3 ways to increase profits and become sustainable

The opportunities for businesses to make the world a better place and be more profitable at the same time are more contradictory than ever. On the other hand, there is ample evidence that businesses can benefit from contributing to solving the United Nations Sustainable Development Goals. Meanwhile, ESG has become a flashpoint for politicians and investors who believe mitigating climate risks and solving social problems will get in the way of delivering value to shareholders.

Making decisions in this situation is not easy. For example, the private sector is under increasing pressure to close the widening emissions gap and help achieve the goal of keeping global warming below 1.5 degrees Celsius. However, despite the fact that emissions of Fortune Global 500 companies without a chief sustainability officer increased by 3% in the past year, more than half of the world’s largest companies still do not have a CSO. yeah.

Now more than ever, employees, community stakeholders, and investors expect companies to use their resources to help solve society’s most pressing problems. However, today’s polarized political climate creates a situation in which it is unclear whether taking action in this area is in the best interests of business leaders. A Pew survey last year found that 78% of U.S. workers who identified themselves as Democrats agreed that it was good for companies to focus on diversity, equity, and inclusion, compared to Republicans. Only 30% of workers thought the same. Despite this finding, a survey of 194 chief human resources officers released by The Conference Board found that only one respondent said they planned to scale back their diversity, equity, and inclusion efforts. There wasn’t even one.

One of the most frequently told stories in 2023 was that companies were deprioritizing ESG. In fact, most companies continue to make ESG a strategic priority and understand its important contribution to mitigating risk and creating new business value. For example, his percentage of ESG reporting among S&P 500 companies is currently around 99%, according to his June 2023 study from the Center for Audit Quality.

A wave of new regulations is exacerbating an already difficult situation for businesses. This year, California companies will be required to report their involvement in voluntary carbon markets. The EU has new disclosure regulations, and the US Securities and Exchange Commission plans to introduce ESG rules to prevent greenwashing. Government regulations increasingly make the “E” in ESG a non-negotiable stake with the support of private capital, while social change priorities are adopted voluntarily and are supported by development capital and Supported through philanthropy.

In this complex situation, I wanted to gain a new perspective on what companies can do to become more sustainable and profitable. I consulted impact investor and ESG technologist Faraz Khan. He has spent two decades pioneering new approaches to using philanthropy, investment capital and technology to alleviate poverty, champion diversity and advance climate change.

Faraz is the founder of Social, Entrepreneurship & Equity Development (SEED) Ventures, a Pakistani investment and impact development organization. He currently leads a global sustainability advisory and technology company. SpectrEco was recently awarded an MBE by King Charles III for its work in strengthening the UK-Pakistan relationship in the areas of social impact, ESG and climate change advocacy.

Paul Klein: How did you decide to start your social, entrepreneurship, and equity development venture and what makes your approach to connecting business and social change so unique?

Faraz Khan: My interest in making the world a better place began with understanding the socio-economic dynamics of Pakistan’s rural ecosystem from the grassroots level. After joining the bank, I learned how the financial system works and realized that having a job is actually very limiting if you want to make a big difference in the world. So I founded Social, Entrepreneurship & Equity Development Ventures (SEED) in 2007 to create inclusive economic prosperity for Pakistan. SEED he works in two ways. First, we will develop an ecosystem for collaboration with the public, private and development sectors to achieve the Sustainable Development Goals. Second, SEED employs a blended capital model to contribute to social and environmental change through impact investing and grants. The results contribute to scalable enterprises that deliver return on investment and social return on investment. SEED has achieved the perfect balance between absolute capitalism and nonprofit work.

Paul Klein: Achieving change in rural Pakistan is not easy. How did SEED succeed in what should have been a very difficult environment?

Faraz Khan: Our approach to investing in businesses that benefit the personal needs of women, youth and children in marginalized rural areas is transforming the landscape, making us one of Pakistan’s largest social initiatives . Following our own successful investment, we created opportunities for other stakeholders to co-invest and co-authored new legislation in Pakistan that supports the creation of social enterprises and local sourcing. We also helped change the way companies contribute to social change by moving from traditional corporate social responsibility to corporate impact ventures and co-investments.

Paul Klein: Beyond these accomplishments, what else have you discovered about how your business can have a bigger impact?

Faraz Khan: We learned three important lessons. To attract more private sector investment in social change, we needed a better way to demonstrate performance. He also noticed that the global ESG ecosystem for companies is moving from voluntary to mandatory. Finally, we learned that establishing and scaling social enterprises requires better ways to address the interests of governments, investors, and community-based programs. To address this, we convened a group of data scientists to map all the world’s standard social and environmental regulatory frameworks and identify the greatest opportunities to benefit from increasing sustainability. We focused on three sectors: real estate, hospitality, and infrastructure. As a result, SpectrEco was created to help organizations accelerate all aspects of sustainability.

Paul Klein: What do you think is the best way to deal with skepticism from ESG commentators?

Faraz Khan: I believe that companies need to turn ESG into a strategic advantage to achieve their objectives and make the world a better place at the same time. While most companies see his ESG as a tool to reduce risk, I believe the greatest value lies in discovering new opportunities for profit for companies and their shareholders. For example, climate-induced disasters, such as drought in the UK or wildfires in Canada and the US, do not only affect the jurisdiction in which they occur. Floods in Pakistan submerged 33% of the country, causing widespread damage, disrupting food supply chains and affecting vulnerable populations on many continents. Companies tackling the climate crisis are supporting communities in multiple jurisdictions and ensuring the continued availability of their products.

Paul Klein: Which comes first: shareholders or stakeholders?

Faraz Khan: The main focus of the business is to create shareholder value through return on investment. That will not change, so companies need to demonstrate the value of climate and social change to investors. To do this, we need to speak to investors in the language they want to hear, and communicate that the transition to net zero is an investment, not a cost. Companies should communicate to shareholders that increasing stakeholder value actually increases the value of their investment beyond imagination and can prove it. That’s when the magic happens.

My conversation with Faraz revealed three insights that I believe are important to all business leaders and can help make their companies more sustainable and profitable.

First, contributing to and benefiting from the SDGs in a meaningful way requires more than money. Achieving substantive change also requires engaging governments, civil society organizations, and other businesses as appropriate to drive systemic change. Second, the transition towards net-zero goals is critical for businesses, with technology and data playing a central role. Data and AI can be used to assess business performance and societal change, and to address current and new regulations that set a new playing field for business and society. Finally, business leaders need better ways to communicate the role and value of community stakeholders to investors. We also need to help stakeholders understand that making the world a better place can only happen if companies are profitable.

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