Purpose in business

Purpose in business is profitable

Purpose-driven companies double their market value four times faster than others and also record a higher return on capital of 5.9%. However, purpose has a positive impact far beyond companies' bottom lines, generating many other benefits as well.

2020 has been a year of unprecedented challenges that have exposed the vulnerabilities of globalisation and capitalism as we know it. Even in the midst of the crisis, companies are reviewing their role in society and their strategies to see how, instead of returning to normality and to the business as usualcan be part of the solution and contribute to global efforts to rebuild a more sustainable and resilient economy in the post-COVID-19 era.

Against this backdrop of uncertainty, business purpose has become increasingly important and, over time, has evolved from a nice, inspirational phrase to a prerequisite for success.

If you're wondering why purpose is now ubiquitous and has established itself as a global trend, here are the answers you're looking for.

Purpose is profitable

Purpose is a strategic lever for value creation and its profitability is more than proven. The recently published study Return on Purpose Fortuna Advisors and CEO Investor Forum's research shows, among others, that companies with a defined and integrated purpose, whose focus is on maximising their financial results and the common good, perform better, have a higher market valuation and create more shareholder value compared to the rest.

Purpose-driven companies double their market value four times faster than others and also record a higher return on capital of 5.9%. However, purpose has a positive impact far beyond companies' bottom lines, generating many other benefits as well.

Improves reputation and legitimacy to operate

"Without a purpose, no company, public or private, can reach its full potential...To thrive over time, every company must not only deliver financial results, but also show how it makes a positive contribution to society." wrote Larry Fink, CEO of BlackRock, in one of his letters.

By publicly stating its purpose, a company demonstrates its commitment and the benefits it brings to its stakeholders and society as a whole, and this clearly enhances its reputation. Therefore, those companies defining and activating their purpose, significantly reduce the risk of a corporate scandal eroding their licence to operate. And this is even more important in today's digital age where everything we do, or worse, what we don't do, is in the public domain thanks to the internet.

Attracts, retains and motivates talent

Attracting, retaining and motivating talent is very difficult and, in some sectors, more so than in others. Business purpose is a differentiator that can be beneficial for all three aspects as, from an HR management point of view, it is a true talent management strategy. employer branding.

82% of employees think purpose is important. This is particularly significant in recruitment processes and for younger people whose greatest aspiration is to work in organisations that contribute to the well-being of society and the planet. In the case of employees already employed by purpose-driven companies, we know that they feel more motivated and their sense of belonging is stronger, so turnover levels decrease significantly.

Customer loyalty

Purpose emphasises the unique and distinctive contribution a company makes to the big problems we face. For that reason, it has the potential to generate stronger relationships with customers who tend to be more attracted to companies that convey authenticity and that they consider to be worthy of their trust. According to a survey conducted by Porter Novelli in 2019, when a company acts in a purpose-driven way, consumers say they are more likely to: buy its products and services (86%) trust it (86%) and be more loyal (83%).   

Investor interest increases

Investors are increasingly integrating ESG criteria into their decisions and are interested in the social and environmental performance of companies. The Global Impact Investing Network (GIIN) in its latest report shows how in just three years the global impact investment market has grown sevenfold to reach a volume of 715 billion euros. Undoubtedly, the companies whose purpose is integrated in the core The companies that maximise their positive impact are better positioned vis-à-vis investors and are able to finance their debt at a lower interest rate than their competitors.

Promotes innovation

A McKinsey study revealed that purpose-driven companies tend to redesign products and services and look for innovative solutions that use fewer natural resources, meet specific needs or involve improved operational efficiency or cost savings. Purpose, social and environmental sustainability and innovation are strongly related and mutually dependent.

If you found this interesting and would like to know more about how to define and activate the purpose in your company to lead the transition to an impact economicsPlease do not hesitate to contact us at info@transcendent.es or consult our blog.

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