There is a lot of debate about what makes a business sustainable. It’s a fascinating topic for business people and their audiences – because we’re all connected in a complex, interwoven knit of supply and consumption. No matter what we consume or buy, we are touched by the activity of multiple companies – including B2B technology and services which remain hidden to the public eye, but are crucial for business processes of all companies anywhere.
There are plenty of studies and books about how sustainability made its way to the boardrooms and operations of most companies. One of my favorite books is “Reimagining Capitalism in a World on Fire” by Harvard Business School Professor Rebecca Henderson. The book highlights case studies about companies that radically changed their business models to become sustainable leaders. It also discusses the deep collaboration needed between companies, industry organizations, regulators, and business partners throughout the entire value chain to bring new sustainable products to a competitive, price-driven market.
Meanwhile, it has became obvious that companies with a clear sustainable agenda must go beyond quarterly results and short-term investor expectations. But having a sustainable focus does not mean losing sight of profitability goals – on the contrary. Sustainability is strongly linked to the financial results of a company. What you can’t measure, you can’t manage. The executive leadership of any company needs to acknowledge and assess both sustainability-driven risks and opportunities and include them in the management strategy. Finally, a company’s sustainability strategy has a tremendous impact on what accounts for up to 90% of a company’s valuation: its reputation.*
We need to look into metrics and KPIs when talking about sustainable business. Over a 100 years ago accountants started to bring clarity to the financial performance of companies through accounting standards. It was a lengthy process but accounting standards are universally recognized and used by companies worldwide. Today, a similar process is underway with sustainability accounting. The International Sustainability Standards Board (ISSB) was created as part of the International Financial Reporting Standards (IFRS) to match the dynamic pace of new sustainability disclosure regulations in the European Union, U.S., U.K. and the rest of the world. Sustainability reporting standards, issued with the support of companies and investors, translate sustainability areas into accounting metrics to measure the financial impacts of sustainability and give insights into how to assess sustainability-related risks and opportunities.
Moreover, investors demand transparent, data-based sustainability reporting. They are not happy with long-form, text-heavy and policy-based sustainability reports. They need to see clear facts and figures. They will be analyzing and comparing your performance against that of other industry players. Investors are also perceptive to trends – are companies making progress in improving any of the aspects they are disclosing? Are they clearly stating goals and how to reach them?
In any organization, the principle remains: what you can’t measure, you can’t manage. Sustainability is not just an overarching, diffuse concept: it has serious implications for companies. Whether it’s the effect that companies have on the society and environment, or evaluating sustainability-related risks and opportunities: companies are better off (and are often required by law) to be transparent and clear about their operations.
Note: Olivia is certified in Fundamentals of Sustainability Accounting (FSA), and first level Global Reporting Initiative (GRI).