The responsibility and scope of deliverables for business leaders have evolved from primarily achieving attractive financial returns to a broader perspective on value creation
Globally, there has been a shift towards greater accountability on businesses to address pressing societal issues: companies are increasingly required to account for their impact to stakeholders who are insisting on information that extends beyond financial performance. There is now a need to convey positive and negative impacts of companies’ operations on the environment and their contribution to society, for instance addressing racial and gender inequality, climate change, and the measures taken towards improving employee wellbeing.
Millennials (also known as Generation Y, those born between 1980 and 2000) represent the largest segment in the workplace today and will comprise 75% of the global workforce by 2025. Deloitte research found that Millennials want purpose-driven cultures and management is now forced to re-evaluate and realign its priorities to attract them. These demands extend to high ethical standards, a collaborative culture, corporate activism, engagement and an alignment with personal beliefs while affording them opportunities for greater work responsibility and attractive remuneration. If these demands are not met, they are willing to resign.
An interesting case on the evolution of the changing industrial landscape can be gleaned from the airline sector. In recent years Lufthansa and American Airlines posted healthy profits, yet calculations have shown that their environmental costs amounted to around $2 billion and $5 billion respectively, thereby rendering them unprofitable based on their negative impact on the environment and ultimately society. This example supports the rise and adoption of Impact-weighted Accounting (IWA) − a project being tested by several companies to drive the creation of financial accounts that reflect that company’s financial, social and environmental performance.
The International Financial Reporting Standards Foundation is expected to launch an International Sustainability Standards Board to provide a roadmap towards sustainability reporting. In South Africa, the JSE, aiding the promotion of sustainable and transparent business practices, has two responsible investment indexes that foster good corporate citizenship. Globally, incentive structures are shifting to align with a company’s performance in meeting its impact targets. For instance, in private equity we are witnessing the emergence and use of ‘impact carry’ (an incentive to deliver a social return that would be used to generate further return).
It is evident that leaders of organisations in the post-pandemic climate need to understand and prioritise the creation of a more inclusive and sustainable corporate culture and must be able to report on these.
A new era
Corporate culture and reporting have entered a new era. Catalysed by the momentous societal and industrial shifts brought about by the COVID-19 pandemic, there is an urgent need for those charged with governance and leadership to produce value beyond the balance sheet which is measurable and has a positive impact.