“Contributing to society or the environment” is something that tends to make most CEOs feel good. But these days, simply “feeling good” doesn’t cut it anymore. Sustainability is becoming the norm. Increasingly, organisations will (have to) face the actual costs and results of their decisions. And that is what ‘redefining value’ is all about. How can you make your operations more sustainable, and then translate those efforts into figures? A challenge, sure – but also a fantastic opportunity. Many companies have already made the shift, and they’re reaping the fruits today.
Why 'redefing value'
Traditionally, we equate a company’s value with its ability to generate profit. ‘Value’ becomes something purely financial, as we barely take into account the broader impact. Any positive effects are simply ‘a nice added bonus’. Negative effects become externalities, passed off on society or the environment.
But the traditional model is crumbling. There’s a growing awareness that companies sometimes underestimate the impact they have. People are especially starting to frown at the way costs are passed off on others without a second thought. Pressure is mounting on all fronts: from national governments and international institutions like the European Union, to major investors and forward-thinking companies who have taken steps to change. And increasingly, the general public is joining the chorus. It’s clear that we need to reinterpret the concept of ‘value’. Not just in our decision-making processes, but also in our financial reporting. Because there is no one-to-one relationship between value and profit – hence ‘redefining value’.
‘Redefining value’ is about finding a better way to define the value organisations create. It’s about determining a clear, objective link between sustainability and the creation of value, to make it easier to base our decisions on the right reasons. The question – what is the impact of our business decisions – remains the same. But the answer suddenly becomes much broader. Of course, a decision will affect your financial value. But will it also create ecological value? What about social value for society? Only at home or also abroad? Will your decision create human value for those who bare directly involved, customers, staff, anyone in the immediate environment? Some companies are already looking at value this way. In the luxury sector, a large player now reports on ecological as well as financial profits and losses. An international clothing giant does the same. This has given both the opportunity to adjust their decision-making processes.
Turning decision-making processes around is a win-win situation.
Turning decision-making processes around may seem like a massive challenge. In reality, it’s a win-win situation. Decisions based on actual impact don’t suddenly stop being financially interesting. They simply become better when other criteria are taken into account as well. Why?
- Because every company has a responsibility to society. For more than 15 years, the World Economic Forum has been discussing the biggest risks our world faces. Now, for the first time ever, its list is headed entirely by ecological risks, both in terms of probability and impact. These risks range from extreme weather and loss of biodiversity to natural disasters and failing climate policies. Passing off the external costs of our economic process plays a key role in this.
- Because ‘redefining value’ is an irreversible process. Major investment firms, including pension funds, are beginning to focus on the total impact of the companies they’re investing in, rather than just their financial impact. Exorbitant amounts of capital are being divested from carbon-inefficient sectors and reinvested in green industries.
- Because other companies too are finding this increasingly important and are aligning their strategy with it. Unsustainable companies risk losing customers. Sometimes, we’re talking about major customers: companies who’ve already altered their strategy themselves often simultaneously raise the bar for their partners.
- Because awareness is increasing among the general public as well. A sustainable image is a commercial asset. For the younger ‘high potential’ generations, sustainability is an important measure when deciding whether to join and remain loyal to a company. And small-scale investors are discovering sustainable investment approaches.
- Because it will soon be a legal obligation. Listed companies are already required by law to submit both financial and non-financial reporting. The European Commission is currently drafting new guidelines to clarify and expand these requirements.
- And last but not least, because sustainability creates new business opportunities. Making products and services wholly sustainable can help businesses gain a foothold in new markets. A more sustainable product can even directly add extra value if clients are willing to pay more for it in comparison. Examples are rife both in Belgium and abroad.
The best way to learn is to learn from each other’s
‘Redefining value’ is high on global agendas, and the trend shows no sign of abating. Consultants offer some guidance, but their methods differ and aren’t always easy to apply. There’s a need for harmonisation. Large international companies are wasting no time in organising themselves. The World Business Council for Sustainable Development (WBCSD) and the European Business Network for Corporate Sustainability and Responsibility (CSR Europe) have brought together a group of sustainability frontrunners taking initiative in the field of water management, carbon emissions, biodiversity, health and safety, employment policy,… The Shift is Belgium’s national point of contact for both networks.
Having a point of contact is important for our country’s own companies and organisations. Often, they are willing to contribute, but don’t instantly know how. Many of them are unable to take action on the same scale as the giant global players leading the charge today. Which is why an organisation like The Shift can play an active role, inspiring and promoting a healthier decision-making process. We continuously keep track of the latest developments, organise workshops and offer members the support of a network. Because the best way to learn is to learn from each other’s.
Editor: Wim Verhoeven