Exploring the Sustainability ‘Gold Standard’
On February 7, 2013 a group of true sustainability diehards braved the onslaught of Snowmageddon Toronto 2013 to explore ideas of how to define a Gold Standard for business under a vision for Capitalism 2.0. Led by author and sustainability change agent, Dr. Bob Willard, the TSSS local audience in Toronto and international audience via Livestream shared inspiring thoughts of what business could look like in a new era of capitalism.
Capitalism 1.0 has evolved from times of the agricultural and industrial revolutions, from business models where increasing shareholder profit is the very definition of business success. But this approach has led to indefensible income disparity, the exploitation of millions of people worldwide and ecosystem destruction; Capitalism 1.0 is the very definition of a system that is not sustainable. Its boom and bust cycles are destabilizing for people and societies, and, most significantly, it has led us down a path that is destroying the planet upon which our survival depends. A new economic model is needed, one that can not only enrich us, but also sustain us and our planet: Capitalism 2.0.
Capitalism 2.0 Will Demand that Companies Costs Be Internalized
As is often said, we must know from where we come in order to know where we are going. While Capitalism 1.0 has been defined by a profit-first bottom line, Capitalism 2.0 will be defined by a new vision that creates wealth, opportunity and satisfaction for the greatest number of people. While Capitalism 1.0 has allowed companies to externalize environmental and social costs, Capitalism 2.0 will demand that companies internalize these costs. While Capitalism 1.0 has been driven by the goal of maximizing shareholder value, Capitalism 2.0 will be driven by a commitment to creating shared stakeholder value for all stakeholders, including the environment. But how will we get from Capitalism 1.0 to Capitalism 2.0? Who will lead us from our misguided current path to a more promising future?
Our speaker began his presentation by presenting a number of different rankings of leading green or sustainable companies. But how are these rankings determined? Why are the top 10 companies as defined by Newsweek so different from the top 10 defined by Fortune, or by Corporate Knights? What are the criteria and key performance indicators? Willard then led us in a discussion of how we might define a corporate sustainability leader – one that will help us chart our new path to Capitalism 2.0.
Willard defined a “truly sustainable enterprise” as one “that creates positive economic, environmental and social value…If it were to operate forever, it would not only do no harm; it would do well by doing some good.” This definition is based upon an understanding of “The Real World” in which we are subject to nested dependencies: A business enterprise exists within and is dependent upon the human economy, which is dependent upon human society, which is dependent upon the environment in which we live. As such, the truly sustainable enterprise must respect the idea of: “Enough, for all, forever.”
Beyond Sustainability as the Gold Standard to the Idea of ESG
To understand the truly sustainable enterprise, one must examine the three legged sustainability stool model of Environmental Social Governance (ESG). Without a proper leg in any of these three dimensions, our stool cannot support us and we will fall. Willard suggested that a company that stands upon a solid 3-legged ESG stool is one that defines the Gold Standard for Capitalism 2.0. Willard asserted that we must move beyond the idea of sustainability as the gold standard to the idea of ESG. The Environmental Gold Standard would embrace such ideas as moving beyond neutral to positive in areas such as waste, water and energy. It would not only embrace the concept of do no harm, but it would in fact be restorative to ecosystems. The Social Gold Standard would be defined by a commitment to such things as paying a fair share of taxes, having engaged employees and delivering products and services that actually build social capital. The Governance Gold Standard would offer transparency and embrace engagement with all stakeholders, would include full life cycle accountability, and would incorporate leaders who are not only ethical but transformative.
Attendees at this event discussed the question of what ESG criteria they would use to assess whether or not a company is a truly sustainable enterprise that can be a Capitalism 2.0 leader. This brainstorming led to as many unanswered questions as it did defined criteria – this is one of the challenges of defining a Gold Standard for Capitalism 2.0. For example, it was suggested that ideally the company would have a “noble purpose” – a great concept, but how does one define criteria to assess this?
While all present agreed that a truly sustainable enterprise must have a solid foundation on all three legs of the ESG stool, what would be the implications of an enterprise that excelled in the areas represented by one or two legs, but was lacking on the other leg(s)? Could such an enterprise “buy” its way out of being “bad” in one or two realms, similar to the idea of trading in carbon credits?
Where Should Accountability End
Another suggestion from those in attendance was that there should be equity in business operations, that no one be exploited through the operations of the company – but how would such impacts be evaluated across all legal and social levels, and where does accountability end? Would the company be responsible for assuring equity only in its own operations, or in the operations throughout its whole value chain? And if it is responsible for equity throughout its value chain, then is there a point when enough is enough? Is it possible to demand too much equity from a company, such that it may be forced to put itself out of business? But if it puts itself out of business, then the governance leg of the stool is broken, right? Would such an outcome mean that the model is flawed, or would it merely mean that in the case of such an enterprise, the implementation of the model had been flawed?
Brad Zarnett is the Founder and Director of Toronto Sustainability Speaker Series (TSSS). A further exploration of such questions will be fundamental to the 2013 TSSS white paper, Capitalism 2.0: Strategies for the 21st Century Enterprise. This paper will provide strategic guidance on how organizations can thrive in the new economy of Capitalism 2.0 and will be released in April 2013. Click here to be receive communications from TSSS so that you can be notified when this white paper is released.
At our next event on March 27th we will be joined by the former Toronto Mayor, David Miller and the current Mayor of Guelph Ontario Karen Farbridge to discuss what lays ahead for Ontario’s cities in the era of climate change. For full details click here.
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