Society is becoming increasingly polarized. As civil liberties decline, society begins to believe in a zero-sum game (if you win, I lose), and this belief is spilling over into attitudes towards business as well.
This polarization has huge knock-on effects, including views on environmental, social and governance (ESG) factors.
Given the conflicting messages we receive about ESG (do companies really care or are they just checking a box?), it's not surprising that many are skeptical. This skepticism is compounded by the broad range of issues ESG covers, from water stewardship to board diversity. What's more, because the onus for ESG compliance falls on leaders, ESG seems like a distant issue to many of us.
When ESG goals are unrelevant, it is difficult to foster a sense of purpose around ESG, leading to backlash against ESG. Part of this backlash stems from a perception that ESG is at odds with profit. Compliance with ESG regulations is costly and may not seem worth it in the short term, especially when there are targets to meet.
In his excellent book, Grow the Pie, based on thorough academic research, Professor Alex Edmunds of London Business School examines companies that base their business purpose around stakeholders and financial performance, including the impact of ESG investments. The jury is still out on whether companies that incorporate ESG are financially better. One reason for this is the lack of a uniform metric for ESG. In general, companies that have a purposeful approach to ESG, rather than simply checking a box, tend to have higher financial returns. But this could be because these companies are better managed because they have a stronger sense of purpose.
Edmunds found that investing in companies that appear on Fortune magazine's “Top 100 Companies to Work For” list each January can yield returns 3.5% higher than the market average.
Therefore, shifting the focus from ESG to employee wellbeing may be a more sustainable solution for organizations. After all, purposeful employees are more likely to drive significant change than leaders who simply tick boxes.
In May 2024, I attended the B for Good Leaders Summit in Amsterdam with 1,100 other leaders. This annual summit brings together leaders from around the world who are certified as B Corps or who closely follow the B Corp principles.
The B Corp movement, whose mission is to “make business a force for good,” offers rigorous certification for organizations to prove their environmental and social contributions.
B Corp certification differs from Benefit Corporations in the US (which are also growing rapidly in Italy and France) and the 31,000 Community Interest Companies in the UK, in that B Corp certification focuses on certification using rigorous, measurable criteria rather than a different method of incorporation.
Over the past 30 years, I've attended many conferences and summits where I've often interacted with “frenemies” — people who pretend to be friends with their competitors. This summit was remarkable. Even though the attendees were competitors, there was a palpable desire to collaborate and find better ways to do business.
While many of the attendees were focused on the environment, there was also much discussion about how we can align AI with purpose, given the immediate threats and opportunities posed by AI.
This concern is shared by Marcello Palazzi, co-founder of B Good for Leaders.
“Increasingly, leaders are taking steps to make business a force for good. They do this by having a purpose – a purpose for the company, for employees, for the environment, for investors and all other stakeholders the company touches. Only by having a purpose of good will we be able to use AI for good.”
Liene Zevenbergen, who co-founded B Good for Leaders with Palazzi, adds:
“The purpose-led organisation movement is growing, but companies need to be persuaded to adopt a profit-making mindset rather than just profit for their own profits.”
In multiple conversations with leaders at the Summit, it was clear that their attitude toward their employees will play a key role in determining how they embrace AI within their organizations. By giving employees purpose and autonomy, leaders understood that AI can be used to add value to each employee's work (and therefore improve ESG), rather than as a tool to maximize short-term profits with minimal human input.
Evidence like that presented in “Grow the Pie,” combined with an increasing movement of companies to consider employees and other stakeholders in addition to profits, will help us move away from Taylorist beliefs and traditional bureaucracy. The changes brought about by AI will make it essential for companies to communicate their purpose. This will serve both their ESG policies and their bottom lines.
