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Now, however, corporate leaders are rethinking the role of business in society. Several trends are behind the shift. First, stakeholders, including employees, customers, and governments, are pressuring companies to play a more prominent role in addressing critical challenges such as economic inclusion and climate change.
Third, standards are being developed for which environmental, social, and governance commonly referred to as ESG topics are financially material by industry, and data on company performance in these areas is becoming more available and reliable, increasing transparency and drawing more scrutiny from investors and others.
As these trends gain momentum, companies need to add a lens to strategy setting, one that considers what we call total societal impact. If well executed, this approach enhances TSR over the long term by reducing the risk of negative events and opening up new opportunities.
In the end, such an approach allows the company to survive and thrive. What Is Total Societal Impact? Every company has positive and negative economic, social, and environmental effects on the world.
We refer to the aggregate of these as its total societal impact. TSI is a collection of measures and assessments, not a single metric. Companies should use TSI to help shape strategy. It also includes the result of explicit decisions the company makes to adjust its core business to create positive societal benefits.
TSI encompasses numerous elements. It is topic- and industry-specific and often requires data from outside the company. Many companies measure the outcomes of their efforts—but have difficulty measuring the ultimate societal impact.
In the case of efforts aimed at expanding financial inclusion for women, for example, it may be fairly easy to measure an outcome, such as the number of women who join the banking system.
The impact, on the other hand, which may be a decrease in gender income inequality, may be more difficult to measure. No doubt, companies will make progress in identifying and tracking impact in the future. Evidence of the power of this approach is mounting.
However, CEOs tell us that it is unclear where they should put their energy. Which areas in their industry provide the best opportunities to create both societal benefits and financial returns?
To help answer that question, we have gone deeper and identified the link between individual ESG topics and financials in specific industries. Our study encompassed five industries: For the purposes of this report, the technology industry includes software, information, and internet companies.
For individual industries, we looked at the link between performance in specific ESG topics such as ensuring a responsible environmental footprint or promoting equal opportunity and market valuation multiples and margins, both contributors to TSR.
Nonfinancial performance as captured by the ESG metrics was statistically significant in predicting the valuation multiples of companies in all the industries we analyzed. Top performers in certain ESG topics had margins that were up to In particular, ESG provides a limited window onto the largest impact of a corporation: Consequently, most of our findings relate to how companies operate their business, not to the actual product or service they create.
Still, the clear links in each industry between performance in specific ESG topics and financial performance point business leaders to opportunities to enhance both TSI and TSR.
Notably, we found just two negative correlations in our analysis of 65 topics we studied 35 topics, 10 of which applied to all four industries —suggesting that a well-executed investment in material ESG issues does not hurt financial performance. Of course, many companies have already developed programs that aim to address various societal issues and generate business benefits.
Examples include efforts to reduce greenhouse gas emissions, programs aimed at eradicating major diseases in developing countries, and initiatives that provide opportunities that can lift people out of poverty.
But too often, the results are fragmented and lack scale. Moreover, even companies that have an effective, large-scale effort intended to increase both societal impact and TSR frequently fail to measure and communicate the results to investors, their employees, and the wider public.
This diminishes the benefits to the brand, to employees, and to stock market performance that companies could realize from such efforts. Companies that do this well will find they can not only create value for shareholders—but also make a real difference in the world.
Because of the scarcity of data on certain ESG topics in the technology industry, we were unable to do a quantitative analysis.
The business community has, of course, played a role in addressing societal challenges for many decades. Companies have long run their own foundations, for instance, and have established major corporate social responsibility programs.
Instead, they must use their core business—and the scale advantages it offers—to create both positive societal impact and business benefits. The result can be a more reliable growth path, a reduced risk of negative, even cataclysmic, events, and, most likely, increased longevity.Digital success isn’t all about technology: The Digital Business Global Executive Study and Research Project by MIT Sloan Management Review and Deloitte identifies strategy as the key driver in the digital arena.
Companies that avoid risk-taking are unlikely to thrive and likely to lose talent, as employees across all age groups want to work for businesses committed to digital progress. Learn about the world's top hotspots with the Center for Preventive Action's (CPA) interactive Global Conflict Tracker.
‘Global Strategy’ is a shortened term that covers three areas: global, multinational and international strategies.
Essentially, these three areas refer to those strategies designed to enable an organisation to achieve its objective of international expansion. To succeed as a global business, we need to help build the communities where we operate.
We know this goes hand in hand with our ability to grow. Home; Strategy Briefing Pet Humanisation: The Trend and Its Strategic Impact on Global Pet Care Markets. 77 pages, Oct US$1, The Starbucks Mission Statement reflects the values of corporate social responsibility.
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