21 October 2014: Companies need a better understanding of the value they create for society in order to protect and create corporate value, according to A New Vision of Value, a new KPMG report launched today at an event in London.
A New Vision of Value identifies three key drivers that are closing the gap between corporate and societal value creation: new regulations and standards; the growing influence of stakeholders; and changing market dynamics driven by economic, social and environmental megaforces.
These three drivers mean that corporate externalities, which historically had little or no impact on cash flows and risk profiles, are bringing new risks and opportunities with significant implications for corporate value creation in the 21st century.
“Externalities have been largely excluded from the measurement of corporate value historically, but today corporate and societal value creation are becoming more closely connected,” said Vincent Neate, UK Head of KPMG’s Climate Change & Sustainability practice.
“Externalities are now part of every company’s value creation story. Business leaders and their investors need to be aware of these new dynamics in order to unlock value creation opportunities and manage risks. They need to identify and quantify externalities, recognize what is driving internalization and understand the implications for corporate value.”
The report contains case studies which illustrate how new regulations, stakeholder action and market dynamics could affect the earnings of three model businesses: a gold mine in South Africa, a brewery in India and a plastics plant in the US.
It applies the KPMG True Value methodology to find that, in a 2030 scenario, the brewery could see its earnings margin of 5 percent turned into a loss of 4 percent. The gold mine could see its earnings margin reduced to a level of 1 percent that would make it financially unsustainable. The plastics plant by contrast was better protected from the internalization of its externalities due to its location and sector-specific conditions.
The report also highlights how closer alignment between corporate and societal value creation is being held back by the current financial system in which many investors and business leaders are focused almost exclusively on the creation of short-term shareholder value.
It proposes a 6-point agenda for change:
To download the report visit: A New Vision of Value: Connecting corporate and societal value creation.
For further information, contact:
Ann Burton, KPMG Press Office
T: 020 7311 6497
M: 07467 339 719
KPMG Press Office: +44 (0) 207 694 8773
About the research
The KPMG International research team comprised professionals from KPMG member firms in the Netherlands and South Africa. Supporting research was carried out by the Smith School of Enterprise and the Environment at the University of Oxford, UK which co-authored the report and by independent research consultants. KPMG International also engaged over 50 senior professionals worldwide from the fields of business, investment, policy, academia and civil society who participated in the research through interviews and workshops.Case studies assume that the model businesses take no mitigating action.About KPMGKPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.