P is for purpose

Dr Axel Kravatzky, business consultant, discusses how organisations find purpose through the environmental, social and governance measures they are adopting now.

There has been a bewildering growth in companies of environmental, social and governance (ESG) measures. Some listed companies have to report on 2,000-plus non-financial indicators representing aspects of what their stakeholders are interested in. Over the past few decades there has been a complete flip in the value composition on company balance sheets: 80 per cent of value is now intangible, and 20 per cent tangible.

It used to be the reverse. The power of what consumers and stakeholders say has increased dramatically, and companies are listening.

There is a well-established saying that “what gets measured gets managed.” Institutional investors are interested in safe and productive investments. They need to know if today’s actions will produce returns; they also know that financial returns depend on the environmental and social impacts as well as the practices and outcomes of governance.

Shareholders, boards, executives, and staff of companies who take their future seriously want to know what direction they are moving in, what risks they are facing, and where the opportunities of the future lie. Stock exchanges, securities regulators, central banks, bankers, utilities and their regulators, governments – they all want to know if the actions of the organisations they regulate, lead or serve, are generating value over the time, rather than contributing to risks for society and the economy and in the process destroying the very basis of existence.

The media and civil society seek to inform and act in the interest of citizens and so they too want to know if there is progress or decline.

Ever-increasing evidence of the fundamental disruptions are all around us. The urgency and gravity of the situation led to an exponential global rise in investment funds and stakeholders interested in making meaningful ESG impacts.

That is why outdated corporate governance models, outdated business and accounting models must give way to the challenges and opportunities we are facing now.

The IFRS Foundation is currently still receiving consultation comments on amending its constitution that would lead to a proposed creation of an International Sustainability Standards Board (ISSB) and include climate-related disclosure requirements in a first instance.

Some 164 member countries of ISO have been balloted and agreed to adopt ISO 37000 Governance of organisations – Guidance and organisational purpose is at the very centre of governance in the 21st century. TT, St Lucia and Jamaica are represented and their experts have been nominated in the drafting and active leadership of the standards.

These developments mirror the wider evolution.

The race to zero carbon

Some 733 cities, 31 regions, 3,067 businesses, 173 of the biggest investors, and 622 higher-education institutions, which together represent 25 per cent of global CO2 emissions and over 50 per cent of GDP, have joined in the largest ever alliance committed to achieving net zero carbon emissions by 2050 at the latest (within 30 years). That is no mean feat: over the past 30 years, global energy-related greenhouse-gas emissions have grown by almost 60 per cent!

In order to achieve this target we need to collectively achieve about eight per cent reduction in emissions every year – this is about as much as was achieved during global lockdown in the early months of the pandemic in 2020. We have to be able to repeat this effect for the next 30 years.

Take food production: at present, it is responsible for about 70 per cent of biodiversity loss through land-use change, habitat fragmentation, overexploitation, illegal wildlife trade and invasive species. Over the next 30 years the world will need to produce 50 per cent more food than today in order to feed the ten billion people who will exist by then. At the same time, however, we need to reduce the impact of food production by almost 70 per cent.

What is needed is nature-positive innovation: new solutions for current and emerging problems of people and planet.

The challenge is the solution

Mark Carney, the UN special envoy for climate change and finance, and former Bank of England governor, said in 2019: “Companies that ignore climate change and don’t adapt will go bankrupt without a question.”

Declarations are not enough any more. In 2011 signatories to the Convention on Biodiversity, including Caribbean countries, have agreed on 20 targets for protecting life on earth (the “Aichi targets”). When we look back, none of the goals have been fully met and only six have been partially met.

No day passes without a headline about bold moves by small and large businesses, cities, regions, and government making courageous transformative moves. This trend will not stop. It will accelerate.

Why? Simply because we are at the start of the confluence of a number of crises and disruptive transformations that have complex interactions with ever-increasing impacts that we all feel and see. All of these require solutions, offer opportunities; and people, organisations, cities, and countries are taking action.

There are many more, and very different “jobs to be done” for organisations. Anyone who creates meaningful solutions to the problems of people and planet can count on rich rewards.

Beyond reward however, the prize and purpose must be perceived as restoring the planet itself.

Dr Axel Kravatzky is managing partner of Syntegra-ESG LLC, vice-chair of ISO/TC309 Governance of organizations, and the co-convenor and editor of ISO 37000 Governance of organisations – Guidance.

Disclaimer: the views presented are those of the author and do not necessarily represent those of any of the organisations he is associated with.

Comments and feedback that further the regional dialogue are welcome at axel.kravatzky@syntegra-esg.com