In Part II of Sustainability & Business (series written by Miguel Santos, our sustainability rockstar) our discussion continues by looking into the potential of private-sector-led international sustainability implementation. Part II will discuss: the financial realities shaping stakeholder engagement; the economic factors supporting enhanced private-sector sustainability leadership; and, the role of consumers in supporting enhanced private-sector sustainability. *While the complexity of international economic, social, and environmental systems is not to be disregarded, for the purposes of brevity and ease of understanding, this article will sacrifice depth to enable a wider breadth of topic coverage.
(Read the Part I here)
RECAP: As businesses pivot to face the reality that their future market viability is tied to the elimination of socio-environmental risks and inefficiencies, the sustainable management of people, natural resources, and manufacturing processes will continue to shift onto their shoulders. It is my thesis that businesses will gradually (with help from regulation) assume the majority-share of the financing and implementation of sustainability-centric: research and technologies, resource management, and impact initiatives. In doing so, businesses will be positioned to fill present gaps in international socio-environmental sustainability implementation.
What has shaped international socio-environmental sustainability efforts?
The first question we need an answer for is: why do these implementation gaps exist?As global interconnectivity usually dictates, the causes for this are extensive, but I will focus on one in particular.
Socio-environmental sustainability implementation gaps (e.g. ineffective government funding for renewable technologies, state-led fossil fuel subsidization, disconnected small-scale habitat or resource conservation, ineffective indigenous land sovereignty protection, etc.) are largely the result of limited availability of financial and institutional resources.
In many cases, non-profits possess the correct organizational mission and direction to effectively address sustainability concerns, however they lack adequate levels of capital. Conversely, governments may possess the funds to face sustainability challenges, but are hampered by institutional structures such as short political terms, implementation bureaucracy, and other political frameworks (such as partisanship) that disintegrate large-scale, long-term solutions.
As a result, sustainability efforts are currently being led (for the most part) by two international stakeholder groups that generally do not operate cohesively and who possess debilitating implementation inefficiencies.
Enter the private-sector.
Not only do businesses possess the capital required; they can be driven by the capitalistic requirement of competition to become organizationally determined to achieve successful sustainability integration. By forcing businesses to compete (sustainably-speaking), they will be forced to evolve or lose to competitors. The reality to recognize here is that onlybusinesses can create resources (Porter, 2013). Businesses create financial and social resources by providing a service or product that meets a need, at a profit. By doing so, they create income, which leads to investments, taxes and charitable donations and so on (Porter, 2013). As a result, businesses inherit a sum of resources than the non-governmental and governmental sectors cannot replicate.
To help put this imbalance of financial resources into perspective, in 2014 all of the developed world’s charities and governments invested approximately USD 200 billion in developing nations. In the same year, businesses from those same countries invested USD 3.7 trillion into those developing nations (Woods, 2017). In the United States alone, total revenues by corporations in 2013 were listed at USD 20.1 trillion, as compared to non-profits (USD 1.2 trillion) and government (USD 3.1 trillion) (Porter, 2013).
It could be posited that the non-profit and government sectors may be plateauing in terms of their ability to provide financial and institutional sustainability solutions relative to our implementation requirements. The main concern here is that businesses don’t share the same ingrained ideologies to solve these issues as do NGOs and some governments. This ideological shift is absolutely required to enable businesses to maximize sustainability leadership, but how can it be actualized?
When perspectives shift, businesses pivot.
As Porter (2013) illustrates, conventional wisdom within business and economic theory regularly purports that there is a tradeoff: businesses make a profit by causing a social problem – i.e. polluting more makes more money. However, the reality is that businesses profit from solving social issues – e.g. limiting energy requirements improves profit margins. When perspectives at the ownership-level shift, organization-wide evolution is linear and quick. This one shift in perspective can quickly become the snowflake that starts an avalanche in a boardroom, an industry, a country.
As the world’s primary source of financial and social resources, businesses are innately able to catalyze impact at a scale unattainable by the non-profit and government sectors. The challenge is how can businesses become motivated to address this in combination with satisfying the financial objectives of their shareholders?
There are two main solutions:
1. The private-sector’s raison d’être of ‘maximizing profits’ needs to be applied and condoned within the context of sustainability.
A popular way of describing this type of business management is the ‘triple-bottom-line.’ This means operating a business by balancing social, environmental, and economic goals (i.e. sustainable business). When this framework is integrated, the goals of maximizing profits, sustaining equitable communities, and sustainably managing the environment exist cohesively to support the success of a business.
2. The private-sector must operate on a larger time-scale.
Sustainability exists on a temporal scale larger than political terms, human generations, and business lifespans. While the issue of time-scale may be the most abstract barrier facing collective sustainability action, it is nevertheless integral to its success. Many capitalistic objectives, such as maximizing profits at all costs, pervade as a result of short-term thinking. However, when a business thinks long-term, maximizing profits while generating negative social and environmental externalities (which increases risks, lowers competitiveness, and inflates operating costs) becomes much less logical.
By institutionalizing sustainable business around these two solutions, it can be reasoned that global economic equitability can also be improved. When businesses operate with long term sustainability in mind and an entrenched desire to support a triple-bottom-line, the downstream effects can improve the economic health of marginalized communities and help eliminate certain environmental externalities. Gender equality, economic inclusiveness, cross-industry collaboration, and environmental stewardship can all result from sustainable business management.
Consumers have a part to play.
You and I, him and her, them, us. We’re the catalysts!
It will be consumers who enable the initial ideological shift, and it will be consumers who maintain the momentum towards international sustainability. Consumers dictate consumerism and their purchasing decisions guide businesses, policy, and economies. The ideological shift within the business community will have to be a reflection of the ideological shift within consumers themselves.
When consumers utilize their monetary agency to redefine what they require from global economies, businesses follow. They have no choice. By acting so, consumers are able to not only reshape how businesses measure success, but also what they do to succeed. When consumers ask for more private-sector socio-environmental responsibility, the following occurs:
- businesses realize that it’s in their best interests to evolve and operate in accordance with societal licenses-to-operate;
- consumers feel impactful and have agency over limiting the socio-environmental impacts resulting from their purchasing decisions; and lastly,
- humanity’s stewardship over the global systems that sustain us improves.
Capitalism is the most powerful anthropogenic system ever created. It has integrated itself into all aspects of society and in doing so has contributed to an array of positive and negative societal and environmental externalities. As global issues increase in scale and complexity, perhaps pivoting capitalism in a new direction will provide us with an effective tool, at an appropriate scale, for solving many of the international issues we are currently facing. Allowing businesses to harness this potential in a manner that benefits economies, societies, environments, and their bottom line, could very well be the most applicable solution at our disposal.
Thank you for reading.
Part III of Sustainability and Business will conclude this series with a discussion on how the growing integration of private-sector sustainability has proliferated and exemplified itself in a variety of contexts.
Porter, M. (2013). The case for letting business solve social problems. USA: TEDTalk. Retrieved from https://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_problems
Woods, W. (2017). The business benefits of doing good. USA: TEDTalk. Retrieved from https://www.ted.com/talks/wendy_woods_the_business_benefits_of_doing_good/up-next#t-522199