By Pamela Ravasio, IDP-C, IDN Board Member
We need new business models that are not predicated on selling more stuff to more people.
Source: World Resources Institute, WRI
And because of our ‘Here and Now’, there is truly not much more to say. I could finish this post with the above quote.
After all, the quote states a truth that is as much a fact as is the expansion of the universe.
Except that:
Those ‘new business models’ the quote talks about, are not reality. Far from it. They’re not even considered a possibility by most companies.
Therefore not by most CEOs.
And therefore neither by most board of directors (BoDs), who are in charge of hiring exactly those CEOs that are in charge [Note to remember: it is the job of the board to hire the most adequate CEO. At least in principle].
I cannot conceive a successful economy without growth.
Walter Heller (1915 – 1987), former Chairman of the U.S. President’s Council of Economic Advisers (1961 – 1964)
Instead of in depth discussions about ‘new business models’ suitable and functional within the physical limitations of our resources, what we hear and read in business newspapers, in academic papers, and in policy proposals, are the following terms:
Green Growth (the E in traditional ESG):
“Green growth can be seen as a way to pursue economic growth and development, while preventing environmental degradation, biodiversity loss, and unsustainable natural resource use.
By accounting for environmental risks that could hold back social and economic progress and improving competitive conditions in the economy, green growth policies can help spur transformational change and ensure that investing in the environment can contribute to new, more sustainable sources of growth and development.”
(Source: OECD work on sustainable development 2011, https://www.oecd.org/greengrowth/47445613.pdf)
Inclusive Growth (the S in traditional ESG)
“[…] fostering productivity growth and reducing inequalities”.
“[…] a virtuous circle where growth translates into higher well-being for all and inclusiveness underpins stronger growth in a sustainable manner”
(Source: page 4 and 5 of “Bridging the Gap: Inclusive Growth 2017 Update Report” by OECD)
Sustainable Growth – a fuzzy catch-it-all
This term is used to mean any of the following: ‘repeatable growth’, ‘ethical growth’, and ‘responsible growth’. Each of which of course has its own meaning yet again (Source: Rick Miller on Forbes) .
- Repeatable Growth: Having and maintaining a business that is capable of repeating its successes and continue to existing going forward.
- Ethical Growth: Achieving the above repeatable growth all while keeping within ethical guidelines and not resorting to false play.
- Responsible Growth: Advocates a balanced focus on profit, people and the planet (triple bottom line)
The Elephant: so dominant it is typically overlooked.
Or would it be more accurate to say ‘so dominant it has become invisible’? Because it has always been there. And presumed to remain always there also.
The above ‘growth’ terminology makes it evident that despite numerous studies showing that we’re approaching planetary boundaries (both, of climate critical dimensions as much as of physical resources) fast: every single company keeps advocating for producing and selling more units of X. And forecasts continue to add Y% every year to the profit expectations of the year before.
At best, each unit of X is created/produced in a somewhat less resource intensive manner.
A fact that normally is – again: at best – offset by the %-increase of units of X being produced and expected to be sold.
The total impact of the sum of all units X produced and sold (and then trashed) is still on a rather steep raising trajectory. How else could it be for a ‘prosperous economy’?
In the hope somehow, someone, somewhere will find the golden key, the silver bullet, our reality more often than not ignores, or maybe just forgets to apply to our businesses, the following key question:
Have you Done the Math?
[And applied it to you and your business?]
- Have you looked openly and honestly at your dependency on natural resources and the associated limits on business growth as you define it today?
- Have you calculated your return on stakeholder investment (RSI; more on this shortly on this blog) to see if you truly benefit the global society or if you in reality freeride on people, the planet, governments and communities?
For both of the above there are sufficient stats around – public and private – to come up with at least a reasonably appropriate, accurate and approximate number.
And: The role of the board?
Growth as we know it certainly has created prosperity, quality of life and to an extent happiness.
But only for the lucky ones of our global society, mostly in the so-called developed economies.
For far many others, the same holds not equally true. Rather, this ‘luck’ has come at the expense of the well-being of many citizens, mostly – but by far not only – in developing economies, as well as the planetary eco-system,
Growth as we know it is a thing of the past. Many have either not realised it, or simply choose to close their eyes to the blatantly evident facts of science (i.e. reality).
It does not require more than a simple act of insight to realise that infinite growth of material consumption in a finite world is an impossibility.
E.F. Schumacher (1911 – 1977), ‘Small is Beautiful’ (p.129)
When it comes to ensuring the long-term success of a business, the board of directors is the one who should be in possession of the sceptre and lead the charge.
Hence hire a CEO capable of tackling this elephant. And spear heading the take up of relevant KPIs (‘the math’) that will lead the organisations into the right direction.
And yet: it is a fact that hardly any board of directors has dared to approach this elephant in the room. For a simple reason: it is going against the grain of the currently acceptable and presumed to be ‘necessarily correct’ paradigm. A paradigm that says: without growth, no prosperity, no quality of life, no happiness.
Or more sloppily formulated: We lack sufficient imagination and innovation spirit to accept that there may indeed be a totally different approach, where ‘growth’ as we know it is irrelevant.
This traditional ‘growth’ paradigm must not only be called into question because it is outdated. But rather because as paradigm it is fundamentally wrong the way we have been trained and brought up to think about (see e.g. here, here, and here).
The new paradigm has at its core a minimum of two (mathematical, and therefore calculable) dimensions:
- De-coupled dependence from natural resources and associated limits.
- This would mean that availability and constraints related to scaling of the business are independent from any resources that available in finite supply.
- Overall positive Return on Stakeholder Investment: the business is actually creating value for the stakeholder collective.
- The stakeholder collective would encompass share holders, but also include communities, employees, local and national governments, the eco-system etc.
Any business model that ‘has done the maths’ accordingly to the above is a business model that at least in principle could be envisioned as a long-term viable undertaking.
For such businesses, there is and will be plenty of “room to grow’ – just differently than we can imagine it right now.
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Additional Questions worth asking your organisation:
– How exactly are you truly adding value, rather than just ‘stuff’, to the world? Are you adding value without making more ‘stuff’?
– If you still are making ‘stuff’: Is there a genuine, fundamental need for your product X?
– In other words: does the world, humanity, our global society really need more of X?
– Does product X, as well as its production, use any resources that are single-use and/or finite as at producing? If so, what is your fade out / replacement plan and deadline? How are you decoupling your product X from globally finite resources?
– Examples: coal, oil-based energy, petrochemicals, rare earths, precious stones etc?
– How do you measure your impact (the one of your organisation and all the operations and processes it relies on) on the well-being of communities you operate in?
– Examples: What are the outcomes of your stakeholder value calculations? Are you overall giving back more to society than you’re taking out? What about quality of life and ‘happiness’ with life in the communities? Do you contribute to reduce the material ‘needs’ gaps that truly needs closing? Or are you catering to the desirable ‘wants’ market? Is there an absence of blatant inequality of rights, power and wealth among members in the communities you work with and in? How small or big is the perceived (!) inequality in the communities you work in and with, and in the system? As how fair or unfair is the factually existing gap being perceived subjectively by the communities on an individual level?
First published on 9 June 2020 here.