Empowering Business for Good: Understanding Challenges for the Purpose Ecosystem
Transitioning the economy from ‘business as usual’ to prioritising societal wellbeing is imperative amidst the climate emergency. A growing movement of purpose-driven business seeks meaningful change, but it needs strong support from advisors and educators to be taken seriously and offer a genuine sustainable alternative.
Blog by Fergus Lyon
What if all businesses were focused on helping societies to flourish rather than continuing on the ‘Business As Usual’ path, just aiming for profit maximisation whatever the cost to society or the planet. Making this happen is the goal of a number of organisations supporting businesses driven by a purpose for sustainability and wellbeing. A growing industry of support providers aiming to help these purposeful businesses or “purpose-driven businesses” on this transition is accompanying them. These supporters want to ensure that claims of the social and environmental purpose are put into practice and are not simply ‘green’ or ‘purpose wash’. A new paper by Fergus Lyon, Wendy Stubbs, Fred Dahlmann and Mel Edwards, explores the challenges that supporting entities face in this growing area of business. There is an increasing demand for support as businesses face pressures from regulators and investors as well as the need to attract and retain talented employees who are themselves looking for purpose.
Purpose-driven businesses aim to see enterprise as service and set out to tackle some of the biggest challenges of our time, such as climate change, waste reduction or reducing social and economic inequality. While not claiming that they are perfect, they offer alternatives and a form of business for good. For example, Elvis and Kresse aim to reduce waste going to landfill by recycling redundant fire hose and other materials into aesthetically appealing bags and sharing 50% of their profit with charities. Tony’s Chocolonely aim to turn around the whole chocolate industry and make ‘100% slave free the norm’ and paying producers above the ‘fair trade’ price for their cacao. Recently, the clothing firm Patagonia was in the news as they continued their purpose-driven journey to reduce their environmental impact and give 1% of sales to environmental causes. Instead of his ownership going public (i.e. taking his company to the stock market), its owner Yvon Chouinard has “gone purpose” handing his company to a trust for environmental activism and ensuring its purpose is retained.
The Purpose Ecosystem
To achieve a functional wellbeing economy, purpose-driven businesses of any kind require support and advice that encourages them to prioritise environmental and social purposes while remaining viable amidst challenging circumstances. As the interest in purpose-driven business rises, so does the range of advisers, trainers, lawyers, accreditors, and financiers, all offering their services and creating what we term the ‘purpose-driven business ecosystem’. This whole ecosystem is needed to help transition to a wellbeing economy. In our new paper, we look at the difficulties that this support ecosystem is facing in the UK and Australia. A range of challenges arise from supporting individual businesses, from running the businesses that provide the support, and from changing the institutions that are needed to drive forward the purpose driven business ecosystem.
The first set of challenges are found at the cutting edge of this support ecosystem as advisers and financiers seek to build the capabilities of the purpose-driven businesses they are supporting. The support they offer might be advice and training to managers, or providing impact investment designed to target social and environmental outcomes. Support providers have to find ways to help managers balance meeting their social and environmental purpose while also facing pressures to run businesses that give a return to their shareholders.
Navigating the tensions
This requires a shifting mindset and changing some ingrained beliefs about what it means to manage a business. Those advising businesses have to help managers cope with the tensions between objectives as they lead to new forms of stress and, as one adviser noted, “a need for healing”. Courage emerges as a pivotal factor in ensuring a sustained commitment to purpose, especially when faced with commercial temptations to return to unsustainable business practices.
The second area of challenge pertains to how the support providers handle their own operations. The support organisations themselves are found to have a robust commitment to social and environmental causes, crucial for maintaining authenticity and trustworthiness. They, too, have to navigate the tensions between achieving impact and maintaining a sustainable business model. There is also competition between providers in this ecosystem and a growing interest from mainstream professional service firms and consultants, offering their wares to purpose-driven businesses. This opens up concerns that less scrupulous professional service firms could be used as a fig leaf for those firms that do not ‘walk the talk’.
Investors play a crucial role as part of the purpose-driven business ecosystem and wield enormous power over the businesses they invest in. Where they take a seat on the board, they can drive through a transition but can also resist change. They have to consider their own purpose and how they combine driving positive change with making an acceptable return.
Developing new business standards
A final set of challenges relates to the broader institutional environment necessary for the flourishing of purpose-driven businesses. In both the UK and Australia, government involvement in the ecosystem was notably limited. While there are movements in the UK towards enhanced mandatory reporting and even the emergence of the world’s first purpose-driven business standard, various segments of the purpose-driven business ecosystem advocate for increased recognition of purpose in all businesses. For instance, there are ongoing movements and campaigns to change company law proposing that directors and shareholders should be obliged to fulfil the purpose of their company—whatever that may be—instead of adhering to the current assumption that maximising shareholder value is the sole responsibility of all businesses.
Creating a conducive institutional environment is also being advanced by business associations and accreditations systems such as Fairtrade produce and B Corps. A significant concern revolves around safeguarding the reputation and credibility of the term ‘purpose-driven business’. As interest in this concept grows and pressures from consumers on businesses to consider people and the planet increases, there is a looming risk of superficial practices or ‘purpose washing’. Therefore, there is a pressing need for robust institutions to hold businesses accountable for the claims they make.
Maintaining ‘business as usual’ is no longer feasible. While the emerging purpose-driven business movement is not without its imperfections and tensions, it exemplifies the potential for meaningful change—it shows what can be done. However, it needs the supportive environment of advisers, professional service firms and educators. This ecosystem is crucial to prevent the movement from being dismissed as mere ‘purpose wash’ and to ensure its continued ability to offer a genuine alternative to unsustainable status quo.
About the author
Fergus Lyon is Deputy Director of CUSP and Professor at Middlesex University’s Centre for Enterprise, Environment and Development Research (CEEDR), exploring sustainable and social enterprise.
