ABOUT SUSTAINABLE FINANCE AND THE RELATIONSHIP CAPITAL: AN NPS MEASUREMENT

Sustainable Finance is all about disclosures and the disclosure on the strength of an organisation’s relationship with its stakeholders is key. There are two types of relationships and these are; those that affect value creation and those that are affected by value creating activities. Examples of relationships that affect value creation include relationship with customers, suppliers, investors and employees and those that are affected by business activities include government, the physical environment and local communities. However, the later relationships also affect value creation and this is why they must be disclosed.

Out of these, one of the most interesting relationship is the organisation’s relationship with its customers. This is because a lot of myth usually surround the measurement and subsequent disclosure of this relationship. In fact, most organisations assume that their relationship with customers is healthy simply because revenues are growing or because there are repeat purchases. Sometimes this position is then attributed to a certain successful marketing strategy recently launched or a so called strong product in the market or worse still some imaginary argument like ‘efficient after sales service’ or ‘brand appeal’. These sentiments are then echoed in the boardroom and included in annual reports, albeit without any data to back them up. See, there are a lot of products that I continue to by because I am left with little to no option – but definitely will never recommend or promote. In other words, ‘I ain’t loyal’.

I know of corporates that are aggressive on the social media front and are quick to counter any bad PR by replying positively to all negative posts and posting (and reposting) many positives such that they drown all the negatives. They do all this without bothering to address the root cause of the negatives. Remember, negative posts, minus the malicious ones, as a general rule, are a sign of something seriously wrong with the organisation’s relationship with its stakeholders. Instead of continuing on the path of self-denial, embrace, engage, learn and reflect on all negatives customer feedback. And more importantly measure your relationship with customers.???

In Sustainable Finance the strength of your relationship with customers is measured and included under the Relationships Capital value. An example of a measurement of customer relationships is the Net Promotor Score (NPS). This score will show you whether customers are loyal to your products or services and their likelihood to promote to their family and peers. The score can also be used to measure loyalty per market segment. This enhances financial decision making by users of sustainability reports. ?Remember the saying, ‘what gets measured gets done’.?

The NPS is calculated by subtracting the percentage of clients who are positive about/loyal to your product with those who are negative/not. These percentages are obtained by simply asking your customers their likelihood to promote your product in their circles be it family, friends, associates and business. For example, if a promoter survey reveals that 20% of customers are willing to promote your product, 55% are indifferent/neutral and 25% are not willing to promote – it means your NPS is equal to -5%. Of cause, you will have to investigate the result and make appropriate adjustments. ?

Investors need this kind of information because it indicates whether revenues are likely to continue to rise in future as new customers come on board and existing ones continue to repeat purchases. This is Sustainable Finance.??