Capitalism’s Big Shift

It’s impossible to be unaware that capitalism is changing. The profit motive that has fuelled most economic activity for decades is being replaced by an era where companies are held to broader set of standards. 

To some these come under the heading of ‘purpose’, to others, it’s about ‘sustainability’, whilst an increasing amount of investment is conducted with ESG principles in mind.

From an investment point of view, there’s no doubt that investors have noticed that companies that can identify and manage such extra financial risks are better run companies that are likely to out-perform their peers.

Investors are also increasingly suspicious of corporate attempts to ‘greenwash’ and present themselves in a flattering but disingenuous manner.

Many companies have risen to this challenge.  Not least because management teams recognise that a failure to manage ‘bumps in the road’ can only hurt them, including bottom line. On the plus side, those that take such a holistic approach are rewarded with an enhanced ability to deliver against their set business objectives – whether through the ability to attract and retain talent, gain competitive advantage or operate without regulatory intervention.

But for many companies their genuine efforts to manage extra financial risks go unnoticed by those in the capital markets.

Most companies invest significant management time and expense in ensuring that they take into account all the likely barriers and issues that might affect them for good or ill.  Many fail to turn that competitive advantage into currency with actual and potential investors. 

One reason is that investors increasingly take a very sophisticated approach to scrutinising companies that includes data well beyond that which is provided in sustainability reports.  They scour digital and social data to make their own judgements. Most companies therefore don’t see themselves as the buy-side sees them.  Without an effective ‘mirror’ no wonder they’re often disappointed about their efforts in terms of extra financials fail to ‘cut through’. 

Another is that companies are often siloed in how they produce and disseminate information.  The CSR/Sustainability department is often quite separate from the Investor Relations department, with the outcome that they don’t get the credit that they’re due.

It’s a rather weary but apt business saying that effective management requires effective measurement.  Companies that are serious about punching their weight in terms of extra financials must make the effort first to see themselves as they are perceived by investors.  They then need to ensure that an effective campaign, including a big slice of digital and social communications, is in place to make sure that they get the credit they deserve.

The world’s watching. What will you do?