Success Is More than Just Profit

Every company has to show how it makes a positive contribution to society. With these words, Larry Fink, chief executive of the world-leading investment firm BlackRock, called on chief executives around the world to prove how sustainable their actions are.

Luka Mucic, chief financial officer of SAP SE

The implications of this one sentence are significant. In his New Year’s letter, Fink also warned that companies without a sense of purpose will lose their social acceptance and the backing of their investors.

Many people will be surprised to hear a message like this coming from a top investor. It is, though, very firmly rooted in reality. In fact, sustainability has been a driver for institutional investors for years: 53% of the funds managed in Europe already incorporate social and environmental criteria. Worldwide, the share is 26%, according to the latest report by the Global Sustainable Investment Alliance.

Sustainability is Rising to the Top of CFOs’ Agendas

It is not enough for CFOs to report just financial performance. Increasingly, investors want to know the relationship between a company’s financial performance and how it treats people and the environment, both within the business itself and across the entire value chain. Accordingly, CFOs have had to broaden their focus. Integrated reporting delivers this knowledge. It gives equal importance to financial and non-financial value creation and shows clearly how they interrelate.

How does this look in practice? We measure our business success by four main indicators: Revenue and operating margin show past performance; employee and customer engagement help us understand what we can achieve in the future. Assigning a monetary value to these last two, seemingly “soft,” factors increases their relevance. How significant an effect non-monetary KPIs can have on operating profit is best illustrated by our Business Health Culture Index. Each percentage point increase or decrease in the index changes our annual operating profit by €85 million to €95 million.

Having this type of information makes it easier to manage companies for the long term. It also opens the door to dialogue with customers, employees, partners, and stakeholders in wider society. That is how the integrated report helps make companies more successful on all levels. It is surely what Larry Fink was thinking of when he called on chief executives across the world to act.

Luka Mucic is chief financial officer of SAP SE.

This story originally appeared in German language in the Handelsblatt.