The evolution of capitalism: opportunity or disadvantage?
The “cotton test” is to measure business purpose, answering the question of how much impact it generates, and abstract answers full of intangibles will not work.
The value of the social and environmental impact generated by companies has never been more important for humanity, more visible to society and more strategic for the economic activity of companies.
The unfortunate COVID crisis has highlighted not only the fragility of our health system, but it has also exaggerated something that had been clear for many years about our economic model: that inequalities are growing and that the damage to the environment as a result of our actions is close to being irreversible and we cannot look the other way.
There are many voices calling for a revision or modification of some principles of capitalism. And they don't come from radical or anti-system groups but from organizations as reputable in the corporate environment as the World Economic Forum in Davos or the publishers of the Financial Times.
In this sense Rebecca Henderson, a professor at Harvard and author of the recently published book Reimagining Capitalism, explains that she aspires to re-imagine capitalism, or at least to our current version, which is obsessed with the short term and who does not believe that companies should worry about the health of our society or our institutions. Doing so is the best way to ensure that both companies and our society thrive for decades to come.
If capitalism is one of the great inventions of the human race, an unparalleled source of prosperity, opportunities and innovation, we will not solve the problems that lie ahead without it. To resolve inequality, we need job opportunities adapted to the new reality that is coming our way. To solve climate change, we need (among other things) to transform the world's energy, transport and agriculture systems.
Time will tell if this expected evolution of capitalism will occur in the short or medium term, but I think there are reasons for optimism, despite the effects that the Covid crisis is causing on our economy.
Measurement, key to evaluating purpose
Measuring the effects that companies generate on their environment, positive or negative, has never been more objective than today. In the coming months we will see data from many companies quantified in detail and that will be incorporated into a new income statement that incorporates the “impact” into the current accounting system. The activity of the Impact Management Project (IMP) and especially its Impact Weighted Accounts initiative, are the spearhead in this evolution.
The integrated reports or non-financial statements of companies are increasingly specific in their data and delve into the material concepts of each company when it comes to valuing its advances in responsibility and sustainability.
Public administrations and regulators are doing their part, for some people slowly. But initiatives such as the Green Deal of the European Union or the variations in the fiduciary responsibilities of boards of directors in the United Kingdom, going beyond the value of the share and considering all interest groups, or the incorporation of Benefit Corporations as a new type of company in some countries are clear advances in the direction we want.
The “cotton” test
This year can be considered the year of the takeoff of investment with ESG criteria. And although there is still a lot to be done separating the grain from the chaff in truly ESG investment, the next step that continues to grow is impact investing, also in Spain.
It is a fact that the purpose of companies “is in fashion” and the majority of companies now declare that they have a purpose with a social or environmental impact. The “cotton test” that everyone will pass in a few months will be to measure that purpose by answering the question of how much impact their purpose generates, and abstract answers full of intangibles will not be worth it.
In this trend of being more specific in measuring, evaluating and comparing the added value of companies to society, there was a lack of an initiative that would shed light and detail on the importance of inclusive growth. And the project led by the Codespa Foundation, of which we are collaborators from Transcendent, aspires to value the contribution and performance of companies and to inspire other companies through their business practices to create a better world for all.
And all these advances can and must share the common language of the SDGs that give us focus and a time horizon to which we all have to contribute before it's too late.
Innovation with impact
This evidence of what is already happening is reflected in the type of projects we have been doing in recent months with our clients.
We are working with management committees to measure the size of the opportunity of the corporate social impact on your company, landing it in your strategy and identifying opportunities for growth and efficiency with an impact on your income statement. These opportunities translate, among others, into innovation with impact (new business models, products/services, customer segments) or, in the case of efficiency, rethinking the way you operate your business (“doing more with less”).
We have integrated the SDGs at the core of a company's activity, as a framework for identifying opportunities for growth, efficiency and risk minimization by measuring their degree of achievement and setting ambitious objectives.
We are measuring the effect generated by a company in terms of ESG, seeking to raise it to the level of strategic impact and taking into account not only inputs but also outputs, with the objective of facilitating decision-making with an impact on the business.
We have structured impact management within the company and redesigned its governance to increase opportunities for growth, efficiency and risk minimization in all its business and support areas.
