The end of the world was yesterday

Companies as global citizens

Why the relationship between private enterprise and politics needs to be completely rethought – and how even climate change will then no longer be a catastrophe, but a project.

By
Denielle Sachs and Ari Ratner
Photo
Collection Fuse/Getty Images (Dolphins)

More than 200 years into the industrial revolution, the population explosion and environmental destruction that have accompanied our material progress are beginning to catch up with us — and with our fellow species, both on land and in the oceans.

Over the last 40 years, the world has lost half of its wildlife. By 2020, iconic species such as rhinos and African elephants may become extinct in the wild. More than 40 percent of the ocean’s phytoplankton, which produces half of the world’s oxygen, has died off since 1950 due to rising ocean temperatures. By 2030, the demand for water will exceed the supply by 40 percent. By the mid-21st century, the vast majority of commercial fish stocks may collapse. Global food production may drop by 18 percent due to climate change, even as our population is expected to rise to 9.6 billion.

Despite the gravity of the challenges we face, there are tremendous opportunities for solving or, at least, ameliorating them. But as a global society, we have reached a critical inflection point. To put it starkly, down one path may lie a future that the entrepreneur Peter Diamandis has described as a world of “abundance” – wherein all people could have their material needs met, thanks to advances in technology and innovation. Down another path may lie a world that the science writer Elizabeth Kolbert spelled out in her book The Sixth Extinction, where in the blink of an eye we are altering environmental conditions on our planet so dramatically that a huge proportion of species cannot adapt, putting humanity itself at grave risk.

Companies today, especially the large incumbents, are at the front line of the defining challenges of the next century. Whether or not they choose to accept it, they are already playing a disproportionate role in shaping the world we live in. The incomes of the largest 200 multinationals are equal to approximately a third of global GDP. The total market value of the world’s six most valuable companies – Exxon Mobil, Apple, Microsoft, Google/Alphabet, Berkshire Hathaway and Johnson & Johnson – is approximately equal to the total GDP of all of Africa’s 55 countries.

Visionary corporate leaders don’t just operate within existing constraints or markets: they create new markets;

The industries with the most potential to redress global challenges are the ones whose environmental and social impacts are currently the greatest. Experimentation and real transformation in these large entities have the potential to lead to the reconfiguration of the system and the rise of new pathways for sustainable economic and social development. The 21st century has seen the rise of the “corporate citizen,” signaling a move away from Milton Friedman’s famous adage that “the only social responsibility of business is to increase its profits.” We are witnessing a shift in corporate behavior, with companies moving along a spectrum of social responsibility – from those who have built “side-car” philanthropy and grant-making programs to those wrestling with questions about fundamental business changes that could shift entire industries. We are also seeing the rise of hybrid business models that blend traditional capitalism with products and services that address the long-term needs of our planet, as well as a whole new category of institutional leaders with job titles like Chief Sustainability Officer or Green Enabling Officer.

To move our planet in the right direction, it will take extraordinary leaders – with vision far beyond quarterly timelines – to chart a sustainable future for our planet. The following section articulates three important behaviors that we think will define the extraordinary corporate citizens who will help to chart a sustainable course into the 22nd century.

1. Be visionary: Articulate a narrative that matters

When leaders stand up and articulate a bold vision for the future, a shift occurs along their entire value chain. Organizations realign their priorities, consumers take note, and staff members are imbued with a sense of pride that can materially increase their productivity. To truly meet the demands of the coming century, leaders need to communicate the social purpose and fundamental values that sit at the heart of their brand. They need to articulate the world as they imagine it, and how their company is working to achieve that vision. Doing so can have a transformative effect.

Google, whose founders wrote the “Don’t Be Evil” manifesto, which states that “we will be better served… by a company that does good things for the world even if we forgo some short-term gains,” is often lauded as one of the greatest companies to work for. In 2015 it ranked first (for the sixth time) on Fortune’s 100 Best Companies to Work For list. Richard Branson built an empire on his philosophy “Put your employees first, your customers second, and your investors third, and in the end everyone will be happy.” He has shown over and over that “doing good” is good for business, in industries that span banking (Virgin Money, whose stated aim is “to make everybody better off”), media (Virgin Media is “digital that makes good things happen”), energy, transportation and more.

Visionary leaders don’t just operate within the context of existing constraints or markets; they create new markets. It is estimated that becoming a sustainable brand can add as much as 30 percent to a company’s profitability. Take, as an example, General Electric’s “Ecomagination” initiative, which generated $70 billion dollars over five years. All of these examples have one thing in common: bold leaders who articulated and delivered on a values-based mission for their companies.

There is a first-mover advantage to being an established institution that leads change. We have seen this across the auto industry, where the fast-paced development of fuel-efficient vehicles – from hybrids to electric cars – has seen a new race for positive impact that has already begun to spread into the broader economy. Elon Musk’s April 2015 announcement of Tesla’s “Powerwall” – an affordable battery that powers homes using solar energy – has shown that innovation in one sphere of the economy can quickly spread to another and achieve synergies that enhance both the brand and the bottom line. Someone who gets ahead of the curve is normally one who can take more of the market share.

Global food production may fall by 18 percent due to climate change, while the world’s population is expected to rise to 9.6 billion. In future, companies will have to play a crucial role in resolving these issues.
(Scala dei Turchi, Sicily; photo: Massimo Vitali)

Global food production may fall by 18 percent due to climate change, while the world’s population is expected to rise to 9.6 billion. In future, companies will have to play a crucial role in resolving these issues. (Scala dei Turchi, Sicily; photo: Massimo Vitali)

2. Build bold, pre-competitive and unlikely alliances

Just 10 years ago, public-private partnerships were considered a novel idea. But today, as the lines between public and private increasingly diminish, the entire concept of partnering is assumed. This is particularly true in relation to complex societal ills: the question is not if or should, but rather whom to partner with and how to do it. The devil is often in the details, particularly when one is trying to forge alliances among traditionally competitive entities. Looking ahead, however, we think it is precisely those pre-competitive partnerships that will be the key game-changers. Partnerships that seek to elevate collective action solutions to problems above short-term competitive concerns will have a fundamental impact on shaping a more equitable and sustainable future. We’re already seeing incredible hints of this in a variety of settings.

The Tropical Forest Alliance 2020 (TFA 2020) was created to bring consumer goods companies together to achieve zero net deforestation by 2020. This effort aims to transform an entire value chain by bringing together companies that can collectively solve a major environmental issue while not jeopardizing their own competitiveness. The efforts to combat the 2014–15 Ebola outbreak in West Africa saw the creation of rapid-response partnerships within the healthcare sector - from the medical diagnostics companies Fio and Corgenix teaming up to develop a mobile Ebola virus test that provides patients in remote areas with automated test results, to biopharmaceutical companies Vical and AnGes MG joining forces to produce an Ebola antibody therapy. We’ve also seen unique collaborations around workforce issues, including some in the most fiercely competitive industries. In response to a shortage of skilled car manufacturing labor, an unlikely alliance of major players across the auto industry – domestic and foreign, union and non-union – was formed. Companies teamed up with community and technical colleges across America to train and certify workers who could fill desperately needed positions and to ensure that their skills will be accepted across states and companies. To date, over 40 colleges have been successfully matched with 25 leading partners in the auto industry, including GM, Volkswagen and BMW.

3. Move from incremental shifts to transformational change

Despite the marked shift in the language around corporate citizenship, decision-making and corporate governance has been slow to transform from within. Much of the change we see is occurring on the periphery of corporate boardrooms, in response to externalities (e.g., shifting consumer demand, the war for talent, reputational crises and brand loyalty, peer pressure, etc.) and primarily with forward-thinking industry leaders or in niche areas. Furthermore, the change is often incremental and palliative, as opposed to truly transformational. Corporate social responsibility initiatives, however well-intentioned, are largely ancillary responses to the challenges and opportunities that exist, and they don’t deliver the interventions required for new market development and impact. To be sustainable, scalable and effective, initiatives must be embedded in organizational strategy by framing them as compelling business opportunities that fuse a strong commercial or cost-effective rationale with opportunities for successfully tackling social or environmental challenges.

But this change to a more integrated and socially responsible business model is a difficult one. Big institutions move slowly. Values are imbued over long periods of time. Supply chains are complex. Transformation will require new frameworks for decision-making, an emphasis on building a culture of citizenship, the utilization of new networks and greater transparency, and ultimately a reimagining of incentives within corporations so that all employees work to achieve this vital mission. The emergence of B-corporations – a whole new class of company that uses broader measures of success to include social impact – has in some ways offered a proof of concept. Take Ben & Jerry’s: the company is overhauling its entire supply chain to ensure that all of its ingredients are sourced from fair trade, non-GMO farms and factories. This is an exhaustive undertaking that is fraught with challenges and risks, but it defines Ben & Jerry’s as a brand and proves that the impact made through basic business decisions can resonate on a much greater scale. The switch to non-GMO products, for instance, has forced the company’s entire supply chain to respond, prompting many of the companies it sources from to switch to more sustainable practices.

But while B-corporations can be catalytic, they have yet to transform our marketplaces. Today, only a tiny fraction of the world’s companies – and none of the Fortune 500 – are certified B-corporations. This situation needs to achieve scale and, most importantly, greater depth. Until trends such as this take hold in our primary markets (and until incentives are restructured inside the exchanges that actually govern our marketplaces), these changes will remain incremental and will be beholden to fickle externalities. Until boardroom decisions at the core of the marketplace are guided just as much by impact as they are by economics, the fundamentals of the market will not change. As we move forward, all corporations will, in effect, have to become B-corporations – whether in law or in spirit.

Take the example of the plastics industry. Today, there are seven common types of plastics, only two of which are fully recyclable. Yet most plastics companies are still producing and using single-use plastics. Their effect on our environment, particularly our oceans, is truly astonishing. Island communities in countries like Indonesia and the Philippines are awash in plastic. Companies are beginning to find creative methods for dealing with this issue: Adidas recently announced that it will start developing fibers made from plastic ocean waste that can be used in the manufacturing of clothing and potentially of shoes. Although this is important in dealing with the disaster on our hands today, it too can only be palliative. What will it take for companies to eradicate the use of non-recyclable plastics outright?

Conclusion: A challenging but clear choice

If the entire history of the universe were condensed into a single year, modern humans would occupy less than the last seven minutes of December 31 – yet we are doing more damage to the planet by an order of magnitude than any other species. Sharks, which have been on this planet over 100 million years, are on the verge of being wiped out by their younger cousins (us). As a species, we kill sharks at the rate of 100 million per year; they kill us at the rate of a dozen people per year. Despite the evidence that humanity is driving mass extinctions – in the order of 20–50 percent of all living species within this century – we have been tragically slow to change, and in some circles of influence we have been frustratingly defiant. In his book Five Billion Years of Solitude: The Search for Life Among the Stars, Lee Billings writes that “In all this time, Earth has produced no other beings quite like us, nothing else that so firmly holds the fate of the planet in its hands and possesses the power to shape nature to its whim… humans are now influencing the planet on these larger timescales, but we don’t seem to be very good at planning and accounting for that fact. We ignore the lessons of the past and the prospects of the future at our own peril.”

Environmental destruction on this scale cannot long be cordoned off from humanity’s fate. Climate change is already credited as a significant cause of conflict from Syria to Sudan. Water resources are growing increasingly scarce – from California to Jordan. We are entering a world that is, in the words of Tom Friedman, “hot, flat, and crowded” – and growing more so. We are in danger of making this planet uninhabitable for humanity. It is vital – for their long-term health and ours – that corporations chart a course towards fundamental change. Major corporations like BMW have an especially critical role to play because of their global supply chains and the example they set for SMEs. They have a moral imperative to act now… and they increasingly have a market imperative to act, as well. Citizens around the globe are demanding change from the institutions – whether governments, corporations or others – that have been failing them. Similarly, workers and other stakeholders are increasingly demanding purpose in their lives. Those corporations that invest in positive social impacts can seize not only the moral high ground and the marketplace of ideas, but also the actual market.

About the author:

Denielle Sachs is Philanthropy and Corporate Responsibility Adviser, Executive Director of the Blue Sphere Foundation, and former Director of Social Impact for McKinsey & Company.
Ari Ratner is the founder of the consulting group Inside Revolution. He was formerly a political appointee in the State Department.

03/17/17