Achieving a sustainable world is a journey and here's where companies need to start
The evolution to sustainable development and sustainable finance, and the shift to making profits an outcome of corporate purpose rather than purpose itself, is a collective effort. One in which companies have a huge part to play.
The British Academy defines corporate purpose as profitably solving problems of people and planet and not profiting from creating them.
Arguably the biggest part, because while governments can set policies and regulations that define the rules of engagement, and investors can provide capital to make things happen, companies are the ones actually doing things, i.e., making products and delivering services. They’re the ones consuming resources and producing outputs that generate outcomes and either (likely both) positive and negative impacts on people and the environment.
The growing understanding of the interconnectedness of corporate activity, financial performance, and social and environmental wellbeing — sustainability being the target state — is amplifying stakeholder demands for companies to manage their dependencies and impacts on people and nature and the related business risks and opportunities that can affect their revenue generation, expenses, cash flows, risk profile, reputation, and long-term viability. These dependencies, impacts, risks, opportunities typically trace to specific environmental, social, or governance (ESG) issues.
What those issues are, and how companies manage them, is what investors and other stakeholders want to know about in corporate sustainability reporting.
Rest assured, not all ESG issues are relevant to all companies. Identifying what issues are relevant, or material, to a company depends on the business’s context, such as the exact nature of its activities as well as its geographic and jurisdictional location. It also depends on whether scope includes only core operations or the entire value chain. It also depends on whether perspective is outside-in or inside-out, i.e., looking at issues that affect the company’s business or issues that the company affects through the conduct of its business. Finally, it also depends on whether the horizon lens is short-, medium-, or long-term.
To contribute to a state of sustainability, companies first need to identify their most material environmental, social, and governance issues and integrate them to, well, everything! From governance and culture, to strategy formulation, enterprise risk management, executive remuneration, policies and actions, and performance measurement… all of which are part of sound management practices. Reporting is the mechanism for accountability on properly managing material issues.
In other words, for companies the journey to a sustainable world starts with identifying, managing, and reporting on your business-critical ESG issues.