Positive-impact companies: Toward a new paradigm of value creation – Science Direct

Dec 7, 2020 | Published Books & Articles

by Ignacio Pavez (a), Lori D. Kendall (b), Chris Laszlo (c)

(a) School of Business and Economics, Universidad del Desarrollo, Av. Plaza 680, Las Condes, Santiago, Chile

(b) Fisher College of Business, The Ohio State University, 230 Fisher Hall, 2100 Neil Ave, Office 230, Columbus, OH 43210, USA

(c) Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Ave, Cleveland, OH 44106-7235, USA 

 

The increasingly visible effects of climate change, the degradation of ecological systems, growing income inequality, and high levels of stress and disengagement in the workplace have dramatically increased corporate awareness of the need for integrating sustainability into business strategy. However, the focus of this awareness has largely emphasized finding ways to reduce the firm’s harmful impact from “bad” to “less bad” (e.g., when a company cuts its CO2 emissions by 50%). While this helps firms be less unsustainable, it diverts their focus from creating a more flourishing world, a place where people everywhere live in healthy communities, prosper, and can live life to the fullest. We propose that it is time for leaders to shift their thinking, and for companies to refocus their efforts, from reducing harm to making a positive impact, which we define as increasing economic prosperity while contributing to a healthy regenerative natural environment and improving human well-being.

Currently, an increasing number of companies, such as Patagonia (“we are in business to save the planet”), Starbucks (“100% ethically sourced coffee from farmer to cup”), GOJO (“well-being solutions”), and Clarke (“make communities around the world more livable, safe and comfortable”) have taken the lead in moving from doing less bad to making a positive impact. We call these firms positive-impact companies (PICs) to identify them as a group of organizations that demonstrate a strong commitment to making a positive impact in economic, social, and environmental terms.

 

PICs seek to be as profitable as any other business, but they are purpose-driven. They recognize they cannot make positive contributions unless they are economically viable, but they also want to use the forces of the markets to positively transform the world. PIC’s business models explicitly build on the growing body of research that disproves the long-standing myth that Environmental, Social, and Governance (ESG) performance must necessarily come at a cost to financial performance. For example, a comprehensive study, titled, “ESG and Financial Performance,” documents evidence aggregated from more than 2000 empirical studies seeking to show the relationship between ESG performance and Corporate Financial Performance (CFP). After reviewing the evidence, Gunnar Friede and his colleagues concluded that “the business case for ESG investing is empirically well-founded.” Roughly 90% of studies examined by the authors showed a nonnegative ESG–CFP relation. More importantly, nearly 50% of the articles found a positive relation (40% with neutral or mixed findings), and that relation was stable over time.

Our own extensive research confirms these findings. In our study of 62 firms, where we interviewed 87 C-suite executives and senior sustainability managers from different firms around the world, we found evidence that being a PIC offers benefits that have become increasingly important in the 21st century, such as positive public image, increased ability to attract and retain talent (especially in younger generations), access to novel sources of innovation, enhanced levels of social capital, and improved customer engagement. There are an increasing number of initiatives, such as new legal business forms and new ways of thinking (such as Conscious Capitalism) that encourage firms to become a PIC. Unfortunately, the move toward positive impact is not a simple managerial program with a handful of instructional steps that can be followed in linear fashion. It requires a paradigmatic shift in leadership mindset that makes the transition difficult. Based on insights from our study, this article explains how leaders help their organizations adopt the mindset and commensurate practices needed to become a PIC. 

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