Sustainability: A new integrated framework for enterprise performance management

From the IAFEI December 2020 Quarterly Bulletin.

By Elisa Bolognesi, Accenture MD, and Mauro Marchiaro, Accenture MD, and Aldo Pozzoli, Accenture Senior Manager

Greenwashing days are over

Sustainability is increasingly at the centre of every business agenda. Its importance grew to such an extent that having an explicit sustainability strategy is now mandatory to secure most companies’ long term business viability. In fact, this ability is regarded as highly relevant not only by customers and the general public, but also by investors, suppliers, clients and regulators, requiring companies to be actively engaged.

Investors, regulators and financial institutions are increasingly basing investment and lending decisions on the sustainability of the company. In the sustainable finance world, the key decision drivers when evaluating companies are:

  • risk reduction: institutional investors would stay away from companies that have had bad reputations or are exposed to or do not mitigate sustainability risks by ignoring externalities and related broader impacts;
  • value creation opportunities: shift the focus from pure financial profits an risk reduction to long-term value creation pursuing opportunities arising from sustainability engaged companies; This aspect has also been thoroughly studied by Harvard Business School by monitoring stocks of listed American companies for over 20 years, demonstrating that the sustainable ones had superior performance.

Financial markets are adopting investment strategies that favor companies that go beyond traditional, financial short-term profit, and maximize long-term value of business and SoC as part of credible and tangible strategic commitments. In this context, actively managing environmental, social and governance (ESG) performance of the business is becoming crucial for companies’ competitiveness and value generation, as much as managing financial performance. Considering the role of sustainability topics in financial valuations, investors need to track ESG impacts of their investments in the same way that they monitor financial returns and firms need to make this an easy, transparent, reliable and connected experience. Investors, along with regulators , insurers, and the public, need a clear picture of how companies are managing sustainability related questions. Companies and countries that do not respond to stakeholders and address sustainability risks will face it growing skepticism from the markets and ultimately a higher cost of capital. Companies that champion transparency and demonstrate the responsiveness to stakeholders, by contrast, will attract investment more effectively, including higher quality and more patient capital. The emerging EU Sustainable Finance Regulation and the 2021 Disclosure Regulation confirm all of the above.

Sustainability performance management is the new enterprise performance management

40% of CEOs say sustainability and trust is creating revenue growth today. On the other side, 57% of global investors identified the lack of structured information as a reason why they do not invest in sustainable businesses. Most investors still believe that companies in which they invest are not properly equipped to set out and act on their strategy to seize opportunities presented by sustainability. While most companies are developing sustainability strategies, many organisations are not yet ready to measure its value, link it to business performance, imbedded in management objectives and daily operations.

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