Why Businesses Should Maximise Profit by Maximising Purpose

Amid the recent pushback against ESG?(Environmental, Social, Governance) principles,?chief executives and business leaders have been calling for a return?to a more hard-nosed, profit-driven approach. This reaction isn’t surprising as the framework has not only failed to achieve the desired impact on the environment and society, but it has imposed significant financial and resource stress on businesses already battling market uncertainty driven by geopolitical tensions and rising costs. Opponents of the model also argue that it negatively impacts financial performance because focusing on social or environmental issues distracts leaders from profit generation.

However, I argue that ESG can be a practical framework to achieve both profit and positive impacts on the environment and society, but the model needs adjustments.

In its current practice, the primary issue with the ESG framework is its overreliance on governance (G) mechanisms, such as regulation and financial rewards, to change behavior. Many organizations see these as costly compliance burdens and, consequently, resort to greenwashing and window dressing.

The lack of progress in addressing social and environmental sustainability is mainly due to a lack of genuine commitment. In our recent report “Boards as Stewards of Sustainability: View Across Asia Pacific,” only 21%?of Asia Pacific boards prioritize sustainability, and 78% of directors attributed this inaction to a lack of knowledge — a weak justification in today’s digital era where information is readily accessible. The actual problem is not a lack of knowledge but a lack of will?and intent.

In this sense, the shortcomings of ESG stem from a failure of leadership. Instead of ESG, the focus should pivot towards ESL, with L standing for Leadership, specifically Steward Leadership. Steward Leadership is the genuine desire and persistence to create a collectively better future for stakeholders, society, future generations, and the environment. Steward leaders recognize that their success is intertwined with the planet’s and people’s well-being. They reject zero-sum thinking and focus on long-term solutions that maximize profit by maximizing purpose.

Unlocking benefits

The key to unlocking the benefits of ESG compliance lies in shifting the perspective from viewing it as a burden to recognizing it as a growth opportunity. The World Economic Forum estimates that addressing social and environmental challenges could generate US$10.1 trillion?in new business opportunities annually and create 395 million jobs by 2030.

Our report showed that many board directors regard their primary duty as maximizing shareholder profits. However, in today’s digital economy, 80%of corporate value resides in intangible assets like reputation, leadership, trust, innovation, and talent. Additionally, today’s consumers increasingly prefer to buy from companies that prioritize responsible sourcing and development. If board directors were genuinely focused on shareholder value, they would concentrate on responsible profit-making, building trust, and their reputation as stewards of the planet and humanity. Companies should pursue profits by embracing purpose, recognizing that there will be no business if they fail to address pressing environmental and social challenges. The case is clear: maximizing purpose is critical to maximizing profit.

Throughout history, great wealth has been created by solving society’s biggest problems. Today, those problems include environmental degradation, income inequality, and cyber vulnerability. Take the Tata Group, for instance; its empire was started in 1874 by Jamestji Tata, who famously said, “In a free enterprise, the community is not just another stakeholder in business but is, in fact, the very purpose of its existence.” He provided labor welfare, introduced provident funds and pension schemes for his employees, and set up education funds and community facilities.

During the 2008 Mumbai attacks at the Taj hotel owned by the Tata group, a third of the casualties were Taj employees, and the hotel received?praise for how?staff willingly laid down their lives while helping hotel guests escape. Taj?employees’ actions weren’t prescribed in manuals; no official policies or procedures existed for such an event. Today, Tata Group is a cornerstone of India’s economy, with interests ranging from steel and automobiles to software and hospitality.

In 1761, just outside the city gates of Nuremberg, Germany, cabinetmaker Kaspar Faber set up his own pencil business, a common activity of the carpenter trade at that time. But much of Faber-Castell’s modern success is due to its fourth-generation leader, Baron Lothar von Faber. While quality and innovation were his hallmarks on the way to market leadership, his bigger legacy was to combine business success with social good. His crucial achievement was setting up one of Germany’s first company health insurance schemes almost 40 years before the country’s statutory health system was introduced in 1883. Again, Lothar did this long before his company became the global multinational it is today.

These companies embody steward leadership. They understand the principles of interdependence, long-term view, ownership, and creative resilience. They recognize that the organization's sustainable success relies on the well-being of its environment and community, and they take ownership to make positive contributions while finding innovative solutions to challenges.

A big opportunity

Therefore, maximizing profit by maximizing purpose is a synergistic approach to corporate success. Despite claims that ESG distracts leaders from profit generation, the reality is the opposite. CEOs and business leaders should embrace and leverage purpose and view environmental and social issues not as a burden but as an opportunity for growth, profitability and resilience. Such a strategy will lead to sustainable development and long-term profitability.

The success of such an approach is evidenced by organizations that make it to Steward Leadership 25 (SL25), an initiative by Stewardship Asia Centre , INSEAD Hoffmann Global Institute for Business and Society, WTW and The Straits Times that showcases 25 best projects by for-profit organizations that effectively marry profit and purpose.

From India to Australia, these organizations' leveraged technology and market opportunities to drive sustainable agriculture, responsible waste management and recycling, digital literacy, inclusive prosperity for disadvantaged communities and more. A combination of large companies, Small and Medium Enterprises (SMEs) and social organizations, these companies show that financial success can be achieved by focusing on addressing climate and societal challenges regardless of size.

For instance, a company in India is?providing water purification devices in remote villages, removing the need for boiling the?water. It thereby earns?carbon credits that it sells.

In another case, a food company in the Philippines is equipping small-scale farmers with sustainable agriculture training and enabling market access, boosting the farmers’ income while ensuring long-term food security.

In Singapore, a bank has created a tool to allow SMEs, most of which are resource-poor, to easily access low-carbon finance solutions and green certifications.

SL25 is in its third year, and this year, we are pleased to say that we have received the highest number of applications?ever in 2024. Applications are opened for next year, and if you are interested, please click here .