Sustainability & ESG

Stakeholder Capitalism, ESG and Information Assets: Making Strategy Happen

May 2021
By 
Tim Adams
May 2021

During this decade, we are likely to experience the fastest economic change in history caused by a confluence of global macro forces that accelerate transformation.

The COVID-19 pandemic has upended the global financial system. Climate change is causing wildfires, storms, heat, floods, and other extreme weather events across the world. These events have devastated communities and businesses at the cost of many lives and trillions of dollars.

The world is changing, and these changes create challenges that stand in the way of business goals and aspirations. The capitalism model that we’ve known for many years has reached a tipping point and is pivoting toward stakeholder capitalism. Shareholder value remains important but so now is stakeholder value.

Let’s be clear: Stakeholders are companies, employees, civilians, society, lenders, insurers, regulators, the planet, etc. Everything has become a stakeholder.  

Organizations now need to be more stakeholder-focused than ever before. They cannot expect to run their businesses managing for shareholder value alone; they should also manage for stakeholder value.

There are greater demands and expectations on companies coming from all stakeholders. Whether it’s from lenders, insurers, investors, or employees, we expect organizations to be good corporate citizens.

As the world pivots toward stakeholder capitalism, there’s mounting pressure to stay relevant. Organizations will have to adopt new approaches to developing products and services, new strategies in conducting and presenting their reputations, and new paths to overcoming these challenges.

Businesses are the most significant platform for change. CEOs are transforming their organizations into more transparent and social enterprises, where its impact on the environment and society becomes equally as important to success as its financial condition.

Leaders must deal with accelerating business change. This includes developing innovative products and services, building new assets and facilities, and ensuring all stakeholders know of its environmental, social, and governance (ESG) condition.

Climate change presents a financial risk to the global economy. Financial institutions and investors require clear, comprehensive, high-quality information from organizations on climate change impacts. This includes the risks and opportunities presented by rising temperatures, climate-related policy, and emerging technologies.

ESG Metrics Matter, in Real-Time

At the 2015 Paris Climate Agreement, countries participating in the United Nations Framework Convention on Climate Change (UNFCCC) agreed to a common target: to hold the rise in global average temperature well below 2°C. More recently, scientists believe 1.5°C has become the new “safe” upper limit for global warming.

Every organization should be concerned with environmental, social, and governance (ESG) matters. To align with the 1.5°C and net-zero ambition targets, they need to set climate strategy and actions aligned to their business strategies.

This requires companies to:

  • Halve their emissions and supply chain emissions before 2030.
  • Develop products and services that reduce emissions and remove carbon from the atmosphere.
  • Demonstrate climate leadership to encourage and influence society to take action.

ESG has captured the business world’s attention and is growing exponentially. ESG is a set of non-financial measures that contributes directly to an organization’s risk management profile, sustainability development, and corporate social responsibility.

ESG contributes to shareholder value in many ways, such as risk reduction, profitability improvements, brand equity, human capital, and strategy execution.

Achieving the above goals requires companies to become more efficient, intelligent, and frequent at measuring their corporate ESG footprint. These actions help easily monitor and assess KPI trajectories, run scenario analyses and predictive analytics, benchmark progress, and make the necessary changes required to get on—or stay on—track. They are necessary to inform organizational actions and approaches and satisfy the ambitions of all stakeholders.

Would you board a plane knowing there were no instrumentation displays in the flight deck (in other words, knowing that the pilot would be flying blind)? CEOs and senior business leaders need to know the total health of their company’s ESG position as they run their companies at multi-billion dollar rates. They should also inform stakeholders in real-time—not just when the sustainability report is published annually.

There is a connection between ESG performance and shareholder value creation are deeply connected. The “business” of business now is to help improve shareholder and stakeholder value by improving ESG performance.

What is ESG?

The environmental perspective includes anything that contributes to carbon emissions and climate change, such as energy management, water and wastewater management, air quality, materials sourcing and management, and supply chain management.

The social perspective addresses the relationships and reputation a company has with its stakeholders, such as employee engagement, diversity and inclusion, health and safety, human rights and community relations, labor practices.

The governance perspective is the internal system of practices, controls, and procedures that a company uses to govern itself, such as business model resilience, risk management, legal and regulatory management, materials sourcing management, and meeting external stakeholders’ needs.

The ESG Challenge

We know there’s mounting pressure on organizations to disclose their ESG reports. Many address the challenges of ESG disclosure by gathering data across a variety of corporate sources and data points. They empower business units to collect ESG data across each facility and send it to a corporate center for curation, analysis, and reporting.

In most organizations, information scatters across hundreds of applications, data stores, spreadsheets on isolated laptops—even on paper. Usually, this data arrives at the investor relations department in different formats, at different times, and in different contexts.

In reality, this data should already be online, easily accessible, and exposed for regular consumption. Instead, it requires tying up internal resources to do the work.

If you cannot expose and consume ESG-related information at the click of a mouse, then you should question how aligned to your business strategy is to your IT strategies. There is no excuse not to easily surface this corporate non-financial data and turn it into insight and value.  

Limited ESG visibility across corporate systems prohibits predictability and increases cost and risks.

Given the limited time and resources to gather and curate all of this information, organizations limit themselves to an incomplete understanding of their ESG metrics trends and a narrow view of corporate activities.

Without having real-time visibility into the ESG metrics conditions across all corporate facilities and controls in place, organizations are unable to identify their true ESG healthor deal with skewing trends. This in turn weakens reputation and stakeholder relationships.

The ESG data that inform corporate metrics are constantly changing. This means actual ESG conditions are often misaligned with what business leaders think they  are or need to be.

Financial and Non-Financial Business Close

CEOs and CFOs know the financial condition of their companies at any moment in time. Still, few know their actual environmental condition and how sustainability issues and carbon emissions are trending.

What if you could gain a complete financial and non-financial perspective of your business? What if you could access both your financial and non-financial status at the touch of a button? Wouldn’t it be beneficial to immediately know the ESG health of every office, factory, and warehouse across your organization and be able to create action plans for them?

If there is an ESG-related metric conflict, you can take immediate and appropriate action to deal with the issue. No stakeholder should have to wait for the annual sustainability report to see how you’re performing. It is possible to see in near real-time right across every business location and facility where any out-of-spec conditions exist.

Finally, you will have full situational awareness of how well the organization performs against all ESG-related metrics and whether they are compromised. You can track ESG performance against value.

Using this knowledge, you can take corrective measures, adjust inputs and controls, and keep your ESG metrics trending in the direction you and your stakeholders want.

Through better knowledge and insight, you gain better control over your business operations and ESG metrics. At the same time, you can satisfy all stakeholders, enhance your reputation, improve the health of the planet, and increase shareholder and stakeholder value.

New Business Models

To meet the ongoing business demands while satisfying stakeholder expectations and competing with rivals, organizations need to consider operating two distinct business models:

  1. Your traditional core business: the single hierarchical operating model underpinned by an enterprise resource planning (ERP) “system of record” to help the organization function.
  2. An operating model with no hierarchical structure, which functions in tandem with the core hierarchical model. This model has more of a start-up mentality that’s agile, energized, and designed to capitalize on today’s challenges.

Some large organizations have implemented dual business operating models. Keeping shareholder value and stakeholder value in mind, isn’t it time to consider a “true’” non-financial enterprise system capability that sits alongside corporate ERP? Combining a traditional hierarchical model with an agile business model, along with the importance of financial and non-financial reporting, is the smart choice.

Invest in a system that leverages all of your information assets and dark data, creates new products and services, monetizes their value, and provides instantaneous ESG reports to satisfy lenders and shareholders. This is not rocket science; its attitude, aspiration, and ambition.

Be the CEO: Fly your organization with total control by having the two most important information systems available at any time.  

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During this decade, we are likely to experience the fastest economic change in history caused by a confluence of global macro forces that accelerate transformation.

The COVID-19 pandemic has upended the global financial system. Climate change is causing wildfires, storms, heat, floods, and other extreme weather events across the world. These events have devastated communities and businesses at the cost of many lives and trillions of dollars.

The world is changing, and these changes create challenges that stand in the way of business goals and aspirations. The capitalism model that we’ve known for many years has reached a tipping point and is pivoting toward stakeholder capitalism. Shareholder value remains important but so now is stakeholder value.

Let’s be clear: Stakeholders are companies, employees, civilians, society, lenders, insurers, regulators, the planet, etc. Everything has become a stakeholder.  

Organizations now need to be more stakeholder-focused than ever before. They cannot expect to run their businesses managing for shareholder value alone; they should also manage for stakeholder value.

There are greater demands and expectations on companies coming from all stakeholders. Whether it’s from lenders, insurers, investors, or employees, we expect organizations to be good corporate citizens.

As the world pivots toward stakeholder capitalism, there’s mounting pressure to stay relevant. Organizations will have to adopt new approaches to developing products and services, new strategies in conducting and presenting their reputations, and new paths to overcoming these challenges.

Businesses are the most significant platform for change. CEOs are transforming their organizations into more transparent and social enterprises, where its impact on the environment and society becomes equally as important to success as its financial condition.

Leaders must deal with accelerating business change. This includes developing innovative products and services, building new assets and facilities, and ensuring all stakeholders know of its environmental, social, and governance (ESG) condition.

Climate change presents a financial risk to the global economy. Financial institutions and investors require clear, comprehensive, high-quality information from organizations on climate change impacts. This includes the risks and opportunities presented by rising temperatures, climate-related policy, and emerging technologies.

ESG Metrics Matter, in Real-Time

At the 2015 Paris Climate Agreement, countries participating in the United Nations Framework Convention on Climate Change (UNFCCC) agreed to a common target: to hold the rise in global average temperature well below 2°C. More recently, scientists believe 1.5°C has become the new “safe” upper limit for global warming.

Every organization should be concerned with environmental, social, and governance (ESG) matters. To align with the 1.5°C and net-zero ambition targets, they need to set climate strategy and actions aligned to their business strategies.

This requires companies to:

  • Halve their emissions and supply chain emissions before 2030.
  • Develop products and services that reduce emissions and remove carbon from the atmosphere.
  • Demonstrate climate leadership to encourage and influence society to take action.

ESG has captured the business world’s attention and is growing exponentially. ESG is a set of non-financial measures that contributes directly to an organization’s risk management profile, sustainability development, and corporate social responsibility.

ESG contributes to shareholder value in many ways, such as risk reduction, profitability improvements, brand equity, human capital, and strategy execution.

Achieving the above goals requires companies to become more efficient, intelligent, and frequent at measuring their corporate ESG footprint. These actions help easily monitor and assess KPI trajectories, run scenario analyses and predictive analytics, benchmark progress, and make the necessary changes required to get on—or stay on—track. They are necessary to inform organizational actions and approaches and satisfy the ambitions of all stakeholders.

Would you board a plane knowing there were no instrumentation displays in the flight deck (in other words, knowing that the pilot would be flying blind)? CEOs and senior business leaders need to know the total health of their company’s ESG position as they run their companies at multi-billion dollar rates. They should also inform stakeholders in real-time—not just when the sustainability report is published annually.

There is a connection between ESG performance and shareholder value creation are deeply connected. The “business” of business now is to help improve shareholder and stakeholder value by improving ESG performance.

What is ESG?

The environmental perspective includes anything that contributes to carbon emissions and climate change, such as energy management, water and wastewater management, air quality, materials sourcing and management, and supply chain management.

The social perspective addresses the relationships and reputation a company has with its stakeholders, such as employee engagement, diversity and inclusion, health and safety, human rights and community relations, labor practices.

The governance perspective is the internal system of practices, controls, and procedures that a company uses to govern itself, such as business model resilience, risk management, legal and regulatory management, materials sourcing management, and meeting external stakeholders’ needs.

The ESG Challenge

We know there’s mounting pressure on organizations to disclose their ESG reports. Many address the challenges of ESG disclosure by gathering data across a variety of corporate sources and data points. They empower business units to collect ESG data across each facility and send it to a corporate center for curation, analysis, and reporting.

In most organizations, information scatters across hundreds of applications, data stores, spreadsheets on isolated laptops—even on paper. Usually, this data arrives at the investor relations department in different formats, at different times, and in different contexts.

In reality, this data should already be online, easily accessible, and exposed for regular consumption. Instead, it requires tying up internal resources to do the work.

If you cannot expose and consume ESG-related information at the click of a mouse, then you should question how aligned to your business strategy is to your IT strategies. There is no excuse not to easily surface this corporate non-financial data and turn it into insight and value.  

Limited ESG visibility across corporate systems prohibits predictability and increases cost and risks.

Given the limited time and resources to gather and curate all of this information, organizations limit themselves to an incomplete understanding of their ESG metrics trends and a narrow view of corporate activities.

Without having real-time visibility into the ESG metrics conditions across all corporate facilities and controls in place, organizations are unable to identify their true ESG healthor deal with skewing trends. This in turn weakens reputation and stakeholder relationships.

The ESG data that inform corporate metrics are constantly changing. This means actual ESG conditions are often misaligned with what business leaders think they  are or need to be.

Financial and Non-Financial Business Close

CEOs and CFOs know the financial condition of their companies at any moment in time. Still, few know their actual environmental condition and how sustainability issues and carbon emissions are trending.

What if you could gain a complete financial and non-financial perspective of your business? What if you could access both your financial and non-financial status at the touch of a button? Wouldn’t it be beneficial to immediately know the ESG health of every office, factory, and warehouse across your organization and be able to create action plans for them?

If there is an ESG-related metric conflict, you can take immediate and appropriate action to deal with the issue. No stakeholder should have to wait for the annual sustainability report to see how you’re performing. It is possible to see in near real-time right across every business location and facility where any out-of-spec conditions exist.

Finally, you will have full situational awareness of how well the organization performs against all ESG-related metrics and whether they are compromised. You can track ESG performance against value.

Using this knowledge, you can take corrective measures, adjust inputs and controls, and keep your ESG metrics trending in the direction you and your stakeholders want.

Through better knowledge and insight, you gain better control over your business operations and ESG metrics. At the same time, you can satisfy all stakeholders, enhance your reputation, improve the health of the planet, and increase shareholder and stakeholder value.

New Business Models

To meet the ongoing business demands while satisfying stakeholder expectations and competing with rivals, organizations need to consider operating two distinct business models:

  1. Your traditional core business: the single hierarchical operating model underpinned by an enterprise resource planning (ERP) “system of record” to help the organization function.
  2. An operating model with no hierarchical structure, which functions in tandem with the core hierarchical model. This model has more of a start-up mentality that’s agile, energized, and designed to capitalize on today’s challenges.

Some large organizations have implemented dual business operating models. Keeping shareholder value and stakeholder value in mind, isn’t it time to consider a “true’” non-financial enterprise system capability that sits alongside corporate ERP? Combining a traditional hierarchical model with an agile business model, along with the importance of financial and non-financial reporting, is the smart choice.

Invest in a system that leverages all of your information assets and dark data, creates new products and services, monetizes their value, and provides instantaneous ESG reports to satisfy lenders and shareholders. This is not rocket science; its attitude, aspiration, and ambition.

Be the CEO: Fly your organization with total control by having the two most important information systems available at any time.  

Sources

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To learn more, contact our team at 1-888-969-2983 or hello@theorem.co.

Tim Adams

Executive Partner, Digital Business Leadership

Tim Adams is an Executive Partner in Theorem’s Digital Business Leadership team. He works with senior business leaders, primarily those engaged in digital transformation, innovation, and sustainability. Tim focuses on helping organizations grow, scale, change, adapt, and realize new business value through transformation, optimization, information assets, and ESG.

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Executive Partner, Digital Business Leadership

Tim Adams is an Executive Partner in Theorem’s Digital Business Leadership team. He works with senior business leaders, primarily those engaged in digital transformation, innovation, and sustainability. Tim focuses on helping organizations grow, scale, change, adapt, and realize new business value through transformation, optimization, information assets, and ESG.

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