A common challenge with organisations in fully embracing sustainability has often been the pressure to achieve short-term or immediate financial performance targets. This pressure is best reflected in the quarterly financial reporting across capital markets and stock exchanges.
A reporting cycle that rewards organisations through capital flows in search of maximum financial return encapsulates management’s stewardship role in delivering financial success for an organisation.
One drawback to this model in the extreme is that it could lead to management sacrificing long-term success to achieve short-term results. An outcome that ultimately destroys the investments held by the providers of capital in an organisation.
Organisations must understand that at the core of sustainability is the ability of organisations to meet the demands of today without compromising their ability to meet the demands of the future.
Therefore, organisations should see sustainability not as an impediment but as an enabler towards achieving short, medium and long-term financial goals by considering the following.
The materiality assessment performed by organisations when determining material topics should be done using a business case lens. By considering the business case, organisations are able to tackle pressing challenges while staying focused on value drivers for future growth and competitiveness.
The materiality assessment should be tailored to an organisation and not boilerplate to ensure that its outcome is in alignment with the expectations and demands of its operating environment and stakeholders. Failure to take this approach may result in sustainability being viewed as a drag on short-term financial performance.
Organisations should also ensure the material topics or non-financial matters that support their business growth strategy are translated into financial information that supports management decision-making.
Sustainability is not intended to run on a separate parallel track within but to form an integral part of how the organisation executes its business growth strategy.
Organisations should also develop comprehensive impact measurement approaches that demonstrate and highlight the value created by sustainability.
For example, organisations should be able to quantify the effect of sustainability on brand value, customer loyalty, customer contracts and their impact on its fair value of an organisation.
These intangibles form a big part of an organisation's fair value and should be considered when preparing the financial impact analysis for sustainability.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
