How To Create Corporate Sustainability In The Era Of Climate Crisis

In his 1962 book Capitalism and Freedom, Milton Friedman asserted that in a free economy “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud”. This theory reflected the dominant view about the nature of corporations, that is, all firms are expected to maximize returns for their shareholders.

At least for the last 50 years, companies continued to operate in a shareholder-centered era in business and considered “Shareholder Capitalism” their primary responsibility. However, this business policy has resulted in biodiversity and ecosystem services degradation at an unprecedented level, existential crisis for many communities where these businesses operate, and rising income inequality. These negative externalities have far-reaching consequences for economies worldwide and sustained damage can trigger regime shifts and generate systemic impacts on human well-being and economies. We have to protect the stability and health of systems critical to life through collaboration between governments, academia, businesses, and NGOs – so we can ensure that our planet stays healthy as it supports growing populations. This increased pressure on businesses has led to an increased interest to use their resources to help address the world’s most pressing challenges.

So far, businesses’ pursuit of sustainability has been about doing business differently. These businesses have been adopting a triple bottom line and considering the interests of multiple stakeholders instead of focusing only on profits and shareholder interests; giving priority to long-term rather than short-term and conducting business responsibly instead of doing whatever it takes to make money. While immense progress has been made on sustainability in business, it is still insufficient. The current state of sustainability in companies represents “sustainability as usual” and makes the current corporate sustainability movement unsustainable. So, there may be a need to reevaluate the state of sustainability in business.

 Furthermore, the increased attention to social justice issues, the impacts of COVID-19, and the growing pressure from climate activists to act force us to think about how to transform corporate sustainability. Climate change adds an element of urgency to business sustainability that was not previously present. Furthermore, the failures of companies on corporate sustainability matters so far, it appears like the time is ripe for transformational changes in corporate sustainability. 

Conditions that are critical to shaping our mental models of corporate sustainability suggest that a more effective way to transform corporate sustainability could be to move our focus from sustainability practices to foundational assumptions about what sustainability is. It talks about why companies need to move away from a conventional outlook, but also what the desired change should look like and how we can make it happen. The transformation requires dismantling existing structures, employing a human- centered point of view, challenging preconceptions, reframing problems, emphasizing the power of narratives and mental models, and seeking out clarity while embracing ambiguity. Furthermore, it needs changing the mindset of companies and showing them why they need to evolve. The end result of such a transformation will be a positive shift for the entire industry.

The key to achieving this transformation successfully will be to ensure that the private sector can effectively be held to account on their environmental performance ensuring they operate within the safe operating limits of the planet through science-based targets. For this to happen, science-based targets must be taken up by companies and involve all relevant stakeholders, shareholders, and investors. We also need to make sure that regulators are able to track the companies’ progress and a system of engaged stakeholders must ensure that companies show progress and deliver on their commitments.

The new transformed system needs to identify the actions that should be taken by corporate accountability actors, business, finance, governments, and grassroots movements, using good data and science as a basis for action.  For a more transparent and sustainable corporate world, we envision an open system that will be used to collect, analyze, and share data related to corporations' performance and their commitments to science-based targets for climate and nature.This system can be manifested through a co-created platform that allows any stakeholder from the policy, investment and company spheres, within and across industries, to access relevant performance data and information related to corporate climate and nature targets. This would help us make better-informed choices as investors and consumers.

This transformation requires focused work on achieving three outcomes. First, mapping, identifying, engaging and coordinating among a wide range of stakeholders, and understanding and identifying what they need so that their needs can be translated into actionable strategies. Second, engaging a core community of relevant actors representing the full spectrum of stakeholders and working together to progress on taking corporate sustainability to the next level. Third, develop a prototype to test and refine ideas, and figure out alternative ways of understanding or achieving a goal. This prototype can help stakeholders to understand company performance, commitments and delivery, through self-reported and third-party data, and learn how they can hold companies to account through direct and indirect actions and building upon existing context-driven data for internal corporate governance and operational decision making, as well as non-financial disclosure data for external stakeholders to hold companies to be accountable.

The transformation process won't just happen by itself. Companies have to actively shape where it goes, and that means they have to choose how they position themselves. They could have both direct and indirect impacts of such a transformation and they can influence and control this shift from sustainability-as-usual to awakened sustainability.

Swarandeep Singh Kambo is a Consultant (Sustainable Finance) at the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS).