The cascading and intersecting crises of the past few years have put corporations under scrutiny as never before, from investors, consumers, employees and regulators alike.
The Covid-19 pandemic, the climate emergency and the war in Ukraine – which has caused one of the largest refugee surges of modern times and exacerbated the cost-of-living crisis with food and energy price increases – have created spin-off impact on all areas of society. These events have jeopardised the United Nations’ 2030 Sustainable Development Goals for more resilient, peaceful and equal societies.
Companies acting with empathy and purpose, for instance supporting relief efforts driving economic and humanitarian recovery, have been highly applauded. The ones harming the community or putting their own self-interests and profits before those of society and the planet, have been named and shamed.
“Firms have had to rethink their governance through aligning strategy, purpose and brand to better reflect the impact of changing social and environmental drivers,” says Accenture’s wealth management leader for Europe Ian Woodhouse.
“The trend is towards firms tracking and delivering against a broader set of metrics that go beyond just the financials and also cover progress on inclusion, diversity, fairness, sustainability, talent and other metrics, which are designed to serve a broader set of stakeholders and show progress and impact on society,” adds Mr Woodhouse, referencing findings from the consulting company’s recent research. “This is a long-term structural trend as opposed to a short-term cyclical one.”
The paradigm shift, from shareholder to stakeholder capitalism, means all stakeholders’ interests are considered, not just because this is politically correct, but because it marks the only path to long-term competitive advantage.
The problem is that priorities and expectations of different stakeholder groups are not always in sync. “Managing this divergence is certainly a challenge but determines the ‘licence to operate’ companies are given by their various stakeholders,” says Julius Baer’s chief communications officer Larissa Alghisi.
Nowhere to hide
Lack of trust is one of the key drivers fuelling public demand for purpose-led brands. “In a media-savvy world, the public is quick to spot any distance between what a company is and what it says it is,” explains business strategist and branding expert Helen Westropp. “Good news may travel fast, but bad news seems to travel even faster. Stakeholders can easily spot virtue-signalling and greenwashing. Social media means customers have more power than ever to lay open the bad, or good, things brands do. This means people rely more on social networks for information about brands.”
Growing interest in sustainability pushes firms to have a purpose and prove they are investing in the future. Not only do they need to establish sustainable goals, but need to show “they are serious and not just paying lip-service to sustainability”, says Ms Westropp. This means, for instance: turning away fossil fuel firms that do not provide carbon offsets; investing in renewable energy or eco-friendly companies; and declining good business from armaments firms and airlines, which offer nothing but profit.
The shift in behaviour and attitudes is a driving force towards purpose. Even if before Covid-19, millennials showed interest in making the world a better, fairer place; this attitude seems to have spread further across generations post-pandemic.
Following the release from lockdown restrictions, and with a growing worldwide economic crisis, consumers and employees are looking for their own sense of purpose. They increasingly seek brands and organisations, committed to the same causes, with whom they can align their talent and values.
This concept is recognised by private bank bosses too. “In the same way we look to employ people from diverse backgrounds to enhance how we grow our business, candidates in turn are looking to work for a company that holds the same values and has the same longer-term objectives and purpose as they do,” says Debbie Wills, Standard Chartered Bank’s head of wealth management for Europe.
For many customers, choosing the right partner is not just about cost or capability but also the core integrity of the brand and what they stand for, she adds. The institution recognises that a purpose can clearly define the culture of the company and how it influences both society and the environment. “When our communities thrive and prosper, so do we,” says Ms Willis.
Among others, Standard Chartered promotes a global initiative to tackle inequality and promote greater economic inclusion, aiming to raise $75m between 2019 and 2023 to empower the next generation to learn, earn and grow through programmes focusing on education, employability and entrepreneurship.
“It will become increasingly more difficult for firms that do not put social sustainability at the forefront of their business models to be rewarded in the future,” notes Ms Wills. “This is especially true where clients have a choice between those with a clear purpose which aligns with their own and those that don’t.”
Attention to employees’ mental and physical wellbeing has also increased. “The issue of mental health has become more ‘mainstream’ and the heightened sensitivity of employers is in my view one of the beneficial effects of the pandemic,” believes Julius Baer’s Ms Alghisi.
The Swiss bank was already offering mental health first aider courses in various locations pre-pandemic. Today, more than 150 employees have taken the course, while in some offices the bank trains relationship managers on the mental health challenges clients may face.
While the pandemic brought employee wellbeing and mental health to the forefront, the commitment to employees’ health and wellbeing should be “engrained in company culture”, believes Standard Chartered’s Ms Wills. Along with diversity and inclusion initiatives, it allows employees to bring “their whole selves” to work, helping them thrive and ultimately enables firms to better serve their clients.
Along with some competitors, the bank offers employees free fitness classes, mental health first aiders and a workplace mental health platform, services which are also available on a mobile app.
Environmental, social and governance (ESG) is a major focus area for European wealth managers, according to recent research from Accenture, with 80 per cent of executives agreeing their firm’s commitment to ESG and responsible investing will be a “major priority” for clients by 2025. They also recognise that by making their business models more purpose-led, responsible and rooted in ESG values, they could strengthen their appeal to both the next generation of clients and relationship managers.
But having sound sustainability records is particularly important for wealth managers to be credible in pushing sustainable investments to their clients. Institutions need to embed sustainability throughout the organisation, have credible and comprehensive goals backed by carbon and broader ESG business intelligence across the value chain, believes Accenture’s Mr Woodhouse.
Sustainability needs to be driven from the top down, with executives effectively communicating their vision and fostering a culture and governance around these values, which must be sound and endorsed by all employees, including, crucially, the adviser workforce.
“Private banks need to educate advisers so they have a deeper understanding of ESG investments and can communicate these investments and their benefits clearly to interested clients,” says Mr Woodhouse. This includes a deeper understanding of organisations’ sustainability targets, particularly those featured within ESG funds and other investment vehicles.
To meet the level of capabilities required in the future, 71 per cent of firms will need to speed up the upskilling of advisers by 2025, according to the firm’s research. Private banks also need to improve their sustainability reporting and disclosures to help prevent greenwashing and re-orientate capital toward more transparent and sustainable investments, adds Mr Woodhouse.
Mind the marketing gap
Yet, misleading ESG practices have tarnished the brand of several financial institutions, including large corporates such as DWS and HSBC. Global lenders such as ICBC, JP Morgan Chase, Bank of America and BNP Paribas have been funding major agribusinesses linked to deforestation, which is a major source of carbon emissions, indicating the huge gap to be bridged between banks’ climate-friendly marketing and their practices.
“Any brand is only as good as the promises it keeps, and in today’s highly transparent world this is even more important than ever,” says Julius Baer’s Ms Alghisi.
Yet, benefits from building a purpose-led brand are numerous. Research shows that purpose-led brands have the potential to create stronger and more resilient customer relationships, which translates into more sales and greater customer lifetime value. “Purpose also bolsters confidence in a brand, providing an extra layer of protection from any – almost inevitable – trust incident and ultimately protects the bottom line,” explains brands expert Ms Westropp.
Moreover, studies show purposeful companies outperform the stockmarket and bounce back quicker during more turbulent times. “Putting purpose-driven investing at the heart of its culture, clearly differentiates a bank in the crowded and monotonous private banking sector,” she adds. “It aligns the bank with customers’ values, supporting customers in becoming who they want to be.”