Values over Value

We welcome this guest post from Alejandro Alvarez, Partner, Operations Performance at international consultancy Ayming.

Is 2020 to be the year that the purpose of business pivots to prioritise values over value? Environmental, social and governance issues have been part of the business discussion for much of the past decade. It’s likely that the coronavirus will further encourage action on these principles in the coming months due to how it is affecting both communities and the environment. However, even before this outbreak, the past year or two has seen a discernible step change to the political and economic debate which looks set to change the rules that have been governing business and driving markets for well over a generation.

It’s led influential global business figures to question whether entire sectors such as energy or infrastructure, or companies which fail to engage fully with the ESG agenda face an existential threat to their entire business model.

The pledge from Blackrock CEO, Larry Fink to use the clout of the world’s largest asset manager to tackle global warming is a testament to the growing power of coupling investor activism with stakeholder concerns. The biggest business lobby in the USA has also signalled a new direction by embracing a sense of wider social purpose instead of the shareholder-first mantra.

So, with pledges on sustainability and stakeholder concerns growing by the day, we brought together senior figures from the worlds of Procurement and Private Equity from the frontline of purchasing works, goods and services to discuss the progress and the pitfalls they’re encountering in driving the ESG agenda.

A highly diverse group of in-house professionals and operating partners from the private equity industry gathered in Central London for what turned out to be a most convivial and informative evening. In a conversation which was frank and honest, we debated whether the soaring rhetoric of CEOs and promises of a more sustainable tomorrow are running ahead of the pressures of delivering against financial targets.

Around the table were more than a dozen professionals from across a wide range of business sectors who all had one thing in common - being held accountable for delivery. It was clear that maximising cost effectiveness remains the paramount concern for all those who participated in this debate. There was general agreement among all those taking part that public attitudes are indeed changing and having an impact.

Voices from the retail and transport sectors acknowledged they are witnessing a transformation in consumer perceptions and evidence of the public acceptance of the direct link between the cost of sustainable sourcing and the ultimate price to be paid for any product or service.

It's a trend I’ve seen myself emerging from the consumer-facing companies we work with here at Ayming. I believe that change of mindset has also been accompanied by Business making big improvements in the monitoring and reporting of ESG issues. We’ve noticed over the past two years an appreciable rise in the number of clients asking us to focus on CSR opportunity identification as part of our assessments. It’s encouraging that clients are taking a mid- to long-term view and seriously considering ESG concerns.

While the challenge of quarterly and annual targets is a fact of life, I believe that the shift in attitudes is real and there are good grounds to be optimistic about the role that business can play in promoting purpose.

Many taking part in our roundtable event also highlighted a marked change in tone from the investor community. Consumers and investors are expressing their preferences through public campaigns and using the common language of protest which is also influencing the financial choices they make. In 2019, Europeans placed a record sum of 120 billion euros in sustainable ESG funds according to the financial data provider Morningstar.

But there was less clarity on whether stakeholder concerns could be factored into the procurement process itself, which is often governed by a necessarily legally rigid and rules-based framework. At the heart of the discussion was whether RFPs should contain social value targets, such as a quota of apprentices from deprived backgrounds or whether ESG concerns could or should become the critical factors for evaluation of the entire selection and tender process.

The central question facing everyone in the room was how to resolve any trade-offs between delivering against financial targets and delivering against sustainable and ethical values. Based on our discussion, it’s evident that ethical and sustainability concerns are filtering down into the business supply chain but they also create their own challenges in turn as compliance issues consume ever more precious time and effort.

But based on our debate I’m convinced that in balancing the pressures of driving efficiencies amid profound change to market structures, the procurement process has a pivotal role to play in ensuring stakeholder value has a meaning and a definition. It’s a role which extends well beyond delivering cost effectiveness and business continuity and is critical to ensuring that business has a “purpose” we can all recognise and celebrate.

 

Disclaimer: The opinions expressed are those of the author and do not necessarily represent the official position of Spend Matters

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