The rules of the game for value creation is changing. Business models must be reinvented to better meet the needs of society today and tomorrow. Climate change, governance failure, rising unemployment and social instability, digitalization and transparency: all are factors forcing businesses to innovate, adapt and transform. For business models to be robust and able to quickly adopt new opportunities, a broader range of capitals must be managed and incorporated into the core values of leadership.
A better understanding of impacts and dependencies on all types of capitals and the costs and benefits of this help demonstrate the real value of the company for society and lay the grounds for more robust decision-making by highlighting future risks and opportunities.
Going forward, environmental and social problems will increasingly be viewed as an opportunity to differentiate, innovate and drive corporate growth – through the development of technologies, products and services that generate business value, whilst placing environmental and social benefits at the heart of business models.
Five key insights to realize tomorrow’s value:
1. Tomorrow’s Winners Integrate Multiple Capitals in Their Strategy
A critical element of an agile response to a rapidly changing business environment is to assess performance and value in a more holistic manner across the range of capitals – or stocks of value – that underpin company value creation. Assessing the broader range of impacts and dependencies is required to capture and fully understand value drivers and the factors that can and will affect business performance now and in the future.
Environmental and social pressures impact both long-term financial viability and success of business models. In other words, realizing tomorrow’s value – and optimizing long-term financial performance – translates into managing non-financial capitals and externalities today. To be robust and to get a full picture of current and future risks and opportunities, strategy and decision-making must incorporate information about performance on all capitals.
2. Unstoppable Drivers Create Momentum for a New Business Practice
The science is clear – social and environmental pressures are understood, and future prosperity depends on how well we manage challenges. Digitalization forces transparency and accountability. Regulation is tightening and forcing business to be pro-active. Sustainability has become a source of innovation, and investors are moving the capital to companies that demonstrate how they manage current and future environmental and social risks, as key factors contributing to long-term growth.
The new business practice we see emerging is a future-oriented response to these drivers and the unfolding shifts in the economy.
3. Business Purpose and Value are Being Radically Redefined
4. New Leadership is Emerging
New practical approaches to provide information on performance across all types of capitals, and to incorporate this in the core business strategy and decision-making, is needed. Based on extensive review of existing initiatives and leading practices. A systematic approach to conduct multi-capital assessment will lay the grounds for better leadership of the fabric of capitals and value. But insights must be integrated in core business for business models to evolve. This implies integration with: existing management systems, processes underpinning decisions and capital allocations, and enterprise risk management to effectively manage issues that are impacting business viability.
5. Communication – A New Future-Oriented Narrative is Emerging
The future will look nothing like the past – as the conditions for value creation are in flux. Past performance is not a good proxy for future performance and value. A future orientation in sustainability-related communication that is strategically relevant, is needed to understand the environmental and social risks and opportunities for the business. Forward-looking communication that incorporates the economic, environmental and social perspectives, provides transparent information for decision-making, and also portrays the quality and sustainability of future corporate performance. Both the company and its stakeholders, such as investors, can thereby see how interactions with nature and society, and the management of social and environmental impacts, connect with core business performance. The 17 UN Sustainable Development goals form the only plan we have for the desired future for the planet earth and the goals are increasingly driving innovation and investments in the business sector.
Realizing Tomorrow’s Value Today
Tomorrow’s businesses create value in a way that represents a net benefit for society and a sustainable future – in other words, realizing tomorrow’s value. In DNV GL, we call this Tomorrow’s Value Practice. There are very compelling twin benefits to aligning corporate behavior and business models towards this practice: the positive outcomes for the environment and society, and business better calibrated to manage, performance, risks, and opportunities.
I believe that companies which embrace this practice will perform more robustly through ever-faster change cycles and gain a significant competitive advantage.