Transparency Driving Powerful New Markets
This post is the seventh in a series of eight that unpacks the increasing expectation of transparency in business: Why and how to develop authentic, accurate, and thorough communication and reporting on your business purpose, goals, and impact.
As we’ve seen in this series, the movement toward radical corporate transparency is well underway, rapidly picking up steam to meet equally escalating needs and expectations. Younger employees, investors, entrepreneurs, consumers, the media, and savvy citizens are together leveraging their investing, voting, and purchasing powers to incentivize new market forces reliant on fully transparent corporate reporting.
So, companies, large and small, are publicly declaring and transparently executing their purpose. Like Whole Foods voluntarily requiring full transparency of third party non-GMO verification of all its SKUs. Like Zappos offering open-book access to all its vendors. Like Stripe archiving all its teams’ emails for open access. Or Patagonia’s Footprint Chronicles map and video documenting each step of its product supply chain journey from sourcing to sale.
Capital markets are mandating and rewarding such positive environmental, social, and governance practices, rooted in transparent and trustworthy corporate communications. The documented sustainability and ethics of the companies included in what were not long ago considered “alternative funds” are becoming de rigueur for investors. Such impact investment funds are proliferating by the scores each year.
The Global Sustainable Investment Alliance (GSIA), a collaboration of sustainable investment organizations around the world, calls attention to recommended investments among companies that Lead With We. It aims to get “sustainable investment” fully integrated into financial systems and the investment chain across the world. It’s working — and not slowly.
What’s the potential effect of impact investment? Rockefeller Philanthropy Advisors [RPA] is a nonprofit organization that advises on and manages more than $400 million in annual giving by individuals, families, corporations and foundations. It notes that as social and environmental challenges become increasingly entrenched and complex, government and philanthropy can’t solve them on their own.
In the US, philanthropy amounts to about $390 billion, government spending is $3.9 trillion, and capital markets (all debt and equity investments) encompass $65 trillion, RPA argues. Globally, total investments are estimated at $300 trillion. “Thus, a 1% shift in global capital markets towards impact investing — or investments that work toward social good — could cover the estimated outstanding $2.5 trillion annual funding gap to achieve the United Nations’ Sustainable Development Goals (SDGs).”
That’s a major reason The International Finance Corporation of the World Bank (IFC) has leveraged $2.6 billion in capital to deliver more than $321 billion in financing, market-creating, and expanded opportunities for businesses in developing countries — essential for eradicating extreme poverty and other pressing problems. The IFC transparently reports on its impact across the world, much of it created in partnership with private business.
Governments are also taking responsibility on their own as well as working together with the private sector to advise, guide, and regulate.
For example, Congress recently passed the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act.
In 2020, on his first day in office, President Biden signed the instrument to bring the US back into the Paris Climate Agreement, which has wide-ranging implications on the private sector. “The Paris Agreement has become an international standard for business action. As countries work to implement their national climate plans and policies, more and more businesses are reducing emissions and building climate resilience,” according to the We Mean Business Coalition.
In 2018, Senator Elizabeth Warren (D — Mass) first introduced the Accountable Capitalism Act [ACA], currently under review in the Committee on Commerce, Science, and Transportation. If passed, the law would obligate companies with more $1 billion dollars in revenue to acquire a federal corporate charger stating a “general public benefit” (a B Corp-like business) and to take into account additional interests in connection with the business besides shareholder prosperity and profit.
Under ACA, company directors would have to consider the interests of all corporate stakeholders — including employees, customers, shareholders, and the communities in which the company operates. For the past decade, big US companies have conferred 93 percent of their earnings on shareholders alone, Warren says in the bill. “That has redirected trillions of dollars that might have otherwise gone to workers or long-term investments,” with predictable results.
And, as I highlighted in Part 2 of this series, the vast majority of Americans now favor Federal requirements as a key lever for increasing corporate disclosure on environmental impact.
Meantime, consumers and citizens are leveraging better tools to self-organize and catalyze change, even in the absence of regulations.
For example, it took 83,000 petition signers to finally get Clif Bar — one of the “good guys,” which still had some room to improve — to disclose its cocoa sourcing, leading to its eventual commitment to 100 percent Rainforest Alliance Certified cocoa.
You’d be hard pressed to find an S&P 500 firm not issuing a sustainability report at least annually. Most large companies, as well as many smaller enterprises, subscribe to some measures of CSR, sustainability, or better, with many going well beyond into regenerative or circular economic territory.
Companies across the world are rising to the occasion with ethical and sustainable sourcing, H20- and carbon neutrality, cruelty-free testing, hiring veterans, feeding the hungry, etc. — the forms it takes are endless and unbounded, suiting an array of particular passions and expressions of purpose.
In short, a mass movement is shifting companies from “Me” to We thinking and practice — and the trend toward transparently reporting on the same is only increasing.
As evidence, all of the “The Big Four” accounting firms are actively promoting transparency. Both Ernst & Young (EY) and Deloitte launched their “purpose practice” divisions several years ago, providing best practices advice for their increasingly conscious clients. Price Waterhouse Cooper (PWC) is driving market alignment around the SDGs. McKinsey is especially proactive in this space, providing training on a massive scale, as well as annual reports on purpose-led companies, policies, and strategic planning, paying special attention to job training and retraining.
Between their respective client bases, the “Big Four” represent the vast majority of global corporations now better steered in the direction of greater responsibility, accountability, and transparency in service of their own business futures and our collective future.
It’s a movement of movements and the train cannot be stopped.