The New Business Operating Context of the 2020s

This chapter traces how technological, environmental, geopolitical and socio-economic shifts are changing the nature of value creation, risk and societal expectations of firms. These important changes in the operating context of business are aligning the interests of shareholders and other stakeholders more closely by increasing the financial materiality of environmental, social, governance and data stewardship (ESG&D) risks and opportunities. The chapter traces the evolution of corporate governance and corporate responsibility since the 1970s and argues that the growing materiality of ESG&D considerations is driving their integration. Such integrated corporate governance, strategy and reporting departs from the mindset and associated practices of shareholder primacy and corporate social responsibility, which regard ESG&D factors as primarily non- or pre-financial matters. Instead, it takes a holistic view of shareholder and wider stakeholder interests by systematically internalizing ESG&D considerations in the firm’s strategy, resource allocation, risk management, performance evaluation and disclosure policies and processes. It does so not for ethical or political reasons, although these are factors that must also be fully considered by firms, but out of a recognition that in the twenty-first century, strong and sustained business value creation beyond the near term is increasingly dependent upon a rigorous understanding and active management of these considerations as part of the core governance and strategy of the firm.