our inaugural Intervarsity Panvest® Case Competition this year, we were extremely impressed by all the 8 teams from NUS, SMU and NTU who participated. What we aimed to embed in these aspiring youngsters was a different way of analyzing companies that incorporate all stakeholders into their business model. Today’s Arcus is dedicated to us reviewing the 3M case study which won Panarchy Partner’s 2021 Global Panvest® Case Competition.



The Winning Team SNJV from SMU

Nixon Lim, Vincent Htoo, Seraphina Wee and Jeevan Sangker


Our competition finalists (a team each from SMU and NUS) were asked to present their analysis on 3M’s purpose, any threats to this purpose and any opportunities 3M’s purpose presents. 3M was a good case study for our competitors as it is a global Industrial company with a long history of shareholder value creation, which is increasingly evolving its stakeholder model through its purpose. This journey of theirs is not easy and our Finalists were tasked to present their views.


“At 3M we are a purpose-driven enterprise. We know that we can grow our business while collaborating to solve some of humanity’s greatest challenges. And we know that innovation isn’t innovation without Sustainability.”

Mike Roman, Chairman and CEO 3M



The Case Brief


In this case study, we would like you to address the following three questions (equal importance) about the company that you have been assigned:


1. What’s 3M’s purpose? Things to consider include:

  • What is the company trying to achieve?

  • Who do they impact?

  • How are they changing the industry and ecosystem they operate in?

  • Is purpose in line with values (are they good stewards)?

2. What’s the one threat to their purpose and how should they deal with it?

3. What is one opportunity from their purpose and how are they acting on it?



As you will see in the attached video, SNJV made an impressive attempt with innovative solutions to the questions posed above. Whilst they might have lost marks for accuracy, they made up for it with their out of the box ideas which we do highlight below.


SNJV’s Take on 3M’s Purpose


Our case competition winners SNJV started with 3M’s Purpose “Improving Everyday Life” and nicely linked governance with sustainability. 3M has a strong corporate governance with an impressive board but one area which SNJV could have highlighted for improvement is on executive compensation and incentivizing them with sustainability KPIs associated with Human, Social and Environmental capital as much as financial capital targets.


We liked the fact that SNJV linked 3M's values with examples; values are a central part of a firm’s strategy to deliver on their purpose as learned from Mr Rajeev Peshwaria’s talk on Purpose at the Stewardship Asia Centre. Some of 3M’s values and examples being:

  • Diversity and sustainability – named one of the world’s most ethical companies.

  • Encouraging – through supporting 35 high schools and offering 65 scholarships and matching $9.1m in donations to their Foundation.

  • Respect – recognizing 26 suppliers for their high standards of performance.

  • Inclusivity – 3M scored 100% in the 2019 Disability Equality Index and won Best Places to Work for LGBTQ Equality for the 8th time.


RISKS for 3M and Possible Solution


Unsurprisingly, the team saw damage to stakeholders through chemical compounds such as PFAS as a threat to 3M’s purpose and values. Different classes of PFAS are used in the manufacturing of a variety of products. Beyond well-known applications like carpet protectant and non-stick cookware, PFAS are used in important products such as surgical gowns and drapes, where these materials help prevent infections. They are also critical to the manufacturing of electronic devices such as cell phones and semi-conductors. Commercial aircraft and low-emissions vehicles also rely on PFAS technology.


While 3M ceased all manufacturing and use of this chemistry in 2008, a few US states have come across PFAS related water contamination problems in both their surface and ground water supplies over the last decade. Chemicals such as PFAS used by companies like 3M are likely to have entered water supplies (during manufacturing) and now need to be addressed by them for all stakeholders.


3M has announced a series of initiatives and actions related to addressing this issue and demonstrate their longstanding commitment to environmental stewardship. To complement 3M’s existing actions SNJV came up with an interesting, out of the box solution. SNJV proposed that 3M issue a $1.5bn Green Bond to support the clean-up and manage the areas impacted by PFAS, such as municipal wastewater management infrastructure to reduce the PFAS threat. On the face of it, a Green Bond to address the problem sounds like a good idea…but in this instance has an underlying structural flaw.


Green Bonds are being issued by companies and governments alike. Within our portfolio, we have such bonds issued by the likes of Neste, Edenred and Schneider Electric to name just a few. Countries like Pakistan have also issued a Green Bond to support their biodiversity and climate change initiatives. No doubt there is good reason to financially support efforts that improve or address various stakeholders challenge. However, none of these green or sustainable bonds can negate or overcome the ‘polluter pays’ principle, which is an issue with SNJV's proposed Green Bond.


The ‘polluter pays’ principle originally identified under the 1992 Rio Declaration as part of the broader principles for sustainable development, is the practice that those who produce pollution should bear the costs of managing it to prevent damage to human health or the environment. As an example, a factory that produces a potentially poisonous substance as a by-product of its activities is usually held responsible for its safe disposal. Will a Green Bond issued by 3M to solve the PFAS issue go against this principle? Can issuing a highly demanded, potentially lower cost bond to correct a wrong be seen as benefiting the polluter in this case?


Innovative solutions that allow financial capital to correct or prevent environmental damage is welcome and needed, but not if it contradicts agreed upon principles of sustainable development. Glad that SNJV allowed for this discussion to happen and hope they gain from this feedback.


OPPORTUNITIES for 3M


When looking at 3M’s opportunities the team saw that the renewable energy sector as a key strategic focus with the US re-joining the US Paris Agreement and releasing a $2tr Clean Energy plan. Looking at Obama’s Sunshot Initiative which had similar policies of tax credits and removing legal barriers the team believes that this will have similar success which saw solar energy increase 40x by the end of the program.


SNJV did calculate an ambitious $ value potential of renewable power opportunity for 3M, more importantly we appreciated the fact the team looked at past policies and tailwinds and brought this into the analysis. They would have scored extra points if they had followed through on their idea with potential financial impact on the company through such products or business segments.


SNJV in their analysis deployed a full resilience analysis as per our Panvesting process to further understand the sustainability efforts at the company along with areas for improvement. While 3M is delivering on their Environmental targets such as reducing 75m tons of CO2 and increasing their renewable energy footprint to 35%, their social and community targets are lagging behind, thus providing an opportunity for 3M.


Conclusion


Over the last few years, one of the most rewarding aspects of working in a covid disrupted world for myself and the Panarchy Team has been our time spent with young change makers (even if on zoom), whether that be through our Internship program, university teach in sessions, or our intervarsity Panvest® case competition. These interactions have invariably helped us learn as much as we have shared. Our young Panvestors in the case competition looked at our portfolio companies with a fresh and unbiased lens, always progressing our own views on the companies. Their unique and innovative solutions while needing some fine-tuning have identified areas where all of us need to improve our own understanding, such as Green/Sustainable Bonds in this case.


Once again congratulations to SNJV and a Big Thank you to all the teams that made the 2021 Intervarsity Panvest® Case Competition a success.



Happy Panvesting,


Munib Madni,

Founding Panvestor


Disclaimer


All views and opinions in the attached brief submission belong to team SNJV and do not necessarily reflect or represent the views of Panarchy Partners.