Corporate and societal value creation are increasingly connected, finds KPMG

Corporate and societal value creation are increasing...

A New Vision of Value, the report Expect the Unexpected, explores the increasing connections between corporate and societal value connection.

Related content

  • 3 key drivers are closing the gap between corporate and societal value creation. 
  • Externalities are likely to have increasing impact on corporate value creation. 
  • KPMG sets out 6-point Agenda for Change to align corporate and societal value creation more closely.

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 global report published today by KPMG International.

A New Vision of Value identifies three key drivers that are 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.

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.1

“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 Adrian King, Global 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 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:

  • Demonstrate leadership and tangible action.
  • Clarify the concept of fiduciary duty.
  • Improve understanding of the relationship between corporate and societal value.
  • Change mandates and incentives.
  • Improve the quality of data.
  • Provide an enabling policy environment.

For more information contact:

Mark McKenzie

KPMG Global Center of Excellence for Climate Change & Sustainability

+ 31 6 4676 1884

Ellie Austin

KPMG Global Center of Excellence for Climate Change & Sustainability

+31 6 1177 9048

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.

Footnote

1. Case studies assume that the model businesses take no mitigating action.

A New Vision of Value: Connecting corporate and societal value creation

KPMG's report explores the growing connection between corporate and societal value creation.

 
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KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 174,000 people 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.

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