Purpose is the New Digital: The Business Case for Purpose
There is no doubt that we are seeing a fundamental shift in the perception of the role of business as it pertains to how it adds value to society. Driven by the arrival of two new generations – Millennials and Gen-Z – with different values and expectations to their predecessors. Accelerated by traumatic societal events – the 2008 Financial Crisis, Brexit, and the covid-19 pandemic – it is leading to a wholesale re-evaluation of ‘business as usual’.
But how is purpose different to what came before? Within companies, being a good corporate citizen has always manifested in silos, depending on which stakeholder it was for. Corporate Social Responsibility (CSR) is how a company fulfills its responsibilities towards the communities it is part of. Sustainability is how companies take care of the planet. Diversity (whether its gender, ethnicity or other forms) is one form of how companies take care of their employees. And Environmental, Social and Governance (ESG) commitments are how all the above are communicated to shareholders.
All these different strands are being woven into the ‘rope’ of purpose, with one unique evolution: truly purpose-driven companies do not seek to compensate for the problems they may have inadvertently created, but instead seek out social and environmental problems that they can profitably and scalably solve for humanity as their ‘raison d’etre’, their reason for being.
Let’s look at how this megatrend is being driven by three stakeholders that are hugely important to any business: its consumers, its employees and its investors.
The Rise of Conscious Consumers
By now the data showing how purpose affects consumers is readily available. One of the best to explain the global impact of purpose on consumers is the Zeno “Strength of Purpose” study of 8,000 global consumers and 75 companies and brands.
Zeno surveyed more than 8,000 individuals across 8 markets (United States, Canada, United Kingdom, France, China, India, Singapore, Malaysia), having them rate more than 75 companies on their perceived strength of purpose.
It revealed a massive business benefit to such purposeful brands and their companies, as it showed that consumers were four to six times more likely to buy from, trust, champion, and defend companies with a strong purpose.
When it comes to paying a price premium, IBM research developed in partnership with the National Retail Federation (NRF) polled nearly 19,000 consumers from 28 countries, across all demographics and generations, from Gen-Z to Baby Boomers (ages 18–73) and found that “on average, 70 percent of purpose-driven shoppers pay an added premium of 35 percent more per upfront cost for sustainable purchases, such as recycled or eco-friendly goods.”
Nielsen also found that 2 in 3 consumers will pay more for products and services from brands that are committed to making a positive social impact.
The takeaway? When translated to marketing metrics, this showed that by every single factor that brand health is measured – trial, loyalty, advocacy, price premium – purpose-driven brands outperform the competition.
The Rise of Activist Employees
Even prior to covid-19, the data we were reviewing showed that there was a significant shift in the expectations of employees in the workforce, again driven by the arrival of two new generations – Millennials and Gen-Z.
The Cone Communications Millennial Employee Study found that 64% of US Millennials won’t take a job if their employer doesn’t have a strong CSR policy, and 83% would be more loyal to a company that helps them contribute to social and environmental issues (vs. 70% US average).
The data on Gen-Z is even more compelling. The newest entrant to the workforce, Gen-Z, is expected to make up 30% of the US workforce in just four years. A Cone Communications study found that 94 percent of Gen-Z believe that companies should address social and environmental issues.
The implications for Chief People Officers and human resources professionals are clear: if you want to future-proof your next two generations of talent, you must show them how their work contributes to making the world better, not merely a quarterly profit goal.
These trends have also been accelerated by covid-19. According to a recent Microsoft Survey, nearly 41% of employees plan on changing their job in the next six months (that number going up to 54% of Gen-Z workers).
We are in the midst of ‘The Great Resignation’ where a global game of musical chairs is taking place. And alongside more functional benefits like the ability to work remotely, what other factor will define which employers are going to be chosen when the music stops?
Well the answer may lie in the fact that according to McKinsey, nearly two-thirds of US-based employees surveyed said that covid-19 has caused them to reflect on their purpose in life (McKinsey). “Meaning”, alongside money and autonomy, is rising as a factor in evaluating where people want to spend eight hours of their lives every day.
Finally, in the wake of so many societal protests around issues like Black Lives Matter and climate change, it is unsurprising that 50% of workers say they are now more likely than a year ago to voice their objections to management or engage in workplace protest (Edelman) – as recent eruptions at Activision, Adidas and other companies have shown.
The warning for leaders: spend time listening to these ‘Activist employees’ and understanding their values and concerns or risk being called out in public by them.
The Rise of Impact Investing
The final tectonic shift happening is the rise of impact investing: institutions and individuals are both looking to invest their capital in companies that not only provide financial returns, but also drive positive social and environmental impact.
Let’s look at the scale of growth first: according to Bloomberg, ESG assets may hit $53 trillion by 2025, a staggering one-third of global assets under management (AUM). Half of these are in Europe, but the United States is growing at the fastest pace, with experts predicting that Asia will be next.
This massive influx may be driven by the hard data: according to S&P Global, ESG funds outperformed the S&P 500 by 27.1% during the covid-19 pandemic. This mirrors similar findings from the likes of Morningstar, Morgan Stanley, and others.
Larry Fink, Chairman and CEO of Blackrock, the largest institutional investor on the planet (with an estimated $7.2 trillion AUM) summed it up when he stated in his annual letter. “Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”
Finally, if we turn our attention to retail investors, we see the same directional trends. According to research from Morgan Stanley, 86% of Millennials are interested in impact investing, and they are twice as likely to invest in funds targeting social or environmental causes than the general population.
And according to a Bloomberg poll of Gen Z investors, a majority (51%) identified green and sustainable investing as the trend with the biggest investment potential in 2021.
In closing, I hope that the data and its implications are clear. Brands that act with integrity and show clear societal contribution will attract loyal consumers. Organisations that create opportunities for meaning and purpose for their employees will attract the best talent. And companies with high ESG standards and commitments will attract an outsize share of capital for generations to come.
As experiential marketer and writer Max Lenderman says, ‘purpose is the new digital’. Leaders have a choice: embrace it for its remarkable transformational potential or watch as your competition does before you.
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