Over the next ten years ‘Profit with Purpose’ businesses will dominate the growth market. In this essay published in the Reform thinktank’s new book ‘The Next Ten Years’, Pascale Scheurer takes a look at the innovators changing the world for the better and getting rich doing it, and the opportunities for UK business.
In this year of the London Olympics and the UN International Year of Cooperatives, the spirit of both is transforming a sector not formerly associated with ‘fair play’: the profit-making business.
A new sector has developed bridging the artificial divide between business and charity: the Profit with Purpose business . This aims to create not only wealth, but value; delivering a material positive impact on society and publicly reporting on social and environmental performance.
All around the world, corporations are rejecting the traditional ‘race to the bottom’ on costs in favour of a ‘better brand’ approach aimed at a new generation of consumers. This ‘race to the top’ may have started as a marketing ploy, but we now see the fervent young advocates of Corporate Responsibility rising fast in the boardroom. This is very much a generational change.
FROM ‘GENERATION i’ TO ‘GENERATION WE’
We thirty-something entrepreneurs grew up with Sir David Attenborough on our TV screens – we’re environmental enthusiasts at the very least. We’re a generation turned off by the superficiality of conspicuous consumption – if the nineties were all about product, the noughties were about experiences (Glastonbury, swimming with dolphins) and the teenies brought another shift: to authenticity. We seek out those who share our values and feel fulfilled when working together with them towards a common goal: ‘Generation i’ is becoming ‘Generation We’. Companies must now play the branding game via social media and offer a deeper experience – engagement, trust, ambition. Ethics. With social media comes transparency. Antisocial business practice is no longer easy to hide from customers and employees.
Profit with Purpose is predominantly a youth employer. Top Oxbridge graduates are rejecting huge salaries in favour of being part of something they believe in. They find employment with businesses that share their values, or set up their own business with world-changing aspirations. Barriers to entry are so low that young unemployed people can become entrepreneurs overnight. They derive enormous pleasure from actively contributing to society, solving problems whilst creating new wealth and employing others.
It is not only new businesses. CEOs are assessing their own legacy, having ‘road to Damascus moments’ and transforming their companies. For example Interface, a global leader in commercial carpeting, tackled its own environmental impact before spinning off a sustainability consultancy, InterRaise. IBM have over 220,000 subscribers to their ‘People for a Smarter Planet’ Facebook page. Watchmakers Omega partner the Swiss solar airplane, SolarImpulse, a project so challenging it had delivered several technological breakthroughs before the airplane even left the ground. SolarImpulse’s founder Bertrand Piccard, who famously raced Richard Branson around the world in a hot air balloon, speaks of the “21st Century Challenges” which “open new horizons for science … , less to conquer unknown territories than to preserve the planet from today’s threats, in order to sustain and improve our quality of life.” These challenges also open up new horizons for business.
When we talk of the Big Society or of social enterprise, we tend to think of charities and non-profits. Worthy causes certainly, but by their very nature incapable of driving the engine of the economy. In contrast, Profit with Purpose businesses are transforming the corporate investment landscape.
Ten years ago FTSE launched their FTSE4Good Index, “a transparent and measurable benchmark that would capture companies’ environmental, social and governance [ESG] practices, and evolve over time … challenging companies to improve.” UK company FTSE is a world leader, operating five FTSE4Good indices (UK, European, US, Japan and Global) which cover US$ 10.1 trillion of assets, up from $2.6tn in 2002.
What was once a fringe market has matured over the last decade. At October 2011, the UK held a record £11.3 billion in ethical investments. In November 2011 Deutsche Bank seeded a new fund for responsible investment with £10 million of their own money. They hope to have stolen the advantage from their competitors. For individual investors, CIS (Cooperative Investment Services) now offers ten global and local ethical funds in their ISA range. These new funds not only invest in large corporates. UK small and medium-sized enterprises (SMEs) attract around 40 per cent of Japanese, US and Asian investment into the EU. Acccording to BIS, UK SMEs deliver almost 60% of our employment and 50% of private sector turnover, over £1400 billion annually.
LESSONS FROM ACROSS THE POND
In the USA, ‘B-Corp’ certification was launched in April 2010 for a new type of corporation which puts their environmental or social mission legally on a par with profit making. Within 18 months there were over 450 Certified B-Corps in 60 industries, and over 3000 businesses using the rating system. 11 US states (including New York and California) have signed B-Corps legislation to attract these new start-up employers and investors.
Crowdfunding has proven itself as a viable model for ‘mass-micro financing’: large numbers of enterprises raising small amounts of private funding, typically UD$ 500-5000, to launch a new product or service. Small is beautiful and small is now big: peer-to-peer creative projects platform Kickstarter generates over US$ 100 million per year, equivalent to two-thirds of the total funding via the National Endowment for the Arts. This model could replace costly grant schemes and remove the public sector middle layer of management.
The Stanford Social Innovation Review identifies “the burgeoning field of impact investing” as “one of the most important trends in social innovation”. Over at Harvard, over 90 faculty are involved in social enterprise, with Harvard Business Review writer Umair Haque calling Profit with Purpose businesses such as B-Corps “a big part of the solution, a step into the 21st century.”
A NEW BRAND VALUE FOR UK PLC?
We should not be daunted by the extraordinary progress being made in the United States. The boat has not sailed yet. The UK could also be a global leader in this rapidly-growing business sector. We are after all ‘a nation of shopkeepers’ – and adventurers. We have passion for entrepreneurship and a strong track record in innovation and social leadership. We can celebrate the global successes of FTSE4Good described above, our environmental rating scheme for construction BREEAM and ethical cosmetics brand The Bodyshop with its 2500 stores in 60 countries. Here at home, John Lewis and Waitrose lead the field in employee ownership, B&Q are partnering with One Planet Living and M&S has launched its ‘Plan A’ sustainability drive “with the ultimate goal of becoming the world’s most sustainable major retailer”, to name but a few.
Eccentric and passionate, the visionaries driving Profit with Purpose business are akin to our Victorian pioneers who championed both competition and cooperation in pursuit of the betterment of society as well as individual wealth. We know the impact of the corporate model; perhaps less well known is the success of cooperatives. Over one billion people worldwide are members of cooperatives today including five million in the UK. The modern cooperative movement was born in Rochdale in 1844 amid the turmoil of the first Industrial Revolution. Profit with Purpose is the contemporary equivalent in today’s digital Third Industrial Revolution, with the additional merit of being open to global investment.
The examples above illustrate how Profit with Purpose fits with our history and our strengths. The UK is becoming a better place to start up a business, it has world class telecommunications infrastructure and a global head start in language, location and established trade links. We should certainly not underestimate our relationship with India as a major emerging market. In a time of record youth unemployment and alienation, online entrepreneurship offers our digital-savvy young people a positive way to engage in society and contribute to the economy.
So how can Government facilitate the growth of this sector in the coming decade?
BEYOND SYMPATHY AND SUBSIDIES – THE ROLE OF GOVERNMENT.
Supporting Profit with Purpose businesses needn’t be expensive – quite the opposite. They don’t want sympathy or subsidies; they do want a level playing field. Government can save money cutting back on subsidies to established and large organisations, for example the non-renewable energy sector. Like all business leaders, Profit with Purpose entrepreneurs want a stable platform for enterprise that extends beyond the five-year election window. Transparency and good governance are also essential. These are being fortified by new forms of media and direct democracy.
Finance should be enabled through a ‘scale fast or fail fast’ model. As Apple’s ‘Chief Evangelist’ and Venture Capital funder Guy Kawasaki advised a UK conference in April 2011, if we fund start-ups with public money then we should fund many, faster, giving each less money with less strings attached. There is much to learn from Kickstarter, Etsy and Kiva. With these online platforms (all currently based in the USA, bringing vast sums of money into that country) one can set up a business and start trading globally in under 48 hours, without incurring significant outgoings. (I’ve done it.)
Ideally government would take a leadership role in promoting a set of core values around corporate responsibility. Although this seems too much to ask at present, it will naturally happen as public support for the sector grows. Government will then be more readily inclined to celebrate and reward the most innovative, responsible – and successful – companies.
It is worth reiterating that we are not talking about “charities delivering public services”, a perception which the social enterprise sector suffers from, and which is embodied in the ‘Big Society’. Profit with Purpose businesses offer something entirely different, entirely in keeping with the Government’s desire for a business-led approach to economic recovery. Whereas funding charities can be perceived as pouring money into a black hole, Profit with Purpose businesses are self-sustaining, wealth-creating, job-creating and tax-paying. They are nimble, independent and must be both efficient and effective as they are subject to market forces . Their lower ESG risk profile, scalability and long term prospects make them attractive to investors.
The Profit with Purpose sector presents a global business opportunity perfectly suited to the UK. It is a mature, rapidly-expanding market with proven solutions. Over the coming decade it will inject new life into our ailing economy.
Pascale Scheurer MA(Cantab) MSC RIBA FRSA
Pascale Scheurer is Director of Intelligent Futures Ltd. a London-based company working in the intersection between ICT, ethical business and sustainability. Intelligent Futures operates an investment platform for ethical businesses, particularly innovative startups.
Pascale also runs the Ethical Startups Facebook page with over 10,000 fans (www.facebook.com/EthicalStartups) and is a member of the RSA Fellowship’s Profit with Purpose network.
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