Growing the Business of Tomorrow: The Leadership Agenda for the 2020s
This blog is an adapted (and expanded) version of a talk I gave at the Global Goals Forum in Berlin on 10th October. It draws on findings from Volans’ ongoing Tomorrow’s Capitalism Inquiry.
Capitalism-as-usual isn’t working. It will not deliver on the lofty ambitions set out in the UN Sustainable Development Goals or the Paris Agreement — certainly not within the required timeframe.
More worryingly, sustainability-as-usual isn’t working either. That’s an uncomfortable message for those of us working within the field of corporate sustainability, but the evidence is increasingly difficult to ignore: greenhouse gas emissions continue to go up; species loss continues apace; inequality and anger pervade society and politics.
The problem with sustainability-as-usual is that it tries to address systemic challenges — like reversing global warming and building a fair, inclusive economy — with incremental approaches. Any company that makes an incremental step towards sustainability deserves to be celebrated. But the idea that these incremental gains will slowly add up to a sustainable global economy is wishful thinking. Or, at least, it’s a dangerously incomplete theory of change.
What’s more, as we move into the turbulent twenties, it looks likely that sustainability-as-usual will fail to deliver even on narrower corporate objectives like mitigating risk, increasing resilience and opening up new market opportunities. In an age of extreme weather and extreme politics, being a little less bad than your competitors won’t be enough to insulate you from the shocks to come. Nor will it be enough to win over the growing share of stakeholders who agree with Greta Thunberg that we need to “act like our house is on fire, because it is.”
Any company with an ambition to be a leader in the 2020s will need to embrace three Rs: responsibility, resilience and regeneration. Critically, companies will need not only to apply these 3Rs to their own operations and value chains, but also to act as agents of market-level change, to help tip the wider economy towards more responsible, resilient and regenerative outcomes.
This raises three important questions, which I will address in turn:
- What can companies practically do to influence market-level change?
- What is it that enables some companies to lead on sustainability while others struggle?
- What kind of leadership will be required of each of us as individuals in the next decade?
What can companies practically do to influence market-level change?
Every business plays multiple roles: employer, buyer, producer, investor, citizen. The way a company performs each of these functions has an influence on the economic system and can be optimised to catalyse progress on the 3Rs.
Companies are at their most effective as agents of systemic change when they perform these functions synergistically to drive progress towards specific outcomes. For example, if a net zero carbon economy is the goal, the strategy to get there should combine efforts to a) decarbonise production, b) demand low/zero emissions from suppliers, c) invest in physical and financial assets that “lock out” rather than “lock in” future emissions, and d) lobby for enabling policy reforms like a meaningful price on carbon emissions.
For a comprehensive overview of each of the five functions and how they can be leveraged to drive systemic change, see the Global Goals Yearbook article I co-authored with John Elkington (starts on page 12). For now though, I want to zoom in on one function: the role that companies play as citizens — that is to say, as political actors — on the most important issue of our time: climate change.
The role of corporate lobbying on climate policy is coming under ever greater scrutiny. Just in the last few days, The Guardian has published major stories on the car industry’s record of opposing climate action, and on Google’s record of supporting think tanks that deny the science on climate change and seek to water down regulations that would impose heavy costs on high emitters.
Earlier this year, InfluenceMap (whose research is cited in the Guardian story on the car industry) published a report looking at how eight of Europe’s largest industry associations engage in climate policy. What they found is that, in most cases, there is a significant mismatch between what the industry associations are doing and the stated positions of their individual member companies.
This analysis was picked up by a handful of climate-conscious institutional investors like the Church of England Pension Board, the Swedish pension fund AP7 and BNP Paribas Asset Management. This, in turn, prompted several big companies — including BASF, RWE and Heidelberg Cement — to review their trade group memberships.
In June, Unilever CEO Alan Jope publicly challenged all the trade associations and business groups of which Unilever is a member ‘to consider whether the level of ambition for which they are advocating is truly consistent with the deep emissions cuts implicit in the Paris Agreement.’ Unilever is, according to InfluenceMap’s latest analysis, ‘the most influential positive company’ when it comes to climate policy engagement.
Putting pressure on — or, if that doesn’t work, resigning from — trade associations to ensure that those who speak on your behalf in political capitals are not undermining bold climate policy action is fast becoming a necessity for companies that want to avoid the wrong kind of attention from NGOs, media and investors.
The next step is to start lobbying for more effective and bolder reforms and regulations — and supporting campaign groups, think tanks and business-to-business platforms that will do so on your behalf.
What is it that enables some companies to lead on sustainability while others struggle?
We all know that how we show up in the world as people has a lot to do with what’s going on inside us. The same is true of organisations. Unfortunately, today a lot of companies are held back by what Kate Raworth, author of Doughnut Economics, calls ‘corporate schizophrenia’.
A company’s personality is determined by five things: its ownership, its purpose, its management, its data systems and its culture. When these five things are all pointed in the same direction and working well together, that’s when an organisation is at its most effective.
Most businesses today are at least mildly schizophrenic. For example, a company may have a purpose that is about contributing to society and a corporate culture that supports this, but its ownership is structured in a way that puts pressure on management to focus on short-term financial returns, rather than long-term societal impacts.
This tension is not inevitable. For a start, not all ownership models exert the same pressure on management to focus on the short term. Many sustainability pioneers have benefited from having an anchor shareholder that at least partially shields them from the short-termism of the public markets. This anchor shareholder can be a government — as was the case for both Ørsted (Denmark) and Neste (Finland) during the periods in which they transitioned away from dependence on fossil fuels — or an industrial foundation, as in the cases of Novo Nordisk and IKEA, two of the most consistent performers on sustainability since the start of this millennium.
Founder-owned companies — from Patagonia to The Body Shop — have also played an outsized role in the history of corporate sustainability, with the latter providing a particularly interesting case study on the influence of ownership. Having been a pioneer of corporate action on environmental and social causes during the 1970s and 1980s, The Body Shop found it increasingly difficult to maintain its leadership on sustainability after going public, and particularly after being bought by L’Oréal in 2006. Since being sold to Natura, a Brazilian B Corp, in 2017 though, The Body Shop has started to re-establish itself as a leader in the field, encouraged by its new owners to return to its activist roots and take seriously its commitments to people and planet.
Being a publicly-listed company may make it harder to commit to a strategy that puts people and planet on a par with profits, but sometimes blaming the short-termism of shareholders is a cop out. Unilever’s performance over the last decade shows what is possible from within the constraints of the PLC model. It’s no coincidence that one of Paul Polman’s first moves when he became CEO in 2009 was to end quarterly reporting and make an explicit appeal to shareholders willing to commit for the long term. The fact that so few other companies have followed suit in the decade since is as much an indictment of the weak leadership of the current CEO class as it is of the short-termism of global capital markets.
Which brings me neatly onto my third, and final, question:
What kind of leadership will be required of each of us as individuals in the next decade?
Getting to where we need to get to over the next decade is going to require extraordinary courage from people in business. The courage to stand up to shareholders, competitors and even colleagues. The courage to be dismissed as naive and misguided. The courage to fail, learn from it, try again, fail again, fail better (with apologies to Samuel Beckett).
Personally, I take inspiration from the activism we are seeing on our streets at the moment. From the hundreds of ordinary people willing to be arrested in order to try and wake us all up to the ecological crisis we face.
What would it look like if we each acted with that level of radical intent, with that clarity of purpose and with that willingness to accept a personal and professional cost for having the courage of our convictions?
Success in the 2020s will require us to become adept at driving change across these three different levels simultaneously: influencing the rules of the game at a systemic level; addressing corporate schizophrenia at an organisational level; and, at a personal level, accessing reserves of courage we didn’t know we had.
The clock is ticking.
