(Note: Professor George Serafeim is an advisor and former board member at High Meadows Institute)
Can business do good while doing well?
This was the question George Serafeim set out to answer over a decade ago, when he first began his research into understanding the impact of business on society. At the time, ESG issues were seen as “soft” and business leaders were skeptical that contributing to social change would do anything but hurt their bottom line. But the more he looked at the data, the more Serafeim realized the question was not “can it be done?” but “how?”
In his new book, Purpose and Profit: How Business Can Lift Up the World, Serafeim explores the societal and market forces that are forging a new alignment between social impact and value creation and offers the tools for people at all levels – entrepreneurs, managers, employees, consumers, and investors – to strengthen the relationship between the two in their own lives.
The first half of the book examines some of the key trends that have created an environment for this increased alignment and the ways in which employees, customers and other stakeholders now expect businesses to commit to a larger purpose beyond profit and to actively participate in addressing some of the greatest social and environmental challenges of our times. Meeting these expectations is rapidly becoming a central factor in human capital recruitment and retention, as well as customer and investor engagement.
For companies that do this well and make purpose central to their business strategy, there is a clear payoff in the marketplace. According to Serafeim’s research, companies that improve their performance on material ESG issues outperform their competitors by three percent annually in stock returns. “Despite worrying about factors that go well beyond pure profit, you end up more profitable in the end,” Serafeim writes. “This is an extraordinary example of a virtuous cycle that exists now as never before in history.”
The second half of the book builds on this new context, providing a guide to companies, investors and individuals looking to create better alignment between purpose and profit in their own businesses and careers. Companies moving from compliance, the “table stakes” of doing ESG, to sustainable innovation, where true transformation happens, have followed a similar tactical framework: adopt an ESG strategy, create goals and accountability structures, build a supportive culture, make operational changes and finally, communicate their new direction to the rest of the world. Companies are also taking advantage of this moment by pursuing new opportunities, which can involve shifting current business models, pivoting to brand-new businesses or changing internal practices to match evolving societal expectations.
Investors, meanwhile, are taking a much more active role in driving sustainable behavior within the companies in which they invest, moving beyond negative screening to recognize ESG issues as strategic levers for engagement and untapped opportunities for value creation. Even at the individual level, employees of every rank have the power to push their organizations, and their own career trajectories, towards more alignment with social purpose.
Purpose and Profit is a timely and compelling look at a new orientation for business and makes a persuasive case for a purpose-driven approach for companies as both a value generator and a driver of innovation and opportunity. Serafeim, a Professor of Business Administration and Founder of the Impact-Weighted Accounts Project at Harvard Business School, offers a thoughtful overview of the rapidly shifting landscape and a valuable toolkit for business leaders, entrepreneurs and investors who are viewing the world differently than the generations that came before them.
Drawing on a wealth of data gathered from his research, as well as examples pulled from his experience as an academic, entrepreneur, board director, and investor, he demonstrates how companies from different industries, of different sizes and with different goals are putting these ideas into practice and highlights what insights readers can learn from each of them. Serafeim brings fresh perspective to the fields of impact investing and entrepreneurship, striking an optimistic but not overly idealistic tone while being honest about the challenges and failures companies face on the path to purpose.
In his final chapter, Serafeim looks to the future of business in a purpose-driven world. Alignment, he cautions, is a fragile thing that needs to be vigorously cultivated and protected, through continued transparency, incentives, education and regulation. But ultimately, it starts with caring – companies and individuals have to care about making a difference. It is the first step in a complex but worthwhile journey and Serafeim leaves us hopeful that we will reach the end. As he concludes, “There is a path for us all to lift up the world through business. It comes down to the power of combining purpose and profit.”