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News Blog Good Governance

The Chair's blog - April 2019

24 Apr 2019

charlotte valeurIn last month’s blog, I wrote about the growing scrutiny being placed on businesses and business leaders. More and more firms are having to consider how their processes might be viewed in the public sphere.

This isn’t the only area once considered ‘extra-curricular’ that is now much more central to companies’ thinking. Businesses are facing increasing pressure to consider their impact and exposure in social and environmental terms.

This has been made clear by large asset managers like BlackRock and Legal and General, both of whom issued warnings on climate change ahead of AGM season this year. As BlackRock explained in a study exploring US firms’ vulnerability to climate risks, this ‘is increasingly a risk that investors cannot afford to ignore’. You don’t have to be in the energy sector for environmental change to be relevant to what you do. As we’ve seen with recent headlines, the fashion industry is facing calls to reduce its emissions as a significant polluter.

When it comes to actually tackling these issues, traditionally businesses have regarded this as a problem best left to the government and NGOs, and have concentrated solely on maximising shareholder returns. Again, it’s not clear they can still afford to do so. There are greater expectations upon businesses to embed social and environmental impact into their core strategy.

Even if shareholder and stakeholder pressure were to be removed from the equation, it would be in the interests of boards to get to grips with these issues, and indeed many are doing so. The business leader that is in touch with the company’s social and environmental impact over and beyond the bottom line is also likely to be the leader that is one step ahead when it comes to other things, like changing consumer awareness and demand, and recruitment strategies.

In a broader sense, keeping a strong focus on social impact can be of benefit in a variety of ways. It can help organisations engage: it helps us build stronger relationships with stakeholders whether they are internal or external. It can help organisations grow: understanding and communicating the full social value and impact of the organisation makes it easier to attract and retain staff and volunteers to deliver against this impact. It can also help organisations improve: knowing what activities deliver impact in a broader sense than just the bottom line helps to paint a more nuanced picture of what works, and what doesn’t.

For the IoD, particularly as a Royal Charter body, it’s important that we bear in mind our wider impact in society. We are therefore in the process of implementing ways to measure our social impact such as hours of PD delivered to an increasing number of leaders, money raised for charities, influencing for better corporate governance and events held to help leaders run businesses better.

Whether through the services they deliver, their employment practices, or through their other activities, today's businesses have an impact on society. As leaders we need to make sure it is a positive one.

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