The value of corporate purpose

Leading with corporate purpose

Skeptics might say that leading with purpose is a luxury reserved for companies in a bull market. Critics argue that sidebar efforts are exercises in hypocrisy for most large corporations. But we believe companies that truly lead with purpose have demonstrated that purpose can be a core driver of value creation for a company—a future-proofing strategy in a bear market, as well as a way for thriving companies to return some of the value they capture to society.

But how should companies connect purpose with business strategy? How should they ensure that purpose investments drive tangible value for shareholders? How should they measure the impact? How should they communicate purpose-driven efforts in a credible and compelling way to consumers and investors alike?

Every company has a purpose beyond profits, and that purpose differentiates a company from its peers. A company’s purpose is the role it serves in society connected to long-term value, including the differentiated needs it addresses for all its stakeholders. Business leaders can protect their company’s future success by adopting strategies to solve the problems of people and planet profitably—and not profit from causing such problems.¹

Corporate purpose strategy is good business strategy

Practiced well, leading with purpose can be a critical element of a sound competitive strategy. Business has a unique and powerful capacity to integrate social innovation and economic value.² Companies that do this well generate new revenue streams, enjoy price premiums, engage strong talent, drive operational efficiency, and gain access to more investors and lower cost of capital. Companies that do nothing compound their risk. As a result, purpose is not simply about competitive advantage; it is a business mandate.

Purpose strategy articulates and integrates a company’s unique purpose with its core business strategy. Companies have an opportunity to establish consistency of action first, which promotes resilience in the face of social or environmental shocks, and then a differentiated social value proposition. To design an effective corporate purpose strategy, business leaders should follow four steps:

1. Assess impact
2. Act consistently
3. Amplify benefits
4. Differentiate impact

Great expectations for the power of purpose in business

Expectations that business should play a leading role in addressing social and environmental challenges are increasing. Almost nine in 10 Americans agree that the current COVID-19 crisis is an opportunity for companies to reset and focus on “doing right by their stakeholders.”³

Our 2019 Global Human Capital Trends survey found that, for the first time ever, CEOs considered social impact as the top success factor for annual performance.⁴ The opportunity for positive business returns from social and environmental investments is well-documented. Companies have derived value related to:

• Products and services: 53% of CXOs said they had successfully generated new revenue streams from new socially conscious offerings.⁵
• Brand: 66% of global consumers and 73% of millennials are willing to pay a price premium for sustainable goods.⁶
• Talent: A 2019 survey of 1,000 employees at large US companies found that nearly half of all respondents and three-quarters of millennial workers would take a pay cut to work at an environmentally responsible company. More than 10% of respondents said they would be willing to take as much as a $5,000–10,000 pay cut.⁷
• Operations: One study found that companies could achieve an average internal rate of return ranging from 27% to 80% on low-carbon investments alone.⁸

• Capital: In 2016, an analysis of sustainability and corporate performance found that 90% of 200 studies analyzed concluded that good environmental, social, and corporate governance (ESG) standards lowered a business’s cost of capital; 80% show that stock price performance is positively correlated with good sustainability practices.⁹
  

Embracing the power of purpose in business

Ownership of a company’s purpose should start with the CEO or chief strategy officer, who are uniquely positioned to balance stakeholder outcomes. Components will then be overseen and implemented by executives across the C-suite. Every executive has a role to play and can benefit from effective implementation of corporate purpose strategy—measured both in terms of the returns generated for the company and the legacy of impact left behind.

In short, good purpose strategy is great business strategy. Purpose-driven strategy can help your company achieve its greatest returns at the intersection of long-term value to the business and impact on society.