The New Syndustrial Revolution: An Interview with Sustainable Frontiers Author Professor Wayne Visser
By Ronald Chawatama: Animus Sustainability Portal
You have been engaged in the sustainability journey as an academic, researcher, business advisor and auditor and have just launched the new book, Sustainable Frontiers.
In your experience, how can we best answer the question we are all seized with: Does society expect profit making businesses to behave in a socially responsible and moral way, beyond the requirement of the law, only as it is the right thing to do or are they bound to benefit?
I think today that distinction is getting less and less easy to make. If you look at the scale of the challenges we face today, businesses probably will not be in operation much longer if they don’t respond directly to the challenges in a social and ethical manner.
So if we look to quantify the question, the World Economic Forum, which represents global business and other leaders, are very clear on the most pressing issues on the table in 2015.
Most of the issues we are experiencing are what we call social responsibility issues, including issues of inequality, climate change, water stress, and so on.
I think that, today, business responding to social and environmental issues has become a competitiveness agenda and increasingly will become a survival agenda.
Whether the market sufficiently rewards companies that are responsible and punishes those that are not is still an open question. Unfortunately, at the moment we don’t yet properly internalise the external costs that businesses and the economy places on the society.
We don’t have proper carbon pricing and proper pricing for water for example. Until we get that pricing right, it won’t be as clear economically as it should be. In-fact, one study of the top 3,000 companies in the world, found that, if they were to pay for their social and environmental costs, it would take away about a third of their profits.
So my perspective on this is that we are now in the process of the second industrial revolution and we have to get to a low carbon economy. There is no way without radical, dramatic change that we can achieve this and there will certainly be winners and losers. Companies that are progressive on social and environmental issues will thrive and companies that are reactive laggards will struggle to survive.
You mention in the book Sustainable Frontiers that there is a business case for CSR. What is that supposed to mean and are the gains short term or long term?
Well, I think the business case is getting stronger and stronger. Certainly, it is stronger today that it was 20 years ago – and we understand the key elements very well: reduced risks and liabilities, lower costs due to resource efficiency, improving access to markets, growing new markets, better employee satisfaction, better reputation, which also leads to less transactional costs, and so on. There are also benefits that vary by country and by context. Each country would have its own strong drivers. Government policy or customer demand could be a strong driver in one country, while NGOs or access to markets could be the dominant drivers in another country.
The difficulty is that, while some of these benefits are short term (like cutting costs through eco-efficiency), many are only felt in the medium to long term. In fact, sustainability often requires short term investments (e.g. in cleaner technology, or improved working conditions) for longer term returns (e.g. less climate disruption, or better employee loyalty). At the same time, the economic losses from corporate irresponsibility are often only measurable after they happen (e.g. after a pollution accident, or an NGO campaign, or an employee lawsuit).
This is why governments have a key role to play in strengthening the business case. Public policy must create the incentives in the market to ensure that sustainable and responsible companies are rewarded economically and unsustainable and irresponsible companies are punished. Instead, today we see many governments subsidising the “bads” (e.g. fossil fuels) and taxing the “goods” (e.g. productive labour). And besides government, civil society can help to reinforce the business case, by positively or negatively impacting the brand or reputation of companies.
If change is the premise for achieving sustainability today and in the future, should we, and can we (to borrow a question you pose in Sustainable Frontiers) reform the business institution itself? Or is this sector specific. Do we treat carbon intensive industries differently, for example?
You are right that the golden thread running through the book is unlocking change – and examining why we have been unsuccessful up until today. It is because change is difficult. We are talking about systemic change, changing the whole basis of our economy, changing the way we do industrialisation, even the way we model capitalism.
What we see happening on one end of the spectrum is actual changes in the structures of business, with new forms like Community Interest Companies, For Benefit Corporations (BCorps), Low-profit Limited Liability Companies (L3C), and Social Purpose companies. These are all legal frameworks that are fairly new and which some companies are adopting.
We also see the cooperative movement continuing to grow. This is not a new movement, as it dates back to the 1600s and 1700s. But today, there more than 250 million people that are employed through cooperatives. Some of the cooperatives are substantial. For example, Mondragon, which started out in Spain, has more than 74,000 employees today.
There is also progress by traditional companies, even in sectors like oil and gas. There is a shift in what is believed to be the role of businesses in society. We sometimes think that business leaders are still stuck with the idea that companies are all about profits and shareholder returns.
There was some research done by Cranfield University last year that shows that around 90% of both current and future leaders believe that business does have a social purpose, in addition to its economic function. Where the difference lies is that 90% of present leaders already believe they are fulfilling that social purpose, while only 20% of future leaders believe that business is stepping up to the mark. So societal expectations are changing. The bar is being raised. And as a result, business is changing in different ways, from signing up to new standards and adapting to stakeholder demands, to coming up with innovative new products with reduced social and environmental impacts.
If you look at a company like Philips that has operated for more than 120 years, most of its current innovation is now around health and low carbon products. If you look at a company like General Electric, they are betting the future of the company on clean technology and health technology. So this is the kind of change that you see. It is a strategic change, a change in the purpose of business.
We also have conflict industries, e.g. fast foods, sugary beverages, alcohol drinks, the tobacco industry, and so on. Is there a change in awareness around the responsible use of products? What measures can we place on these sectors to shift them towards sustainability? Would we expect wholesome changes, as we have seen in other companies?
There are these industries where there is clear tension, a conflict between public interest and private interest and freedom of choice. Tobacco and unhealthy foods are two classic examples.
I am a strong believer that there is a need for regulation of industries, to make sure that they internalise their externalities. In other words, that they should pay for any social or environmental costs that they cause. There should be regulation for high fat and high sugar foods and drinks. In the case of tobacco, the health costs for individuals and society are very clear. And I don’t believe that currently the industry is paying adequately for these costs. I think those industries will only go so far voluntarily and whatever they do is great.
They shouldn’t be discouraged. For example, the way that the cola companies have diversified their products. These companies now have a smaller percentage of high sugar products in their portfolio and they are offering zero calorie alternatives. Wherever we can encourage that voluntary behaviour, that is excellent.
But I believe we will require more government regulation in the public interest. That, after all, is the role of government. Unfortunately, as individual consumers, we don’t always act in our own or the society’s best interest. Unless regulated, these industries will continue to have excessive negative impacts on the society. For me, it is about whether companies have created net positive value. And wherever we can see that companies are extracting or destroying value, they either pay for that or are forced to change their activities to reduce those impacts.
It seems corporate governance is still a challenge, even for companies in the West, with some managers serving prison sentences for bribes. How can we change this behaviour?
Indeed. One of the quotes in my first book Beyond Reasonable Greed says that sometimes corporate governance is not worth the shredded paper that it is written on. That’s a specific reference back to the Enron scandal. My message is that there are many transactional or administrative or technical aspects to governance, such as the structure of the board, compensation committees and so on.
But unless we capture the spirit of corporate governance, and unless we have the hearts of executives in the right place, corporate governance won’t have the effect we want it to have, which is to improve transparency, ethical conduct and good leadership. This should be the essence of good corporate governance. One of the ways of doing this is to take a leaf from best practices coming out of Africa, in this case South Africa’s adoption of The King Report of Corporate Governance.
The Western corporate government codes and regulations – from the Cadbury Code in the UK to Sarbanes Oxley in the US – focus almost exclusively on accountability to shareholders, whereas the King Code very early on introduced the idea of accountability to stakeholders and integrating sustainability into the corporate governance framework.
It is not a coincidence that Judge Mervyn King ended up chairing Global Reporting Initiative and also setting up the International Integrated Reporting Council. Corporate governance must be about going beyond a tick box exercise to something that enshrines the spirit of corporate governance, namely those principles of transparency, ethics and leadership.
How can we measure best practice given there are so many different standards with as many different rating agencies? Couldn’t we borrow from other industry practices that have uniform and consistent standards across the globe, such as the accounting standards?
The proliferation of standards has been a real challenge for business and even for consumers and other stakeholders.
This has happened because it is early on in the evolution of these standards. We are starting to see that sector-based standards are consolidating, and overall we are starting to understand what these standards have in common. One of the chapters of the book Sustainable Frontiers is on Integrated Value.
This completely speaks to this issue because if you are a company, you will be overwhelmed by all these standards. The last time I counted they were more than 450 sustainability standards around the world.
Companies have to take an integrated approach and lay out what that means methodologically. You will have to be integrating all your stakeholder assessments, your leadership goals, your risk assessments, your opportunity or breakthrough analyses, and ultimately your processes and management systems.
If you do that, the common principles that are in most standards and the issues that stakeholders have prioritised for you are subject to the Pareto effect, i.e. you achieve 80% of all the standards’ requirements if you do certain things and then you select standards relevant to your industry, company and country and do the extra 20% for those. That is why integrated reporting is starting to be practised and going beyond sustainability reporting. Otherwise, if companies have to meet so many different requirements from the different standards, they would go out of business.
The potential for the extractives industry to promote economic growth in developing countries is a given. But what about challenges from illicit flows, corruption, tax avoidance and unethical trade? The book looks at the challenge of “conflict minerals” in the metals sector. But US companies are finding it tough to meet the reporting requirements of the Dodd-Frank legislation on conflict minerals. Is there a way out?
Well, the Dodd-Frank Act has been legislated in the USA to force the electronics companies to take conflict minerals seriously.
In high-impact industries, like extractives, it is often not enough for issues of social responsibility to be tackled voluntarily. A certain number of companies will go ahead of the pack, and discover what is best practice. But unless if there is policy and legislation – either international or national – unless you have that requirement, most companies will do the minimum and will not solve these problems.
I am not keen to demonise the industry. There are many great benefits we get from the extractive industries. There are benefits to us as consumers, certainly, and benefits to communities in which they operate. However, we have to get better at measuring the value that is added and the value that is subtracted. The practice of “net value footprinting”, as I call it, has to become more commonplace. It is starting to get there. For example, KPMG has a methodology now for what they call “true costing”. They have a case study of the mining company, Exxaro, where they quantified not only the revenues and costs to the business, but also the social and environmental costs. So they could derive the residual true value that was created by the company. I think this is going to be essential for the extractives industry in Africa.
The critical question is, are businesses adding or subtracting value? This applies to industries in Africa too, understanding whether the economic and social benefits they bring are larger than they social and environmental costs they impose on society. Ethical issues and corruption surrounding the industry is not easy to deal with. Even with certified “conflict-free” minerals, best practices only go back as far as the smelters. It is difficult to get total supply chain integrity. But it doesn’t mean we should stop trying.
In the book, your make it clear that CSR has failed. Is this failure in relation to the indicators of the triple bottom line? For example, we know that cases of human rights infringement and child labour still persist – such as in the chocolate industry in West Africa. Is this failure a question of definition, as it seems we are expecting companies to be social development actors?
What I have been saying for the past 5 years, since I set up CSR International, is that I have watched the progress of CSR progress for the last 25 years. And what I see 25 years later is that there is much more activity on CSR than ever before. I see a maturing of CSR from defensive, through charitable and promotional to strategic approaches.
But despite all of that, many of the problems are still getting worse, whether it is biodiversity loss, climate change, or carbon emissions. Corruption is something that we haven’t solved; the gap between rich and poor is getting wider, and so on. So when I say that CSR has failed, I don’t mean that companies aren’t doing good. What I mean is that what they are doing is not effective in solving these big societal problems. That could be because there isn’t effective collaboration between business, government and civil society.
But what I really think it comes down to is that we have an economic system that has institutionalised the industrial model of high consumption and high social and environmental impact. Unless we change and challenge the form of capitalism we have – which is a very short-term focused, very abusive and extractive, and extractive, very wasteful system – we are not going to solve these big problems.
CSR also fails if we don’t change the type of growth we have – from what Jonathon Porritt, founder of Forum for the Future, calls “dumb growth”, into “smart growth”. In other words, growth should be decoupled from the negative impacts.
I call this change the new Syndustrial Revolution – driven by the goal of increasing synergy between governance, economic, social and ecological systems – moving us from a linear to a circular economy, powered by renewable energy and producing zero waste. That is also what I call for in terms of transformative CSR or CSR 2.0. This involves changing what we mean by CSR.
Transformative CSR means changing the purpose of the company to be about adding value to society whilst solving some of the big social and environmental challenges we have. In other words, using business to change the rules of the game – the game being our broken industrial model.
So there is a need for positive lobbying and effective collaboration with government, so that policy rewards the sustainable and responsible behaviour of business.
What prospects do we have, given the failure of CSR? Is Creating Integrated Value (CIV) a solution? Are there any cases from your work that can support this?
Yes, I think big part of the solution is Integrated Value. First, because it speaks the language that business understands, which is value creation.
Second, it changes the scope of value creation that companies are focused on. Instead of being focused only on financial or economical value, it broadens the remit so that they are creating value across all the 6 capitals, if you want to use the Integrated Reporting framework.
Integrated Value means creating value across financial, manufacturing, intellectual, human, social and natural capital. Future-fit companies need to be adopting a strategic approach that aims to create a future that is – to use the Kaleidoscope Futures 5-S framework – smart, safe, sustainable, shared and satisfying.
If we start from there, with a shared vision of what the future should be like, companies can then work backwards and say: in order to achieve this ideal future by the year 2050, what would have to change in our society, our policies, our industry and individual company?
This does two things. First, it breaks leaders out of the social responsibility box and makes the agenda more about creating a positive future. Second, it gives companies the opportunity to break out of the short-termism trap that they are in, by asking what will have to change in the long term. Then they can start making some good strategic decisions.
Unilever is a good case of a company that is creating Integrated Value through its Sustainable Living Plan. In Africa, the Madagascar textile company, Socota, which supplies South African retailer Woolworths, is creating Integrated Value by designing their production to have net positive impacts. In Asia, the Sri Lankan Aitken Spence is adopting Integrated Value by having its Kandalama hotel built to blend into nature and empower the local community. There are more and more examples appearing.
What about consumers? Aren’t they also driving companies to be unsustainable through their consumptive behaviours?
What is very clear from both research and experience over the past twenty or so years is that consumers do not lead on this agenda. Left to themselves, it is only a tiny fraction of between 1% and 10 % of consumers that will make a conscious choice to either consume less, consume ethically, or consume sustainably. So, if you are a company that wants to be sustainable, you can’t be waiting for consumers to demand that from you.
The company has to go ahead and create a better product, provide more sustainable services, and then persuade the customers to follow. This is the same with government policy. Governments do not lead, they follow. The situation is difficult for companies because they would prefer to respond to customer demand. But as customers, we are also very short term focused. We also impose our own costs on society. Although most of us would like to do the right thing, we don’t want it to be at any cost to us. If the change to sustainability makes it more inconvenient or comes at higher prices, most of us will not chose that.
From a customer perspective, sustainability has to be about quality. Sustainability and social responsibility is the new quality. You don’t see companies asking customers if they like high quality products or not. It is assumed by the customer that quality is what we want, and if we don’t get it we might complain. Yet how can you call a product “high quality” when it has negative impacts on the health of its customers, or the health of employees that make the product, or the health of the environment in which people live? By definition, that is an exploitative, bad product. And if companies don’t change voluntarily and customers don’t demand change, then governments need to enact policies for companies to follow, such as regulations on labour and human rights, or gender equity.
The bottom line is this. We are transitioning to a new Syndustrial society. In the process, there will be winners and losers. The progressive companies on sustainability will thrive and the laggard companies will fail. So the question for any business leader is simple: Which side of history do you want to be on? The side that prospered by using enterprise to solve our social and environmental challenges, or the side that was part of the problem, making our crises worse and slowing our transition to a high synergy society? I know what my answer would be.
Thank You Dr Wayne Visser.
Dr Wayne Visser
Dr Wayne Visser is Director of the think-tank and media company, Kaleidoscope Futures, Professor and Chair in Sustainable Business at the Gordon Institute of Business Science, Senior Associate at Cambridge University’s Institute for Sustainability Leadership and Vice President of Sustainability Services at Omnex Inc.
Dr Visser has been recognised as a top 100 thought-leader in trustworthy business and received the Global CSR Excellence & Leadership Award. He founded CSR International, after obtaining a PhD in corporate social responsibility. He previously served as Director of Sustainability Services for KPMG and Strategy Analyst for Capgemini in South Africa. Dr Visser lives in Cambridge, UK. www.waynevisser.com
His work as a strategy analyst, sustainability advisor, CSR expert, futurist and professional speaker has taken him to over 70 countries in the past 20 years. Dr Visser is author of 24 books – including Sustainable Frontiers Unlocking Change Through Business, Leadership and Innovation – and writes for The Guardian newspaper.
Dr Visser has been recognised as a top 100 thought-leader in trustworthy business and received the Global CSR Excellence & Leadership Award. He founded CSR International, after obtaining a PhD in corporate social responsibility. He previously served as Director of Sustainability Services for KPMG and Strategy Analyst for Capgemini in South Africa. Dr Visser lives in Cambridge, UK. For more about Dr Visser visit www.waynevisser.com