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For sustainability’s sake – make it about the money

It is always about the money in business. Few things escape it — revenue, profit and share-price growth.

The bottom line in any business, however, is influenced by many more factors than traditional financial reporting brings to light. As a result, a number of “shadow factors” are falling into the “extra-financial data” category some public companies are publishing, and it is a growing trend. That has gotten the attention of an increased number of financial analysts who then are defining the financial significance of what we often refer to as the “soft-side” of business.

As an area of financial analysis called environmental, social and governance or “ESG” expands it accelerates the number of portfolio managers who see public companies with strong ESG initiatives as better than average investment opportunities for clients, sensitizing competitive nerves around the world.

Out of the archives, an online article from Fast Company Magazine explains how this trend began. Written by Paul Tullis, the fascinating piece entitled “Bloomberg’s Push for Corporate Sustainability” describes how that company discovered the need for greater public awareness of the competitive and financial advantages many companies were enjoying, when they managed and financially reported on business initiatives typically considered to be on the “soft side.”

Analyzing these “shadow-factors” highlighted the distinct advantage companies with ESG objectives had in their financial performance. The importance stemmed not only from the positive market results these factors produced but also the future investment opportunities their results proclaimed to potential investors in the stock market. It is an enlightening article that still rings true amidst today’s realities.

In a related area, a recent survey Bersin by Deloitte published of 454 global organizations with more than $750 million in revenue, found that companies that implement diversity and inclusion policies perform better than companies that don’t, earning 2.3 times higher cash flow per employee over a three-year period.

ESG initiatives along with a number of other policy issues like “Inclusion” (certainly not new to HR) have risen to such a level of business concern that CEOs are worrying, establishing targets and assuming accountability for them themselves. Companies’ financial report cards seem to be the motivators as analysts and investors begin comparing these kinds of company distinctions in terms of their influence on market performance. Yes…it is still about the money but now it is inspiring greater “common good,” which leads to more sustainability.

Some businesses have intuitively recognized the importance of this to their bottom lines for years – but not until specific, tracked and reported improvements in financial and competitive results, have adoption rates picked up with others. Better company performance in the stock market does change attitudes, leading to investing to do good things, so let it be about the money. I’ll take that!

Here is another angle to consider. In a world of constantly accelerating change, companies that develop “change-ready cultures” to efficiently integrate it will reduce costs and more quickly take advantage of the modernization and business opportunities that result. This relates to improved market performance, retention of talent, business knowledge and greater competitiveness.

Research shows that as many as 80 percent of large-scale change implementations fail or run tremendously over cost because planning, training and change management skills are absent in businesses. Companies solve these problems when they develop “change-ready cultures” that then join the list of shadow factors building business and financial success that investors are interested in. Once again it ends up . . . “being about the money.”

All of this is a rallying cry for HR to proactively step up to influence these areas, but it requires a strong HR organization equipped with leadership and expertise to strategically engage in the discussions that lead to these types of outcomes. Tracking, measurement and analysis are critical to getting started along this path, and to demonstrating HR’s direct contributions to success in financial terms that make a difference in the market.

Since 1989 we have been connecting businesses with HR talent throughout the San Francisco Bay Area to help ensure positive HR contributions to the bottom line. From HR contract staffing, HR consulting and HR search — HR is all we do and we believe in it. Contact us if you ever need assistance in these areas or are interested in an HR career move, and let’s get a conversation started.

Best regards,

Rod

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