Published 1 year ago.
About a 7 minute read.
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Purpose and ESG are often conflated. Here, three experts explain what makes them different, why you need both, and how to prioritize the gamut of ESG- and
Consumers, employees, investors and other stakeholders increasingly expect
companies to adopt both a corporate Purpose and robust ESG (environmental, social and governance) or sustainability
Aside from these expanding expectations, we need the business sector to play a
major role in order to meaningfully address the enormous, complex challenges
facing the world.
Without the private sector’s financial investment, networks and influence, we
However, in the effort to redefine the role of business in
Purpose and ESG are sometimes competing for
It’s not always clear which should be considered first, how the two interrelate,
or how they are different.
Often, the two are either discussed in isolation or conflated, leading to
confusion at best and dismissal at worst.
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If we have any hope of achieving the United Nations’ 17 Sustainable Development
Goals, the last thing we want is for business
leaders to be lost in a sea of meaningless jargon.
I reached out to three industry experts to explain the relationship between
corporate Purpose and
and how best to prioritize and embed them within the organization:
Nikhil Bumb — Director at
FSG and co-author of The Economist’s “Beyond
Coro Strandberg — advisor to the United Way Social Purpose Institute and
President of Strandberg Consulting
Phil Preston — founder of The
Business Purpose Project in
Australia and author of the book, Connecting Profit with Purpose
tells businesses to use their Purpose to guide their core strategy.
But focusing on Purpose alone risks ignoring critical ESG commitments that fall
outside a company’s Purpose.
Take, for example, a company whose Purpose is to reduce global emissions through
wind energy. Does this mean they can ignore diversity and
among their staff, or waste and pollution in their supply chain?
On the other hand, businesses are told to improve diversity, equity and
build a resilient supply
and work towards net-zero
among many other ESG-related goals.
But expecting organizations to do “all things sustainability” risks scattering
their attention and diluting progress on their Purpose, let alone business
performance. No wonder that, when I consult with business owners, I often hear feelings of
As one executive at a financial institution expressed to me recently, “Our
customers want us to create an inclusive hiring strategy, boycott certain
advertising platforms and use solar panels; all on top of having the best
customer service, the best app and the best prices. How are we supposed to do it
As a starting point, Bumb advises, “ESG focus should come from the company’s
That said, Strandberg
reminds us that “good sustainability/ESG practices are table stakes for all
business: Every business needs to understand its social and environmental risks
and opportunities and address them.”
In other words, Purpose can illuminate which ESG areas to focus on; but some ESG
commitments need to be a priority, even if they fall beyond the scope of the
Preston echoed this perspective: “You could argue that every company should be
doing these things: They should be acting ethically, following all relevant
codes of practice, and complying with legal and regulatory requirements — that’s
just a core and basic requirement for being in business.”
Consensus: Purpose, as a company’s guiding North Star, should always come
first when making strategic business decisions — including which ESG commitments
to emphasize. Some ESG commitments, however, must be prioritized regardless of
how they relate to Purpose.
Many companies think about these concepts somewhat independently.
However, as Bumb says: “Leaders should make sure at least some of their ESG
are clearly linked to, and deliver on, the goals set by its Purpose.”
How are they interrelated? Some initiatives driving towards their ESG goals will
simultaneously drive towards their Purpose, and vice versa. For example, a
restaurant whose Purpose is to build community and inclusion might set a goal to
improve their employees’ understanding of diversity through an educational
initiative. This initiative would simultaneously work towards their Purpose and
an ESG goal related to improving employee wellbeing or inclusion.
Finding the links between Purpose and ESG will, Bumb says, “enable smarter
decision-making related to strategy, operations and people; and will help a
company deliver on its Purpose and demonstrate performance on key ESG metrics.”
Indeed, setting goals and initiatives to achieve its Purpose will help a company
build upon the robustness of its ESG strategy as well.
As Strandberg highlighted, “Adopting a social
will elevate the importance of ESG to the organization.”
Remember that the scope of ESG commitments will be broader than those tied
directly to their Purpose: “Corporate Purpose is likely to be oriented towards a
small set of Sustainable Development Goals, while managing ESG factors will take
into account a much broader range of concerns,” Preston says.
Let’s return to the company with a Purpose of reducing global emissions through
wind energy — which gives it a clear focus for the majority of its business
operations and activities. Its strategy to achieve this Purpose might include
things such as developing wind farms. But it would be entirely prudent for its
ESG commitments to include biodiversity
to reduce the potential harms created by the pursuit of its Purpose.
Driving towards its company Purpose with consideration of the most relevant ESG
factors will help ensure the long-term value of the company and its societal
Consensus: Purpose and ESG strategies are both critical to becoming a
thriving, resilient business that benefits, rather than harms, society.
Purpose and ESG are clearly related. Sometimes the initiatives associated with
each will even overlap. But it’s important to be aware of their differences as
Preston offers a clear distinction: “While corporate Purpose is about joint
value creation between business and society, ESG is more about managing downside
risk — an examination of whether the company is doing the right things from a
brand and reputation perspective to keep key stakeholders on side.”
Again, some initiatives might simultaneously do both. Returning to the restaurant focused on community and inclusion, its educational
initiatives have the potential to create a positive impact while simultaneously
reducing reputational risks for the business.
Finally, Bumb pointed out one other key distinction: “ESG commitments will
evolve over time, whereas a company’s Purpose should endure.”
Consensus: Purpose is about creating societal impact, whereas ESG is focused
on reducing risks to the business.
Even with the understanding we’ve now gained around these terms, there is such a
wide range of ESG activities for a company to consider; alongside impact
initiatives aimed at achieving their Purpose, how can companies possibly
Essentially, each potential priority can be screened against two key questions:
Does prioritizing this help us achieve the societal impact reflected in our
Purpose? (Impact focus)
If not, does prioritizing this help us reduce risks to our business? (Risk-reduction focus)
The degree to which a company can say ‘yes’ to at least one of these questions
will bring the most important priorities to the top.
Consensus: Ultimately, a company should have priorities that fall into each of these
two buckets and be sure to cover key ESG commitments expected of all companies, including reducing your carbon footprint, and improving employee health and safety.
Integrating Purpose and ESG is necessary for every business in
this new era. While integration is no small feat, companies must have a clear understanding
of how ESG and Purpose relate and how they’re different.
With the input from these Purpose and ESG experts, we hope you feel more
confident to take on the challenge.
Published May 3, 2022 8am EDT / 5am PDT / 1pm BST / 2pm CEST
Charla Vall is founder & Principal at Vall Impact Company. Throughout her career, Charla has focused on addressing the root causes of society’s complex problems. Now, as an independent consultant, Charla helps impact-driven organizations gain the clarity, confidence and capacity to execute bold strategies that create real social and environmental change (read more ...).