Executive
Summary

Copyright © 2022
Argüden Governance Academy

PURPOSE & VALUE CREATION MODEL

From a stakeholder perspective, articulating a holistic story of how a company creates value for the company, society and the environment, and sharing progress of this journey is a strength. It offers a proxy for management quality for investors, it allows responsible choice and enhances brand loyalty for customers, it highlights where to partner for global action for governments; and it allows a company to maintain its social license to operate for communities. Global Sustainability Leaders integrate sustainability into their core value creation model and lead the way in extending their strategy and management beyond pure financial outcomes, to encompass environmental, social, and governance-related factors that are critical for the future viability of their organizations.

Companies can use Integrated Reporting as a transformative tool for continuously getting better at managing sustainability and stakeholder engagement. At the minimum, this approach enables companies to build links and manage a diverse set of risks that can arise from complex environmental, social and governance related issues. Adopting integrated thinking shifts the mindset into a stakeholder-centric, value-based approach in company operations.

SGS 2022 Value Creation Model

Recommendations

  1. Clearly articulate your purpose and define your sustainability strategy: Best-in-class companies identify a corporate purpose that encompasses sustainability goals and build a culture around it. A clear statement of purpose unites executives, directors and investors on the company’s priorities, and creates the link between strategy and capital allocation decisions. To create competitive advantage, more is required than convergence to industry standards – companies must differentiate strategically and develop approaches difficult to imitate.

  2. Visualize a holistic, sustainable value creation model: A value creation model forms the basis of a companies’ vision for long-term value creation. Companies should define tangible and intangible assets as a medium for value creation for both internal and external stakeholders. These capitals can be broadly defined as financial, manufactured, intellectual, human, social & relationship, and natural capital. This requires the company to evaluate the relationship between different functions towards achieving its strategic goals. Companies should also show how inputs link to outputs and outcomes.

  3. Measure and disclose outcomes for external and internal stakeholders: Outcomes should be defined and quantified not just for shareholders but also for relevant external and internal stakeholders.

  4. Adopt integrated thinking/reporting: Best examples of holistic thinking on value creation are found in companies that embrace Integrated Reporting. Integrated Reporting is a holistic tool to help companies tell the story of how they create value now and in the future. It is also a transparency and communication tool and can form the basis of constructive dialogue with investors as well as other stakeholders.