The success of sustainable business leadership hinges on moving from corporate responsibility to corporate impact. As mandatory ESG disclosures and impact economics converge, the role of corporate responsibility is shifting. Impact professionals increasingly need to oversee both traditional ESG risk mitigation and impact-oriented new value creation.
What we call the "Impact Economy" is creating new opportunities to increase enterprise value by both mitigating risks and seizing upon innovations. This is opening new sources of business value and advancing impact alongside profit.
As the measure of a company's total value, enterprise value creation is a business’s North Star. But the emerging Impact Economy is changing both what constitutes enterprise value and who gets to decide it. As such, we are entering a new chapter in measuring corporate performance — an evolution in the underlying contract between the private sector and the rest of society.
In the Impact Economy, economic growth and business growth are not distinct from — and increasingly can be aligned to — solving social and environmental problems. We are starting to place a monetary value on a company’s most significant impacts on society. As this field evolves, we can also start to accurately and consistently leverage data disclosures to compare companies and sectors, just as with traditional financial performance. This opens up a new era of transparency and integrity in measuring the impacts that companies create.
We see the climate crisis as the first and best place for leaders to expand their thinking and the way they operate to capture this opportunity. We’ve never seen the level of awareness for climate action and the need for climate impact as we have in the past few years. This is driven by a variety of factors: financial market expectations, new regulations, and new generations of employees and consumers who demand more action from the brands they work for and buy from.
Mandatory ESG rules on the horizon
Corporate ESG disclosures are moving from voluntary to mandatory, with new government regulations coming fast.
Europe is leading the way via the European Union’s Corporate Sustainability Reporting Directive (CSRD) that imposes the mandatory use of European Sustainability Reporting Standards (ESRS) that integrate sustainability with financial reporting including third-party assurance. The first group of covered companies must start their collection of data in January 2024. Importantly, this requires the integration of ESG reporting with a company’s financial reporting — a critical development that brings a company’s chief financial officer to the broader sustainability discussion.
Similar ESG reporting efforts are required for the largest U.K.-registered companies and financial institutions and elsewhere. In the U.S., the Securities and Exchange Commission may finalize its proposed new rules mandating climate-related disclosures for public companies this spring.
Virtually every version of mandatory ESG disclosure includes climate disclosures as a core component and, in particular, disclosing the company’s carbon footprint. This reporting is a recognition of the role every sector must play for the world to reduce our overall carbon emissions to zero by mid-century to limit global warming to 1.5 degrees Celsius.
We are starting to place a monetary value on a company’s most significant impacts on society.
That is why one of the first steps companies are taking is on climate and, in particular, to set a carbon reduction target. Companies are benchmarking their current footprint and determining realistic targets to reduce their carbon emissions, in which areas and within which time frame.
A company’s performance on climate has become material to its investors. We see evidence of this in the more than 2,000 companies that have set a science-based carbon target including more than 700 of the largest public companies worldwide and the one-third of Europe’s largest public companies pledging to reach net zero by 2050.
Climate and 'new' value creation
If mandatory ESG disclosure is the stick, then the opportunity for new value creation is the carrot. The transition to a zero-carbon global economy may prove to be the greatest economic transformation the world has seen since the Industrial Revolution. One report found that sustainable business models could open economic opportunities worth $12 trillion and create 380 million jobs by 2030.
Many companies are already seeing business value in areas ranging from cost savings and efficiency, attracting and retaining talent and improving their supply chains, all of which result in far greater durable and resilient businesses. For example, research by Okta and Anthesis Group found that hybrid work can support a net-zero strategy — reducing GHG emissions from reduced workplace square footage and less travel to work by car.
While those increases in enterprise value are important, the identification of new revenue-generating opportunities may be the largest value driver. A recent McKinsey survey of C-suite leaders found that 40 percent of respondents expect company sustainability programs to generate value in the next five years — nearly double the current share.
This new value generation is touching virtually every industry, as more consumers and workers consciously choose earth-friendly businesses. Salesforce’s Net Zero Cloud product stemmed from an effort led by the Salesforce sustainability team to measure, manage and reduce its own carbon footprint. And the Stripe Climate offering is another example of a climate-led business innovation — in this case enabling Stripe’s global customers to invest in frontier carbon removal technologies at scale.
This is just the beginning — from sustainable fashion and green consumer products to electric vehicles, and enterprise software solutions to track climate impacts, more businesses are finding success by placing sustainability at the center of their business models.
What’s next for corporate responsibility
Corporate responsibility professionals have much to contribute to this shift because of our stakeholder orientation, deep understanding of social and environmental issues and our ability to influence across the business. That said, we must evolve yet again to meet the moment. To be successful in the Impact Economy, the corporate impact leader of the future must gain proficiency in ESG disclosures, materiality assessments, benchmarking and target-setting, new tools and technologies, business integration and new value creation.
Despite the politically driven ESG backlash, the larger trends of sustainability and the Impact Economy are here to stay, rooted in consumers’ and employees’ demands for greater corporate responsibility and accountability.
Corporate responsibility professionals must become impact leaders by simultaneously advancing risk mitigation strategies and new value creation initiatives. This is an opportunity to rethink our field and evolve the discipline of corporate impact to something that can manage impact value across the enterprise. The time for action is now.