Should organisations shift their preference for valuing their worth financially to valuing their social impact as a priority?
Ben Carpenter, CEO of Social Value UK and Social Value International recently discussed the importance of social impact as a priority in corporations at Social Impact Festival.
Ben’s talk was delivered at Social Value: Who is responsible for catalysing change? It took place in Perth, Western Australia on Tuesday 16 July 2019. This event was jointly organised by the Social Impact Measurement Network of Australia (SIMNA) and Centre for Social Impact at UWA (the University of Western Australia) as part of their Social Impact Festival.
This event was targeted at those interested in accounting for social value, particularly high-level decision-makers in not-for-profit, for-profit and government organisations. Some 90 people attended, and have provided great feedback!
This blog is an adapted version of Ben’s talk at the Conference.
I don’t think it’s fair to say that organisations hold a preference for valuing their worth financially for most, they don’t know that there is an alternative. – this is just the norm.
So, my argument is not about shifting preference to social impact -but I would like to argue that we need to create a new norm – where organisations broadening their concept of value to go beyond financial value. And look to valuing their overall worth not only in financial value but social and environmental value too.
This does not have to be more of a priority than financial value – social impact can be treated equally alongside economic and environmental value they create.
If all three are monetised they can be integrated into the same balance sheet and so we have one calculation of value made up of the triple bottom line, even John Elkington himself (the man who invented the term triple bottom line 25 years ago) wants a product re-call because it should be a single bottom line that integrates all three.
Now this is a radical vision – it would immediately redefine what success looks like?
- Organisations with high financial value but low/negative social value will have a low net worth!
- Organisations with low financial value but huge social value will have a high net worth!
This would be a huge change!
so, who is responsible for driving the change?
To create a new norm we will all need to take responsibility, this simply won’t work otherwise!
Let’s just remind ourselves – The world is on fire right now!
- There is no denying there is a climate emergency, we have 18 months left to change things before the planet is permanently damaged.
- I would argue we have a social emergency on the horizon, inequality is rising and the divisions in our society are getting deeper
- People of all ages are struggling with isolation, depression, other mental health issues are rising also.
To be positive, there are many signs that attitudes and values are changing held by society: look at the values of consumers, investors, employees, citizens.
John Stuart Mill wrote in 1848:
“The increase of wealth is not boundless,” he goes on to say that once we reach a state of ‘stationary condition of capital’ ….
“There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on”
So, are we getting to this point? Well, maybe. Here are 3 positives: trends
A (slow) revolution is happening in the world of investment, mainstream capital markets.
- Over 50% of the world’s flow of investments now go through asset managers who are signed up to the UN principles for responsible investment.
- Pensions funds are changing divestment in fossil fuels.
- There is a whole generation of wealth owners who are younger and want social and environmental impact factored in as well as financial return. ESG and Impact investing on the rise.
A big thing we can all do is focus on our pensions – this is where we can all show that our preferences go beyond financial value.
The Impact Management Project is trying to standardise industry norms for investors about what good impact management looks like. I am proud to say SVI is in this conversation. Alongside OECD, UNDP, World Bank and others.
There is a growing recognition by businesses that a successful commercial organisation is one that is responsible to the environment and people.
- Use of the word dependencies – if we treat people well, they will be better employees, better customers and better neighbours.
- The Social and Human Capital Protocol talks about wellbeing and inequality – this is being adopted by the biggest multi-nationals.
The Capitals Coalition is a fantastic initiative creating a space where businesses and policymakers can speak to each other and standardise measurement and reporting.
The Value Balancing Initiative taking the EPL further to integrate social value and experiment with how businesses can manage trade-offs between the capitals.
Reporting 3.0 creating blueprints for shifting to a whole new world of redefining business reporting, accounting and decision-makers.
This was all not happening but 4 years ago.
- Regulation and policy!
This is the area that has the furthest to go, but I can point to some examples of brave policy making:
- New Zealand’s wellbeing budget
- EU directive on non-financial disclosures
- In the UK, we have a raft of legislation for public spending through procurement to consider social value.
- France’s ‘Pact for impact’
Esela is a network of lawyers developing new thinking about putting impact into more laws. This needs to happen.
Barriers to change must be considered
- Less of a technical problem. There is growing consensus and convergence on how.
- More of a psychological barrier – are we willing to collect data that might challenge our view of the world. Goes against our human nature. Requires a culture of accountability and innovation.
- It’s still voluntary – lacks the scrutiny of financial value. Therefore, not being used.
- Governments and businesses are focussing on the losers and risks of disadvantaging themselves
- Regulators are scared because if we move to a new system there will be losers – businesses don’t want to move to this new paradigm, Governments would not want to see their regulatory framework disadvantage their economy.
- But – there will be businesses and countries that come out looking great – and new markets can be shaped around this new way of defining success.
- Bolder regulation and collaboration between countries is needed.
- We all have the power to reject this norm.
- We can move to a different way of defining success.
- Vote with your wallet, change your behaviours send signals.
One final point, the words ‘emergency’ and ‘urgency’ are the right rhetoric, but that needs to backed up by action. We’re truly running out of time.