Sunday Brunch: sustainability is an intangible asset
Sustainability, Strategy and Finance

Sunday Brunch: sustainability is an intangible asset

Sustainability can be like a good brand. Without it your business can lack the quality that gives it a viable long term future. Intangibles may be invisible, but it doesn't make them any less real.

Just because you cannot see an intangible asset doesn't mean it isn't critical to the long term success of your company. Brands are the life blood of our business. - CEO of a major global spirits company

We need to find better ways of ensuring that Sustainability Professionals and finance people properly communicate. As part of this we all need to learn a new language, a new way of communicating. Finance people, like all professionals have their own frameworks. If we can slot our sustainability transition pitches into them, we stand a better chance of raising the money we need.

One really useful framework for Sustainability Professionals is what finance people call intangibles.

In simple terms they are assets that you cannot see. They are the opposite of tangible assets, which are physical things such as factories, equipment, and power stations. Intangible assets by contrast are invisible things like brands, reputation, intellectual property, and human skills/relationships. While they are invisible, hopefully it's clear how important they are to the success of an organisation.

Sustainability can be like a good brand. Without it your business can lack the quality that makes consumers happy to pay a premium price, for employees to keep going that extra mile, and for the providers of capital to continue to support you. Not just today or tomorrow, but way out into the future. But, in the same way that creating a good brand means making hard choices, not all sustainability issues are material to creating a valuable intangible asset.

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One reason for the emphasis in the financial world on intangible asset value is that they now make up the vast bulk of most companies financial value. As consulting firm Brand Finance points out, "the value of intangible assets soared from 17% of the value of the S&P 500 in 1975 to around 90% in 2022". Intangible assets are really important to finance people, it's a concept they know and understand.


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Sustainability is an intangible asset - that we need to invest in

Before we start let's make something clear. In the words of Alison Taylor at NYU Stern, finance is not the only issue in making the sustainability transitions happen, but it is an important one. Without finance, many of the changes we want to happen will just fade away, and remain just good ideas.

If we are to raise the finance we need to make the sustainability transitions happen, then Sustainability Professionals need to be able to talk with finance people, in a way that both sides understand each other. This is going to increase the chances that the finance flows. Part of this is understanding the limitations of relying totally on private finance (which takes us toward Blended Finance).

But a big element is going to be presenting sustainability ideas in a financial context. Which is where intangible assets come in.

We talked about narrative in a Sunday Brunch a few weeks ago. Today, let's dig a bit more into how we construct a narrative that finance and strategy people can relate to. The topic - the importance of intangible assets and why pitching sustainability as being like a brand can help us make the sustainability transitions happen faster.

Sunday Brunch: what is this investment worth?
How we create narratives to generate financial forecasts impacts the valuation process

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