[The Guardian] Redesigning our economic system is not just about business ethics
New legal and accounting rules could recast the role of business in society and re-establish that the economy exists to contribute to people and planet
- Feike Sijbesma, CEO of Royal DSM
- Guardian Professional, Thursday 31 January 2013 15.24 GMT
The economy is not a goal in itself, but a means to contribute to people and the planet. Photograph: Gallo Images/Getty Images
When the richest quarter of the world’s population use about half of our global resources – and take the liberty to produce half of the global waste – while another third live in poverty, it is clear that our economic and societal systems are failing us. And that is even before we consider how our planet needs to accommodate 9 billion mostly urbanised and aging people. Add in the rapidly growing middle class in China, India and elsewhere who also want their share, and it is easy to see that our current path is unsustainable.
Over this hangs the cloud of climate change, which is already having huge consequences. Scientists agree that we face the risk of even more severe floods and droughts, which is clearly related to our addiction to fossil fuels and resources and necessitates an inevitable transition to alternative, renewable energy sources.
We also cannot accept that 2 billion people are malnourished, half of whom go to bed hungry every day.
These urgent global challenges call for us to redesign our economic system. We need a new approach that recognises the importance of profit, but which gives equal weight to the impact of economic activity on our planet and its people too; in short, a triple P approach in which societal, ecological and economic value creation are seen as three equal goals for business.
This is not just a matter of applying business ethics; we also need to embed this in our economic and business system, using new legal and accounting rules to recast the role of business in society.
The impact of the private sector has increased enormously over the last 50 to 100 years. Some of the largest companies now have cash balances that are bigger than some countries’ GDP. The harm companies can do, as well as the good, is impacting our planet and its people on a scale never seen before. But it is also private companies, with their technological expertise and innovative power, who can provide solutions to the world’s biggest challenges.
With increased power comes increased responsibility. We can no longer rely on the traditional paradigm, where governments and the private sector have their separate realms (with international institutions helping on issues crossing national boundaries). The challenges we face are so big that we need companies to take more responsibility and work together with governments and international institutions in private-public partnerships. Nobody can address these issues alone.
The transition from the current fossil age to a new bio-based, renewable age is one such challenge. We need to return to the principles of a time when we lived off the land, using renewable resources like the sun, wind and water. And to use these renewable resources in a much more innovative manner than in the past.
Therefore we are working to harness the power of 2nd generation biotechnology so that we can use all of the molecules from agriculture, including so-called residues, to produce food, fuels and materials.
Enforcing a new corporate responsibility
Our economic system must be overhauled to enforce this new corporate responsibility. This won’t be the end of capitalism, as some say, but it would use the capitalist system’s own tools to change behaviour.
To get to a more circular economy where sustainability is an integral part of business decisions, we need agreed systems to measure the impact of our economic activity on people and the planet. We have accounting systems today, such as the international financial reporting standards (IFRS), which calculate profit and are much more complex than simply revenue minus costs. We need similar systems that supplement the profit calculation with a company’s impact on our planet, its use of the world’s resources and ‘externalities’, and its ecological footprint. We need an aligned definition and calculation of what is sustainable, green or eco and something similar needs to be developed for the people dimension, looking to the impact of companies on people with respect to health, wellness, labour and other societal aspects.
When these have been agreed, a second stage, where people and planet metrics become accepted tools for company valuation, alongside profit, can start. If company leaders know that analysts are following their societal and ecological ratings as closely as their profits, they may feel stimulated to make business decisions differently.
Accordingly, value creation (or destruction) on people and the planet must be anchored in the overall valuation of companies. One approach might be to introduce differentiated tax regimes depending on companies’ performance or contribution to the ecology or society. A logical complement to such an approach would be to consider increased taxation on the use of scarce resources, while diminishing taxes on labour. This would help to tackle the scourge of unemployment and could make it easier to create jobs for older people as well as in certain services that society wants but that have become nearly unaffordable.
Moving to such a new model will not be easy. Change triggers resistance. So this transition will require co-ordinated leadership. Governments, civil society and business will need to show courage. Asian leaders also have a significant contribution to make, since their region will see the greatest increase in resource use and their economic models are rooted in different philosophies than those in the west.
The business community will also need to join forces. We need to pool our ideas and resources to achieve global progress like governments do at the UN – we could call this approach United Businesses.
Together, businesses have the power to deliver tremendous progress, and possess a unique ability to make this world a better place. But this will happen only if we see the economy not as a goal in itself, but as a means to contribute to our planet and its people. This is a notion that we have more or less lost over the last few decades.