HOULD a company's responsibility begin and end with shareholders, or extend to customers, communities, and the environment? SWhile hardly an original question, last year saw a renewed focus on debate around the purpose of business — and with sustainability already in the January headlines, from fires in
We now have just 10 years to achieve the
This matters, because the world needs the business community's help. Global progress towards the targets is nowhere near on track, and the window for action is now. And that progress depends on rethinking the way we define businesses' purpose.
Businesses have always existed to create value, but what constitutes value continues to evolve. Whereas once it was narrowly measured in terms of pure profit, in recent decades this has broadened to measure total shareholder return.
Today, there is an emerging recognition that "value" increasingly reflects a more holistic view, incorporating the full financial, social and environmental impacts of a business, from sourcing to production to disposal, and recognising that supply chains are responsible for 90 per cent of companies' environmental impact. The ambition to do more on sustainability is a common theme of my conversations with clients, but they are often held back by practicalities. Two key challenges crop up time and time again that require collaborative action from businesses and policymakers.
The first is measurement. A broader definition of value creation demands improved measurement.
Greater transparency and measurement would also address the second challenge: finance. This is identified as the largest barrier to becoming more sustainable — an additional annual investment of
Here, banks can act as a catalyst for action.
If business value increasingly reflects return to society, it follows that wider societal factors will inform financing decisions. Efforts to improve the disclosure of risk relating to climate change across the financial system indicate a clear direction of travel. In time, SDG performance will be a factor that informs financing decisions.
That means that businesses which fail to recognise their own role in meeting the SDGs will be left behind. In the short term, society, regulators and competitors are increasingly alive to these issues, posing risks to companies which drag their feet. Longer term, they could be missing out on opportunities too, as achieving the UN goals could unlock
Change is often gradual, then sudden. As engagement rapidly spreads, from school-age activists around the globe to the boardrooms of the
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We now have just 10 years to achieve the
(c) 2020 City A.M., source