Toward a New Way of Doing Business

The good news is that the movement to transform capitalism has been growing and evolving for decades. It has taken a variety of forms. Some of the many examples include:

• Church pension funds screening out the “sin” stocks of alcohol, gambling, and tobacco throughout much of the 20th Century.
• The Anti-Apartheid Movement arguing that investors should divest ownership of the stocks of companies doing business in South Africa.
• The Socially Responsible Investment Movement screening investment portfolios based on social and environmental criteria.
• The Organic Agriculture and Sustainable Forestry Movements encouraging the elimination of chemical pesticides and fertilizers and the use of logging practices that maintain healthy forests.
• The Global Reporting Initiative, which provides a set of international standards for companies to use in evaluating their social and environmental performance.

Taken together, these and other strands have come together into a very widespread Movement with a very large percentage of publicly trading companies providing some form of sustainability and/or corporate social responsibility report and trillions of dollars in assets invested using one or more social criteria.

At the same time tens of thousands of social entrepreneurs have launched companies specifically designed to operate in a socially and environmentally responsible manner and to address significant social and environmental problems. The whole Clean Technology field, including companies focused on generation of solar and wind energy, energy efficiency in retrofits and new construction, and design of mixed-use, walkable, transit oriented, livable neighborhoods is one leading example of this trend.

Corporate Social Responsibility (CSR):

By now, in the second decade of the 21st Century, Corporate Social Responsibility (CSR), which is also sometimes referred to as “Corporate Citizenship” or “Corporate Sustainability”, has become a majority movement among publically traded corporations.

According to the CSR philosophy, corporations should operate in a manner that minimizes negative impacts and encourages positive impacts on all of the corporations’ stakeholders—customers, employees, management, shareholders, supply chain, communities where the corporations are located, society at large, and the environment. CSR also typically involves regular reporting on the corporation’s impacts on all of its stakeholders. Most CSR and Sustainability Reports are listed by CSRWire.

According to KPMG’s 2011 International Corporate Responsibility Reporting Survey, “Where CR reporting was once seen as fulfilling a moral obligation to society, many companies are now recognizing it as a business imperative. Today, companies are increasingly demonstrating that CR reporting provides financial value and drives innovation, reflecting the old adage of ‘what gets measured gets managed.’”

The 2011 KPMG Survey found the percentage of companies reporting on CSR initiatives to be:

• United States—83%
• Canada—79%
• United Kingdom—100%
• Europe—70%
• The Americas—69%
• Middle East and Africa—61%
• Asia Pacific—49%

Creating Shared Value (CSV):

More recently, large corporations like General Electric, IBM, and Walmart have formulated specific business models to make market rate profits by solving important social and environmental problems.

At the same time tens of thousands of social entrepreneurs have launched companies specifically designed to operate in a socially and environmentally responsible manner and to address significant social and environmental problems.

Drawing on the work of many innovative economic thinkers, Harvard Professor Michael Porter has popularized this approach by calling it “Creating Shared Value” (CSV), which he defines as ‘policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.’ (www.fsg.org)

According to Professor Porter, there are three key ways that companies can create shared value opportunities by:

1. Reconceiving their products and markets.
2. Redefining productivity in their value chain.
3. Enabling new cluster development in their business clusters.

GE’s Ecomagination program, which has shifted the company’s focus toward Clean Tech products and produced some of the highest levels of profitability in the corporation, is an example of the first way.

Regardless of what one thinks about other aspects of their operation, Walmart’s establishment of sustainability standards for all of its suppliers, which has forced thousands of businesses across the globe to rethink the design and manufacturing of their products in a more environmentally responsible fashion, is an example of the second way.

IBM’s Smarter Cities Challenge exemplifies the third way. IBM has funded putting IBM teams into cities to recommend how cities can utilize the intersection of the full range of information technologies and clean technologies to produce positive transformations.

CSR can be seen as a way to ‘do no harm,’ thereby not depleting environmental, social, and economic capital, while CSV can be viewed as a way to ‘create positive good’ by directly building environmental, social, and economic capital.

Benefit Corporations:

Benefit Corporations (B Corps) have taken a step beyond CSR and CSV. According to B Lab, as of the middle of 2014, 28 states have passed legislation and 14 states are working on legislation to allow companies to incorporate as B Corps and, thereby, include what amounts to a commitment to CSR and CSV in their corporate charters to guide them in value creation for all of their stakeholders, not just their shareholders.

The California version of B Corp legislation includes provisions obligating companies incorporating as B Corps to publish annual reports assessing their social impact according to established economic, social, and environmental standards. Essentially, B Corps commit to operating in a way that builds economic, social, and environmental capital as well as producing financial profits. In 2015, there are 224 B Corps in California, including some relatively well known ones such as Patagonia, Sun Light & Power, and Singularity Education Group.

It is also possible to be certified as a B Corp through and an independent certification process. Globally, in 2015, there are 1177 certified B Corps in 34 countries and 60 industries, according to B Lab, a B Corp advocate and certification agent. It’s been said that B Corp certification is to corporate governance what LEED certification is to green buildings/developments, what Fair Trade certification is to coffee and other imported products, and what US Department of Agriculture certification is to organic milk.

Sustainable and Responsible Investment:

Investors are responding to the movement to transform Capitalism by investing in companies that meet social and environmental criteria. US SIF: The Forum for Sustainable and Responsible Investment is the US membership association for professionals, firms, institutions and organizations engaged in Sustainable and Responsible Investing. (This is what used to be called Socially Responsible Investing. The movement has kept the SRI initials, but changed what they stand for to bring the environmental perspective into higher relief.) Biannually US SIF issues a report on Trends in Sustainable and Responsible Investing in the United States. According to the 2014 Report (the most recent one):

“The total US-domiciled assets under management using SRI strategies expanded from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, an increase of 76 percent. These assets now account for more than one out of every six dollars under professional management in the United States. US SIF Foundation identified:

• $6.20 trillion in US-domiciled assets at the beginning of 2014 held by 480 institutional investors, 308 money managers and 880 community investment institutions that apply various environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection.
• $1.72 trillion in US-domiciled assets at the beginning of 2014 held by 202 institutional investors or money managers that filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2012 through 2014.

The assets engaged in sustainable, responsible and impact investing practices at the start of 2014 represent nearly 18 percent of the $36.8 trillion in total assets under management…From 1995, when the US SIF Foundation first measured the size of the responsible investing market, to 2014, the SRI universe has increased tenfold, or 929 percent, a compound annual growth rate of 13.1 percent.

The Trends Report identified 336 different alternative investment vehicles—private equity and venture capital funds, responsible property funds and hedge funds—engaged in sustainable and responsible investment strategies, with a combined total of $224 billion in assets under management.

Impact Investment:

Impact Investing is the most recent incarnation of SRI. According to the definition used by the Global Impact Investing Network (GIIN): “Impact investments are investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances.”

GIIN has developed the Impact Reporting and Investment Standards (IRIS) as a catalog of “generally-accepted performance metrics that leading impact investors use to measure social, environmental, and financial success, evaluate deals, and grow the credibility of the impact investing industry.” GIIN has also established ImpactBase (www.impactbase.org) as a searchable, online database of impact investment funds and products designed for institutional and accredited individual investors.

Ceres:

Ceres is an advocate for sustainability leadership by mobilizing a powerful network of investors, companies and public interest groups to accelerate the adoption of sustainable business practices and solutions to build a low carbon, clean energy, healthy, thriving, sustainable global economy.

Ceres has been working for more than 20 years to weave sustainable strategies and practices into the fabric and decision-making of companies, investors and other key economic players.
Ceres leverages the power of its partners—70 (largely Fortune 500) businesses, 100 investors with over $11 trillion in investment capital under management, and 130 advocacy organizations—to influence positive change.

In 2009, Ceres released Ceres 20•20, a vision for achieving a sustainable global economy by 2020 with four key pillars, each with specific ambitious goals:

• Honest accounting that abolishes the folly of free pollution, such as largely unchecked carbon pollution.
• Higher standards of business and investor leadership.
• Scalable solutions that accelerate green innovation globally.
• Smart new policies that discourage high-polluting technologies while rewarding cleaner, more sustainable ones.

In August 2015, Ceres mobilized broad business support for the Clean Energy Plan, released by President Barack Obama and the U.S. Environmental Protection Agency, including 365 companies and investors from all 50 states, with 340,000 U.S. employees, and $350 billion in annual revenues.

Localism:

According to the Business Alliance for Local Living Economies, (BALLE), “Localism is about building communities that are more healthy and sustainable—backed by local economies that are stronger and more resilient. It means we use regional resources to meet our needs—reconnecting eaters with farmers, investors with entrepreneurs, and business owners with the communities and natural places on which they depend.”

BALLE is growing rapidly among values aligned entrepreneurs, business networks, and local economy funders in North America, with about 60 local affiliates and tens of thousands of members.

According to BALLE, changing a local economic system starts by changing its most basic industries: agriculture, energy, manufacturing, retail, building and transportation and capital. When these sectors are transformed into localized, sustainable, green- and community-focused industries, the entire economy is transformed.

BALLE groups work to expand and diversify local ownership, import substitution, and business cooperation in particular places in ways that result in more wealth and jobs per capita, and in greater personal accountability for the health of the local natural and human communities with the goal of real prosperity for all.

American Sustainable Business Council:

BALLE and more than 75 other socially responsible, sustainable, green business organizations have come together to form the American Sustainable Business Council (ASBC), which undertakes programs that educate and inform the public and policy makers about the benefits of a more sustainable economy, and about policies and practices that can help the economy become more sustainable. ASBC has become a network that represents over 200,000 businesses and 325,000 business executives, owners, investors, and others.

ASBC works on a wide range of issues related to sustainability in business and in the economy, including addressing:

• Election Integrity.
• Energy and Environment.
• Financial Markets.
• Food and Agriculture.
• Good Workplace.
• Healthcare.
• Regulations.
• Safer Chemicals.
• Sustainable Economics.
• Taxes.
• Trade.
• Worker Ownership

According to ASBC, “A truly sustainable economy requires stewardship of all types of resources—social capital, financial capital, intellectual capital, and natural capital. All these must be nurtured to make the economy productive, resilient, competitive, and equitable. The idea of stewardship and wise investment to secure future prosperity is neither conservative nor liberal, neither Democrat nor Republican. It is a fundamental tenet of successful business. And it is a core component of the American Dream.”

Toward a Planetary Capitalism:

Taken together, Corporate Social Responsibility, Creating Shared Value, B Corps, Sustainable and Responsible Investment, and Localism amount to a new way of doing business that leads in the direction of Planetary Capitalism and a Sustainable Economy and this movement is definitely growing rapidly.

Swiss Re, the giant reinsurance company, has put major businesses around the world on notice that it will no longer cover companies who risk liabilities due to irresponsible environmental practices. This means triple bottom line accounting (people-planet-profit) will not just be optional. It is becoming essential—reducing externalization of costs and forcing a re-thinking of the balance sheet accounting. In fact, top line value creation for all stakeholders is becoming as important to business success as bottom line value yield (profit) is to shareholders.

We all can help to build Planetary Capitalism and a Sustainable Economy through the purchases we make, the companies we work for, the companies we invest in, and the economic policies we support politically. We need to get to the tipping point where Planetary Capitalism, which builds all three forms of capital, clearly demonstrates its profound economic superiority over the false Capitalism that continues only to create economic capital at the expense of natural and social capital. We can all contribute to this transformation and we can all profit from it.

Our future depends on it.