Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance6These barriers illustrate the difficulty of steering organizations based on “soft” sustainability and impact targets as opposed to “hard” financial metrics. Some solutions have emerged to mimic financial metrics for sustainability, specifically in the emissions category. For instance, the Carbon Disclosure Project (CDP) helps companies to set internal carbon prices and thus include carbon emissions in decision-making processes. Cap-and- trade mechanisms or voluntary carbon credits offer similar approaches for operationalizing sustainability by pricing externalities. Yet these mechanisms remain nascent and limited to environmental issues. More broadly, regulators around the world are increasing pressures on companies to improve supply chain due diligence. With each additional regulatory action, companies will face increasing operational challenges in adhering to more demanding social compliance standards. Given these complex challenges, this paper explores the growing field of innovative finance approaches that tie payments and returns to verified social and environmental outcomes. Just as businesses link management incentives to financial performance metrics, innovative finance has introduced impact-linked financial rewards to the development and social enterprise sectors. As businesses strive to meet sustainability goals, these approaches become central to their operations. This paper demonstrates how financial innovation can drive corporate sustainability transformation by embedding social impact into strategic decisions, while suggesting a future where impact becomes a tradeable asset.Most significant barriers to operationalizing sustainability strategies FIGURE 1 Leaders OthersWhat obstacles has your organization encountered when operationalizing sustainability to achieve its goals? (Select all that apply) All respondents Difficulty making profitability trade-off decisions related to sustainability goals Difficulty measuring results Unclear ROI Challenges in understanding how sustainability impacts each function or division differently, requiring customized Difficulty getting leaders, managers, and employees to change their mindsets and behaviours38% 43% 41% 39% 38%41%26%42%31%45%32%46%33%39%35% Source: Harvard Business Review Analytic Services Survey. (2023).