Corporate purpose and sustainability (often referred to by the acronym of ESG for environmental, social, and governance) are now part of the mainstream lexicon in the corporate and investment communities. The two terms are often used interchangeably as synonyms. This is wrong. Purpose and sustainability are related but different ideas. Purpose comes first. Sustainability can either contribute to it or can detract from it.
As one of us (Mayer) has written, the purpose of a company “is to produce profitable solutions to problems of people and planet,” while at the same time “not profiting from producing problems for people or planet”—a failure in sustainability. Companies that are making investments in sustainability while failing to produce profitable solutions to people and planet are also failing in purpose. Companies that are profitable while degrading the environment and society are focused on profits, not purpose. Danone is an example of the former and ExxonMobil is an example of the latter.
|High Profitability||Low Profitability|
|High Sustainability||Purpose Company||Financially unsustainable Company|
|Low Sustainability||Socially unsustainable Company||Walking Dead|
Danone, famous for its commitment to sustainability, took this one step farther by converting to an enterprise à mission in July of 2020 with a 99 percent shareholder vote in favor of this move. Under this legal structure the company commits to social and environmental goals which it is obligated to meet. This structure is not intended to force a trade-off with profits; rather it is seen as a way of ensuring the ability of a company to generate them over the long term. Three years previously Danone North America was created as a Public Benefit Corporation, the U.S. equivalent of the enterprise à mission.
Over the past few months, much has been written about the ouster of Emmanuel Faber as the Chairman and CEO of Danone in March 2021 , with many saying it was because two activist investors, Artisan Partners and Bluebell Capital Partners, didn’t like the company becoming a beacon for stakeholder capitalism by converting to an enterprise à mission. Some worried that these two investors, holding around six percent of the company’s shares, were after short-term profits at the expense of sustainability. Mary Johnstone-Louis and Charmian Love have written that this is a vastly oversimplified interpretation and further argued that the relationship between profits, people, and planet needs to be set in a broader systems context. We’ll come back to this point later.