COP26: Why Companies Need to Find Their Purpose
-
bookmark
-
print
Milton Friedman, the American Nobel Prize-winning economist, championed the view that a firm’s sole responsibility is to maximize returns to its shareholders. But the days of Friedman-based economics may be numbered, with many companies now more focused on doing right by their communities and employees than just their shareholders. While generating revenues and profits is still important, going forward, the most successful businesses will be motivated by purpose rather than rising stock prices.
That was a main takeaway from one of the keynote panels at the 2021 Sustainable Innovation Forum in Glasgow, occurring this week alongside the COP26 Climate Conference. Moderated by forum chair Nik Gowing, the Rethinking Corporate Purpose panel saw Dan Barclay, CEO and Group Head at BMO Capital Markets, join Simon Glynn, Partner and Co-Lead of climate and sustainability at Oliver Wyman, Aron Cramer, CEO of Business for Social Responsibility, Timothy Stutt, Partner and Australia ESG Lead at Herbert Smith Freehills, and Laura Lane, Chief Corporate Affairs Officer at UPS in a lively conversation about how the concept of corporate purpose has evolved
It’s a subject that has been a subject of careful consideration by corporate leaders over recent years especially, and BMO has been no exception.
Dan Barclay pointed out that BMO’s search for its purpose began about two years ago and involved 15,000 out of its 50,000 employees. Some people were confused when the new mission was unveiled – “boldly grow the good in business and in life.” “That’s not a financial institution,” said Barclay relaying what some shared back then. But when BMO started thinking about what to focus on, satisfying shareholders wasn’t the only priority. Bettering the communities BMO operates in was very important, too, shared Barclay. “Banking, as a rule, is a community-based service, and when we think of communities, that’s where we think of our purpose and our stakeholders,” he said.
Bringing that purpose to life meant moving C$300 billion of capital into sustainability and committing to creating both an inclusive society and a thriving economy. “When I look back 24 months, from when we put it in place, it resonates even more today than it did then,” Barclay added. “When I look at how we’ve galvanized the way we make choices, both strategically, in our communities, how we’re funding, and our forward-looking strategy, it’s all based on that purpose.”
“We need to start by thinking about what the world’s purpose is, and there is a rough alignment (on what that is) that’s been born out of difficulties and possibilities,” said Aron Cramer. “We need to have an inclusive economy that is climate and nature positive. That’s what the world needs.”
If everyone can agree on that basic purpose, then companies can determine how they fit in, which they’ll need to do if they want to keep up with our rapidly evolving economy. “In addition to climate and the COVID-19 recovery, we’re going through an immense and profound amount of disruption that is reshaping every single business in very fundamental ways,” noted Cramer. “Purpose provides a North Star for companies to figure out their role in a fast-changing world.”
Visit Sustainable Innovation Forum to watch the panel.
Laura Lane said that at UPS, purpose guides the company’s every move. “Everybody thinks UPS stands for United Parcel Service, but it’s really United Problem Solvers,” explained Lane. She said UPS has done a lot of work over the last couple of years to define its purpose, but that its mission really came to light during the pandemic. “We move the world forward by delivering what matters, and what matters for us has been delivering a billion vaccines,” she said. “It’s really about taking that sustainability focus to everything we do.”
Creating a purpose-driven organization
But while BMO and UPS may have found their North Star, there was a question from Gowing around the problem of “purpose washing,” which is when a business claims they have a purpose because that’s what they think customers want to hear.
With so many more people focused on sustainability, though, it’s hard to “claim” a purpose, said the panelists. However, not all businesses are embracing purpose in the same way. “There’s a difference between the companies that adopt purpose as a strategic decision and flow it down through the entire organization, and those who have a fairly shallow purpose and don’t implement it or operationalize it,” said Stutt.
The companies that are doing this right are the ones that have embedded their purpose into all they do, including in governance documents and workplace policies. Everyone from the chairperson to the chief executive must also be on board. “So even when no one is watching, people are still acting with that purpose,” he noted.
Glynn added that while most companies would say today that they care about more than creating shareholder value, there is still an open question as to how many businesses are truly eschewing the Friedman doctrine, which says a company’s sole responsibility is to its shareholders. “How deep does that purpose go?” he asked. “Does it actually drive what you do, or is there an unspoken purpose of just creating shareholder value?”
Purpose is good for business
Operations that are embracing their purpose are also finding that sustainability is good for business, said Barclay.
Over the last two years, Barclay said engaging in environmental, social and governance (ESG) practices has shifted to incentives from penalties. In a more penalty-focused environment, purpose doesn’t matter – companies simply try and minimize negative outcomes, but that only goes so far. With incentives, businesses are more active, say by trying to reduce their carbon footprint or improve their governance practices, both of which have been shown to have business benefits. “If I do the right thing, then I can build a better business, and I will be rewarded,” Barclay explained.
He’s seen the benefits of incentives first-hand. By embracing its purpose, BMO has been rewarded – with more clients, happier customers, more satisfied staff, and, ultimately, higher profits. “(Increasing) shareholder value is not the challenge,” said Barclay. “The challenge is how do you define shareholder value? If you’ve got a company that’s not successful, then it will fail its community and everything around it. Companies need to be successful, and that means making money, serving their purpose, and serving their stakeholders, but they need to do that in a responsible way.”
Can the current crop of business leaders handle such a transformational shift away from satisfying shareholders to being more environmentally focused and inclusive of all stakeholders? While the panelists admit that thinking more long term will be difficult for those who must deal with so many short-term pressures, they are optimistic. “If we think about what’s good for our business, what’s good for our people, then we will know the right position to take,” said Lane.
Barclay added that purpose isn’t something companies can afford to sit on, as customers, investors and others are already holding businesses to account. “You can lose your social license very quickly if you’re not doing the right thing,” he noted. “Whether that’s actual behavior or how you run your business, the penalties that get put in place, particularly for public companies, if they’re not doing the right thing, are dire and have hard impacts.”
COP26: Why Companies Need to Find Their Purpose
Senior Advisor to the CEO
Effective November 1, 2023, Dan Barclay will retire as Chief Executive Officer & Group Head, Capital Markets, and transition to a role as Senior Advisor to the …
Effective November 1, 2023, Dan Barclay will retire as Chief Executive Officer & Group Head, Capital Markets, and transition to a role as Senior Advisor to the …
VIEW FULL PROFILE- Minute Read
- Listen Stop
- Text Bigger | Text Smaller
Milton Friedman, the American Nobel Prize-winning economist, championed the view that a firm’s sole responsibility is to maximize returns to its shareholders. But the days of Friedman-based economics may be numbered, with many companies now more focused on doing right by their communities and employees than just their shareholders. While generating revenues and profits is still important, going forward, the most successful businesses will be motivated by purpose rather than rising stock prices.
That was a main takeaway from one of the keynote panels at the 2021 Sustainable Innovation Forum in Glasgow, occurring this week alongside the COP26 Climate Conference. Moderated by forum chair Nik Gowing, the Rethinking Corporate Purpose panel saw Dan Barclay, CEO and Group Head at BMO Capital Markets, join Simon Glynn, Partner and Co-Lead of climate and sustainability at Oliver Wyman, Aron Cramer, CEO of Business for Social Responsibility, Timothy Stutt, Partner and Australia ESG Lead at Herbert Smith Freehills, and Laura Lane, Chief Corporate Affairs Officer at UPS in a lively conversation about how the concept of corporate purpose has evolved
It’s a subject that has been a subject of careful consideration by corporate leaders over recent years especially, and BMO has been no exception.
Dan Barclay pointed out that BMO’s search for its purpose began about two years ago and involved 15,000 out of its 50,000 employees. Some people were confused when the new mission was unveiled – “boldly grow the good in business and in life.” “That’s not a financial institution,” said Barclay relaying what some shared back then. But when BMO started thinking about what to focus on, satisfying shareholders wasn’t the only priority. Bettering the communities BMO operates in was very important, too, shared Barclay. “Banking, as a rule, is a community-based service, and when we think of communities, that’s where we think of our purpose and our stakeholders,” he said.
Bringing that purpose to life meant moving C$300 billion of capital into sustainability and committing to creating both an inclusive society and a thriving economy. “When I look back 24 months, from when we put it in place, it resonates even more today than it did then,” Barclay added. “When I look at how we’ve galvanized the way we make choices, both strategically, in our communities, how we’re funding, and our forward-looking strategy, it’s all based on that purpose.”
“We need to start by thinking about what the world’s purpose is, and there is a rough alignment (on what that is) that’s been born out of difficulties and possibilities,” said Aron Cramer. “We need to have an inclusive economy that is climate and nature positive. That’s what the world needs.”
If everyone can agree on that basic purpose, then companies can determine how they fit in, which they’ll need to do if they want to keep up with our rapidly evolving economy. “In addition to climate and the COVID-19 recovery, we’re going through an immense and profound amount of disruption that is reshaping every single business in very fundamental ways,” noted Cramer. “Purpose provides a North Star for companies to figure out their role in a fast-changing world.”
Visit Sustainable Innovation Forum to watch the panel.
Laura Lane said that at UPS, purpose guides the company’s every move. “Everybody thinks UPS stands for United Parcel Service, but it’s really United Problem Solvers,” explained Lane. She said UPS has done a lot of work over the last couple of years to define its purpose, but that its mission really came to light during the pandemic. “We move the world forward by delivering what matters, and what matters for us has been delivering a billion vaccines,” she said. “It’s really about taking that sustainability focus to everything we do.”
Creating a purpose-driven organization
But while BMO and UPS may have found their North Star, there was a question from Gowing around the problem of “purpose washing,” which is when a business claims they have a purpose because that’s what they think customers want to hear.
With so many more people focused on sustainability, though, it’s hard to “claim” a purpose, said the panelists. However, not all businesses are embracing purpose in the same way. “There’s a difference between the companies that adopt purpose as a strategic decision and flow it down through the entire organization, and those who have a fairly shallow purpose and don’t implement it or operationalize it,” said Stutt.
The companies that are doing this right are the ones that have embedded their purpose into all they do, including in governance documents and workplace policies. Everyone from the chairperson to the chief executive must also be on board. “So even when no one is watching, people are still acting with that purpose,” he noted.
Glynn added that while most companies would say today that they care about more than creating shareholder value, there is still an open question as to how many businesses are truly eschewing the Friedman doctrine, which says a company’s sole responsibility is to its shareholders. “How deep does that purpose go?” he asked. “Does it actually drive what you do, or is there an unspoken purpose of just creating shareholder value?”
Purpose is good for business
Operations that are embracing their purpose are also finding that sustainability is good for business, said Barclay.
Over the last two years, Barclay said engaging in environmental, social and governance (ESG) practices has shifted to incentives from penalties. In a more penalty-focused environment, purpose doesn’t matter – companies simply try and minimize negative outcomes, but that only goes so far. With incentives, businesses are more active, say by trying to reduce their carbon footprint or improve their governance practices, both of which have been shown to have business benefits. “If I do the right thing, then I can build a better business, and I will be rewarded,” Barclay explained.
He’s seen the benefits of incentives first-hand. By embracing its purpose, BMO has been rewarded – with more clients, happier customers, more satisfied staff, and, ultimately, higher profits. “(Increasing) shareholder value is not the challenge,” said Barclay. “The challenge is how do you define shareholder value? If you’ve got a company that’s not successful, then it will fail its community and everything around it. Companies need to be successful, and that means making money, serving their purpose, and serving their stakeholders, but they need to do that in a responsible way.”
Can the current crop of business leaders handle such a transformational shift away from satisfying shareholders to being more environmentally focused and inclusive of all stakeholders? While the panelists admit that thinking more long term will be difficult for those who must deal with so many short-term pressures, they are optimistic. “If we think about what’s good for our business, what’s good for our people, then we will know the right position to take,” said Lane.
Barclay added that purpose isn’t something companies can afford to sit on, as customers, investors and others are already holding businesses to account. “You can lose your social license very quickly if you’re not doing the right thing,” he noted. “Whether that’s actual behavior or how you run your business, the penalties that get put in place, particularly for public companies, if they’re not doing the right thing, are dire and have hard impacts.”
COP26
PART 2
BMO Call to Action at Sustainable Innovation Forum
Michael Torrance November 10, 2021
Calling for Action on Climate Change in Glasgow As world governments met at the COP26 UN Climate Conference in Glasgow, BMO sent its own…
PART 3
Digging Deep on Mining Decarbonization in Glasgow
Jonathan Hackett November 23, 2021
The mining and metals industry, which will be critical to the transition to a low-carbon economy, is facing a pivotal moment of opportuniti…
PART 4
Promising Views Coming out of COP26
Nalini Feuilloley November 24, 2021
"We need to understand that every investment that we make has an impact in the world. There are the positive and the negative, and we …
You might also be interested in
Why Sustainability Is Good Business: Key Takeaways from IEFA Toronto 2024
Building for Tomorrow: Real Estate, Construction, and Sustainability
A First in Western Canada: Avenue Living Leverages BMO's Retrofit Program to Add 179 New Rental Units in Downtown Edmonton
How NASA and IBM Are Using Geospatial Data and AI to Analyze Climate Risks
BMO Arranges Green Financing to Fund New Lawson Centre for Sustainability, Trinity College's Most Significant Build in a Century
BMO ranked one of the most sustainable companies in North America on the Dow Jones Sustainability Indices
Canada Has an Opportunity to Become a Global Leader in Carbon Dioxide Removal
More Companies Have Plans to Address Climate Change Based on Rising Business Importance: Survey Results
BMO Climate Institute Business Leaders Survey: Nearly Half of Business Leaders in the U.S. and Canada Believe Climate Change Has Already Affected Their Businesses, but Few Have a Strategy
How the Energy Sector Is Helping Canada Achieve Its Decarbonization Goals
Why Businesses Need to Accelerate Their Efforts to Fight Climate Change
Transforming the Global Food System to Benefit Investors and the Planet
Banco do Brasil and BMO Financial Group to Introduce First-of-its-Kind Program to Provide Sustainability-Linked Trade Loans Supporting Brazilian Exporters
BMO Donates $3 Million to GRID Alternatives to Provide Solar Energy Solutions for Low-Income Families
BMO Provides Innovative New Sustainability-Linked Deposit Product to Zurn Elkay Water Solutions
Quick Listen: Michael Torrance on Empowering Your Organization to Operationalize Sustainability
BMO and Bell Canada Execute Innovative Sustainability-Linked Derivative Tied to Ambitious GHG Emission Reduction Targets
BMO Named to UN-Convened Group Providing Guidance to Global Banks on Nature Target Setting
Driving Innovations In Tech To Strengthen Climate Resilience With Climate Engine’s Spatiafi, Built On Google Cloud
BMO Celebrates Earth Day with 3rd Annual Trees from Trades Day on its Global Trading Floors
BMO Donates $2 Million to the University of Saskatchewan to Accelerate Research Critical to the Future of Food
North America’s Critical Minerals Advantage: Deep Dive on Community Engagement
Exploring North America’s Critical Minerals Advantage: Global Metals, Mining & Critical Minerals Conference
The Most Valuable Commodity is Trust: ICMM to BMO Global Metals, Mining & Critical Minerals Conference
Rock Legends Reflect on Mining Hits and Misses: Global Metals, Mining & Critical Minerals Conference
BMO Experts at our 32nd Global Metals, Mining & Critical Minerals Conference
Evolving Mining for a Sustainable Energy Transition: ICMM CEO Rohitesh Dhawan in Conversation
Public Policy and the Energy Transition: Howard Learner in Conversation
Taskforce on Nature-Related Financial Disclosure (TNFD) – A Plan for Integrating Nature into Business
Takeaways from the BMO Climate Institute Small and Mid-Sized Businesses Climate Survey
BMO Ranked North America's Most Sustainable Bank by Corporate Knights for Fourth Consecutive Year
Is Green Financing for Nuclear the Next Frontier in the Energy Transition?
BMO ranked one of the most sustainable companies in North America on the Dow Jones Sustainability Indices
BMO Climate Institute Survey Shows Costs and Competing Priorities Slowing Climate Action for Small and Mid-Sized Businesses
Managing and Monetizing Your Transition to a Net Zero World with BMO and Radicle
BMO the Top Ranked Financial Institution on New Global Sustainability Benchmark Announced at COP 27
COP27 in Focus: Will Energy Security and Economic Uncertainty Impact the Climate Transition?
BMO to Invest in Innovative Carbon Offsets from CarbonCure to Permanently Store CO2
RoadMap Project: An Indigenous-led Paradigm Shift for Economic Reconciliation
A Canadian First: BMO and Concordia University Partner for a Sustainable Future with Innovative Sustainability-Linked Loan
Sustainability Strategy and Reporting for Small and Medium Sized Companies: A Discussion at the Conference of Montreal
BMO to Acquire Calgary-based Radicle Group Inc., a Leader in Environmental Services
Investment Opportunities for a Net-Zero Economy: A Conversation at the Milken Institute Global Conference
How Hope, Grit, and a Hospital Network Saved Maverix Private Capital Founder John Ruffolo
Hydrogen’s Role in the Energy Transition: Matt Fairley in Conversation
Key Takeaways on Ag, Food, Fertilizer & ESG from BMO’s Farm to Market Conference
Exploring the Physical and Transition Risks Facing Food and Agriculture
Building an ESG Business Case in the Food Sector: The Food Institute
Forging Ahead in the Energy Transition: Darryl White to Global Reserve and Asset Managers
BMO and EDC Announce Collaboration to Introduce Sustainable Finance Solutions for Canadian Businesses
Retrofitting Canada's Building Sector: Efficiency Canada’s Corey Diamond in Conversation
The Role of Hydrogen in the Energy Transition: FuelCell Energy CEO Jason Few in Conversation
BMO proud to support first Government of Canada Green Bond transaction as joint-lead manager
Tackling Climate Change in Metals and Mining: ICMM CEO Rohitesh Dhawan in Conversation
Op Ed: Government Action Can Help Spur More Home Building To Address Canada’s Housing Shortage
BMO Launches Business Within Reach: BMO for Black Entrepreneurs and Commits $100 million in loans to Help Black-led Businesses Start up, Scale up, and Grow
The Post 2020 Biodiversity Framework – A Discussion with Basile Van Havre
BMO Announces Plan to Partner with Breakthrough Energy Catalyst to Accelerate Climate Innovation
BMO Financial Group Named North America's Most Sustainable Bank for Third Consecutive Year
Mitigating the Physical Impacts of Climate Change with Spatial Finance
BMO Helps Boralex Go Beyond Renewable Energy, with the Transition of its Credit Facility to a Sustainability-Linked Loan
A Global First: BMO Supports Bruce Power with World's First Nuclear Green Financing Framework
BMO ranked one of the most sustainable companies in the world according to Dow Jones Sustainability Indices
The Future of Remote Work and Diversity in the Asset Management Industry
North American Metals & Mining first: BMO helps Sandstorm Gold Royalties achieve ESG goals with Sustainability-Linked Loan
Education, Employment and Economic Empowerment: BMO Releases Wîcihitowin ᐑᒋᐦᐃᑐᐏᐣ- First Annual Indigenous Partnerships and Progress Report
BMO Announces $12 Billion Financing Commitment towards Affordable Housing in Canada
In support of Canada’s bid to host the headquarters of the International Sustainability Standards Board
BMO supports Canada's bid to host the headquarters of the International Sustainability Standards Board
BMO Named to Canada's Best 50 Corporate Citizens Ranking by Corporate Knights
A North American First: BMO Helps Gibson Energy Fully Transition Credit Facility to a Sustainability-Linked Loan
Understanding Biodiversity Management: Best Practices and Innovation
Episode 29: What 20 Years of ESG Engagement Can Teach Us About the Future
BMO Financial Group 2020 Sustainability Report and Public Accountability Statement Now Available Online
Episode 28: Bloomberg: Enhancing ESG Disclosure through Data-Driven Solutions
BMO Ranked Among Most Sustainable Companies on Dow Jones Sustainability Index - North America
BMO investing in a sustainable future with $1M donation to the Institute for Sustainable Finance
BMO Financial Group Reaches Key Milestone in Matching 100 Per Cent of Electricity Usage with Renewables
BMO Financial Group Recognized as One of the World's Most Sustainably Managed Companies in New Wall Street Journal Ranking
Episode 23: TC Transcontinental – A Market Leader in Sustainable Packaging
BMO Financial Group to Source 100 Per Cent of Electricity Usage From Renewables
Episode 07: World Bank: Mobilizing Capital Markets for Sustainable Finance
Episode 06: Responsible Investing – Industry Trends and Best Practices from Canada