5 questions about Total Societal Impact 

to Matias Pollmann-Larsen, Boston Consulting Group


Mathias Pollmann-Larsen is a Principal in the Copenhagen office of the Boston Consulting Group. He is also co-writer of the book 'Dronningens nye klæder – den danske myte om kønsdiversitet'. We have asked him 5 questions about Total Societal Impact and why it is important to businesses.

 

What is Total Societal Impact and why is it important to companies?

Creating positive societal impact can yield competitive advantage for the companies who are able to lead in their sector. And investors have moved beyond CSR and are increasingly focusing on the societal impact of their portfolios due to the value creation value proof that this represent, demanding companies to show leadership in terms of investment returns connected to their performance in ESG. At Boston Consulting Group, we have defined six key dimensions which forms the term Total Societal Impact (TSI): economic value, consumer well-being, ethics, environment, societal enablement and governance. TSI is the sum of all ways that a business can affect society: it is an important business opportunity and key to improving total shareholder return (TSR) while maximising the positive societal impact of the company.

 

What is the recipe for companies to succeed?

Boards and companies face a new reality and the volatility has increased globally, so it takes more to win, and errors are more impactful today as the level of transparency has increased significantly. Companies should factor TSI into their corporate strategies as a source of both short and long-term value creation of the company, and they need to understand and influence the value chain in order to drive an advantage. It is essential to create a narrative that clearly link what the company does - and why they do it - to the financials.

 

Does TSI drive higher shareholder value and valuation for companies?

BGC's research across four sectors found consistent positive relationship between TSI and higher valuations, better margins and competitive advantage. Each sector was able to identify multiple positive effects of having TSI incorporated as a core business value. As a result of this strategy, each sector saw how leading companies in specific material topics within ESG have considerable increases in their total valuation and gross margins.

Financial performance explains 74% of the value of the company while 26% cannot be explained by financials. ESG performance is able to explain 9% of the gap, which proves a strongly statistically relevant correlation. Doing good the right way can help grow your business, and we strongly encourage boards and senior management to look at their strategies and how they can be improved by implementing a TSI strategy which enables them to help tackle some of the world's most critical problems while strengthening the company's credibility and positively impacting the bottom lines.  


Does the investment community recognise TSI?

The investment community, including the world's largest asset owners and asset managers, is increasingly recognizing how TSI contributes to TSR over the long term. The only way we're going to make substantial progress on the big global challenges is for businesses to drive the solutions - and it is evident that companies with a strong 'license to operate' and a clear TSI strategy will be better positioned to increasing the value of their companies, building brand reputation and creating loyal customers while making a difference for communities around the world.

 

Which actions can companies take to maximize their TSI?

Long-term considerations are key to the TSI approach and commitment from the board and the top management is particularly critical to drive the effort deep into the organization. 

We recommend the following actions that companies can take to maximize TSI:

  • Identify the distinctive set of material TSI themes that are relevant to the company's industry and in which it can have a meaningful, positive impact, leveraging the core competitive advantage.
  • Develop a vision, the ambition.
  • Articulate the strategy and value to organization and society, to understand how TSI is part of the core business strategy and what financial and societal benefits the company expects to achieve.
  • Set clear goals for the societal benefits the company aims to create and measure performance against those goals.
  • Select a limited number of high-priority initiatives within each TSI area that are integrated with and driven by business units.
  • Activate implementation plans for each initiative.
  • Ensure the TSI effort is supported by the right resources, capabilities, management structure, governance and incentives. 
  • Employ transparent and comprehensive stakeholder plan, communicate to investors the external impact of TSI activities as well as the effect on financial performance.
  • Ensure the TSI effort is supported by the right management structure, governance and incentives.