Expectations of business and its role in society are changing. As society faces challenges including rising inequality, pandemics, recognition of systemic racism, accelerating climate change and biodiversity loss, stakeholders increasingly look to business to play a stronger role. There are growing demands from a new generation of employees for meaningful work, and declining levels of trust in companies and their leaders. These changes are generating a debate about the role business can or should play in society.
To future-proof the success of their business and to achieve inclusive prosperity, companies need to re-engineer their operating models, reinvent their strategies, and engage in disruptive innovation. Foresighted businesses are responding. They are developing a social purpose as the reason they exist. They recognize that having a social purpose can help them address new challenges and transform their organizations.
Thankfully, there is a strong business case for social purpose. Evidence is mounting that businesses that stand for solving societal challenges are performing well – in terms of market growth, competitive advantage, meeting changing customer needs and energizing their employees. Check out these stats:
- Purpose-driven brands have experienced a brand valuation increase of 175 per cent over the past 12 years, compared to the median growth rate of 86 per cent.
- 88 per cent of consumers would rather buy products from a purpose-driven company.
- Nine out of 10 employees would take a pay cut to have more purpose in their work.
- For every 10 per cent increase in purposefulness at work, organizations experience 8.1 per cent reduced turnover.
Research shows there is a significant relationship between a company’s social purpose and its financial performance:
- Average valuation multiples for high-purpose brands have over four times higher EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) than that of low-purpose brands.
- High-purpose brands demonstrate a nearly 20 percentage point advantage in annualized total shareholder returns over low-purpose brands.
- High-purpose brands double their market value over four times faster than low-purpose brands.
With results like this, investors are getting on board. Since 2018, Larry Fink, the CEO of BlackRock, the world’s largest asset manager with over $8 trillion in assets, has urged CEOs to articulate their company’s purpose by laying out how it benefits all stakeholders, including shareholders, employees, customers, and the communities in which they operate. As he said in his recent 2021 letter: “The more your company can show its purpose in delivering value to its customers, its employees, and its communities, the better able you will be to compete and deliver long-term, durable profits for shareholders.”
Where investors focus attention so flows their money. Firms seeking to attract capital in future are advised to pay attention to these trends.
To help business leaders unpack the economic advantages of purpose, the Social Purpose Institute at United Way commissioned me to research the social purpose business case. We turned our findings into a “workbook” for readers to prioritize the benefits of most relevance to their company.
The research shows there are six main business benefits for pursuing a social purpose business model:
| Six Main Business Benefits of Social Purpose | |||
|---|---|---|---|
| Customer Commitment | Employee Engagement | Stakeholder Relationships | |
| Attract and retain customers and build customer brand advocacy | Recruit, retain and motivate employees and build employee brand advocacy | Strengthen third-party relationships and enable collaboration | |
| Social Capital | Financial Performance | Innovation Generation | |
| Strengthen operating context and increase trust | Enhance financial performance, increase access to capital and manage risk | Increase innovation, enable business transformation and enhance resiliency |
|
How does it work, exactly?
So how is it that social purpose companies do so much better in the marketplace? Turns out they build and benefit from a virtuous cycle of value creation. This virtuous circle drives business and social benefits for the organization and its communities. As revealed in the diagram, social purpose is the fuel or the engine that drives the cycle’s iteration. By eliminating its societal harms, a business reduces its costs and risks, and by focusing on its social purpose, a business drives social innovation, leading to the next level of action and impact for business and society, and thereby generating “good growth”. Thus, a virtuous cycle is created between business performance and societal impact: by pursuing its social purpose, a business does good and drives business results, which in turn allows it to do even more good.
