In 1970, renowned economist and Nobel Prize winner Milton Friedman stated in The New York Times Magazine that “the sole social responsibility of a business is to increase its profits” to meet the interests of the shareholders. This statement accurately reflected the post-second world war economic views built on the prospect of continuous economic growth that has undeniably brought enormous benefits to (Western) societies. Never before have we lived in a period of such prosperity and never have so many people been lifted out of poverty.
The limits to growth
However, the downsides of this continued worldwide growth are becoming clearer every day. The biggest challenges facing current and future generations are, amongst others, scarcity of resources, uneven wealth distribution and climate change. The Club of Rome1 first warned of the side-effects of exponential economic and population growth on a finite supply of resources in 1972 in its report “The limits to growth”. While it may have faced harsh criticism at the time of publishing, the tide of opinion has shifted and the general perception is that our current growth-driven economy is unsustainable over time, for our society and the planet. This paradigm shift has gained momentum in recent years, resulting, for example, in the adoption and ratification by 193 countries of the Sustainable Development Goals (SDGs), a collection of 17 global goals designed to be a “blueprint to achieve a better and more sustainable future for all”. These goals, which are one and indivisible, reflect the three dimensions of sustainable development: the economic, social and ecological aspects.
A growing number of economists and global leaders share the belief that businesses and the economy are integral and important parts of the solution for society’s biggest challenges, not in the least as driving forces for innovation. The idea of transforming the economy in line with the shared value-principle is gaining traction. A shared value-economy means a transformation from an economy focused on profit maximization for the benefit of shareholders towards profit optimisation meeting the interests of all stakeholders (consumers, suppliers, employees, shareholders, the government, the community and the environment). Consider in this regard the Doughnut Economics model formulated by Kate Raworth, a visual framework for sustainable development combining the concept of planetary boundaries with the complementary concept of social boundaries.
The power of doing business for a higher purpose
An increasing number of businesses acknowledge their broader social responsibilities and act on it. They leverage the power of doing business for a higher purpose and make no trade-off between profit or purpose. Take, for example, the growing community of Certified B Corporations. Certified B Corporations are a new kind of business recognised for balancing purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders, driving a global movement of people using business as a force for good.
And they are backed by public opinion. According to the 2020 Edelman Trust Barometer, 56% of respondents believe that capitalism as it exists today does more harm than good. However, 75% do believe that businesses can be a force for good in society as well as generators of profit.
How to leverage the power of your brand
An important driver of this paradigm shift towards a sustainable economy, balancing purpose and profit, is the growing number of consumers choosing to vote with the power of their wallets. This group of consumers, mainly consisting of Millennials and Gen Z, is conscious about the impact of their consumption habits on their (in)direct environment. They seek trustworthy, transparent and honest brands that share the same values as them and take a stance on political, societal or environmental issues.
To remain relevant in the future, brands and companies should acknowledge the greater responsibility that comes with doing business and consider how they can leverage the power of their brand or company in the transition towards a sustainable economy. If they are unwilling to take up this challenge, their stakeholders will call them out on it.
Not sure where to start your sustainable journey? First things first, it is vital that you “get your bearings” straight. In other words, find out where you are and what direction you want to go. Take our 8-question assessment to determine the level of integration of purpose in your company or brand.
Meanwhile, draw inspiration from large multinationals who have been able to change their strategy and business models to become purpose-driven, such as Unilever that launched its Sustainable Living initiative back in 2010. Moreover, in Belgium they created a separate business unit tasked with meeting Belgian customers’ demand for local and sustainable brands, resulting in the launch of several local brands. Not bad for a global multinational active in the FMCG sector.
Note:
- The Club of Rome is a non-profit organization consisting of notable scientists, economists, businessmen and businesswomen, high-level civil servants and former heads of state from around the world. Their mission is to promote understanding of the global challenges facing humanity and to propose solutions through scientific analysis, communication and advocacy.
