Purpose & ESG Are Not Interchangeable; You Need Both | Sustainable Brands (2024)

Purpose and ESG are often conflated. Here, three experts explain what makes them different, why you need both, and how to prioritize the gamut of ESG- andPurpose-related activities.

Consumers, employees, investors and other stakeholders increasingly expectcompanies to adopt both a corporate Purpose and robust ESG (environmental, social and governance) or sustainabilitypractices.

Aside from these expanding expectations, we need the business sector to play amajor role in order to meaningfully address the enormous, complex challengesfacing the world.

Without the private sector’s financial investment, networks and influence, wesimplywon’t.
However, in the effort to redefine the role of business insociety,Purpose and ESG are sometimes competing forattention.It’s not always clear which should be considered first, how the two interrelate,or how they are different.

Often, the two are either discussed in isolation or conflated, leading toconfusion at best and dismissal at worst.

If we have any hope of achieving the United Nations’ 17 Sustainable DevelopmentGoals, the last thing we want is for businessleaders to be lost in a sea of meaningless jargon.

I reached out to three industry experts to explain the relationship betweencorporate Purpose andESG,and how best to prioritize and embed them within the organization:

• Nikhil Bumb — Director atFSG and co-author of The Economist’s “BeyondTrade-Offs”series

• Coro Strandberg — advisor to the United Way Social Purpose Institute andPresident of Strandberg Consulting

• Phil Preston — founder of TheBusiness Purpose Project inAustralia and author of the book, Connecting Profit with Purpose

Which comes first, Purpose or ESG?

Articleafterarticletells businesses to use their Purpose to guide their core strategy.

But focusing on Purpose alone risks ignoring critical ESG commitments that falloutside a company’s Purpose.

Take, for example, a company whose Purpose is to reduce global emissions throughwind energy. Does this mean they can ignore diversity andinclusionamong their staff, or waste and pollution in their supply chain?

On the other hand, businesses are told to improve diversity, equity andinclusion;build a resilient supplychain;and work towards net-zeroemissions,among many other ESG-related goals.

But expecting organizations to do “all things sustainability” risks scatteringtheir attention and diluting progress on their Purpose, let alone businessperformance. No wonder that, when I consult with business owners, I often hear feelings ofoverwhelm.

As one executive at a financial institution expressed to me recently, “Ourcustomers want us to create an inclusive hiring strategy, boycott certainadvertising platforms and use solar panels; all on top of having the bestcustomer service, the best app and the best prices. How are we supposed to do itall?”

As a starting point, Bumb advises, “ESG focus should come from the company’sPurpose.”

That said, Strandbergreminds us that “good sustainability/ESG practices are table stakes for allbusiness: Every business needs to understand its social and environmental risksand opportunities and address them.”

In other words, Purpose can illuminate which ESG areas to focus on; but some ESGcommitments need to be a priority, even if they fall beyond the scope of thecompany’s Purpose.

Preston echoed this perspective: “You could argue that every company should bedoing these things: They should be acting ethically, following all relevantcodes of practice, and complying with legal and regulatory requirements — that’sjust a core and basic requirement for being in business.”

Consensus: Purpose, as a company’s guiding North Star, should always comefirst when making strategic business decisions — including which ESG commitmentsto emphasize. Some ESG commitments, however, must be prioritized regardless ofhow they relate to Purpose.

How are they interrelated?

Many companies think about these concepts somewhat independently.

However, as Bumb says: “Leaders should make sure at least some of their ESGcommitmentsare clearly linked to, and deliver on, the goals set by its Purpose.”

How are they interrelated? Some initiatives driving towards their ESG goals willsimultaneously drive towards their Purpose, and vice versa. For example, arestaurant whose Purpose is to build community and inclusion might set a goal toimprove their employees’ understanding of diversity through an educationalinitiative. This initiative would simultaneously work towards their Purpose andan ESG goal related to improving employee wellbeing or inclusion.

Finding the links between Purpose and ESG will, Bumb says, “enable smarterdecision-making related to strategy, operations and people; and will help acompany deliver on its Purpose and demonstrate performance on key ESG metrics.”

Indeed, setting goals and initiatives to achieve its Purpose will help a companybuild upon the robustness of its ESG strategy as well.

As Strandberg highlighted, “Adopting a socialPurposewill elevate the importance of ESG to the organization.”

Remember that the scope of ESG commitments will be broader than those tieddirectly to their Purpose: “Corporate Purpose is likely to be oriented towards asmall set of Sustainable Development Goals, while managing ESG factors will takeinto account a much broader range of concerns,” Preston says.

Let’s return to the company with a Purpose of reducing global emissions throughwind energy — which gives it a clear focus for the majority of its businessoperations and activities. Its strategy to achieve this Purpose might includethings such as developing wind farms. But it would be entirely prudent for itsESG commitments to include biodiversityconservation,to reduce the potential harms created by the pursuit of its Purpose.

Driving towards its company Purpose with consideration of the most relevant ESGfactors will help ensure the long-term value of the company and its societalimpact.

Consensus: Purpose and ESG strategies are both critical to becoming athriving, resilient business that benefits, rather than harms, society.

How are they different?

Purpose and ESG are clearly related. Sometimes the initiatives associated witheach will even overlap. But it’s important to be aware of their differences aswell.

Preston offers a clear distinction: “While corporate Purpose is about jointvalue creation between business and society, ESG is more about managing downsiderisk — an examination of whether the company is doing the right things from abrand and reputation perspective to keep key stakeholders on side.”

Again, some initiatives might simultaneously do both. Returning to the restaurant focused on community and inclusion, its educationalinitiatives have the potential to create a positive impact while simultaneouslyreducing reputational risks for the business.

Finally, Bumb pointed out one other key distinction: “ESG commitments willevolve over time, whereas a company’s Purpose should endure.”

Consensus: Purpose is about creating societal impact, whereas ESG is focusedon reducing risks to the business.

How to prioritize initiatives aimed at Purpose and ESG goals

Even with the understanding we’ve now gained around these terms, there is such awide range of ESG activities for a company to consider; alongside impactinitiatives aimed at achieving their Purpose, how can companies possiblyprioritize them?

Essentially, each potential priority can be screened against two key questions:

1. Does prioritizing this help us achieve the societal impact reflected in ourPurpose? (Impact focus)

2. If not, does prioritizing this help us reduce risks to our business? (Risk-reduction focus)

The degree to which a company can say ‘yes’ to at least one of these questionswill bring the most important priorities to the top.

Consensus: Ultimately, a company should have priorities that fall into each of thesetwo buckets and be sure to cover key ESG commitments expected of all companies, including reducing your carbon footprint, and improving employee health and safety.

Integrating Purpose and ESG is necessary for every business inthis new era. While integration is no small feat, companies must have a clear understandingof how ESG and Purpose relate and how they’re different.

With the input from these Purpose and ESG experts, we hope you feel moreconfident to take on the challenge.