How to Quicken the Pace of Corporate Purpose

The evidence is clear – organizations that conduct business with purpose and go beyond maximizing shareholder returns outperform. Still, many companies continue to miss out on the opportunity to drive financial and societal gains. 

The concept of purpose-driven organizations – those interested in creating positive impacts on society, the environment and communities in addition to generating profits and returns for shareholders – has been gaining traction in recent years. Cultural shifts in investor, consumer and employee expectations have spurred momentum in areas like ESG reporting and B Corp certification. At the same time, governments have been doing their part in many jurisdictions, enacting legislation and changing reporting requirements.

Unfortunately, the pace has been slow. In some cases, businesses that have embraced the idea of purpose beyond profit have done little to move beyond high-level rhetoric to meaningful action. The recent geopolitical upheaval, particularly in the U.S., isn’t helping. A growing wave of criticism is building around purpose-driven initiatives, particularly those relating to ESG and diversity, equity and inclusion.

Are we witnessing the beginning of the end of the shift to more purpose-driven corporations? Or will we see businesses continue to transcend governments-of-the-day and CEO perspectives to balance both purpose and profit?

The answer to these questions lies in reconciling the barriers – real or perceived – at play. These include:

• Concerns about short-term profitability driven by pressure from shareholders and other investors to show results in the short term.
• Perceived lack of tangible benefits and/or the ability to capture these benefits in metrics.
• Leadership resistance to change.
• A lack of awareness or understanding of what purpose-driven really means and illustrative cases of how it can be achieved.
• Not being market driven combined with the shift in values and beliefs among post-baby boomer consumers.
• Deeply-rooted beliefs that financial performance will suffer despite evidence to the contrary.
• Fears of appearing disingenuous or inauthentic in the pursuit of purpose, also known as greenwashing.

The research at the Centre for Entrepreneurship, Innovation & Social Impact at Smith School of Business is centred on helping organizations overcome these barriers by equipping them with insights and data on the following mega forces shaping the current landscape.

Core Business Imperative

There are business advantages to embracing a more purpose-driven approach. A McKinsey survey indicates that products that make claims relating to environmental, social and governance factors have achieved disproportionate growth compared to products without such claims. 

Consumer Demand

Recent studies show that consumers not only say they care about sustainability but are buying accordingly, despite challenging economic times. A 2024 PwC study, for example, revealed 80 per cent of consumers are willing to pay an average 10 per cent premium for sustainable products.

Shift in Values and Culture

Purpose matters to many Gen Z and millennials who will make up 75 per cent of the workforce in 2025 and who are a powerful group of consumers. At Dutch pension fund ABP, where 20 per cent of ABP employees are millennials, portfolio managers are accountable for assessing each investment in the context of risk, return, costs and ESG. Employees of purpose-driven organizations have also been shown to be more resilient, innovative and loyal.

Investor Demand

Investors are ‘voting’ for purpose with their wallets. Asset managers are embracing purpose, including BlackRock, despite dropping ESG terminology. Fifty per cent of global asset owners are implementing or evaluating ESG considerations in their investment strategy. Institutional investors and investment consultants are integrating ESG factors as a matter of fiduciary duty.  

Regulatory and Stakeholder Pressures

Governments and stakeholder activist groups are applying pressure to companies and their directors to do better for the environment and society. Legal experts warn of an increased risk of liability, citing changing regulations in Europe such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.  

Purpose-Driven Results

A growing list of exemplar organizations show not only how a purpose-driven orientation leads to outperformance but also how to make the necessary shift in corporate culture. At Unilever, a global consumer packaged goods firm, purpose-driven brands are responsible for almost 75 per cent of the company’s growth. 

Knowing all this, what will it take for businesses to realize the full power of purpose? A 2012 Harvard Business Review interview with former Unilever CEO Paul Polman discussed what it takes to lead with purpose beyond profit: belief, a focus on long-term results and investor alignment. As Polman stated:

“First of all, you have to accept that our job isn’t just about creating shareholder wealth. A myopic view of driving shareholder wealth at the expense of everything else will not create a company that’s built to last. Second, you need to attract a shareholder base that supports your strategy – not the other way around. So, we actively seek one that is aligned with our longer-term strategy.”

Given the mega forces at play, there’s reason for optimism that the momentum behind corporate purpose beyond profits will continue. The evidence may be clear but we need more business leaders like Paul Polman; leaders who not only believe corporate purpose is the right thing to do but that it’s the smart thing to do and that it can be done. We need investors to continue to use their cash to signal and require change. And we need consumers and citizens to expect and demand more from businesses.

This article is adapted from a story that originally appeared in CoBS Insights, a publication of the Council on Business and Society (CoBS). Smith School of Business is a member of CoBS.