C.B. Bhattacharya's Blog: Small Actions Big Difference
March 29, 2023
Obscured by Greed: What Happened to Sustainability?
I smiled as I read this New York Times on innovations in refillable packaging; well, it’s deja vu all over again! My mind darted back some fifty years to Kolkata, India, where I grew up. I was 10 years old going with my father to buy cooking oil for our household. We went to the mill that was crushing mustard seeds into oil and bought directly from them, and I remember that we took back the used, empty tin containers of oil and got filled containers in exchange. Each time, every time. The same was true for milk, rice, wheat and many other grocery items. We had jute shopping bags that were reused for years. I wasn’t allowed to leave the dining table without emptying my plate! That got me thinking: When did our predecessors start talking about sustainability? Did the ancient scriptures cover the concept? This blog will explore the history of sustainability, how we got lost along the way and how we can course correct. Let’s start with the present and trace our way back.
Modern Concept of SustainabilityThe word “sustainability� (and its offshoot ESG) has become a buzzword and, in turn, a . The word is used in recent literature than “Steve Jobs�, “Star Wars�, and even “Gandhi.� Despite its prevalence, the word is misunderstood and misused frequently. So, what does it mean?
The Oxford English Dictionary (OED) defines “sustainability� as “The quality of being sustainable (capable of being endured or borne, maintained or continued) at a certain rate or level� (italics mine). In the environmental context, the OED continues, “the degree to which a process or enterprise is able to be maintained or continued while avoiding the long-term depletion of natural resources.�
Wiktionary defines “� in three contexts:
Ecology, “A means of configuring civilization and human activity so that society, its members and its economies are able to meet their needs and express their greatest potential in the present, while preserving biodiversity and natural ecosystems, planning and acting for the ability to maintain these necessary resources for future generations.�;Business, “The ability to sustain a business in the long term, which is a state that is partly dependent on, but broader than, profitability today or in the short term; it involves aspects of a plausible path toward eventual profitability (as applies to a startup) and ecologic sustainability (for example, the long-term dependence of the timber/lumber industry on forest preservation and renewal, or of fisheries on viable fish stocks).�; andCivics, “The ability to sustain a civic practice or process in the long term, such as democracy, entrepreneurialism, a war effort, or others.�From these definitions, we first note that that sustainability goes beyond environmental initiatives and includes societal issues as well. Second, sustainability is inherently tied into the concept of finite resources, leading to the need to “preserve� resources for future generations.
Tracing the word “sustainability� back in modern history, we see it sprout up , when German forester Hans Carl von Carlowitz published his book, Sylvicultura oeconomica, and popularized the “sustainable yield� (nachhaltiger Ertrag) concept in the context of sustainable forestry management. Foresters knew long ago that the wood they harvested should not exceed the amount of wood that could grow to replace it!
Digging deeper, the word has roots back to the Middle French “�, a verb that means: “to support, to keep up, (used with que) to maintain (that), and to argue.� This word, in turn, roots back to the Latin “�, from sub- (“under, beneath, below�) +� teneō (“hold; restrain�), another verb, generally meaning to hold up or upright, uphold, support, guard, protect.
These ideas led to the broader ecological principle of respecting nature’s ability to regenerate itself and then to the dictionary definition above. Seeing the evolution of the word here, we can see a linguistic pattern not unlike a tree: the historic roots, with their wide applications of sustainability, narrowed through the centuries into a solid trunk � focusing on the environmental concept. Now, with the increasing convergence of environmental and social issues, the modern usage widens the sustainability concept again, like new branches and leaves.
Sustainability is Far from A New IdeaBut sustainability goes much farther back than the 18th century! Ancient cultures from every corner of the globe deployed sustainability principles, even if using different words. To describe a few:
In South Asia, we find sustainability concepts in the traditional wisdom of the Vedas and in Hindu and in Buddhist philosophies. In the Atharvaveda (written around 900 BCE), which is related to both worldly happiness and spiritual knowledge, we find philosophies on agricultural, social, leadership and political matters. This looks somewhat familiar� to today’s craze around ESG (Environmental, Social and Governance) factors! (2017) make this connection, and more, in their paper “Teaching Sustainability through Traditional Wisdom: A Conceptual Framework for Business Studies.� They highlight many sections of ancient texts for emphasizing the human connection with nature as well as the need for a “balanced and justified approach towards human values, economic development, and [the] environment� (page 242). They find many connections from old texts to modern concepts.
Wisdom in the Rigveda, Atharveda, and Bhagwad Gita notes that our predecessors were fully aware that natural capital wasn’t infinite, the need for social development, and that money was a way to exchange finance for other forms of capital.
The Arthashastra (written around 300 BCE) describes effective practices in leadership and governance. It uses ideas that we would recognize today as social capital , manufacturing capital, and financial capital as well as the need to balance them with the natural world.
In my experience, the enlightenment associated with recognizing the interconnected nature of people and planet, are plain to see. The make this so clear one wonders how this knowledge has been forgotten. For example, Text 24 says, “One who understands this philosophy concerning material nature, the living entity and the interaction of the modes of nature is sure to attain liberation.�
In another connection to cross-cultural ancient wisdom, we see a different method for visualizing cause-and-effect relationships and conveying their reciprocal nature. The concept of Karma can be interpreted many ways, as noted in . Elaborated by Lawrence Babb on page 172, Karma can be used to elude blame but it can also be used to emphasize willful action and genuine moral responsibility. Regardless of the “frame of reference�, Karma draws attention to the connection between one’s actions in life and the corresponding consequences that follow � both rewards and punishments � and forces the individual to reflect on that connection.
Buddhism stresses —between humans and nature, between human beings, and the relationship with oneself. Buddhism is essentially about bringing all these elements of life into balance, whether on a personal level, community, or global level, and considers human beings and the environment interconnected at the deepest level, inextricably linked, and interdependent. This means that we cannot build happiness or prosperity upon the destruction or disregard of other life, including the natural environment, for ultimately, we will suffer the consequences.
As the Quran (610 � 632 AD) notes, the (responsibility) is that the earth has been entrusted to man and it must be cared for and protected accordingly. As such, he has the task of using the earth sustainably and maintaining ecological balance.
In continental North America, we find sustainability in the wisdom of the First Nation’s peoples. From the to the , we see the value of understanding and respecting one’s environment. The concept of seven-generational thinking, found among many indigenous groups, “institutionalizes� this way of thinking in that one is removed from their own selfish, narrow perspective. Seven-generational thinking considers oneself in the middle then looks three generations back and three ahead. This brings an awareness of a legacy to honor, or a debt to bear, in mind to those three generations before one’s own, as well as an awareness of one’s own legacy that will be left behind to the three generations that will follow one’s own.
Finally, in native Hawaii, we find the concept of �.� In English, this roughly refers to one’s right to use or to own something but also as one’s responsibility to maintain and properly care for that thing � it is a reciprocal relationship. It is akin to the English concepts of or . Under Kuleana, if one owns a plot of land, that person has a right to use that land how they want. If they want to grow crops, they can, but they have a responsibility to pull weeds, maintain biodiversity, and farm responsibly to keep the land healthy. If they don’t, and the land falls into disrepair, they have neglected their responsibility and should therefore lose their right of use and ownership.
Given that our predecessors knew all along that man must have a harmonious relationship with nature and fellow humans, when and how did the sustainability discourse get obscured?
How and when did we lose our way?Well, if sustainability is inherently tied to finiteness of resources, which was the reality in olden days, then the deviation from the idea, and its obscurity, must come from some form of collective dementia that takes root in abundance. What makes us forget about the natural environment and fellow human beings? Prosperity and unabashed greed for a few has blinded us to the needs of the many.
Science communicator and author Hank Green, in March of 2023, said that “We [humans] take up [all] the available space.� As a biochemist and environmentalist by education, he adds, “That’s not a human thing. That’s how genes work� All life takes up all its available space.� From , to , to this seems to be true.
On the human side, this uncontrolled growth to take up all the space kicked into high gear in the USA in the 19th century. Manifest destiny transformed expansion from an economic goal into a divinely ordained moral imperative. The industrial revolutions, , and their transformation on life-as-we-knew-it, steamrolled ahead � generating wealth for some without regard for .
Our modern way of being is brand new and unprecedented. Two forces accelerating unsustainable practices are noteworthy.
First, noted in 1933 that the idea of the corporation was altering social structures (page 3), concentrating power (page 17), and widening the rift (page 119) between ownership, control, action, and impacts. Those who call the shots, those who do the work, those who benefit, and those who suffer are often invisible to each other, making us insensitive to others� plight. To make matters worse, Nobel Laureate Milton Friedman published his famous op-ed in 1970 that the and the runaway period of the corporation � where profits could be reaped at the cost of the planet and its people was born. This is how leadership lost their way.
Second, from to to the , every day people were duped in every aspect of their lives, into a consumerism culture like no other, post-World War II.
I want to hammer this home: The consumption mania in the USA
Choices were made to use the technological progress of the last century and This sounds like cartoon villainy � to reshape the social fabric of society and meaning of life so that a few men can enrich themselves � and yet, it is true.
In one shocking and transparent example, Victor Lebow, a retailing analyst, wrote in the Spring 1955 issue of the Journal of Retailing. Titled, “The Real Meaning of Consumer Demand� My bold added in the quote below for emphasis.
�Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption. The measure of social status, of social acceptance, of prestige, is now to be found in our consumptive patterns. The very meaning and significance of our lives today expressed in consumptive terms. The greater the pressures upon the individual to conform to safe and accepted social standards, the more does he tend to express his aspirations and his individuality in terms of what he wears, drives, eats- his home, his car, his pattern of food serving, his hobbies.�
Further manipulation was required to reduce prices for goods so low that every day people could afford to purchase, discard, and repurchase ad nauseam. Many industries externalized their own costs so that the retail price wouldn’t reflect the costs of unchecked pollution, unhealthy working conditions, underpaid staff, etc. Today, consumers, or what were formally people, are not exposed to these gross realities. They are exposed to other forms of manipulation to ensure that they continue to consume: celebrity endorsements, fashion trends, and moral infusions.
Consumption “mania� is unnatural, and it has sunk into our society with grave consequences. in the US have skyrocketed over the last century. have followed a similar dangerous rise. Please notice! The correlation between these two is uncanny.
Looking at , the world annual average individual footprint is between 2.9-4.1 metrics tons. The average in the United States is 20.6. This means that five to seven global lives are used to subsidize only one living the “American way of life.� The consumption, and subsequently emissions, inequity deviates even within the USA: the richest 10 percent of Americans, or those who make more than $233,600 a year, produce , per year on average � nearly twenty times the world average.
While all life needs to consume to survive (although some survive to consume), the amount of consumption is constrained by the “� of the environment. We live on a planet with finite resources where all life in an ecosystem exists within a balance of each other. Currently we are on a collision course with nature. No living creature can exceed the carrying capacity of its environment for very long. Any species who does so will deplete its own source of food, water, and other necessities and begin to die off.
Moving towards a sustainable futureThe sustainability discourse has resurged thanks to the , the , the of the world, and much more, not to mention our firsthand experiences with floods, draughts, and hurricanes. But this time, it’s not just the right thing to do � it’s also the smart thing to do, now that our backs are against the wall.
I would like to draw a parallel here between recent developments in on the one hand and the sustainability narrative on the other. Recently, we have been hearing a lot on how we can “rewire� or brains to free ourselves of the shackles of societal conditioning and unveil our true selves. The same approach can be used in the context of sustainability. Given that sustainability was so important in our ancient cultures, deep within, most, if not all of us must know that we are all custodians of the natural and social environment we inherit. Our forefathers knew it and the people in resource-constrained economies know it all too well even today.
The hankering for profit at all costs, excessive consumption, living beyond our means, � these are the elements of modern-day conditioning in affluent societies that have obscured the importance and relevance of sustainability. If we can look at the evidence and agree that we’ve been fed the big lie of consumerism as a panacea for all ills, we should also be able to debunk that myth and redefine our identities. We can make responsible consumerism cool. We can push back against unwarranted forays by companies and influencers that want to take our money and own our souls. Not only that, but we can also push companies to be more sustainable by voting with our wallets and calling out those that still refuse to adhere to the new normal. We have the power as individuals and as a collective, but we do not have the luxury of procrastination.
Finishing the Hank Green quote from earlier, he ends his speech with the idea that “This property of life [as we know it] � taking up [all] the space available to it � is something that [humans] can get beyond� it is possible that sufficiently advanced species with sufficiently advanced philosophies and societies start to think more about quality than quantity� (italics my own).
He has a lot of optimism about the future, as do I. If the consumption mania was socially engineered � we can reengineer it to make “waste not want not� cool instead. Little efforts of positive change, within our individual spheres of influence, can result in unintuitive and seemingly impossible changes.
Research assistance for this blog was provided by Alexander T. de Almeida.
Copyright © CB Bhattacharya, 2023. All rights reserved.
November 16, 2022
When everyone’s talking and no one is listening: The corporate cry for sustainability communication
As more companies realize that transitioning to sustainable business models is their “license to operate� in the business landscape, investments in key ESG issues are on the rise. A by the International Development Corporation predicts that investments in sustainability will reach a whopping $158 billion by 2025 � a five-year compound annual growth rate (CAGR) of 32.3%.
These investments are underleveraged if companies do not effectively communicate their efforts to their stakeholders � starting with their employees. To transition to a sustainable business model in quick order requires embedding sustainability into corporate DNA. This can only happen if the entire workforce of a company develops a sense of “� motivating them to engage in sustainable behaviors.
in which millions of employees have left their jobs in search of flexibility and greater purpose. As such, sustainability itself has become both the goal and the solution. The sustainability movement is a beacon of hope to improve life for ALL stakeholders and in doing so, provides the job satisfaction that employees have lacked. But it all starts with employees knowing what their companies are doing in the realm of sustainability.
A recent survey of US employees that I conducted in collaboration with the Harris Poll showed that a mere 30% of employees felt sustainability efforts were apparent in their company. This is not good news. The Great Reshuffle has demonstrated Thus, the challenge is not one of willingness but of communication. The onus is on the organization to effectively communicate its sustainability initiatives to drive employee engagement. This blog is a guide to the process of embedding sustainability into the culture of an organization more efficiently and more thoroughly by simplifying the communication process used to garner employee support and enthusiasm.
What to communicate?
The single most important thing for a firm to communicate is its purpose, its “raison d’etre� or the answer to the all-important question of why we do what we do, the starting point to transitioning to a sustainable business model. Do we sell cars or provide mobility? Do we sell soap or save lives? These are important questions as firms pivot from being shareholder to stakeholder centric. Employees find greater job meaning in firms that are purpose-driven. As I heard from an employee who sells antibacterial soap, “I would rather die thinking that I have been saving lives rather than selling soap all my life�. Although lately many firms have jumped on the purpose bandwagon, far fewer have successfully cascaded it throughout the organization. The only way to achieve this is for firms to communicate credibly and incessantly � from internal media all the way to luncheons, onboarding, sustainability ambassadors and managers. The CEO and C-suite must lead by example � as Unilever ex-CEO Paul Polman told me, “employees don’t hear what I say, they observe what I do.�
Communicating purpose is necessary but is by no means sufficient. Alongside, a firm must communicate a set of chosen goals within the sustainability sphere. Why just a few goals? Because, if you don’t focus, nothing gets done. Having a few concrete, “material� targets give employees a deeper understanding of the goals and how to address them, thereby fostering ownership and triggering sustainability behaviors.
In tandem with goals and targets is the corresponding progress made by the company. Keeping employees apprised of the progress demystifies progress and serves as motivational fodder to achieve more. This is where an ESG dashboard that displays progress on key metrics like CO2 emissions, water usage, waste, or fatalities can serve as a vivid reminder of the tasks at hand. When sustainability successes are celebrated within the company culture or when shortfalls are met with rallying cries of �we must do better�, employees realize that the topic is taken seriously by the entire organization which acts as another nudge to assume ownership.
How to Communicate
The ability of any initiative to foster sustained engagement is dependent on how its messaging resonates with the audience. The best way to do that is to create a clear plan of communication. What is the message? How will it be conveyed? Who are the messengers? How often will it be revisited and in what manner?
The Message
Keep the message clear and concise. Overwhelmingly, I hear from organizations that employees want simple, “dumb it down� messaging, especially when dealing with abstract concepts like greenhouse gas emissions. At its core, effective communication minimizes the effort it takes the listener to receive the message. Using too many words or the wrong words can at best lower interest levels and at worst convey a sense of exclusivity that is not inherently sustainable. Eliminating the jargon in favor of easily digestible messaging prevents the immediate rejection of fledgling sustainability initiatives and paves the way to reflection and engagement.
Setting smaller, concrete goals can provide talking points that entrench sustainability deeper into the minds of employees. Saturating the workplace with sustainable practices relies on the ability to generate self-ownership in its working body. When the sustainability mindset is normalized to such a degree that it becomes second nature, organizations are better equipped to tackle larger, more ambitious environmental goals.
One need only look to as a real-life example. In an employee survey, 76% of Unilever employees stated that they feel their work role enabled them to contribute to the company’s sustainability goals. Employees truly felt that their individual, day-to-day actions were the driving force behind the company’s greater goals. Intersecting an organization’s goals and actions with people, planet, and profit is a quintessential part of driving that “bigger than oneself� component that employees are seeking in the workplace today.
As former Unilever CEO, Paul Polman, and I mentioned in our article, employees use a cost-benefit heuristic to engage in sustainability initiatives. When the alignment between personal and corporate values are revealed via the company’s engagement in sustainability, employees receive an identity benefit. Thus, it is vital that the emphasis placed on sustainability by an organization is communicated in such a way that the employee is reminded of the alignment of the company’s values and their own.
One might say, rather than “the boy who cried wolf�, we are living in an era of “the company who cried green�. if the corporate action is not genuine. Greenwashing, from false claims of the recyclability of a product to misleading climate advertisements, only leads to less employee buy-in. Token gestures like these are a way to follow the trends of the market rather than true sustainability. For a company to go beyond perceptions of greenwashing, it must show genuine progress against its material goals.
Eventually, false claims and half-hearted commitments come to light, and when they do, along comes a sense that stakeholders have been duped. If a company “cries green� too many times, its reputation, as it is viewed in the eyes of employees who truly value sustainability, could take a dive.
Honesty and humility go a long way in driving the sense that we are all on the same team. There is no chance of creating a sustainable business economy without first acknowledging which current practices are harmful, to whom they are harmful, and in what manner. Take the popular “fast furniture� brand, IKEA, for example. , and in doing so, the company has acknowledged that its previous supply chain was exploitative and unethical. The communication of the wrongdoing is equally as important as that of the initiative itself to build a foundation of trust with employees.
To be successful means there must be some benchmark of measurement used to determine how far along a company has advanced in its sustainability goals. Whether that is a measure of emissions, waste or fatalities, it is important to communicate what you measure to allow employees to see that their ideas, actions, and contributions are recognized. Whether an organization has taken big or small steps, wins must be recognized as such. If the company meets a sustainability target, spreading the word of this success breeds more success.
The Delivery
Think of the state of your inbox right now. If you received an email from HR touting the company’s newest sustainability policies, how much time and effort would you spend to read and digest the information? Likely, not as much as you would spend if your boss knocked on the door of your office to have a conversation.
Overwhelmingly, when it comes to environmental issues. Creating a space conducive to open conversations around the gray areas of sustainability can . If employees feel their voices are heard, it empowers their sustained commitment and contributions to sustainability. Then you are well on your way to sustainable decision making becoming a point of reflection in individual workdays.
That’s not to say that verbal conversations are the only way to communicate the message. as well to have greater impact. Most importantly, an organization must find a way to bring sustainability issues into the employee’s everyday environment. A reminder about conscientious water use posted above the sink in an office kitchen is internalized, consciously or not, by every individual who uses that sink. Small actions like these are catalysts for larger changes in the world.
The Messenger
A top-down approach to communicating sustainability � starting with the CEO � is vital for long-term success. Many companies have already appointed leaders who are directly responsible for corporate sustainability. Since the advent of the first in 2004 (), the CSO role has become commonplace in the business world. There is no doubt that this strategy for accountability is effective. In fact, that employees take into account both the behavior of their supervisors and the perspective of fellow employees in their willingness to buy into initiatives.
It is important to note that communication and training efforts that solely focus on managerial staff can overlook the larger working body of an organization. Sustainability that begins at the top levels of management must eventually take root in all levels of an organization (laterally and longitudinally) or face for long-term success. Sustainability champions, representatives from every level who are responsible for championing the cause within their own microcosms are key. The drive of the champion to fight the uphill battle of corporate sustainability can .
Revisiting and Reinforcing
Recognize that corporate sustainability is continuous; goals may be reevaluated over time with the accumulation of information and the shifting needs of the planet and the people. In other words, sustainability initiatives are not one-meeting plans, they are an iterative process that is not possible without communication.
The more frequently sustainability conversations are encouraged in an organization, the more conspicuous they become. Thus, messages conveyed to employees must be . Weekly or daily communications to maintain sustainable operations are more effective than quarterly or annual meetings where the message can be quickly overlooked.
Sustainability must be held as a standard of operation from day one. As soon as an employee is hired, train them in sustainability and familiarize them with the company’s behavioral standards and values. This sets the tone that ethical operations within the means of the planet is the duty of all employees, all the time. In many cases, we fail to recognize the privilege inherent in the ability to distance oneself from the climate crisis. As long as the corporation and the individual withdraw from accountability, the sustainability imperative will fail to generate the level of interest and support that is vital to see true and lasting change.
An Ongoing Process
In summary, effective sustainability communication relies on a heady mix of clarity, managerial commitment, transparency, and consistency. The absence of even one of these tenets can significantly handicap the potency of sustainability within an organization’s culture. A culture that does not give employees space for autonomy, where ideas cannot be freely shared, and where employees are not valued as individuals will never be conducive to effective inter-organizational sustainability communication.
If employees do not feel like their ideas or actions are valued or supported, enthusiasm for sustainability will only diminish over time. Embracing the challenge and coming at the problem with continued vigor will lay the groundwork of an organization that has sustainability embedded in its core.
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Volume 2, Number 6. Copyright © CB Bhattacharya, 2022. All rights reserved. Research assistance for this blog was provided by Nathan Dobb and Esmee de Cortie.
September 20, 2022
The ESG Brouhaha: Tempest in a Teacup
You’ve likely seen recent articles and tweets about corporate investors taking Environmental, Social, and Governance (ESG) metrics into consideration for their investment decisions, and how several politicians, business owners, and public figures are reacting.
From Elon Musk’s recent “� tweet to former Vice President that ESG is politically driven, to the state of Texas from doing business with banks that don’t support oil, gas and guns, the ESG space has become quite difficult to navigate.
But why all this brouhaha?
ESG Investing a misnomerThe biggest problem facing ESG is the lack of understanding and agreement about what it is and how we should use it. To me, ESG is nothing more than a set of metrics, i.e., quantifiable measures, that businesses and other stakeholders can track to better assess how Environmental (e.g., climate change), Social (e.g., human rights abuses) and Governance (e.g., in-house sustainability committees) factors impact a business, and in turn, how the operations of that business impact the environment and society.
But alas, given its sudden popularity and usage in the business lexicon, my understanding isn’t broadly shared.
To trace the origins, ESG investing, or more correctly, investing using ESG metrics, emerged in its most recognized form from Socially Responsible Investing (SRI) in 2004 when the then UN Secretary General, Kofi Annan, wrote a letter to over 50 CEOs of financial firms inviting them to participate in a new initiative focused on integrating ESG factors into investment decisions in capital markets.
The logic was straightforward � the way a firm deals with the planet and its people, has a bearing on its profit. This Annan initiative yielded a report in 2005 titled �,� which coined the term “ESG investing.� The first signs of trouble arise � while you can analyze and use ESG metrics to invest in an “ESG friendly way,� you cannot really invest in ESG itself. ESG is not an asset class, it is not a style, and it is definitely not a strategy; it is an . The term “ESG investing� itself is a misnomer.
The good news is that use of ESG metrics in investing is on the rise: According to Bloomberg Intelligence’s (BI) latestreport, financial assets that have integrated ESG are on track to exceed $41 trillion this year, representing almost 30% of the projected $140.5 trillion in total global assets under management.
Lack of Standardization � What to measure and how?Even after we clear up what ESG is and isn’t, the next � there are multiple standards and frameworks. For example, there are multiple ways to measure the risk that climate change poses for a company’s future and pundits can’t agree on one.
Standardization is direly needed to improve reporting efficiency on companies� part and data comparability on investors� part.
With standardization, stakeholders will be able to better assess, validate, and evaluate companies across a range of critical issues which will result in increased investor confidence and better investment decisions.
There is bit of a silver lining in that the bigger players such as IFRS has broad buy-in for its pending standards/frameworks; multiple governments have already mandated Taskforce on Climate-related Financial Disclosures (TCFD) and a large number of large companies and investors already collaborate with the Carbon Disclosure Project (CDP). But more needs to be done to coalesce around what to measure and how.
Case in point: Stuart Kirk, Head of Responsible Investment at HSBC Holdings PLC recently said, � that we need to worry about. There’s always some nut job telling me about the end of the world,� at a recent Financial Times Conference, a comment for which he lost his job.
Clearly, there is a discrepancy at hand.
To complicate matters, a by Bloomberg argues, “ratings don’t measure a company’s impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholder.�
In other words, there are or should be, two different kinds of ESG metrics: one that measures the impact of people and planet on a firm’s operations and subsequently profits, primarily meant for investors, and, the other that measures the impact of a firm’s operations (and thus quest for profits) on people and planet, typically used by other stakeholders such as NGO’s, governments, policy officials and civil society. Note that although there will undoubtedly be overlaps in metrics across these two categories, they are conceptually different, and it is important not to conflate them � one is inward and the other is outward. For jargon lovers, these two complementary roles of ESG metrics is called “�, a set of metrics material to the firm’s future and one material to the future of our planet and its people.
Crisis of plentyA third challenge that also stems in part from a lack of shared understanding of the concept, is the sheer complexity of the .
The World Economic Forum identifies ten roles in the ESG ecosystem, spanning from framework developers to standard setters all the way to investor coalitions and initiatives, with multiple players offering services in each area. Compounding this problem is the sheer number of ESG ratings and rankings: there were more than 600 ratings and rankings as of 2018 and the number has continued to grow.
To ease matters a bit, the Sustainability Institute by ERM conducts the research series to highlight investors� views on current ESG ratings and how they use these ratings to evaluate ESG topics. Their reports also include specific recommendations for companies on how to approach the ESG ratings landscape to meet investor needs.
The Rate the Raters report answers some of ESG Investing’s biggest questions, like: How exactly are investors using ESG data? How does that drive where companies should spend their limited time? Which ratings do investors use most, and how can that knowledge inform where companies focus?
The latest report has several interesting insights including that all investors are not alike in the way they use ESG information; some prefer to use the raw data rather than the ratings; etc. I encourage managers and investors alike to make use of this excellent resource on an ongoing basis.
Additionally, Christensen, Serafeim and Sikochi did an interesting to establish that greater disclosures by companies is related to greater ESG rating disagreement. The authors note that over time, as analysts develop a consensus both on the metrics to use to assess a firm’s performance on a specific ESG issue and how to interpret the information reflected in each metric, the relation between disclosure and disagreement might diminish or even become negative. In other words, we are in the early stages of innovation around ESG disclosures.
ESG vs. SustainabilityThe various terms applied to this part of the business agenda can also present challenges in understanding how to talk about ESG and ESG ratings.
With its increasing popularity and usage, ESG is often used interchangeably with sustainability. But should it?
If sustainability is THE societal goal, then ESG analysis and subsequently investing using ESG metrics, is a necessary step to achieve that goal. In that sense, ESG comes closest to the notion of “sustainability metrics� or key performance indicators (KPI’s) that are discussed in detail in my book, . Of course, some of the language that investors use to describe ESG metrics in terms of risks and probabilities, is inaccessible to the layperson. Overall, sustainability is a much bigger concept than ESG per se and the two must not be conflated.
Reminding us to be mindful of the difference, Andrew Winston says very aptly in for MITSloan Management Review: “Just as fossil fuel companies should not lead the planning of our energy future, it seems unwise to let finance lead the journey to a humane, more just, less greed-filled form of capitalism.�
The best we can do to address the confusion is to create greater ESG literacy. Getting clear on science-based ways to talk about cutting carbon emissions and other environmental harms, improving human and labor rights, paying living wages, and having a positive impact on the surrounding community is vital in establishing ESG as a topic across industries to help create systemic change.
ESG Investing vs. Sustainable InvestingESG metrics and analysis is intended to be “a , and that end is a planet that is livable � and lives worth living� a strategy that explicitly acknowledges that investors have a role to play in providing these outcomes to the world,� says , the founder and chair of and a pioneer in the ESG field. ESG ratings, to some degree, have lost sight of this mission; recent initiatives such as promoting the understanding of “double materiality� that provide different ratings to different stakeholders (e.g., investors, the public) can provide valuable course correction.
While many assume ESG investing and sustainable investing, sometimes known as SRI (Socially or more recently, Sustainable Responsible Investing), are interchangeable terms, this not the case.
A major difference between “ESG� and “Sustainable� investing in practical settings can be traced to who is doing the investing and for what purpose. ESG metrics and ratings used by traditional investors usually focus on making a portfolio less harmful, whereas those who want to go for positive change right away will use ESG metrics to invest in companies that are actively making a positive difference in the world (e.g., renewable energy companies).
For example, a portfolio that reduces exposure to fossil fuel companies is less harmful, whereas a portfolio that invests only in renewable energy is more in line with future sustainability goals.
The Figure below, reproduced from MAAL Associates, depicts the six ways in which the CFA Institute classifies ESG investing � from ESG-integration at one end all the way to impact investing on the other. Again, we observe that “ESG investing� means different things to different people, and education and heightened awareness of these nuances would greatly help lower the temperature around this topic.
Stuart Kirk, the ousted HSBC officer I quoted above, wrote in a recent that while the former type of investing is “input focused�, in that ESG is an input along with firm financials and operations to the investment decision, the latter is “output focused�, in that achieving ESG and sustainability goals is the top priority.
In light of this distinction, he argues that ESG ought to be split into two. While we don’t need to go that far, we must realize that “ESG-investing� occurs along a spectrum, and the answer to what it is can well depend on who you ask.
Politics has no place in the ESG debateGoing back to the opening paragraph, ESG has faced a wide range of criticisms as it has become mainstream. Former Vice President investor-activist campaigns that encourage companies to follow socially conscious investing principles, claiming this elevates left-wing ideals while casting the goals and interests of businesses to the side.
Elon Musk that ESG is a “scam� and wrote it off as an idea of “woke capitalism.� Musk’s words came in response to S&P Global removing Tesla from an ESG index due to accusations of racial discrimination and other forms of worker mistreatment.
by media giants like Bloomberg, New York Times, and The Washington Post reveal concerted political efforts to influence ESG investment on an institutional level.
Politicians states where fossil fuels are a major contributor to the local economy, framing ESG as a means to take away jobs and disrupt economic development. (Interestingly, recent research shows that banning ESG criteria will cost the state of Texas an additional $300 million+ in additional interest).
ESG criticisms coming from such high-profile sources have shaped the public view of ESG and continue to wreak havoc and erode trust in systems that, at their core, aim to help drive positive human and environmental outcomes through business.
For investing using ESG to achieve its promise, politicians must not weaponize a topic to win a race or to cater to their own self-interests. The role of politicians is to implement legislation and laws that support sustainable development. While ESG can never be completely divorced from politics, politicians need to stay in their lane and ESG must remain true to its purpose. ESG faces the dangers of misinformation and political blacklisting if these ratings lose the scope of their core goal � and humanity will suffer.
A silver lining from these public discussions is that ESG has been exposed to a wide audience and can continue to push responsible corporate behavior through greater education. Parallel to the adoption of Generally Accepted Accounting Principles (GAAP) way back in 1936 amid all the uproar at the time, perhaps this continued broad exposure to ESG will, in a couple of decades, converge on providing decision-useful information that investors and others need to fund the world that leaves no one behind as we journey to 2030 and 2050.
Lead with Purpose and ESG Ratings will followESG has its issues, but it ought not to be the lynchpin of the sustainability discourse.
It is understandable that given its relative infancy, ESG indices and ratings aren’t perfect, as they account for many factors and involve many stakeholders with often-opposing interests. While the financial sector is poised to have a role in shaping corporate sustainability and responsibility, we must boost ESG literacy so that it can help us overhaul business models. For example, Patagonia is one company that upholds a business model predicated on doing the right thing; more companies need to follow this lead.
ESG ratings aren’t the main driver of sustainable business; they are just part of the puzzle.
But to leverage its potential, ESG must not be treated as a “box-checking exercise� which happens often; indeed, when driven by purpose, bespoke ESG metrics can be transformative and shine a light on the way forward. In other words, businesses themselves need to operate in a purpose-driven way with stakeholder value-creation in mind, rather than tailoring operations to meet a set of ratings or thinking of profit as the primary objective.
When purpose and value-creation for all stakeholders are the driving force of a business, it creates an internal culture equipped to do the right thing and find success as a byproduct.
ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all.
Volume 2, Number 5. Copyright © CB Bhattacharya, 2022. All rights reserved. Research assistance for this blog was provided by Nathan Dobb, Gabby Pogel, and Chris Gassman.
May 18, 2022
The What, Why, and How of Net-Zero
2015’s Paris Agreement set a lofty- but necessary- goal: . Scientists argue that if we keep to this goal, will be limited to a manageable degree. Achieving “net-zero� emissions by 2050 is the minimum hurdle to reach this goal; necessitating a fundamental rethink of how the global economy operates.
What is Net-Zero?
will be achieved when the amount of environmentally degrading greenhouse gasses (GHGs) we emit matches the amount of GHGs that are removed from the atmosphere (known as negative emissions), whether naturally or artificially. The result is a society that doesn’t spout more harmful gasses into the air than the Earth can healthily handle.
There are two key components of net-zero action. Creating negative emissions, which get much more airplay, is one piece of the net-zero puzzle. Negative emissions are GHG emissions that are absorbed, whether by nature-based solutions like forests and oceans or artificial sources such as carbon capture technology. Reducing gross GHG footprints is the other critical component. Negative emissions are a band-aid but alone are insufficient to curtail the effects of our massive emissions profile. Different stakeholders all have a role in reducing our collective footprints so that net-zero can become a reality.
Source:
The purpose of this blog is to quickly explain why net-zero is a worthwhile goal and then to explicate the role of different stakeholders in making net-zero a reality rather than a far-off target. Finally, I shall discuss some weaknesses of the current net-zero concept and discourse and urge corrective action.
Why Net-Zero?
On our current path, by 2050, almost double the 1.5˚C goal set by the Paris Agreement. There is no way to sugarcoat it: we need to bolster our emissions-reducing capabilities immensely to reduce emissions by 45% relative to 2010 levels, and this push needs to begin immediately to avoid great harm to the triple-bottom-line of people, planet, and profit.
that $23 trillion in global GDP will be lost annually by 2050 if climate change advances unchecked, with risks ranging from crop loss to the costs of tackling severe weather events. Some of the . The bottom line is that net-zero is the right thing for humanity to strive for. Our future survival and the survival of Earth’s natural systems rely on bringing our emissions down to manageable levels to stop a catastrophic climate event.
But net-zero is as well a smart thing to strive for. If businesses do not act to curtail their emissions, they are not only hurting the planet and its inhabitants but also disadvantaging themselves. �.�
With demand expected to grow for sustainable technology and products, both on the B2C and B2B fronts, those pioneers in combating climate change can position themselves as industry leaders for decades to come. Meanwhile, laggards will be fighting for market share as they will be forced to play ‘catch up.� that companies who are quick to adopt net-zero aligned technology and business models see financial success as they often gain a competitive advantage. Additionally, companies that score highly on net-zero tracking measures such as the Climate Transition Index better than companies that do not score well on these types of indices.
In short, the “doing well by doing good� phenomenon is very much at work here: it pays to reduce emissions.
How To Achieve Net-Zero?
A successful transition towards net-zero will require action by a variety of stakeholders. Corporations, the government, and consumers all must help drive big, sweeping action and systemic change. We discuss the role of each key stakeholder below.
Role of Corporations
Climate Tech to Reduce Footprints: Much of the technology (e.g., electrifying transportation, buildings, and industry, reworking power grids to supply clean electricity, etc.) that is needed to reach net-zero has already been developed but needs to be scaled. In Europe, for example, that “climate technologies that are already mature could, if deployed widely, deliver about 60 percent of the emissions abatement� and that an additional 35-45% reduction can be driven by technology that is still being developed. (For more climate technology research see: and ). Corporations are in a strong position to utilize technological advancements to drive real change towards net-zero and they should invest in such technologies now. Some climate technology solutions, like electric vehicles, will drive change on a macro-level as they will drastically shift how the whole world operates, while other solutions will work on a relatively micro-level to fix industry-specific emissions problems.
Tailored Action, Right Now: While broader, societal level technology advancements will no doubt help drive a push to net-zero, we cannot procrastinate and rely on such technology alone to get us out of the climate crisis. Corporations need to act now to reduce their footprints and set this great change in motion via innovation and emissions tracking in their specific contexts � e.g., greater energy efficiency and reduced waste not only help the environment but also lead to lower operating costs. In line with materiality, net-zero action will no doubt vary across different industries and businesses, the challenge for companies is to be purpose-driven and work dedicatedly to transform their business models to be more sustainable.
Improved Emissions Tracking: One major challenge in reducing emissions is knowing where they come from and the are important to note in this regard. Scope one emissions come directly from company facilities and vehicles, and scope two emissions come from electricity, heating, cooling, and steam used by a company. Scope three emissions take all other types of emissions relating to the business into account. While companies have a good handle on tracking scope 1 and 2 emissions, scope 3 emissions are difficult to identify and measure and therefore are often underreported or not reported at all. No wonder that while gross , scope three emissions (which make up the largest portion of emissions) . Better tracking and reporting standards by businesses on scope three emissions is a necessary first step towards reducing such emissions and taking a big step in the transition towards net-zero, as companies such as .
Source:
Science-Based Targets: One concrete action that businesses can take is to adopt science-based targets in planning their footprint reductions. Science-Based Targets (SBTs) is a standards organization made up of climate organizations helping businesses cut emissions. The organization sets targets and standards to make climate data more actionable and relevant.
, an executive at , a member company of the that I direct, “setting science-based targets supports an ambitious decarbonization roadmap, clarifying the alignment with the Paris Agreement, and promotes a global net-zero energy system.� Often, SBTs are more stringent than what is called upon by governments and thus hold businesses to higher standards. Businesses that follow SBTs are taking more meaningful action to slash their emissions and progress towards net-zero.
Financial Sector Driving Change: On a positive note � some financial institutions have begun accounting for the carbon footprint of their investments. , for example, sets a standard for measuring the emissions of the businesses JP Morgan invests in while considering the future actions these businesses pledge to take to reduce their footprint. Other financial institutions have taken similar measures ( and ). By withdrawing funding from environmental laggards and supporting businesses that behave sustainably, financial institutions can do their part to work to promote a low carbon economy. Companies not working towards a net-zero-aligned model risk losing investor support as we move forward, providing yet another reason for businesses to act now.
Role of Governments
While businesses and financial markets will drive much of the net-zero change, governments also play a significant role. Currently, a core provision of the Paris Agreement requires countries to set (NDCs) describing the amount of GHGs they plan to emit over time and the mitigation strategies they will enact, to achieve this figure. Countries are required to resubmit their NDCs every 5 years.
The problem with this system is that many countries have set weak emissions targets or targets that look too far in the future. that only 20% of net-zero targets represent an action that is strong enough to truly become carbon neutral. have pointed to the lack of urgency created by this system and have called for NDCs to be reported every year instead. Stricter regulation, infrastructure spending, and better business incentive structures for sustainability are all needed urgently as we don’t have time to waste.
Recently, the American Securities and Exchange Commission (SEC) that would require enhanced reporting measures by businesses on their climate action and footprint. Similar efforts are urgently needed globally to force corporate transparency on their environmental impact, allowing investors and the public to support truly sustainable organizations. Regulators should also look at countries such as in the world, with a pledge for net-zero by 2035.
Role of Consumers
Consumers play a key role in achieving net-zero as well, though progress in this area is slow. A found that while consumers acknowledge they will need to change their habits to help us reach net-zero, the issue is either not deemed important enough or it is too costly to significantly change their habits.
As sustainable technology progresses, there is hope that the cost of sustainable living will go down. For now, consumers need to strive for responsible consumption (). This entails buying fewer items and buying better quality items that will last a while to reduce the gross demand for consumer goods. Consumers should also evaluate the footprints of the companies they buy from and choose the most sustainable option, if possible. Supporting politicians with strong environmental track records is yet another way that the masses can bring about change on this issue.
Criticisms
While the concept of net-zero is well-intentioned, it is not without its flaws. The first is that the long time horizon of the initiative give businesses and governments the ability to delay their action when we need to be making progress right now. When companies and governments delay action on net-zero yet tout their plans, it is apparent that . Currently, there are few checks and balances stopping companies from reporting false figures to claim they are making progress on the issue, while many are gaming the system in place designed to promote net-zero. We need more transparency and accountability.
These fears go hand-in-hand with claims that , and that the emphasis on removing emissions from the air rather than curtailing them in the first place by producing and consuming responsibly is misplaced. Critics of this train of thought argue that our current economic system is too big to coexist with a healthy atmosphere and that we need systemic changes in the way we do business to limit climate change’s harsh effects.
that net-positive, rather than net-zero, should be the end goal. While net-zero acts as a benchmark, we should continue striving for a global economy that continually improves the health of our planet by staying inside the limits of what the Earth can support. outlines an economy where humanity operates within this limit, while still meeting the physical and social needs of its people. To achieve this, we need an economic system that values stability rather than constant growth.
Another criticism of net-zero is that many plans to reduce emissions or become carbon positive depend on technology that may or may not be feasible. innovations are lauded as tomorrow’s solution to today’s problem, but scaling this technology remains a problem due to significant infrastructure and financial barriers.
Nature-based solutions also sound good on paper, with promises of large areas of forested land that will absorb all the carbon we emit. While this idea sounds like a win-win, how it is implemented has a big influence on whether nature-based solutions will do what they are intended to. Problems of , are questions that need to be answered before large-scale nature-based solutions can be a practicable plan to combat climate change.
To be clear, these pitfalls of net-zero solutions do not mean they can’t be parts of a wider action plan, but they are not without flaws. Any action that reduces emissions or helps absorb GHG pollution is progress towards a more habitable world. Nature-based solutions and carbon capture technology certainly do have a place in our net-zero plans, but they can’t be relied on as cure-alls or implement-and-forget solutions. They are merely some of the diverse ammunition in our arsenal to help achieve the goal of a decarbonized economy.
Implications
Action towards net-zero, whether on the business or governmental level, needs to begin now. Longer-term net-zero targets that do not have specific short-term goals (within this decade) will be missing a golden opportunity to act while we can still make great progress. Net-zero pledges need to utilize science-based targets that confirm that climate action will lead to meaningful results.
Better tracking and reduction measures for scope 3 emissions will also be a vital piece of the puzzle. The action we take in the next few years will greatly affect how successful our long-term climate goals are. If we can quickly promote widespread collaboration, funding, and data-backed action, we will still be able to move the needle on climate action to ensure our world is habitable for future generations. It is a great challenge, but one that our future survival hinges upon.
ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all.
Volume 2, Number 4. Copyright © CB Bhattacharya, 2022. All rights reserved. Research assistance for this blog was provided by Nathan Dobb.
March 16, 2022
Realigning Business Models: The Circular Economy
A few months ago, and production practices to lessen the harsh effects of widespread consumerism. Many developed countries, and especially the U.S., have promoted an environmentally harmful culture of excess consumption that has reached a level the Earth cannot sustain. Buying fewer products and better-quality ones is a key towards reaching a future the Earth can support. While much of that blog focused on consumer action, businesses play a role in this as well by producing responsibly and not promoting the throwaway culture society has built. There is another way that offers businesses a chance to realign production practices to something that can be sustained: the circular economy.
the circular economy as “an economy in which waste and pollution do not exist by design, products and materials are kept in use, and natural systems are regenerated.� This relates closely to the : sustainable consumption and production. In contrast to the current “take-make-waste� linear economy of ours, the circular economy provides a way to implement sustainable production methods through hyper-efficient resource usage and reworking existing business models. Under such a model, we would draw less from the natural environment, therefore improving environmental health while still being able to meet consumer demand. Making the shift towards a circular economy will take a fundamental change in how companies undertake business, but with depleting natural resources and an ever-increasing global population, it offers a path towards a business landscape that will be feasible in the long term.
The goal of this blog is to outline the principles of the circular economy so that businesses can tailor their activities towards this more sustainable model. There are two key components of the circular economy that will allow businesses to maximize resource efficiency and limit waste and pollution. These components are closed-loop manufacturing and reworking business models to provide services rather than goods.
Closed-Loop Resource Usage
Closed-loop systems are the first feature of a circular economy. Under closed-loop manufacturing systems, production components and materials that cannot break down are endlessly recycled into new products, rather than sitting in a landfill after products reach the end of their useful life. In one of the regarding the circular economy, Lovins, Lovins, and Hawken make the distinction between natural nutrients and technical nutrients in production. Natural nutrients are those that can be returned to nature after use without adverse environmental effects (i.e. food scraps that will break down.) Technical nutrients, conversely, are those that will be hazardous if left to break down and/or environmentally costly to extract and should therefore be endlessly recycled back into a useful production material (i.e. heavy metals in electronics). Such a system enables the conservation of scarce materials that are becoming increasingly difficult, expensive, and environmentally harmful to acquire.
Via: ellenmacarthurfoundation.org
Some corporations have already begun to implement closed-loop production practices into their business operations. Levi’s Jeans are a prime example in the clothing industry. . So far, they have released a “WellThread� line of jeans that use circulated fabrics and are aiming at expanding circular production capabilities for a greater range of products. by 2030, with a goal of being totally net positive to the environment by that time. Their boot, the Earthkeepers 2.0, is built to be “fully disassembled and recycled� upon the end of its useful life; the company also sources its raw materials from regenerative agriculture that can be sustained going forward.
There are examples of circular production practices in the technology sector as well. Energizer has worked to design their , which contain materials from recycled batteries. in using recycled and remanufactured materials in their electronics and product packaging. Given the environmental costs of electronic waste, this is an area with much progress yet to be made.
Reworking Business Models
Another key feature of the circular economy will involve the difficult task of rethinking business models. To implement closed-loop manufacturing, companies must be able to control products once their useful lifetime is finished in order to reuse the technical nutrients of the product. Under our current system, consumers are most often tasked with disposing of products after they are no longer needed. Even if we give consumers the benefit of the doubt on their recycling practices, this is not nearly enough to drive systemic changes in product disposal.
Two business models already exhibit features of a circular economy and should be further promoted: . Renting allows businesses to maintain ownership and control of a product after the consumer is done with it, while the consumer fulfills their need for a product without owning it. There is much potential for expansion of this business model of providing a service rather than a tangible good. to provide lighting to companies while maintaining control of those lights after their client has no use for them. Ridesharing services are another way that markets can align to provide a service to customers (transportation) without providing ownership of a good (a vehicle).
The resale model also has great power in the circular economy as it takes functional products that the owner has no use for and puts these products into the hands of those who do have a use, eliminating the need for producing a new good. There is momentum in the resale industry, with clothing being a main industry where reselling has grown. In fact, the clothing resale market to $77 billion annually; high-end clothing resale market . Levi’s has also made strides in this area, with the company offering , in which the company resells used pairs of their jeans. With technology improvements and inventive entrepreneurship, it has become easier than ever to connect buyers and sellers of used products, ranging from huge markets such as eBay, Facebook Marketplace, Craigslist, Poshmark, and Shopify down to smaller, niche markets that can help buyers find specific products. Used products offer a chance to consume without such harsh environmental harms; it offers an opportunity for businesses to enter into the secondhand market.
Calls to Action
Businesses must be the players to drive the economic rearrangement that is the circular economy. Procurement and supply chain departments are positioned strategically to drive such a shift through their sourcing, production, and waste disposal policies and procedures. Managers involved in these roles must take stock of the environmental footprint of their entire value chain and product life cycles; this is the only way to measure and drive sustainable business action. While procurement and supply chain people can tailor production practices towards closed-loop manufacturing, top leadership play a large role as well. These are the individuals who are placed in a position to rework company business models and make the strategic decisions that affect how companies interact with the outside world. Top executives are also in a position to rework company business models and should consider how their company can rearrange business activities in line with a service model that fits within a circular economy. While a business will not achieve circular production overnight and may not be able to reach a 100% closed-loop system, steps in this direction are needed and feasible for many. Overall, a fresh view on resource usage and efficiency along with a willingness to cater business operations towards a new model will make a great difference in furthering the business sustainability landscape.
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ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all.
Volume 2, Number 3. Copyright © CB Bhattacharya, 2022. All rights reserved. Research assistance for this blog was provided by Nathan Dobb.
February 16, 2022
Leave No One Behind: Calling for a Just Transition
We live in a world where the wealthiest 1% of people . In fact, that “elite group� holds � i.e., 6.9 billion people. In the last couple of years, extreme inequality has been accelerated by the COVID-19 pandemic and tax and fiscal policies that benefit the rich. Alarmingly, there is another oft looked over factor at play that is promoting such great inequality: climate change.
The relationship between poverty and climate change is effectively : “The poorest and marginalized populations (such as indigenous peoples) are least responsible for past greenhouse gas emissions, most vulnerable to climate change, and possess [the] least resources to adapt to extreme climate events and rising temperatures.� There will be nothing equitable about continued climate change. As economist Joseph Stiglitz notes, environmental decline not only hurts poor people around the globe, it pushes even more people into poverty. The poor are disproportionately dependent on natural resources, with many being subsistence farmers. For example, “� When nature takes a hit, billions around the globe do. These people then cannot afford things to minimize the effects of these environmental harms, such as moving to less-affected areas or buying technology to mitigate impacts (as the rich will inevitably do). The poor must also rely more heavily on their surrounding environments to survive, meaning they will use up more nearby environmental resources to build and heat their homes and feed themselves (since cleaner alternatives are out of reach). That is not to say the poor should be blamed for this, rather, the more people we pull out of poverty, the better outcomes will be for both humans and the environment.
Identifying the link between inequality and climate change is one thing but taking action to combat it is a great challenge. Tackling this problem will require a ‘just transition� to a new economic system globally, and the purpose of this blog is to discuss what such a transition entails and what it will take for us to get there.
An Equitable Path- Just Transition
A just transition to a more sustainable world is as a shift that “ensures environmental sustainability as well as decent work, social inclusion and poverty eradication.� This focus is vital as shifting the global economy will greatly rearrange the labor market. A just transition purports to ensure that the new labor market will better provide opportunities to all; such a transition aims to smooth out the growing pains of reworking the global economy towards something that can be sustained.
drive action towards a just transition:
Economic development: Action must promote long-term economic success and feasibility.Locally designed: A just transition must start at the local level to deal with acute problems. There are no one-size-fits-all solutions.Fair income and a decent life: Workers must be provided opportunities to jobs that provide sufficient wages and an ability to survive above poverty.Pollution reduction measures: Industries that were previously responsible for pollution and unsustainable activities must shift to industries that are significantly better for the environment.Promoting Decarbonization and Minimizing Pollution
It is no secret that decarbonization of the global economy is essential for building a sustainable future. Clean energy sources must replace the fossil fuel industry if we aspire to combat climate change. Issues of air pollution, water usage and pollution, waste, deforestation, and toxic chemicals all pose environmental problems that we will need to solve. Not only are decarbonization and pollution reduction measures essential actions of a just transition, in place that support fossil fuels and other unsustainable business practices. Just as unsustainable businesses must rework business models to those that can be sustainable, investors must follow by supporting companies that can coexist with the environment. Policymakers also must promote measures that will help sustainable industries and disincentivize unsustainable industries.
Decent Work Amid Labor Market Shifts
in which jobs will change through a sustainable transition: job creation, job substitution, job elimination, and job transformation/redefinition. Job creation and elimination are inevitable in the sustainable economic shift, but the other two types of change also play large roles. Job substitution constitutes replacing unsustainable jobs to more sustainable ones in a related field/industry. Job transformation consists of reworking existing jobs, meaning that a worker may stay with the same employer, but their duties will shift. Businesses that approach these economic opportunities with a purpose-driven, worker-oriented approach will aid in driving better human-focused outcomes.
Italian energy producer Enel, which is a member of the University of Pittsburgh Center for Sustainable Business that I direct, when the firm repurposed 22 power plants. When Enel decided to undertake this change, they involved labor unions in the process from the start. Enel’s plan for their labor force had a few key parts. First, they supported retirement programs for older workers that did not want to retrain. Enel then aimed to replace the jobs of the retirees with young workers whom they trained for clean-energy related jobs, showing an example of the job substitution process. Enel promoted a program allowing for relocation of workers to areas that needed clean-energy workers. They also agreed to keep worker unions informed on all major decisions and committed to further worker skills training, job transformations, and continued opportunities for worker relocation, both in their company position and geographically. Enel’s concern for the outcomes of workers shows what it takes for companies to improve their environmental footprint and help their workers simultaneously.
The International Labor Organization provides its as it focuses in shaping a new labor market. Social dialogue, social protection, rights at work, and employment are the four areas that are identified as vital to a successful economic shift. A society that is concerned with the just transition will promote open dialogue on worker issues and provide them with protections both in the workplace and for the unemployed. With such a heavy worker-focus, the just transition should be viewed as much as a labor movement as it is an environmental movement. Both elements must come together if we want to build a sustainable and effective economy. Therefore, the just transition comes at the confluence of an environmental view and a labor view. Governments, NGOs, and businesses alike have a role in supporting workers through these changes.
While reworking existing industries and jobs is a big part of the just transition, people in less developed countries cannot be overlooked. The United Nations as a key focus area going forward. Providing opportunities to countries lacking in existing industry is just as important as retooling industry in industrialized countries. Developing countries present an opportunity to start from scratch, meaning that sustainable activities can be developed independently, providing opportunities to pull more people out of poverty.
Centralized Policymaking to Support Workers and Economic Development
While localized action is a key principle of a just transition, centralized governments need to be involved at a policy level. They are the institutions with sufficient resources to make the big and expensive changes that we need. A just transition will require large infrastructure improvements to convert unsustainable industries; this area will certainly need government funding. Social programs such as healthcare and secure income programs that help to support workers caught up in this economic shift are also important and should be provided by governments. Worker training is important in giving workers the skills they need to work in new industries that will arise. Skills training and education must be promoted by governmental policy to ensure that the existing workforce as well as the future workforce are able to function within a changing job market. Politicians must listen to their citizens to understand what these people need from their government to survive this economic shift. All of these measures are supported by the as necessary actions to support workers during the just transition. In , a key factor was governments listening to what their citizens needed to be able to survive the hardships associated with economic shifts. Citizens must make their needs known and governments have the responsibility to act on those needs.
Regional Actions: Cause for Optimism
While a just transition is no easy feat, there are reasons to believe the movement can find success. The , an American NGO, aims to smooth out the social and economic changes associated with moving away from coal as an energy source. They are active in over 30 U.S. states, with much of their efforts focused on Appalachia, a mountainous region that has been a huge coal producer. In this region, such as installing broadband internet cables, cleaning up and reclaiming the land surrounding abandoned mines, promoting solar energy ‘farms�, providing support for those facing coal-related respiratory illnesses, and spreading awareness of the issues facing former coal-producing regions to garner more support. Additionally, the Center for Sustainable Business has undertaken research on developing cleaner economic development practices in the same region. “aims to build a regional, multi-sectoral coalition of stakeholders to drive investment in infrastructure and energy diversification that will catalyze more equitable economic recovery while laying a foundation for the Ohio Valley (including Upper Appalachia) to be a global leader in cleaner energy resources and circular economy practices.� The Just Transition Fund and the Marshall Plan show that funding and expert, region-specific knowledge can come together as a force for change.
As far as direct governmental action on the just transition, Spain is a country of note. In 1990, ; today, it has less than 1,700. Such a reduction is a result of lower coal demand in Europe, and the economic and social effects of this shift caused Spain to implement a just transition strategy. Under the plan, the Spanish government set aside over $250 million to reduce the negative effects for those working in the coal industry and to improve environmental health of regions impacted by coal mining. include early retirement pensions for miners over 48, training programs to allow miners to find new jobs, and active environmental cleaning efforts. Spain provides an example of a centralized government devoting large amounts money and resources to promote a just transition; this is a blueprint for other countries to follow going forward. provides another good example of both nationalized and business action working towards a just transition. With pro-wind energy policies, Denmark was able to become a world leader in energy production from wind turbines. The clean energy source meets 42% of Denmark’s energy needs and employs over 31,000 people.
Via:
While NGOs and governments both play roles in the just transition, some examples rely on action by communities. that examined 245 Indigenous reserves in the Amazon, researchers from the University of San Diego and Columbia University found that Indigenous peoples were overwhelmingly successful at curbing deforestation, given that these people were granted full land rights over their territories. Researchers also found that Amazonian Indigenous peoples were much less successful at preservation when these rights were not granted. For the Brazilian government, granting property rights to Indigenous tribes and then leaving them be is a valid strategy towards curbing deforestation of the world’s largest rainforest. Not only is this a win for the planet’s health, but it is also a win for these underrepresented peoples that now legally own their ancestral homelands. In this example of a just transition, retooling industries is not the focus, but rather it is propping up those who rely on the environment to survive, and therefore are willing and able to protect it. backs up the claim that Indigenous peoples are quite successful at protecting wildlands. This example illustrates just one way communities can act to promote a just transition at the local level.
Ending climate change cannot be undertaken without a focus on how people will be affected. It is no easy problem to tackle, but a just transition provides a framework towards improving the lives of billions and ensuring the Earth’s long-term livability. The just transition is both a labor and an environmental movement and needs to include elements of both to engineer a more effective and healthy global economy. In this new system, citizens must be prioritized over often self-interested business voices. People should be the primary beneficiary of the new economic system, not corporations. With governments providing the policy-making role, citizens of democratic countries can help drive the just transition by supporting politicians with pro-labor and workers� rights agendas, as well as ones who support social programs and infrastructure spending. This is where community action meets governmental action as forces working towards a just transition. Finally, businesses must listen to and support their workers as business models are reworked, and these firms must be willing to take the necessary action to allow their workforce to survive and thrive in the face of great changes. With the collective action of communities, NGOs, governments, and businesses, we can build an economic system that benefits people and the environment alike.
Want to subscribe to my newsletter to receive blogs right to your inbox? Follow the link below!
ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all.
Volume 2, Number 2. Copyright © CB Bhattacharya, 2022. All rights reserved. Research assistance for this blog was provided by Nathan Dobb.
January 21, 2022
Enough Already: End Greenwashing Now
Volkswagen is one of the world’s . It is no secret that automobiles are that harm the Earth, but automotive companies often promote their “high� gas mileage and other sustainable technology to appeal to environmentally-conscious customers. Imagine the surprise of consumers and regulators when Volkswagen vehicles were found to be �.� Even worse, the company had gone to evil lengths to arm their vehicles with a device to intentionally fool emissions testing software! The Volkswagen scandal is one of the most blatant examples of a practice known as greenwashing: when a company makes itself or a product they offer seem more sustainable than it truly is.
Via: keepgaiawild.com
By supporting sustainable business(es), many consumers aim to towards tackling environmental challenges. With , businesses have responded by communicating their sustainability efforts through marketing initiatives. While marketing is great for spreading the word on the positive actions a business is taking, there have been many cases of corporate dishonesty when it comes to such efforts. presents a significant problem for sustainable development because it leads consumers to believe and support companies for being sustainable when this may really be a falsehood. Greenwashing hamstrings the ability of consumers to support truly sustainable companies, thereby taking power away from consumers to drive progress in sustainability. For this reason, greenwashing must be counteracted.t. This blog will outline concrete ways we can mitigate greenwashing.
There are of greenwashing: firm-level and product-level. Firm level greenwashing entails deception about a company’s environmental actions as a whole. Product-level greenwashing entails deception about an individual product’s environmental footprint. Specifically, greenwashing can be categorized into six different practices: These six sins are:
Sin of the Hidden Trade-OffSin of No ProofSin of VaguenessSin of IrrelevanceSin of Lesser of Two EvilsSin of FibbingOf these six, vagueness, no proof, and hidden trade-off are the three most common (see above source) and constitute the greatest problems that need addressing.
Over the years, there have been many examples of greenwashing, ranging from subtle to blatant. The Volkswagen scandal is one of the most flagrant examples, but there are thousands of examples of greenwashing in the marketplace. when they introduced and marketed straw-less lids that contained more plastic than their lids with straws. Many beverage-producing companies, such as and water ), have also been accused of overblowing their positive environmental impacts and downplaying the negative impacts of their packaging. These examples are merely scratching the surface; this problem is Examples range from half-truths to systematic efforts to trick consumers and regulators, making greenwashing a complex issue to tackle with no one-size-fits-all solution. There are some actions, however, that can be taken to make headway in this issue. Though several other players are involved, ending greenwashing starts within businesses wanting to “do the right thing�.
Purpose-Driven Leadership is Essential
The role of corporate purpose and a culture of integrity cannot be overemphasized in ending greenwashing. Top leadership’s commitment to environmental and societal integrity and honesty with stakeholders is essential to tackle this issue. If any laxity is tolerated within an organization with regard to these principles, greenwashing will continue to persist. Leadership sets the tone for the entire organization when it comes to this issue. Marketers who are responsible for communicating with consumers will not have the incentive to act sustainably if the people above them don’t set an example of ethics, integrity, and an environmental focus. Directed and from within is the precursor to any other action aimed toward combatting greenwashing.
Eliminate Vagueness, No Proof, and Hidden Trade-Offs in Green Marketing
One of the subtler forms of greenwashing is marketing with terms that lack weight or concrete meaning but still lead the consumer to believe that a product or company is environmentally friendly. of such terms include ‘green�, ‘eco-friendly�, ‘natural�, ‘chemical-free�, and many more. Any green term that doesn’t convey the full story of a product can fall into this vagueness trap. Marketers must do away with these meaningless terms in favor of language that is more concrete and specific; sustainable language needs to be succinct and clearly defined. Packaging that is designed with nature or green imagery is another way marketers utilize vagueness to get consumers to associate their products with sustainability. Marketers should only use such imagery and package design for products that are truly sustainably sourced and have a minimal footprint.
Sustainable claims on products need to be backed up with easy-to-obtain information to further substantiate these claims. While there is only so much room to communicate on product packaging, links to sites with further information need to be included to make the information-gathering process simple and easy for consumers. On this front, there is a movement in product packaging that tells the full story. Within the fashion industry, some regarding the footprint of their clothing. They are doing this in a few different ways, from food-like labels to microchips that direct consumers to links showing the product’s path through the supply chain. Some companies are even providing sustainability ratings on each part of their supply chain. Comprehensive labeling such as this provides consumers with factual information on how sustainable a given product is and can remove the guesswork and vagueness of green marketing. We must reward such companies with our fealty and word of mouth recommendations.
Hidden trade-offs are a bit trickier to identify and combat. This ‘sin� occurs when a company makes the claim that their �.� A given product’s supply chain contains many different processes; just because one step of the process is sustainable doesn’t make the whole supply chain sustainable. Supply chain managers have a responsibility to communicate with their respective marketing teams and company as a whole as to how the entire supply chain affects the planet. Executives who are responsible for company-wide sustainability initiatives and issues must take a comprehensive approach to sustainability and make hidden trade-offs transparent, as one or a few sustainability initiatives do not make a company sustainable; the gestalt of their actions is what really matters.
Via:
Keep Internal Communication Flowing
Eliminating greenwashing at a business level doesn’t fall on any one individual or department, it must be achieved through the open flow of information within a company. that “firms with ineffective communication between marketing/PR departments and product development, production, or packaging departments are more likely to greenwash.� Ineffective communication regarding sustainability is a symptom of a lack of organizational purpose and focus on the issue, leading to a ripple effect throughout a given company. When marketing teams are not kept apprised of how products are brought to market, they will have a more difficult time being transparent in communicating with customers. Executives and managers should set up systems to promote the flow of information between those directly involved with production and those who communicate it.
Leverage the Power of External Stakeholders
While the greenwashing problem starts and ultimately ends at the business level, there are other actors at play in fighting this falsehood of sustainability. Consumers, NGOs, the media, and governments . Consumers should strive to be educated in what they buy and how it is sourced to the best of their ability. They should also consider refraining from purchasing from companies that have been caught deceiving customers about their environmental footprint. If companies won’t stop greenwashing for ethical reasons, financial reasons such as reduced revenues due to consumer boycotts will certainly make them reconsider. Companies also understand the importance of company reputation; negative media coverage on greenwashing actions puts a company at risk of harming its reputation. Individual investors can also play a role in the same way by refraining from investing in dishonest corporations. NGOs have done a great deal in identifying and spreading the word when greenwashing occurs; their action on this matter will continue to be important. Finally, governments must have a presence in regulating packaging and marketing messages to consumers regarding sustainability to ensure that companies tell the truth. Ending greenwashing will take a combination of these actors working towards integrity, transparency, and honesty in all aspects of business, to make the landscape more conducive to sustainable progress.
Want tosubscribeto my newsletter to receive blogs right to your inbox? Follow the link below!
ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This fortnightly knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all.
Volume 2, Number 1. © CB Bhattacharya. All rights reserved. Research assistance for this blog was provided by Nathan Dobb.
December 8, 2021
Whither Responsible Consumption
COP26 saw over the current state of sustainable development. While the environmental summit in Glasgow, Scotland saw some such as methane limits, financial capital dedicated toward sustainable development, promises to stop deforestation, and ; it was also clear that even stronger action is needed. Controversy surrounded COP26 � ranging from to . Crucially though, COP26 missed out on bringing global attention to a key area of action that will be necessary in the shift to carbon neutrality and stopping climate change; an area that is actionable on the individual level in addition to the business and governmental levels: responsible consumption.
Rampant consumerism is a great problem for building a sustainable culture, and unsurprisingly this problem manifests strongly in Earth’s wealthiest nations. Notably, America is the world’s worst offender, as it constitutes consumption. Unsurprisingly, the richest are the worst offenders, with the . Consumerism manifests as a problem not only in emissions and energy usage, but in water usage, high-meat diets, unsustainable clothing purchases, and countless other ways. Environmental problems arise not only in how these products are produced and brought to the consumer, but in how they are disposed of as well. In many wealthy nations, and especially in America, the value system not only allows for hyper consumption, but actively promotes it. Despite all the other action taken to work towards a sustainable future, we are missing the complete picture; this norm of excess consumption must be changed as our planet simply cannot keep up with such great resource demands. With humanity projected to use three planets worth of resources by 2050 under the “business as usual� scenario, a sustainable future must involve lowering individual environmental impact, especially in wealthy nations and among the rich.
The United Nations Environment Program (UNEP) as “the use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardize the needs of future generations.� This view stresses the need to separate economic growth and environmentally harmful production. Responsible consumption and production is of the United Nation’s . At its core, sustainable and responsible consumption comes down to reducing the environmental and social impact of personal consumption, buying less, buying better and not consuming for consumption’s sake.
Despite the evident need for more responsible consumption practices, getting consumers on board and reworking society’s value system is one of the greatest challenges we face in building a sustainable future. American consumer culture has long been engrained in the psyche of the country, starting in the years following WWII, when the American government began promoting consumption as a patriotic duty. The attitudes of this time period can be summed up in a quote from economist Victor Lebow, in the : “Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption.� This attitude has certainly prevailed and possibly intensified over the past 70-80 years, as is evident in the people that our society idolizes. Take the Kardashians, for example. They are one of the most famous families in America, and even the world. Not only do they peddle dozens, if not hundreds of products, but they also show off their thousands of shoes and garments in television shows and . When some of the most famous people in a society show off such unchecked consumption, and are idolized by young people for it, it does a great disservice to the message of responsible consumption.
“We need things consumed, burned up, replaced, and discarded at an ever-increasing pace.� � Victor Lebow, 1955 Journal of Retailing
While Americans consume more than any other country, a study from found that “Americans are the least likely to suffer from green guilt about their environmental impact.� This constitutes a big problem for the least sustainable country per capita on Earth. How do we rework the country’s value system to one where all of us take responsibility for our footprints? We need to create a norm that goes against the message we have heard for nearly 100 years and encourage consumers to buy less and better, not more and cheap.
In the paragraphs below, I call out three key stakeholders who can help implement a more responsible consumer landscape: governments, businesses, and consumers.
Government
By dint of their immense regulatory power, governments can and should play a role in its consumer landscapes. In the USA, the Environmental Protection Agency has and production as an area of concern. To enact such change, the USA has joined the network, an organization that aims to promote cooperation between parties to further sustainable consumption. The organization has , spanning procurement, consumer information, food systems, lifestyles and education, buildings and construction, and tourism. While these are not the only areas in which governments can influence responsible consumption and production, they offer a good starting point. Some other examples of government influence are and .
While the responsible consumption issue has appeared on America’s political radar, the country and its leaders would do well to look at other countries such as Sweden and Germany. A program from the Swedish to encourage consumers to use products longer and get them fixed rather than buying a new product. Both Germany and Sweden outline education (for both children and adults) and accurate product labelling as key points of their sustainable consumption strategies. also promotes research on sustainable consumption and environment-friendly product design. We should take ideas from countries who have more developed strategies guiding sustainable consumption.
Businesses
Marketing is a ripe area for business action on advancing responsible consumption. Who would have thought that marketers need to convince consumers to buy less rather than more, but such are the times we live in! Marketers must leverage in trying to change consumption habits, as consumers are much more likely to behave sustainably when revered others are involved in the process. Illustrating the long-term benefits of sustainable behaviors (e.g., distinguishing between price and total cost of ownership) is another important strategy in responsible consumption marketing. On the flipside however, responsible consumption on the part of the consumer must be met with responsible production on the part of the business. Ethical and sustainable sourcing is an area in which businesses must invest to achieve responsible production practices and make this part of the value chain visible to consumers. Making supply chains transparent, for example, as , is one way businesses can encourage sustainable consumer decisions.
Businesses should also start making products that last and end the abhorrent practices of planned and perceived obsolescence. Society has grown to value buying new things so much that products are not built to last in the way they used to be, and the cost of repair is almost as high as the cost of buying a new model. Planned obsolescence, where new models of brands featuring minimal improvements are introduced every so often and existing models are discarded as soon as the tiniest thing goes wrong, can be , with particularly harmful practices in the technology and industries. If we want consumers to buy less and better, what they do buy must be built to last and it is a business’s responsibility to make quality products.
While planned obsolescence is a massive problem for sustainable consumption; perceived obsolescence is another. Perceived obsolescence is what gives consumers the sense that their products are outdated, even if they still function perfectly fine. Businesses promote this idea by carefully controlling ever-shifting fashion trends and making newer products that make last year’s products look outdated (e.g., clothes, shoes). Perceived obsolescence harms the environment in a similar way as planned obsolescence as it makes consumers discard products even when they don’t really need to, but this is exactly what businesses want. Patagonia’s famous ad on Black Friday saying is a refreshing exception, that many more businesses ought to emulate.
A third change that businesses can make to promote responsible consumption is to rework business models to provide services rather than products. Often, this entails renting out products rather than selling them. Retailer by offering consumers the option to rent out clothes. This practice is more environmentally friendly as many people get use from a single garment, rather than it being worn a few times and thrown out; such a model can be successful for a range of goods, especially ones that consumers do not use very often and have no need to own. Ridesharing apps are a prime example as they enable people to live without owning cars, as they know they can get a ride when the need arises. to influence sustainable consumption.
Consumers
Even with business and governmental action on the topic of responsible consumption, it will still come down to consumers to be the driving force behind responsible consumption. To minimize their ecological footprint, consumers must gain sustainability knowledge. The more educated a consumer is, the more they can account for and reduce their footprint. Environmental are a useful tool in evaluating the impact of one’s lifestyle and identifying areas to improve. An educated consumer base is a vital resource in building sustainable societies; without consumer education there is little hope for changing consumption practices.
A key action for consumers is simply buying less goods. Reframing purchases between needs and wants must be a part of the shopping process, with less purchasing of unnecessary items being a massive area for improvement especially in highly consumer-driven cultures. Buying less does not need to looked upon negatively, as . The satisfaction achieved by consuming is a fleeting feeling that is only maintained by purchasing more; this is not a consistent path towards happiness and life satisfaction. While consumption is a fact of life, keeping consumption to a minimum is what consumers must strive for. Many will be surprised to see of reduced consumption such as reduced debt/more disposable income, less stress, and in trimming away the excess of modern life, it will become easier for what really matters to rise to the top.
When people do have to consume, it falls upon them to do their research so that they can buy better. This means identifying companies that source their products responsibly and make their products to last; ratings agencies that grade brands on sustainability can be helpful here. For consumers, this is where it is both practical and environmentally friendly to spend a little bit more to get a high-quality product that will last for years, rather than a cheaply made one that will end up in a landfill after a season or two. In addition to paying attention to responsible sourcing, consumers also must account for the disposal of products they consume. Many different consumer goods have on how they are to be disposed of as they may contain toxic components or rare materials that should be recycled back into production. The responsibility of proper disposal must fall upon the consumer, but they also must have ample resources telling them how to properly dispose of products.
Consumption practices for consumers can be improved across a wide range of other areas as well, such as choosing better transportation methods, more environmentally friendly diets, and improving household efficiency. While consumers say they want to behave more sustainably, acting upon these wishes and reducing individual footprints is imperative in creating a future environment we can continue to enjoy for generations to come.
Want tosubscribeto my newsletter to receive blogs right to your inbox? Follow the link below!
ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This fortnightly knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all.
Volume 1, Number 11. © CB Bhattacharya. All rights reserved. Research assistance for this blog provided by Nathan Dobb.
Whither Responsible Consumption
COP26 saw over the current state of sustainable development. While the environmental summit in Glasgow, Scotland saw some such as methane limits, financial capital dedicated toward sustainable development, promises to stop deforestation, and ; it was also clear that even stronger action is needed. Controversy surrounded COP26 � ranging from to . Crucially though, COP26 missed out on bringing global attention to a key area of action that will be necessary in the shift to carbon neutrality and stopping climate change; an area that is actionable on the individual level in addition to the business and governmental levels: responsible consumption.
Rampant consumerism is a great problem for building a sustainable culture, and unsurprisingly this problem manifests strongly in Earth’s wealthiest nations. Notably, America is the world’s worst offender, as it constitutes consumption. Unsurprisingly, the richest are the worst offenders, with the . Consumerism manifests as a problem not only in emissions and energy usage, but in water usage, high-meat diets, unsustainable clothing purchases, and countless other ways. Environmental problems arise not only in how these products are produced and brought to the consumer, but in how they are disposed of as well. In many wealthy nations, and especially in America, the value system not only allows for hyper consumption, but actively promotes it. Despite all the other action taken to work towards a sustainable future, we are missing the complete picture; this norm of excess consumption must be changed as our planet simply cannot keep up with such great resource demands. With humanity projected to use three planets worth of resources by 2050 under the “business as usual� scenario, a sustainable future must involve lowering individual environmental impact, especially in wealthy nations and among the rich.
The United Nations Environment Program (UNEP) as “the use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardize the needs of future generations.� This view stresses the need to separate economic growth and environmentally harmful production. Responsible consumption and production is of the United Nation’s . At its core, sustainable and responsible consumption comes down to reducing the environmental and social impact of personal consumption, buying less, buying better and not consuming for consumption’s sake.
Despite the evident need for more responsible consumption practices, getting consumers on board and reworking society’s value system is one of the greatest challenges we face in building a sustainable future. American consumer culture has long been engrained in the psyche of the country, starting in the years following WWII, when the American government began promoting consumption as a patriotic duty. The attitudes of this time period can be summed up in a quote from economist Victor Lebow, in the : “Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption.� This attitude has certainly prevailed and possibly intensified over the past 70-80 years, as is evident in the people that our society idolizes. Take the Kardashians, for example. They are one of the most famous families in America, and even the world. Not only do they peddle dozens, if not hundreds of products, but they also show off their thousands of shoes and garments in television shows and . When some of the most famous people in a society show off such unchecked consumption, and are idolized by young people for it, it does a great disservice to the message of responsible consumption.
“We need things consumed, burned up, replaced, and discarded at an ever-increasing pace.� � Victor Lebow, 1955 Journal of Retailing
While Americans consume more than any other country, a study from found that “Americans are the least likely to suffer from green guilt about their environmental impact.� This constitutes a big problem for the least sustainable country per capita on Earth. How do we rework the country’s value system to one where all of us take responsibility for our footprints? We need to create a norm that goes against the message we have heard for nearly 100 years and encourage consumers to buy less and better, not more and cheap.
In the paragraphs below, I call out three key stakeholders who can help implement a more responsible consumer landscape: governments, businesses, and consumers.
Government
By dint of their immense regulatory power, governments can and should play a role in its consumer landscapes. In the USA, the Environmental Protection Agency has and production as an area of concern. To enact such change, the USA has joined the network, an organization that aims to promote cooperation between parties to further sustainable consumption. The organization has , spanning procurement, consumer information, food systems, lifestyles and education, buildings and construction, and tourism. While these are not the only areas in which governments can influence responsible consumption and production, they offer a good starting point. Some other examples of government influence are and .
While the responsible consumption issue has appeared on America’s political radar, the country and its leaders would do well to look at other countries such as Sweden and Germany. A program from the Swedish to encourage consumers to use products longer and get them fixed rather than buying a new product. Both Germany and Sweden outline education (for both children and adults) and accurate product labeling as key points of their sustainable consumption strategies. also promotes research on sustainable consumption and environment-friendly product design. We should take ideas from countries who have more developed strategies guiding sustainable consumption.
Businesses
Marketing is a ripe area for business action on advancing responsible consumption. Who would have thought that marketers need to convince consumers to buy less rather than more, but such are the times we live in! Marketers must leverage in trying to change consumption habits, as consumers are much more likely to behave sustainably when revered others are involved in the process. Illustrating the long-term benefits of sustainable behaviors (e.g., distinguishing between price and total cost of ownership) is another important strategy in responsible consumption marketing. On the flipside however, responsible consumption on the part of the consumer must be met with responsible production on the part of the business. Ethical and sustainable sourcing is an area in which businesses must invest to achieve responsible production practices and make this part of the value chain visible to consumers. Making supply chains transparent, for example, as , is one way businesses can encourage sustainable consumer decisions.
Businesses should also start making products that last and end the abhorrent practices of planned and perceived obsolescence. Society has grown to value buying new things so much that products are not built to last in the way they used to be, and the cost of repair is almost as high as the cost of buying a new model. Planned obsolescence, where new models of brands featuring minimal improvements are introduced every so often and existing models are discarded as soon as the tiniest thing goes wrong, can be , with particularly harmful practices in the technology and industries. If we want consumers to buy less and better, what they do buy must be built to last and it is a business’s responsibility to make quality products.
While planned obsolescence is a massive problem for sustainable consumption; perceived obsolescence is another. Perceived obsolescence is what gives consumers the sense that their products are outdated, even if they still function perfectly fine. Businesses promote this idea by carefully controlling ever-shifting fashion trends and making newer products that make last year’s products look outdated (e.g., clothes, shoes). Perceived obsolescence harms the environment in a similar way as planned obsolescence as it makes consumers discard products even when they don’t really need to, but this is exactly what businesses want. Patagonia’s famous ad on Black Friday saying is a refreshing exception, that many more businesses ought to emulate.
A third change that businesses can make to promote responsible consumption is to rework business models to provide services rather than products. Often, this entails renting out products rather than selling them. Retailer by offering consumers the option to rent out clothes. This practice is more environmentally friendly as many people get use from a single garment, rather than it being worn a few times and thrown out; such a model can be successful for a range of goods, especially ones that consumers do not use very often and have no need to own. Ridesharing apps are a prime example as they enable people to live without owning cars, as they know they can get a ride when the need arises. to influence sustainable consumption.
Consumers
Even with business and governmental action on the topic of responsible consumption, it will still come down to consumers to be the driving force behind responsible consumption. To minimize their ecological footprint, consumers must gain sustainability knowledge. The more educated a consumer is, the more they can account for and reduce their footprint. Environmental are a useful tool in evaluating the impact of one’s lifestyle and identifying areas to improve. An educated consumer base is a vital resource in building sustainable societies; without consumer education there is little hope for changing consumption practices.
A key action for consumers is simply buying less goods. Reframing purchases between needs and wants must be a part of the shopping process, with less purchasing of unnecessary items being a massive area for improvement especially in highly consumer-driven cultures. Buying less does not need to looked upon negatively, as . The satisfaction achieved by consuming is a fleeting feeling that is only maintained by purchasing more; this is not a consistent path towards happiness and life satisfaction. While consumption is a fact of life, keeping consumption to a minimum is what consumers must strive for. Many will be surprised to see of reduced consumption such as reduced debt/more disposable income, less stress, and in trimming away the excess of modern life, it will become easier for what really matters to rise to the top.
When people do have to consume, it falls upon them to do their research so that they can buy better. This means identifying companies that source their products responsibly and make their products to last; ratings agencies that grade brands on sustainability can be helpful here. For consumers, this is where it is both practical and environmentally friendly to spend a little bit more to get a high-quality product that will last for years, rather than a cheaply made one that will end up in a landfill after a season or two. In addition to paying attention to responsible sourcing, consumers also must account for the disposal of products they consume. Many different consumer goods have on how they are to be disposed of as they may contain toxic components or rare materials that should be recycled back into production. The responsibility of proper disposal must fall upon the consumer, but they also must have ample resources telling them how to properly dispose of products.
Consumption practices for consumers can be improved across a wide range of other areas as well, such as choosing better transportation methods, more environmentally friendly diets, and improving household efficiency. While consumers say they want to behave more sustainably, acting upon these wishes and reducing individual footprints is imperative in creating a future environment we can continue to enjoy for generations to come.
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ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews spanning 25 global multinational corporations and 100+ employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use. Buy the book.
ABOUT CB SUITE
This fortnightly knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help everyone be part of building a future that is just, equitable and sustainable for all. More at thecbsuite.com
Volume 1, Number 11. © CB Bhattacharya. All rights reserved. Research assistance for this blog provided by Nathan Dobb.
November 15, 2021
Stakeholder Capitalism: Why and How
July 29, 2021 was announced as —the day by which more natural resources have been used than can be replenished by the Earth in one year. Any resources used from that date on are borrowing from our future resource reserves. Notably, this was one of the earliest Overshoot Days since it began being tracked in 1970, and a mere 30 years ago, the . Similarly, income inequality is at an all-time high; it came out in October 2021 that the than the entire middle class (defined as the middle 60% of households by income). Wilderness and are being lost at an alarming rate. Pledges galore are being made at COP26, but global emissions continue to rise. Much of the world’s population still doesn’t have the COVID-19 vaccine. These doomy headlines on the state of the world raises a key question: who is really being served under the economic models we have in place?
Via: overshootday.org
The capitalism models in place need major reform. We are stuck in a Milton Friedman-esque focus on shareholder primacy; a focus that leads to short-term profit being valued over long-term outcomes that are inherently better for society. While much thought and discussion have been put into the modern issues we face such as inequity, climate change, biodiversity loss, etc., it seems that we are not viewing them from the perspective needed to bring systemic change. There is a prevalent silo-thinking perspective in which these wicked problems are approached in isolation. We need a more holistic approach that fosters cooperation and creation of shared-value between the players with the power to enact change � governments, businesses, investors, suppliers, employees, and consumers. An approach that encapsulates this interconnected view of business and society is stakeholder capitalism.
“The idea here is to optimize outcomes for multiple stakeholders versus trying to maximize for just one. It’s the obsession with value creation for any single group that knocks things out of balance.� -Paul Polman and Andrew Winston, Net Positive. as a business approach that “requires business leaders to define their mission as creating long-term value not only for shareholders but also for customers, suppliers, employees, communities, and others.� An essential ingredient of stakeholder capitalism is a focus on business purpose. For a company to succeed under stakeholder capitalism, it must be able to articulate the societal benefit which it provides. In other words, it challenges businesses to become problem-oriented, rather than profit-oriented. By shifting focus from profits to purpose, businesses become better equipped to take on societal issues. Edward Freeman, widely considered to be the father of “stakeholder theory,� offers the following that distinguish stakeholder capitalism from the several other shades that are talked about:
Notably, these principles and the stakeholder capitalism view are not a panacea. Not everyone will buy into this philosophy of business; there will always be a segment who are focused on their own self-interest at the expense of others. But as Freeman and colleagues sagaciously assert, “Our claim is that we should set the bar for capitalism at the best we can achieve not limit it by trying to only avoid the worst.�
While the is strong, the next challenge becomes implementation. There are of course several elements that must fall into place, but I wish to focus on three interconnected areas that I believe must be triggered for stakeholder capitalism to make the shift from a wise idea to an actionable practice. These areas are corporate reform, financial market reform, and legislative reform.
Via: smartsheet.com
#CorporateReformConvincing the board of a corporation to revise its business model is no easy task but is another vital step in completing the shift towards stakeholder capitalism. Appealing to financial gains is one strategy to convince the board of stakeholder capitalism’s validity. The “that companies that operate with a true long-term mindset have consistently outperformed their industry peers since 2001 across almost every financial measure that matters.”� This statistic makes sense considering that prioritizing the long-term ensures the viability of the company’s future operations. If financial appeals fall flat in convincing board members, other action may need to be taken. : appointing boards that represent a wide range of stakeholders and rewriting corporate guidelines to explicitly state stakeholders as the primary focus of the corporation. While both options will run into their own challenges, they constitute the strong action needed to rework organizational purpose and focus. When calling for corporate reform on sustainability issues, purpose is the key operative. Purpose is the “raison d’etre�, the reason why a company exists. It must be defined by the CEO and their leadership team and then cascaded through the entire organization. Focusing on purpose leads to long-term value creation, with profits coming as a natural side effect of this value creation. For an example of how purpose-driven organizations have an advantage, look at the . Employees are resigning en masse and labor strikes have been especially prevalent since the beginning of the COVID-19 pandemic; a phenomenon also known as ��. Employee problems range from low wages and longer hours, to a lack of meaning and purpose. Companies that implement stakeholder capitalism are better positioned to tackle these issues as they put a greater emphasis on employee concerns and promote a more purpose-driven workplace. In situations where employees are heard and given purpose, many of the problems they face in today’s workplace are alleviated.
Financial market reform is the third trigger for shifting toward stakeholder capitalism. The identifies two roles that investors play in enabling sustainable change. The first role is asset allocation; where investors choose to invest their capital shapes financial markets. When investors favor sustainable companies, these companies are strengthened as compared to their unsustainable counterparts. The second role investors play comes in active ownership. Active ownership occurs when investors have a voice in companies they invest in, as this voice can be used to promote sustainable policies within a company. Institutional investors have trillions invested across global financial markets, giving them great power over corporate trends. In this aspect, there is some cause for optimism. at COP26 in Glasgow that $130 trillion in financial capital has been devoted to achieving net-zero emissions. Investors are also much more in making investment decisions, with younger investors specifically committed to investing sustainably. The case for stakeholder capitalism as an investment works on two fronts- increased long-term profits as previously mentioned along with the peace of mind from making the morally responsible decision. As evidenced by a , investors are starting to drive real financial-market shifts toward sustainable companies. With increasing numbers of investors allocating funds to sustainable investing, companies that operate sustainably will begin to see a market advantage from their actions. With the climate crisis becoming increasingly urgent, it is likely that sustainable investing will move from a trend to a long-term movement.
Via: greenamerica.org
#LegislativeReformWhile businesses have great power to influence sustainability, in theory, government power still trumps business power. Laws need to be put in place that more effectively hold businesses accountable for the costs of their business actions from the view of the consumers, employees, and the environment. This is where environmental protections, stronger labor laws, and consumer protections must be continually strengthened. Massachusetts Senator Elizabeth Warren has a bill that is stakeholder-capitalism focused, the Accountable Capitalism Act. The act has five key provisions that relate to the concept:
All U.S. companies worth over $1 billion must register as a “United States corporation,� a title that would require the company to act with all stakeholders in mind.At least 40% of a United States corporation’s board must be employee selected.Sales of U.S. corporation shares by executives and other high-ranking corporate members would be limited.U.S. corporation political expenditures must receive 75% approval from its shareholders and its directors.Business charters of U.S. corporations may be revoked if they do not comply with these restrictions.While the bill has faced opposition, it is important to note that these issues are being brought to the forefront on a national level. It will not be possible to achieve a sustainable future without government intervention that promotes sustainable business action. Governments have power to hold offenders accountable in a way that no other groups can. This power must be used to prop up sustainable activity and channel business action toward a stakeholder-oriented approach.
Undertaking a great corporate shift from a shareholder approach to a stakeholder approach will not be a comfortable process; there will most certainly be growing pains. We cannot let these speedbumps keep us from making the hard choice to realign our system of capitalism. Stakeholder capitalism offers a chance to rework company purpose to combat our modern issues comprehensively and cooperatively and offers society a future where business lives in harmony with all those it affects.
Volume 1, Number 10. © CB Bhattacharya. All rights reserved. Research assistance for this blog provided by Nathan Dobb.
ABOUT SMALL ACTIONS BIG DIFFERENCE
Based on interviews with 25 global multinational corporations as well as employees, middle managers, and senior leaders across multiple sectors, this is the first book to connect sustainability to the theory and principles of psychological ownership and to propose a succinct, easy-to-digest model of managerial use.
ABOUT CB SUITE
This fortnightly knowledge byte series is an effort to simplify the understanding of sustainability and share insights that help actively be part of building a future that is just, equal and sustainable for all.
Small Actions Big Difference
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