The Global Step Change
In recent years a comprehensive corporate responsibility strategy has typically involved a commitment to continuous improvement, to being near the best in class, and engaging stakeholders. In 2007 that changed as the scale and urgency of social and environmental challenges became more widely understood, as well as the risks and opportunities to business. There was a wave of announcements of specific time-bound environmental targets, concerning actual performance, rather than management processes.
Awareness of climate change drove this agenda, with many companies announcing specific targets as part of their membership of initiatives like The Climate Group, the Carbon Disclosure Project, or the WWF Climate Savers initiative (see "carbon the new black" and "the green media frenzy"). For instance, the household products company Reckitt Benckiser announced the target of a 20% reduction in the company's total carbon footprint by 2020, applying to all emissions associated with its products and packaging. Progress is being sought through collaboration with suppliers, measured by independent experts, and to be verified by third parties and reported annually.1 Cisco is pioneering a system of giving each of their departments a carbon quota, with senior managers being assessed on how well they manage their carbon budget.2
Awareness that the carbon challenge involves reducing resource consumption and waste as a whole is encouraging the establishment of a broader set of environmental targets. In October the world's largest consumer products company Procter & Gamble announced the target of a 10 per cent reduction in its waste and energy and as well as water consumption by 2012, which it says would result in a 40 per cent reduction over the decade.3 It extended its commitment to performance goals on responsible enterprise by aiming in the next five years to sell at least $20bn of products whose environmental impact is at least 10 per cent less than those of previous products. That is the first time we believe a consumer products company has set itself a financial target for developing and selling new "greener" items as a whole, rather than for waste or energy reduction, or phasing out certain materials.
The emphasis on targets comes at a time when some key concepts in CSR were being challenged. Can continuous improvement and being best in class be sufficient if there are absolute performance levels needed to avoid costs of carbon and avert a climate disaster? Should holding stakeholder dialogues be a sign of good performance when leading research institutions are finding they make little difference to aligning the interests of businesses and their stakeholders? (see "silence is golden"). Might 2008 see the extension of this target trend to a broader range of corporate responsibility issues, such as development, labour and human rights? After all, for as long as the international community has had targets on climate change it has had targets for poverty reduction and the fulfilment of human rights, with the Millennium Development Goals, for instance.
This raises the question of whether companies need targets for all aspects of their social and environmental performance. Answering that depends on what we think is being achieved at present and how quickly, in relation to the goals we have. At the turn of the year Lifeworth decided to poll its 4000 newsletter subscribers on this issue. As over 90% of the respondents are actually working in corporate responsibility, the others having a professional interest in it, their responses give an impression of what the profession thinks is being achieved. We suggested two goals to measure performance by - a situation where all global economic activity is:
On average, corporate responsibility professionals perceived almost a doubling of the percentage of environmentally sustainable economic activity in the past decade, up from 13.2% to 22.5%. They see this increasing in next decade, to about 47% of companies, and then increasing at a slower pace through to 2028, where they anticipate about 57% of economic activity will be environmentally sustainable. If their predicted rate of progress would continue, rather than further taper off, then overall performance would be 67.6% by 2038 and about 78% by 2050. This means that the professional corporate responsibility community, as represented by Lifeworth's subscribers, think that current rates of progress would create a sustainable economy by around 2070.
Like us, many of these respondents know how pressing the issue of climate change is. The IPCC previously stated the world needs to see over 50% reductions by 2050, and the latest science now suggests an 80% cut by that time to ensure we do not go over a critical threshold of 2 degrees warming. That would mean at least a 20% reduction in the next 10 years, and given the growing emissions with industrialisation in the global South, possibly even double that amount in the industrialised countries to offset that. Hence WWF reminds us that "in five years it may be too late to initiate a sustainable transition."4 A slower rate of change appears to be futile, and so achieving a sustainable economy by 2070 will not actually be possible.
The respondents perceived that we are working from a better starting position with social issues, but that the rate of improvement will taper off more quickly than the progress on the environment. This means these corporate responsibility professionals perceive we are starting from a less difficult place with social issues but they will not improve as fast as with the environment, reflecting perhaps the current emphasis on the urgency of environmental challenges. We should recall that the world community made a commitment to eliminate world poverty by 2025. To do so would require economic activity to be socially responsible. Professionals estimate that on current trends only about 50% of economic activity will be socially responsible by then. It will only be about 75% by 2050. The results are summarised on the graph.
What are the implications? A redoubling of efforts? We asked the CSR professionals and they predicted a doubling of existing effort would bring achievement of a social and environmentally sustainable economy forward a decade or two. It is debatable whether that is fast enough for companies to help meet the challenge of climate change or the global commitment on poverty. What these professional perceptions indicate is that we need a global step change towards a sustainable economy, involving a step change in the way responsible business is promoted. The message is that although more of the same current CSR practices may be continually better, best in class, and welcomed by some stakeholders, it will not deliver the sustainable global economy in time.
Understanding the nature of this global step change requires a clear vision of what that sustainable economy will look like. Such an economy will require sustainable consumption. Today global consumption levels are 5 times what they were just 50 years ago, and the natural world is buckling under the weight of demand. If everyone lived like Europeans, ecological footprint calculations suggest we would need three planets to support us. If everyone lived like the average Asian we would also need more than one planet. Indian middle classes have a higher per capita consumption of carbon than the average Briton. So it would be physically impossible for all the world's poor to achieve higher wellbeing in ways as resource-intensive as the new middle classes in Asia and elsewhere. Resource-heavy development is, by objective measures, only a possibility for a minority or for the short-term. How can all of humanity live well in a way that will endure? Humanity's challenge is to find ways to improve human wellbeing within the limits of the Earth's resources; to stop living as if we have another planet to go to.
Reduction in the consumption of resources does not have to mean reducing wellbeing. Instead, it means a reduction in the actual resource through-flow of economies. This will require the 'dematerialization' of systems of production-consumption (i.e. physical efficiency of those systems), and the 'optimization' of systems of production-consumption (i.e. better management, planning, and changed attitudes and behaviour in those systems). This requires a shift in economic paradigm from the linear 'take, make and waste' approach to resources to a circular 'make and remake' approach. It requires a shift towards considering what human need is being met by consumption.
Such a shift will need strong leadership from government and business. It is a common misconception that sustainable consumption is about shopping by individuals. Business is the biggest consumer of resources, and can provide alternative products and services, and government is the biggest guide of this. Individuals cannot get 10 times the amount of cars out of the same bit of steel, business can. Individuals cannot purchase public transport solutions that don't exist, business and government can provide them. Individuals cannot systematically redistribute consumption opportunities to those in need as prices for natural resources are corrected and rise, governments can. Individuals cannot get prices to rise in the market place for their produce so they have sufficient income to invest more time and resources into maintaining their lands, business and government can.
In many cases the poor may need to increase their consumption of resources to improve their quality of life. This means rich consumers must reduce their consumption rapidly towards a more fair allocation of resources, both within and between states. For any increases in poor people's quality of life to endure they must be based on more resource-efficient solutions. It makes little sense to help people today by ruining their, and our, tomorrow (see "the rose water debate"). Thus redirecting resource consumption into more sustainable infrastructures and products is key. For example, the same amount of energy might be required to build a train system as a system of airports and roads but the former will create a level of mobility with less ongoing energy demands.
Therefore the 'Global Step Change' requires a reduction, redirection, and redistribution of consumption. It involves stepping:
Achieving this step change will require the financial system to be more supportive of longterm value creation. Throughout 2007 awareness grew of the need to address both the societal and economic implications of our global financial system. During the year this involved greater criticism of the operations of hedge funds (see "cannibal capital") and private equity firms involved in leveraged buy outs ("private equity public inequity"). As the year ended and the impact of the sub-prime mortgage situation led to extreme volatility in the stock markets, so this discussion was intensified, with some calling for a fundamental change in the way financial institutions are regulated and bankers are remunerated. The implications of this deeper awareness of the causes of corporate irresponsibility for the philanthropic community began to be debated, with major donors like the Gates Foundation being criticised for not embracing mission-based investing unlike other leading foundations (see "donor accountability and innovation"). Meanwhile the massive growth of the UN Principles for Responsible Investment, with a membership accounting for about 13 trillion dollars of assets under management, indicated that some people in the financial industry are ready and willing to take on the challenge of encouraging a sustainable world economy.
Part of the step change will require mainstreaming consciousness of the need for sustainable consumption worldwide, and encouraging behaviour change. Interesting then that in 2007 the CSR spotlight swung onto some of the most iconic brands and the celebrities who endorse them. In Italy a TV programme accused top name brands like Prada, Gucci and Dolce & Gabbana of sourcing their high-end products from factories employing workers illegally, with poor pay and conditions. A book on Italy's organised criminals, even suggested that the designer suit worn by Angelina Jolie at the Oscars had been made by a tailor in the employ the Camorra, the country's "other Mafia" (see "Dolce and Gabbana"). WWF sought to make sustainability desirable across the world, including in emerging markets, by pushing luxury brands to embrace social and environmental excellence as part of their brand identities. A tactic that appeared to work with their report appearing in over 50 newspapers and fashion magazines worldwide (see "responsible luxury"). This attention coincided with leading luxury groups like L'Oreal, which owns Giorgio Armani and Ralph Lauren, mapping out their own targets for energy, packaging and waste reductions.
At Lifeworth we welcome this target-trend. Targets express an awareness of the scale and urgency of an issue and a willingness to engage with it. Although investing in new management processes are key, making a commitment to a performance target helps add the substance. An emphasis on purpose, performance and pace of change is what distinguishes progressive executives from the CSR crowd. We think the concept of "responsible enterprise" could describe the efforts of such executives, and are launching an online directory for them to post the targets their companies have adopted. Visit www.responsiblenterprise.com to upload your targets.
We should, however, remember that targets themselves are not the mechanisms of change. It appears that many countries will miss their Kyoto targets, and the first Millenium Development Goals on primary school education have already been missed. The solution may be for wider coalitions of groups to apply themselves to the factors that shape our economy. To explore ways of collaborating to shift whole markets (see "change the system").
This suggests there is a research and education dimension to the global step change. The year saw more academic institutions begin to embrace that challenge, with many signed up to new UN Principles of Responsible Management Education (see "the responsibility of business schools"). In the coming years we will witness, and hopefully participate in, more discussion and initiative that takes corporate responsibility to this more transformative level. Lifeworth is involved in two projects on this agenda (Box 1). In addition, the first Net Impact conference in Europe will address this agenda in June 2008. "Sustainable Prosperity - Taking on the Global Challenge" will bring hundreds together in Geneva to share ideas on a global step change in the contribution of responsible enterprise to a sustainable world economy. At Lifeworth we are pleased to be advising on the programme and look forward to seeing some of you there.5
Lifeworth's predictions for 2008 and beyond:
Lifeworth's work on transformative alliances for a global step change
Partnership excellence: a report and tool on partnerships between businesses and public benefit organisations, such NGOs and UN agencies, to help organisations assess and evolve their existing partnerships towards a more transformative agenda. With UN System Staff College and WWF. A workshop will also be offered.
Network excellence: a paper, chapter, report and tool on how organisations work through networks to achieve changes in government and intergovernmental policies on corporate responsibility and accountability. With UN Research Institute for Social Development UNRISD). A workshop will also be offered.
More information on either, email: enquiries at Lifeworth.com