From CSR to ESG - and beyond! Blog one Is the world better with your business in it?

“Society’s expectations of business have changed more in the past two years than in the previous 20. A pandemic, increasing and costly natural disasters, George Floyd’s murder, attacks on democracy, and more: all moved us past a tipping point. Both practically and morally, corporate leaders can no longer sit on the side-lines of major societal shifts or treat human and planetary issues as ‘someone else’s problem’. For their own good, companies must play an active role in solving our biggest shared challenges. The economy won’t thrive unless people and the planet are thriving.”

This quote starts an article in the Sept-Oct 2021 edition of the Harvard Business Review by Paul Polman, the ex-CEO of Unilever, taken from his book.

Great opportunities lie within this call to action. A two-year study by the Business and Sustainable Development Commission reported that working on the UN’s 17 Sustainable Development Goals (SDGs), which address everything from hunger to poverty and climate change, could unlock trillions in value and create millions of jobs. Growing evidence shows that companies embracing environmental, social and governance issues perform better than competitors.

Investors are pushing for action. Financial regulators demand more disclosure and transparency. Business customers seek climate and diversity targets from suppliers. And employees—especially Millennials and Gen Zers – want to work for companies aligned with their values.

To succeed in this new environment means a major rethink. Traditional philanthropy and corporate social responsibility are insufficient. We must rethink what a business is, how it behaves and operates, what its purpose is, and how it can help drive change in the world.

Many are already on the journey. Business leaders are pressing governments on climate change policies, setting goals to become carbon-positive, making commitments to racial equity, and speaking out in favour of the rights of LGBTQ citizens. They’re forming cross-sector partnerships with suppliers, customers, peers, NGOs, charities and governments to address shared problems.

The concept of ‘stakeholder capitalism’ in which business has a responsibility to society is slowly becoming mainstream. Those who miss this paradigm shift will suffer. Business as usual will not favour them, the younger generations won’t work for them, and society won’t accept them.

Polman, a long standing and leading evangelist for stakeholder capitalism, suggests four areas for business success in the future:

• Serve stakeholders, not shareholders – operate in the service of multiple stakeholders, which will then benefit investors
• Take ownership of all impacts – address the internal and external impacts of social and environmental factors, mitigating the negative and enhancing the positive
• Embrace partnerships – work with charities, communities, local authorities and academia
• Tackle social challenges – bring advocacy and business skills to address local social issues in a strategic and focused way to drive systemic change and real transformation in the business and community environments that are mutually dependent

Paul Polman led Unilever for a decade, during which Unilever’s total shareholder return was close to 300% – well above that of its peers. Unilever made a commitment to serve multiple stakeholders at the brand level.

The largest of its ‘purpose-led’ brand initiatives was the Lifebuoy handwashing campaign. At the turn of the millennium, Lifebuoy was not a vibrant business, but working with UNICEF in the 2010s Lifebuoy taught millions of children and mothers about the benefits of washing hands, helping to avert millions of deaths from easily preventable diseases.

As the handwashing program expanded, its revenue grew at a double-digit percentage rate. Putting purpose at the core of your strategy drives growth. You reap profits through purpose. Employees in the Lifebuoy business are not just selling soap; they’re helping save lives.

The world’s challenges are great. They cannot be solved without drawing on the financial, operational, human and creative resources of business. We need collective action to improve the well-being of all in our community and thus ensure a healthy business environment.

Is the world better off with your business in it? Does it have a clearly defined purpose? Are you a denier, a green-washer, an genuine experimenter or is sustainability in your DNA? Wherever you are on the journey, it’s not too late to start and you can always get better!

How can you help drive more responsible, inclusive and fairer business in which companies are part of the communities in which they operate? Rather than the traditional shareholder focus on short term profit maximisation, society today expects business to take a long-term stakeholder perspective – that considers the triple bottom line of people and planet as well as profit. Future blogs will explore the issues involved, drawing on a 5M Model

• Motive – have you made a commitment?
• Mapping – where are you now?
• Means – how do operationalise?
• Metrics – if you can measure it, you can manage it!
• Monitoring – effective stakeholder reporting.

References:

Business and Sustainable Development Commission (2017) Better Business, Better World

Hunt, V., Simpson, B & Yam, Y. (2020) The Case for Stakeholder Capitalism, McKinsey & Co.

Polman, P. & Winston, A. (2021) The Net Positive Manifesto, Harvard Business Review Sept-Oct 2021, HBR 

Polman, P. and Winston, A. (2021) Net Positive: How Courageous Companies Thrive by Giving More Than They Take, Harvard Business Review Press.

This is a guest blog and therefore does not necessarily represent the views of the Institute of Directors.