Why do we exist?
28 July 2020 -
Covid-19 is causing boards to tackle the most fundamental questions. To dig into the changing views around corporate purpose, we spoke to Sarah Gordon, CEO of the Impact Investing Institute, and Brenda Trenowden CBE, global co-chair of the 30% Club
Ann Francke OBE
With fewer planes in the air, cars on the road and many factories on reduced output, the lockdown has had some positive, unexpected environmental benefits, but there is a wider question: will Covid-19 stimulate a greater commitment towards corporate purpose and environmental, social and governance (ESG) investing?
For the 24 July CMI ‘Better Managers Briefing’, I discussed these issues with Sarah Gordon, a former business editor of the Financial Times and now CEO of the Impact Investing Institute, and Brenda Trenowden CBE, a partner in PwC’s people practice and global co-chair of the 30% Club.
The business case for ESG
The pandemic has raised the profile of global issues such as climate change and social inequality. In movements such as Black Lives Matter, we have seen the benefits of joint action and collaboration. And the Covid-19 crisis seems to be shifting public and business focus beyond short-term profits to rethinking how companies interact with society, with their staff, investors, and the impact they have in the communities in which they operate.
“To deliver sustainable profit streams in the future, you need to be a genuinely sustainable business,” Sarah says. “And that means taking account of the environment in which you operate, the way you look after your supply chain and the way you behave towards your employees.”
She and Brenda agree that today’s job-seekers want to work for businesses with purpose – regardless of sector. Having, and being authentically wedded to an explicit purpose will be a fantastic tool for attracting and then retaining the best talent.
Walking the walk
Success hinges on bringing your corporate sense of purpose to life, embedding it at the heart of your day-to-day operations and making it real for your staff, says Brenda. “Do your staff feel the difference? How does it change how they operate, how they feel and how they take decisions?” But she cautions against ‘green-washing’: “This is a business and strategic issue; purpose isn't CSR that sits in the corner.”
When it comes to embedding your sense of purpose, one size won’t necessarily fit all – even within the same business. “It’s about allowing different units to interpret purpose and to bring it to life in their own areas,” Brenda adds.
Companies that do this well think carefully about why they exist, who their customers are, and how they want to serve them. They tie all that together with their values and culture. Purpose must be authentic, both warn. Putting out superficial statements with no substance will create a backlash and hurt your brand and your ability to attract talent.
“The starting point is meaningful conversations and deep thought at a CEO/senior executive leadership and board level in an open and trusted way,” says Sarah. “You need to look inwards as much as outwards and really question your practices.”
The role of investors, regulators and governments
Creating sustainable business will result in a more vibrant and sustainable economy, and yet even the best-intentioned companies struggle to do that in a comparable and transparent way. As a result, investors struggle to compare companies' performance. “In the UK, we need to give companies more help to talk about their purpose,” says Sarah.
A lack of global standards, particularly in reporting of social and environmental outcomes, is a real challenge, Sarah admits. She cited one FTSE company trying to embed purpose that was having to report against some 250 different metrics. Sarah would welcome the introduction of a mandatory public interest statement, where businesses talk about their impact – both negative and positive – on their wider stakeholders. At the same time, we must be mindful of not adding to organisations’ burden at a time when many are still reeling from the impact of the pandemic.
“We want CEOs, chairs and C-suite execs to feel this is a business-as-usual conversation,” Brenda adds. The analyst community has a particular responsibility to increase its focus on these areas. She advocates creating a set of standard ESG questions to give to fund managers as part of their conversations with the top. She wants CEOs to be thinking, “We are going to be asked by people about what we are doing, not just on sustainability and climate change, but on actual social issues and on governance.”
Overcoming behavioural and systemic barriers
There are two types of barrier that stop people engaging with ESG and purpose-driven strategies. First, the emotional, psychological, intangible barriers – people have focused for so long on shareholder returns that they don’t understand the intimate link between purpose and long-term value. Then there are the practical barriers.
“You have to have policies and processes in place but you also need engagement to get people over the intangible,” Sarah says. It can be powerful to showcase pioneers and champions and translate their experience back to people at earlier stages of the conversation.
Commitment from the top and prioritising purpose is critical, Brenda adds. “If companies start to think that this is just about advertising and brand, or that it’s not a strategic business issue, that's a real barrier.”
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