World War Three is about information. Game on!
Cleaning house. Defending what is good about the past. Establishing that there is a right way to do things and a wrong way. Drawing a line and saying "enough!" Letting 'er rip to get somewhere it isn't possible to get by going carefully. These seem to be the best-intended parts of putting a demented felon and twice-impeached attempted coup leader in charge of what has in recent decades been the most powerful economic and military power in the world.
Those who have empowered this must be thinking one of three things:
That they can channel his mayhem to their own more construtive ends
That what he says is true
That they want the United States to fall
What also seems true from where I sit is that there is a literal if surreptitious war being waged on the United States, whether literally at the behest of a foreign power, or effectively in the form of the unregulated pursuit of short-term profit (cleverly disguised as a Constitutional, First Amendment right) at the expense of our life- and society-support systems, or both.
There are certain systems society relies upon that must not be changed without thoughtful and capable governance, and our information ecosystem is one. Our own, and our fellow citizens', understanding about the causes of droughts and hurricanes, FEMA's action or inaction in the aftermath of disaster, who committed what crimes, whether classified national security information has been sold, and much more is now subject to the whims of a comparatively small number of businesses whose mandate is short-term profit, not societal stability or long-term ecosystem viability. As of August 2024, 38% of this nation believe the proven lie that the 2020 election was stolen, though this has been judicially scrutinized and was a fair election. We cannot sustain a democratic republic in America, or anywhere, while significant chunks of the electorate believe falsehoods just because they feel true.
But another objective reality today is that Americans agree by significant and in some cases super majorities on a whole array of topics, from what to do about climate change to guns, abortion, immigration, taxation– you name it. This is very good. But it is not what people widely believe is the case.
Instead, because of our effed-up information ecosystem, we feel more and more like our fellow countrymen are borderline evil.
The reckoning we face now is as much about how, as a society and an economy, we transcend our human incapacity to differentiate between what is true and what feels true.
I believe in American resilience and ingenuity.
Early signs suggest that there may be a way forward for our news media that combines pluralism with journalistic integrity, like Tangle. People respond to their perspective being respected– ways of doing this systematically, with high local attunement, and learning across the system. And even in the most "red" or "blue" states, there are smart, likeable, highly effective, hard working people doing work every day to build and repair their communities. When we meet in person, and work together both in-person and virtually, what's coming at us all transforms from a bleak tidal wave into a bright vista of possibility. Ways of connecting in person to meaningful work in communities across America are blooming all over, including #GreenRising, the Donut Economics Action Lab (DEAL), and our RIDER initiative to shift systems so rural childhood poverty is halved every generation. Personal, hands-on human connection, and harnessing our differences to understand and achieve more together, is surely The Way.
But as a casual student of autocracies and how they stay in power despite growing majorities of their own citizens wanting to change them, I know how extremely difficult it is to dislodge one if it's ruthless and tech-enabled. Our greatest peril right now is treating the incoming Administration as just a new season of 'the little d democracy show.'
So my friends, please do not delay– this IS a battle for the soul of our nation. And it’s just taken a critically important turn. We must harness this moment to create momentum.
Seek out and connect personally with people in the places that look the bleakest, with others who are working to address the problems you care about. Read and share sources like Tangle that treat every perspective with respect but that pursue objective facts. Fund both communications efforts, impact measurement and management, and legal action to uphold the rule of law, and don’t let elected leaders or judges out of your sight once they’re in office. Deploy your time and money to support these efforts.
If enough of us– 3.5%, suggests Harvard’s Erika Chenoweth – of us do this, then we might transform our society, and ultimately America’s government of, by and for the people, into something much healthier and more resilient than ever before.
If we succeed, we will show the world how autocracy gets beaten. But do not delay– this is utterly serious and urgent.
The only cavalry that’s coming is you and me. Let’s go!
https://www.cbsnews.com/pictures/surprising-things-americans-actually-agree-on/19/
https://www.hks.harvard.edu/centers/carr/publications/35-rule-how-small-minority-can-change-world
Updates from the impact management movement: tackling the climate change incentive problem
The global economy may be humanity’s most powerful invention. Not only has it enabled 8 billion people to exist at once and nearly double our average lifespan, but we've made it possible for one person to personally own a quarter of a trillion dollars and plausibly entertain visiting Mars. But the global economic system's short-term lens, and insensitivity to the well-being of communities or ecosystems have caused it to rout our planet’s life support systems and leave 15 of every 100 people in poverty worldwide. And if you're reading this, we know you're interested in evolving it.
At the highest level, impact management is an ambitious effort to enhance how we perceive the effects of our economic activities to better align those effects with what we individually and collectively care about.
Still, companies and investors face mixed incentives, and actors that wish to stymie decarbonization are getting better all the time at kicking up media and legal discomfort for companies which act.
It’s important that company directors feel that they will not be penalized for addressing companies’ carbon footprints, and hopefully that they will be rewarded for doing so. In service of this goal, we are watching with great interest two converging events.
One is the new legal opinion that has been issued in the UK articulating the basis upon which existing financial accounting standards support incorporating sustainability-related information into published financial statements. The opinion speaks to the requirement of a company’s accounts to reflect a “true and fair” representation of the company’s financial position and:
affirms directors’ existing legal responsibilities to be mindful and ‘exert themselves’
highlights relevant accounting standards in the context of sustainability e.g. asset impairment and constructive obligations
reflects on the appropriate disclosure which could be as a note to the accounts
states that company directors may deliberately choose to structure commitments in such a way as to create constructive obligations which impact upon the accounts
Why does this matter? Enter the second event: clarification of public climate-related goals as constructive obligations.
Under International Financial Reporting Standards (IFRS), a constructive obligation is “an obligation that derives from an entity’s actions where; by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.” – Paragraph 10, International Accounting Standard 37 (IAS 37)
When a company creates a constructive obligation, it must record it on its balance sheet as either a liability or an asset. In the case of climate emission reduction targets, expenditures made to achieve that target could be transformed from expenses, which is how they are currently treated, into capitalizable assets: investments to achieve a valued goal.
IFRS is meeting later this month to clarify whether and when companies’ publicly stated goals around climate emission reductions constitute constructive obligations under IAS37. If this happens, it could remove one of the major systemic disincentives for companies to act.
Peer Pressure: KPI of a True Market for Impact
In the runup to COP28, the $800Bn carbon market has again come under serious scrutiny, as discussed in this sharp S&P Global podcast. A number of efforts, such as the Core Carbon Principles, to build confidence in the integrity of carbon claims have arisen, to ensure the entire edifice in fact drives lower greenhouse gas emissions. At the heart of these efforts is a) transparency about the basis for claims of value creation, b) quality third-party validation, and c) quality impact management practices: that is to say, sincere effort to ensure the environmental impact is real (expressed through tracking, governance, and reasonable proof that the impact wouldn't have happened but for the enterprise).
What we're seeing in carbon today is a vastly more complex and wizened version of the microfinance industry a dozen years ago, when despite the Social Performance Task Force’s quality know-how, the exuberant belief– in hindsight naive– was that microfinance was a "miracle," in the words of one well-intentioned impact investor whose work to enable microfinance organizations to access equity and debt capital to scale was widely celebrated. The predominant habit was that– all too much like in mainstream finance– microfinance required no attention to the impact of the loans on borrowers, or to the wraparound support accompanying the loans. This inevitably led to the overlooking of real negative impacts, including overindebtedness, and even multiple borrower suicides. It resulted for a time in the cratering of both the market and the capacity of microfinance lenders to do their important work.
In microfinance today we see organizations vying to be listed in the new 60 Decibels MFI Index, built from interviews of tens of thousands of borrowers about how the loans are affecting them… Excitingly, 60 Decibels also provides (paid) access to the data underlying the study, to enable analysts within or outside of financial institutions to understand performance relative to peers, and spotlight areas where harm to borrowers can be reduced and benefits– like poverty eradication– can be improved. We heard recently from Sasha Dichter that he was aware of FSPs feeling like they needed to get into the Index or be in a sense left behind.
Which brings us to the essence of a truly thriving market for those truly committed to solve social problems: peer pressure to prove you’re delivering real impact.
Hector Alejandro, CC BY 2.0 via Wikimedia Commons
This is great news! In the microfinance market we at last may be witnessing a sense of friendly but real competition between organizations to step up their impact management games. And in the carbon markets, though they are far huger and more complex, we see in our clients and beyond a powerful appetite to prove there are better ways, ways that don’t get confused about the point by big dollar signs and instead stay focused on delivering real value for the people on the front lines of humanity’s shared quest to rise above climate, economic, and health crises.
It’s taken decades of diligent work figuring out how to create positive results for customers, the courage of operators to have one’s impact on stakeholders validated directly by them to a third party, ingenious productization of appropriate solutions, and the cold hard cash to make all of that possible. So along with the scrutiny, and some troubling pitfalls along the way, there is good news: those who aim to achieve real, scalable, market-driven impact might just possibly be showing a healthy– a necessary!– bit of bravura about how it’s done.
James Dudfield and David Pritchard Join SVT as Partners
We are beyond thrilled that David Pritchard and James Dudfield have joined SVT as equity partners. Together they bring a treasure trove of experience in impact management in both nonprofit, corporate, and investment settings, passion to improve fairness in the way decisions are made, and wonderful senses of humor, so we could not be more excited for this next step with them.
About James
James began teaming with SVT in the winter of 2020, having arrived in San Francisco with his wife for her new role there a week before the shelter in place began. We’d met through David, who had done some advisory work a few years earlier with James’ previous firm, Social Ventures Australia. James had also held roles with Partners in Performance and McKinsey, supporting clients in redefining their purpose and aligning their efforts to improve outcomes for the people they serve.
Having managed teams across most functional areas in retail banking and wealth management, and having significant oil and mining industry experience, James brings a corporate and finance perspective to the management of social and environmental impact. His wide-ranging versatility extends to strategy, marketing, sales, distribution, product, operations, compliance and change management, and he knows how to harness each of these to advance positive impact.
Informed by techniques he has honed in his work and life, including while racing motorcycles and luring fish on the Heads (see below!), James is skilled at focusing on what matters and engaging others to realize better results in both small and major business transformations. He and his wife now split their time between her native Chicago and his native Sydney.
About David
David has been with SVT as a principal since 2019, building upon several years of prior collaboration, and having wooed Sara and then-COO Aislinn Betancourt with his mellifluous accent. Previously he worked as economist for New York City government before joining consulting firms in Washington, DC and then London, where he headed up New Philanthropy Capital’s measurement and evaluation team. David returned to the U.S. in 2014 where, alongside consulting, he has taught Master’s level courses in non-profit planning and evaluation. He and Sara were instrumental in the founding of Social Value US, the United States chapter of Social Value International, in 2017, of which he is the president.
A creative mind disguised as a sober professional, when not working David can often be found on stage with fellow comedy thespians or running around a soccer field. He has a Bachelor’s degree from Oxford University, a Master’s in Peace Studies from the University of Notre Dame, and an MBA from Yale School of Management. David and his family are based in Milwaukee.
With our partnership, we bring deep, cross-sectoral capabilities to our work with clients, and both a real enjoyment of and the flexibility to work hands-on that is scarce in bigger firms.
The future looks bright!
David, Sara and James enjoying a fog-free day in San Francisco.
James caught one at the Heads just now!
How SROI Analysis enables enterprises working for more than profit to reveal their value
We recently had a great discussion with our friends at Ecotone and one of their clients, Carl Phinney of Opportunity Construction, about how the SROI analysis and Impact Overview they created has enabled his business to reach new levels of success.
Carl has built his business to address a need he himself had to solve: how to become a full member of society again, in a society that doesn’t welcome you back from prison. How did he do it? He started his own business in construction; one that has become about far more than roads and highways. Opportunity Construction is about giving those returning from prison a place to come back into their own lives once they have paid their debts to society, and to not only make ends meet but achieve dignified, stable work that rests on a stable living situation, financial and other skills development, and a group of peers who see their full potential and are there to invest in it.
But banks don’t see that investment, they only see profit margins. That’s why having a skilled firm assess the social return on his investment was so crucial. Opportunity Construction’s analysis has a beautiful, compelling Ecotone cover summary, and is back-ended by a 40-page analysis that enables critical readers to dig into the data, assumptions, sensitivity analysis and more. It was this substantive analysis underneath the pretty cover that attracted a top manager to join the firm and help Carl grow to the next level.
Carl’s experience is one any other enterprise might have when it is investing for a mission bigger than solely profits. Hear more from him and Ecotone about how impact management plays a role in their work in this video summary of our session.
Photo credit above: Michal Klajban, CC BY-SA 4.0, via Wikimedia Commons
Imagine a world in which the impact of every investment is known
When mainstream investors including TPG, Blackrock and UBS announced that they were getting into impact investing a few years ago, many experienced impact investing players and practitioners recognized this as an important moment to solidify the meaning of the term "impact" - or risk its corruption and demise. The Impact Management Project (IMP) was created as a response, led by Bridges Impact+. Beginning in 2016, Bridges skillfully facilitated a consultative process that to date has engaged over 2,000 stakeholders- including a wide array of investors, practitioners and standards bodies across more than 50 countries- to agreement on norms for what the word "impact" means, and how investors relate to different styles of impact investing, particularly as they relate to private sector enterprise and investment.
The collective wisdom of these thousands of practitioners and investors was that there are five dimensions of impact that it is necessary to understand and account for: Who is affected, What is the nature of the change, How Much change is there, what is the Contribution to the change made by the enterprise and/or investment, and what is the Risk that the impact is not or will not be what we think. The shared fundamentals also include a matrix of investor intentions and strategies relative to impact, which is a helpful on-ramp for investors and their advisors to understand their relationship to the impact inherent in a given investment opportunity or portfolio. These shared fundamentals are simple, yet there is a great deal of sophisticated information and nuance rolled up within them, which IMP and others' guidance documents are beginning to reveal.
Having arrived at this remarkable consensus, the Impact Management Project is now moving into its next major stage: adoption. Adoption of the investor matrix and the five dimensions may be both widespread and of good quality and skillful, or widespread but superficial and unskillful, and therein will lie the difference between whether the Impact Management Project and its shared fundamentals of impact will achieve their potential to help economic activity align with widely shared human values of environmental sustainability, health and well-being, or perpetuate the disconnect between economic activity and these values.
In September I was honored to represent Social Value International among the group of anchor partners who have joined arms with the IMP's facilitators to announce the launch the new IMP structured network. Its goal: to accelerate widespread adoption of impact measurement and management norms. "The network consists of nine leading organizations with expertise in data, principles, disclosure standards and benchmarking," one of the organizations, the World Benchmarking Alliance, recently wrote. The network "offers a unique shot at agreeing on standards of practice that might ultimately become generally accepted globally." Clara Barby, Lead Facilitator of the Impact Management Project, was quoted in their recent press release:
“In financial management, ‘general acceptance’ of norms for how we talk about, measure and manage financial performance enables capital to flow efficiently across value chains and across borders. If we want impact management to become the norm for every enterprise and investor... we need shared principles, reporting standards and benchmarking methods for impact. The IMP network is the first time that such a diverse group of organizations, from across the entire value chain, have chosen to work on content in a deliberately coordinated fashion. This is our best shot at creating an impact management approach that can ultimately become ‘generally accepted’ globally.
Along with Bridges Impact+, the nine global organizations taking the lead in this next stage of the Impact Management Project bring substantial bench strength in key areas: measurement and reporting principles and standards, assurance protocols, and capacity building both for delivering and investing for impact:
The Global Impact Investing Network (GIIN)
The Global Reporting Initiative (GRI)
The Global Steering Group for Impact Investment (GSG)
The International Finance Corporation (IFC)
The Organization for Economic Co-operation and Development (OECD)
The Principles for Responsible Investment (PRI)
Social Value International (SVI)
The United Nations Development Programme (UNDP)
The World Benchmarking Alliance (WBA)
The concrete task that these organizations are charged with is to translate the IMP's agreement about meaning and terms into a conceptual framework, practical guidance and tools such as principles and certifications to help enterprises, investors and advisors who use them not only navigate the impact space, but generate real "impact" through their investment decisions.
But, speaking for myself as an individual and not for these organizations, I believe that the real task before them and all of us is one of continued and ever-wider community engagement.
This is because the IMP's greatest achievement to date has not been its distillation of the collective wisdom, although that was been done excellently when one drills into each of the dimensions; it is the IMP's engagement of thousands of investors and practitioners from around the globe in the process of taking ownership of the meaning of "impact." Potentially, these audiences can help to ensure that the delivery of impact is not expedient and superficial, but authentic and meaningful. Only if many more thousands and ultimately millions if not billions of people actively participate in activating the 5 dimensions, and holding investors and enterprises accountable for them, will the 5 dimensions avoid the fate of becoming perfunctory, on-paper-only hoops for those with money and power to (hire others to) jump through.
The primary of the five dimensions of impact that the IMP's original stage agreed upon was "Who"- who is affected by the investment, particularly those who are traditionally "underserved" (i.e. marginalized populations), where are those whos located, and how important do they feel the effect on them is? But who gets to decide who the "Who" is that matters? How will those Whos participate in defining what effects they are experiencing? If investors find it inconvenient to hear what they say, will those Whos have any ability to call foul?
As this and the other five dimensions of impact are translated into tools investors can employ to inform their decisions, it is up to all of us who care about the impact economy to ensure that this "Who" is thoughtfully defined, and remains central to any product the market understands as impact.
If I see one more post about the lack of progress on impact metrics I'm gonna lose it
I just read another screed about the failure of metrics to solve the mega problem of business and investment destroying the planet. "ESG is like less wife beating," the author complains. I applaud the soundbytiness of that phrasing, actually, because it's great to get people to pay attention to the subject and at the end of the day, crass grabs eyeballs. What's not great is their blanket and wrong assertion that there's been no meaningful progress in ESG systems in the past decade, as though these systems and the people who design them are living off in some fantasy castle in the sky, untouched by society's increasing alarm at the accelerating rate with which business as usual is killing of large percentages of all living species, and doing nothing meaningful about it.
The article in question was sent to me by a longtime friend in the broader social entrepreneurship field, who created what has been for a decade one of the biggest platforms for impact investors and entrepreneurs. He asked me, "is this what metrics are?" "Metrics," I've observed, is a subject he has mostly preferred to avoid, and one that to my knowledge was never on the main stage at his events. I'm simultaneously glad he's getting curious about the topic, and find it impressive that he can be asking that question almost 20 years after we first met early on in our mutual quest to figure out how to get money to invest in people and planet. Could he still be unclear on the difference between metrics, ESG and impact or their relevance to investment intended to benefit people and the planet? I'm usually the first to provide encouragement to folks around these topics, but given his longevity in the wider field, to be completely candid I find it noteworthy that he isn't embarrassed to ask.
The article, like so many others, asserts that "ESG data is not picking up on this information [about whether a business is creating a net positive impact] yet." But, it is.
The Dow Jones Sustainability Index in 2019 asks about the material environmental and social issues facing the business, what kind of scenario planning it is doing around those risks, and what strategies are in place to address these risks– an evolution of its criteria that speaks directly to the concern the author of the article above raises. This evolution may be driven by the same underlying factors that led also to criticism this spring by the world's largest asset manager, Blackrock, of systematic mis-pricing of climate-related risks by investors, or to 30 Central Banks coordinating a standardized way for corporations to publicly disclose their carbon footprints to support investors' ability to understand the way their investments are driving climate change (because to be sure they do not want that exposure). And these examples are just the tip of the iceberg.
I can understand that these advances may feel disjointed. But that too is improving. There is an effort, now in its fourth year, to "provide coherent and end-to-end ‘rules of the road’ for impact management" which the G7 has just endorsed. This "Impact Management Project" has facilitated over two thousand global practitioners, standards bodies and investors to a consensus on what the shared fundamentals of impact are, and this year these fundamentals are being percolated out into principles, disclosure standards, practical seals and certifications, audit criteria, training materials and more, all undergirded by a common conceptual framework. These deliverables are being produced through an unprecedented collaboration of a dozen of the major global impact investing bodies, practitioner networks, development finance standards organizations, and ESG standards bodies (including this one upon which a ton of ESG reporting is based). The shared fundamentals of impact are centered on stakeholders' experiences, especially the most vulnerable, and even ask those stakeholders how important the change they're experiencing is, introducing a form of grassroots valuation into the equation as a counterpoint to the all-powerful financial valuation that has in recent decades left out so much that matters. And all of these efforts can be lumped into the ESG bucket, and all are feeding the investor's capacity to thoughtfully ask about companies' actual impacts, risk management practices, and ability to foresee change and design business models to make things better.
Which is why I have begun to find it more than curious that so many people continue to chant: "Sadly, for those asset owners looking to allocate capital with the intention of generating positive impact, a broadly accepted framework does not yet exist." I call B.S.
The marketplace for impact, and the global economy along with it, can no longer afford to pretend that there has been no agreement about what the right set of information is. There IS agreement.
There is consensus that the following three types of information are needed by managers and investors: (1) the overall, important effects of the company on the world (using one of these dominant, pre-set, trusted checklists), combined with (2) the company's unique, material social and environmental value (as judged using these nuanced criteria), and (3) how the company's financial performance is integrally related to its social and environmental value creation (using this framework).
So readers, beware: those who still in 2019 bemoan the lack of progress decade after decade probably have something to sell you. Or, they might have something they want to keep free from accountability. Or, maybe they're just having a hard time recognizing the change that is happening because the results haven't manifested in a big way yet. But progress there is.
So readers, beware: those who still in 2019 bemoan the lack of progress decade after decade probably have something to sell you. Or, they might have something they want to keep free from accountability. Or, maybe they're just having a hard time recognizing the change that is happening because the results haven't manifested in a big way yet. But progress there is.
Whose interests are truly served by continuing today to act as though there has been no progress toward sound ways of measuring and managing impact?
Though it is not everyone's cup of tea to keep tabs on the somewhat technical evolution of the infrastructure to hold assets accountable for their effects on the planet, the time when professionals in the impact arena could complain about a 'lack of progress in the field' while promoting their groundbreaking impact measurement solution is over.
Today the name of the game is moving from 'what to measure?' to 'how do we use this information to drive results?' Those charged with using ESG information today need to have more "multilingual" skills than in the past around figuring out what they should be looking for, and how to get it from the information they're being provided. While a lot of companies still aren't disclosing, many are, and the problem is no longer that it's the wrong information. The problem is that the reader of the information must know what to look for to get something useful from the information.
Skilled impact analysts are needed to bring value to the information companies and investors are producing. That is a different problem than an ESG reporting problem: it's a human capital problem. We need skilled impact analysts to drive the next phase of the impact economy.
We need skilled impact analysts to drive the next phase of the impact economy.
The next time you hear someone complain about the lack of progress on metrics, how bad existing metrics approaches are, and/or that they have a brand new solution (step right here to purchase!), please check closely whether the solution they propose:
discloses and improves its material ESG issues in accordance with any existing consensus-based standard;
reports in alignment with the IMP shared fundamentals of impact, and shows how it is learning from this information;
discloses the ways the entity's financial performance depends upon these factors, and how this dependency informs its strategy; and
provides information that meets your standards for not only quality of disclosure, but for performance results, regenerative or otherwise.
And if the proposed solution does not do those things, check what the stated rationale for this is. If there isn't one, it's best to move on.
The bottom line is, we do have the tools to understand the impact of the global capital marketplace in all its diverse and terrible glory. Let's own the wonderful fact that we've collectively accomplished this! Sure there's room to keep making it better, and we must, but by George, let's stop muddying the water, and confusing people, and letting them off the hook while they wait until that mythic day when all questions are perfectly settled before they have to start accounting for their impacts on people and the planet.
Instead, recognizing what we do have, let us teach the use of this information to inform decisions to drive the kind of results the world needs now.
***
To grow your skills in asking and answering good questions about ESG & impact, check out the following resources offered by these nonprofit organizations who are working collaboratively to build the field:
Many of the IMP Structured Network partners offer trainings, such as those of the GIIN and Social Value International and its US chapter
Specifically the Skilled Impact Analysis training offered by Social Value US and Social Value Canada addresses what information an impact analyst should look for, and is aligned with the Impact Management Project.
CASE Smart Impact at Duke is developing additional training materials aligned with the Impact Management Project.
"America's top CEOs are no longer putting shareholders before everyone else"- they say. Here's how to actually do it.
We awoke to the news that the Business Roundtable, a lobbying group for the CEOs of America's top companies (think Amazon, Exxon, and JP Morgan), has made a historic departure from its past governance guidance. While since its inception the Business Roundtable has asserted that shareholders matter more than any other stakeholder in corporate governance, now it asserts that five stakeholder groups are of equal importance. The statement reads (excerpted, bold added):
"We commit to:
Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
"Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country."
FastCompany quickly jumped on the story, interviewing leaders in business management and sustainability about how they'd want to see this translated into action, including someone deemed "the world's number one management thinker." He said, “for me, the key would be to view shareholder value creation as the logical consequence of other things, not something that you can directly pursue....” Other leaders offered specific suggestions, each of which was related at a very high level, but not in a systematic way.
Their suggestions are excellent and worth reading. But the most important one is missing.
The impact investing, impact management and social value movements have evolved to a place where there is shared consensus on what managing as though these five shareholder groups all matter entails, specifically:
Systematic measurement of what the enterprise's impacts are;
Making explicit the intended impacts on stakeholders of resource allocation decisions; and
Disclosure of information about how the company affects not only financial capital but also natural, social and relationship, and human capital, in quantitative terms that are properly contextualized, and relative to the company's stated intentions.
Thousands of investors and practitioners have agreed on these points. It has taken years of facilitated effort, and countless careers devoted to learning how to do this in practice, to arrive at this agreement. So, given this consensus, the missing recommendation is that companies manage and disclose their effects on stakeholders in accordance with this shared consensus.
While as of today there is no one governance body overseeing the disclosure of this information, the Impact Management Project's Structured Network of leading standard bodies is in the process of defining disclosure standards, assurance criteria, and certifications that will enable this to come into existence very soon.
Since not only does successful corporate governance demand the three things above, but also because this consensus about what information about impact must be accounted for now exists, SVT and ISOS recently launched The Conception Forum, to translate this knowledge into practical skills the CFO needs to translate that governance policy statement into the corporation's Enterprise Risk Management system. It is possible to quantify the effects the company has or may have on employees, suppliers, the environment, and communities, and to do so systematically and in a manner that reflects the shared consensus of both seasoned investor and practitioner communities who have pursued stakeholder value creation for decades. Eric Israel, co-founder of The Conception Forum, founding partner of Shell’s Global Sustainability Verification, and former leader of KPMG Global Sustainability Services, PwC Conflict Minerals Services and GRI North America, said, "“This is no longer soft; it becomes part of the financial bottom line. That makes it hard.”
Shareholder value, as it is called, can be quantified and managed via a systematic approach, that illustrates the strategic relationship to financial performance. At the core of this approach is the Integrated Reporting Framework, which again reflects the collective wisdom of executives and investors who've worked for decades to obtain it. This approach can be adopted by any company in any industry, and tied into the disclosure standards around scenario modeling and impact that investors increasingly require in a world facing destabilizing vectors on all sides.
The approach I describe is not proprietary, in fact it will be analogous to financial accounting today; a business discipline in the public domain, that you can study and learn yourself, or learn at school or on the job or from your mentors and consultants. But make no mistake, it will be the operating system underpinning nearly all innovation in the coming years.
So CEOs, there is no time to waste. Get your CFOs up to speed on how to quantify your stakeholder impact in alignment with the consensus, and beat the competition at this new game of business that's good for all.