The rise of the integrated reporting movement is provoking conversations about how companies create value over time. And it comes at an important moment to help businesses deal with the unique challenges of our time:
- Growing threats from environmental and social challenges across the globe
- Growing opportunities from the information technologies that are fueling a new knowledge-based economy
Traditional business and financial tools don’t provide the information or focus needed to take on these threats and opportunities. Luckily, there are new tools arising to support businesspeople in this quest. One of these is the concept of sustainable value creation (SVC) which I define as
Use of a corporation’s capital (tangible, intangible and natural) to create value and profit today…while ensuring the sustainability of its capital and value creation capability for the future.
This sounds so simple and obvious. Yet, evidence of unsustainable value creation abounds. Companies that damage the environment. Or mistreat their employees or stakeholders. Or fail to invest in future innovations. In each case, a short-term, financial-only view leads people to make the wrong decision. Bad environmental practices look like cost avoidance strategies. Failure to invest in people, communities and innovation can all be viewed as cost savings. But stories like Market Basket demonstrate how these approaches can threaten the existence of a company.
When faced with this kind of behavior, it’s common for us all to think, “if there were only a way to demonstrate why this behavior is a bad idea.” That’s what I like so much about integrated reporting movement and SVC. It gives us a language and a framework to explain how an action that creates value today but diminishes the underlying capital and value creation is counter-productive.
So how do you put SVC into practice in your own company?
- Identify the key value creation capitals of your business
- Identify measures that speak to health and performance of the capitals
- Track them over time
- Use the data to learn how to increase value today and tomorrow
- Also use the data to tell a more complete and authentic story about your organization
Here’s a worksheet to help you get started driving sustainable value creation in your own company.
Photo credit: cs:ŠJů – Own work, Public Domain