2. Trend one: purpose-led business

2.1. What is a purpose-led business?

A purpose-led business is one that wants to achieve both positive financial returns and wider social outcomes, balancing profit and purpose.

People we spoke to said that most businesses are motivated by more than just profit. They provide products and services that benefit society, employ others, contribute to taxes and meet regulatory standards. Many also do extra to mitigate their own impacts beyond what is expected. Some actively contribute beyond their own impacts to the greater good.

The idea of ‘purpose’ beyond profit in business is a spectrum. A purpose-led business could range from a company with some charitable initiatives, through to an organisation that is transforming from a traditional capitalist mindset to pursue what Porter calls ‘shared value’ — where business success and social progress are interdependent (Porter & Kramer, 2011).

In this Briefing our interest is in businesses that are shifting to the transformative end of this spectrum where societal impact is integrated into business function and is a key part of the measure of business success. In such companies ‘shared value’ is integrated into all areas – business products and services, the way the business is governed and operated, and the way that the business supports its wider community and environment.

2.2 A visual: purpose-led business over time

For this Briefing we group insights into past, present and future stages:

Pae mahara/the past 1870–2010 Developing ideas about purpose-led business

Pae herenga/the present 2010–2022 Emerging examples of purpose-led business in practice

Pae tawhiti/the future 2022–2050 A range of probable and possible future developments

Figure 3 illustrates some of the ways in which the notion of business purpose has changed over time and indicates some probable and possible future developments. In the next sections we explore this trend and what it might mean for the future of business.

2.3. Pae mahara/the past

2.3.1. Purpose-led businesses aren’t anything new

A focus on purpose beyond profit is not a new concept. In the 1950s and 1960s it was common for businesses in developed economies to consider not just shareholders but everyone who has a stake in the success of a firm (Schwab & Vanham, 2021). This concept of ‘Corporate Social Responsibility’ can be traced back to Howard Bowen in 1953. He explored the importance of a ‘social contract’ between business and society based on the idea that a business functions because of public consent (Bowen, 1953).

These philosophies led to the idea that companies create a mission, vision, values and principles to guide the organisation, aimed beyond delivery of the product or service they offer. By the 1990s, the concept of Triple Bottom Line reporting formalised this into a voluntary code for company reporting, covering the three ‘bottom lines’ of financial, social and environmental performance.

From the 1970s this approach was tempered by economist Milton Friedman’s notion of ‘shareholder primacy’ as the global organising principle for business. Friedman is quoted as saying “the business of business is business” and “the social responsibility of business is to increase its profits” (Friedman, 1970). Friedman argued that businesses are spending somebody else’s money (shareholders, customers or workers’ money) to achieve these social outcomes and compares this to a tax.

2.3.2. Purpose-led businesses aren’t new to Aotearoa New Zealand

While a shareholder primacy approach has been a dominant organising principle for business in Aotearoa New Zealand, Māori businesses have provided leadership in the area of wider purpose beyond profit. Examples of purpose-led businesses included iwi-owned companies formed post Treaty settlements to sustainably invest settlement funds and manage returned land and resources. These companies introduced an ultra-long-term strategic vision into business practices, focused widely on economic, social and cultural wellbeing. The earliest example is the Ahu Whenua Trusts operating under their own management before Treaty Settlements were made.

Māori businesses have always been innovative. They optimise their assets without selling them…This allows these businesses to develop a whole different way of thinking – Federation of Māori Authorities

In 2010, the New Zealand Business Council for Sustainable Development found that corporate responsibility was often woven into the way New Zealand companies do business, but not necessarily using a formalised approach – “for most businesses… they feel it’s the right thing to do… rarely is a small-medium enterprise decision to get involved in a social capacity based on some strategic analysis of the company’s purpose or a business case” (New Zealand Business Council for Sustainable Development, 2010).

Many smaller businesses in Aotearoa New Zealand are purpose-led but act more informally

Many businesses, particularly small and medium enterprises (SMEs), often have more informal approaches to purpose beyond profit. This doesn’t involve measuring or reporting – just doing.

We heard that many small business owners, especially in rural areas, tend to be strongly connected to their local communities. They often use their business as a vehicle to support the local community – such as sourcing products and services from suppliers with shared values, driving local community projects, reducing environmental impact and encouraging staff to participate in volunteer community work (eg volunteer fire brigade). Some businesses noted that doing these things also motivated their employees. The wide range of motivations for small business is illustrated in Figure 4.

Small businesses support their communities, but they might not articulate it in the same way. They are humble and don’t push their purpose… they do more than is seen – Small Business Advisors

2.4. Pae herenga/the present

2.4.1. As stakeholders respond to global drivers, businesses are having to rethink their role and purpose

Shareholder primacy has led to tremendous economic progress but has equally brought about major social, economic and environmental challenges. Expectations are mounting from all types of stakeholders for businesses to play a leading role in addressing these challenges (Table 1).

For many businesses it is about maintaining a social licence to operate, in the face of increasing community expectations and maintaining an authorising environment to work within – Institute of Directors

2.4.2. Young people will drive the change

As noted in Table 1, Generation Z and Millennials, as future business owners, employees, consumers and investors, are seeking a greater commitment from businesses to make a positive societal impact. During our discussions we heard that young people and rangatahi have clear expectations that businesses should empower communities and take a holistic approach to extend environmental and social benefits to consumers.

When it comes to employment, young people we talked to have a strong expectation that “the energy of the business needs to be palpable” and should provide opportunities for people to use their position of influence for good. A strong theme was an expectation from rangatahi that we should move away from western values to a wider integrated and inclusive world view of ‘people, planet and purpose’. They also noted that businesses should step up to proactively help young people to understand viable pathways into business and provide them with ‘bubbles of support’.

This drive for change is reflected in the increase in global movements responding to issues such as “the Me Too movement, Black Lives Matter, Action for Climate Change and indigenous rights. We are entering a time when collective action and impact matters, and the ability to join and participate in causes is borderless and fuelled by access to near instant information… aligned to this movement is the rise of purpose-led organisations and leadership” (New Zealand Education, 2022).

Young people want purpose, they want a north star, and they want developmental opportunities along the way – Global Enterprise Experience

2.4.3. Leadership in purpose from Māori and Pacific businesses

Māori businesses continue to expand the concept of purpose-led business

Māori entities and businesses often incorporate Māori values and principles into their strategic goals and the governance, management and operations of their business (The Impact Initiative, 2021).

Some of the values, principles and concepts identified as relevant and beneficial to Māori businesses include kaitiakitanga (guardianship), rangatiratanga (leadership, ownership), manaakitanga (hospitality), and whanaungatanga (relationship/kinship) (Mill, 2021).

A recent BDO survey of Māori businesses found that kaitiakitanga is central to many Māori businesses and that other businesses can learn much from this aspect of te ao Māori (BDO, 2021). Kaitiakitanga reflects te ao Māori understanding of humans as part of a wider social, ecological and spiritual ecosystem that needs to be in balance in order to thrive.

Intergenerational wellbeing is also central to Māori values, which in turn is reflected in long-term business strategies and approaches. Māori businesses and iwi commonly refer to a “multiple bottom line” approach. This approach balances multiple values and objectives spanning social, cultural, financial, environmental, spiritual and political domains (Mill, 2021). The BDO survey found that Māori businesses measure success using three distinctive measures: happy and healthy whānau, financial performance and cultural wellbeing (BDO, 2021).

Iwi enterprises are predominantly values driven. Not only are the commercial entities guided by their values, but the profit from such entities is often channelled toward social and cultural priorities. For instance, for many Māori land trusts, their obligations to the land, and land preservation, is paramount and will take priority over short-term profits. For many Māori and Iwi businesses, ignoring environmental, cultural or social impacts for financial gain is often not an option to be considered – Whāriki

Te Ōhanga Māori (the Māori economy) is estimated to have grown from $16.5 billion to almost $70 billion in the last 20 years (APEC, 2021). There has also been significant growth and diversification of the Māori asset base (MBIE, 2021). Note: A range of characteristics may lead to a business identifying itself as a Māori business, such as Māori ownership or directorship, employing Māori workers, and/or adopting Māori philosophy, tikanga, principles and practices.

Pacific businesses have also introduced a unique world view into the New Zealand system

Common Pacific cultural values and world views focus on family and collectivism. These values shape how Pacific businesses contribute to both social cohesion and business sustainability. The Pacific Business Trust advises that these values have also influenced business practices, with Pacific businesses predominantly hiring other Pacific people, leading to more employment opportunities. A holistic view of wealth also plays into the way in which wealth (money, time, knowledge or goods) is shared amongst the wider community (Moana Research, 2020).

Being able to create our own ecosystem is important, this involves developing the capability within the business and the connections to others we work with – Pacific Business Trust member

In 2017, there were 1,500 Pacific businesses with employees and 4,100 self-employed Pacific individuals in New Zealand. These organisations (businesses and not-for-profit) produced $3.1 billion in goods and services. The asset base of the Pacific economy was $8.3 billion (The Treasury, 2018).

2.4.4. The global business community is encouraging a shift toward wider purpose

This shift is occurring worldwide, with many business leaders in positions of influence signalling a need for change.

Society is demanding that companies, both public and private, serve a social purpose… [companies] must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate – Larry Fink, CEO of BlackRock, the world’s largest financial asset manager, 2018 letter to CEOs (Fink, 2018)

The purpose of a business has eroded over time to a preoccupation with profit and shareholder value, and there are calls for businesses to redefine their purpose – Colin Mayer, professor at Saïd Business School at Oxford University (Mayer, 2019)

“[t]he purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy – Michael Porter, a professor at Harvard Business School (Porter and Kramer, 2011)

… redefine the purpose of a corporation to lead companies for the benefit of all stakeholders (customers, employees, suppliers, communities and shareholders) – American Business Roundtable statement to 181 chief executives 2019 (Business Rountable, 2019)

Business has a responsibility because it takes advantage of common resources and has contributed to (or in some cases even caused) the social problems that affect everyone – (Eggers & Macmillan, 2013)

[w]e have an opportunity to shift the economy to have a whole economy transition, turning an existential risk into what is, in my view, probably the greatest commercial opportunity of our time, and one that puts people and planet first – Mark Carney, former governor of the Bank of England (Carney, 2020)

The principle of profit maximisation espoused by Friedman has contributed to overall reductions in wellbeing and concentration of wealth into the hands of a few – (Cappelen & Kolstad, 2006)

… a new social contract between individuals, government and businesses that can better respond to changes in technology, demography and the climate, and which provides security for all, investment in capabilities and the fair sharing of risk – Minouche Shafik, professor at the London School of Economics and Political Science, (Shafik, 2021)

2.4.5. But there are also views that business already does enough to contribute to societal objectives

While there are strong incentives for business to consider wider purpose, we also heard that we should not underestimate the significant role that business already plays in society or the role of government in ensuring social and environmental objectives are met.

Companies are not a substitute for effective government. It is the state that ensures markets are competitive and not skewed by monopolies or corruption. Only governments can tax externalities such as pollution and build a social safety-net – (Economist, 2021)

Whether purpose-led or not, businesses have a legal responsibility to pay taxes, pay workers, run a safe and healthy workplace, respect privacy, and be clear on goals and deliverables.

We may want more positive contributions but delivering on basics would be a start – Participant, Long-term Insights Briefing public workshop

Remember making money is quite important – you can’t have extra purpose unless you work out the commercial imperative… The best way for business to contribute is to provide choice for consumers, enabled by an environment of certainty and low compliance costs – Business New Zealand

Employers already do a lot of good for society. The jobs they provide help their employees to also have purpose in their lives apart from just pay – Participant, Long-term Insights Briefing public workshop

2.4.6. The evolution of purpose – recent developments

Social enterprises — the development of purpose driven business

More recently, social enterprises (or community enterprise or impact enterprises) are becoming part of the business landscape. These are organisations that trade to achieve positive social, cultural and environmental impact (The Impact Initiative, 2021). While there is no formal legal definition of a social enterprise in New Zealand, they usually have the following characteristics:

• the majority of income is derived from trading a product or service (this distinguishes them from charities)
• the social, cultural and/or environmental mission provides public or community benefit, often aligned with government priorities, and is the primary purpose of the organisation
• the majority of either expenditure or profit is spent in the fulfilment of the purpose of the organisation.

In 2018 there were up to 6,600 social enterprises in New Zealand, contributing as much as NZ$1.7 billion to GDP and creating a wider impact of NZ$2.9 billion (BERL, 2019). The Ākina Foundation has been influential in this area, for example in convening 1,600 people in 2017 for the Social Enterprise World Forum in Christchurch.

Partnership approaches between businesses

We heard of a number of examples of businesses collaborating and sharing for wider purpose. The Pacific Business Trust encourages an ecosystem approach, supporting businesses to work together to achieve collective objectives, in keeping with a Pacific focus on members of the community helping each other. Participants in our workshop with WeCreate members noted that networks or hubs of like-minded businesses created a whole, or ecosystem, that is greater than its parts – an example given was the digital gaming hub in Dunedin.

It will be good if businesses see themselves more as peers rather than competitors. This would encourage more collaboration – Participant, Long-term Insights Briefing public workshop

A direct example of larger businesses working together to link environmental, social and governance (ESG) performance to financial performance is a A$100 million sustainability-linked loan agreement between the ANZ Bank and Kathmandu (ANZ, 2021). Under the terms of the loan, Kathmandu has committed to various ESG targets and the costs of the loan are adjusted (either up or down) according to how well it then performs against the targets.

More purpose-led businesses leads to opportunities for cross-organisation collaboration and pooled resources towards tackling larger societal issues – Romain Mereau

Shifts in thinking about governance

A number of contributors pointed out that the responsibility to set future direction and purpose in an organisation usually falls to those with a governance role. They noted that considering wider interests in order to maintain the social licence to operate is a fundamental role for company directors who are responsible for ensuring that the business thrives over the long term.

Governance best practice suggests that boards need to lead strategy development for organisations, including businesses – Institute of Directors

The Institute of Directors noted the importance of good governance and is exploring the idea of a “best-interests” statement where directors define the long-term best interests of the company. Such a statement would be a mechanism for a more transparent relationship with stakeholders as it would set out an agreed understanding on company purpose.

In recent years there have also been calls to expand governance settings to better recognise the changing business context. A current Private Member’s Bill calls for modification of the Companies Act 1993 to clarify that directors can take into account wider matter than the financial bottom-line, including the principles of the Treaty of Waitangi, environmental impacts, good corporate ethics, being a good employer and the interests of the wider community. At the time of publication this Bill was at first reading stage.

2.4.7. Formal and informal approaches to demonstrating wider purpose are continuing to develop

Concerns about “purpose-washing”

Many people told us that with an increase in demand from consumers, employees and investors for businesses to develop a wider purpose, there will inevitably be some businesses that make false claims, in order to maintain or build on market position (“purpose-washing”). Our engagements with stakeholders identified concerns that this may be enabled due to a lack of consistency and integrity in the metrics and methods businesses use to report on wider outcomes, and a lack of checks and assurances of accuracy.

The risk of purpose-washing or greenwashing is high especially if capability and capacity trails ambition, and when companies are left to set their own definitions and standards about purpose and impact – B Lab Australia & Aotearoa New Zealand

Reporting is a growing trend for businesses to formally demonstrate wider purpose

To demonstrate wider purpose and to build trust, some businesses are voluntarily reporting on corporate social responsibility (CSR) or Environment Social and Governance (ESG) factors alongside their financial reporting. This report is often called a “sustainability report”.^[1] Sustainability reports cover a broad range of factors (eg carbon emissions, waste, health and safety, diversity, business ethics and tax transparency).

Although sustainability reporting is increasing in Aotearoa New Zealand, our companies have been slow to improve the quality of their reporting compared to global organisations. See Box 8.

Sustainability reporting frameworks are evolving rapidly and are not perfect

There are efforts to consolidate sustainability reporting frameworks to bring greater consistency and coherence. For example:

• An International Reporting Framework (presented at the United Nations Climate Change Conference COP26) is aiming to provide a global baseline for climate-related and broader sustainability disclosures.
• The International Financial Reporting Standards Foundation’s International Sustainability Standards Board has published draft sustainability and climate-related standards for reporting (IFRS, 2022).
• In Aotearoa New Zealand, the External Reporting Board sets reporting standards for accounting, audit and assurance, and climate including the disclosure requirements for large listed debt and equity issuers, and for large financial sector entities under the Climate-related Disclosures and Other Matters Amendment Act 2021.

Many businesses are interested in undertaking sustainability reporting, for example a BDO survey of Māori businesses noted that there was growing keenness for a specific tool to help them manage and report on ESG factors, with many saying they would use such a tool if one were available (BDO, 2021).

Guidance is being developed for businesses to help with sustainability reporting. For example, the Global Reporting Initiative provides standards and best practice for impact reporting and the United Nations (UN) provides a toolbox for businesses to act on and report against the UN’s Sustainable Development Goals. The Value Reporting Foundation is now consolidated into the IFRS Foundation and also provides methods and tools to help businesses integrate their values into their reporting systems^[2].

Globally, climate is the current focus for reporting but broader sustainability topics are also high on the agenda. Entities are looking for ways to demonstrate their creation of value and impact beyond a monetary perspective – External Reporting Board (XRB)

There is a wide range of certification options to choose from

Businesses that measure and report on their impact are also seeking to provide evidence to support their claims that they are having a positive impact on social objectives. They can use independent auditors and certifiers to do this. This helps businesses to differentiate themselves in the market and build trust. There are many certification options:

• Certified B-corporations are businesses that meet high standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose. Globally there are over 4,600 B-corporations, the majority of which are small to medium-sized businesses. In New Zealand there were 64 B-corporations as at June 2022 with an additional 60 in the process of becoming B-corporations, compared to 22 in 2019, and 1 in 2014. New Zealand examples include KiwiBank and Ecostore (B Lab Global, 2022).
• Other independent certifiers offer certification of sustainability, traceability, and cultural and ethical practices to help businesses prove their commitment to their chosen wider purpose. These labels range from:
  • Comprehensive labels – eg Environmental Choice New Zealand focused on whole lifecycle assessments of products, offered by the NZ Ecolabelling Trust
  • Climate labels – eg CarboNZero, offered by Enviromark
  • Comparative labels – comparing with other similar products, eg the Energy Star NZ energy efficiency mark, offered by the Energy Efficiency Conservation Authority (EECA)
  • Production labels – verifying a production process, eg organic produce labels
  • End of life labels – eg the Australasia Recycling label, which can be expected to develop further as circular economy practices develop
  • Source of origin labels – traceability and source of origin, eg Marine Stewardship Council fishery labels
  • Social or ethical labels – ethical behaviour of traders, eg Fairtrade.
• Industry certifications offered by industry associations, eg QUALMARK for the tourism industry covering sustainable, cultural and ethical practices.

Despite these developments, we heard during our consultations that many businesses, especially smaller ones, are deterred from adopting sustainability reporting and certification practices because of the confusing array of options, high compliance costs, and the time and technical expertise required.

2.5. Pae tawhiti/the future

In the remainder of this section we suggest a range of ways in which purpose-led business could develop, assuming a status quo government response.

2.5.1. Probable future: The most likely future

2.5.2. Possible futures: Futures that could happen given the bounds of uncertainty

We’ve added a third type of future to stretch ideas about what kind of change might come about as a result of businesses shifting their focus from profit to purpose. This is built on our observations of current trends, and incorporates our exploration of blockchain technology in the next part of this Briefing, which demonstrates that new technological tools will enable businesses to develop more decentralised and networked governance systems.

I am optimistic that we can go down the more socially responsible and accountable route… as other possible futures belong in dystopian fiction – Jennifer Ross

2.6. So what? Implications for productivity and wellbeing

In our consultation on these possible futures, the people who we talked with overwhelmingly agreed that there is likely to be a steady growth in purpose-led businesses. We briefly explore some implications of this trend for productivity and wellbeing in Table 5 below.

2.7. Now what? Some strategic choices for government

2.7.1. So far, government action has been limited

Action at government level appears to be limited. In recent years, some countries have enacted laws introducing mandatory corporate philanthropy and mandatory governance structures, and making Corporate Social Responsibility a director’s duty. The effectiveness of these approaches is unclear. “At least for now, the major function of the mandatory CSR laws appears largely expressive rather than regulatory or adjudicative” (Li-Wen, 2020).

Following the COVID-19 pandemic, as many countries “build back better”, there have been calls for governments to consider ways they can tap into the willingness of purpose-led businesses to assist with recovery. For example, in July 2020, the Social Purpose Institute wrote an open letter to the Canadian Government to accelerate and scale social purpose business in communities across Canada (Social Purpose Institute at United Way, 2020). There is some action internationally aimed at encouraging more social enterprises. For example, Australia is investigating a national social enterprise strategy.

To date, New Zealand governments have not taken a systematic approach to supporting business to build purpose into their business models, but have supported some initiatives:

• Some efforts have been made to upskill and build capability, for example information for purpose- led companies is provided on the government’s business information website, business.govt.nz. B Lab Australia and Aotearoa New Zealand is also working with New Zealand Trade and Enterprise, the Ministry for the Environment and business.govt.nz to scale up a pilot programme, ‘Business for Good’ which trains business owners and decision makers to measure and improve their impact.
• Government procurement processes now include priorities and assessment of broader outcomes (www.procurement.govt.nz/broader-outcomes/).
• Companies can deduct the total amount of donations to approved donees from their yearly taxable income.

New Zealand has also seen calls for governments to take a stronger role in encouraging businesses to be more purpose-led. In April 2021 the Ākina Foundation published findings from a social enterprise sector development programme, containing 15 recommendations on ways that governments could encourage the growth of social enterprises, including through social procurement, impact measurement, impact investment and tools and support (The Impact Initiative, 2021). In a set of essays about reimagining business, Moe also explores the importance of encouraging purpose in business (Moe, 2021).

2.7.2. Government has strategic choices about its role

The question now is – is it enough that business continues to steadily move towards purpose-led approaches – or should we do more to leverage the benefits of this trend for future productivity and wellbeing?

If future decision makers want to shape and influence this trend, we have presented a spectrum of options depending on whether decision makers choose to support, incentivise or drive change. The options are not discrete “either/or” options, nor are they a complete list of possible options. They have been generated through ideas suggested by the wide range of people who participated in the development of this Briefing. They are also not policy recommendations; any government would need to explore these (and no doubt other) options further before making any decisions.

The contribution of purpose-led businesses to government’s goals should be recognised – Ākina Foundation

2.7.3. What the people we talked to thought about the different choices

We heard a lot of feedback on the possible role of government in encouraging this trend in future, should it choose to do so.

Should government support awareness and information?

All submitters would like to see the government play a more active role in supporting purpose-led business with tools, information and education, particularly for SMEs, for example highlighting success stories to inspire others. Many agreed that best practice from Māori businesses and social enterprises could be shared more widely.

Government also needs to provide more education about different business models rather than purpose-led business having to put money towards helping people understand their model – Edmund Hillary Fellowship

Businesses need support in switching to more sustainable operating models (many don’t know where to start) – Environmental Choice New Zealand

Many contributors would like a government-driven common approach to measuring and reporting on impact for purpose-led business. Some contributors suggested using existing organisations and infrastructure, such as the External Reporting Board, to assist with this. Others noted that international standards should be followed to reduce transaction costs.

We can’t change what we don’t measure, and there is currently a skills gap in business around impact measurement and management… Businesses need to know what kind of data to collect and how to go about it in order to understand their impacts and take steps to improve them — otherwise efforts to improve could be futile – B Lab Australia & Aotearoa New Zealand

Some contributors went a step further and suggested that impact could be built into financial reporting, even ultimately feeding into taxation and other government systems.

Build purpose into the balance sheet and core ways of working – Redvespa

People also noted the importance of quality reporting to reduce the chance of purpose-washing, and the role that government has to ensure that businesses do not make false claims that could reduce trust and therefore the overall benefit that might accrue from businesses participating in solutions.

Any reporting or certification programme must be well-considered to avoid becoming a misleading marketing tool (like greenwashing) — Ākina Foundation

There were differences in view as to whether impact reporting should be voluntary or mandatory for business. Contributors cautioned that future decision makers should be mindful of the administrative burden associated with reporting particularly for Pacific and Māori businesses, and also for SMEs.

I have a serious concern about the implications of measuring, and the burden of any reporting and regulatory requirements. Reporting can be expensive and a challenge – WeCreate Workshop

Most contributors agreed that government could play a useful role in bringing people together or partnering for collective impact. Many talked about governments creating an ‘ecosystem of support’ where government works with business to set collective strategy and provides the infrastructure for businesses to collaborate with each other to deliver on the agreed social objectives, in partnership with government.

If the government were to play a role in supporting purpose-led business in New Zealand, we consider it could most effectively do this by using its convening power (along with business peak bodies) to bring businesses together to help develop and embed an innovative, flexible, purpose-led business culture in New Zealand. Our experience suggests such a culture would not only improve engagement and performance among existing staff, but could help attract talent from around the world – Fonterra Co-operative Group Limited

Government can play a role in bringing everyone together. Government can provide space for collaboration, coming together, like hubs which allow joint efforts of multiple people/businesses – WeCreate Workshop

All businesses in a region or a city are part of one ecosystem, or as it is also referred to as “business landscape” and encouraging or sustaining one part of the ecosystem will have positive impacts on other parts – Rebel Business School Aotearoa

Government has many programmes that might benefit from tapping into the willingness of purpose-led businesses to help solve difficult problems. Submitters noted that government currently does not actively integrate and align government programmes where there is synergy with purpose-led business. They noted that such an approach requires a mindset shift and changes in policy capability, including new ways of organising within government, and working across government, business and community sectors.

There is siloing in government – we need a systems-based approach and this has to be across the whole of government – Go Well Consulting

Should the government actively incentivise the growth of purpose-led business?

The people we talked to were also generally supportive of governments considering incentives to encourage purpose-led businesses (eg grants, funds, tax incentives) as they see these businesses as supporting government to achieve its outcomes. From some quarters, particularly those already working in the social impact space, there were calls for better access to finance and capital, as targeted funding to encourage purpose-led businesses is not easily available.

Innovative “for purpose” business models find it hardest to attract low-cost non-extractive investment and capital when they are starting out and entering growth – Red Hat Impact (Australia and Aotearoa).

To create growth in this sector, the government needs to change the present legal framework (including taxation incentives) to encourage more investor funding into this sector, as we see in other countries – Dr Ani Kartikasari, Director, Yunus Social Business Centre, Lincoln University

There were mixed reactions to the idea that the government could use its procurement processes to encourage purpose-led businesses. While some thought that “responsible impact procurement” could help government to be a role model and achieve a range of objectives, others cautioned that this may narrow the pool of suppliers due to the costs for businesses of measuring and monitoring impact.

Government can play its part through role modelling and responsible procurement – Participant, Long-term Insights Briefing public workshop

Should the government drive change?

Many submitters were keen to see the government take a more strategic role, working with industry to set the overall approach and direction, and develop a more purposeful direction for business in Aotearoa New Zealand.

The government of the day needs to work more collaboratively with our business community to find solutions and create a framework to enable greater momentum to achieve these outcomes – Roz Henry, Cooperative Business NZ

While some contributors were keen to see the government mandate change to drive purpose-led business, most cautioned that mandatory approaches may not be effective as purpose “must be born from a desire to create broader value rather than from a short-term compliance culture” – (Institute of Directors).

Any attempt to “regulate” for a social purpose could backfire. Regulation takes away the opportunity for businesses to compete and innovate to achieve a social outcome – Andrew Jackson, Te Herenga Waka Victoria University of Wellington

Mandating purpose-led business could harm the “unseen” and unrecognised social contributions of the small businesses – Small Business Advisors

Those already working in social impact businesses noted that current business structures are presenting challenges for purpose-led businesses. For example, many social impact companies we spoke to have to form both a charity (to be able to take advantage of tax benefits and funding sources) and a limited liability company. This increases overall compliance costs and is a disincentive to becoming purpose-led (Moe, 2017). Some also noted that in the future, the current legal infrastructure may not support new models of doing business such as those that utilise new technologies to combine and self-organise at scale.

The existing continuum is between charities at one end and profit-focused businesses at the other. In between these two extremes there is a wide range of different businesses with varying levels of community and profit focus – Flaxroots

Social impact businesses need a fit for purpose legal structure and vehicle that supports their business model – Edmund Hillary Fellowship

What is missing is the tools to enable businesses to establish relationships with one another or to self-organise with one another at scale or digitally/non-linearly – Aletheon

Contributors also noted the critical role of good governance in driving purpose in businesses and the need to encourage directors to look beyond short-term profit and to consider the best interests of the organisation over the long-term, as this may automatically lead directors to think about building in wider objectives. There were mixed views about whether this should remain voluntary or whether to mandate requirements to incorporate purpose into company constitutions.

The opportunity to build board capability to embrace stakeholder governance and to be accountable for the outcomes of their business is crucial for unlocking the potential of purpose-led businesses in driving an impact-focused economy – B Lab Australia & Aotearoa New Zealand

Company constitutions should include a section about their mission and have them report on it – Steven Moe, Parry Field Lawyers

Directors as governors need to be focused on their organisation’s purpose and this could be supported by a “best interests of the organisation” statement that defines long term direction and purpose – Institute of Directors

Footnotes

[1] | For a more detailed overview of sustainability reporting see:

MBIE, International Developments in Sustainability Reporting [PDF, 1.6 MB], Occasional Paper, June 2021.

[2] | Integrated reporting(external link) – IFRS Foundation

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