It is good business to go beyond profits
Companies that pursue purpose as well as profits outperform their counterparts by 12 times over a 10-year period. During the Pandemic, research carried out by Black Rock on resilience showed that they have outperformed their competitors. Companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.
The impact of COVID-19 and recent calls for racial equity around the world are propelling the nascent discipline of sustainable finance to new heights, as ESG (environment and social governance) practices become a must-have rather than a nice-to-have for corporations to attract investors' dollars. Morningstar Direct, an investment analysis platform, found that more than $12.2 billion flowed into ESG-related retail funds in the first four months of 2020, more than double what went into these funds over the same time period last year.
Companies that pursue purpose as well as profits outperform their counterparts by 12 times over a 10-year period
(Source: Deloitte, Beyond office walls and balance sheets, 2017)
Impact investing, investing in projects with positive social and environmental impacts,
$715 billion worldwide in April 2021, compared to $502 billion in April 2019.
(Source: Global Impact Investing Network)
Senior management is also embracing a vision of stakeholder capitalism rather than the limited vision of ‘shareholder value’ only. In 2019 the US Business Roundtable, a public policy group made up of 181 U.S. CEO’s (including the heads of Amazon, Apple, BP, Coca-Cola, Ford and JP Morgan) issued a statement saying that broader social responsibility should be prioritised over purely seeking profits. The “loi Pacte” in France created the "company with a mission" label. The B Corp label, certifying companies that operate for the wider good of society founded is booming with 140% growth in the number of B Corp certified between 2018 and 2020 (3499 companies are certified). Danone, a forerunner on these topics, is the first listed company to have adopted the "entreprise à mission" framework in May 2020 and has the ambition to become one of the first certified multinationals (some of its subsidiaries are already certified).
Whether companies explicitly sign up to this movement or not, they will be impacted as organisations scrutinise their business partners more closely. Patagonia in the US recently announced that its corporate-sales programme would only establish new accounts with companies that are in tune with its own environmental and social values. EcoVadis, the rating provider helping companies to monitor the sustainability of their value chain, raised $200M in January 2020.
85% of millennials expect companies to demonstrate their sustainable commitments (Source: Nielsen 2018)
82% of consumers prefer to buy environmentally friendly products.
(Source: Kantar Worldpanel, 2018)
Walk the talk
One leading reason why companies are turning to Purpose is to achieving higher workforce and customer satisfaction. Many consumers today make decisions based on how brands treat their people, how they treat the environment, and how they support the communities in which they operate. As employees Gen Z & Y demand that organisations ‘walk the talk’, living up to promises and demonstrably leading on social and environmental causes. They favour meaningful work over higher pay and give their loyalty to organisations that reflect their values.
OPPORTUNITIES & CHALLENGES
A long and winding road
Most companies still have a long way to go to put Purpose at the heart of company, from identifying their purpose to promoting it through words and actions. They need to define the metrics for living out the purpose, change their processes to hit their objectives and collect data to communicate their impact. This is true at every level of the organization from HR, who need to embed purpose in job descriptions, employee training and evaluation to marketing managers who need to make sure that the organization’s purpose resonates with customer values.
Only 37% of companies report on their climate change performance
(source: American Center for Sustainability and Excellence)
A new source of competitive advantage?
Rising concerns from customers challenge companies’ practices and products. While making decisions about brands, the environment is the second most important issue customers look at. The main issues they consider in 2020 are climate change, circular economy, plastics, biodiversity and sustainable consumption.
By designing new offers taking into account a sustainable challenge, companies will be able to stand out and create preference. For example, regarding climate change Amazon has launched The Climate Pledge, a commitment to meet the Paris Agreement 10 years early. Companies such as Mercedes Benz, Verizon and Infosys have joined the initiative. In addition, over 100 global corporations including Electrolux and L’Oréal have joined the science-based targets group to align strategies with Paris Agreement.
Only 23% of companies explicitly mention the Sustainable Development Goals (SDGs) in their reporting.
(source: American Center for Sustainability and Excellence)
The Circular economy could generate a net economic gain of €1.8tn per year by 2030 in Europe and companies are developing new models in every industries. Startups developing reusable and sustainable packaging have raised $850M in the last 3 years to focus on the issue of plastic waste – revealing the size of the market opportunity.
SO WHAT FOR LYRECO?
What if purpose / mission became a differentiating factor for Lyreco vs. less clearly engaged (more ethically challenged) platforms such as Amazon?
How can we profit from our ongoing commitment to the circular economy?
How can we help our customers to develop a more sustainable/ethical workplace? What new solutions / services would be required?
How could we make life easier for customers wishing to engage in a responsible purchasing approach?
To what extent will Lyreco have to deliver sustainable data and transparency among its own supply chain to do this?
What if tomorrow zero waste and zero plastic became the norm? How will this impact Lyreco’s offer and profitability?