In defence of corporate purpose

By Andrew Adie

Stakeholder capitalism and ESG are receiving a lot of flak at the moment.

They are being derided as ‘woke’ window dressing – we’re seeing even arch proponents like Blackrock acknowledging that following a purist approach to ESG is challenging when markets are all tracking downwards.

We’ve seen Unilever, the poster child of the corporate purpose and ESG movement, being criticised for poor share price performance and gaining the attentions of Nelson Peltz, who’s relentless drive to create value doesn’t make him a natural champion of a social purpose agenda.

As we see economic headwinds that look increasingly unfriendly (data yesterday from the ONS showed UK GDP contracted by 0.3% between March and April) it is perhaps unsurprising that business is being challenged on purpose and asked to focus on profit.

Yet to my mind the two have never been incompatible.

We wrote repeatedly during lockdown that business has a uniquely valuable social purpose in creating jobs, profit and value that is fuel for the economy.

That mission has never changed and business shouldn’t have to apologise for what it is and what it does.

Yet, few would deny that business also needs to be a responsible corporate citizen and play a positive leadership role in society. That role goes well beyond making money. Business can be a champion for fairness, its operations can be ‘greener’, and it can choose to champion causes that make the world a better place. In doing so, it can also strengthen its reputation and draw customers towards it.

Delivering that requires a pragmatic strategy driven by an understanding of all stakeholders’ needs and a desire to lead change that has impact.

As the cost of living crisis spirals and investor returns come under pressure, it is natural that the voices of financial stakeholders (staff, shareholders and tax payers) will become more prominent, and the voices of social stakeholders (communities, the environment and philanthropy) put into the ‘nice to have box.’

Yet, business should hold its nerve in the face of the onslaught. Purpose should not be a bumper sticker or a ‘woke’ statement - it’s an investment in all of our futures.

The weakening of the government’s commitments to net zero, with claims that environmental policies are being dropped to focus on the cost of living crisis, should alarm all of us.

If we lessen our resolve on this and other ‘corporate purpose’ goals, then we’re paving the way for an even greater cost of living crisis in the future, as climate change and extreme weather alter global food production, water availability and the natural world to the detriment (and cost) of all of us.

When critics turn on ESG and claim that funds that aren’t exposed to fossil fuels are missing the acceleration in value and profit driven by the energy crisis, then they are conveniently forgetting that ESG is as much a hedge against future climate risk as it is a cuddly example of ‘stakeholder capitalism’.

I’m not suggesting that some of the criticism isn’t merited. Terry Smith’s comment that a brand that feels the need to define the purpose of mayonnaise has ‘clearly lost the plot’ is hard to completely disagree with, and arguments from the likes of Tariq Fancy (former CIO of Blackrock Sustainable Investing) that ESG is a ‘dangerous distraction from what really matters, purpose’ also has chimes of uncomfortable truth. Grand statements are not the same as granular results.

Yet none of this changes the fundamentals. We live in a world where business as usual just isn’t possible or desirable.

The planet is heating, people expect equality and fairness at work, they want business to lead on issues that matter, and ridiculing stakeholder capitalism as ‘woke’ does not change that reality.

What it does underscore is that business has to be authentic and to make change in areas where it can move the dial.

Every business, organisation and individual has a role to play in getting us to net zero, but that has to be grounded in real action.

Social purpose and D&I should be part of any good corporate strategy but they need to be deliverable and genuine, not an attempt to launder strained reputations.

Those organisations that understand this will stay the course despite criticism of ESG and stakeholder capitalism. Those that don’t and end up watering down their commitments are storing up trouble for themselves in the future and that will hit shareholders as much as any other stakeholder group.