Whilst the importance of sustainable capitalism has been recognised more recently, the concept is not new. I am a self-proclaimed optimist. I believe that doing good is good business. I am also a realist and appreciate what a huge and urgent task that is.
It’s just over 50 years since Milton Friedman famously stated, “the responsibility of business is to increase its profit, placing shareholder value as the sole measure of success”. This strategy is clearly no longer working and the pressure that it has put on communities and the environment, and the inequality it has created is unsustainable.
That may have been a controversial thing to say five or maybe even two years ago, but I am pleased to say not this year. It is now a mainstream view and one that really matters. When you have Mark Carney, the outbound governor of the Bank of England, telling businesses in May last year that they must “adapt to a new reality or they will cease to exist”, you know things are changing.
A more inclusive and responsible approach embracing both diversity and sustainability is a strong driver of commercial performance.
Furthermore, when the Business Roundtable in America, a group of 200 top US companies which include Amazon and General Motors, redefines its definition of the purpose of a corporation, to include responsibility to consider the impact on all its stakeholders, not just their shareholders you know that things are really on the move.
The concept we have had of capitalism for the last 50 years is being rejected from all angles and while change is never without its challenges, there are strong signs we are reaching a positive tipping point.
The profit only model of capitalism is increasingly being rejected by today’s workforce and by tomorrow’s leaders, who want to work for organisations that share their values and have a positive impact. Environmentally, we cannot continue to use up our planet’s resources at the current rate, and almost every day there is new evidence or a new crisis that demands that we make significant change.
Investors are increasingly focused on the environmental, social and governance (ESG) agenda and those publicly traded businesses that can’t demonstrate increasingly positive ESG progress are rapidly falling out of favour. Furthermore, consumers increasingly want to buy from companies who share positive ethos.
The rise of B corporations
Inextricably linked to this now mainstream conversation, we are seeing huge global activism movements, from single-use plastic to fast-fashion, as well as an exponential rise of B corporations and other ethical business models balancing purpose and profit.
Certified B Corps are a new kind of business committed to balancing purpose and profit. A community of over 3,000 companies across 64 countries, they include names you will recognise like TOMS, Alessi, Patagonia and The Body Shop, and many others that you won’t.
The changes facing the world today are unprecedented and we are going to see incomparable change in the way that we live, work and interact over the next five to ten years.
It’s not a simple badge handed out to those who request it, either. Each company must submit to an independent and rigorous assessment of its entire social and environmental performance, accountability and transparency, evaluating operations and business model impact on its workers, community, environment and customers.
There are similar movements across the world and many other businesses that are not B Corps, yet have committed to actively impacting social and environmental aspects, not only because they think that it is the correct thing to do but also because there is a strong commercial case to do so. They are re-shaping capitalism for today’s world.
The latest B Corps’ Best of the World list include a Dutch bank, a London-based wealth management consultancy and an Argentinian restaurant chain. Many are small and specialist, following their purpose with true entrepreneurial spirit, but there is a rise in larger organisations sitting up and taking note now as big business begins to embrace this approach to business. This is how capitalism of the sustainable variety may just be able to effect change.
The business case
The argument against the concept of responsible sustainable capitalism has been that it reduces competitive advantage and profit. This is the same argument that used to be voiced around diversity. In both cases it is increasingly evident that the premise is false. In fact, a more inclusive and responsible approach embracing both diversity and sustainability is a strong driver of commercial performance.
Raj Sisodia first published Firms of Endearment in 2003 and now has an additional 15 years of data which demonstrates that companies that adopt a positive, purpose-led approach outperform the S&P 500 Index by 14 times over a 15-year period. He and Michael Gelb have just published a follow-up book called The Healing Organisation that brings this research up to date and is a highly recommended read.
Closer to home, we know that people want to work for and work with companies that integrate the environmental, social and governance aspects into the heart of their business model. The economic case clearly supports the longer-term creation of value and sustainable capitalism can help attract the best talent, new customers and investors, serving as a source of commercial and competitive advantage. There is a paradigm shift happening now and an opportunity to create a differentiated talent agenda based on purpose, values and positive change that provides you with a competitive employer brand advantage.
The changes facing the world today are unprecedented and we are going to see incomparable change in the way that we live, work and interact over the next five to ten years. It represents a huge opportunity for businesses to create positive change and for leaders to work towards an ethical and sustainable future.
Interested in this topic? Read Reimagine business value: the world’s changing expectations of companies.