Purpose-driven companies would be more successful if it was easier to identify them
If people are supported to better identify purpose-driven companies it could create a virtuous cycle, helping unlock the power of business to tackle the great social and environmental issues of our age
When we ask founders of purpose-driven companies what motivates them, the standard reply is something like "It is just an extension of who I am, the purpose of my company is my passion" or "What is the point of a company that doesn't make the world a better place?".
Intrinsic motivation is so powerful, and points to a passion buried deeply in many people to do good in the world.
This passion, however, is not enough. It does not, by itself, make a business successful, keep the bills paid or put food on the table for employees. Passion needs to be coupled with profit.
It is, therefore, good news that being purpose-driven is increasingly evidenced to make a company more sustainable and successful. For instance, a Harvard Business Review & EY Beacon Institute Study (2015) found that businesses where purpose was clearly articulated and understood were far more likely to achieve greater than 10% growth between 2012 and 2015, than businesses where purpose was not well understood or communicated.
Why is this? It is because people want to work for, buy from and invest in purpose-driven businesses, and this affects the bottom line:
70% of people said they were more likely to choose work at a company with a strong environmental agenda (Fast Company, 2019);
People were 27% more likely to stay at a company if it has a higher purpose than profits (Tiny Pulse, 2019);
79% of people said they are more loyal to purpose-driven companies than non-purposeful equivalents (Cone/Porter Novelli, 2018).
So far, so good for purpose-driven companies.
Yet the reality is that, despite it being good business to be purpose-driven, the positive effects of operating in this way are heavily muted. This is because so many people are struggling to truly identity purpose-driven companies.
Consider, for instance, Boohoo. An undercover investigation by the Sunday Times found that a garment factory in Leicester, that was part of Boohoo's supply chain, was exploiting workers, paying them just £3.50 an hour, when the minimum wage is £8.72 for workers over 25 years old. This resulted with the Home Secretary asking the National Crime Agency to investigate.
Prior to the investigation, Boohoo had been given an AA rating on labour standards from MSCI, the world's largest ESG index provider, among others, who noted its above-average performance on this aspect relative to competition. In total, 20 ESG funds had invested in Boohoo.
The public favour brands doing good but find it hard to find them. It is not just investors who struggle to identify the purpose-driven from the purpose-washing. In polling conducted for B Lab UK and ReGenerate (2020), just one in ten respondents could identify companies doing good versus those just talking about it. 55 percent said they couldn't tell the difference.
This matters. If people can better identify purpose-driven companies then it will make them even more successful, creating a virtuous cycle that builds the case for being purpose-driven in business and helps unlock the power of business to tackle the great social and environmental issues of our age.
ReGenerate are working with everyone from regulators to entrepreneurs to work out how to tackle this problem head on. Our latest paper, What is holding purpose driven business back? (2020) uncovers four 'I's that are holding back progress: Identification, Incorporation, Investment, and Impact Measurement. If you have any thoughts on this topic, we would love to hear from you at info@re-generate.org.