According to the Global Sustainable Investment Alliance, sustainable investment, an approach to investment that incorporates environmental, social, and governance factors into the composition of portfolios, account for $35.5 trillion in assets under management in 2020, or 36% of global assets under management, a share that has grown remarkably over the past two years by 15%.
CSR is becoming an increasingly important part of a company’s intangible capital.
Today’s focus on environmental and social issues has led to a shift from the traditional economic model, which focuses solely on economic profit, to a disruptive model that focuses on the planet, people, and profit.
Therefore, environmental, and social issues are not only a source of innovation but also a necessity to ensure the sustainability of companies.
The edge between cost and investment is a very fine one and the implementation of a CSR approach within a company’s strategy must be coherent and well thought out. It is a question of reflecting the actual economic, social, and environmental usefulness of such investments to prevent all types of greenwashing.
When setting out actions in the CSR approach, it is important to prioritise them in order of likelihood according to the challenges facing your sector, country, or company. This process of aligning the CSR approach with the company’s strategy is called materiality.
Furthermore, it is important to note that momentum is different for every company. It is this level of momentum, defined according to the company’s stage of development and maturity, that creates the inflection point between cost and investment.
When considering the costs of CSR, it is important to consider the global cost concept over the entire product lifecycle, which includes all the costs associated, from its design through to its lifespan and recycling. In this calculation, it appears the cost of the negative impacts of the company’s activity, more commonly known as negative externalities.
And it is anticipated that these negative externalities are to become increasingly significant for companies as an inherent cost to their business in the face of enhanced regulations.
However, for start-ups, these negative externalities can be avoided by aligning the strategy with a forward-looking CSR approach at an early stage of the company’s development.
As an M&A analyst, it is worth noting that the financial sector is undergoing a significant evolution towards a vision that is sensitive to the environmental and social aspects of companies. Investors are increasingly turning to an environmentally and socially conscious economy through investment strategies that are oriented towards companies with business strategies that integrate a coherent CSR dimension to take advantage of tomorrow’s vision of the world.
Any questions about your CSR policy in preparation for an M&A transaction? Feel free to contact us.