Over the last year, debate on the future of capitalism and 'inclusive capitalism' has taken off. A focus on corporate purpose has been at the heart. What this actually means and how to embed purpose in a meaningful way – so this doesn't just lead to CSR 'purpose-wash' – occupies many column inches.
Last week the British Academy released its ground-breaking Future of the Corporation report on Principles for purposeful business. The UK's national academy for the humanities and social sciences has spent two years considering how to reform business for the Twenty First Century to meet the needs of people and planet. Eight principles for purposeful business are singled out – to ensure purpose before profit:
- 1. Corporate law should place purpose at the heart of the corporation and require directors to state their purposes and demonstrate commitment to them.
- 2. Regulation should expect particularly high duties of engagement, loyalty and care on the part of directors of companies to public interests where they perform important public functions.
- 3. Ownership should recognise obligations of shareholders and engage them in supporting corporate purposes as well as in their rights to derive financial benefit.
- 4. Corporate governance should align managerial interests with companies' purposes and establish accountability to a range of stakeholders through appropriate board structures. They should determine a set of values necessary to deliver purpose, embedded in their company culture.
- 5. Measurement should recognise impacts and investment by companies in their workers, societies and natural assets both within and outside the firm.
- 6. Performance should be measured against fulfilment of corporate purposes and profits measured net of the costs of achieving them.
- 7. Corporate financing should be of a form and duration that allows companies to fund more engaged and long-term investment in their purposes.
- 8. Corporate investment should be made in partnership with private, public and not-for-profit organisations that contribute towards the fulfilment of corporate purposes.
The British Academy Future of the Corporation Deliberation Group on which I sat – plus extensive academic research and numerous roundtables with companies, investors, civil society representatives and other stakeholders – have given traction to the principles.
Sustainability First was delighted to contribute. Our Fair for the Future Project has been developing the concept of a 'Sustainable Licence to Operate' for utility companies - highly relevant to the second Academy's principle around regulation.
At the British Academy's report launch in a packed Guildhall in London last week, I was asked to debate the role of purposeful business in tackling climate change.
I headlined how climate change is not an externality – but everyone's business. Companies have a major role in both mitigation and adaptation. I explained how Sustainability First's work with public utilities on a 'Sustainable Licence to Operate' is helping companies to deliver fair environmental outcomes; and that the purpose of utilities sits at the heart of our proposals. This is critical for companies like utilities that perform public and essential functions, are in a monopoly position or play a key role in enabling the net zero transition and ensuring resilient services as we adapt to the changing climate.
At the launch there was a widespread acceptance that companies can't tackle the climate emergency on their own. The scale of the threat and the pace of response required mean that deep-seated yet rapid change to policy and regulatory frameworks is fundamental.Reform certainly needs to embrace far-reaching measures such as new building codes and standards and a revolution in heat and transport. And yes, carbon taxes. But no company can simply sit back and wait for government to act. Policy and regulatory change increasingly lag behind both the science and the politics.And a compliance mindset by companies' risks addressing yesterday's problems – not the climate emergency that we now face.
All sides clearly need to act – it's not an either / or - and the next decade is crucial. I stressed the need for all companies to drive change now: to harness the powers of their supply chains, the creativity and ingenuity of their employees, and relationships with their customers and communities.
The catch is that for companies to perform this change-making role they need trust – both among their customers and by the wider public.Integral to the principles in the British Academy report is a need for companies to engage their stakeholders on questions of purpose.Meaningful engagement is vital if companies are to:
- Mobilise workers and turn climate talk into action;
- Ensure governance aligns short and long-term interests and doesn't just focus on the here and now; and
- Identify the metrics that provide stakeholders – both customers and citizens - with assurance that companies are sharing risk and reward fairly within and between generations.
Absent pro-active engagement – the purposeful business agenda risks becoming purpose-wash. Purpose-wash that could get in the way of tackling the biggest threat that humanity has ever faced.
On 13 December, and regardless of the election outcome, utility company investors and leaders face a watershed on purpose and values. They can take their foot off the accelerator. Or, they can drive a focused agenda to deliver a purposeful and sustainable business, committed to delivering social and environmental outcomes that are fair for the future. The stakes are high.