Economic vs sustainability goals

The distinction between companies run for profit or purpose has blurred over the past couple of decades according to participants in a recent webinar run by Cambridge University, entitled ‘Entrepreneurship – Profit or Purpose?’

Profit is no longer a dirty word to those seeking to tackle social problems and, these days, no self-respecting for-profit company is short on purpose. In truth, it was never the case that an entrepreneur could set up a company with the sole purpose of making a profit. Business plans start with an idea about a product or service that will meet human demand, whether that be a need or a desire.

Katharine Hibbert, founder and chair of Dot Dot Dot, a social enterprise that turns empty buildings into homes, pointed to the important role of venture capital funding. This only works if the activity has the potential to generate a ‘surplus’. Big problems need solutions that can be rolled out at scale and if that makes social enterprise millionaires, ‘then great’.

Impact assessment

For those of us whose default is to look at business from a financial perspective, it is worth taking a step back to think about a company’s external impact. Even if the aim is to blend economic and sustainability goals, first disentangle them.

On the financial side, the first two standards from the International Sustainability Standards Board (ISSB) are due to be implemented from next year (see AB‘s coverage). The ISSB is also explicitly building on the 77 industry standards developed by the Sustainability Accounting Standards Board, the US body that it has subsumed. The common creed is to require ‘disclosures about risks and opportunities that affect enterprise value’ and, as with financial reporting standards, investors are the primary audience.

But if you want to look at the enterprise from the impact perspective, standards issued under the Global Reporting Initiative take a purer approach, enabling it ‘to publicly disclose its most significant impacts on the economy, environment, and people’.

As well as being aimed at a multi-stakeholder audience, they are linked to the UN’s Sustainable Development Goals. This leads to some frank discussion about trade-offs. GRI 12 on the coal sector, effective from next January, notes that where coal mining is an essential source of employment and income, ‘it can make positive contributions to Goal 8: Decent Work and Economic Growth and Goal 1: No Poverty’.

This provides context for protests that have started to erupt against some of the EU’s green policies, such as farmers against the ‘farm-to-fork’ strategy to cut the use of pesticides and fertiliser, double organic production and re-wild tracts of land.

It’s not simple, but there are clear advantages in looking at a company through the eyes of stakeholders other than shareholders. It demonstrates sustainable purpose, which helps to burnish reputation and attract talent. It is also the best way to prepare for political change and to protect reputation.

The growing body of disclosure standards is rapidly enhancing data on impacts. External audit and technology, such as satellite surveillance, are making verification easier. The risk of being called out on gaps between words and action is growing fast.