“Tell me which of the pressing issues of our time keep you awake at night, and I will tell you how the old rules of profit maximization and short-term thinking contribute to those problems.”
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Perception in the Capital Markets:
Why does the business world continuously reject its responsibility to all those impacted by their corporate decisions rather than care almost exclusively about their shareholders? It has been a question that resurfaces with every generation depending on the challenges of the times.
This time, the urgency of addressing the climate crisis has catapulted the discussion to other levels that now include regulatory agencies worldwide. The most insistent and action driven of these is the European Commission with its directive for sustainable corporate behavior. Some business leaders continue to ignore the importance of incorporating ESG practices into their operations viewing it as cumbersome and potentially having negative effects on their profitability. Studies by consulting firms have shown that the contrary is actually true.
Avoiding the inevitable isn’t a smart business strategy . The time will come when companies will have to report and measure their impact on the environment and the social aspect of their businesses guided by their governance policies. Businesses that have already committed to this transformational paradigm will avoid reputational and financial risks in the future.
Creating value can be met in a variety of options…obtaining one of many certifications makes the journey more palpable and is always a sign to impact investors that the leadership is serious about their commitment to sustainability.
Why invest and commit to a certification or rating and which one to consider (a few examples)?:
Going through the certification process you start understanding a side of your business that you have never considered before.
B CORPS Certification - is a designation given to for-profit companies that meet high standards of social and environmental performance, transparency, and accountability. It is based on the BIA (B Impact Assessment) and measures a company’s total social and environmental impact. For additional information: https://www.bcorporation.net/en-us/certification/
WELL Certification - developed by the International WELL Being Institute is a performance-based system for measuring, certifying, and monitoring features of the built environment that impact human health and well-being
For additional information: https://www.wellcertified.com/certification/v2/
GIIRS - The Global Impact Investing Investing System was developed by B Lab, a nonprofit organisation that also certifies B Corporations (B Corps). B Lab's mission is to promote business as a force for good, and the creation of GIIRS was part of their effort to provide tools and standards that help investors measure and compare the social and environmental impact of companies and funds. which included information from the BIA (B Impact Assessment), provides an array of measurement tools to investors “to understand social and environmental impact” in “nuanced ways and has evolved into the B Analytics platform. For more information: https://iris.thegiin.org/document/iris-and-giirs/
LEED - Leadership in Energy and Environmental Design Rates the design, construction, operation, maintenance and significant retrofit of buildings and neighborhoods for environmental impact. The certification is given by the U.S. Green Buildings Council, a non-profit formed in 2000.
FAIR TRADE - Certifies products are sourced from producers that engage in sustainable practices, have safe working conditions, and earn fair and stable prices. Fair Trade USA, the nonprofit founded in 1988 oversees the certification.
“Don’t let the spirit of comparison and competition take you somewhere fast, when the spirit of collaboration can take you some place far instead.”
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The Benefits of a Certification?
Declared Values
Incorporating as a Benefit Corporation ensures that your values are codified. From employees to investors anyone looking to understand your company has a clear view of your commitments.
Brand Recognition
Being a B Corp or having a WELL Certified Building gives credibility in the social and environmental enterprise space because it lets other people know someone has already dug deep and vouches for you.
Community
Joining a community of certified businesses verifies commitment to responsible business practices. It’s a way to encourage other organizations to rethink their values and purpose. It shows solidarity with all stakeholders and places you as a peer in a network of some of the most conscious companies on the planet.
BUSINESS FOR GOOD
A Brief History
The idea of business being a vehicle for good with ethical ethos is not a new concept. It was discussed in the era of Aristotle and later by Karl Marx, but we’re going to concern ourselves with the modern era. According to OpenMind BBVA, “The modern concept of business ethics dates back to the rise of anti-big business protest groups in the United States in the 1970s.” For at least five decades, the discussion has been either at the forefront because of regulators or more often sidestepped by larger corporations who have wanted the freedom to conduct operations that would create the most return on investments for their shareholders.
Peter Drucker, philosopher, educator, and author who had a major influence on business management, said, “Performing responsible management is the alternative to tyranny and our only protection against it” He wrote and advised on business practices from his philosophical and sociological perspective. He believed that a “functioning society” was based on civic education and community involvement.
In the 1960s and 1970s, one example of pushback towards philanthropy or corporate responsibility was Milton Friedman, an economist. He believed that these activities would detract from a company’s focus on its performance and profitability while regulation and ‘big government’ would damage the macroeconomy.
Since then, many other business consultants spoke about responsible business in various ways. In 1994, John Elkington, a well-known British management consultant and sustainability guru, “coined the phrase "triple bottom line" as his way of measuring performance in corporate America.” In economics, The Triple Bottom Line view encourages companies to commit and measure their performances in these three areas: profit, people, and planet. Through their Corporate Social Responsibility departments, companies have engaged in diverse initiatives to show their commitment to social and sustainable issues.
In the 1970s, people made their voices heard against Apartheid and other human rights issues by divesting from companies. The financial sector began to take notice of a changing mood towards more responsible investing. Eventually, the concept of socially responsible investment or SRI started to infiltrate the investment industry. In the 2000s, SRI became known as ESG, which stands for Environmental, Social, and Corporate Governance, which are the three main components used to measure a company’s impact on sustainability and societal matters when considering an investment in a company or sector. The shift to ESG was a move towards a more aggressive activist investment model from SRI’s negative screening approach.
‘In 2005, the United Nations Environment Programme Finance Initiative commissioned a report from the international law firm Freshfields Bruckhaus Deringer on interpreting the law concerning investors and ESG issues.’ The report concluded that not only was it acceptable for investment enterprises to include ESG in their analysis but that it was indeed their fiduciary duty to do so. Since then, many firms in the investment industry began to incorporate these considerations while others decided to create ESG based funds and portfolios.
In recent years, other terms such as ‘green,’ ‘socially responsible investments’ among others, have sprung to encourage the financial community to incorporate sustainable and ethical components when analyzing a company’s business investment worthiness beyond its financial viability.
The most aggressive attempt to address universal global issues dealing with the environment and social development challenges was in 2012, at the United Nations Conference on Sustainable Development in Rio de Janeiro. A set of 17 goals called the Sustainable Development Goals, or SDGs were drawn up as a guide to tackle education, gender, health, economic, political, and environmental inequities, among others.
This trend towards a more equitable and just world in under-served communities has compelled enterprises to use these SDGs to improve their business practices. In the United States, a group of CEOs from major corporations signed a statement at the US Business Roundtable in August 2019. This was an agreement to conduct their businesses considering all their stakeholders, from customers, employees, and supply chain, and not exclusively focus on the financial returns to their shareholders.
These concepts devised to encourage socially and environmentally conscious business operations have caused a certain amount of confusion. Still, in summary, they all have a common goal: Demonstrating that doing good and having the purpose of addressing societal challenges along with maximizing revenues and shareholder returns are not mutually exclusive business endeavors.