The rise of the purpose-driven business

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Cover feature sustainability

At a time of great economic uncertainty, environmental credentials might seem an inessential ‘nice to have’ for SMEs or an onerous reporting burden for bigger companies. But disruptive firms in a range of industries are proving that putting purpose at the heart of what they do can give them a competitive advantage while also benefiting the planet

The impact of business on the environment will be brought into sharp focus in June, as the UN’s World Environment Day and World Oceans Day highlight the scale of global pollution to which commerce is by far the biggest contributor.

This comes at a time when more than 11,000 companies in the UK have become legally obliged to disclose their energy consumption and greenhouse gas emissions under the so-called streamlined energy and carbon reporting framework.

It would be understandable for business leaders to see environmental sustainability as a low priority when, for so many, the daily pressures of cash management under trying economic conditions are guiding every boardroom decision.

Yet a growing number of firms have found that placing sustainability concerns closer to the core of what they do – or, indeed, making it their very purpose – is helping to solve some of their most common growth-limiting problems while at the same time enabling them to make a positive impact on the planet.

At the start of last year, British businesses certified as B Corps – accredited by the global B Corporation for meeting the highest standards of social purpose, environmental performance, public transparency and legal accountability – were found to have grown 28 times faster than the UK economy had over the previous 12 months.

The findings of recent studies offer an explanation for this. For instance, From Me to We: The rise of the purpose-led brand, a consumer research report by Accenture Strategy, has revealed that 63 per cent of consumers prefer to buy from firms that stand for a purpose that reflects their personal values, ditching those that don’t.

And – perhaps most tellingly for the 42 per cent of IoD members who ranked skills shortages as their top concern in a March 2019 Policy Voice survey – employees are voting with their feet as well. PwC’s Workforce of the Future report has found that 88 per cent of millennials want to work for an employer whose values reflect their own – this from a generation that will comprise three-quarters of the world’s workforce by 2025.

Attractive to investors

Paul Hargreaves is CEO of Cotswold Fayre – a food wholesaler certified as one of the 60 founding British B Corps – and author of Forces for Good: Creating a better world through purpose-driven businesses. His firm sources from reputable independent producers, runs on green energy from Ecotricity, offsets its carbon emissions via ClimateCare, pays the living wage and donates a quarter of every invoice to a local food bank.

Hargreaves confirms that this approach helps to attract customers and engage staff, but he also stresses the increasing ability of purpose-driven firms to raise finance for the next stage of their growth.

“Such companies are the type that investors seeking long-term growth are starting to invest in,” he says. “Previously, businesses with aims on top of profit weren’t taken seriously and viewed as too ‘on the edge’ to be worthy of investment… Their leaders were assumed to be hippies or do-gooders without a true idea of what real business was all about.

“This attitude is changing. Investors now realise that purpose-driven businesses can be better investments, as these are the brands to which consumers are flocking in their tens of thousands. That will ensure that these businesses will have the money to fund their future growth.”

His view appears to be backed by a Ipsos Mori poll of companies on the perceived benefits of the new UK reporting rules on energy use and emissions. The highest-ranked benefit was that they conferred the ability to “attract an increased diversity of investors”.

Finding a purpose

From Bees for Business, the carbon-neutral honey farm in Lincolnshire that lets other firms adopt a hive; to Birmingham’s The Clean Kilo, the country’s largest zero-waste supermarket; to Edinburgh B-Corp brewery Brewgooder and its work to supply potable water to 40,000 people in Malawi, the growing list of British firms driven by environmental purpose is impressive.

Some corporate giants are making a concerted effort too. Unilever, for instance, published its Sustainable Living Plan in 2010 and is well on the way to meeting a number of ambitious targets this set, such as sourcing all agricultural raw materials sustainably by 2020 and all energy from renewable sources by 2030.

But how can established firms, which would struggle to find the time and resources to go back to the drawing board, start making such changes? IoD member Shaun McCarthy, director of advisory firm Action Sustainability, was appointed an OBE for services to sustainability and the London Olympics.

He says: “There’s no need to reinvent the structure of a successful business to shift towards sustainability, but it is important for boards and executive teams to ask ‘why?’ All organisations are driven differently. For example, what are your customers asking for? What will they ask for in the future? What about shareholders?

McCarthy continues: “If you’re a plc, what are institutional investors worrying about? If you’re a private company, what do the shareholders really think? Are you interested in attracting new talent to your business? What are potential young recruits seeking from an employer? If you’re a purpose-led business, what is that purpose? Do your practices align with it? You can rate these, and other drivers, in a workshop and then you can think about your unique sustainability strategy.”

Sandra Norval is CEO of Bluedotaug, a tech firm specialising in virtual and augmented reality. The business has been built on strong values of environmental sustainability.

She told the IoD Academy how she upholds these in her daily work: “We ensure that, whatever boardroom decisions we take, we are thinking about those values. When considering whom we might want to pitch to – be they investors or clients – we’re always thinking: ‘Will they enhance our values?

“Are they going to buy into what we’re doing, so that they’ll support us? Will the work that we end up doing for them actually contribute to a positive change in the world?’ If we don’t get this right and we start taking on clients and investors who don’t believe in that, we’d completely undermine our efforts from the outset.”

Sustainability cover feature

Beware of ‘greenwash’

While the case for putting sustainability at the heart of business gathers momentum, Hargreaves sounds a cautionary note for anyone who may be tempted to take a less heartfelt shortcut to the same goal.

“A word of warning: do not think that a profit-led business can add in a little CSR, chuck in a few environmental policies and gain all the advantages of a purpose-driven business,” he says. “Consumers easily see through this ‘greenwash’. A true purpose-driven business will have fundamentally changed its DNA and will not look, smell or act anything like a traditional business.”

And, of course, not all firms making the transition with genuine intent have achieved the financial results that their ethical route might have promised. In April, for instance, Bristol-based independent coffee chain Boston Tea Party reported that its sales revenue had fallen by £250,000 since the previous summer, when it had banned single-use coffee cups.

Despite this, its owner, Sam Roberts, told the BBC: “We felt this was a loss we had to take. We want this to be a call to action to other companies. Too many operators aren’t dealing with the problems and are putting their profits before the planet. Bigger businesses are deploying a smoke-and-mirrors strategy and not resolving problems while seeming as though they’re doing something. We’re 100 per cent committed and there’s no going back.”

Roberts added that his business had stopped 125,000 cups going to landfill, sold 40,000 reusable cups and raised £12,000 for local charities with the money saved on buying disposable cups. Buoyed by income from the firm’s food offering in the meantime, Roberts hopes to nurture more consumer goodwill with its new philosophy over the longer term.

Disruptive innovation

While such cases may deter risk-averse leaders from taking a similar approach, Geoffrey Jones, professor of business history at Harvard Business School, argues that there are ways to become more sustainable that any venture can afford.

“There are simple steps. You can change your lighting. You can do something about excessive packaging. You can certainly reduce your water consumption,” says Jones, but he adds that the greatest opportunities await companies willing to see today’s eco-challenges as a chance to disrupt their industries with innovative solutions.

“The idea of getting energy from the sun was invented by these crazy people, but that’s now mainstream. To me this is cause for optimism, in that green entrepreneurs are able to look beyond accepted norms and deliver wholly new ways of thinking about things.”

Marga Hoek is a non-executive director, sustainability expert and author of The Trillion Dollar Shift, which examines business issues arising from the sustainable development goals adopted by UN member states in 2015.

She also highlights the huge potential opportunities for eco-focused ventures: “Markets worth up to $12 trillion can be unlocked by 2030. Returns on sustainable business cases are getting better by the year, or even month, with firms working against climate change performing 20 per cent better than their peers.”

The G20, which convenes for its summit in Osaka on 28 June, states that part of its mission is to “realise an inclusive and sustainable world through its contributions towards resolving… global issues”. While it’s clear that a huge amount of work remains to be done at that level, responsible innovative companies of all sizes are showing how it’s possible to make a positive difference to both the environment and their long-term prosperity.

Five steps to a purpose-driven business

Paul Hargreaves purpose-driven businessBy Paul Hargreaves, author and CEO of Cotswold Fayre, a certified B Corporation

1. Get the owners and directors on board
If one leads and others follow reluctantly, fundamental change will not happen. Change the articles of association to reflect that the business is now about benefiting all stakeholders – employees, suppliers, the local community and the world – through its care for the planet.

2. Embed purpose at all levels of the company
A purpose-driven company is like a stick of rock: cut it at any point and you’ll see the purpose written there. Over time, purpose will be communicated from the bottom up, not simply top down. Employees will have their own stories of what that means to them.

3. Give employees permission to challenge their leaders…
… if they feel that they have moved away from the purpose of the company. This happened at Google last year when news surfaced that it was working with the US Department of Defense on drone software – 3,100 employees put their name to a letter to CEO Sundar Pichai.

4. Base hiring and promoting on values
At Toyota, employees have two annual assessments: one on their adherence to company values and the other on their performance for the year. Promotion decisions are based only on the values assessment.

5. Be transparent in your annual reports…
… in relation to the measurement of your values. If you aren’t, then there’s a danger that doubts may permeate throughout the business. Any doubts and distrust from consumers are instantly dissolved by complete transparency, which will be a test of whether your company really has purpose at its heart.

Forces for Good, by Paul Hargreaves, is out now, published by SRA Books

 

How to make your supply chain more sustainable

Advice from Shaun McCarthy, director of Action Sustainability

“In my experience, public and private bodies deliver most of what they deliver through their supply chains, so it follows that a large proportion of an organisation’s environmental and social impacts will be in its supply chain. The ISO 20400 standard provides a strategic framework for dealing with this.

“It is important to understand how your suppliers are supporting your sustainability objectives. It is also crucial to recognise that one size does not fit all – different categories of supply will have different impacts, so you need to make your strategy relevant to what you buy.

“Inevitably your supply chain will lack the competence to deliver, but it is important to invest in developing capacity in your supply chain to ensure that it remains competitive. Simply selecting suppliers with better credentials will lead to smaller pool of suppliers and a risk of price hikes.

“Remember, sustainability should not cost more, but bad procurement inevitably will. Many procuring organisations make the mistake of developing nice shiny policies and putting great requirements into contracts, but not truly following up on these. The supplier will therefore produce a nice shiny reply and then proceed to do nothing differently when it wins the contract.

“Performance management and good supplier relationship management is essential to the success of a good sustainable procurement policy.”

 

Cover feature on sustainabilityThis article appears in the latest issue of Director, the magazine for IoD members, which is out from 24 May.

 

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About author

Chris Maxwell

Chris Maxwell

Director’s editor spent nine years interviewing TV and film stars for Sky before joining the IoD in 2011 and turning the microphone on Britain’s business leaders. Since then he’s grilled everyone from Boris to Branson and, away from work, maintains an unhealthy obsession with lower league football.

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