How to close value deficit in sustainability?
Sustainability is now in the agenda of companies. Carbon emissions are measured, preparing ESG reports, discussing climate risks. But how much companies do this work lead to financial decisions?
KPMG’s “Captaining Value Angle in Stability” report pays attention to an important contradiction of the business world. According to the research, 72 percent of managers have extensive knowledge about sustainability strategies and performance. In turn, the ratio of those who can measure the financial impact of sustainability risk and opportunities is only 19.
This table shows that companies know sustainability but not yet become part of financial decision mechanisms.
[
There is a break between finance and finance
[The sustainability teams in many companies follow carbon emissions, water consumption or supply chain risks. Finance teams focus on growth, profitability and investment decisions.
] The problem is that these two areas are often independent progress.
] For example, a company may know the effect of water stress on production plants. However, if this risk is not reflected in financial models that will affect production capacity, revenues or investment plans in the future, sustainability data cannot be turned into a strategic decision tool.
Announce risk is now financial risk
Results, extreme weather events, energy costs or new climate regulations are not only environmental titles. Each of them directly affects the costs, production, supply chain and competitiveness of companies.
Similarly, the sustainability reporting regulations of the European Union are waiting for companies not only disclose environmental performance, but also to reveal financial effects of these developments.
With another statement, investors are now asked not only the question of “How much your carbon emissions?”, “How will this risk affect your company’s value?”
How can you close the deficit?
] The first step according to KPMG is to carry the center of the business strategy that is not the obligation to report sustainability.
For this, companies need to determine which environmental and social risks are financially critical in the sector they operate primarily. Then these risks should be analyzed with scenarios of possible effects on income, cost, cash flow and investment decisions. [
Thus, sustainability indicators can only turn into strategic indicators used in decision-making processes by being data contained in annual reports.
Why important for Turkey?
] [ The new regulations of the European Union directly affect the Turkish companies that export. Carbon regulations on the border, sustainability reporting standards and investor expectations make it mandatory for more companies to evaluate their climate risks with financial perspective.
Therefore it will not be enough to prepare reports only. The company’s sustainability data will be decisive in terms of competitiveness that integrates financial planning, risk management and investment decisions.
No conversion report, in decision mechanisms
Sustainability is not only the responsibility of the environmental teams; a strategic element that determines the capacity of companies to create long-term value. [
KPMG’s report also points out to this point: A lot of companies’ sustainability know how well they are able to convert this information into financial value can be prepared to the economy of the future. One of the most important competitive advantages of today will read the climate risks correctly and make them an integral part of the company strategy.
KPMG’s “Captaining Value Angle in Stability” report pays attention to an important contradiction of the business world. According to the research, 72 percent of managers have extensive knowledge about sustainability strategies and performance. In turn, the ratio of those who can measure the financial impact of sustainability risk and opportunities is only 19.
This table shows that companies know sustainability but not yet become part of financial decision mechanisms.
[
There is a break between finance and finance
[The sustainability teams in many companies follow carbon emissions, water consumption or supply chain risks. Finance teams focus on growth, profitability and investment decisions.
] The problem is that these two areas are often independent progress.
] For example, a company may know the effect of water stress on production plants. However, if this risk is not reflected in financial models that will affect production capacity, revenues or investment plans in the future, sustainability data cannot be turned into a strategic decision tool.
Announce risk is now financial risk
Results, extreme weather events, energy costs or new climate regulations are not only environmental titles. Each of them directly affects the costs, production, supply chain and competitiveness of companies.
Similarly, the sustainability reporting regulations of the European Union are waiting for companies not only disclose environmental performance, but also to reveal financial effects of these developments.
With another statement, investors are now asked not only the question of “How much your carbon emissions?”, “How will this risk affect your company’s value?”
How can you close the deficit?
] The first step according to KPMG is to carry the center of the business strategy that is not the obligation to report sustainability.
For this, companies need to determine which environmental and social risks are financially critical in the sector they operate primarily. Then these risks should be analyzed with scenarios of possible effects on income, cost, cash flow and investment decisions. [
Thus, sustainability indicators can only turn into strategic indicators used in decision-making processes by being data contained in annual reports.
Why important for Turkey?
] [ The new regulations of the European Union directly affect the Turkish companies that export. Carbon regulations on the border, sustainability reporting standards and investor expectations make it mandatory for more companies to evaluate their climate risks with financial perspective.
Therefore it will not be enough to prepare reports only. The company’s sustainability data will be decisive in terms of competitiveness that integrates financial planning, risk management and investment decisions.
No conversion report, in decision mechanisms
Sustainability is not only the responsibility of the environmental teams; a strategic element that determines the capacity of companies to create long-term value. [
KPMG’s report also points out to this point: A lot of companies’ sustainability know how well they are able to convert this information into financial value can be prepared to the economy of the future. One of the most important competitive advantages of today will read the climate risks correctly and make them an integral part of the company strategy.
Source: Sustainable Business