Increasingly Important Societal Expectations Have Changed What It Takes For Businesses To Succeed

Society has changed and if businesses want to attract investors, earn loyal customers and sell higher margin products and they want to attract, hire, retain and get the best ideas from their employees - the message is crystal clear

In 1970 Nobel prize winning economist, Milton Friedman gave only begrudging acknowledgement that the 'social responsibility' of business included "... conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom." It is important to remember that this was prior to the creation of the Environmental Protection Agency (EPA), passage of both the Clean Air and Clean Water Acts and when civil rights and equal opportunity were still in their infancy - and women in the United States could not even have a credit card in their own name.

We have come a long way. Today investors, customers and employees (among other stakeholder groups) are keenly aware of issues ranging from climate change to social justice, and they are using those values to make decisions about where to invest, what to buy and where to work.

Investors

Some are attempting to position this massive trend over the last half century as a political agenda being forced on businesses against the will of the people. But the data clearly show that this evolution reflects societal expectations, and that regulation is behind. In fact, than 90 percent of the thousands of comments sent to the Securities and Exchange Commission in response to their proposed climate disclosure rules favor setting a standard against which companies should disclose comparable, consistent and decision-useful information. Even as there was variation as to what this would entail (i.e., questioning the inclusion of supply chain Greenhouse Gas emissions and the level of 'assurance' over these metrics) this represents a resounding call from investors to help clarify and simplify climate related information.

Similarly, as this chart illustrates, the trend in socially responsible investing shows NO CORRELATION to changes in the political environment since President Richard Nixon formed the EPA. What does correlate is increased investment in 'socially responsible' companies following economic shocks (such as the Housing and Covid-related downturns).

Customers

Despite high inflation, sustainability-marketed products took more market share in 2022 than in the previous year, now making up almost one fifth of all sales, according to a new report from Circana and the New York University Stern Center for Sustainable Business.

Again, this is not just a 'fad'. Over the last five years, sustainably marketed goods sales have increased at almost double that of conventionally marketed goods, which has a growth rate for the same period of 4.98%.

And customers are willing to pay more (which ought to appeal to any company wishing to expand its product offering to higher-margin premium products). According to the same study sustainable goods command a 27.6% price premium.

Employees

The Covid-19 global pandemic has a lot of companies rethinking things like remote or hybrid work; recognizing the cost savings of a smaller physical footprint while at the same time facilitating work-life balance and appealing to a large percentage of employees who want to be empowered to enjoy the flexibility - even those who opt to work in the office full time. Prior to the pandemic one company internal survey showed that employees valued the opportunity and option to work from home, nine out of a 1 to 10 scale, with 10 being the most important. Challenging conventional wisdom, there was no statistically different value placed on this flexibility that correlated to gender or age - but very understandably, those with longer commutes (time and distance) tended to appreciate the option more. But again, even those with shorter commutes still valued it highly.

In conclusion, society has changed and if businesses want to attract investors, earn loyal customers and sell higher margin products and they want to attract, hire, retain and get the best ideas from their employees - the message is crystal clear how to do so.