Beyond ESG: Why Purpose is the New Model for Sustainability in Business
“There’s a shift happening right now in how companies and investors think of ESG,” Oatly’s Chief Sustainability Officer, Ashley Allen told me recently when I interviewed her for a panel in partnership with British American Business. “Traditionally,” she said, the business community has “got it wrong.”
The panel – which considered how purpose was functioning to guide businesses through the ongoing effects of the COVID-19 pandemic, alongside a host of global socio-political unrest – clarified something I’ve long believed as an advocate of purpose as a crucial north star for businesses. Historically, businesses haven’t been primed to think ahead when it comes to the wider impact they will have on the world. They’re counting on retrospective compliance to do the work that only a foundational purpose can do.
ESG, from Allen’s perspective, is a perfect example. Compliance to environmental, sustainability and governance concerns she said has, for many companies, long been an afterthought.
And yet, meeting ESG goals is one of the most essential challenges that business leaders are facing right now. So why are so many companies failing to communicate their sustainable practices to consumers?
More than compliance
Thinking about long-term impact isn’t easy by any means. Leaders are under immense pressure to focus on short-term profit over long-term value my firm gathered as much from a survey of 700 CEOs last year. What we found is that while 75% of business leaders want to shift their focus to long-term value, there has long been an inability to do so at the risk of compromising shareholder relations by not delivering short-term profits. No wonder ESG concerns get tacked on to the end of projects rather than infused into the very purpose of the business right away.
But in reality, building a business that takes into account the wider, longer-term impact is not a profit deterrent. In fact, commitment to sustainability has made Oatly the monumental successes it is today, with profits soaring year on year – after high demand saw supermarkets sell out last year, the oat drink giant has increased its output by 1,250%.
And Oatly’s far from the only one building its brand around what it gives back as much as what it sells. BrewDog, Patagonia, and Ben&Jerry’s are all highly successful companies that also seek to contribute back to the wider world. And they aren’t doing it to comply. They’re doing it because it’s part of their foundational purpose.
Environmental, social and corporate governance, Allen argued has always been “a vetting process after business decisions. Purpose, on the other hand, is a guide from the very beginning.”
Today the business landscape is seeing an increase in the importance and voice of stakeholders other than shareholders, especially when it comes to environmental and social contributions.
Oatly’s Allen said: “What is clear now with companies that integrate environmental purposes into their work, is that it can’t just be something that after the fact you look at it and give yourself a score on, it has to be inherent in how you are planning your vision.
“‘ESG is a misnomer,” she said. In fact, “purpose could almost replace ESG in environmental and social issues as part of the business model. The difference is that purpose says more about what is within your power to influence.”
Oatly presents a perfect example for this way of thinking: “Our power to drive the biggest difference, to influence these larger global goals, is really about not just creating our products, but inspiring people to choose those products. By choosing Oatly, consumers know they are reducing their carbon emissions. By thinking more about how products are made, thinking about influence, we are able to do those practices and to do that production in a way that leads to bigger outcomes. That is the difference, and that’s resonating with consumers.”
The missing link
But purpose isn’t just about the service your specific business provides. A real champion of business purpose knows that by answering the needs of consumers through purpose, the business also has the opportunity to answer the needs of the global community in a meaningful way – and that purpose will guide them to do this in a way that elevates both the business and the wider community.
Allen put it like this: “You’ve got to be clear how you link to bigger goals – what’s your role in the world? What is your role as a company to deliver to larger global efforts? You couldn’t do that well with an old ESG model.”
In another recent BAB panel, CEO of The Body Shop, David Boyton exemplified how purpose does more than ESG to guide his company’s environmental policies, saying that The Body Shop has been “determined to show that the anchor of purpose has been keeping us on track.”
The Body Shop’s purpose – “We fight for a fair and more beautiful world” – doesn’t just arrive on the scene when the business has to meet certain levels of compliance. Rather, it sets an internal standard that informs how The Body Shop regulates its ingredients and packaging, how it treats its people, and how it responds to and learns from crises. “If you have a purpose like we do that includes the word ‘fairer’,” Boyton said, “You have to be all over things like this.”
BrewDog, Patagonia, and Ben&Jerry’s are all highly successful companies that also seek to contribute back to the wider world. And they aren’t doing it to comply. They’re doing it because it’s part of their foundational purpose.
The purpose cycle
Like The Body Shop, Oatly’s purpose expands from environmental sustainability to a deeper emphasis on ethics that colours the way the company treats employees, and how the business responds to uncertainty.
“For us at Oatly, purpose has been the driver since the beginning,” Allen said. “At the centre of what we do is an emphasis on prioritising people and the planet over profit. It’s always been part of our brand, and that’s what makes it a successful model.” This is especially true in the wake of the global COVID-19 pandemic, which has inarguably changed the face of business and the world for many years to come.
Allen is adamant that because Oatly had a built-in purpose that puts people and the planet over profit, the company was better situated to respond to the pandemic crisis, on both a human and business level. By looking after employees as well as reaching out to support indie coffee shops during the pandemic, Oatly was able to follow through on its purpose while also supporting its own business.
The Body Shop’s Boynton echoed this sentiment, reflecting on how his business faced the immense challenge of pivoting from a store-based model: “We had to focus on fewer, but bigger, more important things.” The changes in how the Body Shop managed its direct-to-consumer sales to support its employees through the closure of stores was “tough for people to get their heads around,” Boynton admits. But “our purpose gave us something to focus on.”
Effectively, strong purpose creates a feeding loop – the purpose supports the business, which in turn supports the purpose – so that companies see business and growth and environmental and social improvement.
For companies like Oatly and The Body Shop baking sustainability into their purpose, ESG has nothing to do with compliance and everything to do with their business models built to make profits and differences. “Our purpose precedes us,” said Allen. And that’s how it should be.