Good growth: Business with purpose
Purpose has assumed a central place in business thinking over the past five years. Gone, at least, are the days when CEOs could comfortably defend Milton Friedman’s famous position that their business exists only to make a profit for its shareholders.
While the proliferation of corporate purpose statements can make the pursuit of deeper social or environmental missions seem like yet more buzzwords, people are putting their money where their mouths are.
BlackRock CEO Larry Fink’s 2018 assertion that “every company must not only deliver financial performance, but also show how it makes a positive contribution to society” has reverberated across the corporate world. Pension funds and other institutional investors are increasingly factoring environmental and social impacts into their decisions, creating a trend for “good growth”.
As a list of the UK’s fastest-growing companies, the Growth Index reflects this trend. While only two companies are certified B-Corps – an accreditation which looks for high standards of social and environmental performance, with management legally accountable to all stakeholders, not just shareholders – our analysis shows that 70% have a clearly defined purpose.
Half of the companies also have an ESG (environmental, social and corporate governance) policy or targets in place, while 10% have a dedicated sustainability role in the team.
One of the Index’s B-Corps is Octopus Energy. With a clear mission – “to make the global transition to green energy cheaper, fairer and faster” – Octopus supplies 100% renewable electricity to its customers, and offsets the carbon from their gas supply. Having expanded vertically into onshore wind and solar generation, as well as electric vehicle charging, it aims to transition to an entirely carbon-free product portfolio by 2040.
CEO and founder Greg Jackson says his company, which was valued at $5bn in its latest funding round, has good growth in its foundations: “When I studied economics, there was a concept we were taught called Pareto improvement – something that makes at least one person better off without making anyone else worse off,” he explains. “This a great place to start when you’re thinking about building businesses. To me, that is a driving concept.”
Octopus Energy’s focus on moving away from fossil fuels isn’t a purely altruistic one, he argues. “We absolutely have to move on from fossil fuels. And given that this is going to happen, we should see that as a business opportunity. Whereas many incumbent companies saw it as a threat and therefore dragged their heels, which is unconscionable.”
Diversity in the top team is another key indicator of social responsibility. Seven in ten of our companies have diverse boards, with representation of different genders and ethnicities (for the top 10, it’s 80% – supporting the idea that diversity at the top really does matter).
One such example from the Index is Storal Learning – founded by entrepreneurs Ashwin Grover and Varun Chanrai, the early-years education company is led by female CEO Sarah Mackenzie. MacKenzie explains that Grover and Chanrai set out to start a mission-driven company and, seeing the impact they could have on the future generations, settled on day nurseries.
“Getting it right in children’s early years has a hugely positive impact on society so by nature our work is impact driven,” explains MacKenzie. “We’re in such a privileged position, we’re working with children in the most pivotal period of brain development and we’re able to support children to develop the attributes, skills, and knowledge that will set them up for success both in school and in life – ready to make their own positive impact on society.”
Founded in 2016, Storal Learning is growing steadily through acquisition, taking on five new sites in the last 12 months, increasing its capacity for children by 32% and staff by 31%. MacKenzie says the company’s purpose – a laser focus on quality and positive outcomes for children – has enabled this growth. “Nursery owners looking to sell and exit their business are drawn to the fact that we build on their brand,” she explains. “They pass the baton trusting that we’re going to enhance their legacy.”
MacKenzie argues that Storal’s sense of purpose is far more than a nice-to-have, but rather provides a competitive advantage: “If we pursue our wider-purpose with integrity and high standards, it creates a nursery where team members want to work and parents want to enroll their children and that is the basis of our growth. It’s a virtuous circle.”
This concept of purpose creating a culture that attracts the best people is something that many of the businesses in the Index find. Bboxx, a solar-energy firm on a mission to end energy poverty, has helped over three million people to access electricity in 11 countries – growing to a team of nearly 1,000 since it was founded in 2014.
“One of the things I’m most proud of about the Bboxx culture is the collection of mission-led people who have joined us,” explains co-founder and CEO Mansoor Hamayun. “We are driven to solve a big societal problem and this attracts people with great humility. We’re dealing with some of the poorest people on the planet, very often with low literacy and who are facing many challenges within their communities – as a team we need to have a lot of respect for your customers.”
A growing body of research has shown that companies that are perceived as putting ethics and social good at the core of what they do report increased loyalty from customers and more engaged workforces. As for-profit businesses this is good news. New York University’s Center for Sustainable Business for example found that half of the US sales growth in consumer packaged goods between 2013 and 2018 was attributable to the 17% of products advertising sustainable characteristics.
But what happens when the drive to grow and increase profits is at odds with the core purpose of a company? Storal Learning faced just this in the pandemic.
“During lockdown there were many instances when it would have been far more cost-effective to close nurseries rather than stay open for key worker children,” says MacKenzie. “But Storal stayed open because the founders wanted to play their part in society at a difficult time. It’s about coming back to the mission and values.”
The Growth Index companies that embrace a good growth ethos have proven that profit can exist alongside social and environmental purpose, and can perhaps be strengthened by them. As responsible investment and phenomena like the B-Corp movement gain momentum, it’s a trend set to stay.
“It’s okay to make money. It’s okay for entrepreneurs, businesses and shareholders to do well,” says Jackson. “But we should do so by helping others to do well, not at the expense of others. You can get rich by either taking something from someone or building something for the benefit of everyone. Let’s be the latter.”