In previous posts I’ve discussed the need to distinguish between Green Growth and Beyond Growth, and the themes connecting the efforts of pioneer companies to escape growth dependency in order to be less extractive and focused on broader prosperity outcomes. These macro observations about where business is headed beg two further questions. The first is, forgetting what’s least disruptive for business, what sustainability changes does the world need to return to balance? The second is, assuming business leaders accept this difference, what transformation pathways might be palatable and consistent with ongoing viability?
The first question calls into focus a core problem getting a lot of discussion: within capitalism, subject to prevailing laws businesses have every incentive to maximise profits by ignoring any external costs of their activities they are not required to account for. The socialisation of costs enables the private capture of profit. Why would turkeys vote for Thanksgiving and seek stronger regulation of true costs? Certainly not in economies where markets are thought to price resources correctly. Making the first move towards True Cost Accounting risks handing an advantage to your competitors. All the more impressive when rare pioneers like Unilever commit to a Living Wage for all suppliers, knowing that it puts them at a cost and therefore pricing disadvantage in often thin-margin sectors in which it trades.
But—not least because unfair wages have underpinned the extraction of profits since the Industrial Revolution—commitments like these still don’t nearly represent a solution. Alice Kalro and her collaborators call the real goal SWoN, or Sustainability as the World Needs. SWoN demands that we work backwards from the 9 planetary boundaries and upwards from the minimum social foundation needed for a just and sustainable world, to discover what cumulative external impact is tolerable from ‘business’. It’s a challenging model for a system designed with no regard for ecological limits to economic activity. But it’s the right way to think about getting back into balance. The SWoN imperatives are:
- Use of science-based targets for assessing and reducing impacts (no guesswork or incrementalism!);
- Consideration of all planetary boundaries, not just Greenhouse Gas emissions (no carbon tunnel vision!);
- An ethical lens to ensure social equity in sharing the firm’s surpluses and human rights advocacy (no to the CSR “where can a donated dollar have most impact?” approach!);
- A proportional commitment to systems change by engaging with value chain partners and public bodies to amplify impact (no to competitive isolationism!).
These are strongly ‘Beyond ESG’ prescriptions. I believe that most businesses will see the limits to their ESG efforts at some point soon, and will also see advantage in proactive evolution of their model to avert non-viability. Whether compelled by activist investors, missional employees, assertive regulators or vanishing raw materials, CxOs will soon have to dig deeper than financial disclosures and product tinkering for sustainability strategies that deliver radical business model change while preserving financial viability.
This gets to the second question: what does the strategic transformation look like for a business that can simultaneously deliver SWoN and also ongoing viability? Note that I haven’t included continued growth—flatter growth is a huge part of the solution here!). We need new creative and analytical methods and interventions to support leaders who understand the need for deeper transformation of business but are thwarted by the growth-focused change tools that got us here.
I believe the lessons from the Post Growth Pioneers point to what lies Beyond ESG. The new strategy imperatives must surely be some combination of:
- Deeply Dematerialised Revenue. [Note: not necessarily Profit, because we have seen how abstract financial assets have led to enormous profits but systemic instability in the financial industry.] This is a fundamental business model transformation, requiring firms to apply the tools of innovation thinking to imagining ‘servicising’ their revenues: making the same income from drastically reduced material inputs. Peugeot is working in this direction by making fewer, longer-lasting cars and replacing the lost ‘atomic’ sales with revenue from refurbishment services;
- Post Growth Organisation. This is a broad array of structural interventions aimed at permanently reducing growth dependency. For example, untethering the funding of the firm from commercially borrowed funds reduces the need to grow profits year on year. A greater reliance on Retained Earnings for working capital can help. Also on the table: new governance structures that reset the balance between investor returns and purpose, including employee ownership, steward ownership, Future Guardianship, or the Golden Share structure that reduces the vulnerability of a firm to hostile takeover by growth-orientated investors. Revised policies such as reduced funding for novelty-seeking innovation both help deliver SWoN and reduce discretionary spending;
- Novel Prosperity Quantification, aka ‘non-monetisation’. This is all about measurement of outcomes: what we define as a successful prosperity outcome, how we track them and celebrate accomplishments. I’ve talked about novel metrics before, because it is crucial that we practice a new language to replace the valorisation of financial growth with meaningful measures of nonfinancial capital accumulation such as social wellbeing, natural capital regeneration, and the virtues of flat growth.
I call this approach Material Post Growth Strategy (catchier name pending), because it speaks to dematerialisation, the true underlying source of most external costs, and it puts the goal of escaping an endless growth orientation front and centre. I believe I can see the outlines of a transformation roadmap that can deliver meaningful sustainability outcomes, as the world needs, without sacrificing viability. I’ll go into more detail next time.
Read all my posts about sustainable strategy at: world.hey.com/jeremy.clark/