In this series, White Marble's ESG team takes a look at the key themes that we believe will take centre stage over the next 12 months and beyond. In this second article, Elisa Magistrali delves into the social issues that have been brought to the fore by the Covid-19 pandemic. She explains why now is the time for the corporate world to step up to the plate and take a leading role in navigating towards a more socially equal and sustainable future.
It only took a pandemic to highlight the S in ESG, but it's still a work in progress
I have always had a strong sense of fairness. I can't really find a reason for this; my parents weren't particularly socially active or philanthropic, and I didn't suffer any particular trauma that could lead me to be a 'champion of justice'. However, I can still remember standing up at primary school and speaking up against teachers' decisions and behaviours I believed to be unfair and not justified towards us kids.
This continued while I was growing up. Declaring myself pro-abortion at the age of 13 during the general assembly at a Catholic school run by nuns, in one of the most religiously conservative towns in Northern Italy in the late eighties, didn't go down well with my teachers nor my family. But I felt it was my responsibility to support a group which I believed didn't have the voice it deserved.
Anyone who knows me well can confirm that I haven't shut up since! That I haven't stopped speaking out against any type of discrimination, especially when based on an unjustified sense of entitlement: 'I am stronger/smarter/prettier/wealthier than you, hence I am better and always will be'. Sometimes I won the battle, though most of the time I didn't, with mixed personal and professional consequences. But that is another story.
Covid-19 has brought wider awareness around pre-pandemic inequalities and social injustice
Because of my interest in society and its dynamics, I have witnessed with great emotion the increased public awareness and engagement towards trends relating to equality and justice as a consequence of the pandemic.
Covid-19 has highlighted the dramatic and irreversible costs of an unequal society where socio-economic divisions within populations are growing. Over the past months several studies have reported statistics that are disconcerting, but not surprising for a system that, for too long, has been driven by profit.
Among numerous examples, the various lockdowns have been devastating for informal workers without an established working agreement, health benefits or permanent employ and who would generally be paid in cash. This is especially true in low-income countries and among the black, Asian and minority ethnic communities worldwide. The necessity to work remotely has disproportionally affected low-income groups, whose jobs can very rarely be done from home. As a consequence, this group is much more likely to have lost their job during the pandemic1.
While solutions relating to the virus itself are produced, we do not have a vaccine to fix the social issues worsened by it. As we have witnessed over the past months, governments can't address and solve racial, gender, LGBTQ+ and economic inequality on their own.
The role of purposeful businesses in driving positive change
The corporate world seems to have started reacting, to various degrees, to the challenge that the pandemic has thrown at them. They are answering a call that not only needs them to play a role, but often to lead the way in finding actionable and sustainable solutions to a system that is no longer sustainable.
Our economy is still based on Milton Friedman's theory of shareholders' primacy, which dictates that the first priority of a business should be to maximise profits for its shareholders. This approach has dehumanised businesses, focusing on making more money for the shareholders and ignoring the consequences that this approach would bring (including environmental and social damage, lack of investments in workers' salaries and benefits, as well as poor investments in research and development). This theory completely ignores how business, economy and society are interlinked and are ultimately all about people.
The only possible way for our society to survive is for businesses to shift their focus from profits to people
The B-Corporation movement perfectly expresses this idea when it states that businesses need to shift their target from shareholders to stakeholders (2). Businesses with this certification balance purpose and profit.
Discussions and initiatives around the meaning of a 'purposeful business' have recently taken centre stage across various sectors, regions and industries. Back in 2018 the British Academy launched 'The Future of the Corporation Project', reviewing the role of business in society. This saw the development of the eight principles for purposeful business (see Fig 1)3. The pandemic has definitely accelerated this shift.
Figure 1 - The Future of the Corporation Project
Many corporate leaders have recognised the failure of shareholder primacy in recent decades and bravely stood up in favour of a change to the economic system. If we look more closely at our industry, we can't not think of Larry Fink's, CEO of Blackrock, 2020 letter to CEOs4, where he stated that "The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society.…... a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders".
But 'doing good' is not something businesses should be doing just because it is ethical. Mr Fink continues to comment that "... a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society. Ultimately, purpose is the engine of long-term profitability." Pursuing impact goals alongside financial goals is not only the right thing to do ethically - there is also a strong commercial rationale with the economic and financial success it brings over the long term.
As marketers, we love data and there are plenty of stats that confirm the success of sustainable businesses. B-Corp's research has revealed that in 2017-2018 certified B Corps in the UK grew 28 times faster than the UK economy. Leading B Corp fast-moving consumer goods brands grew on average 21% in 2017, compared to a national average of 3% across their respective sectors. Even more interesting is that this growth has largely been attributed to increasing demand from consumers, as well as employees, seeking out companies who are driven by purpose beyond profit5.
As the saying goes, 'never let a serious crisis go to waste'. This crisis is, for all of us, an opportunity to look inside ourselves and find the strength to do things differently, for our benefit as a society and for future generations.
In future blogs we will explore in more detail the specific metrics within the Social aspect of ESG, from diversity and inclusion, to supply chain practices, as well as measurement of social indicators and the interconnectivity of ESG elements.
Sources:
1 - Sustainability Trends Report 2020, Generation Investment Management
2 - "To B(corp) or not to b - a different way of doing business" episode 166, Reasons to be cheerful with Ed Miliband and Geoff Lloyd podcast
3 - The Future of the Corporation project, The British Academy
4 - Larry Fink's 2020 letter to CEOs - A fundamental reshaping of finance
5 - Corp analysis reveals purpose-led businesses grow 28 times faster than national average, Sustainable Brands, 2018