A crisis can make people, businesses and societies focus on areas they don’t think about that often. The COVID-19 crisis provides a perfect example. It has compelled many individuals, businesses and broader communities to consider how the world’s economic growth and social progress have become divorced — and why we need to recouple them if we want to have an ethical, equitable society that builds prosperity by linking purpose and profit.
I believe the pandemic and the social justice movement forced businesses to face these societal issues head-on in 2020, which amped up their focus on purpose by building on earlier efforts to improve corporate social responsibility. Currently, purpose has evolved to include environmental, social and governance (ESG) standards as well as diversity and inclusion (D&I) practices. Purpose-led companies generally broaden their business perspective from primarily focusing on shareholders to including a wide range of stakeholders including employees, customers, investors and regulators, as well as society as a whole.
The events of the past year have produced a moment of clarity for almost every business leader I’ve spoken to about the need to provide parity between profit and purpose. These executives are now going beyond traditional bottom-line thinking. They’re also searching for an ethical balance between the needs of shareholders and various stakeholders. It’s a tough challenge, and I don’t know of any businesses that have achieved perfect equilibrium, but I do know many that are making this a priority.
For example, during the pandemic, I saw a number of companies offer their essential workers bonuses, pay bumps and healthcare insurance. Some even raised the minimum wage for their employees. These leaders recognize that all workers — not just executives and managers — should share in a firm’s success. Of course, these efforts will be effective in the long term only if businesses follow through on their social agendas and then move on to develop new ones.
The same desire for a stronger relationship applies to customers, as many businesses are paying close attention to customers so they can truly understand and respond to their concerns and desires. In response to customer ESG concerns, for instance, a growing number of companies that I’ve worked with have taken actions such as adopting sustainable packaging, increasing renewable energy sources, putting a carbon stamp on their menu items or using electric vehicles to deliver their products.
Responsive listening is especially important as more Gen Z individuals become consumers and gain an increasing share of purchasing power. These young people are very involved in environmental and social issues, and that heavily influences the products and services they buy, the brands they prefer and promote on social media, and the companies where they choose to work. This growing demographic has a strong voice, and it’s one that companies often ignore at their peril.
In PwC’s Global Consumer Insights Survey 2020, consumers said they expect businesses to prioritize care, well-being and innovation; show consideration for customers’ well-being in the products and services offered; and make sustainable, ethical choices that recognize a broad range of stakeholders as well as shareholders. Consumers also expect the companies they do business with to care about the planet.
Before the pandemic, PwC asked global urban consumers who they thought were responsible for “encouraging sustainable behaviors and/or lifestyle practices.” Most said the government, the consumer and the producer or manufacturer bear the greatest responsibility for creating a sustainable world. Few expected the private sector to solve these issues on its own, but there was an expectation that the corporate sector would potentially join government and consumer groups to promote sustainable behaviors.
Now a growing number of consumers tell us they’re even willing to pay more for products and services from companies that make ethical, sustainable choices. Still, companies will have to innovate if they are to satisfy these consumer expectations and retain the loyalty of their customers.
Enter pragmatic ESG
As companies move to adopt or strengthen their ESG and D&I efforts, they should constantly keep the recoupling of economic growth and social progress top of mind. To do that, businesses first have to determine which initiatives are most likely to achieve that union and then figure out the best way to deliver the desired outcomes.
These efforts shouldn’t be mere window dressing. That won’t fool anyone. On the other hand, companies obviously can’t abandon their profits and shareholders. Instead, they need to take a pragmatic approach to social responsibility initiatives.
I believe that a successful approach to social responsibility requires companies to faithfully deliver on the promises they make to stakeholders — without neglecting the need to make a profit. That calls for well-thought-out planning, consistent messages and a way to measure the responses to those messages. It also requires corporate boards to support and provide governance for such plans, though company executives are usually the ones who lead such efforts. Taking a thoughtful approach to social responsibility is good business, and it generally leads to good results.
Where do we go next?
Business leaders have been addressing sustainability and social responsibility for quite some time, but the events of the past year greatly accelerated their involvement in these issues. They are cognizant of the growing interest of employees, customers and regulators in these areas, and they’re well-aware of the strong interest from an ESG-focused investor community.
For companies that are not getting involved in ESG and D&I, there’s nowhere to hide. Customers, employees, investors and regulators are watching and listening to the messages brands are sending out. Businesses that don’t pursue social progress platforms at scale in consistent, discernible ways are likely to face a backlash.
Good leaders understand the importance of responding equitably to all stakeholders, including investors and regulators, which, in turn, should help develop a trusted brand. That might not guarantee financial success, but I believe it can promote the greater good, and such a rising tide can lift all boats.
Want more insights on the big issues facing business and society in the year ahead? Our global series reveals how six disruptive forces are shaping our world in the year ahead and also serve as a framework to identify opportunities in the next normal.