Transparency takeover and multiplying benchmarks – the business opportunity
By Pendragon Stuart, former Consultant at Sancroft.
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Business used to thrive based on what they kept secret, like supply chains and business practices – increasingly they are standing out by what they open up about – like social and environmental impacts.
It’s still early in the year but already the demand for more corporate transparency from all stakeholders is sounding loud – and the rewards are becoming clear.
Take the just-released letter from Larry Fink, head of BlackRock to the CEOs of companies his firm invests in, entitled “A Fundamental Reshaping of Finance”.
The world’s largest investor now demands that all their investee businesses disclose more on their sustainability risks and approaches through globally agreed standards from the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures. It is also changing its investment policies to exclude riskier bets like companies that make over 25% of their revenues from coal used as fuel.
While many will argue that the narrow focus of BlackRock’s most recent ESG activity will do little to move the needle on the climate emergency, or dispute whether an ESG strategy is genuinely meaningful at all with a largely passive investment model, what’s undeniable is that business has been put on notice about the need for disclosure – and the world is ready to use this information like never before.
Meanwhile new and growing benchmarks of corporate performance keep springing up, to measure, reward and expose companies based on what they publicly disclose. See Tortoise media’s Responsibility100 measurement of the FTSE 100, released this month after a Beta launch in 2019 or the World Benchmarking Alliance’s announcement at Davos of the 2,000 global companies they will be benchmarking for their influence toward achieving the UN Sustainable Development Goals.
These come from very different directions – Tortoise is a new media organisation backed by the former head of news at the BBC, bringing with it an ambition to engage the public on issues of company performance, where their benchmark launch was attended by board level FTSE executives.
The World Benchmarking Alliance is a core group with a huge number of allies signed up from UN branches to insurers like Aviva, creating a network of powerful influencers from regulators to financiers to shape change.
These benchmarks could have significant impact for business – for instance shaping access to investment, affecting public perceptions and drawing the attention of campaigning bodies and creating new partnership and endorsement opportunities.
Both benchmarks are still early in their development, so the exact impacts are to be watched. However, the fact is that this spread of benchmarking can feel overwhelming – both to companies and investors – especially on top of reporting standards and stakeholder demands.
As we’ve seen working with many of our clients, you can achieve clarity by identifying what matters and what to act on. So, the question for business is to unpick who their stakeholders are, which benchmarks and standards will be most meaningful for them and therefore how they can quickly improve their transparency and attract the confidence of demanding stakeholders.
This all rests on a clear vision of what the business stands for and wants to achieve – as Larry Fink emphasises in his letter: “Ultimately, purpose is the engine of long-term profitability.”