Follow the Money: why brands with a conscience are winning on Wall Street

It seems that everyone’s searching for purpose these days. Graduates seeking fulfilment; CEOs pondering legacy; marketers eyeing awards.  The talk about purpose and greater consciousness […]

It seems that everyone’s searching for purpose these days. Graduates seeking fulfilment; CEOs pondering legacy; marketers eyeing awards.  The talk about purpose and greater consciousness in business has certainly centred on these areas: on how purpose can help attract the best talent, guide corporate strategy, and create cut-through for brands. It is in this third space, marketing, that the debate around brands with conscience has largely taken place, about what it means for a brand to have a conscience, the impact this might have on engaging consumers, and whether brands talking purpose but without conscience are guilty of ‘purposewash’.

But one place that has not typically been associated with purpose or assumed to be interested in whether a brand has a conscience or not, is the finance department.  The CFO’s interest has typically focused on the bottom line – what growth is the company generating, at what margin, and what do I need to satisfy my investors?  They may have asked questions about whether the company’s risk profile was too high in supply chains or environmental impacts, but not about whether the company had a purpose or the brand a conscience. Until now.

Larry Fink, the chief executive of BlackRock, the world’s largest asset manager with $6.5 trillion in assets under management, caused some raised eyebrows among analysts and cheering among campaigners, when he said in his 2018 annual letter to the companies his firm invests in (of which there are a lot) that, “Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings…, it will remain exposed to activist campaigns that articulate a clearer goal… And ultimately, that company will provide subpar returns to the investors.”

His letter was heralded as a tipping point in the question of whether capitalism had to be ‘conscious’, and he followed it up in his 2019 letter by saying, “Profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time – not only shareholders, but also employees, customers, and communities. Similarly, when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability……Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail.”

So, just as marketers are turning to ‘brands with conscience’, investors are turning to companies with solid ESG (Environmental, Social and Governance) credentials.  Not because they have a burning love for brands with conscience, not because they’re hankering after a greater sense of purpose and meaning in their work, not because they suddenly want to save the world. But because it makes for better returns on their investments, and their traditional financial models have failed to assess these risks and opportunities adequately.  BlackRock’s turn to purpose and wanting to invest in companies who understand and act on their environmental and social obligations and opportunities is underpinned by their own research that ESG funds will account for 60% of the global growth in exchange-traded funds over the next decade.  Many investors – public pension funds in particular – will not invest in companies without a clear and credible purpose, while private equity firms are appointing heads of ESG to assess and manage their investees’ performance in this space.

Whether passive or active, investors are encouraging companies to improve their social and environmental performance.  Why?  Because they have watched, researched, analysed and interrogated companies’ performance (more than any protestor, regulator or activist citizen was ever able to do) and come to the conclusion that companies who are not acting on their material environmental and social impacts are not worth investing in.

For those of us who aren’t in a position to analyse and interrogate company performance to quite the same degree, brands with conscience provide us with a shorthand for making choices in line with our own values.  The Medinge definitions of what constitutes a brand with conscience – including having a visible conscience; promoting the value of caring for one another; acknowledging that we are all fundamentally equal; and being visibly accountable for all its actions – are simply human expressions of what the investment community is now looking for, and why it makes sense to follow the men and women of Wall Street and invest our own time and money in brands with conscience.

As originally featured in Branders magazine – a digital publication specialising in branding, strategy and innovation.

For some the integration of ESG into investment processes and decision making may be overwhelming, not least the speed with which it has been embraced by Wall Street.  As a B-Corporation, we firmly believe businesses can be a force for good which is why we are running an ESG event with private capital recruiters (Stevenson James) in London on 16 October – please get in touch if you would like to join us.

Whether you are a leading ESG practitioner, an ESG novice or have questions keeping you awake at night we’d love to help.