Making the connection

Working towards a thriving society in a thriving environment is in the best interests of business and its success. Understanding the relationship between government, society and business is fundamental.

Thinking about business in a new way

PwC’s Malcolm Preston discusses the relationship between business, society and government, and explores the impacts they have on each other and the dependencies between them. He shows there is a new way to think about business success as it helps drives a thriving society in a thriving environment.

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Interconnected: Business in context

We're thinking about the context business operates within, exploring the impacts and dependencies - find out more about them by clicking on the icons above.

We all have a basic expectation for clean air and water, safe streets and housing, human rights, job, peace and so on - what we're calling a thriving society in a thriving environment. When it does happen, it’s not by accident. Two key institutions drive it - government (through regulation, tax and policy) and business (through strategy implementation). Both make and implement decisions that can have a real and lasting impact. It's in the best interests of business to be operating in a thriving society in a thriving environment, but to be successful, there are very clear relationships, impacts and dependencies which need to be recognised, valued and managed.

Is your total impact more than you think?

It’s common practice to rely on financial metrics to drive your decision making. But do you consider your total impact? When you think about the way your business operates, what are the consequences of your product and processes on the environment, society and the economy?

In the past, business has left non-financial impacts in the ‘too difficult box’. Finding a way to quantify and monetise impacts so they can be compared with the usual financials is not always easy. But, many business leaders recognise that ignoring them leads to less than optimal decisions being proposed, reputation issues and lost revenue. Adopting a more holistic approach, that includes the factors that are material to a decision, can only serve to shape a more informed choice.

Q: Are traditional financial metrics enough or would you prefer more data that reflects the total impact of the decision you’re making?

Measuring and managing your total impact

Identifying the impacts that are material to your business, quantifying them and putting a value on them allows you to take control. You could be deliberating between alternative strategies both of which look good on paper; or, looking at the supply chain of your product worried about risks; or, wanting to improve your impact on society, but don’t know how to measure what it is at the moment, let alone what improvements would have the best impact.

By valuing social, environmental, tax and economic impacts, business leaders are now able to compare the total impacts of their strategies and investment choices and make an optimal decision. The trade-offs become apparent too allowing you to have a more informed dialogue with your stakeholders.

PwC has developed a framework to help business value its impact.

Find out more about Total Impact Measurement & Management

Do you help or hinder your government?

In September 2015, 193 Governments agreed on a common framework and language to achieve 17 major world issues. In March 2016, the 169 targets were ratified that governments have agreed to achieve. Governments will implement new incentives, policies and regulation to deliver against them, they’ll monitor progress and put in place new measures to keep themselves on track. Both Business (and Society) will be expected to help achieve the goals too.

Many Government initiatives will have an impact on the way business operates so business will need to adapt. It may need to make fundamental changes to the way it conducts its business that require additional investment eg. to recruit, introduce new technology, upgrade machinery etc in order to comply.

Each government will develop its own approach to the Goals – they’ll have a different starting point, prioritise the goals in different ways, apply different levels of resource and expertise to them. For business, this means that there will be no single approach and they’ll need to understand the objectives and demands of each country they operate within and the countries they want to expand into.

Q: Do you know which SDGs your business has an impact on? Do you know which SDGs are priorities for the countries you operate in? 
What’s the value at risk for your business, if the SDGs are not achieved if they’re not?

What are the implications of achieving the SDGs for your organisation? And, what’s the value at risk, if they’re not?

Navigating the Global Goals

Understanding which goals are a priority for the countries you operate in and how your business impacts them is important if you want to have an informed dialogue with government. Knowing your risk exposure (your business activities could hinder governments more than help and could result in your losing your licence to operate) in relation both to your core products and activities and more broadly across your supply chain, on a country by country basis, gives you better visibility of potential issues.

Identifying opportunities (i.e. where your business activities could help Government significantly more) could give you more focus in your Purpose and business strategy, and improve your dialogue with your stakeholders.

PwC has developed a tool to help business visualise their impact on the Global Goals and calculate the value at risk for their business if they are not achieved.

Find out more about the Global Goals Navigator

Who’s top? Your shareholders or your stakeholders?

Business models are changing – moving away from profit and shareholder centric models to take stakeholders into consideration too. This doesn’t mean the focus on profit has lessened, now CEOs are expected to address wider stakeholder needs at the same time. It means how profit is made is in the spotlight and other factors beyond profit are important now too. According to our 19th Annual Global CEO Survey, 76% of CEOs say business success is about more than just financial profit.

There are many alternative strategies and concepts to consider. How you build trust and deliver your Purpose are all relevant too.

Q: How does your business consider the needs of it’s wider stakeholders?
What do alternative business models mean for the way you do business?

New approaches to business strategy

Could your business benefit from adopting a new approach that embraces wider stakeholder needs? If challenged, why have you (or not, as the case may be) adopted these?

  • Circular Economy: moves manufacturing from a “make, take, bin” approach to “recover, recycle, reuse” to remove waste generation – it explores and manages a product’s impact from cradle to grave
  • Inclusive Business: intentionally including low-income groups in a company's value chain (as clients and consumers, and/or as producers, entrepreneurs or employees)
  • Good growth: plan you growth to be real, lasting, responsible and inclusive (not short term, or to the benefit of a few and the detriment of many etc)
  • Inclusive growth: economic growth that benefits society as a whole
  • Creating shared value: generating economic value in a way that also produces value for society by addressing its challenges
  • ‘Do no harm’: make amends for any negative impact with and equally positive impact to leave your overall impact neutral
  • Natural capital accounting: putting a price on natural resources e.g. water so you better understand your risk exposure
  • ‘Net positive’: business makes a more positive impact than a negative one i.e. although business may have a negative impact, it’s positive impacts out weigh them
  • Carbon offsetting: Carbon offsetting is the use of carbon credits to enable businesses to compensate for their emissions

What are you dependent on? And who’s counting on you?

All businesses are dependent on both society and the environment. The nature of these dependencies will vary according to the sector in which they operate, their role in the value chain, and the geographic location of their operations. Resources are required at the right time, the right quantity and quality, and at the right price. Too much or too little can cause problems with production or distribution or reputation - whether it’s water, parts, raw materials, energy, labour, customers, distribution, infrastructure, regulation, or clean air.

The impacts your business has on society also affects your dependencies, as the benefits or costs of those impacts is taken on board internally. Positive impacts could result in the creation of new markets, while negative impacts may become regulated, affect a licence to operate or lead to consumer boycotts.

In an ever more competitive landscape with accelerating social and environmental change, gaining a full understanding of the dependencies in your value chain is key so that your business can build a resilient future.

Putting a value on externalities (when your risks come home to bite)

When the cost to society is greater than the cost to business, at some point, business is asked to take stock – to reduce emissions, pollute less, take less water, clear less forest, or improve its health and safety record.

What does this look like in practice? Government could introduce or enforce legislation; competitors might update their processes or equipment to seek a competitive advantage; or, consumer pressure might become too much and drive a response from the business.

How does business work out when this might happen, and how much it might actually cost them to comply/improve? There will be an impact on profit, but will shareholders and investors think?

PwC can advise on when to make change, what change to make, and how to value the impact these initiatives have on your bottom line. Find out more about internalising externalities and shareholder valuation.

Contact us

Malcolm Preston
Partner, Global Sustainability Leader, PwC UK
Tel: +44 (0) 20 7213 2502
Email

Rebecca Pratley
Global Marketing Sustainability Lead
Tel: +44 207 804 3749
Email

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