Since the 2008 crash there has been a silent transformation in the business community, where corporate values, ethical and sustainability commitments have become a key core part of a business’s value proposition.
Consumers no longer look solely to governments to act responsibly; employees, consumers and shareholders all expect businesses to play their part in creating social value as a result of their activities.
In the extraordinary environment created by the Covid-19 pandemic can ‘profit with a purpose’ survive against a backdrop of unemployment and financial restraint? Or will consumer focus shift and business resort to driving down costs and cutting back on commitments dedicated to proving their responsible business credentials?
The world has changed since 2008
An increased focus on corporate responsibility has led to an increase in social activism. Kantar Global MONITOR which tracks 26 markets around the world found that “60 percent of consumers under 30 prefer brands that “have a point of view and stand for something” and PwC’s 2018 Workforce of the Future survey found that 88% of them want to work for a company whose values reflect their own.
For businesses this matters as ‘Millennials’ will comprise 75% of the global workforce by 2025. Attracting talent of the future is no longer just about salary and benefits, people want to feel they are making a difference through their work.
We have seen a growing number of consumers are already choosing to spend their money with brands that align with their values. Apps like Yuka or Giki allow you to scan barcodes to see the health and environmental impact of products are growing in popularity – Yuka has close to 20m users globally and has been growing fast.
This isn’t just a demonstrable show of sustainable credentials through big ticket choices like electric vehicles or renewable energy, but a new framework for buying everyday products – and that is why brands are taking notice.
And this shift is not limited to consumer and employee attitudes either.
The growth in ‘ESG’ (environment, social and governance) interest from investors has intensified in recent years. Originally driven by institutional investors such as pension funds, ESG is now universal and seen as a vital component of protecting and enhancing the value of an investment. Most investments are now judged not just on the possibility for financial returns, but also on the ESG credentials of the investment and the asset. This represents a fundamental shift in the measurement of value.
There is a good reason for this, however, as prioritising your impact on the world is no longer just about having a good conscience, it’s good business. Studies have consistently shown that companies and funds with a strong ESG focus outperform the market, consistently and over long time periods, including throughout the Covid-19 pandemic.
21st Century Business
In recent years, this shift in focus for business and investors has been spearheaded by Blackrock CEO Larry Fink’s annual letters to CEOs, focusing on these issues in his last three letters in 2018, 2019 and 2020:
“Companies that fulfil their purpose and responsibilities to stakeholders reap rewards over the long-term” – Larry Fink
In these letters he says the pursuit of profit with no purpose will only achieve short term returns, but to unlock long term value for all a business’s stakeholders the business must “serve a social purpose” or risk losing its licence to operate.
Purpose has become the hot topic over the last few years, and a band of consultants have sprung up to address the market, or added it to their existing roster of brand and PR services.
But this drive for ‘purpose’, much like CSR (corporate social responsibility) before it, risks becoming devalued before it has really got going. Cynicism is already creeping in amid questionable motivations behind some brands’ sudden desire for ‘purpose’ and terms like “woke-washing” are becoming widely used.
That is not to say that establishing organisational purpose is not important, it is hugely so in order to meet the demands of customers, employees and regulators discussed earlier. But ‘purpose’ cannot simply be another marketing campaign or sales strategy, it must be authentic and you must walk the walk as well as talk the talk.
Brands that claim to be one thing in public but pursue different behaviours behind closed doors will be found out in today’s information-rich, social media driven society, and there is nothing more damaging to one’s reputation than being perceived to be insincere, a hypocrite or worse, deliberating duping your customers.
That is why ESG is so much more powerful than ‘purpose’ or ‘brand activism’ – it is substantively about how you behave as a business, not just about how you communicate that behaviour to the world. It is the focus on doing the right thing from the start, rather than trying to mitigate the negative impact of your activities.
What impact will a prolonged economic downturn have?
The IMF currently predicts global growth to be -4.9% for 2020, but the impact is expected to be worse in some of the most developed countries such as France (-12.5%), the Uk (-10.2%) and the US (-8%).
Whilst most countries are predicted to swing back into growth in 2021, it’s fair to say that we are looking a few years before we even get back to pre-Covid levels of economic activity. Combine this with the huge state interventions to pay for emergency Covid-19 support, and it’s not hard to imagine some challenging years ahead. Access to capital is already strained for many businesses and there is little certainty about when, or even if, life will return to a pre-Covid ‘normal’.
Given these challenges, we are likely to see pressures on expenditure that could be deemed to be non-essential such as mitigating environmental impact, diversity, supply chain auditing or community engagement.
With these pressures, can the movement continue and will leaders like Larry Fink continue to urge CEOs to think beyond their quarter to quarter results?
From shareholder capitalism to stakeholder capitalism
Despite the external and economic pressures, there are reasons for optimism.
The growing demands from investors, consumers, employees and regulators are only going in one direction. Every business is facing these heightened expectations, and often from an increasingly complex matrix of stakeholders.
The successful businesses of tomorrow are already making changes to adapt for this new reality, those that try to hold back the tide will fail due to a lack of available capital, an inability to recruit talent or diminishing customer demand. Those that try to market their way out of the failings will be exposed.
Overarching all of this is the growing climate emergency. 2020 was supposed to be the ‘year of climate action’, culminating in the COP26 conference in Glasgow this November. The event, like so many others, has now been postponed to 2021, but perhaps the biggest loss has been the focus on sustainability whilst attention has understandably shifted onto public health.
Thankfully most countries and many corporations are continuing to introduce net zero ambitions, and with the strong possibility of a Biden Presidency in the US and the unexpected commitment from China to net zero by 2060, a global consensus might finally be possible.
With all this in mind, it seems certain that the movement towards responsible business will survive and indeed thrive despite the difficult economic conditions ahead. Recessions are times of difficulty, obviously, but they are also times of innovation and evolution.
The Covid-19 pandemic has forced us to adapt to new ways of working and new technologies in a way that wouldn’t have seemed possible just a few months ago, demonstrating business and society’s huge capacity for adaptation.
The growing desire for social justice, climate action and equality represent an equally seismic change for businesses to respond to over the coming years, some will adapt and some will fall.
But those that succeed will thrive not just because it’s the right thing to do, it’s also good business.
