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Brilliant minds finding solutions to complex problems, made easy to understand. Making complex easy.

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ESG & value-creation: How Starbucks fortified its supply chain to beat the market

Exploring Starbucks' “Shared Planet Initiative”.

20 April 2022 | 4 min read
Tunde Agoro
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Ask people what they understand by ‘ESG’ and answers may range from “marketing slogan” to “risk management tool”. But Environmental, Social and Governance (ESG) is far more than that. And to tackle this misconception we need better visibility of real-world examples. Case studies can help to bridge the gap between theory and practice; demonstrating the role ESG can play as a driver of value creation.

Making this link is crucial. Without this, sustainability will remain largely invisible to the markets; under-priced and undervalued.

So how do we translate environmental and social impacts into financial price signals that investors can recognise and respond to? The story of Starbucks* emerging from the global financial crisis perfectly illustrates the positive link between ESG factors and investment performance.

RPS news global image

Driving value-creation

Over 10 years (counting from 01 October 2008 to 01 October 2018), Starbucks invested around $70million in its sustainability programmes and not only recovered from the financial crisis, but recovered significantly faster and outperformed comparably sized peers on a risk-adjusted basis. Starbucks saw a 134% improvement in its share price over the 2009 calendar year and continued to strengthen, surpassing its historic 2006 peak by the end of 20114.

KPMG noted that from the end of 2008 through to 30 November 2016 Starbucks’ stock significantly outperformed the S&P 500 stock index5. In Starbucks’ own words this success demonstrated that “sustainability is not just an add-on, but integral [to] our strategy and finances”6.

Taking a wide-angle lens, over the 10-year period from 01 October 2008 to 01 October 2018, Starbucks delivered a 651% improvement in share price from $7.40 to $55.58 (compared to a 162% improvement by McDonalds over the same period).

But whichever way you slice the figures in terms of time horizons, it’s clear Starbucks gained a notable advantage. And for the portfolio managers among you – SBUX’s Sharpe Ratio was also favourable relative to peers, indicating the investment performance was not simply a function of higher risk and volatility.

Closing share prices

SBUX

MCD

01-Oct-08

7.4

63.6

01-Oct-18

55.58

166.6

Percentage change
over period

651%

162%

See footnote 4

 

 

How ESG can drive value-creation

So how did the ESG factors prioritised by Schultz make the leap from environmental and social impact to driving shareholder value and competitive advantage? The answer goes right to the heart of how risks and opportunities are approached through an ESG lens.

By improving contract terms for smallholder farmers, paying fairer prices, and focusing on regenerative agricultural techniques, Starbucks was not just doing environmental and social good. It was (a) making its supply chain more resilient to economic and environmental shocks, and (b) aligning itself with deep changes in consumer sentiment to place higher value on sustainable business – in Schultz’s words “reigniting the emotional attachment with customers.”7

By fortifying its supply chain and getting ahead of the curve on consumer sentiment, Starbucks was – in financial terms – reducing revenue risk relative to other providers. This was the ESG-derived price signal that investors responded to so positively and unambiguously.

As strategic advisors from both a technical and commercial perspective, we translate sustainability factors into investment opportunity; enabling you to create value with confidence. Tailoring our services to corporates, developers, financial institutions and investors, we help our clients ensure their sustainability efforts lead to future growth.

Colourful graph

Why RPS?

We turn ESG vision into value. Our ESG Advisory Service is designed to enhance visibility of opportunities as well as risks, whether physical, commercial or financial in nature. Beyond this, we draw on market-leading technical expertise to evaluate the potential  for adaptation and innovation across a range of scenarios and cost-parameters. Progress toward your strategic objectives is then benchmarked and reported alongside the latest definitions and disclosure standards.

Sustainability leans on careful, creative, and judicious application of technical insight. At RPS, we combine those insights through a strategic lens – allowing unified delivery of otherwise segregated  economic, environmental, and social impacts. Joined-up solutions are part of our ethos: Making complex easy.

 

*Starbucks is not a client of RPS

1 Macrotrends, https://www.macrotrends.net/stocks/charts/SBUX/starbucks/stock-price-history (accessed 19 April 2022)

2 Starbucks, https://stories.starbucks.com/emea/stories/2020/starbucks-sustainability-timeline/ (accessed 19 April 2022)

3 Starbucks, Global Responsibility Report, 2008, https://content-prod-live.cert.starbucks.com/binary/v2/asset/137-71968.pdf (accessed 19 April 2022) 

Yahoo Finance, https://uk.finance.yahoo.com/quote/SBUX/history?p=SBUX&guccounter=1 (accessed 19 April 2022) (as measured from: closing share price of $7.40 on 01 Oct 2008 to closing share price of $9.98 on 01 October 2009; the historic peak, prior to 01Oct2008 was its closing share price on 05 May 2006 of $19.815; Starbucks share price first breached its 2006 high of $19.815, at the close of 01 July 2011 with a share price of $20.095)

5 KPMG, ESG, strategy, and the long view, 2017

6 Starbucks Corp, Press release, May 16, 2016, https://stories.starbucks.com/press/2016/starbucks-issues-the-first-u-s-corporate-sustainability-bond/ (accessed 19 April 2022)

7 Business Today, https://www.businesstoday.in/magazine/lbs-case-study/story/how-starbucks-survived-the-financial-meltdown-of-2008-136126-2014-09-22 (accessed 19 April 2022)