Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance29Conclusion As this report demonstrates, corporations face mounting systemic challenges in addressing social and environmental issues that cannot be solved through traditional compliance or philanthropic approaches alone. The complexity of modern supply chains, combined with tightening regulations and increasingly competitive markets, creates significant operational and financial risks that are difficult to address through conventional corporate structures. Companies who attempt to integrate social impact into their core operations often face persistent obstacles in balancing commercial viability with social outcomes. These challenges suggest the need for alternative approaches that can effectively bridge the gap between corporate capabilities and social impact requirements. Innovative finance approaches such as OBF offer companies a powerful way to create long-term value, strengthen alignment between financial and impact goals, and showcase connections between business, finance, risk and impact. At the same time, OBF supports multistakeholder collaboration to address shared risks and create new social impact markets. Companies are not only buyers of social impact in these markets, they are also integral to pipeline development and market integrity.That way, companies can harness innovative finance to contribute significantly towards scaling successful societal solutions. This is especially true if significant limitations of OBF are taken into account, such as a tendency to focus on impact “transactions” – an overly simplistic, linear approach to impact from input to output that risks only addressing symptoms while reinforcing inherently unjust structures. Therefore, innovative finance needs to go hand in hand with bold action to explore truly systemic solutions that address issues at their core. Once proven in principle, OBF can help scale these solutions with the support of companies. 2,000 of the most influential companies across 86 countries account for $45 trillion in annual revenue and 92 million jobs. Multinational corporations in particular are responsible for 80% of global trade and one in five jobs across global supply chains. Almost a fifth of those companies are headquartered in developing countries.59 There is a significant opportunity to act on issues that affect both the bottom line of the company and the economies and communities in which they operate. Building an inclusive and sustainable economy requires systemic, long-term strategies, cross- sector collaboration, and bold, risk-tolerant investments. The business case for environmental impacts, particularly climate and increasingly nature, is reasonably well established and has been integrated into corporate core business operations and budgets. The business case for social impact is less advanced but the effects of poverty and inequality on companies in a globalized world is increasingly evident. This is especially relevant in developing economies where economic exclusion is widespread and transformational change is required. Within this context, companies are uniquely equipped to build new markets within and beyond their immediate value chains, which requires complex management skills, access to extensive resources, and the ability to influence markets and regulatory environments. Companies can explore and use these tools to accomplish business objectives as well as social and environmental goals. Strategies to link impact to financial rewards align directly with corporate needs, building on a wealth of knowledge, proven practices and use cases. Corporate leaders can lean on and join a community of seasoned practitioners to map specific approaches to their specific corporate needs – from addressing material social issues in supply chains to unlocking new markets for impact-first products. The pressing nature of the challenges related to the UN SDGs and climate change requires actionable, practical solutions that lend themselves well to corporate needs and their ways of operating. As this paper showcases, innovative finance approaches can be one very important part of the corporate sustainability journey.