According to Edelman’s 2020 Trust Barometer, 80% of people expect brands to “solve society’s problems.” Meanwhile, in the United States, JUST Capital found that 89% of Americans agreed that the COVID-19 crisis “is an opportunity for large companies to hit reset and focus on doing right by their workers, customers, communities and the environment.” In response, CEOs have been under increasing pressure to spearhead a re-evaluation of the point and purpose of business.
According to research by EY, 66% of European C-suite leaders and board members believe that COVID-19 has increased stakeholders’ expectations that companies will drive societal impact, environmental sustainability, and inclusive growth and the need to measure and report on these issues.
The importance of trust highlights the need for CEOs and CFOs to reconsider corporate reporting: greater transparency now goes to the heart of how companies can build and strengthen trust with their stakeholders. While the nature of corporate reporting has not fundamentally changed for decades, the world has changed considerably in that time. Today, businesses are under pressure from their stakeholders to be more transparent about what they do and how they do it. Yet, stakeholders do not necessarily trust that corporate reporting provides them with all the information they require. This is forcing a shift in focus from short-term profit to a positive long-term impact on people, planet, and prosperity – measured by a wider set of standardized non-financial metrics, not just bottom-line figures.
It should be said, an organization's ability to create long-term value cannot be disclosed by its balance sheet alone. Long-term value is also created from its culture, intellectual assets and use of technology - all non-financial assets. Non-financial data that is clearly tied to the organization’s strategic priorities, and communicated cohesively, can help you address the trust gap that exists between current financial reporting and your stakeholders’ expectations.
Companies need to find a more strategic way to measure their performance to meet the changing demands of a broader set of stakeholders. Currently, CEOs are under significant pressure from regulators, investors, and other stakeholders to increase disclosure around stakeholder impact and ESG issues. Yet, you also need to consider how this reporting can be integrated into your strategy, how it affects operations, and what transformation projects might be required to reset the focus on a broad range of measures for success — financial and nonfinancial – while remaining agile and adaptive. It is crucial to be robust about measuring performance against targets that are connected to your strategy, while using a range of metrics that encompass environmental, social, fairness and sustainability targets, as well as peer benchmarking.
By ensuring that those targets are defined with a purpose-led strategy in mind, CEOs can cohesively articulate the value they are creating (or protecting) for stakeholders and elevate the business above mere adherence to minimum regulatory compliance. It also provides the mechanism for scrutinizing internal behaviors and holding yourself and your leadership team to account. This creates an iterative cycle of strategy, transformation, reporting and communication that leads to value creation or protection, while allowing you to be attuned to changing stakeholder behaviors and preferences that serve as inputs for the next round of strategy execution. By using purpose as the lens through which to view all decisions, all assessments of value creation, and all reporting, you will help grow that most fragile and valuable commodity for your organization – trust.