We've talked a lot already about being purpose‐led and moving beyond words to taking action to become impact‐driven.

Here we're going deeper, much deeper, on that.

And we've stressed time and time again that becoming a subscription‐led or subscription‐based business is all about relationships and belonging as opposed to simply transacting.

Naturally you want those relationships to be long‐term, to be sustainable, and sustained.

And here, we're going to go deeper, much deeper, on that too.

First, let's jump back to purpose and state the obvious: it's very, very hard to measure purpose. By contrast, it's quite easy to measure impacts!

But professionals—particularly accountants—want to measure everything that moves (and everything that stays still too, as well as some things we can't really get our hands on).

And that penchant for measuring things—every thing—sometimes makes life extraordinarily challenging.

That's the case with ESG. And just in case you're not up to date with that acronym, it currently stands for environmental, social, and governance. [Special note: Please do not read into this that we think this measurement process or the focus on it is necessarily cool. In fact, in a May 2022 The Soul of Enterprise podcast, Ron and our colleague Ed Kless focused on ESG and headed the episode (#389), “ESG—We Respectfully Dissent.”]

Here's a key, I think there's a much better use of that acronym for your new subscription‐led firm. It's this:

• Embed
• Social
• Good

Put simply, do what Lynn and Brown and thousands of other businesses are doing, described in Chapter 5.

But since the regular ESG is getting lots of press now (in spite of Ron and Ed's disagreement), let's first go through a quick history lesson on the term.

It starts in 2004 with the late Kofi Annan, then the UN Secretary General, connecting with a large group of (apparently more than 50) CEOs drawn from the financial sector—presumably people we might call heavy‐hitters.

Like many people even way back then, Annan was becoming concerned about the damage we business owners were doing to the environment and social structures. He wanted to find ways to integrate what we now refer to as sustainability into capital markets.

The first outcome of that group was a then groundbreaking study conducted by the Swiss government and the International Finance Corporation. And it was groundbreaking in its simple title, “Who Cares Wins.” Do pause and note that—it's central to the subscription model—you need to really care to make it work. And when you do, you'll see the results it brings you—you'll see that who cares really does win.

That groundbreaking study is where the ESG acronym was first coined.

It looked at environmental issues across the three dimensions of environmental, social, and governance; specifically lower energy consumption, reliance on renewable resources, reducing carbon footprint, employee welfare, relationships with all stakeholders of companies (moving beyond shareholders for the first time), and looking at how those issues could be included in a company's accounting and financial practices.

There were four broad areas covered in the study; how companies:

1. Respond to climate change.
2. Treat their employees.
3. Build trust and foster innovation.
4. Manage the relationships with various stakeholders.

Perhaps not that surprisingly, it had limited impact given the financial climate of the time. That's a climate that's best characterized by events like those shown in The Wolf of Wall Street movie. It was very much (until the Global Financial Crisis of 2008 hit) the “greed is good” time.

Some companies got the lesson early on. And what's now known as ESG investing started to happen.

And that picked up pace when early studies around the 2013/14 period started to show links between an ESG focus and financial results. Businesses who “stood up” for good actually did good financially.

Then ESG or impact investing started to take off. From the initial cynicism we now have a position where ESG funds (impact investment funds) have seen much higher inflows from investors than “traditional” share market funds every year since 2013.

It's estimated that ESG funding now accounts for a total of 33% of the $51.4 trillion of funds under management in the United States. That 33% is projected to grow to 50% in the United States by 2025.

Even rating agencies now have their own ESG indices. And it's becoming increasingly (and rapidly) important.

For example, Reuters reports that shareholders have filed a record 529 resolutions related to ESG issues for the annual meetings of publicly traded US companies so far in 2022, up 22% from the same point in 2021 (Kerber 2022).

Jamere Jackson is the CFO of AutoZone and the audit committee chair at Eli Lilly and Company. In a Wall Street Journal article, reposted on Deloitte's website, he points out that change and ESG issues overall have become business imperatives:

My board and CFO perspectives intersect at many points. As a CFO, I generally look at ESG through more of a shareholder value strategy lens because, done right, ESG goals and actions can help us grow the business and improve competitively—and those goals connect directly to my CFO role. Companies that spend time thinking about how to become more environmentally conscious in a cost‐efficient way have an opportunity to mitigate business risks and improve their bottom lines while serving a broader group of stakeholders. Similarly, a deep commitment to taking care of employees and setting robust diversity, equity, and inclusion (DEI) goals can be a competitive advantage in terms of talent management and brand. (Marks 2022)

Clearly, “normal” financial metrics are inadequate for measuring ESG impact because they focus primarily on monetary aspects.

And as an important sidebar, it turns out that “normal” financial metrics really are inadequate when it comes to measuring growth in your subscription business model growth, too.

In his Winning on Purpose book, Frederick Reichheld and his co‐authors propose a new accounting measure—it's called earned growth. It's the first measure to take proper account of the effect of loyalty and is, we'd suggest, going to be important in the comparison of subscription models.

Earned growth has two components: NRR—net recurring revenue measuring the percentage of revenue coming from customers who were with you last year, and ENG—earned new growth, new revenue coming (essentially) from people who were referred by those existing customers.

You can see more on that in the original Reichheld piece in Harvard Business Review (Reichheld et al. 2021) and in this follow‐up piece by Maxie Schmidt‐Subramanian, the principal analyst at Forrester Research (Subramanian 2021).

But let's get back to the rapidly becoming commonplace now—ESG. And here's an example of just how commonplace it is:

At BDO, we view sustainability as an investment in the strength of our culture, the resilience of our business, and the future of our planet. We are committed to making ESG synonymous with BDO, ensuring that sustainable business practices are integrated into everything we do. We believe we have an obligation to make an impact and do our part to be a force of change—to strive for business that's better than usual—for our people, our clients, and our communities.

And Christopher Tower, BDO USA ESG Strategy and Services Leader and Executive Team Member puts it this way:

We recognize the unique opportunity we have as advisors to the middle market—not only to do our part to advance ESG within BDO—but in our ability to help our clients integrate ESG into their own business models—resulting in not just better business, but in ensuring a sustainable future for us all.

You can see more at BDO's excellent ESG site at www.bdo.com/resources/esg.

In May 2022, Mastercard reported that ALL employees now have ESG targets linked to their bonus pay. The payments processor is extending a compensation model previously put in place for senior executives, which links incentive pay to targets related to carbon neutrality, financial inclusion, and gender pay parity. The new plan applies to all employees starting this in 2022.

And on Earth Day, April 22, 2022, Tien Tzuo (Founder of Zuora) and one of our favorite subscription model proponents and cheerleaders wrote an excellent piece on how we need to focus on the “E” of ESG and be really concerned with sustainability.

In the piece he points out that in 2011, only 20% of the S&P 500 published sustainability reports; today almost all of them do.

He references (as we have elsewhere) Larry Fink and Blackrock (managing over $10 trillion in assets) have dedicated the firm to sustainable investing.

He quotes Larry Fink as saying in an investor letter to CEOs, “As more and more investors choose to tilt their investments toward sustainability‐focused companies, the tectonic shift we are seeing will accelerate further.”

And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company's stock.”

Tzuo continues, “ESG principles aren't just important for our investors, of course. They're also important for our employees, our customers, our kids, our fellow living animals, and ourselves. Clearly, sustainability is not a ‘nice to have’ anymore. It's a fundamental corporate priority” (Tzuo 2022).

I agree. But I want to suggest that ESG as it currently stands is making doing it overly complex. And because of that, things don't get done (you may remember a quote we mentioned earlier on: “Simple scales; complex fails.”).

What we need, I suspect, is something new, something easy, AND, perhaps most importantly, something that makes IMPACT not just an integral part of what you do but also an integral part of what you could choose to do for your subscription model customers, too.

That “something” is a wonderful “tool” for your firm that directly integrates impact into the very core of your firm—it turns the potentially complex ESG we've just spoken of into the very simple definition we gave you at the start of this chapter (well, it's really more of a designated action):

• Embed
• Social
• Good

In fact, you could link this back to the “Standard—Standout— Stand For” story arc we described in Chapter 3. It might look like this:

And you can do that very, very easily—almost effortlessly in fact. You've already seen it in action. It's officially called B1G1: Business for Good. And you can find more details on it right here: www.b1g1.com.

It's a unique and powerful way to “ESG”—embed social good. And it links right back to where we were in Chapter 2, when we talked about the need for a brand‐new story.

When you go to that link, you'll see how it lets you embed social good by creating giving stories, just like you saw when we talked about Lynn and Brown a few pages back. Figure 6.1 is another example from one of the many thousands—this one from Pivot Wealth, advisors in the financial planning space:

Fantastic stories. Stories that really connect.

And with leverage in mind, we wonder what stories your customers will create too. With “belonging” in mind, you might even create what B1G1 calls a hive—a place where all your embedded social good impacts are automatically linked together, impacting and measuring your specific and broad impact on our world together. The potential here really is astonishing in scope.

And you'll see more of that potential in our next chapter, too. Just turn the page ….