Economics of Impact: Unlocking Purpose-Led Performance Management, FSGWith increasing recognition that markets today create wealth and positive social impact inequitably and deplete or degrade natural resources, more companies must rethink their purpose and strategies in order to provide real and lasting solutions to these substantial problems. Discover how.
This article was originally published by FSG in October 2020.
With increasing recognition that markets today create wealth and positive social impact inequitably and deplete or degrade natural resources, more companies must rethink their purpose and strategies in order to provide real and lasting solutions to these substantial problems. In the process, they must identify new business models to ensure a more positive impact on key environmental and social conditions and set themselves ambitious financial and social targets.
Those companies that are pursuing an authentic societal purpose (as opposed to those who simply seek a quick PR win) will quickly ask themselves how to allocate capital differently across their portfolio of businesses and activities in order to meet both sets of targets. This is not an easy exercise as, today, no accounting or measurement system exists to link financial and societal performance at a corporate level and enable purpose-driven capital allocation.
The role of economics of impact
Consider a hypothetical global meat and protein company with $30bn in sales from beef (53%), chicken (45%) and alternative proteins (2%) that has adopted the corporate purpose of producing sustainable proteins to feed the world for generations to come. In line with its purpose, the company has set itself both ambitious commercial and societal targets for 2025 and 2030 (including halving land use and reducing CO2 emissions by 30%).
A quick look behind the scenes, however, shows that financial and societal targets are not reconciled and that meeting both of them requires the company to fundamentally rethink how it does business. With 60% of operating income, the beef segment is a key pillar of the firm’s profitability. At the same time, it is driving 98% of the company’s CO2 emissions and 86% of land and water usage.
Should the company transform its businesses away from beef and chicken and shift to alternative proteins? Observations of key trends…
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