What is sustainable business?
Climate change is the biggest challenge humans have faced. Global warming threatens the lives of millions of people and its impacts are being experienced all over the world as fires and floods cause the loss of lives and property and mass migration of millions of people. Over the past couple of weeks, global leaders have gathered in Dubai at COP28, the 28th annual UN Climate Change summit. One of the primary goals of this meeting is to determine how to limit the rise in average global temperatures to 1.5 degrees Celsius above preindustrial levels. Limiting warming is necessary if we want to continue to live and thrive on Earth. Yet, our climate is on track to warm by nearly 3 degrees Celsius without aggressive actions (Dickie & Dickie, 2023). The largest indication of progress that came out of COP28 is the inclusion of language on “fossil fuels” in the final agreement. While naming fossil fuels in the agreement is recognized as historic, it isn’t the level of action required to adequately address the problem. Instead, we need revolutionary action and a transformational approach that takes a sustainability-first mindset. Corporate leaders are in the strongest position to lead this transformation.
What is sustainability?
A sustainability mindset believes, like Plato suggests, that justice is an intrinsic good. For leaders to effectively address climate change and other large societal problems they too need to believe that their sustainability efforts are done because it’s the right thing to do, not because doing the right thing is a tool for profitability. Historically, many business leaders have viewed justice as a tool, a lever to generate more profits. We see this exhibited in sustainability reports that read more like promotional pamphlets. The ‘justice as a tool’ view ensures that sustainability efforts will be thwarted when undesirable outcomes are encountered. The shift to a sustainable economy will have downsides. The work and changes required to decarbonize don’t always offer a market opportunity or provide win-win scenarios. In fact, the creation of profit is often at odds with moral obligations like responsibilities to protect and preserve the environment or pay a living wage. As David Graeber shows us in his book Debt: The First 5,000 Years, attempts to reduce moral obligations to monetary terms often cause unjust treatment of people and the environment. Instead, a sustainable approach requires a rethinking of how our economic systems work and what corporate responsibility means.
Kate Raworth of Donut Economics (2017) offers a framework that focuses on thriving instead of endless growth. Raworth’s vision adopts John Rawls’ (1999) ideas of distributive justice and advocates to establish an economy that prioritizes the thriving of all parts of society. Raworth proposes that we set up our economy in a way that ensures that all people have a strong social foundation without overshooting our ecological boundaries. These requirements and the limits of the earth’s natural resources provide an opportunity. As Paul Polman (2021) suggested, "The best way to blow up mental boundaries in a company is to understand the physical boundaries in the world.” The limits of our finite planet should guide leaders’ thinking at summits like COP28 and in day-to-day business decisions. The constraints that these limits provide have the potential to inspire creative ways of operating and revising how corporations and our economy work. To be sustainable leaders must shift from a focus on a constant upward trajectory of growth and GDP as the measure of success to a generative and distributive economy that meets the needs of all.
How is sustainability cultivated by ethical leaders?
Business leaders are in a key position to solve big issues like climate change because of the sheer scale of their impact. Corporations are the biggest sources of carbon emissions. According to the Carbon Majors Database, just 100 corporations are responsible for 71% of the global GHG emissions causing global warming since 1998 (New Report Shows Just 100 Companies Are Source of over 70% of Emissions - CDP, n.d.). This reality can be interpreted by business leaders as discouraging or it can empower them. For an ethical leader who understands how critical it is to decarbonize, it is energizing to consider the amount of leverage they have to address climate change. And, if leaders have a clear understanding of who they are and what they want, they will be prepared to use that leverage to cultivate more sustainable businesses. As Alfredo Sfeir-Younis (2002) suggests, self-awareness is a critical characteristic of sustainable leadership. Leaders who have an understanding of themselves and what they want are more confident in their purpose and more willing to tackle the sticky issues that no one wants to talk about to solve big problems. Polman refers to these issues as “the elephants” (Polman & Winston, 2021). The “elephant” issues are things like taxes, corruption, overpaid executives, human rights, and DEI. These issues are tough because they don’t always have a clear answer and they often require doing what’s right instead of what’s easy or more profitable. An ethical leader who understands themselves and believes that they should do what’s right even when it isn’t profitable has the power to change the world.
Self-awareness supports a leader’s ability to identify and acknowledge where business has negative impacts and shore up those problems. They aren’t afraid to name how their business contributes to issues like inequality and climate change. Instead, they face the realities and take on the challenges of doing better, repairing the wrongs of past corporate practices.
What difference does this make for business strategies and practice?
In her book, Homecoming, Rana Foroohar (2022) suggests that "We are leaving the era of ‘Rational Man’ and entering a new era, one of more human-centered place-based economics. The focus will be on local rather than global, Main Street rather than Wall Street, stakeholders rather than shareholders, and small rather than big.” I agree with Foroohar’s assertion, especially when it comes to stakeholders versus shareholders. Business strategies and practices that take a sustainable approach expand the responsibilities of the business beyond just shareholders to include stakeholders. As Adam Smith’s ideas of self-interest reveal, it is in a corporation's best interest to do what it can to hold society together (James & Rassekh, 2000). A more stable society will benefit a business. Ethical leaders who understand this will broaden their company’s responsibility to include the communities they are embedded within, their workers, their customers, and the environments they impact. A more holistic view of responsibility requires centering and accounting for a variety of perspectives. This view is represented in Thomas Donaldson’s (1996) integrative social contracts theory. Leaders can use this theory to approach their global relationships more sustainably as it prioritizes core human values, cultural context, and socioeconomic context.
Reporting practices should also be revised to more effectively communicate and model sustainable business practices. Engine No. 1 and its Total Value Framework offer a method of reporting that accounts for not only the value that a company creates but also the value destroyed for both shareholders and stakeholders. This is a more holistic look at a company’s impact. Engine No. 1 suggests tying these impacts to dollars, which is where I think there’s an opportunity for leaders to adopt this framework and adapt it to be more expansive. Not all moral obligations can or should be reduced to financial forms and sustainable leaders should value qualitative data just as much as quantitative. Sustainable leaders need to not only include the numbers but also the stories and narratives of stakeholders in their sustainability reports. Stories are a powerful tool for communicating impact and as we broaden our understanding of ESG reporting beyond just finances stories can start to fill out the missing pieces in current reporting. For instance, it would be enlightening to include qualitative research in an ESG report to demonstrate the impacts of a corporation on a community where they have manufacturing sites. These data would provide a more holistic picture of the impacts the business has on the places and people where it operates. Similar research could be performed and shared on employee, customer, and partner experiences. If we are going to move to a stakeholder economy, we need to think beyond the boundaries of finances. Money can’t measure everything.
Finally, acting sustainably will only move us to a more sustainable economy if we’re all playing by the same rules. Trade and competition don’t work when there isn’t a shared political and economic value system between parties. We can only effectively address the issues of climate change if the majority of companies are operating on the same principles. For example, a small sustainable bookstore will lose against Amazon every day if Amazon doesn’t have to operate sustainably and can continue to underpay and overwork their employees. Truly sustainable business leaders need to both implement sustainable practices in their companies and advocate for the regulations that will require that all businesses adopt more responsible policies. Sustainable leadership requires a transformation of mindset, social norms, and our economy. It is a monumental shift but humans have accomplished monumental feats. Corporate leaders and businesses are positioned for and must take on this challenge if we want to thrive on this planet for another century.
Bibliography
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