Perceptions around the role of business in society are shifting rapidly. The US Business Roundtable has launched a ‘new’ definition of the purpose of corporations, and the Financial Times, British Academy and many others are also questioning the current business context and recognising the need for change. As the British Academy succinctly notes, we need business to “solve the problems of people and planet profitably, and not profit from causing problems.”
Meanwhile, barely a week goes by without a large corporate announcing targets to reduce its impact on people and planet: BP, Royal Bank of Scotland, Lloyds Banking Group, Microsoft and Sky are just a few examples from recent weeks. As humanity faces a number of unprecedented risks – from the biological to the technological – and as a growing body of evidence indicates that integrating environmental, social and governance (ESG) criteria makes good commercial sense, this hardly feels radical.
As politics becomes increasingly polarised and policy makers find themselves immobilised by supposedly irreconcilable differences, businesses clearly have a vital role to play in driving change. So, how has our thinking about sustainability and business evolved over time, and how should it continue to evolve if business is to meet the challenges of the 21st century?
Colin Mayer provides an interesting overview of the history of business in his recent book Prosperity. He argues that a strong sense of social purpose has been at the heart of business from the very beginning. Indeed, the meaning of the word ‘business’, Mayer tells us, is an important indicator of the original intent behind early corporate enterprises:
“In English and Italian company and compagnia come from cum panis ‘sharing bread together’; in Swedish, näringslivet derives from ‘nourishment for life’; in Chinese, 生意 means ‘giving meaning to life and vitality’; in Korean, [business] means ‘causing karma’.”
Whilst the track record of early corporations was far from perfect – one only has to think of the slave trade and corporate involvement in colonial expansion – their social license to operate was tightly controlled through the annual renewal of corporate charters. Things changed, however, as we moved towards the 20th century.
The US Supreme Court’s decision in 1886 in the case of Santa Clara County v. Southern Pacific Railroad Co. came (by a convoluted path) to be interpreted as having awarded corporations the same rights as individual citizens under the US Constitution. Subsequent caselaw, often referencing this case, has progressively weakened society’s ability to control corporate activities. Around the same time there were also rapid changes in ownership structures, as long-standing family businesses, such as Cadbury and Barclays, began to relinquish control to external investors.
All this meant that business started to be seen as separate from society. Quite quickly, corporate life became fixated on maximising shareholder value at all costs. This, coupled with the growing complexity and volume of products being sold through a rapidly industrialising economy, meant that social and environmental ills rapidly followed.
The post-war years saw the start of the ‘great acceleration’ and a rapid rise in neoliberal economic ideologies, promoted by the likes of Milton Friedman, Friedrich Hayek and Ayn Rand. Their ideas came to prominence in US economic and political discourse in the late 1970s and continue to exert a strong, but diminishing, influence in business circles.
The 1980s saw rapid globalisation as western companies began offshoring their manufacturing to countries with much lower social and environmental protections, with the focus squarely on profit maximisation at the expense of broader stakeholders. By processing and manufacturing products well beyond the critical gaze of western consumers, businesses could externalise the costs onto natural systems and communities that had little chance of resisting; a clear case of profiting from causing problems.
More than the bottom dollar?
As business pulled away from the society of its customers, pressures to rein in some of the more damaging aspects of corporate practices began to grow. Businesses suddenly found themselves in the firing line and needing to respond to accusations of poor labour and environmental practices abroad (protests against Nike and the lengthy McLibel case against McDonalds being two well-known examples from the early 1990s).
In the mid-1990s, John Elkington introduced the concept of the triple bottom line of ‘people, profit and planet’. One of the first sustainability-related frameworks aimed specifically at businesses, it is still used and referenced today by many companies attempting to integrate sustainability within their business practices.
The problem with the triple bottom line approach is that the scales have tended to fall in favour of shareholder profits, with only incremental improvements being made across other spheres: the bottom line has remained stubbornly singular with the push for profit meeting a light shove in favour of people and planet. It effectively leads businesses to ‘be less bad’, but fails to drive the necessary systemic shifts so urgently needed to rewire the economy along sustainable lines. Just last year Elkington provided a stark reflection on his own framework, suggesting that the triple bottom line approach needs to be “recalled”. He noted that
“none of these sustainability frameworks will be enough, as long as they lack the suitable pace and scale — the necessary radical intent — needed to stop us all overshooting our planetary boundaries.”
A problem shared
The idea of businesses doing their ‘fair share’ or ‘creating shared value’ are relatively new concepts sparked by sustained criticism of the financial sector, and business more generally, following the 2008 financial crisis. Nedbank, for instance, launched its Fair Share 2030 initiative in 2014 and Nestlé continues to frame its sustainability aspirations around the idea of ‘Creating Shared Value’.
The idea here is to find ways to deliver shared / integrated value – that is, to optimise stakeholder value (where the environment and society are key stakeholders) rather than simply maximising shareholder value at all costs. It is subtly different from the triple bottom line approach, but in practice tends to have similar results.
Whilst there has been an explosion of metrics and measurement tools for helping companies report on environmental and social issues, the challenge of quantifying any given company’s ‘fair share’ remains an issue (although fairly robust approaches are available for climate change related information, e.g. Science Based Targets). The fair share approach has gained traction among a select number of leading corporates, but much of the effort appears to have been focused on addressing social issues rather than responding to the fact that we are exceeding planetary boundaries.
If we are to address the challenges of the 21st century, more radical, transformative change in our approach to doing business is likely to be needed.
A positive outlook?
The Net Positive Project, convened by Forum for the Future, sees net positive as being “a new way of doing business which puts back more into society, the environment and the global economy than it takes out.” While the term ‘net positive’ and its practical applications are still loosely defined, it aims to set an ambitious new context for business in light of the Paris Agreement and the UN Sustainable Development Goals, one in which corporations are an integral part of the solution.
It also recognises that the scale of the challenge and inertia in the system means that we have to do more than our ‘fair share’ and go beyond ‘net neutral’. It is about business giving back to society and nature in meaningful ways, and playing an important role in restructuring economic systems through effective policy engagement and engaging stakeholders across their value chains. IKEA, for example, has set itself targets around being ‘climate positive’, whilst the developer Hammerson has adopted an ambitious strategy to become net positive across four priority areas by 2030.
In recent years, significant distrust of corporations has forced many business leaders to look beyond profit maximisation, and to question why their organisations exist and formulate purpose statements to articulate this. For example, DSM’s purpose revolves around “Creating brighter lives for all”, while Unilever sees its purpose as “Making sustainable living commonplace.”
Creating shared value and making commitments to deliver positive outcomes does not come without a clear sense that it is the right thing to do, both from a commercial and an ethical point of view. It requires clarity of purpose and clear leadership. Over the last few years, a growing body of literature has started to emerge around the idea of corporate purpose and its links to sustainability.
Increasingly, business leaders are breaking from the past and providing a clear demonstration that we maybe entering a new paradigm, albeit slowly: one in which businesses have a role beyond maximising shareholder profit. It remains to be seen if this will get us to where we need to go next – that is, to a conception in which businesses respect a minimum social foundation while operating well within environmental limits. This won’t just be a question of ambition, but one of whether business can change quickly enough.
Featured image: XoMEoX (CC BY 2.0), via Flickr.