What is Good Growth?
Investors, Governments and customers are increasingly looking to move their money towards good companies. But are these companies the ones that are committed to sustainability, to inclusivity, to the community or to something else? Where does Corporate Social Responsibility (CSR), Environmental and Social Governance (ESG), Ethics, Profits and all the other myriad of key ideas fit in?
In this article, we will:
· Explain what we mean by Good Growth
· Explain why companies should aspire to achieving it
· Introduce a model that captures all the key terms so you can speak confidently about it at your next meeting.
What is a Good Growth Company?
Put simply, a Good Growth Company (GGC) is one that aspires to grow in a good way. That means it is committed to being a force for good in the world and the more it grows, the greater its positive impact on the world. This can be compared to how companies have grown in the past, where company growth has produced good outcomes but also has produced larger negative impacts on the world. The negative impacts could include greater pollution, more inequality, less ethical behaviour and abuse of market power.
This is not just about becoming a greener company or a fairer company. It is about embracing all the key concepts of being a good company.
Why aspire to it?
Achieving Good Growth is not some new-age dream by environmentalists who do not understand the importance of profits. The concept also includes the pursuit of sustainable profits. Indeed, we are not proposing that profits should be sacrificed to achieve Good Growth. Instead, we are saying that with Good Growth comes greater profits.
One reason why this is so, is quite simple. To do nothing means to accept a greater risk of both falling profits and a declining share price in the future. Why is this? Because investors, Governments and customers are moving against bad growth companies. Let’s look at investors first. In their 2020 report called, “2022 - The growth opportunity of the century
” PWC forecasted that over half of all mutual fund assets in Europe will be held in ESG funds. This is up from just 15% at the end of 2019.
Governments too are exerting their power. There is increased funding for GGCs across the world (for example with the EU €750 billion sustainable recovery fund) and increased penalties for Bad Growth companies whether that is higher taxes on polluting activities, regulations on greater reporting transparency or anti-monopolistic intervention (for example with EU and Australian interventions with the big tech companies).
Finally, there is rising customer demand for better corporate behaviour. At the consumer level, we see it in the Greta Generation. At the B2B level, we see it in increasing demand by customers for real evidence of supplier improvement programs and we see it in new specifications of minimum acceptable performance levels on good growth issues.
So, if you are still in a bad growth mode, you really are facing a Perfect Storm against you.
A Model of Good Growth
We have created a model that illustrates the Good Growth concept (Diagram 1 below).