Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance5Introduction In today’s rapidly evolving business landscape, corporations are increasingly confronted with the dual pressure to deliver financial returns while demonstrating social and environmental impact. A staggering 72% of chief executive officers report heightened board and investor demands for transparency and accountability in these areas, underscoring the importance of integrating impact considerations into core business strategies. 83% of these corporate leaders expect improved business performance due to sustainability investments.1 Pressure is also being applied from other stakeholders, including regulators,2 customers3 and employees.4 These two considerations – financial and social – are, in fact, deeply connected. The risks associated with neglecting social dimensions are substantial, with estimates indicating up to $970 billion in potential value at risk due to environmental and social issues in global supply chains.5 At the same time, leveraging sustainability and impact as a business opportunity may unlock up to $12 trillion by addressing the Sustainable Development Goals (SDGs) through new business models.6 Despite mounting pressures and increasing opportunities, companies struggle to operationalize sustainability and social impact. A World Economic Forum survey highlights that only 12% of companies currently feature “resilient” value chains.7 Similarly, a 2023 study by the Harvard Business Review highlights that only 26% of organizations have operationalized their sustainability strategy. Figure 1 outlines the most significant barriers to operationalizing sustainability and impact.8Integrating environmental and social impact with financial performance addresses external pressures and unlocks business benefits Terminologies of innovative finance and outcomes-based funding BOX 1 Outcomes-based funding (OBF) is an umbrella term describing approaches where payments or investment terms are linked to results. While OBF represents one type of innovative finance, these terms are used interchangeably in the report to reflect the dynamic nature of the field. Further distinctions in current terminology are explained in the text.