2021 Forum

Organised by University of Oxford’s Saïd Business School and the Economics of Mutuality team, the 2021 Forum was virtual. Participants were able to join the Forum free and from anywhere in the world via interactive online platforms.

Coming only two weeks after the close of COP26, the 2021 United Nations Climate Change Conference, and still in the midst of the COVID-19 pandemic, the Forum reinforced the urgency of change to the global economic system to create a fairer and more sustainable world.

Governments cannot achieve this alone. Business has a key role in putting purpose into practice to fulfil high-level pledges, and address the challenges of climate, inequality, health and other social impacts at speed and scale. Participants in the Forum explored three critical aspects of this task: leadership, measurement, and investment.

The past 60 years have seen a progressive intensification of incentives based on share-price and profits, reducing the world to a single measure of performance. This has driven a false belief in the effectiveness of competition and markets, and created a narrow definition of business success, based entirely on financial capital and ignoring social and natural capital.

While some companies have believed that they can continue to focus on maximising profit while setting up a charitable foundation or pursuing ‘extra-curricular’ Corporate Social Responsibility or Environmental, Social, and Governance activities in parallel, this is not the answer. It is inefficient, undermines trust in business, and amounts to little less than a sustainability Ponzi Scheme.

Essentially, we have forgotten why we are creating and running businesses: it is not to create profit but to solve problems. Profits, which are critical and vital, are a result of successfully solving problems, but they are not the purpose of business.

The need for leadership

95% of CEOs do not wish to return to a pre-COVID world, but to something better, where responsible businesses join with governments and effective global governance to create a fairer and more sustainable system.

To achieve this, we need to go beyond simply trying to be less bad or aiming for net zero: companies should aim to be net positive. This calls for inspirational leadership – cooperative and collaborative rather than the competitive and destructive leadership of the past.

While most current CEOs are likely to have studied at business school before sustainability, equality, and purpose were part of the curriculum, the world cannot wait until today’s MBAs are in leadership positions. Leaders and board members now have a responsibility to educate themselves on Purpose, articulate it, and embed it in the organisation, with appropriate measures in place. They should actively attack negative externalities and take full responsibility for all of their organisation’s social and environmental impacts, throughout the whole value chain.

Successful leaders in this context will be those who can build coalitions and empower others. They adopt an attitude of enquiry and seeking to understand. They do not pretend to have all the answers – indeed, they are able to say ‘I don’t know’ – but aim to find the answers in a collaborative way. They believe that outcomes are more important than outputs, and focus on measuring the change they are making in society: are they having the impact they want to have and addressing the real ‘pain points’ in the system?

New measures of performance

We need a deeper sense of purpose and broader measures of success, and not only in business. GDP, the measure that most countries pursue, is also destructive, counting everything that raises spending – including wars and natural disasters – as positive. If, as we are often told, we ‘treasure what we measure’, we need to find ways to measure and be accountable for the social and environmental impact we are having and the outcomes we are creating. Within organisations, too, we need quantitative and qualitative performance metrics to help incentivise and reward employees who are contributing to the organisation’s larger purpose objectives.

Some companies are already leading the way, not only by engaging with new measures but by thinking about the business models that support them and by explaining these different types of value-creation to the financial markets.

A challenge, however, is the sheer number of different measurement systems that have been created. We now need to make them consistent and comparable, and ensure that we focus on the right ones. A set of internationally agreed sustainability standards will reduce fragmentation and confusion, and facilitate a common language and data that can form the basis of a regulatory framework. This, then will allow for standards to be created and monitored independently, to avoid green-washing or purpose-washing, and enable investment based on companies’ sustainable financial models, business practices, and business models.

A responsible approach to investment

While ESG criteria are now considered mainstream and are a useful tool for investors and asset managers to talk about, they are not a simple formula for responsible investing, and nor have they been fully integrated into the markets with comparable information sets and standards.

A nuanced approach is called for, and asset managers in particular have to be very clear about what people are putting their money into and why. A tobacco company might score well against ESG criteria, for example, but investors may still object to investing in tobacco on principle.

Divestment is a blunt tool, equated to ‘throwing your garbage into the neighbour’s garden’. One person’s divestment is another’s investment, and it may be better to keep the investment and engage with the company’s executives and board. In addition, divestment means that you risk missing some companies that are changing.

Participants called for greater engagement and communication on the subject of corporate purpose from both executives and investors. For example, executives should ask financial analysts which ESG factors are important for the valuation of the business; and the analysts in turn should ask for help in understanding the corporate purpose within the framework of ESG.

Most importantly, investing according to ESG criteria does not involve sacrificing financial returns. It is not a trade-off but a vital contributor to building better, more valuable, more resilient businesses.

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