The Covid-19 pandemic has notched it up further.
Media and stakeholders are now looking at how businesses have behaved during the crisis, how they treated their staff and whether they took government money while making profits or paying dividends.
And it’s going to get more intense, as greater numbers of employees, consumers and shareholders expect businesses to create “social value” as a core part of their activities. They are already making decisions on where to spend their money based on these criteria.
The idea of “profit with a purpose” is not new, but its adoption by a generation of socially minded consumers and, perhaps more importantly, the institutional investors who underpin financial markets, means that it has truly come of age. Environment, social and governance (ESG) issues are now considered alongside basic pre-tax earnings issues as a material driver of an asset’s value, with perceived risk priced into valuations and returns.
But this is not just a phenomenon of publicly traded corporations and mega-funds, it matters for businesses of all shapes and sizes, including the SMEs that make up more than 99% of private enterprises and are responsible for 61% of employment in the UK.
It matters because of a structural shift in the economically active population, as “baby boomers” retire and Millennials take their place. It is estimated that at the end of 2020 millennials made up more than 50% of the UK workforce, bringing with them a new framework for how they choose products, brands and where to work.
Attracting the talent of the future is no longer just about an enticing salary and benefits package, you need a compelling narrative about who you are as a business and why someone should choose to work for you. These shifts can seem like the demands of a generation raised with expectations of instant gratification through on-demand entertainment and smartphones, but you would be wrong to write them off as just that.
Studies consistently show that businesses and investment funds with strong ESG credentials outperform the market, which is why some of the world’s largest investors such as Blackrock have led the calls for companies to focus on long term value creation instead of quarter-to-quarter profit-chasing.
It is this shift from shareholder to stakeholder capitalism that drove my partners and me to set up Inflect Partners, a strategic communications and business transformation consultancy. We want to help more businesses rise to the challenges of the future and create value for shareholders and stakeholders alike.
In this new reality, building high value, long term and mutually beneficial relationships with your customers, investors, regulators and employees is business critical
The growing desire for social justice, climate action and equality represent a seismic change for businesses to respond to over the coming years, some will adapt, and some will fail.
Those that lead, that see the future and evolve, will thrive.
To do so, they will need to understand and communicate their values widely, they will need to demonstrate how they live their values and will build long-term relationships that create value for all their stakeholders.
But those that succeed will thrive not just because it’s the right thing to do, it’s also good business.
The world is changing.
Don’t be left behind.
Harry Shackleton is a partner at Inflect Partners, a strategic communications and business transformation consultancy. Find out more at www.inflect.co.uk