Cannibals with Forks the Triple Bottom Line of 21st Century Business 0865713928-1, Notas de estudo de Administração Empresarial

Baixe Cannibals with Forks the Triple Bottom Line of 21st Century Business 0865713928-1 e outras Notas de estudo em PDF para Administração Empresarial, somente na Docsity! cannibals “In the world of business and sustainability, John Elkington’s work soars above all — it is honest, practical, compassionate and deeply informed. Cannibals with Forks is a brilliant synthesis of his genius for cutting through the thicket of tough issues and producing elegant solutions that can be applied today.” Paul Hawken, Author, The Ecology of Commerce “John Elkington forthrightly and clearly conveys that sustainability, as a new value, will be the “price of entry” that society will demand for business success in the 21st century. I believe this is an essential message for all forward thinking businesses.” Deborah D. Anderson, Vice President, Environmental Quality Worldwide, Proctor and Gamble “The Triple Bottom Line is becoming an imperative. Environmental and social responsibility should beat at the heart of every business leader.” Anita Roddick, CEO, Founder of the Body Shop “Leading edge corporations must be moving up a gear, beyond eco-efficiency. The winners are driving up the sustainability curve and and enriching social capital. Those idling, satisfied with “Beyond Compliance”, will end up in the scrap yard. This book is the corporate citizen’s route map.” Patrick Thomas, CEO, ICI Polyurethanes “I commend this book. John Elkington has consistently both challenged us all to think differently and offered us a way to do so. The issue of how to define sustainability in day to day terms is one which all companies should face up to. There are no ready answers, but Cannibals with Forks provides us with a good compass. And it is both constructive and stimulating to read.” Rodney Chose, Deputy Chief Executive, British Petroleum “While not everyone would accept John Elkington’s assertion that most company boards are both deaf and blind when it comes to monitoring the emerging agenda on sustainable development, I suspect that almost all would benefit from a greater understanding of the issues he describes so well.” Sir Anthony Cleaver, Chairman, AEA Technology plc “The face of corporate environmentalism has changed dramatically in the past few years. Cannibals with Forks is a testament to that shift, and shows how sustainable development has become a priority for astute CEOs. Companies are increasingly using efficiency to achieve what John Elkington calls the triple bottom line: profitable operations, sound ecology and social progress. By encouraging business to be more resource efficient, to do more with less, efficiency will benefit society at large.” Björn Stigson, Executive Director, World Business Council for Sustainable Development “John Elkington has reached new horizons in bringing to light some key trends you may have missed so far. Cannibals with Forks tests best management practices against the sustainability imperative and, in so doing, challenges managers to discover and examine their companies’ blind spots. The result is a thought- provoking and practical guide to rising above the waves in the rough business seas ahead.” Claude Fussler, Vice President, New Businesses, Dow Europe IV Copyright © John Elkington 1997 First published 1997 by Capstone Publishing Limited Oxford Centre for Innovation Mill Street Oxford OX2 OJX United Kingdom All rights reserved. Except for the quotation of short passages for the purposes of criticism and review, no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. British Library Cataloguing in Publication Data A CIP catalogue record for this book is available from the British Library. ISBN 1-900961-27-X Designed and typeset in 10/12pt Century Schoolbook and Futura by Kate Williams, London Digital processing by The Electric Book Company, http://www.elecbook.com/ That’s a brilliant idea. But how could it possibly work in my organization? How often do you think as you read a business book that if only you could ask the author a simple question you could transform your organization? Capstone is creating a unique partnership between authors and readers, delivering for the first time in business book publishing a genuine after-sales service for book buyers. Simply email capstone_publishing@msn.com to leave your question (with details of date and place of purchase of a copy of Cannibals With Forks) and John Elkington will try to answer it. Capstone authors travel and consult extensively so we do not promise 24-hour turnaround. But that one question answered might just jump start your company and your career. Capstone is more than a publisher. It is an electronic clearing house for pioneering business thinking, putting the creators of new business ideas in touch with the people who use them. Contents FOREWORD VII NOTES XII ACKNOWLEDGEMENTS XIII EXECUTIVE SUMMARY 1 NOTES 13 PART I 15 INTRODUCTION 17 NOTES 39 THE THIRD WAVE 41 NOTES 66 THE TRIPLE BOTTOM LINE 69 NOTES 94 PART II SEVEN REVOLUTIONS 97 MARKETS 99 NOTES 119 VALUES 123 NOTES 156 TRANSPARENCY 159 NOTES 185 LIFE-CYCLE TECHNOLOGY 187 NOTES 216 PARTNERSHIPS 219 NOTES 242 TIME 245 NOTES 272 CORPORATE GOVERNANCE 275 NOTES 300 PART III 303 SUSTAINABLE CORPORATIONS 305 NOTES 336 Contents VI MAINSTREAMING 339 NOTES 366 PART IV 369 SUSTAINABILITY AUDITING 371 NOTE 381 CODA 383 NOTES 391 APPENDIX 393 INDEX 399 Foreword IX the cutting edge in terms of working out what sustainability might mean at the level of a product, a process, a company, an industrial sector, or even an entire economy. We have worked with many of these pioneers in depth and often with extraordinary mutual candor. As a result, we know what it takes to switch a company on to this complex agenda, and we know many of the barriers which then need to be surmounted as the company struggles to make business sense of the sustainability agenda. I first tried to work out what sustainable development might mean for business in the early 1980s following the publication of the 1980 World Conservation Strategy.2 As a cofounder and later managing director of Environmental Data Services (ENDS), I was involved in efforts to bring together leading companies with public sector agencies and non governmental organizations. But this was still a very different world. When, in the wake of the Bhopal disaster, I sat down to write The Green Capitalists3,’ the Berlin Wall was still standing and stood for several years more. The Soviet Union was more or less intact, Eastern Europe still under its thrall. Yet the broad shape of the future was already clear. Capitalism, in its many forms, was the wave of the future. But then so, the book concluded, was sustainability. The Green Capitalists, which ended with a perspective by Tom Burke, who went on to advise three consecutive UK Secretaries of State for the Environment, was first published in 1987. That year also saw the publication of the World Commission on Environment and Development’s report Our Common Future,4 which brought “sustainable development” into the vocabulary of international politics. “Perhaps, what we are seeing is the emergence of a new age capitalism,” Tom concluded on page 252 of The Green Capitalists: “appropriate to a new millennium, in which the boundary between corporate and human values is beginning to dissolve. It is now clear from the results who won the nineteenth-century argument about capital and labour. Socialism, as an economic theory, though not as a moral crusade, is dead. The argument now is about what kind of capitalism we want.” We were interested in the central role of governments, but the real focus was on the emergence of a new breed of “green capitalist” (an oxymoron for which I must accept responsibility), which we saw as an enormously hopeful trend. A key message was that unless, and until, the environmental community learned to work Foreword X with business and through markets, many of the changes we wanted to see simply would not happen. Rather than leave things to chance, I sat down with another colleague, Julia Hailes, and wrote The Green Consumer Guide5. The idea was that by changing the consumer choices we made every day, often without thinking, we could send powerful signals to retailers and, through them, to the rest of the business world. And so it proved. Published in 1988, this book, and its various editions, sold around a million copies and, alongside US cousins like Shopping for a Better World6 and 50 Ways to Save the Planet,7 had an extraordinary impact. It helped catalyze a wave of international consumer pressure on business. Back in 1987, however, we had pointed out that “the ‘profitability’ of a given business very much depends on where those who run the business choose to draw their ‘bottom line’, with costs above the line and profits below.” A core concept introduced in Cannibals With Forks is that of the “triple bottom line,” against which individual businesses and, increasingly, entire economies will be held to account, and have to perform, as we move into the 21st century. Since we often find that a degree of humor helps to lubricate the thinking process, I offer on page xi the first of 19 Spotlight panels as a lighthearted aide memoire for readers trying to get their brains around this triple agenda. By turns critical and complimentary of the efforts of business to date, Cannibals With Forks shows how far leading corporations have come, and how far they still have to travel to perform successfully against the triple bottom line. Over the years, my colleagues and I at Sustain-Ability have seen corporate cannibalism, and its effects, at close quarters. For example, we have worked with a range of companies as they merged or de-merged: with Manweb as it was taken over by Scottish-Power; with Scottish-Power as it took over Southern Water; with BT as it merged with MCI; with Volvo as it dallied with Renault; with Tioxide as it was sold to DuPont by ICI; and with Monsanto as it began to split up into life, science and chemical companies. But, even so, Cannibals With Forks is an optimistic book, accepting that, while corporate Cannibalism may not be pleasant to behold or comfortable to experience, it will remain an intrinsic part of any competitive economy. The challenge is to work out how we can get these corporations to embrace and sustain a wider set of values. Is it possible, for example, to evolve new types of corporation which are less inclined to operate as economic, social, and ecological predators? How can we restructure markets in such a way that sustainability begins to make real business sense? Given that competition will always be one of the most powerful driving forces in biological, economic, and social systems, how can we get Foreword XI competitive corporations to switch to sustainable development’? And how can we ensure that corporations continue to build triple bottom line commitment and performance as they go through their inevitable cycles of growth and decline, expansion and downsizing, merger and demerger? The focus throughout the book is on some emerging forms of 21st century capitalism. The aim is to lay bare the nature, scale, and implications of the biggest, THE BARDOT FACTOR Future market success will often depend on an individual company’s (or entire value chain’s) ability to simultaneously satisfy not just the traditional bottom line of profitability but also two emergent bottom lines; one focusing on environmental quality, the other on social justice. As a result, companies and their boards will need to think in terms of the triple bottom line. But what does this triple bottom line look like in practice? To help memorize the logic, let’s resort to caricature. Think in terms of the “Bardot Factor.” Film actress Brigitte Bardot has been described as the second most famous French person in the world, after General de Gaulle, Her contributions over decades to the financial bottom lines of the film industry, St Tropez, and, indeed, the French economy itself are beyond dispute. She also wins in terms of the environmental agenda, having emerged as a forceful animal rights campaigner Two bottom lines down, one to go. But here’s the problem. The erstwhile sex goddess, whose form inspired busts of Marianne, the female figure symbolizing the French Republic, has suffered the indignity of having some of the busts removed from town halls and replaced by others based on Catherine Deneuve. Despite her economic and environmental contributions, Bardot’s views on immigration, and her support for the extreme rightwing National Front party, alienated many supporters. In short, the social justice dimension prevented her achieving a win-win-win outcome, End of caricature. In today’s world, companies like Coca-Cola, McDonald’s, Shell, or Virgin depend for their success on their media profiles, on their reputations, and, ultimately, on public, consumer, and investor trust. As we will see, growing numbers of companies already find themselves confronted by the Bardot Factor, requiring novel “triple win” strategies and partnerships designed to satisfy the triple bottom line of sustainable development. Acknowledgments XIV I am very grateful to Pieter Winsemius of McKinsey for permission to use the two figures reproduced in Chapter 14. Thanks, too, to Rupert Bassett for his designs, versions of which are used in Chapter 4. Over the years, other friends and colleagues have helped spur the quest, among them: Roger Adams at the Chartered Association of Certified Accountants (ACCA); Jacqueline Aloisi de Larderel and Nancy Bennet at the Paris office of the United Nations Environment Programme (UNEP); Frances Cairncross at The Economist; Roger Cowe at The Guardian; Wouter van Dieren at IMSA; Claude Fussler at Dow Europe; Professor Rob Gray at CSEAR, University of Dundee; Kazue Harako and Masuo Ueda of the Valdez Society, Tokyo; Paul Hawken; Peter Hindle and David Hammond at Procter & Gamble; Helen Holdaway at The Environment Foundation; Dr Mike Jeffs, Dr Vanja Markovic, Richard Stillwell, Patrick Thomas and Lucia Timmermans at ICI Polyurethanes; Lise Kingo and Steen Riisgaard at Novo Nordisk; Kim Loughran and Martin Wright at Tomorrow magazine; Judy Pitts, Dave Porter and John Russell at Tioxide; Nick Robins, now at IIED; Dr Peter Scupholme at BP; Jonathan Shopley, now at ADL; Gus Speth and Janet Welsh Brown, when at the World Resources Institute (WRI); Tessa Tennant at the National Provident Institution (NPI); Teoh Cheng Hai at Golden Hope Plantations, Berhad; Professor Bob Worcester at MORI; and Dr Simon Zadek at the New Economics Foundation (NEF). And, to end where I began, Cannibals once again represents a considerable investment of time that should have been theirs by my family, particularly Elaine, Gaia, hania, and the denizens of Hill House, Little Rissington. I hope that they will conclude that this latest cuckoo in their nest has been worth the discomfort. EXECUTIVE SUMMARY Adapting to a 7-D World Business will be in the driving seat. Yet this will not make the transition any easier. For many corporations, it will prove impossible. For others, thinking and acting in 7-D will become second nature. Executive Summary 2 We are all used to operating in a 3-D world. Even so, making sense of, let alone beating the competition in, a 3-D world can be pretty complicated: ask anyone who has played 3-D checkers. Now sustainable capitalism, with its emphasis on the triple bottom line performance of companies, industries, and economies, presents business people with an even more complex challenge: a 7-D world. The sustainability agenda, long understood as an attempt to harmonize the traditional financial bottom line with emerging thinking about the environmental bottom line, is turning out to be much more complicated than some early business enthusiasts imagined. Increasingly, we think in terms of a “triple bottom line,” focusing on economic prosperity, environmental quality and – the element which business has tended to overlook – social justice. To refuse the challenge implied by the triple bottom line is to risk extinction. Nor are these simply issues for major transnational corporations: they will increasingly be forced to pass the pressure on down their supply chains, to smaller suppliers and contractors. These changes flow from a profound reshaping of society’s expectations and, as a result, of the local and global markets business serves. Anyone who has worked in this area for any time knows that there are waves of change. Some of these waves, as we see in Chapter 2, are driven by triple bottom line factors – most particularly in recent decades by environmental pressures. To accept the challenge is to embark on a process which is likely to be both intensely taxing and, potentially, highly rewarding. With its dependence on seven closely linked revolutions, the sustainable capitalism transition will be one of the most complex our species has ever had to negotiate. Executive Summary 5 agenda to a new approach, using the triple bottom line as part of the business case for action and investment. Blind-spot 1 The worst blind-spot today’s business leaders suffer from in this area is the deep-seated, if often unstated, belief that “sustainability’’ is a new form of religion, a late 20th century aberration of the human soul, rather than a new form of value which society will demand and which successful businesses will deliver through transformed markets. 2 Values Revolution 2 (Chapter 6) is being driven by the worldwide shift in human and societal values. Most business people, indeed most people, take values as a given, if they think about them at all. Yet our values are the products of the most powerful programming that each of us has ever been exposed to. When they change, as they seem to with every succeeding generation, entire societies can go thixotropic. Companies that have felt themselves standing on solid ground for decades suddenly find that the world as they knew it is being turned upside-down, and inside out. Remember Mrs Aquino’s peaceful revolution in the Philippines? Or the extraordinary changes in Eastern Europe in 1989? Recall the experiences of Shell during the Brent Spar and Nigerian controversies, with the giant oil company later announcing that it would in future consult non governmental organizations on such issues as environment and human rights before deciding on development options. Think, too, of Texaco. The US oil company paid $176 million in an out-of-court settlement, in the hope that it would bury the controversy about its poor record in integrating ethnic minorities. Just as financial markets can turn into quicksands or superconductors, so can entire business environments and, indeed, societies. Such shifts in values are among the most powerful influences faced by politicians and business leaders alike. Swimming against the tide can be difficult, if not impossible, although swirling eddies may sometimes make it seem as though the process is going into reverse, back towards the comforting certainties of “business as usual.” Companies misreading the direction of flow risk running aground or being swept aside into the commercial doldrums. The transition from “hard” commercial values to “softer” triple bottom line values does not mean that life will become any easier for business; far from it. To Executive Summary 6 reverse the analogy, while the values shift can turn the established order to jelly, individual companies or industries facing values-based opposition will increasingly be discomfited to find soft, spongy opposition turning almost overnight into the consistency of reinforced concrete. Few technologies challenge our values and ethics as profoundly as genetic engineering. When Nature published the news that a Scottish lamb, number 6LL3 but better known by her alias, “Dolly,” had been cloned, it triggered an ethical earthquake.1 As the tempo of such announcements builds, ethical issues will continuously be in the public eye. But, in the process, which values will win out? Will a new morality — or moralities — evolve, or will most people ;imply regard such events as one more form of soap opera? Cannibals With Forks suggests that we are already seeing the emergence of a new — or renewed — set of values, many of which will be central to the sustainability transition. No one imagines that we will ever reach the point where everyone on the planet shares a common set of values, but there is very likely to be convergence around at least a minimum set. This trend is likely to be critical as companies increasingly come to see their future as global. Although many triple bottom line campaigners see globalization as inimical to an economically, socially or environmentally sustainable future, this is the direction we will be driven in for decades to come. “Customer requirements dictate that we operate globally so that boundaries don’t limit the best thinking, the best people or the best solutions,” explained IBM senior vice-president Ned Lautenbach.2 Globalization has economic, social, and environmental dimensions. But the notion that sustainable development has a social dimension is still controversial. This is worrying. As Professor Tom Gladwin of New York University’s global environment program puts it, while sustainability is often thought of as “eco- efficiency for the rich,’’ this definition is dangerously narrow. “Sustainable development is more than that,” Gladwin stresses. “It’s equity, justice, alleviation of poverty, and redistribution of opportunity.”3 Nor are all business people fighting this analysis every step of the way. “Sustainable development requires collaborative thinking and partnerships with other non-business organizations,’’ accepts Björn Stigson, executive director of the World Business Council for Sustainable Development (WBCSD). “These partnerships only make sense in the global scheme: to address poverty in the Third World, as much as to deal with pollution control.” Stigson warns that “business can’t tackle all the issues, nor can it do it alone,” but observes that “the most enlightened Executive Summary 7 corporations have integrated a social dimension into their corporate strategies.” Yet, even as we see some areas of convergence, it is clear that societal and business values differ widely around the world. This is the context within which sustainable development must be put into practice. The concept of sustainability is entering the business language at different speeds in different parts of the world, with current and emerging values acting as brakes, gearboxes or accelerators. As a result, our focus in future must not only be on changes in technology and in management systems, but also on values and mindsets. “My principal concern,” says Whitman Bassow, long with the New York-based World Environment Center, “is that the emphasis is on changing the engineering of manufacturing, on things but not the attitudes of the people who produce the products, nor their behavior, nor the resistance to change inherent in human nature.”4 Blind-spot 2 The worst blind-spot today’s business leaders suffer from in this area is that the business of business is about the creation of economic value, and not about social or ethical values. This is not particularly surprising: a full generation of business leaders have been taught to stay out of politics and that they meddle in the affairs of governments (even oppressive regimes) at their peril. It is clear that attempts to drive corporations towards sustainability objectives and targets will trigger both action and reaction, support and resistance. Managing these trends and counter-trends will involve working with both individuals and groups to help them change their mindsets and, even more importantly, to transform the corporate culture. As a result, the sustainability transition will be as much a political transition as it will be an economic or social transition. 3 Transparency Revolution 3 (Chapter 7) is already under way, is being fueled by growing international transparency and will accelerate. As a result, business will find its thinking, priorities, commitments, and activities under increasingly intense scrutiny worldwide. Some forms of disclosure will be voluntary, but others will evolve with little direct involvement from most companies. In many respects, the transparency revolution is now “out of control.” This process is itself being driven by the coming together of new value systems and radically different information technologies, from satellite television to the Executive Summary 10 fifteen years working with the biotechnology industry — is that we face a paradox. On the one hand, the inappropriate use of genetic engineering could easily derail our attempts to build a sustainable economy and, on the other, sustaining a human population of 10–12 billion will probably be impossible without genetic engineering. Ensuring that the gene revolution works with, rather than against, the grain of the sustainability revolution is one of the greatest challenges ahead of us. Blind-spot 4 The worst blind-spot today’s business leaders in companies suffer from in this area is the assumption that their responsibilities end at the factory fence, and that any triple bottom line impacts of their operations, products, or services will be sorted out in the “normal course of events.” In today’s business environment this a potentially fatal delusion. New forms of “X-ray environment” can switch on without warning, illuminating activities, processes, and companies way back down a value chain. 5 Partnerships Revolution 5 (Chapter 9) will dramatically accelerate the rate at which new forms of partnership spring up between companies, and between companies and other organizations, including some leading campaigning groups. Organizations which once saw themselves as sworn enemies will increasingly flirt with, and propose new forms of relationship to, opponents seen to hold some of the keys to success in the new order. As even groups like Greenpeace gear up for this new approach, we will see a further acceleration of the trends driving the third and fourth sustainability revolutions. Early on, some companies contented themselves with trying to mimic some aspects of their opponents’ behavior, in the hope of developing a form of camouflage. The late 1980s and 1990s, for example, saw a number of companies trying to position themselves as “corporate environmentalists.” Assumed by many campaigners to be little more than a case, of corporate camouflage, “greenwashing,” this trend reflected a new sense of mission in some parts of the business world. Indeed, some companies — among them BAA, RTZ and Shell — have recruited individuals who once ran anti-industry campaigns. Discussions of whether we are seeing “watchdogs turned lapdogs” can blind us to the fact that some of these people are having a real influence in their new organizations. Executive Summary 11 Increasingly, too, companies are seeking to develop longer term strategies congruent with the new alignment of triple bottom line forces. Some, as a result, are beginning to explore new forms of “Strange alliance,” linking up with former critics in new forms of company—NGO and public—private partnerships. None of this means that we will see an end to friction or even outright conflict. Instead, campaigning groups will need to work out ways of simultaneously challenging and working with the same industry, or even the same company. This trend has already triggered schizophrenic responses in some of the leading environmental organizations and in some of the companies that have formed innovative partnerships. Such tensions are likely to grow when the focus of the partnerships inevitably expands to embrace an integrated triple bottom line approach. But there is no reason why the various partners cannot learn to manage these complexities in the same way that they deal with complexity in other areas of their activities. Blind-spot 5 The worst blind-spot today’s business leaders suffer from in this area is the belief that, even in areas where there are admitted challenges to be dealt with, business can handle them on its own. If the sustainability transition were simply a matter of continuous improvement, this blind-spot would not be too serious. But we are talking about major dislocations in established markets and trading relationships. In short, of an emerging world in which the “2 + 2 = 50” power of “strange alliances” will transform the competitive advantage of industry sectors and of companies which manage to tap into it. 6 Time Time is short, we are told. Time is money. But, driven by the sustainability agenda, Revolution 6 (Chapter 10) will promote a profound shift in the way we understand and manage time. As the latest news erupts through CNN and other channels within seconds of the relevant events happening on the other side of the world, and as more than a trillion dollars sluices around the world every working day, so business finds that current time is becoming ever “wider.” This involves the opening out of the time dimension, with more and more happening every minute of every day. By contrast, the sustainability agenda is pushing us in the other direction, towards “long” time. Given that most politicians and business leaders find it hard to think even two or three years ahead, the scale of the challenge is indicated by the fact that the Executive Summary 12 emerging agenda requires thinking across decades, generations, and, in some instances, centuries. As time-based competition, building on the platform created by techniques like “Just-in-time,” continues to accelerate the pace of competition, the need to build in a stronger “long time” dimension to business thinking and planning will become ever more pressing. Walk into the lobbies of many international companies today and you see a series of clocks giving the time in the various world regions where they operate. In the future, companies will need to watch and respond to clocks providing windows onto very different dimensions of time. But it will be interesting to see whether any company has the nerve to install a version of the “Millennium Clock” (Spotlight, p. 254). The use of scenarios, or alternative visions of the future, is a more mainstream way in which we can expand our time horizons and spur on our creativity. Blind-spot 6 The worst blind-spot today’s business leaders suffer from in this area is the belief that the time-scales dictated by Wall Street and other financial centers are “reality.” Instead, they are bubble environments which — as illustrated by the history of spectacular economic crashes around the world — can delude and destroy even the deepest-rooted businesses. Unless companies can balance the short- terrorism of most “wide time” markets with a real sense of “long time,” they are extremely unlikely to survive the sustainability transition. 7 Corporate Governance Ultimately, whatever the drivers, the triple bottom line agenda is the responsibility of the corporate board. Revolution 7 (Chapter 11) is being driven by each of the other revolutions and is also resulting in a totally new ;pin being put on the already energetic corporate governance debate. Now, instead of just focusing on issues like the pay packets of “fat cat” directors, new questions are being asked. For example, what is business for? Who should have a say in how companies are run? What is the appropriate balance between shareholders and other stakeholders? What balance should be struck at the level of the triple bottom line? The better the system of corporate governance, the greater the chance that we can build towards genuinely sustainable capitalism. To date, however, most triple bottom line campaigners have not focused their activities on boards — nor, in most 15 PART I Sustaining Capitalism 16 INTRODUCTION Is Capitalism Sustainable? What began as a scattered patchwork of protest groups grew into the most powerful social movement of the second half of the 20th century and will shape the markets and industries of the 21st century. Sustaining Capitalism 20 THE TRIPLE BOTTOM LINE AGENDA What is sustainability? Sustainability is the principle of ensuring that our actions today do not limit the range of economic, social, and environmental options open to future generations. Why is it important? Simply stated, this is the emerging 21st century business paradigm. Sustainable development is proposed by governments and business leaders as a solution for a wide range of problems now racing up the international agenda. These range from global worming, ozone depletion, and the collapse of some ocean fisheries through to social problems such as the deaths of 37,000 children under the age of five every day (mostly from diseases for which there are inexpensive cures) and the death of some 585,000 pregnant women and mothers every year. The first UN Global Environmental Outlook report, published in 1996, argued that the world still locks ‘the necessary sense of urgency” needed to pull back from the “environmental precipice.” What has this got to do with business? Many business people will argue that it is rot their business to save the world. But the expectation is growing around the world that business will deliver. In part, this flows from the activities of organizations like the World Business Council for Sustainable Development (WBCSD), but it also flows from a recognition that business needs stable markets — and, uniquely, has the technology, finance, and management skills needed to achieve the sustainability transition. The triple bottom line agenda (see Chapter 4) is fast evolving — and on a broad front, with one of the most challenging tasks being that of coordinated delivery, to ensure both efficiency and effectiveness in resource use. Isn’t this a job for the law-makers and regulators? In part, of course, it is. But industry’s often effective lobbying over the years for less regulation and, in some cases, active deregulation may now be coming back to haunt it. Wall Street won’t let us do this! Wrong. In the coming decades, the world’s financial markets will insist that business delivers against the triple bottom line. Long blind to most environmental issues, the financial markets are beginning to worry and agitate for change. Leading banks and insurers are signing charters on sustainable development. Insurers, who often have to pick up the tab for other industry’s losses, may never have actively campaigned for deregulation or for lax enforcement of pollution control laws, but ore now in the front line as the costs come home to roost. They will increasingly insist that industry and governments take action. Is Capitalism Sustainable? 21 of protest groups, and then grew into the most powerful social movement of the second half of the 20th century, now looks set to shape key elements of the markets and industries of the 21st century. These trends will eventually impact all sectors of the global economy, without exception. But groups like Friends of the Earth, Greenpeace, and the World Wide Fund for Nature (WWF) now face changes in their own environments every bit as extraordinary as those that rocked IBM as the era of “Big Iron” gave way to the era of the PC — and those that then rocked Microsoft as the era of the PC, in turn, began to give way to the era of the Internet. But, surely, things are getting better? In some key respects, they are. But ask most environmental or sustainability experts whether they think things are improving overall, and the most common answer is absolutely not. When Japan’s Asahi Glass Foundation sent out its fourth annual questionnaire on “environmental problems and the survival of mankind” in 1995, it mailed a total of over 2,500 forms to experts and opinion-formers in 201 other countries. Asked to say how concerned they were in terms of a 12-hour clock, their average response was 8:49; close to the “extremely concerned” range of 9.01–12.00. Since the survey first started, the average response has shifted to one hour later, indicating growing concern. When asked about conditions in 50 years time, over 50 per cent of respondents believed that conditions would be worse. They may well be right, but, given that pessimism can act as a self-fulfilling prophecy, the challenge now is to develop a more optimistic vision of the future and the social, economic, and environmental strategies needed to make it a reality. As we enter the third millennium, sustainability potentially provides us with a powerful framework for doing just that. Upsides, Downsides Trojan Horse? Let’s look at some of the downsides first. For several decades, business has mainly focused on the downside of the environmental revolution. This has also been true of the sustainability revolution, which really began to take hold from 1987. And, at least for some, the short-term downside was real enough, and intensely personal. One UK director of a US corporation we worked for in the early 1990s flew across the Atlantic to explain the sustainability imperative to the US board. Big mistake — disaster. When he convened a small group of us for a post-mortem on his return, he Sustaining Capitalism 22 reported that, metaphorically at least, his blood had been left all over the boardroom carpet. By the end, his colleagues told us, he was all but dragged out of the room feet first. The problem was that some corporate Americans saw sustainability as a plot, a late twentieth century version of the Trojan Horse. They argued that Gro Harlem Brundtland, the Norwegian Prime Minister who had chaired the World Commission of Environment and Development, was a quasi-communist and that the Commission’s report, Our Common Future,1 was little more than a ploy to transfer advanced US technology to the Third World for free. Ironically, the company was already an acknowledged leader in terms of pollution control. But its knee-jerk reactions to sustainability were repeated in boardrooms across the USA and in some European member states. Things have changed in the intervening years, of course. But nowhere near as fast as they need to, despite the fact that any business that ignores the trends outlined in the following pages risks committing commercial suicide. As a result, the casualty list is growing longer all the time. We will look at the problems that have hit such companies as: ♦ ABB How the Swiss—Swedish company, long feted in sustainable development circles, ran into major problems when it won contracts to build two massive dams, Bakun in Malaysia and Three Gorges in China. ♦ DreamWorks How an old Indian curse came back to haunt Steven Spielberg’s new Hollywood studio. ♦ Intel How the thirst of the world’s leading chip maker left it with a virtual hangover. ♦ Monsanto How the US company’s attempts to introduce new genetically engineered products — among them the dairy hormone BST and herbicide- resistant soybeans — into the European market led to an acute attack of societal and corporate indigestion. ♦ Shell How the world’s largest oil company was surprised by a series of public relations disasters, despite its reputation for scenario planning and seeing far into the future. ♦ Synthesia How a Czech explosives company’s reputation blew a hole in the credibility of a major environmental award scheme. ♦ Texaco How an ethnic diversity controversy led this oil major to examine its “very soul.” But for every casualty, every loser, there are dozens of potential winners. The upside is that those adapting to — and in some cases driving — this new business revolution are not only going to compete more effectively for some of the great Is Capitalism Sustainable? 25 a controversial book, The End of History and The Last Man3 in 1992 — was wrong. Whatever the facts, some analysts fear that the world may potentially be even more unstable after the end of the “Cold War” than it was when the West and the Soviet Union were poised in nuclear deadlock. Certainly, the potential for “rogue” states to develop their own nuclear, chemical, or biological arsenals appears much greater now that many of the defence industry skills of the old USSR are available on the open market. In this context, any transition to more sustainable forms of economic development will have to cope with — and may even trigger — major political dislocations. If we fail to wake up to and manage these challenges in time, they may well derail key elements of the sustainability transition. But, whatever the foreign policy outlook and implications of such trends, the “free” market is now the pre-eminent development model in most world regions. When, for example, the central bank chairmen from five of the largest post- communist countries — Russia, Ukraine, Poland, Hungary, and Romania — recently spelt out their monetary policies for the investment elite of the World Economic Forum, those present were delighted at how boring the speeches were. “There is no longer a debate about economic theory,” commented Rodric Braithwaite, a former UK ambassador to Russia who had moved on to Deutsche Morgan Grenfell. “The fundamentals are not contested anymore.”4 So capitalism it is, but we are seeing an interesting shift towards a debate about the limits and weaknesses of market mechanisms. One of the most forceful recent books on the theme is Robert Kitten’s Everything for Sale.5 Markets work much better than command-and-control economies in most respects, but as Kuttner puts it, “A society that was grand auction block would not be a political democracy worth having.” As a result, as we will see in Chapter 6, there is a now a resurgence of the debate about a broader range of human and societal values — and about ways in which they can be integrated into the operation of international markets and of the corporations that serve them. Stripped to its essence, capitalism — of whatever brand — is an economic (and, necessarily, political) system in which individual owners of capital are (relatively) free to dispose of it as they please and, in particular, for their own profit. As we will see, there are many different ways of calculating, defining and valuing capital, but a key question for all capitalist societies in the 21st century will be whether their particular version can be sustained in the face of broader economic, political, social, and environmental challenges? This question is becoming more urgent as we see a shift in the balance of international power, with nations tending to lose power and Sustaining Capitalism 26 transnational corporations tending to become increasingly powerful. Can We Rely on Capitalism? In the end, it all depends on what we want capitalism to do. Wealth creation is rarely a comfortable process and the world’s capitalist societies have been undergoing a period of wrenching change. Nor are the most urgent problems facing politicians and business leaders related to environmental or sustainable development pressures, at least as conventionally defined. The problem is deeper still in the eyes of many of those running the capitalist system. Even in the USA, capitalism now faces a fundamental challenge to the legitimacy of the largest corporations and to the way rewards are distributed in the free enterprise system. This is because of the perception that stock markets boost shares and reward executives (through stock options) when they lay off workers. Indeed, there are echoes of the time earlier this century when Teddy Roosevelt and others campaigned against what Roosevelt dubbed the “malefactors of great wealth.”6 In Japan, too, waves of corporate restructuring have caused a spate of suicides among middle-aged corporate samurai. Until recently, the goals of corporations and employees coincided. “Workers look to the company rather than their families or other activities for self-fulfilment,” explained Makoto Nakume, a psychiatrist who counsels stressed office workers.7 But, increasingly, we live in what Business Week dubbed “The Age of Anxiety.”8 Everywhere, the threat of unemployment is felt to be imminent. Sometimes the casualties of change are small, but sometimes they are large enough to shake an entire nation. In the Netherlands, for example, enormous shock-waves followed the announcement by Germany’s Daimler-Benz AG that it planned to pull the Plug on NV Fokker, the loss-making, cash-strapped aircraft maker — a move it was thought could cost the country a total of 20,000 jobs.9 None of this is new, of course. More than 50 years ago, economist Joseph Schumpeter noted that the essential feature of the capitalist system is “creative destruction,” which he defined as an organic process of “industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”10 But one of the most worrying aspects of the latest wave of mutations has been that many of the layoffs have been permanent, not temporary as was the case during the recession of the mid- 1970s. Is Capitalism Sustainable? 27 Leading business people may still be fêted as heroes of the modern age, but growing numbers of people are wondering whether we can rely on capitalism to deliver anything approaching a sustainable future. As a result, it seems likely that the internal political challenges to the capitalist system will grow as the communist threat hopefully recedes and the pace of economic change accelerates in response to the process of globalization. Among the most urgent warnings of the dislocations that the globalizing market will trigger in the future is William Greider’s One World, Ready or Not; “If I am compelled to guess the future, I would estimate that the global system will, indeed, probably experience a series of terrible events — wrenching calamities that are economic or social or environmental in nature — before common sense can prevail.”11 What Are the Implications? The economic and social dislocations now reeking all industrial nations make for an extremely unsettled political environment within which to attempt to pursue long- term goals such as sustainability, Partly as a result, business will find itself in a now, more central position. The relative weakening of government influence and control as globalization proceeds will ensure that business will increasingly be held to account for issues which would once have been seen as political — and therefore, necessarily, the preserve of government. Some may even see this as a desirable outcome. Capitalism has proved itself perhaps uniquely capable of reinventing itself when presented with apparently insuperable threats and constraints. We have seen the raw capitalism of the Industrial Revolution progressively molded into new forms of “social,” “green,” or, increasingly, “stakeholder” capitalism. Hopefully, over the next few generations, we can also evolve “sustainable” forms of capitalism. One key shift that will drive us in this direction is the awakening of financial markets to key elements of the triple bottom line agenda over the next decade. The scale of the losses sustained to date by the insurance industry are mind-numbing. For example, as much as a fifth of the losses which rocked Lloyd’s insurance market to its financial foundations were linked to policies covering risks related to asbestos, soil contamination, and toxic or radioactive wastes, but now something new is looming on the horizon. When Hurricane Andrew hit Palm Beach, Florida in 1992, Lloyd’s of London was devastated once again. Underwriters and “Names” alike could only watch their TV monitors in horror as houses and cars went flying. The resulting claims soon totalled $16 billion and the losses were so catastrophic that the Sustaining Capitalism 30 growth, commodity prices and inflation in other world regions. As Christopher put it: “With 22 per cent of the world’s population, China has only seven per cent of its fresh water and cropland, three per cent of its forests, and two per cent of its oil. The combination of China’s rapid economic growth and surging population is compounding the enormous environmental pressures it already faces.” Tibet is unlikely to be the last country to feel the impact of China’s lebensraum policy, as the country’s giant population seeks new lands in which to live and from which to draw sustenance. Many critics remain skeptical, however, knowing the unspoken rule of politics; “real men don’t do environment.” But Warren Christopher helped to open up the way for others, further legitimizing the sustainability agenda as a key item on the political agenda for the 21st century. This is an interesting contrast to the perspectives afforded to business leaders by most of the management consultants to whom they pay so much attention and money. The Management Gurus What do Consultants Say? Consultants say too much, according to some, and surprising numbers change their minds a few years later. But there are many helpful gurus and, good or bad, these people are listened to by those corporate leaders. Their ideas, usually custom- designed to create bandwagons, also help to trigger convulsive waves of change in the world of business. In 1995 alone, according to the trade newsletter Consultant News, corporations spent $20.6 billion on management consultancy. When, in the mid-1980s, I settled down to write The Green Capitalists, there was very little in the way of relevant management literature to draw on. Michael Royston had produced Pollution Prevention Pays in 1979, focusing on the early experience of companies like 3M.15 An even more influential book in terms of the evolution of my thinking appeared the following year: Alvin Toffler’s The Third Wave.16 But the book which I adopted as my overall benchmark was In Search of Excellence, by two McKinsey consultants, Thomas (now universally known as Tom) J. Peters and Robert H. Waterman.17 I read the book on a flight to France, where I was to help the Is Capitalism Sustainable? 31 United Nations Environment Programme (UNEP) with the first World Industry Conference on Environmental Management (WICEM). Like many others, I quarried elements of the book that took my fancy, coining the phrase “environmental excellence” in the subsequent WICEM report. In Search of Excellence went on to sell over 6 million copies: good news for the publishers, but not for the environment. The book did nothing to advance the WICEM agenda, failing to make even a single passing reference to the environmental agenda. But, that sorry state of affairs is now changing. Some modern management gurus — including Michael Porter (see p. 108) — are beginning to pay serious attention to the environment, others to sustainable development, and others still are beginning to use ecological metaphors in outlining the winning business strategies of the future. So in each chapter, we take a look at what business gurus are saying, and then consider, by way of contrast, what the much smaller number of environmental and sustainable development gurus have to offer. Most of the mainstream gurus, it turns out, have had very little to say to date about sustainability. Where the S-word is used, as by senior McKinsey consultants Lowell Bryan and Diana Farrell in Market Unbound,18 it is typically used in a different sense. But probably the biggest recent tome on the subject of capitalism is George Reisman’s 1,046-page Capitalism.19 This is strongly recommended reading for anyone interested in the subject, but listen to what Reisman has to say on the subject of environmentalism, which he concludes is the greatest current threat to capitalism. “The green movement,” he argues, “is the red movement no longer in its boisterous, arrogant youth, but in its demented old age.” Reisman, in short, seems to exhibit exactly the same mental disease that business people have long accused environmentalists of suffering from: a pathological inability to distinguish the good from the bad in a target population. So why bother reading some of this stuff? The answer is that when we consider the prospects for the seven “sustainability revolutions” covered in Chapters 5–11, we need to take into account the advice which business leaders are currently receiving from this quarter. There is fierce competition not only between products and between services, but also between rival ideas and the linked ideologies. Mercifully, after a decade of books on “reengineering” and “downsizing,” a new wave of strategy gurus are developing such concepts as “coopetition,” “coevolution,” “business ecosystems,” and “value migration,” all of which, it turns out, are strongly related to the triple bottom line agenda. Sustaining Capitalism 32 THE GURUS: MATTER MEETS ANTI-MATTER? I imagined that pulling together the thoughts of a range of business and management gurus would be like making a salad out of matter and anti-matter. Put all the various ingredients in a bowl, stir vigorously — and watch your salad disappear as they cancel each other out! Far from it. What is remarkable about the sample of gurus brought together in the following pages is the convergence of their thinking in key areas. With concepts like “stakeholder capitalism,” “coopetition,” and “business ecosystems,” they are, wittingly or unwittingly, helping to sketch out some of the bridges to a world of sustainable capitalism. But how many of them are really switched on to sustainability and the triple bottom line agenda? Precious few, it turns out. Fused/Switched Off ♦ George Reisman (capitalism is the solution to every economic problem) — see Chapter 2 of Cannibals With Forks ♦ Peters and Waterman during In Search of Excellence days — Chapter 2 ♦ Most 1990s management writers But the tide has changed. By 1991, Tom Peters had written Leon, Green and Clean.20 Another interesting indicator of change is that the top two articles in the January—February 1997 Harvard Business Review were titled “Beyond Greening: Strategies for a Sustainable World” and “Growth through Global Sustainability.”21 Below we look at some who are further along the path. Showering Sparks ♦ Lowell Bryan and Diana Farrell (superconductivity of financial markets) — Chapter 5 ♦ Jean-Marie Dru (disruption) — Chapter 13 ♦ Charles Hampden-Turner and Fons Trompenaars (cultures of capitalism) — Chapter 6 ♦ Rosabeth Moss Kanter (concepts, competence, connections) — Chapter 12 ♦ John Kotter (kill complacency) — Chapters 11–12 Is Capitalism Sustainable? 35 In China, Thurow notes, one of the worst things you can say to your neighbors is, “May you live in interesting times.” The Chinese know that fundamental uncertainty is among the worst things we can experience. Capitalism, in short, has a future but for most of us the next couple of decades will be extremely interesting times. And the early decades of the 21st century will be even more “interesting” for the corporate brain because of the failure of most corporate advisers to understand — and alert their clients to — the profound, inevitable implications for their clients of the impending sustainability revolution. The Business World What do Business Leaders Say? In truth, most business leaders have still not even got as far as avowing that they are, really, environmentalists at heart. Take Steven Spielberg and his colleagues at DreamWorks (Case Study, p. 36). They tried this approach when they ran into heavy environmental flak, but found it hardly helped them. More directly engaged is Intel chief executive Andy Grove, whose book, Only the Paranoid Survive,23 notes that the challenge in today’s markets is to find rational ways to survive what he calls the “ 10x” — or tenfold — factors that can change everything almost overnight. Examples have included the arrival of sound in the movie industry, the transformation of the computer industry in the late 1980s, and the breakup of AT&T’s telephone monopoly. It is interesting to note that Intel was also one of the first companies in the world to be targeted by campaigners operating over the Internet (Case Study, p. 168), bringing an issue which once would have been purely local on to a much wider stage. But it is not yet clear from Andy Grove’s writings or public pronouncements whether or not he suspects that the sustainability challenge might represent one of those “10x” shocks for Intel and for its customers and suppliers. This conclusion, as the companies involved in organizations like the World Business Council for Sustainable Development are beginning to recognize, is entirely reasonable — and supported by a growing body of evidence. The Sustainability Century Who Will Win, Who Lose? It is not yet remotely clear whether capitalism can ever become sustainable, as that term is currently understood. But there is enough evidence to suggest that the free enterprise model offers the best hope of moving in that direction — provided that it Sustaining Capitalism 36 DREAMWORKS, USA Who would have imagined it? When movie mogul Steven Spielberg, record boss David Geffen, and former Disney executive Jeffrey Katzenberg joined forces to form DreamWorks, a new Hollywood studio designed to take the film industry into the digital age, the world of cinema and TV viewers looked forward to further blockbusters from the maker of box-office smashes like Raiders of the Lost Ark and Jurassic Park. Yet a few months later, Spielberg and his colleagues were cost as the villains in one of LA’s most dramatic environmental controversies. The controversy was even more media-worthy because of the involvement of Microsoft chief Bill Gates and cofounder Paul Allen among Spielberg’s co- villains. At stake was the future of an area called the Ballona Wetlands. Ballona is a corruption of the Spanish ballena, or whole, and the 1,087 acre site just north of LA international airport is home to a huge number of species. There are 128 birds species, five of them endangered; 35 mammal species; 13 types of reptiles and amphibians; and nursery grounds for ocean fish. The 329 recorded plants include medicinal herbs still used by the Shoshone people, who lived here long before the early Spanish colonists arrived and forced them into the San Gabriel mission. Problematically, too, the site is also said to contain a Shoshone Gabrielino cemetery. The time-bomb that DreamWorks detonated when it announced plans to build Playa Vista, an “electronic garden city,” on the site clearly had been primed centuries back. The developers’ lawyers made things worse by refusing to believe that there had been burials there, demanding that the 400-strong tribe prove their claim. Chief Vera Rocha refused, saying that to do so would violate the sanctity of the dead. Significantly, perhaps, Californian low rules that six Caucasian groves makes a cemetery, but the rule does not apply to Indians. Work was to have begun on the site, which also has a long history as a Hollywood studio backlot, in the summer of 1996. Then a coalition of 38 environmental groups and Shoshone Gabrielino native Americans blocked the project — handing in a petition signed by a million people and, perhaps more significantly, launching a series of lawsuits (against DreamWorks and calling for a boycott of Spielberg’s Jurassic Park sequel. Matters were made worse by the fact that the billionaires behind DreamWorks had beer offered a $44 million, tax-free subsidy by the city authorities, who at the some time closed a hospital for lack of funds. Is Capitalism Sustainable? 37 is suitably shaped by social and regulatory pressures. Its real strength is that, more than any other model subjected to large-scale testing, it promises to helps harness human creativity and innovation to the sustainability cause. Despite the fact that very few modern business bestsellers even mention the environmental and sustainability challenges, among the most deep-seated trends that will make business life increasingly “interesting” are the seven impending “sustainability revolutions” spotlighted in Chapters 5–11. These seven revolutions are not sufficient conditions for global sustainability, even when taken together, but they will most certainly be necessary conditions. Even companies like DreamWorks and Intel, at the very heart of the emerging economy and thought by many to be infinitely more environment-friendly than the steelworks and auto-makers of the past, have been among the recent casualties of environmental controversies. But the focus of today’s debate is no longer simply on errant corporations, but on the sustainability of the emerging capitalist world order. Marx, it turns out, was right in much of his analysis but his prognosis was deeply flawed; Kruschev’s, too. Even so, the last thing 21st century corporations will be able to do is put their corporate feet up. On top of all the other changes under way, the sustainability transition will destroy some industries and force the radical restructuring of others. It will be the unmaking of tens of thousands of companies and businesses around the world. But it will also provide the seedbed conditions for hundreds of thousands, indeed millions, of new businesses. Chief Rocha claimed that the Ballona site was “cursed” for the white man, a graveyard of their dreams. Drawing on late 20th century mythology, he also suggested that Spielberg see again the 1982 film Poltergeist, which focused on a family haunted after occupying an Indian burial site. It was at this backlot, in 1924, that newspaper tycoon Randolph Hearst is thought to have accidentally shot Tom Inca when Hearst caught Charlie Chaplin in flagrante with his mistress Marion Davies. Later, Howard Hughes housed his ill-fated giant “Spruce Goose” seaplane here. It took off just once, with Hughes struggling at the controls, and managed to get only a few feet above the water. Whether or not DreamWorks finally gets off the ground at Ballona, the travails of Spielberg, Gates, and partners — most of whom claim to be environmentalists at heart — spotlighted the complex dynamics (economic, social and ecological) of late 20th century environmentalism. Sustaining Capitalism 40 Robert B. Shapiro,” Harvard Business Review, January—February 1997. 22. Lester Thurow, The Future of Capitalism: How today’s economic forces will shape tomorrow’s world, Nicholas Brealey Publishing, 1996. 23. Andy Grove, Only the Paranoid Survive, Currency Doubleday, 1996. 24. Module 3, From SMAS to SMAS: The EPE workbook for implementing sustainability in Europe, Version 1.1, edited by Andrea Spencer-Cooke, SustainAbility for European Partners for the Environment, May 1996. 25. Paul Hawken, The Ecology of Commerce: How business can save the planet, Phoenix, 1993. 26. Paul Hawken, “A Declaration of Sustainability,” Utne Reader, September/ October 1993. THE THIRD WAVE Storming the Boardroom The sustainable development agenda is in the process of becoming a competitive and strategic issue for major tracts of industry and commerce. Sustaining Capitalism 42 It is no surprise today to see leading environmentalists and social activists wearing pin-stripes, rather than jeans and “Save-the-Rainforests” T-shirts. And they are just as likely to be carrying the Financial Times or the Wall Street Journal as the Co- Evolution Quarterly, Ecologist or Utne Reader. Have the powers of Mammon turned watchdogs into lapdogs — or have the revolutionaries taken the castle? The answer is a bit of both. It was a chill, autumn morning. On the pavement outside the smart London hotel huddled a small group of protesters. As the business conference delegates filed in, the protesters asked them to take packs of information. But something was not quite right. What was going on here? Environmentalists picketing a mining company’s annual general meeting? Animal rights campaigners? Human rights activists? None of the above, it turned out. I came acres this scene as I entered the hotel to help kick off the conference. The protesters were not from Greenpeace. Instead, they were “Chlorophiles;” chlorine industry employees campaigning to save their industry and their jobs. The conference, the first organized by Greenpeace for business people, played to a capacity audience and unwittingly turned the spotlight on the extraordinary shift of influence and power now under way. Only a few years earlier, Greenpeace would have been outside on the pavement, or busily clamping plugs on to a polluting company’s effluent outfall. For a couple of decades, the resulting images have been splashed over the front pages of newspapers and the TV news headlines. These days, however, the triple bottom line movement is not only inside the factory fence but, increasingly, in the boardroom. And Greenpeace is making no secret of the fact that the chlorine industry is one of the sectors it wants to drive into extinction. Storming the Boardroom 45 emphasis over the past three decades is summarized in Figure 3.1. The early focus on nightmares and doomsday scenarios has given way over the years to a new interest in the question of how we can shape and harness the dreams and ambitions of ordinary citizens to the sustainability crusade. There has also been a significant shift from the externalization of environmental and other triple bottom line costs to their progressive internalization by business. In the process, the baton has passed from project development professionals, through process engineers and new product development experts, to the very top levels of companies; those involved with strategy, investor relations, and, as explained in Chapter 11, the intimate workings of the board. Are These Really Waves I See? The environmental revolution hit the business world like a series of tidal waves, eventually carrying some environmentalists and other campaigners into the most unlikely places. To take just one example, Tom Burke, my co-author on The Green Capitalists,3 subsequently served three successive British Secretaries of State for the Environment and ended up as an adviser to, of all people, RTZ (once Rio Tinto Zinc, then RTZ/CRA, now Rio Tinto again). In the 1970s, Tom ran Friends of the Earth — which had led the campaign to keep RTZ from mining in the unravaged wilderness of Snowdonia and more recently tried to stop the giant mining company despoiling Madagascar. This same pattern has been repeating itself around the world as senior environmentalists have begun to be recruited not only by business but also by governments and the investment community. To anyone who remembers the daggers-drawn hostility in the early days of the collision between the worlds of business and environment, this all takes some getting used to. What is going on? How can we make sense of the events and trends we have seen through the second half of the 20th century? Once, we would have been tempted to draw a straight line through all of these points and argue the case for inevitable progress towards doomsday or, alternatively, sustainability. But human history rarely, if ever, moves in a straight line. Today, by contrast, we see other, more complex, patterns in the data. Trying to make sense of these extraordinary changes, SustainAbility has so far plotted two great waves of environmental pressure across the OECD region, followed, to date, by two great downwaves. Before looking at what the future may hold, let’s see what impact these past waves Sustaining Capitalism 46 and downwaves have had on the ways in which business has defined its agenda. Wave One: Environmentalism Silent Springs? If any one person can be credited with sparking the “environmental revolution,” a term used by Max Nicholson in the title of a book published in 1970, it was Rachel Carson. But, as we shall see, Silent Spring was itself a direct result of one of the most momentous inventions of the 20th century.4 First published in 1962, the book was largely responsible for turning the world chemicals industry from savior into demon. “For the first time in the history of the world,” Carson argued, “every human being is now subjected to contact with dangerous chemicals, from the moment of conception until death.” At a time when there was mounting evidence of massive wildlife destruction caused by the new insecticides and other biocides, she pointed out that: “we have allowed these chemicals to be used with little or no advanced investigation of their effect on soil, water, wildlife, and man himself Future generations are unlikely to condone our lack of prudent concern for the integrity of the natural world that supports all life.” Worse, she warned, there was still: “very limited awareness of the nature of the threat. This is an era of specialists, each of whom sees his own problem and is unaware or intolerant of the larger frame into which it fits. It is also an era dominated by industry, in which the right to make a dollar at whatever cost is seldom challenged.” TABLE 3.1 Wave 1 (peak 1969–73) Environmentalism Mainstream 1970 Earth Day, USA 1970 Goddhafi takes power in Libya 1972 UN Stockholm Conference 1972 US troops leave Vietnam 1972 Limits to Growth, Blueprint for Survival 1973 Watergate scandal 1973 OPEC 1 oil shock 1973 Yom Kippur war Storming the Boardroom 47 But the public challenge was beginning to build. In The Environmental Revolution,5 Max Nicholson noted that the public had become uncomfortably aware of the downside of scientific and technological progress. “The pride of having reached the moon,” he suggested, “is cancelled out by the humiliation of having gone so far towards making a slum of our own native planet.” It had taken a considerable number of years for this first great wave of concern to build, but Nicholson was writing just as the wave reached its peak. “Old values, habits of thought and established practices are being challenged all over the world,” he reported. In 1961, aged 10 or 11, I recall raising money for the newly founded World Wildlife Fund (now the Worldwide Fund for Nature). WWF was a wildlife conservation organization, whose founders — Peter Scott and Max Nicholson among them — were mavericks but also very much establishment figures and pro- business. But, as Nicholson himself concluded, “revolutions, unfortunately, have a way of overtaking the revolutionaries, defeating their attempts to understand or control what is going on, and baffling or alienating those at the receiving end.” Indeed, a new breed of environmentalist would soon be bursting upon the scene, with the formation of such organizations as Friends of the Earth and Greenpeace. But, first, let’s take a brief look behind the scenes. Midwife to the Greens? Few people, not even leading environmentalists, were aware that modern environmentalism had been sparked by the behind-the-scenes work of an unassuming British scientist, James Lovelock. Because Lovelock’s work has helped drive each successive wave of environmentalism, his story is worth briefly summarizing here. I first came across Lovelock’s work in 1976, when New Scientist published an article on his “Gaia Hypothesis.” But, even then, Lovelock’s contributions to the environmental world dated back almost three decades. In 1948, when looking for the causes of the common cold, he built a piece of equipment which would become the precursor of the environmental revolution. Early in the 1990s, I nominated Lovelock for the Volvo Environment Prize. In 1996, he won the prize and, in his nomination lecture in Brussels, reviewed the history of that early invention, the electron capture detector (ECD) and its contribution to the evolution of the green movement.6 In 1949, he recalled, the Sustaining Capitalism 50 back to business as usual. This first wave, peaking between 1970 and 1974, was largely driven by grassroots pressure and amplified by the power of television, forcing the hands of governments, policymakers, and regulators alike. A pivotal year was 1972, which saw the publication of two key books — Limits to Growth8 (Club of Rome) and A Blueprint for Survival9 (The Ecologist) — and saw the doors open on the UN Conference on the Human Environment, held in Stockholm. A range of new environmental management tools began to emerge. Some pioneering companies, including oil companies like BP and Sohio opening up the North Slope oil-fields of Alaska, began to develop environmental impact assessment methods. Some companies also experimented with environmental audits, sometimes to test out whether the impacts predicted by the assessments had been effectively tackled by the control measures — or whether new, unexpected areas of impact had emerged. But even great waves peter out. The first wave soon lost its energy and was followed by the first great downwave (Table 3.2). TABLE 3.2 The first downwave (trough: 1974–87) Environmentalism Mainstream 1974 Seveso disaster, Italy 1975 Fall of Saigon; first North Sea oil 1978 Son Carlos de la Rapita gas ashore explosion kills 200, Spain 1976 Moo dies, China 1979 OPEC 2 oil shock 1977 Elvis Presley dies 1983 Greenhorn Common protests, UK 1979 Shah of Iran exiled; Khmer Rouge 1984 Bhopal disaster, India; Band Aid genocide exposed in Cambodia 1985 BAS discovery of Antarctic ozone 1981 Pope, President Reagan shot hole; Live Aid; French blow up 1982 Falklands War Greenpeace’s Rainbow Warrior 1984 China sets off down capitalist in Auckland harbour, New road Zealand 1985 Gorbachev new Soviet leader 1986 Chernobyl disaster, USSR; 1986 Mrs Aquino forces out Marcos, Rhine disaster Philippines 1987 Our Common Future; Montreal 1987 “Black Monday” stock market Protocol signed; “storm of century” crash lashes UK Storming the Boardroom 51 The First Downwave: Band Aids Limits to Growth? Just as the first OPEC oil-shock of 1973–74 seemed to confirm the Club of Rome’s gloomy Limits to Growth forecasts, soaring energy prices triggered an international economic recession. The environment slipped down the political agenda, a trend eagerly exploited by industry lobbyists. Not that this meant that the environment slipped completely off the business agenda. In 1978, for example, the Brussels based Management Centre Europe carried out a survey of chief executives in eleven European countries.10 At the time, Europe was “barely emerging from the most severe economic recession since the 1930s.” Competition with major trading partners, most particularly the USA and Japan, was forcing massive restructuring of industries like textiles and shipbuilding. Yet environmental protection, it turned out, was seen as a more pressing management issue, for the period 1973 to 1978, than consumer protection, high levels of unemployment, the demands of organized labor, and even shareholder relations. The 1970s had certainly been a busy time for environmental legislators. The period saw the formation of the first of hundreds of national environmental protection agencies, ministries, and departments. Ironically, even though the first wave had begun to fall back in 1974, its political impact continued for many years. When the Organisation for Economic Cooperation and Development (OECD) published its first state of the environment report in 1979, it included a listing of the new laws passed in OECD countries during the decade. The figures showed that the trend really took off in 1972, with the period between 1972 and 1976 representing the peak years. Following the second OPEC oil shock of 1978–79, the downwave took hold in the USA during the early 1980s, under President Ronald Reagan and, in the UK, under Prime Minister Margaret Thatcher. “Environmentalists tremble” read one headline in science shortly after the election of Ronald Reagan as President. If they did, they had good reason to do so: the ex-actor had been, to put it mildly, an uninspiring candidate as far as environmental issues went. At one stage, he went as far as to assert that trees were a major source of air pollution. He also claimed that air pollution was under control — on the same day that a pea-soup photochemical smog prevented his plane from landing at Los Angeles airport.11 The Republicans took their lead from a crop of think-tank reports which had argued that regulation was almost an un-American activity. Some observers feared a gutting of the Environmental Protection Agency (EPA). Outgoing EPA Sustaining Capitalism 52 administrator Doug Costle warned the incoming Republicans that: “there are fundamental demographic changes that we’re going through in this country. As you look at the polls, the young people feel a lot more strongly about environmental issues than the age group that will be represented in the government leaders in the next four years. I don’t think society is going to permit a turning back of the clock.” But that did not stop the Republicans. Indeed, an editorial in the New York Times described the ensuing chaos at the agency as follows: “Seldom since the Emperor Caligula appointed his horse a consul has there been so wide a gulf between authority and competence. Mr. Reagan’s EPA appointees brought almost no relevant experience to their jobs. His administrator, Anne Burford, was a telephone company attorney and two-term legislator who learned about environmental issues fighting Clean Air Act provisions in Colorado.” Not surprisingly, environmentalists saw these appointments as equivalent to putting foxes in charge of the chicken-houses. They were not far wrong: the resulting scandals rocked the EPA. Its staff halved at a time when its responsibilities more or less doubled. The American experience, as usual, simply took a trend to extremes. No-one disputed that the USA had introduced an unprecedented succession of powerful and sweeping new regulations since the late 1960s. And there was a growing body of opinion that the time had come for the whole process of environmental regulation and enforcement to be streamlined or “fine-tuned.” Indeed, the incoming administration had used such words to describe its intentions. But like the knights who assassinated Thomas à Becket in 1170, Burford and others took their instructions too literally. President Reagan, like Henry II, eventually found himself having to do penance for the resulting damage. What is Zero? The ability to measure vanishingly small quantities of toxins inevitably led to over- reactions. “Before the ECD was used,” as Lovesick explained: “it would have been quite. easy and reasonable to set zero as the lowest permissible limit of pesticide residues in foodstuff. Zero really means the least Storming the Boardroom 55 The odd thing about the first downwave was that it continued despite the growing availability of such statistics, and despite the fact that the period also saw some of the biggest environmental disasters in history, including the 1984 Bhopal poisoning deaths (5,325 people if you believe the official estimate, nearer 15,000 if you believe some unofficial estimates), and the 1986 Chernobyl nuclear accident. Anyone for Sustainable Development? None of these disasters was sufficient to trigger directly a second wave of protest. But there were reactions at other levels. 1987, for example, saw the publication of one of the most important books of the late twentieth century: Our Common Future.14 This was produced by the World Commission on Environment and Development, chaired by Norwegian Prime Minister Gro Harlem Brundtland. The “Brundtland Report” put sustainable development — a concept which had been around at least since 1980 — firmly onto the international political agenda. Sustainable development was defined as “development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.” Key objectives, the Brundtland Commission noted, include the following: reviving economic growth, but in a new form (“less material- and energy- intensive and more equitable in its impact”); meeting essential needs for jobs, food, energy, water, and sanitation; ensuring a sustainable level of population; conserving and enhancing our natural resource base; reorienting technology and managing risk; and merging ecological and economic considerations in decision making. The Commission argued that feeding, clothing, housing, transporting, and fueling the expanded world population will imply a 5–7-fold increase in industrial production by the middle years of the 21st century. Cannibals With Forks is built around many of the same assumptions. It may not be the best option as far as the planetary ecosystem is concerned, but it is almost certainly the option we will have to plan for and manage in practice. For those who find the Brundtland Commission’s definition of sustainability too vague, here is a more precise definition, advanced by Herman Daly while an economist with the World Bank.15 A sustainable society needs to meet three conditions: its rates of use of renewable resources should not exceed their rates of regeneration; its rates of use of non-renewable resources should not exceed the rate at which sustainable renewable substitutes are developed; and its rates of pollution Sustaining Capitalism 56 TABLE 3.3 Wave 2 (peak 1988–90) Green Mainstream 1988 “Greening” of leading 1988 USSR withdraws from Afghanistan; politicians (e.g. Thatcher, George Bush elected US President; Gorbachev, Bush); Green Harvard awarded patent on consumer movement starts genetically engineered mouse 1989 Exxon Valdez disaster; 15% 1989 Massacre in Tiananmen Square, of UK voters back Greens in China; collapse of communism in Euro-elections Eastern Europe 1990 Earth Day, international; start 1990 Re-unification of Germany; Iraq of corporate environmental invades Kuwait reporting trend 1991 Gulf War/Operation Desert Storm; disintegration of former Yugoslavia; coup against President Gorbachev; demise of USSR emission should not exceed the assimilative capacity of the environment. Going Green Invisible Elbow? Downwaves also end. The second great wave of environmentalism reached full force in the late 1980s, picking up through 1987 and peaking between 1988 and 1990. It was sparked by a wide range of issues and disasters, but a key contributory factor was the discovery of the Antarctic ozone hole in 1985. The glowing maps of the southern hemisphere published in the press and shown on TV gave ordinary people clear, visible evidence that something they were doing every day — using aerosols with CFC propellants — was helping to tear the global environmental fabric. Consumers suddenly felt that their fingers, quite literally, were on the button of environmental destruction. Here, at last, was conclusive proof of the global damage caused as the benefits brought about by Adam Smith’s s “invisible hand” began to be canceled out by the impact of the market’s “invisible elbow.” Governments woke tip to the fact that environmental problems were no longer simply local, national, or regional. Increasingly, we face global problems. In 1987, Storming the Boardroom 57 35 nations signed an unprecedented international agreement, the Montreal Protocol, designed to control CFC emissions. In addition, industry began to recognize that it could no longer abdicate responsibility for such problems until the relevant environmental science was completed — in the expectation that the scientists would ultimately prove industry’s innocence. As a result, we saw the emergence of early business champions of the “precautionary principle.” Regulators again had something of a field day, although the pace of development was slower in this second wave. By the early 1990s, the Commission of the European Communities alone had brought into effect some 250 environmental directives, with nearly another 50 in the pipeline. The success of the green parties in a number of member states during the 1980s had also given the political screw another fierce twist. Can Consumers Save the World? This time, as far as business was concerned, the pressures came via a wider range of channels. The publication of our own Green Consumer Guide16 in October 1988 caught the spirit of the time — giving ordinary citizens the information they needed to make choices between named brand products. The idea caught on. By the time the book’s US edition appeared the following year, it was joined by half a dozen others, including 50 Ways to Save the Planet.17 Although this time the advantage was with organizations and companies working with environmentally aware consumers, green consumerism was an expression of a much wider tide of concern sweeping through society. Like “green capitalism” before it, “green consumerism” was an oxymoron. Again, I must accept the blame for spot-welding two apparently incompatible visions of the future. Anyone who genuinely thought that we could shop our way out of our troubles would certainly have been disappointed. But that was not our message. Our goal was empowerment — and the consumer pressures triggered by the book sent powerful new market signals to both retailers and manufacturers. Paradoxically, business often found these pressures much harder to deal with than government-led initiatives. With governments, business could lobby, through trade and industry associations, stopping or at least slowing proposed regulations and other controls. When the market tripped in, however, things could move much faster — and often did so in a less predictable fashion. As a result, business leaders began to accept that the future would not allow them Sustaining Capitalism 60 Corporate Environmentalists? Most business people didn’t like the conclusions, either. But the late 1980s had seen business investing a growing amount of energy and senior management time, via organizations like the International Chamber of Commerce (ICC) and the Business Council for Sustainable Development (BCSD), in preparing its position for the 1992 Earth Summit. Ironically, as we have seen, the second great green wave peaked in late 1990 or early 1991, well before the Earth Summit, leaving many business initiatives hanging in mid-air, without the political and market pressures to properly sustain them. This time, however, there was a much more powerful ratchet effect at work. Perhaps a key reason for this was that the second wave had hit business much harder than it had hit governments. The president of the ICC noted that “the withering away of the Marxist challenge leaves the environmental challenge as the most fundamental one that business [people] all over the world are going to face in the foreseeable future.”19 From the Bhopal disaster onwards, we had seen growing numbers of companies — most particularly US chemical companies like Dow Chemical, DuPont and Monsanto — committing themselves to environmental targets that began to take them well beyond what the regulators currently required. There was much talk of moving “beyond compliance” and of a new mood of “corporate environmentalism.” Business leaders began to recognize the need for business people to act as environmentalists, rather than simply as professional, with environmental responsibilities. “No corporation can be truly innovative until everyone in the company has adopted an environmentalist attitude,” said Edgar Woolard, as chairman and CEO of DuPont. In the spirit of the times, Woolard also said that, at least in his case, CEO stood for “chief environmental officer.” As we will see, this sort of claim was more than a little optimistic. But at least the conversion was now under way — and the second downwave simply slowed progress, rather than sending it into a tailspin. Business leaders, increasingly, recognized the need to “change course,” to use the phrase introduced in 1992 by the Business Council for Sustainable Development’s 1992 book, Changing Course.20 Among the BCSD’s key messages were: ♦ as the world moves inexorably towards deregulation, private initiatives, and global market, economic growth and environmental protection will be inextricably linked; Storming the Boardroom 61 ♦ progress towards sustainable development makes good business sense, because it can create competitive advantages and new opportunities; ♦ sustainability requires new visions to energize society, together with new forms of co-operation between government, business, and society; ♦ open and competitive markets, both within and between nations, foster innovation and efficiency, and provide opportunities for improved living conditions; ♦ new regulations and economic instruments will need to be tailored to local circumstances, but must also be harmonized among trading partners; and ♦ some markets — for example those operating in the farming and forestry sectors — need to be reengineered so that price and other signals encourage progress towards sustainability. But the area where Changing Course identified the greatest need for change was in the world’s capital markets. Little was known, the BCSD noted, “about the constraints, the possibilities, and the interrelationships between capital markets, the environment, and the needs of future generations.” This area was covered in greater detail in a subsequent WBCSD book, Financing Change.21 For many business people, the mid-1990s may not have felt like a downwave, but the period certainly saw reduced levels of public concern and activism in many countries. To some extent, however, the depth of the second downwave will only become clear when we can look back at it from the vantage point of riding — or being carried along by — the imminent third wave. Wave 3: Sustainability Will There be Another Wave? I believe that the third wave has already begun. And the pressures on business this time around will be a complex mix of everything that went before, plus some new factors. Businesses developing a competitive edge in this area — a sustainability advantage — will be much better placed to identify and win a share of the new markets. Through the 1990s we predicted that the third great environmental wave might start as soon as 1997 or 1998 (Table 3.5). This time, we concluded, the wave would be driven by such factors as strengthening science on global warming, growing Sustaining Capitalism 62 TABLE 3.5 Wave 3 Drivers Characteristics ♦ Economic and social fall-out from ♦ Acceleration and growing complexity globalization ♦ Global goldfish bowl, spurred by ♦ Economic recovery in some countries Internet ♦ “Pre-Millennial Tension” ♦ New focus on life-cycles, business ♦ Values shift(s) ecosystems, time-scales, corporate ♦ New generation of activists governance ♦ Triple bottom line ♦ Value migration concerns about the economic and social fallout from globalization, and — in advance of the third millennium — more than a degree of “pre-millennial tension.” Through 1995, it seemed that our forecasts were beginning to prove a bit too conservative. A string of controversies once again sparked media interest in the environmental agenda. First, Shell UK ran into massive public resistance to its plans to dump its giant Brent Spar oil buoy at sea. Then the giant oil company became the target for an unprecedented international campaign as the Nigerian government executed environmental activist Ken Saro-Wiwa and his colleagues. That same year, too, President Chirac came under intense pressure from countries around the world to abandon his series of nuclear tests at the Mururoa atoll. As it happens, I was in New Zealand during the second test, sharing a platform with the country’s Prime Minister, Jim Bolger. He was incandescent with anger at the French and very much on the side of Greenpeace in this latest dispute. Time and again, we saw leading politicians beginning to be dragged into the debate. Britain’s then Prime Minister, John Major, clashed with Germany’s Chancellor Helmut Kohl over Brent Spar. President Chirac collided with Europe’s President Jacques Santer on nuclear testing. And then, as the “mad cow” controversy broke across Europe, Major was again under fire from leading politicians across the Union. Shell and others affected by these controversies noted that they had been hit out of the blue — and with unparalleled force. What, they wanted to know, was going on? Together with Paul Hawken and Geoff Lye, I spent a fascinating couple of days working through the evidence with top executives from Shell International. Some companies began to ask whether this was our third wave at last? No, we replied, the Storming the Boardroom 65 question we must ask is this: are the models of growth that evolved in the post-1945 period the right, or sustainable, models for the 21st century? The answer, almost certainly, is that they are not. Indeed, it is interesting that the Commission of the European Communities, in its White Paper on Growth, Competitiveness and Employment,23 spoke of the need to develop and adopt a “new model of development.” Specifically, the Commission foresaw a growing imbalance in the main factors of production — land, labor, and Capital. For decades, the substitution of labor by capital, via technology, has been accompanied by growth in the use of energy and other raw materials, leading to the over-exploitation of increasingly scarce environmental resources, Because market prices do not adequately reflect the scarcity of many natural resources, nor the environmental opportunity costs involved in using such resources for short-term economic gain, the Commission notes that “their over-use has become systematic.” WaterWise information pack, offering everything from the Triple Wax Dri-wash (clean your car without water) to miracle watering cons,” whose push-button devices ensure water goes where it is needed. Small beer, perhaps, but with almost a third of Anglian’s customers admitting they waste “a lot” of water, such measures are timely. Longer term, however, the route to sustainability will run through transformed water markets. Companies must learn how to earn more by selling less. Facing inexorably rising demand and an uncertain supply picture, Anglian is already pondering “demand side management.” “Our normal response to the problem of a village with periodic water supply difficulties is to lay a larger pipeline,” the company’s water efficiency plan notes, “whereas a cheaper and more environmentally sensitive solution may be to reduce demand in that village by checking all the domestic supply pipes for leaks and fitting water-efficient appliances.” Fine, but how can we convert all consumers to water-efficiency? One way forward is obviously to install water meters. Anglian’s current plan is to meter 95% of properties by 2015. And there’s the rub: most consumers still see clean, almost free water as a right. This must — will — change. Watching the foam spiraling beneath our feet, I concluded that this was indeed what the first two waves of environmentalism were about: transforming leading companies into vigorous, effective campaigners for resource efficiency and sustainability. But will Anglian and its competitors get their act together in time to surf the third wave of environmentalism? Sustaining Capitalism 66 This time around, the challenge for business is likely to be of a very different order than in the previous waves and downwaves. There will be cycles, but the pressures are likely to increasingly converge on a number of principles which have been developed and applied by a number of environmentally and socially responsible companies. And the focus of political attention is likely to switch progressively to evermore sensitive parts of the environment and of the human population (for example, children’s health), with the result that the challenge for business is characterized, over the long term, by a ratchet effect. The result, as illustrated by the Anglian Water case study (p. 64), is that growing numbers of companies are now considering elements of the sustainability agenda at board level. Notes 1. See, for example: Tom Athanasiou, Slow Reckoning: The ecology of a divided planet, Seeker & Warburg, 1997; Anna Bramwell, Ecology in the 20th Century: A history, Yale University Press, 1989; Mark Dowie, Losing Ground: American environmentalism at the close of the twentieth century, The MIT Press, 1995; Sara Parkin, Green Parties: An international guide, Heretic Books, 1989; David Pepper, The Roots of Modern Environmentalism, Croom Helm, 1986; Jonathon Porritt and David Winner, The Coming of the Greens, Fontana/Collins, 1988; Victor B. Scheffer, The Shaping of Environmentalism in America, University of Washington Press, Seattle, 1991. 2. John Elkington, The Green Wave: Report of the first Green World survey, SustainAbility and British Gas, 1990. 3. John Elkington with Tom Burke, The Green Capitalists, Gollancz, 1987. 4. Rachel Carson, Silent Spring, Houghton Mifflin, 1962; Pelican Books, 1965. 5. Max Nicholson, The Environmental Revolution: A guide for the new masters of the world, Hodder & Stoughton, 1970; Pelican Books, 1972. 6. James E. Lovelock, Midwife to the Greens: The electron capture detector, Volvo Environment Prize lecture, Brussels, October 1996. 7. John Elkington, The Ecology of Tomorrow’s World, Associated Business Press, 1980. 8. Dennis Meadows et at, The Limits to Growth, Earth Island, 1972. 9. The Ecologist, A Blueprint for Survival, first published as The Ecologist 2(1) 1972, and then as a Penguin Special, 1972. 10. John Humble and Michael Johnson, Corporate Social Responsibility: The attitudes of European business leaders, Management Centre Europe, 1978. 11. John Elkington, The Poisoned Womb: Human reproduction in a polluted world, Viking 1985; Pelican Books, 1986. Storming the Boardroom 67 12. M. J. Molina and F. S. Rowland, Stratospheric sink for chlorofluoromethanes — chlorine atom-catalyzed destruction of ozone, Nature 249, 1974, p. 810. See also Science, 12 December 1975, p. 1036. 13. Michael Royston, Pollution Prevention Pays, Pergamon Press, 1979. 14. World Commission on Environment and Development, Our Common Future, Oxford University Press, 1987. 15. Herman Daly, “Institutions for a steady-state economy,” Steady State Economics, Island Press, 1991. 16. John Elkington and Julia Hailes, The Green Consumer Guide: From shampoo to champagne, Gollancz, 1988. 17. Earthworks Group, 50 Ways to Save the Planet, Earthworks Press, Berkeley, 1989. 18. Donnella H. Meadows, Dennis L. Meadow and Jørgen Randers, Beyond the Limits: Global collapse or a sustainable future, Earthscan, 1992. 19. John Elkington with Anne Dimmock, The Corporate Environmentalists: Selling sustainable development — but can they deliver?, SustainAbility and British Gas, 1991. 20. Stephan Schmidheiny with the Business Council for Sustainable Development, Changing Course: A global business perspective on development and the environment, MIT Press, 1992. 21. Stephan Schmidheiny and Federico Zorraquin, Financing Change, The MIT Press, 1996. 22. James E. Lovelock, Gaia: A new look at life on Earth, Oxford University Press, 1979. 23. White Paper on Growth, Competitiveness and Employment, Commission of the European Communities, 1993. Sustaining Capitalism 70 Driving companies towards sustainability will require dramatic changes in their performance against the triple bottom line. Some of the most interesting challenges, however, are found not within but between the areas covered by the economic, social, and environmental bottom lines. These “shear zones” are illustrated in Figures 4.1–4.7 and typical agenda items are covered in the three “shear zone” panels. Like the ancient Trojans dragging the vast wooden horse through a great gap torn in the walls of their long-besieged city, some of the world’s best business brains spent the 1990s struggling to take on board the emerging sustainability agenda. Many of their colleagues warned that success would end in disaster, just as it had done for the Trojans. Sustainable development, they argued, was a treacherous concept; basically, communism in camouflage. By the middle of the last decade of the 20th century, however, their fevered brows were being soothed by the concept of “eco-efficiency,” promoted by the World Business Council for Sustainable Development (WBCSD). And then, as some had feared, the trap was sprung. Communism had nothing to do with it. But the sustainability agenda, long understood as an attempt to harmonize the traditional financial bottom line with emerging thinking about the environmental bottom line, turned out to be more complicated than some early business enthusiasts had imagined. Today we think in terms of a “triple bottom line”, focusing on economic prosperity, environmental quality, and — the element which business bad preferred to overlook — social justice. None of this was new, of course. Our Common Future, the 1987 report of the World Commission on Environment and Development, had made it perfectly clear that equity issues, and particularly the concept of inter-generational equity, were at Sustainability’s Accountants 71 the very heart of the sustainability agenda.1 But most of the hundreds of companies that limbered up for the 1992 Earth Summit by signing the Business Charter for Sustainable Development, devised by the International Chamber of Commerce (ICC), had little idea of the deeper logic of sustainable development. As far as they, and the thousands of companies which have signed up since, were concerned, the basic challenge was simply one of “greening,” of making business more efficient and trimming costs. When the Harvard Business Review turned its spotlight on to the sustainability agenda in 1997, ten years after the publication of Our Common Future, it noted that, “Beyond greening lies an enormous challenge — and an enormous opportunity. The challenge is to develop a sustainable global economy: an economy that the planet is capable of supporting indefinitely.”2 This represents a profound challenge. Although some parts of the developed world may be beginning to turn the corner in terms of ecological recovery, the planet as a whole is still seen to be on an unsustainable course. “Those who think that sustainability is only a matter of pollution control are missing the bigger picture,” explained Stuart Hart, director of the Corporate Environmental Management Program at the University of Michigan: “Even if all the companies in the developed world were to achieve zero emissions by the year 2000, the earth would still be stressed beyond what biologists refer to as its carrying capacity. Increasingly, the scourges of the late twentieth century — depleted farmland, fisheries, and forests; choking urban pollution; poverty; infectious disease; and migration — are spilling over geopolitical borders. The simple fact is this: in meeting our needs, we are destroying the ability of future generations to meet theirs.” And these problems are not simply economic and environmental, either in their origins or nature. Instead, they raise social, ethical, and, above all, political issues. The roots of the crisis, Hart concluded, are “political and social issues that exceed the mandate and capabilities of any corporation.” But here is the paradox: “At the same time, corporations are the only organizations with the resources, the technology, the global reach, and, ultimately, the motivation to achieve sustainability.” There is no question that some of these issues can have — indeed, already have had — a profound impact on the financial bottom line. Think of the companies and industries making or using such products as asbestos, mercury, PCBs, PVC, and CFCs and it is clear that the long-term sustainability of major slices of any modern Sustaining Capitalism 72 economy is already being called into question. Worryingly, at least on current trends, things can only get worse. “It is easy to state the case in the negative,” as Hart pointed out. “Faced with impoverished customers, degraded environments, failing political systems, and unraveling societies, it will be increasingly difficult for corporations to do business. But,” he stressed: “the positive case is even more powerful. The more we learn about the challenges of sustainability, the clearer it is that we are poised at the threshold of an historic moment in which many of the world’s industries may be transformed.” The level of change implied by the sustainability transition is extraordinary. As the Worldwatch Institute put it in a recent State of the World report: “We are only at the beginning of this restructuring. New industries are emerging to reestablish natural balances — based on technologies that can produce heat and light without putting carbon into the atmosphere; on metals made out of the scrap of past buildings and cars; on papers made out of what was once considered wastepaper. Some homes and offices are heated entirely by the sun or from electricity generated by the wind.”3 But sustainable capitalism will need more than just environment-friendly technologies and, however important these may be, markets which actively promote dematerialization. We will also need to address radically new views of what is meant by social equity, environmental justice and business ethics. This will require a much better understanding not only of financial and physical forms of capital, but also of natural, human, and social capital. Business leaders and executives wanting to grasp the full scale of the challenge confronting their corporations and markets will need to carry out a sustainability audit, outlined in Chapter 13, against the emerging requirements and expectations driven by sustainability’s triple bottom line. In the spirit of the management dictum that what you can’t measure you are likely to find hard to manage, we should ask whether it is even possible to measure progress against the triple bottom line? The answer is yes, but the metrics are still evolving in most areas — and need to evolve much further if they are to be considered in an integrated way. In the following pages, we briefly focus on the relevant trends in relation to the economic, Sustainability’s Accountants 75 and services sustainable? Is our rate of innovation likely to be competitive in the longer term? How can we ensure that human or intellectual capital does not migrate out of the organization? Are our profit margins sustainable?5 Longer term, too, the concept of economic capital will need to absorb much wider concepts, such as natural capital and social capital, both of which are discussed below. Accountability In most countries, companies have an obligation to give an account of their financial performance. In the case of limited companies, directors are accountable to shareholders. This responsibility is partly discharged by the production and — in the case of public companies — publication of an annual report and accounts. An annual general meeting (AGM) theoretically provides shareholders with an opportunity to oversee the presentation of audited accounts, the appointment of directors and auditors, the fixing of their remuneration, and recommendations for the payment of dividends. Typically, there has been little, if any, overlap between the areas covered by financial auditors in serving the interests of shareholders and the issues of interest to other stakeholders in terms of the environmental and social bottom lines. But one area where we see a growing degree of overlap between a company’s economic and environmental performance is “eco-efficiency” (Spotlight, p. 78). At the same time, too, there are early signs that, as the sustainability agenda becomes a board-level issue, we will see growing overlaps with the whole corporate governance agenda (see Chapter 11). Accounting By the very nature of their work and training, most traditional accountants are short- sighted. Typically, the so-called accounting period is 12 months. Internal accounts are often prepared on a monthly or quarterly basis, with full results produced annually. Worldwide, however, the pressure to perform on a quarterly basis is intensifying as Anglo-Saxon approaches to stock management and investment banking spread. In preparing their accounts, accountants are guided by a range of reasonably well-established concepts. These include the ongoing concern concept (with assets not stated at breakup value, unless there is evidence that the company is no longer Sustaining Capitalism 76 viable), the consistency concept (which calls for accounts to be prepared on a consistent basis, allowing accurate comparisons between quarters or years), the prudence concept (accounts should be prepared on a conservative basis, recording income and profits only when they are achieved, and making provision for foreseeable losses) and depreciation (with the value of most assets progressively written off over time). Despite 500 years — counting early clay tablets, some would say at least 5,000 years — of evolution in mainstream accounting, there remain huge controversies over how companies account for acquisitions and disposals, record extraordinary and exceptional items, value contingent liabilities, capitalize costs, and depreciate their assets. One of the most thought-provoking books of the 1990s was Accounting for Growth, in which Terry Smith stripped away the camouflage of creative accounting and helped shareholder, analysts, and others to assess how strong a particular company’s finances really are.6 We have tended to see the bottom line as the hardest of realities, representing the unappealable verdict of impartial markets.7 But it is increasingly clear that such accounting concepts are man-made conventions that change over space and time. Bottom lines are the product of the institutions and societies in which they have evolved. And, because accounting inevitably involves compromises, the bottom line turns out to be influenced by subjective interpretation, quite apart from “creative” accounting. So, for example, when Rover was taken over by BMW and subjected to Germany’s stricter valuation criteria, a 1995 “profit” £9l million became a £58 million “loss.” A key concept in relation to all three dimensions of sustainability — but particularly relevant in relation to environmental and societal costs — is that of “externalities.” These economic, social, or environmental costs are not recorded in accounts. So, to take an economic example, the decision of a company to locate a high-technology plant in a relatively undeveloped region may have such effects as drawing technical talent away from local firms, or forcing up property prices locally beyond what local people can afford. We will look at examples of environmental and social externalities under the appropriate sections below. Issues and Indicators These are key tools of the trade. Among the items you would expect to see in a company’s report and accounts would be a profit and loss account, balance sheet and statement of total recognized losses and gains. When it comes to wider economic Sustainability’s Accountants 77 sustainability, however, there is a surprising lack of generally acceptable indicators. Key considerations here might include the long-term sustainability of a company’s costs, of the demand for its products or services, of its pricing and profit margins, of its innovation programs, and of its “business ecosystem (see Chapter 5). Auditing Once we know what we should be measuring, the next question is how are we doing against the agreed benchmarks? Internal audits aim to ensure that management controls are working effectively. External audits involve an independent examination of — and an expression of an opinion on — the financial statements of an organization. The evidence collected draws on such sources as the company’s accounting systems and the underlying documentation, its tangible assets, and interviews with managers, employees, customers, suppliers, and other third parties having some knowledge of the company. Only in exceptional circumstances are the key social and environmental issues fully on the radar screen. Reporting, Risk-Rating and Benchmarking Audits are designed to produce information for internal consumption, but there are growing demands for transparency. How far should a company be expected to go? Levels of reporting by companies vary widely, partly reflecting different accounting regimes, partly different opinions on what it is appropriate to report, and partly on the different needs of report users. The information generated by such reports, and available from other sources, is used by analysts in risk-rating. They are interested, for example, in working out the appropriate levels of share pricing, premiums for insurance policies, or security for loans. Even today, environmental and social risks are not high on the agenda for most companies, with the result that very few annual reports yet contain a robust section on social and/or environmental performance. Another use for the reported data is benchmarking, which involves comparisons of processes and products, both within an industry and outside it, to identify and then meet or exceed best practice. Most benchmarking exercises in this area, however, now involve in-depth, in-company research, rather than simply relying on published reports. And it would be rare indeed in today’s world for a company to Sustaining Capitalism 80 Among the questions business people will need to ask are the following. What forms of natural capital are affected by our current operations — and will they be affected by our planned activities? Are these forms of natural capital sustainable given these, and other, likely pressures? Is the overall level of stress properly understood and likely to be sustainable? Is the “balance of nature” or the “web of life” likely to be significantly affected? The interesting thing about a company’s ecological bottom line is that the carrying capacity of most ecosystems varies in relation to the number — and behavior — of the economic actors operating within them. As a result, these bottom lines will vary over time and space. The more efficient the actors, however, the more actors can be sustained. This is the basis of the Factor 4/10 approach discussed in the Spotlight (p. 78). Accountability In many countries, companies are hold are countable by regulators for aspects of their environmental performance. In the USA, the Toxic Release Inventory (TRI) requires companies producing more than certain threshold limits of over 600 chemicals to report their emissions. Some countries, like the Netherlands, also back up their regulations with voluntary programs designed to push companies towards sectorally agreed targets. Just as often, however, business is held to account by environmentalist and media campaigns, which may bear little relation to regulated or voluntarily agreed targets. And as companies begin to challenge their supply chains, a new dimension of pressure is being introduced. While planning this book, for example, I was invited by Volvo to help facilitate their first environmental conference for supplier companies. The company’s top management told the 500-plus audience that Volvo had started off by focusing on safety, then added quality. Now, they said, environmental performance was increasingly in the spotlight — and suppliers would find environmental aspects being covered in Volvo’s regular supplier audits (Case Study, p. 119). Accounting The field of environmental accounting is relatively embryonic, but is generating a growing literature.11 Among other things, it aims to: rebalance the treatment of environmental costs and benefits in conventional accounting practice; separately Sustainability’s Accountants 81 identify environmental related costs and revenues within the conventional accounting systems; devise new forms of valuation which encourage better management decisions and increased investment in environmental protection and improvement; develop new performance indicators to track progress; and experiment with ways in which sustainability considerations can be assessed and incorporated into mainstream accounting.12 As far as environmental externalities go, many companies have been forced to take on to their books impacts and effects which were once externalized. Take the case of T&N, which as Turner & Newall was once one of the world’s largest asbestos producers. For years, the company argued that the risks involved in the use of asbestos were acceptable. Eventually, however, the tide turned, not only against Turner & Newall but against the entire asbestos industry. At the time of writing, T&N had already paid out over £350 million over ten years to meet asbestos claims — and was busily selling off corporate assets to fund a further £323 million provision.13 And, in an attempt to draw a line under its asbestos legacy, the company had announced a £515 million charge against annual profits to meet future personal injury claims and insurance costs. It was not alone in experiencing such problems. Issues and Indicators The sheer number of potential issues, and hence the expanding range of possible environmental risks, is reflected in the potential indicators. These include financial indicators such as: trends in legal compliance; provisions for fines, insurance, and other legally related costs; and landscaping, remediation, decommissioning, and abandonment costs. But there is also a growing need to measure environmental impacts in terms of new metrics, including: the number of public complaints; the lifecycle impacts of products; energy, materials, and water usage at production sites; potentially polluting emissions; environmental hazards, and risks; waste generation; consumption of critical natural capital; and performance against best-practice standards set by leading customers and by green and ethical investment funds. At the company level, the task is being made somewhat easier by the development and publication of international environmental management standards. Globally, there is ISO 14001, developed by the International Standards Organisation (ISO) in the wake of the 1992 Earth Summit.14 In Europe, there is the Eco- Management and Audit Scheme (EMAS), which takes a step beyond ISO 14001 by Sustaining Capitalism 82 requiring companies to produce an environmental statement for each registered site. Both of these schemes are voluntary, but the expectation is that market forces will drive them down through value chains in the same way as the Total Quality Management (TQM) approach has spread. But we will also need to consider environmental sustainability at the ecosystem level, where corporate environmental management systems are going to be of little help. This is an area where national and international government agencies and research organizations will continue to play a critically important role. Auditing The purpose of audits is to assess the state of a company’s management systems and its progress against a range of indicators and targets. Environmental audits have a long history in the USA, but really took root in Europe in the 1990s. Indeed, SustainAbility helped spur the trend with The Environmental Audit, a report published jointly with WWF in 1990.15 Such audits should focus on the environmental impact of the audited organization, but most still focus on management systems rather than real-world environmental effects. So, for example, they review such areas as: compliance against regulations and other standards; the performance of internal management systems; trends in energy usage, waste production, and recycling; and the use of eco-efficient technologies. Reporting, Risk-rating, and Benchmarking The environmental reporting and benchmarking trends are enormously significant and are discussed in Chapter 7. The first few corporate environmental reports (CERs), or environmental annual reports (EARs), were published in 1990 — and their number has subsequently mushroomed to many hundreds. Most of these reports have been prepared on a voluntary basis, with the result that the indicators used and the presentation of performance data are highly diverse, complicating comparisons. Nor are most much help yet for those trying to assess the risks associated with the operations of given companies. These problem are, however, slowly being addressed as reporting companies begin to relate their performance against such indicators as the amount of emissions or waste produced per unit of either volume or value of production. So, for example,