The long break since my last post is the result of human events familiar to us all: medical crises affecting aging parents, a holiday to visit a child. In any rich life you reap the benefits and perform the duties inherent in the care and feeding of relationships, but sometimes they rush at you all at once. I’m trying to see this busy time in the same way a farmer approaches the year: you place your bets at planting season, weed and water during the growing season, and harvest when you can, all at the whim of the weather. Technology resulting from innovation is an amazing multiplier of human effort—even recreational effort: I’m typing this on one of Japan’s legendary shinkansen trains hurtling along at over 300km/h*—but ultimately the harvest derives from personal decisions grounded in earned wisdom.

I believe this is true of institutional evolution also: ongoing human experience leads to policy evolution, as old values give way to new, shaped by the behaviours of activist citizens and the writing of forward-thinking academics. History records many examples of radical changes in policy over remarkably short time periods; think of the US civil rights movement, the suffrage movement and slave emancipation before that. Companies follow this developmental pattern in response to market feedback, unless regulators insist otherwise. Often the policy changes are clunky, and we see live experiments in strategy-making: consider Anheuser-Busch’s and Target Corp’s awkward, flip-flop responses to some consumers’ distaste for campaigns supportive of the LGBTQ community. In ideologically polarised times it can be hard to please everyone while remaining distinctive. So a strong moral compass and willingness to stay the course for what feels right matters more than ever.

This is relevant to how corporations respond to climate change. Last time I introduced the outlines of Material Post Growth (MPG) strategy, a framework for for-profit corporations to pursue ongoing viability free from endless growth, thus enabling lower environmental impact and better outcomes for employees and stakeholders. I suggested that the new strategy imperatives include:

But even assuming these elements can inform MPG strategy, what motivates a firm to even get started on this journey of, let’s face it, reducing short-term returns to investors? I think there might be four possible motivations for the kind of values-shift leading to behavioural change that is necessary to seek an MPG posture:

Growth is getting harder to promise: There is a lot of evidence to suggest that economic growth rates are shrinking and will be even lower in future. The long term trend in global GDP growth has been downward for a long time: from 5.5% in 1966 the annual trend growth rate has declined to less than 2.5% today. Certainly in some years the world economy posts strong gains, for instance during innovation waves such as the creation of the internet or when recovering from recession, but the underlying trend is clear: there are limits to growth. 

GDP growth happens when Labour Productivity improves; this is the rate at which technology can amplify (or replace) human labour. When this happens, each unit of capital receives a higher return from whatever production it is invested in^. Since the Industrial Revolution began we have had an extraordinarily long run of high Labour Productivity gains thanks to abundant and cheap energy from fossil fuels that has powered growth since the 1750s. But we’ve rightly almost abandoned coal, and we either already have, or will soon, reach “peak oil”. Renewable energy drives less Labour Productivity than fossil energy because of the technology required to generate it. Self-interest alone suggests that CEOs will become increasingly conservative in promising ongoing growth, and will be looking around for structures and measures that enable the firm to remain viable in a permanently lower growth world.

The pursuit of resilience: During periods of contraction, the only rapidly deployable tactic to bring costs in line with revenues is to reduce payroll expenses by laying off employees. Executives are the ones obliged to cause the human trauma and cost of layoffs during downturns, permanently losing valuable experience and tacit knowledge in the process, only to pay again to rehire talent during the next growth cycle. I’ve been in this position (on both sides, in fact), and I can tell you I’d very much like to avoid going through it again, knowing it’s potentially avoidable. To avoid the pain of this cycle in future, leaders might want to reduce their growth aspiration and accumulate larger cash reserves in pursuit of preserving stable employment and lower long-term average volatility in financial outcomes.

Fighting climate change: Leaders that educate themselves on how endless growth drives environmental degradation learn the concept of absolute decoupling—the need to reduce total material usage and environmental damage, in order to reduce burdens on planetary systems. Green growth advocates are content with relative decoupling; in this scenario, economic output keeps growing with reduced resource use per unit, but this does not address ecological damage because cumulative damage keeps growing. This issue is covered accessibly by Tim Jackson in Prosperity Without Growth. We see hints of this behaviour already under the label Circularity: materially-intensive industries see supply problems with many commodities from wood (IKEA) to cacao (Unilever) and would rather figure out how to use less in absolute terms than face unwinnable economic battles for dwindling supplies. In the coming years I expect many more will follow these pioneering examples and will make voluntary (i.e., unforced by regulators) contributions to reducing emissions by dematerialising the firm’s production.

The promotion of equality: Enlightened leaders seek a more equitable division of surpluses between workers and owners, in pursuit of a more just society. The growth of the non-profit and B Corp movement is encouraging evidence of this.

Once prompted, how does the enlightened company leader proceed? In current times it seems they initiate an internal dialogue on a more expansive purpose. Examining purpose appears to be a safe way to address the interests of stakeholder groups beyond investors, and outcomes in non-financial terms. While there is no best practice method for redefining a company’s purpose, most efforts seem to involve explicit definition of the interests of stakeholders including citizens and the natural world. 

These discussions tend to open up consideration of longer-term issues of business viability and social impact, prompting thinking about how to represent these interests in decision making or how to track the impact of company operations on 'non-financial (aka natural and social) capital'. Some firms have adopted parallel accounting methods, such as the Adjusted or 'Mutual' P&L method (practiced by Mars Inc., among others) that ensures some managerial consideration of the long-term benefits of investing company funds in business-relevant natural capital and the risks to future viability of over-exploitation in the short-term. 

To sum up, I think there are motivations for leaders to explore a future beyond endless growth, that the path leads through some fundamental re-examination of purpose, and that tools exist or can be imagined to enable the transformation to reduced material usage and sustaining policies and practices. As a recovering petrolhead, I’m excited to see the way to get my MPG.

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*   I have previously addressed my embarrassing historical carbon footprint, and though much improved it still includes some flying, famously one of the worst individual contributions one can make to global warming. I live in the UK, and have a daughter who lives in Japan. What to do? FaceTime helps but zero face time seems unthinkable.

^   This is why, even in labour-loving Japan, my hotel check-in/out experiences were mostly automated, with kiosks to check passports and dispense keycards. In one case the kiosk featured a ‘drone pilot’ human on a monitor no doubt remotely supervising multiple such checkins/outs, possibly at multiple hotels simultaneously. Welcome to the future.