19th December 2019Driving profit and purpose

Historically, there has been a divide between the individual activists drawing attention to the climate crisis and the investors who “pledge” to tackle it. As we enter what the UN has penned the “decade of delivery”, a bridge is starting to build between investors and activists.

The participants involved in the climate change conversation have never been broader. 2019 saw teenage activist Greta Thunberg sail across the Atlantic to attend the UN Climate Action Summit in New York. Governor Mark Carney also declared that companies who ignore climate change “will go bankrupt”, JP Morgan’s Jamie Dimon echoed this sentiment at the American Business Roundtable when he predicted that the only way for long term success will be to invest in communities.

From a brand perspective, customers have increasingly high expectations of companies to clearly articulate their purpose and values, as well as their approach towards tackling societal issues and crucially, to demonstrate those values in the way they do business. Deloitte recently reported that 46% of companies incorporate values beyond making profit for shareholders, compared to 32% in 2018- meaning almost half now value success factors beyond profit.

Companies have started to respond – BMW predominantly shows electric vehicles in their advertising, Iceland has pledged a ban on palm oil, and Lego has launched blocks made from sugarcane. Previously, investors and financiers divided their world into two distinct buckets, “normal investments” which were expected to drive returns, and “green investments” where expectation of returns were low. Now there is a new category which supersedes both – green investments that are also expected to yield strong financial results.

This is a pivotal shift, but it also triggers a number of questions. How do you measure success? Can you achieve both profit and purpose? How do you communicate your values and purpose accurately to stakeholders?

Setting objectives is key

To achieve success, you need to be able to set objectives, measure accurately and then communicate this back to stakeholders. This is where, as chartered accountants, we have a key role to play. We work with a number of clients to ensure information disclosed to stakeholders is consistent with the financial statements and the underlying strategies – helping to accurately communicate corporate values and providing transparent information.

Balancing profit with purpose

Can you achieve profit and purpose? Absolutely, but organisations need to shift their priorities to develop this paradigm, and to be truly competitive, there needs to be a genuine vision to look beyond the numbers first. The financial benefit will follow, but in the wise words of Goldman Sachs’ Tim Freshwater which are echoed by many, “if you ignore sustainability, you’re going to be worth less.”

Pre-empting risk

Climate change is likely to have a profound impact on business and on us as individuals; it could lead to significant market corrections and changes in the coming years.  Failure by business to respond to the risks has significant implications, such as disruption to supply chains, loss of asset values, and market dislocation. Our role here is to help pre-empt the risk and make an assessment on the potential implications through the financial statements.

We are at a tipping point when it comes to tackling climate change, and there is no doubt that there is work to be done. What is reassuring though, is that we have a role to play at the very heart of this. It’s an immense responsibility, but also one that we’ll gladly take head on.

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Helen James HW Fisher

Helen James
Partner - Corporate Finance

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