This is a 50 page report with directors and investors in mind who are looking for guidance on best practice and disciplines for being engaged in and enacting purpose into organisations. Although a lengthy report, it is well spaced out with visuals and quotes and company examples making the content easily digestible. Overall a really enjoyable read with practical and actionable guidance. To take in all of the substance, you'll need to invest around 30-45 mins to read. Headlines as follows:
About the Report
- The consensus continues and is growing in the global business and investment community - sustainable and inclusive capitalism is vital to society, the environment and the economy. For directors and investors, this paradigm shift is propelling corporate purpose to the top of the agenda.
- This report comes 12 months after the first EPI report building on that foundation but with a specific focus on how directors can work with investors to leverage corporate purpose to sustain long term value creation whilst considering and solving (for) societal issues.
- By the end of the report you will see, laid out clearly, the 'common ground' between investors and directors regarding the value of purpose
- The report reinforces the value of the SCORE framework which was introduced in the first report and it also introduces a new approach to measuring purpose.
- It provides context to purpose between 4 key areas of business, investor, legal and political
- Section 5 of the report is probably the most practical and hits straight to 'finding that common ground' necessary between the director and investor parties. It delves deep into how important the board's role is for purpose to pay off.
- The first report gleaned majority of it's insights from the EU corporate market where as this one captures input and insights across different sectors of corporate North America.
Key Insights
- There is a growing recognition that demonstrating purpose-led activity is no longer optional but an intrinsic board responsibility. And investors are increasingly focused on understanding how companies and boards leverage purpose for competitive advantage as well as for meeting their environmental and social responsibilities.
- Responsibility for corporate purpose must be distributed throughout the entire organisation however at the same time, it must be owned by the directors because corporate purpose must transcend CEO and management tenures.
- Investors are increasingly becoming frustrated by the lack of access to directors for a range of discussion areas including 'corporate purpose'. Investors who can't meet with directors to discuss this will infer that those directors are not engaged in or actively overseeing purpose.
- There is common ground emerging between directors and investors across 5 areas: 1) how purpose is owned; 2) how directors and investors can ensure they have the right information; 3) how purpose informs and guides decision making; 4) how it's governed; 5) how it can be best communicated between the parties
- Investors are seeking to establish how purpose can best be measured as they are being asked to justify their investments based on ESG factors as well as financial considerations. It refers to a paper published called 'An Integrated Framework' which puts forward a clear approach to purpose measurement. In saying this, the report also talks to how purpose ('why we exist') is distinguished from ESG ('our commitments') and how it's important to understand how they differ and how they are connected for sustainable long term value.
- One company case study explains this difference well - "ESG does not own the purpose; it is held at the executive level and is used to guide the ESG strategy, just as it guides the corporate growth strategy and the culture strategy" (Stanley, Black & Decker)
- There is a need for more communication between investors and directors - in order to gain more robust engagement about business purpose, several recommendations are outlined of which one is publishing a 'Statement of Purpose' which goes well beyond articulation of what the purpose is rather disclosure on things such as; does management have sufficient systems in place to advance the purpose, does management and the board continually and consistently consider stakeholder input when making decisions and do boards evaluate their firm's performance against its purpose?
- A list of 10 topics are laid out in this 'purpose statement' which could be used to address the topics and give directors the framework and narrative required to have meaningful communications with investors on long term and sustainable value creation.
- Both investors and directors alike agree on the importance of the need for 'the Statement of Purpose' to be backed by clear governance and actions/accountabilities
An effective way for directors to demonstrate to investors that they are meaningfully engaged in corporate purpose is to describe how its engagement with the corporate purpose has helped them navigate trade-offs with stakeholders over time as well as how it has made the org more resilient during times of crisis.
