The Impact Observatory organises the event "Spain, leading impact country".

Lecture Ronald Cohen Madrid

Transcendent and Ontier's Impact Observatory invite Sir Ronald Cohen, the father of impact investing, to Madrid to present his book "Impact" in Spanish.

On 4 October 2023, the first edition of the event "Spain, leading country of impact: Transforming capitalism for change".. An event organised by the Impact Observatory by Transcendent and Ontier which was attended by Sir Ronald CohenHe is considered the father of the impact economy, founder of the venture capital firm Apax Partners and chairman of the Global Steering Group for Impact Investment (GSG), the world's leading initiative to drive impact investment.

A committed philanthropist, venture capitalist, private equity investor, great social innovator, as well as a leading pioneer in driving the Impact Revolution worldwide, he spoke about the keys and the opportunity for Spanish companies to have a clear sustainability strategy, to embrace impact and technology to find new markets and lines of business that generate high economic benefit while having a positive impact on people, as stated in his latest book, "The Impact Revolution". book presented at this event in Madrid in its Spanish version "Impact: Transforming capitalism for change"..

Ronald Cohen Book presentation
Book launch in Spanish "Impact: Transforming Capitalism for Change".

Before more than 300 leaders from the public and private sectors, entrepreneurs and the third sectorof the vice-president of the CEOEIñigo Fernández de Mesa, the director-general of CaixaBank AM and Chairman of SpainNABJuan Bernal, the vice-president of the Impact Observatory and president of OntierPedro Rodero, and the president of the Impact Observatory and partner of TranscendentThe Impact Revolution is guiding consumers, entrepreneurs, investors, businesses, companies, philanthropists and governments to create tangible and measurable impact. To completely transform our economic model, the risk-return-impact trinomial must become the epicentre of our decision-making. 

Putting impact at the heart of business strategy requires a process of transformation to a new level, where the impact of business companies incorporate the impact they generate into their strategic decisions.The impact they have on their stakeholders can be measured and managed.  

As Cohen explained, "when we look at the world through a lens of impact, we discover opportunities for greater growth and profitability that would otherwise have gone unnoticed. In short, doing good can be big business".

"The Impact Revolution is guiding consumers, entrepreneurs, investors, businesses, philanthropists and governments to create tangible and measurable impact". In fact, today cn increasing number of companies that, by managing sustainability as a strategic element of managementhave on their roadmap evolve its business model towards impact. "We must transform our economic model so that instead of causing problems, we generate solutions," Cohen said.

Generating more value for money from impact

This change in model is reflected in greater recognition of companies that meet ESG criteria, drive long-term value creation and prioritise economic activities that optimise positive social and environmental impact, rather than purely short-term financial return.

As a result, the volume of impact investment has grown exponentially, mobilising over the last few years 1 billion in impact investment and 40 billion in ESG investment.

Today's capitalism, based solely on economic profit, can be changed to a capitalism that is focused on economic profit and social impact alike, redirecting large flows of capital to improve the world, explains the author and renowned entrepreneur.

"It is time for us to raise our voices, to make an impact through our decisions. From how we work, buy and invest, to how we influence our governments," said Sir Ronald Cohen. 

This meeting, the second organised by the Impact Observatory this year, aims to promote the impact that companies are capable of generating based on an economic model centred on not only in minimising harm, but also in generating a positive impact.

The event closes a key year for Spain, following its start with the Impact Week in mid-June in Madrid, and as the venue for the GSG Annual Congress in Malaga in early October.

Business Impact Measurement as a management tool

Measuring impact

Businesses are key players in today's society. Many of the world's great advances have come from the private sector. Michael Porter, in his study on shared value, shows many examples of how business has driven social development.

The first large-scale programme to diagnose and treat HIV was set up by an Anglo-American company to protect its workers in South Africa, according to a new report. Mark R. Kramer y Marc W. Pfitzer in its article The shared value ecosystem published in the Harvard Business Review. MasterCard is another great example, having successfully implemented mobile banking, providing access to financial services to 200 million people worldwide. And the most recent case is the COVID vaccine, which has been developed and distributed thanks, in large part, to the efforts of the pharmaceutical industry. 

At Transcendent we understand that companies are agents of change and that, those that manage to position themselves in the area between the business value and the value to societyare the ones that will achieve a competitive advantage. 

Being an agent of change means playing a key role in the transformation of society, promoting sustainable economic, social and environmental growth. To this end, it is essential to to know the impacts that the company generates on society, to manage and measure them in order to maximise the positive ones and minimise the negative ones. 

In order to understand, manage and measure impacts we need information. Information, metrics and data are the basis for all business decisions. It is unthinkable for a company to undertake an investment without first carrying out a financial analysis, or to launch a new product on the market without understanding the needs of consumers. 

Most companies are intuitively aware of the impacts they have on the environment and society. However, there are still very few that are committed to quantifying them. However, before we begin to explore impact measurement, we need to understand what business impact is and how we understand it. 

What is business impact?

Impact is seen from a value chain perspectiveIn this context, companies have a series of inputs that they transform, through activities, into outputs. These outputs are the "tangible" results of the business activity. For example, for an infrastructure company that builds roads, an example of an input would be the raw material used to build the road and the output would be the road. 

These outputs generate "Outcomes" and, in the longer term, "Impacts". Outcomes are the specific changes that a company's products or services generate in the behaviour of its customers or users, and impacts are the attribution of fundamental changes, intended or unintended, that occur in organisations or communities over the long term.  

Continuing with the example of the road construction company, the "outcome" would be to facilitate access to university for young people from a small town, who thanks to the road ("output"), can more easily reach university. The "impact" is positive, and could be a percentage increase in the rate of students with higher education in the area where the road operates. 

Why measure business impact?

More and more stakeholders are demanding that companies have positive financial returns while at the same time generating a positive impact on society: 

- The investors increasingly favour companies committed to sustainability (ESG investment, socially responsible investment, etc.). 

- The regulatorsincluding the Spanish Administration and the European Union, require companies to publish non-financial information statements. 

- The customers and the company prefer to consume from purpose-driven companies that are aligned with their beliefs and values. 

- The employees prefer to work in socially responsible and environmentally friendly companies. 

In this context, knowing and measuring business impact is an opportunity for companies to position themselves, differentiate themselves and value the positive effect generated in society in the eyes of investors, regulators, users, shareholders and other stakeholders. 

Measuring business impact

Impacts are difficult to quantify and measure, so there is no global consensus on how to measure, evaluate and report them. 

There is a wide range of methodologies for measuring and managing impact depending on where the focus is sought. Among others, GIIN, BLab, GRI, GSG, the OECD or the WBA. Several are part of Impact Management Project (IMP), we are a partner organisation, and they are also on the recently created Impact Management Platform.

At Transcendent we have developed a IMP-based impact measurement methodology which allows the quantification of impacts, both positive and negative, and their subsequent follow-up and monitoring. 

Our experience measuring the impact of large companies is always very positive as managers acquire relevant information to make decisions with it. A trend that is growing all the time.   

It seems, therefore, that impact measurement is the way forward. Because quantifying impacts enables companies to understand, manage and make decisions in line with the purpose of the business, so that they can be agent of positive change in society. Find out more about impact measurement at our blog!

The 23 Spanish companies that lead the world

Spanish companies of change

Whether we like it or not, our company influences and contributes positively (or negatively) to a better world. Whether we like it or not, we may be singled out to join a club that we have not chosen to join for the justified or unjustified reason that our company is considered a leader and/or exemplary for others for various reasons, based on turnover or number of employees, perhaps because of the sector in which we operate or the community we serve, our type of product or customer base or perhaps because of the important influence of our brand... 

However we do it, we companies leave our mark on the world. But which ones leave a footprint for a better world? And what is or how do we define a better world? 

A better world is defined by the United Nations in a perhaps simplistic but undoubtedly accurate way, as one in which economic growth is sustainable, responsible and respectful of the planet, contributing to the improvement of people's lives and leaving no one behind. 

This objective is set out in the well-known 17 Sustainable Development Goals contained in the United Nations 2030 Agenda, which came into being in 2015. At that time there were 15 years left, which were long for some and short for many, and which today, 9 years down the line, are overwhelmingly short for the great challenges of humanity reflected every day in the news that reach us: from a child dying on the beaches of our coasts, men and women freezing cold on the border of Poland and Belarus, women without the right to work, girls who cannot go to school or parents with their child on their shoulders crossing rivers where they risk their lives in the hope of a better future... 

Only business can lead change 

Suddenly, and exacerbated by the coronavirus pandemic, surveys show that business is perceived as the leader of change and therefore the hope for achieving these goals.  

Neither governments nor NGOs have the resources to invest the 90 billion euros needed to achieve them. And let's be honest, it is not these that have the biggest impact on people and the planet. It is business. 

Just as Covid arrived, in 2018 the WBA was created, a non-profit organisation inspired by the values of the United Nations. If society's hope lies in business, it is business that should become the engine of the change and transformation we need. And something had to be done. If they are the engine, where is the fuel to start it up and drive it to arrive in good shape and on time?  

The World Benchmarking Alliance (WBA): The Race to the Top

This fuel is the WBA. The WBA is a foundation born in the Netherlands (a country par excellence pioneer and benchmark in sustainability and impact) with the support of the Dutch government and 20 global entities spread around the world willing and united around a mission: to drive the private sector's race towards the SDGs.  

The ranking of the 2000 companies that lead the world 

The first milestone was not an easy one: choosing the 2000 most influential companies in the world capable of contributing the most to the world's development. Millennium Development Goals, send a letter to their CEOs informing them that they were going to be part of a World Ranking that the whole world, consumers, investors, governments, ordinary citizens, would know the results through a big campaign in the media and social networks worldwide and ask for their collaboration in the process.  

The second milestone, the result of an in-depth and rigorous study, was to identify the 7 indices or benchmarks, which respond to the 7 transformational elements that our system needs to be responsible and sustainable. The social transformation (human rights and gender) that affects the 2000 companies, and six other elements or transformations where companies can be rated in 1 or several, depending on the materiality of the impact generated by their business. These are: nature and biodiversity; urban or smart cities; agriculture and nutrition; energy and decarbonisation; digital inclusion and finance. 

A third milestone remained, which was not going to be easier because it was the last one. Generating a roadmap that would lead the way by offering tools and support to companies to take action. The journey? Transforming and adjusting their business model to generate measurable and manageable economic, social and environmental value that contributes to one or more development objectives. In short, contributing with innovative solutions so that the generation of goods and services by companies would have a deeper meaning than just producing, selling and consuming them. 

Benchmarking for a Better World

You don't choose to be a WBA company 

These 2,000 companies were not asked if they wanted to be part of this ranking. So, to motivate them to collaborate and get involved, the WBA provided them with its methodologies, tools and roadmaps to achieve two goals: the 2030 Agenda and a carbon neutral economy. The incentive? To lead the top positions of the World Ranking and be perceived as the best company for a better world. 

The 23 Spanish companies that lead the world 

Well, of these 2000 companies, 23 are Spanish. The list is made up of Acciona, ACS, CaixaBank, Telefónica, Banco Santander, BBVA, El Corte Inglés, Mercadona, Inditex, Cepsa, Iberdrola, Nueva Pescanova, Indra, Naturgy, Ebro Foods, FCC, Ferrovial, Grupo Logística, Meliá, Renfe, Repsol, Siemens Gamesa and Urbaser.   

The 23 companies that lead the world
The 23 Spanish companies in the WBA ranking

And all of a sudden, these 23 Spanish companies of different sizes, sectors and market capitalisation.... are now part of the club of companies that lead the world. And they lead the world because the WBA, today constituted as an alliance of more than 250 entities worldwide, has singled them out as the most influential, not to tell them what to do, but to accompany them along the way, offering light and being a guide on the exciting journey of achieving and contributing decisively to the Millennium Goals by creating a world that leaves no one behind. 

2023: Publication date of the first World Rankings 

The publication of the indices and the transformation effort of the 2000 companies will be made public in the second half of 2023. We have only months to go. Governments, suppliers, investors, employees, consumers and ordinary citizens will have the opportunity to see the World Ranking of the most sustainable companies committed to the common good.  

To raise awareness of the WBA project, the Impact Forum - a benchmark event on impact in Spain led by the Foundation Ship2B - organised a session where together with Victoria Márquez-Mees, the WBA, a leading member of the WBA Board of Trustees, unveils the opportunity that the WBA represents for the 23 Spanish companies selected for the Ranking. 

Our wish from Transcendent is that Spanish companies lead the first positions of the Ranking. Some companies such as Telefónica have achieved the first position in the Digital Inclusion ranking. As allies and partners of the WBA, we want the 23 Spanish companies to lead the WBA Ranking, thus demonstrating their commitment to sustainability and the SDGs and that many other companies, seeing their example, effort and success, follow their legacy. 

Whether we like it or not, our company influences and contributes in a positive way to a better world... this is our purpose and our raison d'être at Transcendent. Help companies to transcend and leave their mark on the society they serve and why not? To lead the World Ranking of the companies most committed to people and the planet. 

VIII Ship2B Impact Forum arrives

Impact Forum S2B

The VIII S2B Impact Forumthe leading congress on the impact economy, will be held between 24 and 26 November to discuss the real transformationThe transition from ideas to facts, the changes in models and the advantages and difficulties involved in putting them into practice. 

The first day will focus on the companies and startups that are transforming. They will talk to entrepreneurs and business people who are driving impact and who are facing different challenges as they scale up.

This first day will feature speakers such as Saskia BruystenYunus Social Business co-founder and CEO, who will explain her experience of how the impact-driven model can be both profitable and scalable in a session with Maria Angeles Leonco-founder and CEO of the Open Value Foundation, a Oscar Pierrewith whom we will analyse the difficulties that can be encountered on the road to impact in a startup like Glovo.

Towards a new sustainable economic model

The second day of the Impact Forum, which will focus on the facilitators of transformationThe European Commission and the European Commission, which provide support to these companies and entrepreneurs, whether through acceleration, funding or regulation.

This session will be opened by Sir Ronald Cohenthe father of impact economics and chairman of Global Steering Group for Impact Investment (GSG). Cohen, who will analyse what needs to be done to transform companies and generate a new economic model based on sustainability.

In addition, the following will participate Filipe Almeida (NAB Portugal), Stéphanie Goujon (French Impact) and José Luis Ruiz de Munaín (SpainNAB) to analyse the role of the public sector in facilitating or even accelerating this process of economic innovation.

And since today more than ever a powerful narrative is vital to build a future with the conviction that it is worth working for, international leaders in constructive journalism such as Alfredo Casares (Institute for Constructive Journalism), Tina Rosenberg (The New York Times) and Ulrik Haagerup (Constructive Institute) will examine the role of journalism in this transformation.

Tim Jackson (Center for the Understanding of Sustainable Prosperity) will close the day with a discussion on the need for "Reshaping capitalism to drive real change". Capitalism has been the engine of our modern societies, it has brought innovation and wealth, but it has also led to excesses, such as inequalities and environmental damage. The question is, how can we put the economic engine and finance at the service of people and the planet?

Corporate impact strategies

The final day of the VIII Impact Forum Congress will bring together investors and CEOs of large companies to share ideas on the implementation of impact strategies and business model changes, while analysing the challenges of this integration, the involvement of management in enabling change and the role of investment in driving this transformation.

Speakers in this analysis will include such distinguished speakers as Cliff Priorof the Global Steering Group for Impact Investment (GSG), Bertrand Badréby Blue like an orange capital, Keimpe Keuningof LGT Capital Partners, Cristina Marsalfrom Sandman. Firoz LadakCEO of the Edmond de Rothschild Foundations, or Maria Peñaof ICEX.

All information on the Ship2B Impact Forum can be found on its website at websiteFind out more about business impact in the Transcendent blog!

Family entrepreneurs reclaim their leadership to build a better society

National Family Business Congress

His Majesty the King inaugurated the XXIV National Congress of Family Businesses organised by the Instituto de la Empresa Familiar (IEF) with the collaboration of the Asociación para el Desarrollo de la Empresa Familiar Navarra (Adefan) and the sponsorship of Banco Santander and KPMG, brings together in Pamplona around 500 family entrepreneurs from all over Spain, under the slogan "Working for a better society". 

The opening ceremony of the Congress was also attended by the President of the Autonomous Community of Navarre, María Chivite, the Minister of Industry, Reyes Maroto, and the President of the Regional Government of Navarre, María Chivite. IEFMarc Puig, who in his speech highlighted the work carried out by family businesses during the pandemic, highlighted the commitment of these companies to spearheading the social and economic transformation that our country must undertake and showed pride in the work, perseverance and leadership that characterises the day-to-day work of Spanish family businesses. 

Puig recalled that the slogan of the Congress, "We are working for a better society", sums up the nature of family businesses, which are characterised "by sharing a series of essential values: long-term vision, a desire for continuity through the generations, commitment to society and local roots". 

The president of the IEF explained how family businesses work for a better society: leading the transformation effort required in the fight against climate change, working from the companies themselves for equality, non-discrimination and social cohesion, and creating quality employment. "We are well aware of the importance of employment for prosperity to reach everyone. We are going to make an effort to continue creating quality jobs and we ask that they allow us to do so, that they do not put us in worse conditions than those of our neighbouring countries with which we compete", he said. 

The president of the IEF, Marc Puig, has advocated an alliance with the public authorities that will allow companies to grow and consolidate, while at the same time asking that no obstacles be placed in the way of this growth and that Spanish companies continue to enjoy the same conditions as those in other European countries. This is what he said in his closing speech at the 24th National Family Business Congress, which brought together nearly 500 family businesspeople from all over Spain for two days in Pamplona.  

Social and environmental challenges

For Puig, the challenges facing the Spanish economy are the same as those facing family businesses: overcoming the pandemic and adapting to the demands of a new environment marked by digitalisation, respect for the environment and social commitment. To address these challenges, companies need, according to him, "greater productivity and to be able to compete on equal terms with companies in other countries". And on this point, growth is fundamental. It has been demonstrated, he said, that at a similar size compared to other European countries, "our companies are perfectly competitive. So let us make it easier for our companies to grow".  

Sign up for the commitment to sustainability 

As a preamble to the beginning of the Congress, the presidents of the Family Business Institute and the 18 associated Territorial Associations of Family Businesses signed an institutional declaration attesting to the commitment of Spanish family businesses to the best management practices that favour sustainability, which must be understood from three different and inseparable angles: business, social and environmental. 

At the business level, the commitment assumed by family businesses through this institutional declaration consists of managing through long-term business and investment practices based on ethical criteria, which allow for sustainable growth and which take into consideration the interests of workers, customers, suppliers, shareholders, institutions, administrations and society as a whole.  

The social commitment, for its part, includes the promotion of diversity, gender equality, social inclusion and the generation of stable and quality employment in line with the needs of the companies. Finally, family businesses are committed to managing themselves in an environmentally friendly way, adopting the necessary modifications in their processes to reduce CO2 emissions. 

The impact revolution  

The last day of the Congress featured the intervention of Paul Polmanformer CEO of Unilever and co-founder of Imagine, who explained to the audience that "we all have a responsibility for the footprint we leave on this world". 

What kind of world do we want to live in? This is the question we face today. 

national family business congress
María Herrero, partner at Transcendent, moderated the panel on the impact economy.

Capitalism has served us well over the last 200 years. Yet nations continue to be wracked by economic inequality, social conflict, natural disasters, the threat of climate change and the consequences of an unprecedented pandemic whose economic and health consequences are still unpredictable. 

Governments cannot and do not have the financial resources to address the major social and environmental challenges we face and the negative impact of corporate production of goods and services. Nor can philanthropists and NGOs, helpful as they undoubtedly are, offer a viable and scalable solution. It is business and private capital, the drivers of innovation, change and transformation that have the capacity to direct their economic activity and capital flows towards social change that will generate greater economic prosperity and sustainable growth. 

Thus, impact investment arises, which has a clear and measurable intention to generate a social and/or environmental impact as well as an economic return. 

Under the risk-return-impact equation, impact investment seeks a triple return: economic, social and environmental. It is not philanthropy or non-refundable donations, but rather investments that seek a return on capital while contributing to the search for solutions to the great challenges facing humanity, such as hunger, illiteracy, health problems, lack of access to drinking water and electricity, gender inequality, unemployment, homelessness, migration and environmental destruction, among others. As Transcendent partner María Herrero explained, it is about making sense of our investments. Because "what is our money doing while we sleep", she asked the audience.  

For Sir Ronald CohenThe President of the Global Steering Group for Impact InvestmentThis moment calls for a revolution. We must make impact the focus of our consciousness. Instead of relying on governments and philanthropy to bring about social improvement, we must introduce a third force to accelerate the pace of change: the private sector... this is the new impact economy, each and every one of us has a role to play in it". 

The Impact Revolution with Sir Ronald Cohen, Chairman of the GSG

Ainoha Grandes (president of the SHIP2B Foundation), Teresa Guardans (co-founder of Oryx Impact), María Herrero (partner of Transcendent) and Alejandra Mitjans (director of Ashoka Spain).  

Linking people to their companies  

During the course of the session Gerardo Iracheta, president of Sigma Twohas presented a survey analysing the social image of the family business. The study includes a series of conclusions worth highlighting. For example, there is a strong link between people and their companies: 83% of citizens say that their company is very important in their lives; and more than 65% consider that in their company they can develop their talent and grow as a person.  

62% of respondents believe that the work of business is helping to alleviate the crisis caused by the pandemic and 90% say that business has a role to play in rebuilding the economy. In this regard, 82% specifically state that their company took appropriate measures to ensure the safety of their employees.  

The vast majority of respondents stated that they had no problems during their confinement with supplies from private companies (such as energy, internet, food, etc.) or with the payment of their salaries. On the other hand, the majority - between 58% and 75% depending on the case - stated that they had had problems with various public services (health centre, ERTES, Sepes, various formalities). 63.7% had problems collecting benefits. 

In the assessment of performance during the pandemic, the government gets a pass mark (5.16 out of 10, failing in several age and voting intention segments); large companies get a pass mark (6.30, passing in all age and voting segments), while SMEs get a B (7.39, passing in all segments).  

The ESG bubble

ESG Bubble nature

Sustainable investment is undoubtedly a key lever to drive the business paradigm shift. However, it is increasingly important to have transparency to ensure that these investment flows are truly directed towards sustainable assets. In this regard, we believe that the European taxonomy will bring clarity and allow investors to focus their efforts on investments that truly address social and environmental issues. 

We share with you the article written by Kenneth P. Tucker where he talks very graphically about this ESG bubble and the importance of alignment between investment flows, corporate engagement, along with citizen action and more urgent and aggressive government policy to change the mindset and rules of the system.

Article "A trillion-dollar fantasy" by Kenneth P. Tucker

The National Oceanic and Atmospheric Administration Observatory on Mauna Loa, Hawaii, reported that carbon dioxide levels in the atmosphere had reached 419 parts per million, the highest levels recorded in more than 4 million years.

On the same day, BlackRock, the world's largest asset manager, announced another milestone: it had raised $1.25 billion for its US carbon transition investment fund. The largest exchange traded fund in history. The fund is a reflection of what BlackRock CEO Larry Fink communicates to his clients: "we don't see business as a passive observer" when it comes to combating climate change.

Seeing the world's largest asset manager act as a social and environmental agent should be cause for optimism. Instead, it represents a kind of Kabuki play in five acts, according to Kenneth P. Pucker.

- Act I: Companies realise their responsibility to address growing social and environmental challenges.

- Act II: The academic class begins to do research on the subject.

- Act III: Rating agencies, consultants and other financial institutions are rushing to create environmental, social and governance (ESG) products, highlighting the opportunity for companies and investors to achieve superior financial performance and social and environmental impact. It's a win-win circle.

- Act IV: Investors are slow to recognise that ESG investing, as currently practised, is unlikely to lead to higher financial returns and, for the most part, do not care about the impact on the planet.

- Act V: Awakening to the opportunities and limits of investment to address growing social and environmental challenges.

Where are we right now? We are at the intermission after the third act. As ESG investing has accelerated, the planet has experienced the two warmest decades on record, Antarctica has melted, income inequality in the US has soared and species have been disappearing at a rate not seen for millennia. The Dow Jones Industrials are hitting new highs and asset managers are charging high fees to monitor an increasingly popular new investment category: ESG investing.

This is what is wrong. Investors are finally getting serious about ESG investing. But, as currently practised, most ESG investments have little or no social or environmental impact.

Companies wake up

Timberland, a shoe and apparel company then worth billions of dollars, was at the forefront of a cohort of companies committed to society and the environment. The company expanded one of the first corporate social responsibility (CSR) reports in 2002, paid employees for 40 hours of community service and installed renewable energy at its distribution centre and corporate headquarters. Timberland believed that business had a role to play in addressing growing social and environmental challenges.

Despite Timberland's incipient efforts, the prevailing mood in business, academia and Wall Street at the time was that Corporate Social Responsibility was, at best, a distraction. 

Undeterred, early practitioners of Corporate Sustainability were supported by a growing group of NGOs and consultants eager to help companies define and report on their social and environmental impact.

In 1997, the Global Reporting Initiative (GRI) with the support of the United Nations Environment Programme to create the first comprehensive sustainability reporting framework. "In the early 2000s, there was a belief that sustainability disclosure was the missing ingredient," says Ralph Thurm, former chief operating officer of GRI. "Data would allow consumers and investors to put pressure on companies to become more sustainable, delivering benefits to people and the planet."

Over time, Wall Street's view of social and environmental issues shifted from enmity to indifference. 

Investigations begin 

A 2012 study began to change investor sentiment. This collaborative study between academics at Harvard and London business schools examined 90 "twin" companies, each in the same industry (e.g. Walmart and Kmart Corp.), one classified as "high sustainability" and the other as "low sustainability". 

During the first six years, the share price movements of high and low sustainability companies were almost identical. However, when compared over an 18-year period, the authors found that high sustainability companies outperformed low sustainability companies by an average of 480 basis points.

How research fuelled a marketing blitz

Armed with these studies, Wall Street's sales engine kicked into gear. Goldman Sachs and BlackRock made acquisitions and new hires to support the launch of new ESG investment products, and research by Morgan Stanley and others "helped dispel concerns that investors have to sacrifice returns to do good", as The Wall Street Journal wrote in 2016. Investment firms collectively went from denying sustainability to becoming fierce advocates of it.

It is hard to overstate the change in fund flows that this win-win narrative has generated. Just five years ago, the term ESG investing was still fairly new. Now, according to the Global Sustainable Investment Alliance (GSIA), in the last two years, contributions to ESG funds have almost doubled those to other equities. Over the past two years, ESG fund inflows have almost doubled over the past two years compared to all other equities.

Unknown market size is a warning sign

There is no common definition or legal framework for ESG assets. According to the Financial Times, "ESG is, in many ways, a bank's marketing dream, precisely because it is so vaguely defined".

With no security barriers, asset managers can construct ESG-branded portfolios in any way they wish. 

Regulators, particularly in Europe where ESG has a longer history, understand that this cannot continue unchecked. In Brussels, the European Union is working towards a taxonomy governing what can be marketed as a sustainable or ESG asset. 

In the US, the Securities and Exchange Commission has created a task force on climate and ESG, and the CFA Institute is drafting a new set of standards for asset managers. Meanwhile, greenwashing in the asset management industry continues unabated. 

ESG ratings and investment are not designed to promote environmental and social impact. 

Sustainability reporting did not present systemic challenges. ESG investment, as currently practised, will not either.

Waking up: there is evidence that finance can be a source of positive environmental change

Beyond the ESG game, there is good news. Pressure from investors and citizens has led more than 1,000 companies to commit to science-based targets to deliver environmental outcomes to protect the planet. Both companies and countries have recently accelerated their commitments to net zero carbon emissions targets. Japan and the EU have committed to becoming net zero by 2050 and China by 2060. 

At the same time, drastic reductions in renewable energy and battery prices make it uneconomical to add new fossil fuel capacity in most parts of the world. Government support for technologies such as hydrogen energy, regenerative agriculture and plastics recycling, and a more widely shared urgency to address environmental disruption, is driving the flow of capital into climate technology solutions such as batteries and clean cement and steel. This is producing exciting and transformative solutions in fields including renewable energy, bio-based materials and transport.

Investors and shareholders are also demonstrating that finance can be a source of positive social and environmental impact. 

Three questions ESG investors should ask themselves

Until these tools are widely adopted, investors seeking ESG impact should ask asset managers three simple questions to determine the likelihood that a fund is designed to generate positive environmental and social outcomes:

1. What percentage of your fund is dedicated to environmental or social solutions?

2. How do you measure environmental and social impact?

3. How do you assess the fund manager's performance?

The answers to these questions will help to distinguish the wheat from the chaff and to distinguish ESG-marketed funds from ESG-committed funds.

The private sector will need to be an increasingly active and authentic partner in addressing social and environmental challenges. However, governments and policies must lead these challenges. 

To do so requires new rules, including carbon and water pricing that reflects social costs, clean electricity mandates, commitments to take internal combustion engine vehicles off the road, fair and enforceable taxes on corporations and individuals, and incentives for new solutions for sectors that are difficult to decarbonise. 

The EU's Green New Deal financing linked to each country's environmental progress is a model to emulate, while the United States' re-entry into the global community by making aggressive commitments to electrify and decarbonise is good news. This is how the ESG bubble burst.

So is the increased investor preference for ESG assets and efforts to standardise sustainability reporting and regulate ESG investing. That said, do not expect these changes to adequately address social and environmental issues. That work must also come from citizen action and a more urgent and aggressive coordinated government policy to change the mindset and rules of the system.

Source: Kenneth P. PuckerInstitutional Investor "The trillion dollar fantasy 

Find out more on the Transcendent blog!

GSG Global Impact Summit, the benchmark event in impact investing

Global Impact Summit

The GSG Global Impact Summitthe world's most influential impact investment event, focused on delivering impactful solutions for people and planet, takes place from 6-8 October 2021. 

Over the past five years, this event has become the premier forum for the impact community to come together, exchange ideas, build relationships and re-launch the future of impact investing.  

Mobilising capital for impact; impact on emerging economies; green and social solutions for a just transition; and harmonisation and transparency of impact are the main topics of debate at this meeting. 

More than 200 expert speakers and 1,500 participants from 75 countries are taking part in this year's summit. Industry leaders in the business impact sector such as Douglas PetersonGonzalo Gortázar, Chairman and CEO of S&P Global, Gonzalo Gortázar, CEO of S&P Global, and Gonzalo Gortázar, Chairman and CEO of S&P Global. CaixaBankHiro MizunoSpecial Envoy of the UN Secretary-General for Innovative Finance and Sustainable Investment, Julia Gillardformer Prime Minister of Australia and Sir Ronald CohenThe Global Impact Summit, chair of the Global Impact Investment Steering Group, is part of the agenda of this international event on impact investing. 


Autumn travel article

September has arrived. The strangest September we can almost all remember. But September means beginnings for most of us. In the midst of the return to routine September brings us beginnings. What beginnings await us this year? Are there going to be big disruptions in the business world in this different autumn? How do we prepare?

These are some of the inertias that we are already detecting and that we believe will be consolidated in the coming months.:

1. Impact investing will weather the storm better

From a financial perspective, impact investment funds are demonstrating better performance and greater resilience than other funds. This reality reinforces the importance of this type of investment, making it a lever for the transformation of the entire business sector.

2. Consumers are changing their consumer preferences

And that change is accelerating with the pandemic. While there will continue to be major inconsistencies in consumer buying habits and the duality - convenience/ immediacy versus sustainability/impact - will remain, the trend towards more sustainable products and services is gaining momentum.  

3. The European roadmap to a sustainable economy

The European Green Deal, together with a Just Transition mechanism that will allocate EUR 100 billion over the period 2021-2027 to mitigate the socio-economic impact of the transition to a low-carbon economy, will drive the transformation of business. 

4. Business as a key player in the recovery

The idea that business has a leading role to play in the recovery is gaining momentum. In the face of unprecedented economic uncertainty, many companies are becoming the reference point for their employees, suppliers, customers and other stakeholders.

5. The professionalisation of purpose

Only 7% of Fortune 500 CEOs believe their companies should "focus primarily on making profits and not be distracted by social goals. For while capitalism has catalysed enormous progress, it has struggled to address complex issues such as climate change and inequality," according to McKinsey's study. "Purpose: Shifting from why to how".  

6. Short-term vs. long-term revenue generation

The economic impact of COVID in many sectors of activity will require that the corporate social impact actions that are implemented are more focused on generating immediate income in the short term, minimising costs. This means moving away from traditional CSR activities, which in many cases act as a cost centre, towards actions with a direct impact on improving the bottom line.

The world we are moving towards will undoubtedly be different from the one we have known so far. Company executives have the opportunity to rethink and reimagine their purpose and the role their companies will play in the future. They can continue with their traditional lines of business or explore new business models that are more adapted to the new habits and preferences of consumers, who will undoubtedly have changed and who will demand that purpose and social impact are at the heart of their activity.

This will drive the company's transformation towards corporate social impact.

Who will succeed?

All signs point to the success of those companies that manage to incorporate sustainability and purpose at a strategic level in the organisation and turn it into a competitive advantage.

In the face of short-termism, rigour and measurement

During the pandemic, many companies have put in place actions to support their stakeholders according to their needs. It is now time to put structure and rigour in place to ensure that these efforts do not remain a short-term, contingency exercise and to make the business sector more resilient in the long term.

It is also time to value their contribution to society by measuring the impact generated and acquiring tangible commitments in the medium and long term with society and the environment.

In any case, we see clearly that what matters is consistency and coherence. This is not the time for Green Washing. It is the time for values and purpose. In capital letters. From the inside. From the top. In every process. In every department. Throughout the value chain. Implemented professionally and from within the organisation. To resist. To move forward. To improve. Find out more at our blog!