Top 5 finance and governance tools

Having a sustainable business is managing a business in such a way that it creates long-term value.  Value for the business itself but also value for society and the environment.

The power of business to create value for itself and society should not be underestimated.  

It is the role of the finance leader to steer this value creation by embedding sustainable financial and governance tools into their organisation. 

We’ve highlighted here the top 5 tools which we believe will create value for both business and society:

 1.  Traditional finance tools

The first hurdle to overcome for an organisation is financial sustainability. Without robust financial performance within a business it cannot successfully trade over the long term. 

Traditional finance tools such as cash flow management,  budgeting and forecasting, tax preparation, balance sheet controls and stock management should all be embedded in a business and carefully managed.

Failure in this area can result in the business struggling to survive and ultimately becoming insolvent. the economic and wellbeing impact on its stakeholders (society)  can be life-changing.

2.  Sustainable business cases and integrated reporting

The main difference between a sustainable financial business report and a traditional financial business report is to what extent your results add additional benefits over and above the financial projections. These benefits are referred to as additionality.  

Sustainable business reports  incorporating  financial, social and environmental value will drive understanding and increased levels of awareness of how the  3 areas are inextricably linked.

Work is underway, and in some areas well progressed, to produce methodologies to value your social impact, however there is not yet a mandated or regulated approach.

You can explore thought leadership and tools in this growing area here:

Princes Trust Accounting 4 Sustainability 

The rise of the Chief Value Officer 

You can start today to measure and evidence your business social impact through KPI and metrics. There are a number associated with societal benefit. 

Examples include:

  1. Percentage of your planned spend will be within your local community
  2. What percentage of your employees are paid at least 10% above the national living wage 
  3. How many managerial roles within this project will be filled by women

3.  Impact Business Models (IBMs)

IBMs can be found in the B Corporation (B Corp)  framework, also referred to as the BIA. these models have the following features:

Specific - focused on benefiting a particular group of individuals with a particular positive benefit/outcome.

Material - focused on providing SIGNIFICANT positive impact to their specified stakeholder, not negligible.

Verifiable - an IBM is normally able to be documented or verified through company’s own documentation/materials.

Lasting - IBMs as an aspect of the design of the company are difficult to alter in the near term.  Having an IBM is not a part of the business merely as a result of current circumstances, but is built into the nature of the business itself. 

Extraordinary - it is unusual for a company to have an IBM. It is generally something that traditional businesses don’t have. 

Examples of how IBMs can be used to drive social value, and long term financial value, are:

  • Focus on providing training and support services to underserved individuals
  • Providing services or products to underserved populations in the lowest income levels
  • Offer > 40% of shareholding to workforce

(Source B Lab UK February 2021)

4.  Mission lock

Where a company locks in their mission through changing their articles of association to protect both their mission and ability to formally consider stakeholders in decision making.

Having this legally mandated activity will inevitably drive social value as it becomes a core component of decision making at board level..

Note that this legal change  is not yet mandatory in the UK but is a mandatory requirement if a business would like to achieve B Corp certification.

  • Directors of B Corps are obligated to take into account the interests of all stakeholders.  They need to therefore create mechanisms to ensure their interests are represented. 
  • Stakeholders are not granted recourse against Directors.
  • Directors are not subject to any further liabilities under their obligation to produce an annual impact report, but their liability does not alter in the case of providing false or misleading information.

(Source B Lab UK February 2021)

5.  Venture Capital driven to the underserved populations

Research in VC diversification by Crunchbse has shown that:

  • a large majority (68.33%) of the capital raised across the seed, early and late VC funding stages went to all-male teams; 28.80% to mixed gender teams; and just 2.87% to all-female teams, with female teams also raising lower sums of money than their male counterparts at each funding stage. 
  • The picture is starkest for Black female entrepreneurs in the U.K. who were found to experience the poorest outcomes. “A total of 10 female entrepreneurs of Black appearance received venture capital investment (0.02% of the total amount invested) across the 10-year period, with none so far receiving late-stage funding,” the report notes.

Driving cash into underserved populations will bring job growth into their local economy. It is more likely to support products and services identified by these groups as benefitting these groups. 

For more information as to how your business can become sustainable have a read of our blog which details how you can align to the Sustainable Development Goals.