Businesses can no longer turn a blind eye to the connection between purpose and profit, and being a purpose led business in 2022 will mean taking a leading role on arguably the greatest issue of our time – climate change. Chris Bowden investigates
Larry Fink, CEO of BlackRock, wrote: It’s never been more essential for CEOs to have a consistent voice, a clear purpose, a coherent strategy, and a long-term view. Your company’s purpose is its north star in this tumultuous environment. The stakeholders your company relies upon to deliver profits for shareholders need to hear directly from you – to be engaged and inspired by you. They don’t want to hear us, as CEOs, opine on every issue of the day, but they do need to know where we stand on the societal issues intrinsic to our companies’ long-term success. Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long term success.’
Larry Fink’s latest letter to CEOs certainly set a very clear tone for 2022, didn’t it?
Fink, chief executive of the world’s biggest investment fund manager implies that those firms that are purpose led will not only achieve long term success for their stakeholders, but they will hold a clear competitive advantage too. Fink also gives a clear warning to those business leaders who are merely profit chasers. Bluntly, he suggests if your main purpose is still to maximise profit and returns to shareholders, you risk ostracising huge stakeholder groups. And on top of that, you put the future of your business at risk.
The connection between purpose and profit.
Businesses can no longer turn a blind eye to the connection between purpose and profit. In fact, the rapid rise of stakeholder capitalism means that consumers, employees, and investors are now more cautious than ever before about buying into, or joining, companies that do not serve the interests of a more sustainable, responsible world. Study upon study has noted that consumers will spend their money with brands who align with their moral beliefs and have no hesitation in snubbing companies who they believe are not pulling their weight. Consumers aren’t the only stakeholder group with buying power. Employees have started lobbying the companies they work at to follow a moral imperative, and indeed, are now punishing those who fail to speak out by taking their talent elsewhere. And in this, the year of The Great Resignation, firms cannot afford to merely pay lip service.
Tackle the climate crisis with purpose led behaviour.
Certainly, being a purpose led business in 2022 will inevitably mean taking a leading role on arguably the greatest issue of our time – climate change. Over the last few years, we have seen leaders of businesses the world over making promises, sharing their environmental declarations, and setting out their powerful commitments. Some leaders have cast themselves as champions of clean energy, some have made carbon negative promises, whilst others have published net zero targets. All of these are noteworthy of course, and it’s reassuring to see real commitments being made.
Make impact, not pledges.
However, the realist in me knows that commitments are never enough; only the impact of action taken really counts in the fight to tackle climate change. And this is where the cynic in me cries out. Because over the last few years we have seen C-Suite executives making unrealistic, unconsidered, and empty pledges – pledges that have been so ill thought out, it will be near impossible for future leaders to honour them.
But the thing is, tackling the climate crisis is an awfully big elephant to eat in one bite, isn’t it? Not least because the skills and the expertise required in this space are so highly sought after. Fiona Czerniawska, chief executive of Source Global Research, commented on this in a recent FT piece about consultancies facing a sustainable skills gap. She said, consultants ‘need an awful lot more people and it’s coming at a time when they’re not just short of sustainability skills — they’re short of every kind of skill.’ Unfortunately, these highly experienced sustainability professionals are in high demand and that makes them incredibly expensive. This creates a problem for firms of all sizes. The demand for genuine sustainability professionals undoubtedly outstrips the supply.
So, what can be done if firms don’t have the inhouse sustainability skills, the budget or the desire to consult the big dogs. Well as Desmond Tutu once wisely said ‘there is only one way to eat an elephant: a bite at a time,’ and so too must leaders tackle their climate ambitions in the same way. Not with large token pledges or by throwing massive budgets at those at the top, but through bitesize actions that make real impact, one step at a time.
Power businesses with genuinely clean energy.
Perhaps the first step a business should consider is to start powering their business with 100% clean energy and move away from fossil fuels. This is a positive step which is arguably far easier than trying to get all the carbon out of an organisation’s supply chain. To be clear here, when we talk about clean energy, we mean energy derived from natural, non-polluting UK resources that are capable of being replenished on a short timescale, such as wind, solar, geothermal, wave, tidal and hydropower.
In a recent survey we did at Squeaky, more than one-in-four (26%) of sustainability and energy managers admitted that they are not yet committed to powering their business with clean energy. Given the sizes of the types of organisations we surveyed (FTSE 250, or equivalent sized companies, and who spend £1 million or more on energy) this raises alarm bells. Because it’s the captains of industry who we expect to lead the way on clean energy, not least if we stand some chance of reaching net zero.
And whilst 74% of respondents to our survey said that their company is committed to procuring clean energy, the weight of evidence from our study suggested that many of these professionals may be unaware that their fuel mix actually contains energy from dirty sources. Let me explain more…
When we asked sustainability and energy professionals what they rely on to ensure their supplier is providing them with the energy that they say they are, 40% of respondents said they rely on their supplier to tell them, 14% said that they look at the fuel mix disclosure (FMD) of the supplier and 15% said they check how many Renewable Energy Guarantees of Origin (REGOs) their energy supplier has retired on the Ofgem website. And this is a problem because we have seen multiple energy suppliers promoting their renewable tariffs under eco-friendly banners, when in reality they are actually sourcing their fuel from ‘dirty’ sources. In short, they are disguising ‘dirty’ fossil fuel energy as clean energy. In recent years, there has been a sharp rise in energy suppliers purchasing REGOs and European Guarantees of Origin (European GOs) to effectively ‘offset’ their fossil fuel generation. In short, these suppliers are masking fossil fuels behind cheap renewable energy certificates and energy professionals at some of the biggest companies in the UK seem to be unaware of this.
It seems that so many of the firms we questioned in our study were merely taking their energy supplier’s word, rather than doing their own due diligence. If these leaders really want to display their commitment to tackle the climate crisis and put purpose at the heart of what they do, it is important they uncover bad practices and get to the root of what they are actually buying.
A Corporate Power Purchase Agreement (CPPA) is a tangible way for responsible companies to demonstrate their environmental commitment by knowing exactly what they are buying into. A CPPA is a long-term contract between an energy buyer and an energy generator and can enable a company a number of benefits. However, most salient to this discussion is that a CPPA can help the organisation to trace their energy, so they know it is 100% clean and then lock in this long term supply of clean energy too.
Purpose led or not, firms cannot afford to fall short on their sustainability efforts; not only because it’s the ethical thing to do on our collective mission to reduce the impact of climate change, but also because failing to be prepared on regulatory matters could present eye-watering financial penalties too.
A recent article on the FT revealed that only a handful of companies were actually ready for the new EU green rules that came in this year. The article states: ‘…These EU rules require any listed business with more than 500 staff to publish the percentage of revenue, capital expenditure and operating costs from activities covered by the green taxonomy – a classification system that defines ‘environmentally sustainable’ activities in line with the bloc’s climate change objectives.’ It seems that many firms are simply not aware that they even need to do this – believing that it is just for investors and asset managers to handle. But this is incorrect, and firms will need to make sure they get their house in order now to avoid falling foul of these new regulations.
The dodo or the phoenix?
The golden question that Mr Fink poses in his 2022 letter is this: ‘Every company and every industry will be transformed by the transition to a net-zero world… will you lead, or will you be led?’
As he explains, if your answer is the latter, you risk going the same way as the dodo. Which one will you be?
Chris Bowden is Founder and CEO of Squeaky.
