How to Achieve the Promise of Corporate Purpose
By Sarah Kaplan
Even before the COVID-19 pandemic, discussions of corporate social responsibility (CSR) and environmental, social and governance (ESG) issues were becoming commonplace. In 2019, Larry Fink, CEO of BlackRock, famously issued a challenge to CEOs to pursue purpose, not just profit and in August of that year, nearly 200 CEOs of the U.S. Business Roundtable signed a statement in favour of creating value for all stakeholders. And yet, as the pandemic fades into the rear-view mirror, our planet continues racing towards catastrophe, inequality of all forms is only widening and progress on diversity and inclusion has stalemated.
The reason? Too many firms are talking the talk (making socially desirable claims in order to maintain their legitimacy and social licence to operate) but not walking the walk (taking real action to improve outcomes.) Some are even using social responsibility as a cover for damaging activities. Indeed, many of the signatories of the 2019 roundtable statement lead companies that have aggressively sold addictive drugs such as opioids offshored profits to avoid taxes supported politicians who actively undermine women’s rights, transgender people’s rights and civil rights or sponsored pro-oil and coal ad campaigns.
It has been well established that stakeholders aren’t only motivated by financial gain.
We shouldn’t be surprised by any of this. A long line of research on “decoupling" explains why espoused values around corporate purpose often remain separate from action. These findings are consistent with an emerging stream of research on sustainability and social responsibility reporting, in which firms have been shown to emphasize only the elements where they are making progress — and to omit or obfuscate information that might shed a negative light on their activities.
One reason for the decoupling of talk from action is that achieving social or environmental objectives might simply be seen as too costly, given that it can require major investments and changes to organizational practices. Separating talk from action helps to maintain an organization’s legitimacy while at the same time, avoiding expensive changes.
Journalists have documented these challenges, whether it be Shell selling off polluting oil sites to improve its own environmental performance only to have them scooped up by smaller under-the-radar firms that have engaged in even more polluting practices Tesco claiming the full recyclability of its plastic bags only for investigators to find that most of them are making their way to be burned in Eastern Europe or Delta Airlines claiming net zero through the purchase of carbon credits that have not in practice led to any greater conservation of forested lands.
We are at an important inflection point in understanding these kinds of behaviours — and what can be done to truly engage for-profit firms in the quest for a more equitable, sustainable and just society.