I bet your social media feed has been flooded by Chouinard’s move to give away his ownership of Patagonia, worth around £2.6Bn, to a trust aimed at fighting climate change. Amazing, as well as his 50 year long drive to build a company that ‘is in business to save our planet’. Which Patagonia does remarkably well for example by their focus on durability of their products, as opposed to the typical short-lived lifespan of products in the fashion industry, causing huge amounts of waste, unnecessary production and related emissions.
But, do you have to sacrifice wealth or profits to realise a worthwhile purpose? An article by Melanie van de Velde, PhD.
My friend Keli sent me an interesting article by Mark Ritsen in MarketingWeek. It’s called ‘Brands take note: The purpose of purpose is purpose’ and Ritsen argues that the point is not business growth. He says ‘purpose is not the path to greater profits and better growth but for most brands purpose will cost money and require sacrifice’.
I wholeheartedly agree with Ritsen that you deliver purpose because you believe in it. And yes it often comes with challenges. Not every purpose driven decision has an instant positive business case. The investments required tend to take time to pay off. Nor is every purpose effective, or even justified.
But, as much as I agree that 'purpose' shouldn't be driven purely by the business case, studies increasingly show us that it does boost profits and growth.
As long as the purpose and related impact initiatives are actually effective. And you avoid the short term glasses. A Deloitte study tells us that purpose driven companies now grow three times faster than their peers. Not surprising, since customers and talented staff increasingly want to engage with companies with a positive impact on our world. Patagonia receives 9000 resumes for each vacancy. Tony’s Chocolonely’s gets a 19% referral rate. Something most companies can only dream off.
One of the most convincing stories that illustrate it well is Unilever’s. Even though they are not as far ahead on the sustainability journey as many other smaller companies, compared to other big multinationals they have been very progressive. And they proof the point that it pays off beautifully. Since Unilever started their sustainable living strategy in 2010 their revenue outgrew their competitors by 33 percent by 2017. 70 Percent of this turnover growth came from their sustainable living brands. They were far more resilient and adaptable during the pandemic compared to their rivals, with more trust built up across their business and supply chains. Over the last 7 years Unilever’s investors have seen a 400 percent higher return on their investment compared to investment in Unilever’s rival Kraft Heinz. Kraft Heinz is known to strip out costs, such as those related to sustainability efforts, for quick financial gains. An approach that an article in the Financial Times referred to as ‘killing the companies they buy by starving them from investment’.
A new reality companies can no longer ignore if they want their business to flourish on the long term. But, does it mean they have to give up their drive for profits and wealth?
Well ‘no’. In fact, my research shows that those that have effective impact initiatives to realise their purpose, and that have a good healthy drive to make profits at the same time, outperform their peers that lack this commercial focus. And not only in terms of building a strong financial platform to grow their business and impact. But most interestingly, they achieve 300-400 percent higher success rates in terms of their impact. Like Ctalents, Brigade Bar & Bistro, and Goodwill Solutions who achieve a 70-90 percent success rate of getting talented people from marginalised backgrounds employed. With the latter listed in the FTSE fastest growing companies in Europe in 2017. Their 70-90 percent success rate compares to 20-25 percent by many others with a similar aim but that lack certain commercial drivers.
Giving up wealth like Chouinard can be a hugely admirable choice. But not a must.
I believe that the entrepreneurs that commit their relentless energy in leading the way in changing people’s lives and build a better planet don’t just deserve a fair level of wealth and security if they wish for themselves, their teams and their families. But if anything, let’s consider this question. Who ultimately deserves a fair level of wealth more: the entrepreneur who builds a flourishing business and nurtures our planet by circular design, includes people with the right talents from marginalised backgrounds, and pays their workers and suppliers fairly curbing the rising inequality trend? Or the entrepreneur who builds a similar business but harms our planet and societies in the process?