built for purpose: corporate STRUCTURES FOR maximum Impact
The abundance of research indicating higher returns for businesses with broad and inclusive definitions of value creation has created a surge of interest in purpose-driven companies. Investors’ desire for transparent ESG indicators coupled with a generational demand for responsible business practices is fueling a revolutionary ‘stakeholder’ economy. Stakeholder capitalism considers all parties impacted by the pursuit of profit, as opposed to a traditional ‘shareholder’ economy where companies simply seek the greatest financial return.
Data consistently demonstrates that ethically responsible, values-led companies are creating revenue at a faster pace than their traditional counterparts. For example, Russell 1000 companies saw an average 218% increase in share price over the last four years when businesses named at least one charitable recipient, had a Diversity & Opportunity policy, expressed Board & Gender Diversity, and utilized a local sourcing policy (Accelerist, 2022). According to BCG Brighthouse, brands with a high sense of purpose have experienced a valuation increase of 175% over the past 12 years, compared to the median growth rate of 86%. And Deloitte reports that “Purpose-driven companies witness higher market share gains and grow three times faster on average than their competitors, all while achieving higher workforce and customer satisfaction.”
Revenue must always be a key business driver—only profitable companies stand the test of time. However, investing in companies motivated by a social mission catalyzes positive impact. Not only do these companies tend to outperform their traditional counterparts, they leave a trail of societal benefits in their wake.
Patagonia is perhaps the world’s most well-recognized purpose-driven company. From their mission“we're in business to save our home planet,” to their commitment of donating at least 1% of annual sales, the company’s values drive their billion dollar global brand. As such, environmental stewardship is a key element of Patagonia’s business practices and decision-making. Their mission does not compete with fiscal growth. On the contrary it serves as a catalyst for attracting and retaining talent, expanding their customer base and fostering brand loyalty. In 2016, the company famously donated 100% of their Black Friday revenue to grassroots environmental groups. Sales quadrupled year-over-year and a whopping $10 million in revenue (one-third generated from first-time customers) was leveraged for the greater good. The act cemented Patagonia’s reputation as a company with environmental stewardship at the heart of their business and sparked a loyal following. Patagonia recently created the “Don’t Buy This Jacket” campaign to encourage customers to extend the life of older garments. With the fashion industry creating 10% of global carbon emissions and 85% of textiles discarded within one year, Patagonia educated consumers on the positive environmental impact of long-term wear and enhanced their company’s reputation for creating lasting, quality garments. The end result being reduced emissions and repeat customers.
Not all companies are launched with social purpose in mind. However, we have seen transformative shifts during the past decade as industry leaders commit to improved corporate responsibility practices, often as a response to both internal and external stakeholder pressure. Apple (NASDAQ: AAPL) for example, was known for using toxic chemicals like mercury and cadmium across their entire product offering. Under Tim Cook’s leadership, the company has made remarkable improvements for environmental and social impacts throughout their supply chain. Apple now runs on 100% renewable energy in 23 countries, and has reimagined its role as a global leader in reducing global carbon emissions. They are supporting and accelerating the transition to clean energy in 25 countries (including China where it has been notoriously difficult to curb manufacturing emissions) with an emphasis on under-resourced nations. Since 2016, the tech giant has also issued $4.7 billion in green bonds, funding their path toward complete carbon neutrality by 2030 and the removal of nearly 6 billion pounds of CO2 from their operations—a demonstration of how large companies have the power to scale significant environmental impacts. Further, as part of Apple’s Racial Equality and Justice Initiative, the company offers an Impact Accelerator program that provides training for minority-owned businesses. Upon completion, these companies are considered for supplier opportunities within Apple’s carbon neutral supply chain.
There are several frameworks and certifications that publicly demonstrate a company’s commitment to people and planet. These ‘green flags’ have proven to attract investment and talent, and even ease entry into new markets.
Certified B Corporations
B Corp is a global organization that certifies companies based on ethical operating standards with regard to employees, human rights, environmental sustainability and the promotion of equity. B Corp provides leadership and promotes the sharing of best practices among member companies. CPG giant Unilever has snapped up eight B Corps as part of their Sustainable Living Brands portfolio, and (as of 2018) reported that their sustainable brands are growing 69% faster than the rest of the business and delivering 75% of the company’s growth. Two others that exemplify strong leadership in both fiscal and social value creation:
Natura &Co (NYSE:NTCO, $5.8 B) is a cosmetics company active in 73 countries, operating brands such as Avon and The Body Shop. Natura’s overarching goals are to address the climate crisis and protect the Amazon, ensure equality and inclusion, and shift business towards circularity and regeneration. Their approach “calls for an all-encompassing business model that gives back more than it takes.” Natura &Co is a founding member of the Union for Ethical BioTrade, gradually ensuring that its sourcing practices promote the conservation of biodiversity, respect traditional knowledge and assure the equitable sharing of benefits all along the supply chain.
For more than 20 years, Laureate Education’s (NASDAQ:LAUR, $2.1 B) mission has been to make quality higher education accessible with the purpose of improving lives and making the world a better place. Laureate enables and encourages students and graduates to make meaningful contributions in their fields of work and the communities they serve in order to effect positive social change. As an example, their student-led health clinics provide services to hundreds of thousands of community members from low-income areas. In addition, Laureate students respond to public health emergencies, from the Zika outbreak in Brazil to the global COVID-19 pandemic.
Public Benefit Corporations
At the time of this writing, 38 states including the District of Columbia have passed Public Benefit Corporation (PBC) legislation. A benefit corporation is a legal structure committing mission-driven companies to higher standards of purpose, accountability and transparency. These businesses are required to consider anyone materially affected by that company’s decision-making, like workers, customers, local communities, wider society and the environment. The structure ensures companies will remain mission-driven through capital raises, leadership transitions, sales and IPOs.
Lemonade Insurance (NYSE:LMND) is a New York-based PBC. Lemonade is on a mission to transform insurance transactions into social and community benefit through the “Lemonade Giveback” program. Their insurance model is unique in that the customer selects a nonprofit alongside their policy. Lemonade charges a flat insurance fee, and if no claims are made then all remaining funds (up to 40%) are donated to the policyholder’s nonprofit. Lemonade has donated $4 million to their customer’s selected charities over the past five years, and has expanded to Germany, France and The Netherlands.
SOCIAL ENTERPRISES
Warby Parker (NYSE:WRBY) is known as an affordable eyewear retailer. But ultimately, Warby Parker believes in vision for all and ensures that one pair of glasses is distributed to someone in need for every pair that is purchased. They recently surpassed the ten million glasses distributed mark working closely with their nonprofit partners. They were also quick to pivot during the pandemic to provide personal protective equipment to healthcare workers.
Bombas (currently exploring an initial public offering) was created with a definitive social mission: to help those experiencing homelessness. For every item purchased, Bombas donates a new item (on your behalf) to someone in need. More than 50 million specially designed clothing items have been donated to 3,500 community organizations to date.
Regulators are responding to the need for transparency around corporate purpose commitments and investor requests for consistent ESG data. The Securities and Exchange Commission has proposed new rules for emissions reporting beginning in 2023, and the Department of Labor (DOL) has proposed expanding the current definition of fiduciary duty to include the financial risks of climate change. The DOL decision opens the door for employee retirement plan managers to weigh ESG factors alongside financial returns, satisfying the demands of individual plan holders.
In several countries around the world, purpose-driven businesses are traded on Social Stock Exchanges, or Sustainable Stock Exchanges, known as SSE’s. Canada’s Social Venture Connexion (SVC) and Singapore’s Impact Investment Exchange (IIX) are examples of regulated markets that generate financial returns along with positive social and/or environmental impact. An SSE may be moot in the United States as long as there is continued improvement aligning shareholder and social value. Companies that accelerate their transition toward a stakeholder economy, especially those with recognizable societal gains, are inherently accelerating their economic value.