Q2. With ‘purpose wash’ alive and well and many businesses not understanding global trends and how they impact their sector and business, defining a sustainable purpose is really important. During a roundtable I hosted with purpose and sustainability experts, we suggested this definition: ‘is a meaningful, enduring reason for an organization to exist that provides solutions to global challenges , or benefits society, in a way that sustains the social and environmental systems we rely upon’ . This positively expresses how the core business creates ongoing value across its wider network, by contributing to a sustainable future.
A1: The finance industry has a long way to go to ensure our pensions, savings and investments are protected from future losses that might be caused by the climate crisis. Commitments to net-zero by 2050 latest, and halved emissions by 2030, is where we need to be. (side-note: these can’t be over reliant on non-existent large scale negative emissions tech!)
Leading the way include the UN-convened Net-Zero Asset Owner Alliance (UN AOA) which is now up to $4.6 trillion AUM with members including Allianz, Aviva, AXA and Zurich.
There is also P1 Investment who recently created the NZC10 (Net Zero Carbon 10) Standard to help anyone align investment funds with net-zero. This has commitments from firms Montanaro, Janus Henderson, WHEB and Liontrust so far.
A1: The role of business in society is changing, and the Business Roundtable statement as just one example of this shift, but another change is that the world is not just looking to large publicly traded companies as the face of business. Social enterprises have been modeling purpose-led businesses for decades, and many large companies have proactively sought to engage them because of their track record in developing profitable business models that tackle critical social challenges. Acumen pioneered the impact investing space by bringing patient capital to social enterprises that take on the toughest challenges of poverty, and we believe these companies can light the way towards truly inclusive business models that drive social change. To date we’ve invested about $130 million, and manage an additional $140 in commercial funds. Our investments have catalyzed an additional $500 million. Our portfolio companies have impacted 230 million lives, delivering affordable renewable energy, improved livelihoods and access to critical goods and services.
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Purpose for me goes beyond profit, is courageous, intentional and creates a vision for the future that customers, investors and other stakeholders are inspired to want to help build and be a part of.
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An important element that can demonstrate authentic sustainable purpose is a company’s attempts to solve systemic issues in a more wholistic way, beyond its own isolated footprint. This is where working with other companies and entering collaborative initiatives to address root causes beyond treating symptoms will be necessary. A good example of this type of system-wide approach would be the Dutch chocolate company, Tony’s Chocolonely, whose aim is to make chocolate 100% slave free.
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A1: Adding on with some examples of large corporations that I think are embedding purpose by partnering with purpose-led social enterprises are AbInbev, which has effectively engaged enterprises to support sustainable and inclusive businesses models through its 100+ program, and IKEA Social Entrepreneurship, which has supported social enterprises through procurement programs as well as partnerships. These activities push companies beyond a focus on profits and shareholders, to an expansive engagement with stakeholders including suppliers, customers and communities in which they operate.
A1: An ambitious goal and a plan to get there are also key factors that define authentic business purpose. On this Timberland is a pretty good example, with the pledge to reforest 50 million trees around the world in the next 5 years. Timberland’s Plant The Change program will supplement the Great Green Wall initiative.
Agreed and in doing so they have the potential to open up growing markets.
A1: I am impressed also by NIKE’s work in the last years to be honest. Their purpose is becoming gradually more explicit in an authentic and uncompromising way. Their stand with BlackLivesMatter has been solid and they are really using the power of “sport to create active communities and a healthy planet”, as their purpose statement says.
Fully agree that values and policy commitments that embed purpose in the core business are essential, because they set the “tone at the top” and sets out top management’s expectations of how staff and business relationships should act, as well as what others can expect of the company. @Vitto
Importantly, these should also trigger a range of other internal actions that are necessary to meet the commitment in practice. There can be no authentic business purpose if commitments are not followed through in practice, to ultimately ensure that the rights or workers (in a company’s own operations and its supply chain) and other potentially affected individuals and communities are respected.
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Answering more from the investor than the consumer view. Its easier to find companies that are authentic in the private investing space than it is in public listed companies. In the public world I think of companies like Lush Cosmetics as being an ideal example of authenticity. Unlike in the public sector its fairly common in the private impact investing space to find authentic companies. . They know who they are, you know who they are and they are true to who they are.
There are exceptions of course but the most part there is something about the private investing space that fosters and rewards authenticity in a way that the public space does not.
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A1: A business that I especially like is Weedingtech, which makes herbicide-free product for weed, moss and algae control. They have figured out how to make an organic foam that keeps hot water on weeds for long enough to kill them without needing chemicals. It’s a good substitute for glyphosate (e.g. RoundUp). With a business like this, their commercial growth is tied directly to the growth of their impact, which I think makes it a good example for this discussion.
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A1: Someone mentioned “purpose-washing” and I think it’s so important that we be serious about what this means. Some of the ways I think about it:
Key factors that define authentic business purpose:
- Stakeholder focused - beyond shareholders and even customers, to all stakeholders impacted
- Does not only inspire good feeling, but real action towards impact
- Empowers people at every level of an organization to play a part through their core function - not just the purview of CSR or foundation, not just done on volunteer days, but built into how people work, and the outcomes of their work.
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Interesting. I have never heard of them so far. Will check them out!
FRoSTA is another unusual suspect to check out. A family-owned multinational company that turned frozen food into a way of reducing food waste and use literally zero additives in their products. Because of this radical approach they had to change a lot in their value chain. For example, instead of buying cheap greenhouse tomatoes and add tomato flavoring. They now buy only sun-grown tomatoes because they do not require any additive to taste like… a tomato. https://www.frosta-ag.com/en/
Agreed the role and expectation of business is changing fast. My concern is that the mainstream debate isnt explicitly bringing in environmental limits. So the risk is that global trends, from climate change to biodiveristy loss and inequality either get missed or incremental change is deemed adequate. This also lully investors and companies into a false sense of security that they are changing fast enough. So I think new metrics need to be evidence based and reflect the science. I would be interested to know if you’ve managed to bring any evidence or science based targets into your assessment? I realise its not easy!
Another challenge that investors often face is how to navigate through the company purpose statements; the promises, the pledges and the platitudes
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Yes, that is a challenge for them. At the same time because of their work across clients, financial institutions have a helicopter view on the risks & challenges faced across industries. They can be a valuable partner for a brand/business and spot the most “material” issues of a purpose.
A1: Here is an example so far beyond the usual respects that I’m sure the first reaction of many people will be one of disbelief, if not ridicule. My example is Philip Morris International (PMI). Yes, the cigarette company. And, full disclosure, I’m an advisor to them. PMI is committed to creating a smoke-free future by cannibalizing its cigarette business in favor of reduced-risk heated tobacco products. Yes, it’s increasingly fashionable for investors to exclude tobacco companies but that’s not going to eliminate cigarette smoking. What investors should be doing is supporting tobacco companies who are sincerely committed to addressing this malignant public health problem. In its 2020 Proxy Statement, PMI’s board of directors published a “Statement of Purpose” making this commitment.
Building on @Benkellard’s point above:
Impact investors, whether individuals, funds, or institutions, look for evidence that impact management is part of the business plan. As long-term shareholders, they seek assurance that impact is not merely an afterthought or “spin” during the pitch, but that impact is at the “core” of the business. The factors they will consider for include: the company’s mission statement, whether the products/services are addressing to a social problem, whether impact is being measured and reported, whether the business is operating in a sustainable manner and whether the purpose will remain embedded as the company continues to grow and raise investment.
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