Show Me (All) The Money
Show Me (All) The Money
Where and how did you make those billions?
They say if you want to know what’s going on, follow the money. But what if you can’t follow most of the money that affects your life? That’s the current reality when it comes to corporate disclosures.
If you communicate about a business, please answer:
How do you make money? in honest, cohesive, plain language. Do not cherry pick highlights with insider-speak and euphemisms. Do not leave out vast swaths of your revenue story. Show us the whole financial pie and what it’s made of in a way the people you impact understand.
Most companies don’t show us the money well. This undermines our collective wellness as we continue to incentivize harmful practices fueled by ill-informed decisions.
I will use a particularly terrible example—JBS, a large Brazilian meat company—to make the point. Lest I appear to be picking on them, I also randomly searched “award-winning ESG report” and took the first one that came up—Swiss “industrial corporation” (their words, not mine) Georg Fischer. It’s not much better so I’ll break that down, too.
Matereality asks: How does the company make its money?
I recently conducted a Matereality assessment on JBS. To apply a Matereality lens, we need information. The first question—What does the company say it does?—is about purpose. I journeyed into that dark cave of Matereality in last week’s post, Purpose Is As Purpose Does.
Today I’ll delve into the second question: How does the company make money? This should be a simple question—there are rules and standards (like GAAP and IFRS) that shape financial disclosures. I don’t have the expertise to identify accounting irregularities, so I am going to assume companies have undergone the necessary review, that technically speaking, their disclosures are compliant.
I do, however, have the common sense required to notice when things lack sense. With distorted, nonsensical information, we’ll keep rallying behind an economy that is served by life—human and otherwise—even as it causes us collective harm.
Newsflash for public companies: you affect the public
If you are a global, publicly traded company, you’re in our stomachs, closets, dwellings, electronics, electricity, transportation, hospitals, schools, bank accounts, minds, and more.
You are making money by doing things that flow into, out of, and around us. We need to understand each other.
This does not mean showcasing the bits you’re most proud of in a “highlights at-a-glance” infographic while burying the rest in impenetrable tables deep in a report, as if that information is for the special club that understands complex business things. We are all VIPs in that special club.
Where’s the beef? And leather? (And horse meat, palm oil, and…?)
JBS is not unusual for a company of this size and complexity. Convoluted ESG disclosures are par for the course. Complexity is not an excuse though. If anything it’s one of many indicators suggesting huge companies need decommissioning strategies because the current approach is not viable in a life-affirming economy.
Whether or not the path leads to mass corporate composting, there are ample resources to better organize and communicate current-state information so the public (or, say, the board of directors) can make better decisions.
In JBS’s 2021 sustainability report we see an “at-a-glance” page with big income figures but we don’t know where the money came from. The only helpful non-jargon words are “salami” and “bacon”, though how much revenue came from either is not shown.
If we keep digging in the same report we come to a map that holds promise, except it has a confusing colour scheme and no numbers. At best we come away with a sense of a lot of brands in a lot of places.
If we look at a certain part of the business in the same report, such as JBS Couros (leather) we get more specificity—i.e. number of employees (5000)—and a sense of lots of activities in various places. Although one activity, “production,” leaves a lot to the imagination—slaughter? or just tanning? Or it depends? Anyone involved in “production” in the animal protein value chain will see what we’re not being shown there. This not only doesn’t serve life, it hides it. (No pun intended.)
While we can’t see the financial scope of Couros (or other businesses), we can see how Couros shows up in the “circular economy” of JBS. From what their diagram suggests, few (if any?) of the outputs of this “pioneering, closed-cycle system” are in a closed cycle, much less regenerating nature (a key element of the definition of the circular economy). So we get an infographic showing the flow of cattle manure, but we don’t get anything indicating the flow of money. (I can’t say if that irony was intended.)
If this seems to be an issue with sustainability reporting, the 2021 financial statement isn’t much help. Although the map below (from page 5) gives a sense of the geographic sources of revenue, it doesn’t say what is being produced.
I found no mention of Couros and its 5000 employees in the financial statement. There are variations on JBS Leather (International, Asia, and Paraguay) listed as subsidiaries or related parties, but nothing called “Couros” which merited two full pages in the (English) sustainability report. How much revenue is generated by those 5000 employees in all those countries? Unclear.
Show us the money… please?
I was going insane toggling through hundreds of pages in the financial and sustainability reports (and investor presentation decks). Eventually I created my own diagram—including crops (soy, palm, corn) and animals (cattle, pigs, chickens, horses, lamb, fish); the slaughtering and processing into packaged human and pet foods, leather, and other by products; and the logistics, trading, and distribution. I also included the oils, electricity, and industrial waste they generate because money changes hands for these products.
My diagram may not be fancy, but at least from there I could more effectively ask—How is this company contributing to or undermining an economy in service of life? to carry on with the assessment.
I’ll pick up on the answer to that third question in a future post (if you’re curious details are free to view here). The main point for now is that we need to understand what a company does. They need to show us the money so we can follow it and make informed decisions, as investors, employees, board members, consumers and more.
Function needs form
This isn’t merely a whimsical desire for better graphics, by the way. It’s part of the fundamentals of reporting, as outlined a decade ago in the original framework document from the International Integrated Reporting Council.
Disaggregating the organization into its material constituent operations and associated business models is important to an effective explanation of how the organization operates. [bolding my own].
I remember reading this document line by line in 2013 and declaring that it contained the meaning of life. Back then I naïvely believed companies would follow the guidance.
Now I see things like JBS saying they “continue to report in accordance with the standards [of the] International <IR> Framework” (page 17 of their 2021 sustainability report). But they—like many of their large publicly traded peers—are no more reporting in an integrated manner than they are operating in a circular manner. There’s more of that cattle manure again.
Award winning reporters not much better
I mentioned that this is not an unusual issue. It is especially glaring with JBS—and I have the data handy from the assessment—but if I could round up those responsible for reporting for most public companies, I’d say much the same thing.
Case in point, I googled “award-winning ESG report” and landed on Swiss company Georg Fischer at the top of the search. I’d never heard of them so it seemed a good opportunity to experience an award-winning reporter’s ability to make sense to me on first blush.
According to their wesbite, “GF is an international industrial corporation….” We’re off to a beautifully vague start! To be fair, a few clicks in, they tell us fairly simply what markets they serve—
—which piqued my curiosity. Chemical Process? Energy? Gas Distribution? They talk about material flows. I scan for financial flows flowing from those material flows. I encounter a big number—60% of their sales (which total nearly CHf 4 billion) have “social or environmental benefits”. Could this be in service of life?
Aside from wondering about the other 40% (about $US1.8 bn), I’m curious what lumps a sales figure into social or environmental benefits on this chart, given the markets they serve. When I read closely I see it includes “safe and leak-free distribution of gas and chemicals to ensure less human and environmental accidents.” I’m having flashbacks to my realization that ESG data is like less-wife beating.
It doesn’t feel life-serving. It seems the company serves increased global consumption.
I am not sure who their pipeline customers are. From a scan of their annual report, there is mostly generic phrasing with a few rosy stories, e.g. the Belgian customer, Ekopak, working on water in Africa, Asia or Latin America where there is “no longer enough to supply a steadily growing population” [pins for future post: #whitesaviourism #developmentaggression]. But if GF materials are going into pipelines and their pipelines are transporting gas and chemicals, then it stands to reason their customers face similar challenges as those who are, for example, endeavouring to build a pipeline across Wet’suwet’en territory. As this November 2022 article in the Narwhal notes, issues relating to pipelines are far beyond the “benefit” of not leaking.
“For salmon populations and species throughout the coast, it’s never one thing…”
— from Tensions rise as Coastal GasLink blasts beside a creek near a Wet’suwet’en camp (By Matt Simmons for The Narwhal)
It is worrying that non-leaking pipelines check the “benefit” box. GF offers a nice diagram of where their impacts are, but the language is so vague it could be about a garden supply store instead of a supplier to energy and gas infrastructure—
—but it’s not a garden supply store. It’s part of an economy that is producing more cars (but light-weighted!), more energy (but renewable!). It checks the boxes of award-winning reporting. But it does not suggest a company serving an economy in service of life—rather it’s one that harms some life a little less as it rolls full steam ahead on a harmful trajectory for many.
The annual report offers decent data on which segments generate how much revenue, for example this snapshot from page 19, the GF Piping Systems section of the 2022 annual report—
—but other than words (e.g. “As the leading flow solutions provider for the safe and sustainable transport of fluids, GF Piping Systems creates connections for life”) I am not finding life-affirming activity in their financial information either.
Nor am I finding one honest, cohesive, plain language summary of how and where they make their money.
In sum, GF’s reporting looks cleaner and better organized—more Swiss perhaps?—but it does not give me any assurance as to how the revenue being generated creates the conditions for life to thrive.
Same cattle manure, different flow solution provider, as it were.
Please, for the love of Pete (and the biology that supports him and everyone else) show us the money—all of it—in a way that makes sense so we can understand and make good decisions. If your business is truly serving life, it will be a joy to behold. If it’s not, it will be easier to understand what needs to change.
Bonus Track
I discuss the disconnect between a company’s purpose and its financial value creation in depth with Geoff Kendall, founder the Future-Fit Business Benchmark and the Transition Agency. At the 35-minute mark we get into searching for financial flows.
Do you know of examples where a company’s financial flows are explained comprehensively and clearly? Please share in the comments—I’d love to have a look! Other Matereality ideas and questions welcomed, too.
Know someone working to make the shift towards industrial healing, who might benefit from hanging around in the Matereal World?
Speaking of financial flows, Matereal World is currently free! If you’d like to subscribe (and/or pledge your future support for a paid subscription) you can do so here: