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From environmental activism to the P&L account

Juan Luis Manfredi

The future will be here sooner than expected. Recent court cases, the green focus of EU funds and pressure from the general public are being enshrined in law and impacting business models and operations. The common denominator is the commitment to the future and to long-term plans and returns against a backdrop of abundant capital and liquidity. When capital is scarce or expensive, corporate strategy focuses on short-term maximization and endogenous growth to shield itself from financial turbulence. But corporate strategy today must sideline these short-term viewpoints and explore new business opportunities by creating new markets. In comparison with the weighted cost of capital, short-term benefits are derisory compared to the possibility of creating new intermodal infrastructures for the middle class in Asia, renewing all the vehicles in Europe, encouraging waste management in large Latin-American cities and consolidating the hydrogen economy, to name but a few of the businesses expected to have two-digit, annual growth rates.

Issues constantly change and if companies postpone certain decisions they run a real risk of going under

The only certainty is that issues constantly change and if companies postpone certain decisions they run a real risk of going under. The interviews with leading Spanish directors revealed that this perception of business opportunity pointed towards new economic and industrial sectors. According to one senior executive in the food and farming industry, “We must leap up to other levels: well-being, health and the environment are permanent fixtures on the social agenda. They are formidable levers of change to boost the circular economy and waste management, and eliminate practices typical of low-cost companies. We have become aware and this is a specific response to the demands of society.” He stated categorically, “I don’t take action because of labels or certifications, but because I want to bring our businesses into line with social concerns.”

This is the key: create your own opportunities with a business tailored to the times to come

The CEO of a big construction and civil engineering company considered the strategic scenario opening up for climate change mitigation, because “a company that includes mitigation in its cost rhetoric will end up disregarding it. We must pinpoint, support and encourage business opportunities in sectors such as sustainable infrastructures, emission reduction and the circular economy.” Taking no action entails more risk than “overhauling processes and operations, eliminating products and increasing the cost of some services”. This is the key: create your own opportunities with a business tailored to the times to come.

Purpose is merely what agglutinates these ideas, the focal point that enables long-term thinking by combining environmental concerns with an investment mindset when capital is plentiful. Purpose is an instrument for general management when “the answer is not a corporate pop-up. Writing a few lines about purpose is followed by thinking about business goals and the commitments and values that drive us.”

So we must consider the purpose of business from the viewpoint of three forceful ideas:

  • The cost of capital is minimal. The nature of transformative leadership springs from the opportunity to explore, invest, make mistakes, learn or invest in R&D. It is not about guessing consumer behaviour ten years hence, but trying out investments for the future that lies ahead.
     
  • Reduce, recycle, reuse. The efficient management of energy, water and waste makes productivity soar, opens the floodgates of new businesses in the circular economy and heightens corporate reputation. These are real ways of aggregating P&L accounts, if managers are able to seize this value and make it an asset.
     
  • The shift has begun. The road ahead is full of uncertainties and delays. No deadlines will be met. But capital markets can see from the facts that decarbonsation is unstoppable.

In short, the era of transformative leadership can take advantage of activist trends to transform values into strategic decisions, incorporate sustainable assets and rework portfolios whose value will plummet in the medium term.



* This article is part of the research project “Directivos transformadores en la era digital: la brújula del propósito” (Kreab) which examines the impact of the transformation agenda on corporate leadership and analyses how it is interpreted by CEOs and managers in Spain. To be precise, more than twenty senior directors of companies in the Spanish market were interviewed about civic ‘activism’ as it is called, and the purpose and economic cost of these measures. 
 

 

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