Short-termism refers to an excessive focus on the short-term results of an organisation at the expense of long-term interests.
It is often referred to as organisations prioritising short-term or immediate profits over long-term performance.
As the world became globalised and capital flows across the globe moved in search of investment opportunities, markets have seen an increased focus on short-termism in the past few decades.
In a bid by organisations to attract these global capital flows, in response to the short-term profit motives of investors, short-termism takes hold.
An example that best illustrates this is the quarterly earnings report by public companies in the US. It is no surprise to observe the adverse impacts of short-termism on organisations and society.
Among other things, it results in sub-optimal decision-making that undermines organisations’ competitiveness and the long-term performance of investment portfolios.
In response to this behaviour and its pernicious consequences, investors and stakeholders are demanding, in general, that organisations focus more on long-term value drivers for organisations.
Sustainability thinking and reporting are pertinent to achieving this goal.
Sustainability reporting enables organisations to tell their value creation story from a broader perspective. Organisations can provide information on essential resources critical to maintaining competitive advantage in the future.
Through sustainability reporting, leaders at organisations make optimal decisions that place equal focus on profitability and drive long-term investments required for the organisation’s future viability.
This way, organisations can also build trust with their stakeholders by telling their value story thoroughly and transparently on the level of profits in the short term and investments made for the future.
In recent years, the value of organisations has shifted from physical assets on the balance sheet to intangible assets usually not captured on the balance sheet.
Through sustainability reporting, organisations can highlight these intangibles by focusing on investments in innovation, human capital, and relationships, to name a few, thereby increasing the organisation’s overall value.
