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COP26: Why Companies Need to Find Their Purpose

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Sustainable Finance November 10, 2021
Sustainable Finance November 10, 2021
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Milton Friedman, the American Nobel Prize-winning economist, championed the view that a firm’s sole responsibility is to maximize returns to its shareholders. But the days of Friedman-based economics may be numbered, with many companies now more focused on doing right by their communities and employees than just their shareholders. While generating revenues and profits is still important, going forward, the most successful businesses will be motivated by purpose rather than rising stock prices. 

That was a main takeaway from one of the keynote panels at the 2021 Sustainable Innovation Forum in Glasgow, occurring this week alongside the COP26 Climate Conference. Moderated by forum chair Nik Gowing, the Rethinking Corporate Purpose panel saw Dan Barclay, CEO and Group Head at BMO Capital Markets, join Simon Glynn, Partner and Co-Lead of climate and sustainability at Oliver Wyman,  Aron Cramer, CEO of Business for Social Responsibility, Timothy Stutt, Partner and Australia ESG Lead at Herbert Smith Freehills, and Laura Lane, Chief Corporate Affairs Officer at UPS in a lively conversation about how the concept of corporate purpose has evolved

It’s a subject that has been a subject of careful consideration by corporate leaders over recent years especially, and BMO has been no exception.

Dan Barclay pointed out that BMO’s search for its purpose began about two years ago and involved 15,000 out of its 50,000 employees. Some people were confused when the new mission was unveiled – “boldly grow the good in business and in life.” “That’s not a financial institution,” said Barclay relaying what some shared back then. But when BMO started thinking about what to focus on, satisfying shareholders wasn’t the only priority. Bettering the communities BMO operates in was very important, too, shared Barclay. “Banking, as a rule, is a community-based service, and when we think of communities, that’s where we think of our purpose and our stakeholders,” he said.

Bringing that purpose to life meant moving C$300 billion of capital into sustainability and committing to creating both an inclusive society and a thriving economy. “When I look back 24 months, from when we put it in place, it resonates even more today than it did then,” Barclay added. “When I look at how we’ve galvanized the way we make choices, both strategically, in our communities, how we’re funding, and our forward-looking strategy, it’s all based on that purpose.”

“We need to start by thinking about what the world’s purpose is, and there is a rough alignment (on what that is) that’s been born out of difficulties and possibilities,” said Aron Cramer. “We need to have an inclusive economy that is climate and nature positive. That’s what the world needs.”

If everyone can agree on that basic purpose, then companies can determine how they fit in, which they’ll need to do if they want to keep up with our rapidly evolving economy. “In addition to climate and the COVID-19 recovery, we’re going through an immense and profound amount of disruption that is reshaping every single business in very fundamental ways,” noted Cramer. “Purpose provides a North Star for companies to figure out their role in a fast-changing world.”

Visit Sustainable Innovation Forum to watch the panel.

Laura Lane said that at UPS, purpose guides the company’s every move. “Everybody thinks UPS stands for United Parcel Service, but it’s really United Problem Solvers,” explained Lane. She said UPS has done a lot of work over the last couple of years to define its purpose, but that its mission really came to light during the pandemic. “We move the world forward by delivering what matters, and what matters for us has been delivering a billion vaccines,” she said. “It’s really about taking that sustainability focus to everything we do.”

Creating a purpose-driven organization  

But while BMO and UPS may have found their North Star, there was a question from Gowing around the problem of “purpose washing,” which is when a business claims they have a purpose because that’s what they think customers want to hear.

With so many more people focused on sustainability, though, it’s hard to “claim” a purpose, said the panelists. However, not all businesses are embracing purpose in the same way. “There’s a difference between the companies that adopt purpose as a strategic decision and flow it down through the entire organization, and those who have a fairly shallow purpose and don’t implement it or operationalize it,” said Stutt.

The companies that are doing this right are the ones that have embedded their purpose into all they do, including in governance documents and workplace policies. Everyone from the chairperson to the chief executive must also be on board. “So even when no one is watching, people are still acting with that purpose,” he noted.

Glynn added that while most companies would say today that they care about more than creating shareholder value, there is still an open question as to how many businesses are truly eschewing the Friedman doctrine, which says a company’s sole responsibility is to its shareholders. “How deep does that purpose go?” he asked. “Does it actually drive what you do, or is there an unspoken purpose of just creating shareholder value?”

Purpose is good for business

Operations that are embracing their purpose are also finding that sustainability is good for business, said Barclay.

Over the last two years, Barclay said engaging in environmental, social and governance (ESG) practices has shifted to incentives from penalties. In a more penalty-focused environment, purpose doesn’t matter – companies simply try and minimize negative outcomes, but that only goes so far. With incentives, businesses are more active, say by trying to reduce their carbon footprint or improve their governance practices, both of which have been shown to have business benefits. “If I do the right thing, then I can build a better business, and I will be rewarded,” Barclay explained.

He’s seen the benefits of incentives first-hand. By embracing its purpose, BMO has been rewarded – with more clients, happier customers, more satisfied staff, and, ultimately, higher profits. “(Increasing) shareholder value is not the challenge,” said Barclay. “The challenge is how do you define shareholder value? If you’ve got a company that’s not successful, then it will fail its community and everything around it. Companies need to be successful, and that means making money, serving their purpose, and serving their stakeholders, but they need to do that in a responsible way.”

Can the current crop of business leaders handle such a transformational shift away from satisfying shareholders to being more environmentally focused and inclusive of all stakeholders? While the panelists admit that thinking more long term will be difficult for those who must deal with so many short-term pressures, they are optimistic. “If we think about what’s good for our business, what’s good for our people, then we will know the right position to take,” said Lane.

Barclay added that purpose isn’t something companies can afford to sit on, as customers, investors and others are already holding businesses to account. “You can lose your social license very quickly if you’re not doing the right thing,” he noted. “Whether that’s actual behavior or how you run your business, the penalties that get put in place, particularly for public companies, if they’re not doing the right thing, are dire and have hard impacts.”

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Dan Barclay Senior Advisor to the CEO


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