Why corporate purpose is moving to the heart of business strategy

Our M&A survey reveals that executives are building corporate purpose into their strategies, and starting to measure it's impact on long-term value creation.

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olitical and social pressure on companies is rising. The need for corporates to show they are good members of society and are adding value to their people, customers and society has never been greater. Companies have been very good at reporting their financial contributions and providing a clear narrative around customer value. But now we are seeing meaningful movement toward reporting on investment in talent, including inclusiveness and remuneration, and wider social needs.

According to the EY Global Capital Confidence Barometer, respondents have, or are planning to adopt, a range of reporting that goes beyond the purely financial or focused solely on shareholders.

In fact, the best businesses are defined by more than their short-term profitability. They drive broad-based prosperity by creating value for shareholders, customers, employees and society alike. For example, investment in reskilling employees is clearly good for business. But it also benefits employees and equips them for a more successful career, whether within that company or beyond.

Society benefits too, since the economy grows more sustainably with a more highly skilled workforce. And when businesses can make a stronger case that they are creating long-term value for stakeholders across society, they foster trust with wider society. Companies therefore need to find a way to measure and communicate that fully encompassing and compelling long-term value narrative.

Only a small minority of companies have no plans to introduce broader reporting — unfortunately, they could find themselves on the wrong side of this increasingly important debate.

Purpose as a filter for M&A

Just as companies are starting to embrace nonfinancial and purpose-driven reporting as part of their wider value proposition, they are starting to build purpose into their deal strategies.

Future deals will need to be viewed through the lens of purpose. Due diligence will need to be focused on talent and social reputational risks as much as financial, market and customer. Those companies that embrace this new approach to dealmaking fastest will be rewarded in long-term value.

EY and the Coalition for Inclusive Capitalism collaborate on the Embankment Project for Inclusive Capitalism (EPIC), an initiative to identify value drivers important for sustainable and inclusive growth, as well as potential metrics to assess them. The project brought together a collection of participants with both market strength and diversity across the entire investment chain, representing US$30 trillion of assets under management and almost two million employees around the world. Read more.