Why purpose and profits are now inseparable

Any business not taking its responsibilities to the wider world seriously could be increasingly in trouble in 2020. 

For the clock is ticking on corporations that haven’t yet put genuine purpose at the heart of their operations.

Political, market and consumer forces are all converging to make having purpose critical to business success. And those organisations neglecting it, who haven’t worked out their broader role in our communities and country must urgently adapt, or face a very real threat from their competitors who steal a march.

Politically, there is rightly now a push to create equality of opportunity across the UK and through the Social Mobility Pledge since 2018, I’ve been urging more companies to make a commitment to drive this through their purpose and social responsibilities.

It’s the right thing to do for our country but it’s the smart thing for business to do too. In various markets and sectors, we see mounting evidence of the intrinsic role that having a clear purpose has in underwriting long term commercial success.

The shift in consumers expectations towards businesses making a positive impact is also intensifying – heightening the need to build business strategy and plans around a meaningful purpose. Yet evidence suggests great numbers of employers haven’t understood why having authentic, genuine purpose matters or if they have, haven’t yet worked out how to make the necessary changes through their culture, people, process and products.

It was reported recently that many businesses are still “taking a tick-box approach” to achieve full compliance with the updated UK’s Corporate Governance Code.

“Companies need to improve their governance practices and reporting if they are to demonstrate their positive impact on the economy and wider society”, the Financial Reporting Council (FRC) said in its annual review.

The code was revised in 2018 to help “build trust in business by forging strong relationships with key stakeholders”. It urges businesses to focus on long-term sustainability by “aligning purpose, strategy and culture, promoting integrity and valuing diversity”. So far, so good.

Yet, when it looked at how companies are responding to the revised code, the FRC’s findings included: “Many companies are grappling with defining purpose and what an effective culture means with too many substituting slogans or marketing lines for a clear purpose.”

I believe that the purpose businesses must have is to play their unique role in delivering equality of opportunity and social mobility. It’s a priority for people, so it should be a priority for business and they are best placed to fulfil it. Our own research at the Social Mobility Pledge also backs that up with evidence. 

For example, 65 per cent of UK employees believe the old saying “it’s not what you know, it’s who you know” still rings true when applying for promotions and management positions in their organisation.

In any purposeful organisation which considers itself to have integrity, background or perceived class would have no bearing on staffing decisions. Employees would feel it was about competence not connections. We’re far away from that in the UK, but it doesn’t have to stay that way. Companies can find purpose and be a changemaker for themselves, their communities and our country.

Supporting social mobility is, of course, one of many measures of purpose and impact. But in Britain it is a vitally important one, given how much the UK economy is currently being held back because of an opportunity deficit, stifling talent in disadvantaged communities across the country. Progress on equality of opportunity is a win for all of us - stronger communities accessing more opportunities, stronger companies able to access more talent and a stronger economy as a result creating a stronger country.

Boris Johnson stood on the steps of 10 Downing Street to deliver a victory speech which hammered home the need to close Britain’s opportunity gaps and unleash the “productive power” of every corner of the country. Businesses built around purpose have the power to make this happen and align themselves with a long-term Government agenda. 

But make no mistake, it makes absolute commercial sense to focus on wider impact too. Countless research papers show a direct correlation between purpose and profitability. Deutsche Bank, for example, evaluated 56 academic studies on environmental, social and governance (ESG) in business.

Organisations with the highest ESG ratings were found to have a lower cost of debt and equity.

Also, 89 per cent of the studies analysed showed that companies with high ESG ratings outperformed the market in the medium (three to five years) and long (five to ten years) term.

Looking ahead, if many consumers today already want to buy and trade with companies with purpose, it will become an even bigger feature in the future. There is growing evidence that younger consumers in particular are putting purpose and impact front and centre when they make financial and spending decisions. Among numerous such findings, research by the US Trust, part of Bank of America Private Bank, showed that 93 percent of millennials believe social or environmental impact is important in investment decisions.

And that spending power will shift dramatically - because we are currently in the throes of the biggest transfer of wealth in history – some US$30 trillion globally from baby boomers to millennials.

While demand for purpose in capitalism comes from all generations, these millennials represent the buyers, customers and investors that will shape the future of businesses.

Organisations should embrace not ignore a new generation of consumers and society’s desire and increasingly, expectation to see business with purpose to deliver positive impact, including by driving social mobility. 

Being ahead of that curve will ensure survival and those that aren’t will ultimately seal their own fate. But I believe that business is a force for good in our country. It’s what gave me the opportunities that helped steadily transform my life. And with real purpose and more strategic intent, it’s business that will drive the wider changes on equality of opportunity that Britain so badly needs.

Rt Hon Justine Greening

Founder of the Social Mobility Pledge

Former Secretary of State for Education, Minister for Women and Equalities, Secretary of State for International Development, Secretary of State for Transport, Economic Secretary to the Treasury