In recent years, more companies have realised that it’s critical to have a corporate purpose beyond profits.
The current pandemic has served to reinforce the need for businesses to protect the wellbeing of key stakeholders, such as employees, customers, suppliers, and communities, to achieve enduring success. Climate change is another threat that is altering the viability of business models. In this shift from an emphasis on making profits for shareholders to a focus on all stakeholders, or what is called the stakeholder capitalism movement, companies are re-evaluating and updating their purpose statements.
But there’s a gap between buy-in and action. A survey by AICPA & CIMA and the Value Reporting Foundation this month titled Purpose Drives Profit found that almost all organisations have a corporate purpose and most consider it important. But, the survey found, only half of respondents think their companies have a clearly defined purpose — highlighting a disconnect between having a purpose and actually delivering on it.
The same report found that a majority of executives do not feel that they have the tools and techniques to include broader performance measurements in decision-making. This suggests that the use of a wider range of data, such as environmental, social, and governance (ESG) metrics and other nonfinancial indicators, is crucial in putting a purpose into action, but companies find it challenging to incorporate them. So how do successful companies translate their purpose into reality?
Giving measurements to purpose
Copenhagen, Denmark-based Maersk, the world’s largest container shipping company, sums up its purpose in the phrase “All the Way” for its customers, employees, and the society. It commits to connect the world by providing supply chain infrastructure, to embrace diversity and inclusion in its workforce, and to decarbonise logistics so that global trade can be sustainable.
In 2019, the company made a commitment to achieve net-zero emissions in its fleet of more than 700 vessels by 2030 and net-zero in its entire operation by 2050. Rex Gu, FCMA, CGMA, CPA (Australia), CFO of Maersk’s Far East operations including South Korea, Japan, Russian Far East, mainland China, Hong Kong, and Taiwan, said that the targets were then communicated to regional and country offices, in line with its goal to decarbonise trade.
His office in Shanghai began tracking a set of additional sustainability metrics that is the same in all offices, ensuring data comparability. Tracking these measurements is very much a centralised effort led by the headquarters, and its success also hinges upon collaboration with external partners such as the Clean Cargo Working Group that has established industry standard methodology to calculate and benchmark carbon emissions from ocean transport, he said.
Maersk’s finance function played a business partnering role in the design and launch of new sustainable products, especially in pricing.
“Maersk ECO delivery, for example, comes with a complex calculation to decide a premium to charge,” Gu said. Maersk ECO delivery is a new product where clients are charged a different shipping rate for vessels that use green fuels. Gu said there has been growing demand for low-carbon alternatives and customers are willing to pay more.
“Seventy-four per cent of our key clients have ambitious CO2 targets, and we anticipate more to come,” he said.
Gu said that his team uses a range of financial and nonfinancial data and toolkits for internal decision-making. For instance, terminal waiting time and vessel fuel consumption are closely watched metrics to ensure operational efficiency and to meet sustainability targets.
“We make our internal decisions based on those measures, on top of financial data,” he said. “We have a tall sustainability mandate to bear; we need to look at a range of metrics to deliver on our climate commitments.”
Finite resources and market forces
These changes by Maersk were spurred by external realities that threaten its traditional business model. Similarly, when China banned contaminated waste such as plastic food packaging from entering its country in 2018, waste management became a huge problem for developed countries that exported waste to China. In Australia, companies had to rethink how their products were made to minimise waste at the end of the products’ life cycle, said Mayuri Wijayasundara, Ph.D., ACMA, CGMA, CPA (Australia), a lecturer in engineering management at Deakin University in Melbourne.
“So the activities basically had to start here [Australia], where markets were created for repurposed materials that were made out of waste,” said Wijayasundara, who also helps companies transition to a circular economy model. “The need to have safer materials generated out of waste and finding destinations to waste were the impetus that drove companies to consider circular economy.”
Circular economy is an alternative model that aims to solve the current unsustainable “take-make-waste” linear model that extracts natural resources to make products and disposes of them after consumption. In circular businesses, products are designed to be reused or recycled, maximising the utility of materials.
Wijayasundara foresees more companies pushed to adopt more sustainable business models to ensure long-term success as businesses face more constraints from depleting natural resources and greater demand from consumers for environmentally friendly products.
“Sometimes it’s taken for granted that you have both a stable and steady market, and continuous access to resources,” she said. “But these two are the fundamental things that are being threatened. … Resources are finite, and our current consumption levels cannot be guaranteed if there’s no continuous supply of resources.”
To translate corporate purpose and strategy into long-term sustainability, a great place to start is for companies to understand their current position by tracking their carbon footprint and resource footprint, Wijayasundara explained.
“A lot of companies are moving toward net-zero carbon emissions. It’s good to understand organisational footprint and footprint of your operations and products,” she said. “It is equally important to understand your resource footprint, so you know where you’re drawing resources from and where your products are going post-consumption.”
Beginning with these metrics, companies can identify business risks and opportunities and make necessary changes, Wijayasundara added.
The report by AICPA & CIMA and the Value Reporting Foundation suggests eight questions for boards and executives to consider in linking corporate purpose to value creation:
1. What is your company’s purpose? Why are you in business? Why does your organisation exist?
2. How do key stakeholders benefit from the corporate purpose?
3. Is your corporate purpose well embedded across the organisation?
4. How well does your strategy bring your corporate purpose to life?
5. Is your corporate purpose used as a lens to help guide decision-making within the firm?
6. Is the purpose a competitive advantage? Does it make the firm unique or a better place to work or do business with?
7. How do you measure performance? Are metrics and KPIs focused only on financial indicators or is purpose also measured?
8. Do your efforts to communicate value creation strategy target those stakeholders you’ve identified as important, such as customers, employees, and suppliers?
— Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.