Alderburgh Shoreline – Summer Solstice Sunrise
After asking thousands of directors and their governance advisors to define what they mean by ‘Good’ business, the themes over several decades have largely remained the same though the language and emphasis changes.
‘We admire organisations with a clear sense of purpose. They must also tell a compelling story about what they believe in and where they are heading.’
‘Good’ businesses are well led by boards able to challenge and arrive at cohesive decisions. They invite contributions from a variety of stakeholders, to inform their choices.’
‘The best board decision-making is informed by an understanding of the organisation’s capability and capacity, together with the environment in which it operates. Risks are assessed against appetite, beliefs and the requirement to be agile in a changing world.’
‘The golden thread between beliefs, decisions and actions is transparent.’
This apparently simple agenda is difficult to formulate, implement and sustain. In 2023, the debate focuses on ethics, sustainability, ESG and EDI. These themes have pre-occupied boards for decades, though their mnemonics change.
Multiple initiatives exist to identify, promote, audit and enforce ‘Good’ practice. Some are regulatory and some are advisory. For example:
The UK FRC Stewardship Code principles provide a clear framework to require asset owners, managers and advisors to enable investors to make informed choices.
The IFRS International Sustainability Standards Board recently published their reporting standards IFRS 1 and IFRS 2. They have been designed to enable organisations to evidence both their company performance and their commitment to driving sustainable value creation. The results should enable better informed investor choices.
Since 2006, the B Corp movement has been certifying organisations globally and sharing ‘Good’. Their JEDI framework is one of a number of tools designed to enable business to be a force for ‘Good.’
However, despite the publications of standards, regulations and best practice sharing, adoption is slow. PwC publication Strategy + Business July 2023 highlights the gap between sustainability agendas and their delivery. 81% of investors will tolerate a small decrease (1% point or less) in profitability in exchange for ESG action.
Organisations position their beliefs and direction and we, as investors, may choose portfolios with good business credentials but be unwilling to forego returns in the short term. As customers of those same organisations, we may be attracted to those whose philosophy matches our own. The critical question is whether we are prepared to modify our expectations of the products and services they provide in order to support their investment in long term sustainability.
And as I publish this post, today’s mail from McKinsey asks ‘How to create a more sustainable, inclusive and growing future.’
Something to reflect on while watching the tide roll in. And for the curious, sadly I haven’t found any amber yet but I did see the sun rise.
Cutting Through the Grey 