Many of us believe that value is about much more than finance but, certainly in corporate terms, that’s difficult to prove. There have been many inconclusive analyses done on the correlation of non-financial performance, such as environmental, social and governance factors, with overall business success. The problem is that its difficult to make comparisons.
We’ve know that the modern economy has separated out the interests of governments, corporations, individuals and the environment and by doing so, we’ve created problems for which we’re now struggling to find solutions. In order to be heard though, we need to get through to those with their hands on the tiller – the money men. We need to show how important it is to take a wider view. For example, HP has been recycling old printer cartridges for some time. This is a social positive – it reduces materials and power consumption in the manufacturing process, and it reduces waste and therefore landfill. From the company’s point of view, it also saves a large amount of money. That’s something that any board can get behind.
Even for those active in bringing such elements into daily business practice, the definition of what this means is flexible. Do we mean the practice of corporate social responsibility (CSR). Is it actually Corporate Sustainable Re-Engineering or Corporate Social Responsiveness? Should it be just CR- Corporate Responsibility, or should it be CS - Corporate Sustainability or even the latest term ESG – environmental, social and governance.
Without definition and comparative performance benchmarks, how can you sell the idea to your board or worse, your investors? There are investors willing to undertake ‘responsible investing’ but then again, what does that mean? Are we talking about ethical investment, or environmental investment or are we talking about SRI – Socially Responsible Investing. Perhaps that should be SR- Sustainable Investing or even RI - Responsible Investing? Without proper delineation and definition however, we don’t really know what these mean – and without clear boundaries, it can prove impossible to make people understand the need for action.
There’s been talk for some time about the need for companies to address the ‘triple bottom line’ of social, environmental and financial performance, but little concrete analysis on the financial benefits. The associations with social and environmental concerns are such that many board members are loathe to promote the need for such responsibility.
A new programme, with a report called Sustainable Value (http://www.investorvalue.org/valuingBusiness.htm), is trying to change that.
A research team led by the Doughty Centre for Corporate Responsibility at Cranfield School of Management brought together academics from SDA Bocconi School of Management in Milan and Vlerick Leuven Gent Management School in Belgium and looked in detail at how ESG performance can impact business success, how companies explain these linkages to investors, and how the investment community treats this data.
There are problems which need to be overcome – especially the narrow focus in the way in which "shareholder-value" is defined. The report outlines the obstacles to assessing the value of ESG activities such as:
• Limited or non-existent data suitable for cross-company comparison
• Lack of evidence for linking ESG performance with general performance
• Confusion of terminology and shifting definitions between actors
• Lack of incentives to present positive ESG impacts
• Disconnects between ESG specialists and Investor Relations experts within companies
The report proposes that value be redefined as ‘sustainable value; and sets out a ‘Value Creation Framework' which can be used both by business and the investment community. An operationalised management version of it has been developed by the parallel European Alliance for CSR laboratory (http://www.investorvalue.org/), run with the support of CSR Europe.
A number of companies are looking at a critical mass of pioneer companies and investors using the Value Creation Framework to explain the risks associated with not embedding sustainability, and the opportunities potentially accruing to businesses from doing so; and how this can be factored into investor valuation models.
What we need to do is change mainstream investors minds about what they need/want to do. That can mean training and education, or even changes in the way in which investors (either individually or institutionally) are rewarded. Most importantly, we need to focus on the longer term implications of our actions, rather than on a short-term investment window of two to three years (with quarterly updates demanded from listed companies).
As with every aspect of our lives, we need to stop acting like a bunch of teenagers who believe in our own immortality, and start thinking about the long-term consequences of our actions.
No comments:
Post a Comment