Although 70% of companies have a defined Business Purpose, there is still much to be done. Establishing a Purpose measurement system , the challenges ahead include assessing achievement, sharing it across the organisation and incorporating it as a management tool, including as part of variable remuneration.
A lot has happened in the last 16 months that has changed us all. And business is no exception. The Purpose that drives them already seemed an important concept before the pandemic. But now, more than half of managers believe that Purpose is more relevant because of the COVID crisis and the planet's environmental problems. This is one of the findings of the first Barometer of Business Purpose in Spain, which we have carried out APD y Transcendent.
But what is Purpose? How is it activated?, How is it measured and who should lead it? Although we know that companies are moving in the direction of becoming sustainable from the business itself, we wanted to bring down to earth what is really happening with this survey of almost 300 managers.
The results are sobering. 70% of companies claim to have a defined Purpose. 84% of them have it written down and shared with employees and almost 9 out of 10 believe it adds value to the business and contributes to improving the company's profitability.
It is therefore widely perceived that the Purpose is profitable for the company. However, 40% of respondents confuse the Purpose with the vision and mission.
The Purpose is the "what for" of a company, its reason for existing.The aim is not just to make money, but to do so by contributing to solving a social or environmental problem at the heart of its activity.
Defining and activating the Purpose must be a rigorous exercise that involves measuring its degree of achievement with appropriate indicators. This is why the Business Purpose in Spain is not, nor should it be, simply a slogan or a marketing claim.
Another of the most revealing findings was that for 9 out of 10 respondents, Purpose contributes to establishing a company culture. Purpose is perceived not only as a strategic business lever but also as a tool that reinforces the company culture.
And who should lead this transformation? The response is unambiguous. For 72% of the respondents, the management team is responsible for integrating the Purpose.
The barometer also sheds light on the changes taking place. In 2017 only 25% of IBEX companies had a defined Purpose oriented towards the common good, and today there are already 77%.
Consumers, investors, employees, and leaders themselves increasingly value a company having an activated Purpose.
But there is still a long way to go. Establishing a measurement system to assess its degree of achievement, sharing it with the entire organisation, incorporating it as a management tool, even as part of variable remuneration, and having a legal figure for purpose-driven companies are some of the challenges ahead.
Some companies are already taking it seriously and others are still communicating it in a way that seems more posturing than real commitment.
Used well, Purpose is an accelerator of the business impact journey that all companies are embarking on.
To break the ice in a talk a couple of weeks ago, I asked an audience, mostly made up of executives from large and medium-sized companies, how many had heard of ESG before 2019. The answer was less than 30%.
Angel Pérez Agenjo, Managing Partner of Transcendent
The progress made by Spanish companies in their journey towards business impact in the last two or three years is undeniable, but it is no less true that many companies still see it more as an annual mandatory reporting exercise than as an opportunity or a competitive advantage for their business.
An ESG control panel is required…
A good test to validate the importance of ESG aspects in a company is to check whether management committees and boards of directors have an integrated sustainability or ESG scorecard and what the criteria are for its configuration.
A good ESG scorecard must be based on a rigorous materiality analysis and cannot focus solely on energy transition aspects, nor only on environmental aspects, even if they are the easiest to measure. Today, we already have tools at our disposal that allow us to go deeper into material aspects by sector, by ODS relevant, with an appropriate focus on social aspects, and by priority stakeholder groups.
... to manage sustainability objectives
Only an integrated scorecard can incorporate sustainability objectives for the management committee, monitor them as a team and be able to link them to their variable remuneration in a coherent way. If this is not the case, we are making a show to cover our tracks, and with today's transparency it is extremely easy and quick to distinguish who is taking this seriously and who is doing it more to make themselves look good.
Without a scorecard it is very difficult to have strong and rigorous sustainability governance. The work of the sustainability commissions reporting to steering committees or boards needs such a tool to move forward.
One of the people who may be most interested in having an ESG scorecard integrated into a steering committee is the CFO. Financing linked to sustainability objectives is already a reality and goes far beyond green bonds. Sustainble Linked Loans are advancing rapidly and there is little time left before even working capital loans will have advantageous conditions based on ESG objectives.
The scorecard can help mitigate unexpected negative ratings by ratings and benchmarking agencies from eroding not only the company's reputation but also its market valuation and cost of funding.
Building a culture of sustainability and business impact requires a useful scorecard that is updated as the business moves forward and forms part of the core of the company's decision-making.
In some respects ESG and sustainability a good dashboard doesn't cheat - find out more in the Transcendent blog!
Purpose-driven companies double their market value four times faster than others and also record a higher return on capital of 5.9%. However, purpose has a positive impact far beyond companies' bottom lines, generating many other benefits as well.
2020 has been a year of unprecedented challenges that have exposed the vulnerabilities of globalisation and capitalism as we know it. Even in the midst of the crisis, companies are reviewing their role in society and their strategies to see how, instead of returning to normality and to the business as usualcan be part of the solution and contribute to global efforts to rebuild a more sustainable and resilient economy in the post-COVID-19 era.
Against this backdrop of uncertainty, business purpose has become increasingly important and, over time, has evolved from a nice, inspirational phrase to a prerequisite for success.
If you're wondering why purpose is now ubiquitous and has established itself as a global trend, here are the answers you're looking for.
Purpose is profitable
Purpose is a strategic lever for value creation and its profitability is more than proven. The recently published study Return on Purpose Fortuna Advisors and CEO Investor Forum's research shows, among others, that companies with a defined and integrated purpose, whose focus is on maximising their financial results and the common good, perform better, have a higher market valuation and create more shareholder value compared to the rest.
Purpose-driven companies double their market value four times faster than others and also record a higher return on capital of 5.9%. However, purpose has a positive impact far beyond companies' bottom lines, generating many other benefits as well.
Improves reputation and legitimacy to operate
"Without a purpose, no company, public or private, can reach its full potential...To thrive over time, every company must not only deliver financial results, but also show how it makes a positive contribution to society." wrote Larry Fink, CEO of BlackRock, in one of his letters.
By publicly stating its purpose, a company demonstrates its commitment and the benefits it brings to its stakeholders and society as a whole, and this clearly enhances its reputation. Therefore, those companies defining and activating their purpose, significantly reduce the risk of a corporate scandal eroding their licence to operate. And this is even more important in today's digital age where everything we do, or worse, what we don't do, is in the public domain thanks to the internet.
Attracts, retains and motivates talent
Attracting, retaining and motivating talent is very difficult and, in some sectors, more so than in others. Business purpose is a differentiator that can be beneficial for all three aspects as, from an HR management point of view, it is a true talent management strategy. employer branding.
82% of employees think purpose is important. This is particularly significant in recruitment processes and for younger people whose greatest aspiration is to work in organisations that contribute to the well-being of society and the planet. In the case of employees already employed by purpose-driven companies, we know that they feel more motivated and their sense of belonging is stronger, so turnover levels decrease significantly.
Customer loyalty
Purpose emphasises the unique and distinctive contribution a company makes to the big problems we face. For that reason, it has the potential to generate stronger relationships with customers who tend to be more attracted to companies that convey authenticity and that they consider to be worthy of their trust. According to a survey conducted by Porter Novelli in 2019, when a company acts in a purpose-driven way, consumers say they are more likely to: buy its products and services (86%) trust it (86%) and be more loyal (83%).
Investor interest increases
Investors are increasingly integrating ESG criteria into their decisions and are interested in the social and environmental performance of companies. The Global Impact Investing Network (GIIN) in its latest report shows how in just three years the global impact investment market has grown sevenfold to reach a volume of 715 billion euros. Undoubtedly, the companies whose purpose is integrated in the core The companies that maximise their positive impact are better positioned vis-à-vis investors and are able to finance their debt at a lower interest rate than their competitors.
Promotes innovation
A McKinsey study revealed that purpose-driven companies tend to redesign products and services and look for innovative solutions that use fewer natural resources, meet specific needs or involve improved operational efficiency or cost savings. Purpose, social and environmental sustainability and innovation are strongly related and mutually dependent.
If you found this interesting and would like to know more about how to define and activate the purpose in your company to lead the transition to an impact economicsPlease do not hesitate to contact us at info@transcendent.es or consult our blog.
As of today Transcendent is a B Corp company. For us it has a double meaning because it not only formally validates our interest and commitment to being a company with high social, environmental and governance standards, but also reinforces our raison d'être, which is to help our clients put their impact at the heart of their business and use it as a lever to improve their business results.
Before we had a name for our consultancy 4 years ago we already knew that Transcendent had to be a B Corp company. We attended our first B Corp event in October 2017 at the B Good Day held in Matadero, Madrid. In spring 2018 we were already helping our first client with an initial impact assessment.
Members of the first team of B multipliers in Spain
We were part of the first group of B multipliers in Spain in 2018. B multipliers are made up of BLab, the founding creator of B Corp, as drivers and change agents that help transition large, medium and small companies to new impactful business models, primarily through the B Corp impact measurement tool. Today 75% of our team is a B multiplier.
In 2019, B Corp became the first of our clients to be certified and currently a relevant part of our business is to accompany companies in their initial analysis process and preparation for certification.
We have experience in B Corp projects with companies with very varied profiles: from some with sales of less than one million euros to others with a turnover of more than 1,000 million euros. We work in many sectors (retail, finance, pharma, telco, ...) and with companies that have their core in different areas of the value chain, from production to distribution or sale of products and services. We can say with certainty from our experience that the B Corp assessment is useful for any company.
Prescribers for more than 80 companies
We have presented the B Corp movement to more than 80 companies. At first many managers saw it as a secondary, risky or "not very serious" movement, and it is curious how in the last few months and despite, or because of the damned Covid, many companies are connecting with us to take up proposals from a long time ago.
The strength of B Corp today is undeniable. It has agreements with United Nations Global Compact by incorporating the SDGs into its assessment, it has recently made public its agreement with GRI and more and more large corporations are showing interest in certification.
Certified companies BCorp meet the highest standards of social and environmental performance, public transparency and corporate responsibility to balance profit with purpose.
Interest in the B Corp movement continues to grow exponentially and there are already more than 100,000 companies registered for its impact assessment worldwide. However, only 600 in Europe and 3,800 in the world have been able to achieve certification. These numbers show that it is not easy to achieve more than 80 points in their impact assessment.
And as of today we are a B Corp company. The journey to this point in itself has been worthwhile, and very worthwhile. When companies approach us about certification we always talk about one immediate benefit of doing the initial assessment, whether or not you achieve certification, which is the generation of a roadmap with suggestions for improvement for your company regardless of where it is on its journey to business impact.
Our claim at Transcendent is Business Beyond Profit and all the B Corp companies in the world fit in with it!
Purposeful leaders respond unhesitatingly to their shareholders, but also to their employees, customers, suppliers, investors and the communities in which they operate to the question "why does society need a company like the one you lead".
The present moment is undoubtedly the beginning of a very complex but also exciting decade, with great opportunities and great challenges for humanity.
A new era marked by the UN Agenda 2030 to achieve sustainable economic growth. An era that obliges us all, as economic agents and as citizens of the world, to make conscious and responsible decisions that not only boost economic profits - which are undoubtedly necessary for the survival of any company - but that are committed to impact as a competitive advantage to improve the results of business activity.
Impact is the clear commitment to make a positive contribution to the quality of life of people and the planet without leaving anyone behind.
A new era marked by the resurgence of a new capitalismThe purpose is driven by a clearly defined "purpose" in terms of the company's principles and values. The purpose defined by John Elkinton in the 3Ps of the triple bottom line, profit-people-planet is joined by the fourth P driving force: purpose. Purpose, founded on principles and values such as sustainability and the generation of positive social impact, becomes a lever of innovation and growth for the generation of long-term value for all the company's stakeholders.
New era, new leaders
In the midst of a profound and perhaps "invisible" transformation accelerated by the Covid 19 pandemic that is radically changing the way we live, work and relate to each other, this new purposeful, impactful, manageable and measurable capitalism needs new, courageous, conscious and responsible leaders. These leaders, men and women, are those we call leaders with purpose and that society demands more than ever.
The purposeful leaders answer without hesitation to their shareholders, but also to their employees, customers, suppliers, investors and the communities in which they operate to the question "why does society need a company like the one you lead".
"Step up or get out of the way".
In the face of new challenges such as climate change (which Bill Gates says will have greater consequences than the Covid 19 crisis if we do not manage to be carbon neutral by 2050), our economic system no longer offers viable solutions.
We are living through a health crisis with more than 110 million people infected and more than 2.5 million dead worldwide. An economic crisis that is pushing public debt to unprecedented levels in order to alleviate the massive destruction of thousands of jobs, companies and sectors where massive public aid will not be enough to alleviate the disastrous levels of unemployment and poverty.
The pandemic comes on top of other major humanitarian challenges such as hunger, refugees, access to clean water, loss of wildlife and biodiversity.
"Take a step forward, or get out of the way."was the provocative slogan of Tomorrow's Capitalism Forum, led by John Elkington, a leading thinker and world reference on sustainability, held in the heart of London's financial district last January.
John Elkington says that "we are living in the positive Exponential Decade and business leaders and financial markets will have no choice but to step forward in radically new ways if they want to move their businesses forward".
Making purpose a role model
There is much talk of two purposeful leaders, Paul Polman former CEO of Unilever, and Emmanuel Faber, former CEO of Danone. Both have pioneered the transformation of Unilever and Danone into entities with a strong purpose backed by ethical and socially responsible principles and values that have exponentially grown the bottom line while satisfying the creation of value for its customers, employees and the community in which it operates (the so-called "stakeholders").
But there are also many purposeful leaders in our country, José Ignacio Goirigolzarri, the next chairman of the new Caixabank, is a leader for whom purpose is part of his DNA. Educated in Deusto by the Society of Jesus, he speaks of purpose as an "acculturated" term in Europe, since the term social purpose is part of our way of being and working, just as he experienced it at school with his classmates.
In all his speeches, it is surprising how many times he mentions people as the driving force for success in any company or business project. Goirigolzarri emphasised "the importance of teams feeling a deep sense of pride in belonging to the company in which they work" and spoke of these teams as "our people" - he said this with a naturalness and a closeness worthy of admiration.
In this regard, the words of Antonio Garrigues, another great pioneer and leader with purpose, who defends that values and principles always come first. Garrigues says that the leader's great challenge is to bring the purpose down to earth so that everyone works to achieve that purpose. In short, it is a matter of making purpose an integral behavioural model for all the company's employees and executives.
"Our capitalism is no longer fit for purpose".
"Our capitalism no longer responds to an ideal of true purpose. These are the firm, tough words of the chairman of the Global Steering Group, Sir Ronald Cohen, the purposeful leader who has been most vocal about the need for a new capitalism based on doing good by doing well (doing well by doing good). Ronnie, as he is called by all those who come into contact with him (from his closest friends to the president of the United Kingdom or Bono, the American singer), defends in his book Impact Reshaping Capitalism to drive real change that a new, more humane capitalism is urgently needed.
In this fascinating book he calls on governments, investors, employers, employees, savers, consumers, entrepreneurs... in short, each and every one of us to lead a new capitalism with purpose. To introduce "impact" into our daily decisions, demanding that our governments, financial managers and business leaders act "leaving no one behind".
Measurable impact in monetary and comparable terms becomes a competitive advantage for those companies that activate it in the core of their businesses, so that the more positive impact they generate in the production of their goods and services, the greater the economic return and the lower the risks assumed by the company. In short, a new capitalism based on optimising the triple return-risk-impact equation to achieve more inclusive and sustainable growth that generates benefits for shareholders and society as a whole.
Governments also have a role to play
For this we will need a good battalion of purposeful, courageous and responsive leaders, trained and prepared to make the new Enterprise 2.0 happen.
Finally, Cohen reminds us of the strategic role of governments in their unique role as regulators of the economy. It is in their hands to prioritise and help those that generate the most positive impact against those that generate the most damage and harm, and to activate, as our European neighbours have done, greater efficiency and cost savings through public policies that "pay for outcomes" and not for "outputs".
A new and exciting capitalism where we all have a role to play, what will be yours? Find out more in the Transcendent blog!
We are in the high season of NFS (non-financial information statements)The report is based on a series of reports, integrated reports and sustainability reports.
In many cases, the people responsible for them chase their colleagues in search of the number, the data for the report, with a strict deadline because it then has to be verified, and in many cases this is the end of the year's exercise.
In some cases, the board of directors' approval of the integrated report will be missing, a procedure that in many cases is still just that, a mere formality, because it is not the part of the report that is discussed in more depth. Some of this information may be passed on to communication (internal or external) to feed into a sustainability report, the first objective of which is usually to make it look good.
It is true that more and more companies already know that the EINF matters, that their investors are going to look at it, that the ESG ratings and benchmarks They will search for and use the information and, therefore, they will start to be interested in it. This is why knowing how we can carry out a active ESG managementis very relevant for the company.
But what if?
What if the EINF had a storyline linking social and environmental impact with a company's business?
What if, in addition to including a few SDG logos, you went deeper into indicators and measures relevant to your sector and highlighted your company's contribution to the 2030 agenda?
What if the EINF was the last step in a strategic exercise of considering material aspects as part of the management of the company?
What parameters should be measured?
What if, instead of going it alone, we all used the same parameters to measure common issues? As explained by world leaders in business impact such as George Serafeim, Sir Ronald Cohen, Colin Mayer o Clara Barby in its article Measuring Purpose - An Integrated Framework, it would be useful to identify the parameters that companies need to measure in order to activate their purpose. For example:
InputsThe financial, human, social, natural and physical resources that a company uses to carry out its activity.
Outputsmeasuring what a company produces.
Resultschanges generated by a company's activities.
ImpactsThe effects on the well-being of others generated by that company on customers, employees, suppliers, societies and the environment.
But this kind of non-financial information is not the only or the last thing we can do. There is a further step, which is to monetise these metrics.
And why is monetisation key? Because such valuations allow resources and investments to be allocated. In the context of purpose, it is necessary to assign a value to the natural, social and human capital used to achieve that purpose. But beware, there is a risk of not valuing anything that does not have a price, and therefore of not investing in critical issues that no one has assessed.
From Transcendent We have long been making the management of non-financial parameters a competitive advantage for our clients, improving their results and their position in the eyes of their stakeholders.
Interested?
Do not hesitate to contact us at gestionactivaESG@transcendent.es if you are interested in learning more about the ESG management.Find out what else we can help you with at Transcendent!
Manage your ESG assets to generate impact and improve your company's profitability. The mere ESG reporting is no longer sufficient or differentiating. The active management of material ESG reporting aspects is today becoming a competitive advantage. World leaders such as SASB o GRI have already been working on this dynamic for some time.
What is ESG active management?
The concern for an active management of ESG (Environmental, Social and Governance) aspects is becoming more and more present in the world's business world. Boards of Directors of companies.
This term, which comes from the investment world and reflects the non-financial criteria that many already use when valuing their potential investments, highlights the need for companies to incorporate the social and environmental impact at the heart of their activity in order to be profitable in the medium and long term.
Why ESG reporting?
Many companies are already looking for ways to actively manage their ESG aspects as a way to improve their ESG ratings score and, therefore, to facilitate the access to capital, adapting to the regulation constantly evolving, not to lose its market share competitors and take advantage of all the opportunities that this type of practice offers them.
Competitive transformation
93% of CEOs* consider it important to put sustainability at the heart of their companies and are focusing their efforts in this direction. This movement is leading to the day-to-day transformation of entire sectors and the repositioning of many companies, which requires moving forward in order not to be left behind.
UNCG "CEO Study on Sustainability", 2019
New opportunities
Proactive management of ESG issues can translate into:
Innovation opportunities with impact (new business models, products/services, customer segments).
Increased efficiency, rethinking the way you operate your business ("doing more with less").
Reducing risks and improving positioning.
ESG reporting regulation
Regulation is moving rapidly in this direction, seeking to create greater transparency and comparability around the contribution that companies make to society and the environment. Much of this regulation is driven by the European Union and has a direct impact on how companies operate and report their performance. Examples in this direction are:
Non-Financial Information Reporting Act 11/2018.
EU Green Pact.
EU Sustainable Finance Action Plan. Restructuring funds focused on sustainability and cohesion.
The EU is finalising its Recommendation on the Non-Financial Reporting Directive (NFRD).
Access to capital
Around $30 trillion, one third of professionally managed assets globally, are already subject to ESG compliance and monitoring.
Between April and June 2020 alone, investors invested more than USD 70 trillion in ESG funds, indicating strong growth in ESG investments. In addition, 75% of investors apply ESG principles to at least a quarter of their investment portfolio.
Why can Transcendent help you with ESG reporting?
Transcendent is a consultancy specialising in Benchmark Business Impact in Spain. We have extensive experience in assisting all types of companies in the management of ESG reporting aspects, turning them into a lever for improvement of its activity.
We are undoubtedly in the age of purpose. In the era where purpose and financial results are not at odds with each other, but on the contrary, purpose is the path to better financial results. It is proven that those companies that focus on employees, customers, communities and the environment have a better financial performance. better return for its shareholders. So what is it and how can we activating purpose in a company?
What is the purpose of a company?
It is authentic commitment. When we talk about purpose, we go far beyond an inspirational phrase, an inspiring phrase, a claim marketing campaign or a headline in a press release. When we talk about purpose we are talking about a commitment that has to be genuine.
Create value
The purpose is to theraison d'être of a company. That which helps to solve a social and environmental problem while creating financial value for the company itself.
Differential value
It is intrinsically linked to what the company does in a differential way by focussing on the "what for"The mission (the what), the vision (how far) and the values (how).
The key is its activation, not its definition
In order for the purpose to be a real lever for the improving financial performanceThe key is not in its definition but in its activation. How the company is able to incorporate this purpose in its business strategy, in its products and services, in its culture, in its processes, in its relationship with its suppliers and in the communities where it is present.
To be activated by the leader
And this is where the link between the purpose with leadership. A good leader is essential for the purpose to evolve from a phrase to action and to become embedded in the heart of a company.
Measurement required
Such a leader must first of all understand the opportunity to "professionaliseThe company has to be able to "make this purpose a reality" and to act with conviction and courage for its implementation and activation in the company. And as part of that professionalisation, measurement is key.
Leadership with purpose in the case of Unilever
A clear example of purposeful leadership is that of Paul Polman, CEO of Unilever for 10 years. Polman initiated the company's transformation journey with the plan Sustainable Living Brands.
In this line, and to achieve this, Polman was able to break with the internal dynamics of your company. So much so that on his first day as CEO, and with the aim of avoiding short-termism, he announced that he would no longer issue quarterly share guides or reports. As controversial as this move may have been, by the end of his tenure, Unilever generated a return for its shareholders of 290%.
Purpose is still a way to go for many companies, and there is no doubt that in the post-COVID 19 era the purposeful leadership will be more important than ever.
The "cotton wool test" is to measure business purpose by answering the question of how much impact it generates, and abstract answers full of intangibles will not do.
The value of the social and environmental impact generated by business has never been more important to humanity, more visible to society and more strategic to the economic activity of companies.
The unfortunate COVID crisis has highlighted not only the fragility of our health system, but has also exaggerated something that has been clear for many years about our economic model: that inequalities are growing and that the damage to the environment resulting from our actions is close to irreversible and we cannot look the other way.
There are many voices calling for a revision or modification of some of the principles of capitalism. And they do not come from radical or anti-establishment groups but from organisations as reputable in the corporate world as the World Economic Forum in Davos or the editorials of the Financial Times.
In this respect Rebecca Henderson, Harvard professor and author of the recently published book Re-imagining Capitalism, explains that she aspires to re-imagine capitalism, or at least our current version, which is obsessed with the short term and does not believe that business should care about the health of our society or our institutions. Doing so is the best way to ensure that both business and our society thrive for decades to come.
If capitalism is one of the great inventions of the human race, an incomparable source of prosperity, opportunity and innovation, we will not solve the problems ahead of us without it. To solve 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 agricultural systems.
Time will tell whether this expected evolution of capitalism will happen in the short or medium term, but I believe there are grounds for optimism, despite the effects that the Covid crisis is having on our economy.
Measurement, key to assessing purpose
Measuring the effects that companies have on their environment, positive or negative, has never been more objective than it is today. In the coming months we will see data from many companies quantified in detail and incorporated into a new income statement that incorporates "impact" into the current accounting system. The activity of the Impact Management Project (IMP) and especially its Impact Weighted Accounts initiative are spearheading this evolution.
Companies' integrated reports or non-financial information statements are becoming more and more specific in their data and go deeper into the material concepts of each company when it comes to highlighting their progress in responsibility and sustainability.
Public administrations and regulators are doing their part, sometimes slowly. But initiatives such as the European Union's Green Deal or the variations in the fiduciary responsibilities of boards of directors in the United Kingdom, going beyond share value and considering all stakeholders, or the incorporation of Benefit Corporations as a new type of company in some countries are clear steps in the direction we want to go.
The "cotton wool" test
This year can be considered the year in which ESG investment took off. And although there is still a long way to go in separating the wheat from the chaff in true ESG investing, the next breakthrough that continues to grow is impact investing, also in Spain.
It is a fact that corporate purpose is "in" and most companies now claim to have a purpose with a social or environmental impact. The "cotton wool test" that they will all have to 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 valid.
In this trend of being more specific in measuring, valuing 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, which Transcendent is a partner of, aims to highlight the contribution and performance of companies and to inspire other companies through its business practices to create a better world for all.
And all these developments can and must share the common language of the SDGs that give us focus and a time horizon to which we all need to contribute before it is too late.
Innovation with impact
This evidence of what is already happening is embodied in the kind of projects we are doing in recent months with our clients.
We are working with management committees to size the size of the corporate social impact opportunity in your company, grounding it in your strategy and identifying opportunities for growth and efficiency with an impact on your bottom line. 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 your business operates ("doing more with less").
We have embedded the SDGs at the heart of a company's business, as a framework for identifying opportunities for growth, efficiency and risk minimisation by measuring the extent to which they are being achieved and setting ambitious targets.
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 aim of facilitating decision making with business impact.
We have structured impact management within the company and redesigned the governance of the company to increase opportunities for growth, efficiency and risk minimisation in all business and support areas.
More and more companies are aware of the long-term opportunity offered by developing effective ESG management (Environmental, Social and Governance). Better access to capital, talent and new business opportunities are just a few of them, according to an article published by Harvard Law School.
But many are finding it far from easy to create an action plan. To navigate the complex and evolving ESG landscape, companies need to avoid misguided approaches that lead to missed opportunities. These are the most common mistakes that are commonly made. At best, these failures lead them to miss their objectives, but they can be very high risks.
1. Excessive focus on ratings
Some companies confuse the improvement of their ESG management performance with a better rating by rating agencies. Such positioning can create a distortion by focusing on meeting requirements rather than developing a tailor-made strategy for the company.
2. Treat ESG as a communication effort only.
Communication can help amplify messages, but it cannot be a substitute for a powerful management system that is aimed at controlling real risks. Investors and stakeholders may detect inconsistencies in what is communicated and what actions are actually being taken. This is often referred to as "greenwashing"This exposes the company to greater risks.
3. Lack of vision on the part of the management
Some companies delegate ESG activities to individuals or departments within the companybut without the involvement of top management. However, ESG management strategy should be positioned as a core part of the company's vision and values. It is therefore imperative that top management not only oversees, but also drives and defines the ESG strategy, aligning it with the rest of the company's strategy.
4. Disconnected from business strategy
A ESG strategycannot be conceived independently to the rest of the company's business strategy. An ESG strategy that does not take into account the company's strategic objectives and does not inform corporate strategy is failing its purpose. Such a disconnect may be due to misperceptions about the ESG programme, lack of vision of the management team or failure to conduct a thorough materiality assessment.
5. Compliance-oriented approach
Some companies present their ESG management programmes by making reference to the compliance with rules and regulations , this approach may be perceived as reactive and indicate a reluctance to go beyond minimum requirements.
To position themselves as leaders, they should proactively demonstrate that they have excellent programmes that exceed minimum requirements as a deliberate part of an ESG strategy.
6. Company-wide inconsistencies
As a result of the lack of a coordinated strategy, some companies end up adopting different standards in different divisions without a clear business rationale for such discrepancies. Such approaches leave significant gaps in companies' ESG management programmes, creating high potential risks.
Creating a cross-cutting map of your policies and programmes for each business unit and harmonising efforts to achieve a single, consistent approach are some of the recipes to avoid making this mistake.
7. Lack of assessment and monitoring
Data and information collection to measure compliance with ESG programmes. This is a huge challenge for companies in implementing these policies. The lack of effective monitoring prevents them from making progress and receiving support for their initiatives through reporting.
Setting up the mechanisms and methodologies to collect the right information and monitor it can be a significant effort at the beginning. However, this process can become a key instrument for the success of the programme.
In addition to the review of the data, the measurement should include a ongoing assessment of the effectiveness of ESG management programmes Find out more about ESG at our blog!
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