Integrated Management for Capital Markets and Strategy: The Challenges of “Value” Versus “Values” Sustainability Investment, Smart Beta, and Their Consequences for Corporate Leadership

Abstract

The discussion regarding sustainability strategy and reporting has largely focused on the integration of financial and non-financial data. However, a silent but dramatic revolution in financial asset management markets has occurred, as accounting for risk factors related to sustainability issues has become mainstream. To navigate these changes, companies must develop and align two integrated process loops. First, the information requirements of rating and ranking organisations, as well as the asset managers themselves, must be addressed. As increasingly sophisticated techniques, such as “smart beta” or “factor investment” are used to isolate specific ESG-related risk or opportunity factors, the demands placed on companies to steer, manage, and align information flows will increase. This will require a more active process than the current one-way information flow, which only satisfies rating and ranking data requirements, to more actively engage capital market actors in a dynamic dialogue. Second, an equally important and challenging process loop will integrate external and internal financial and non-financial objectives in a common, operational framework. This will facilitate multiple objectives throughout the organisation, driving alignment, focus on objectives, and robust reporting and feedback to highlight enterprise-wide value creation. These twin process loops require the attention of company leaders to ensure effective external communication and integrated management of strategy design and delivery.