For years, social impact sat somewhere towards the end of the corporate agenda.

Make a charitable donation.

Sponsor a local initiative.

Publish an ESG report.

Include a sustainability page in the annual report.

Those things can have value.

But genuine social impact should go much further.

Increasingly, the environmental, social and governance decisions made by a business can affect its customers, employees, access to capital, risk profile, reputation and long-term competitiveness.

And ultimately, those factors can influence enterprise value.

ESG and value creation aren’t opposites

There has been significant debate around ESG.

Some of that challenge is justified.

Poorly defined targets, excessive reporting, greenwashing and initiatives disconnected from commercial reality have damaged credibility.

But that shouldn’t distract from the underlying business questions.

How exposed is the company to environmental or regulatory change?

How resilient is its supply chain?

Can it attract and retain the people it needs?

How strong is its governance?

How does it treat customers, employees and communities?

Could environmental or social issues damage the company’s licence to operate?

These aren’t abstract ESG questions.

They are questions about risk and value.

Valuation is ultimately about the future

A company’s valuation isn’t simply a multiple applied to last year’s EBITDA.

Investors are buying expectations about future cash flows, growth and risk.

That means two businesses producing similar financial results today can potentially command very different valuations.

One may have stronger governance.

Better customer retention.

Lower regulatory exposure.

A more resilient supply chain.

Greater employee engagement.

Better access to capital.

A stronger reputation.

And a clearer strategy for navigating environmental and social change.

Those characteristics can affect the confidence investors place in future earnings.

And confidence influences value.

The cost of capital matters

ESG can also intersect with financing.

Banks, institutional investors and private capital increasingly incorporate a range of environmental, social and governance considerations into their assessment of businesses.

For some companies, credible sustainability performance can support access to particular financing structures or pools of capital.

For others, weak governance, environmental liabilities or significant social risks can become issues during credit assessment or investment due diligence.

The important point isn’t that putting an ESG policy on the website produces cheaper funding.

It doesn’t.

The opportunity comes when better management of material risks contributes to a stronger overall investment proposition.

Buyers will look beneath the presentation

This becomes particularly relevant when a business approaches a transaction.

A potential acquirer or investor isn’t only interested in adjusted EBITDA.

Due diligence can examine:

Governance

Regulatory compliance

Environmental liabilities

Supply-chain resilience

Employee practices

Health and safety

Customer concentration and conduct

Data and reporting

Reputational risk

If material weaknesses emerge, they can affect negotiations.

They can lead to additional warranties or indemnities.

They can change perceptions of risk.

In some circumstances, they can affect price.

ESG therefore shouldn’t suddenly become important six months before an exit.

The strongest businesses build resilience years beforehand.

Social impact should be authentic

The same principle applies to the social element.

Businesses don’t create meaningful social impact by writing bigger cheques or producing better marketing.

Some of the most powerful programmes can be closely connected to what the organisation already does well.

A technology company can give young people access to digital skills.

A bank can improve financial literacy.

A professional-services firm can provide mentoring and career opportunities.

A sports organisation can use its reach to engage young people who might otherwise be difficult to reach.

A large employer can create apprenticeships and pathways into employment.

That is considerably more powerful than simply putting a logo next to the word community.

Measure outcomes, not activity

If social impact is going to form part of business strategy, it should be measured with the same discipline as other strategic initiatives.

Don’t simply report:

We ran ten workshops.

Ask:

How many people did we reach?

What changed because of the intervention?

How many opportunities were created?

How many people entered employment, education or training?

What was the measurable social outcome?

What did the organisation learn?

Impact becomes more credible when it can be demonstrated.

Employees increasingly matter too

Enterprise value is created by people.

Businesses therefore need to think about the relationship between purpose, culture and talent.

People want fair remuneration and career progression.

But many also want to understand what the organisation they work for represents.

A credible social-impact strategy can strengthen engagement and provide employees with opportunities to contribute beyond their immediate role.

The important word is credible.

Employees can distinguish very quickly between genuine commitment and corporate theatre.

Don’t start with ESG. Start with materiality.

Not every ESG issue matters equally to every business.

A transport company may need to focus heavily on fuel, emissions and fleet transition.

A financial-services business may place greater emphasis on governance, conduct, data and financial inclusion.

A manufacturer may have significant energy, raw-material and supply-chain considerations.

A technology business may prioritise data, AI governance, cybersecurity and talent.

The question shouldn’t be:

“What ESG initiatives should we have?”

It should be:

“Which environmental, social and governance factors could materially affect our strategy, stakeholders, cash flows, risk and long-term value?”

That produces a very different conversation.

Purpose and profit can reinforce each other

Businesses exist to create economic value.

There should be no embarrassment about that.

Profit allows businesses to invest, employ people, innovate, pay taxes, support communities and survive difficult periods.

But commercial success and positive social impact don’t have to compete.

Done properly, they can reinforce one another.

Better governance can reduce risk.

Greater resilience can protect cash flows.

Responsible investment can strengthen competitiveness.

A strong culture can attract talent.

Meaningful community engagement can create opportunity.

And businesses capable of demonstrating sustainable, responsible long-term growth can become stronger businesses.

Social impact belongs in the boardroom

The strongest social-impact strategies aren’t separate from corporate strategy.

They connect.

Strategy. Capital. People. Risk. Community. Value.

Boards should therefore be asking not only:

What financial return are we creating?

But also:

How sustainable is that return?

What risks could undermine it?

What impact are we having on the people and communities around us?

And:

Are we building a business that will be more valuable and more relevant ten years from now than it is today?

Because social impact isn’t simply about doing good.

And ESG shouldn’t simply be about compliance.

At their best, both can contribute to building a stronger, more resilient and ultimately more valuable business.

LMC Advisory

Strategic Finance | Treasury | Leadership | Value Creation | Social Impact

Helping businesses connect financial performance, responsible leadership and long-term value creation.