The Impact Economy Brief | 6 August

Welcome to the latest edition of Bates Wells’ Impact Economy Brief, a helpful reference point and resource for our network. Here we provide an overview of activity in the Impact Economy, including legal and regulatory developments.

Talk the Talk

As the language of the Impact Economy develops, we’ll add relevant terminology to our Impact Economy Glossary, to help share a common understanding. This week’s jargon is:

“Planetary boundaries”

Editor’s Pick

If you only have a few minutes of quiet this week, we recommend…

How impact can increase customer retention. The latest edition of Big Society Capital’s blog series, on the benefits of applying an impact lens when building a start-up, details three ways in which impact can enhance customer retention: values alignment, impact-driven innovation for better products, and serving underserved groups in society.

Highlights from this month’s Brief

A new Value Reporting Foundation report, Purpose Drives Profit, finds that executives recognise corporate purpose as critical to driving sustainable profits, but feel they lack the tools to incorporate this into decision-making. B Lab has announced the B Corps creating the greatest impact in its Best for the World 2021 awards, including Bates Wells in the Governance category. The Ellen MacArthur Foundation publishes collaborative research finding that the circular economy can be a de-risking strategy and driver of superior returns, and a new report from PRI, UNEP FI and the Generation Foundation, A Legal Framework for Impact, presents multijurisdictional analysis on the extent to which investors can consider impact, with a suite of options for policymakers.

The FCA is consulting on proposals to require greater diversity disclosure at board and executive committee level, and the FRC’s new report, Reporting on stakeholders, decisions and Section 172, considers what investors need to know about a company’s approach to its stakeholders. Lastly, the EU has published Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in their Operations and Supply Chains, with an overview of international standards on combatting forced labour.

Impact Business

Purpose Drives Profit: How Global Executives Understand Value Creation Today. A new report, from the Value Reporting Foundation, Black Sun and the Association of International Certified Professional Accountants, draws on the results of a survey of executives from across the globe to analyse the trends and challenges of measuring, disclosing and understanding the value that companies create. The report describes a vast majority of respondents recognising corporate purpose as critical to driving sustainable profits, and a significant increase reported in investor interest in purpose, values and culture, but a majority of respondents felt that they do not have the tools required to incorporate broader performance measures into strategic decisions (press release).

B Lab has announced the B Corps creating the greatest impact through their businesses in its Best for the World 2021 awards, listing B Corps under the five impact areas evaluated in the B Impact Assessment whose scores are among the global top 5%. You can read about some of the awardees on B The Change, including UK-based businesses Beauty Kitchen (Community category), The Beeswax Wrap Co. (Environment category), and Fat Beehive and PPL (Workers category). Also, we’re excited to share that Bates Wells has been awarded Best for the World 2021 in the Governance category

New B Corps – The UK B Corp community has recently welcomed a number of newly certified businesses, including private bank and wealth management firm, Coutts, natural energy drink business, Tenzing, and food and drink business, Rude Health.

A longer read – Mindful Exclusion: Part III Composition: New findings on effective governance for a post-pandemic world. The Chartered Governance Institute and the Centre for Synchronous Leadership have published the final instalment in their research series on ‘Mindful Exclusion’ as a lens for examining decision making criteria and their alignment with objectives, and applying this concept to corporate governance. The report focuses on board composition and the behavioural ‘bubbles’ that hinder diversity, and how to overcome them (press release). For more, the FRC, London Business School Leadership Institute and SQW have published Board Diversity and Effectiveness in FT350 Companies, presenting the results of research into the impact of increased diversity on board effectiveness and dynamics, the skills and experience needed for diverse boards, and the role of the nomination committee (press release).

Fast on fashion, slow on gender equality. Sofía del Valle, Engagement Manager at the World Benchmarking Alliance, writes for Corporate Citizenship, highlighting findings from the new Gender Benchmark that assessed apparel companies on their efforts to improve gender equality across the value chain, and noting the role of regulation in driving disclosure of impact data and making recommendations for the industry to move forward.

A view from Italy – Cofounders Of First European B Corp Build On Their Experience And Connections To Accelerate ‘The Natural Evolution Of Business’. For Forbes, Professor Christopher Marquis of Cornell University interviews the founders of B Corp sustainability consulting firm Nativa, about their work to bring the benefit corporation (società benefit) into Italian law and how their #UnlockTheChange campaign has been bringing together the B Corp and benefit corporation community.

Impact Investment

Why battle for blended finance is top of Access Foundation’s to-do list. Pioneers Post analyses the role that the Access Foundation has played in demonstrating the utility of blended finance, particularly for small and medium-sized social enterprises and charities, and the policy development that the set-up of the foundation represents.

Toolkit – Welcome to the Equality Impact Investing Toolkit. The Equality Impact Investing Project has published its new toolkit, designed to support people working across the spectrum of capital (from mainstream asset managers to impact investors to grant-makers) and providing tools, cases and resources to help operationalise EII principles and strategies, by way of 5 steps to develop an impact thesis and interrogate investment processes (press release).

Eka Ventures becomes the largest impact-driven early stage venture capital fund in the UK as it closes at £68m ($95m). The British Business Bank announces the close of the Eka Ventures impact VC fund, in which it and other investors, including Big Society Capital, Guys and St Thomas Foundation and Snowball, have participated. Eka works with founders building consumer technology companies that aim to make the world more sustainable, healthy and inclusive.

A longer read – The circular economy as a de-risking strategy and driver of superior risk-adjusted returns. A new white paper from Bocconi University, the Ellen MacArthur Foundation, and Intesa Sanpaolo, based on research into the circularity of European companies, finds that higher levels of circularity corollate with lower default risk and superior risk-adjusted stock performance, and provides case studies to show how financial institutions can take advantage of the opportunity presented (press release).

UK backs Impact Investment Taskforce as road to pandemic recovery. The Government has announced a new, industry-led Impact Taskforce that is intended to harness private finance at scale in order to ensure a sustainable recovery from the pandemic. The Global Steering Group for Impact Investment (GSG) and the Impact Investing Institute will lead two working groups focusing on, respectively, greater simplification and harmonisation of impact reporting methodologies and accounting, and the design of principles and recommendations for financing vehicles to mobilise private capital at scale (Impact Investing Institute press release). The Taskforce will also coordinate efforts between G7, G20 and COP26 countries.

A (much) longer read – A Legal Framework for Impact: Sustainability impact in investor decision-making is a new report from PRI, UNEP FI and the Generation Foundation, analysing the extent to which legal frameworks, across 11 jurisdictions, enable investors to consider impact in their activities. The report provides a suite of options for policymakers working to facilitate investing for sustainability impact, and presents options for reform that will form the basis of a multi-year work programme from PRI, UNEP FI and the Generation Foundation. Bates Wells’ Oliver Hunt, who was seconded to the PRI to support with this report project, provides commentary.

Legal and Regulatory                                     

Consultation – Diversity and inclusion on company boards and executive committees (CP21/24). The FCA is consulting on changes to the Listing Rules to introduce disclosure requirements regarding the diversity of boards and the most senior level of executive management, including whether certain objectives are met, for gender and ethnic minority representation. Also proposed are changes to the Disclosure and Transparency Rules to require companies to ensure that existing disclosure on diversity policies addresses key board committees and broader diversity aspects. The consultation is open until 20 October 2021 (press release and landing page).

The FCA has updated its Climate change and sustainable finance guidance page, adding information on ‘Sustainability and innovation’, which describes a work programme including a Sustainability TechSprint and a Green FinTech Challenge, and on ‘ESG and sustainable investment funds’, highlighting a letter to authorised fund managers setting out the FCA’s expectations for more robust standards in the design, delivery and disclosure of ESG and sustainable investment funds.

A longer read – Reporting on stakeholders, decisions and Section 172 is a new FRC report setting out what investors seek from corporate reporting in relation to the company’s approach to its stakeholders and strategic decision-making, in order to understand the company’s pursuit of its purpose and long-term success, and considering better practice in relation to Section 172 Statements (summary and press release).

The FRC has published a Feedback Statement on responses to its 2020 discussion paper, A Matter of Principles: The Future of Corporate Reporting (here), which proposed a redesign of the corporate reporting framework. The Feedback Statement notes significant support for the Public Interest Report component of the proposed new framework, with some respondents raising concerns, and for regulatory standards for non-financial reporting, along with calls for alignment with international non-financial reporting standards and frameworks (press release).

The EU Commission and the European External Action Service has published new Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in their Operations and Supply Chains, which is intended to provide businesses with practical guidance to implement effective human rights due diligence practices, and includes an overview of international standards relevant to combatting forced labour (press release).

Get in touch

If you’d like to speak to us about our work in the Impact Economy, please get in touch – we’d love to hear from you.

This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of August 6, 2021.