Towards Regenerative Business
What could ‘build back better’ mean for business?
Leaders' Quest Managing Partner, Giles Goodhead, explores the commercial risks of pursuing a planet-positive strategy. He looks at how companies are safely shifting to ‘regenerative’ strategies – and shares 5 steps to get started.
In a year like no other, more people are learning a new language. Furloughs, front-line workers and PPE. Implicit bias, structural racism and BLM. No wonder so many citizens, anxious about their next paycheck and unsure which messenger to trust, are questioning the established political, economic and social order.
Looming over these immediate concerns is an exhausting existential worry about our over-stressed planet. And while it’s hard to take the long view in the middle of a shit-show, many of us are familiar with a phrase used by Obama’s Chief of Staff Rahm Emmanuel: Never let a good crisis go to waste.
So while 2020 has been a year of breakdown, it does create an opportunity. Some say, “Don’t just re-open, build back better.” Which sounds great, but is it just a snappy line? What could build back better actually mean?
Start with capital.
The economic history of the 20th century was a success story of innovation and growth, from the Wright Brothers in 1903 to the moon landing in 1969.
World GDP grew thirty-fold. But the after-effects of our material progress have become increasingly obvious. It’s not just about the climate. We’re losing fish and bees and trees too fast. Financial capital has been growing at the expense of natural capital. Social capital is damaged too – people have less trust, less hope and more anger. As we come to realize that our precious planet needs urgent, radical care, we must consider changing the incentives that govern our decisions. Building back better could mean redesigning our economy to care more about natural and human capital, not just GDP.
Governments set our rules and regulations. They are starting to ban single use plastics and diesel fuel. Gig workers are gaining protections. Countries and trading blocks are adopting targets like net zero carbon by 2050, with broad citizen support (see the Race to Zero campaign). Some politicians have visions of a Green New Deal, a wide reinvention of capitalism. But don’t hold your breath. Changing the rules of the system promises to be a long series of skirmishes. Money, power and influence all favor the status quo. And the next administration often reverses whatever the last one did.
What about the role of business?
Many people are skeptical of business as a force for good. They don’t buy into the ‘we care’ messages put out by PR departments while their colleagues lobby against laws that might dent profits. They view Big Business as a greedy real-life version of Monopoly.
Yet we are seeing more companies committing to a regenerative future – one that aims to preserve, or grow, all kinds of capital. Why on earth would a risk-averse boss consider such a novel direction?
Because going regenerative may be the best new strategy for winning the future.
That’s an attention-grabber for any CEO. A regenerative business is still determined to make money and grow, but it sees societal issues as market opportunities. Innovation is still the way to win, but what you innovate sparks from a company’s wider sense of purpose in the world. And this new attitude of seeking positive impact is increasingly what employees, customers and investors want to see.
For example, food companies like General Mills and Danone are funding tests of farming methods that improve soil health, save on chemicals, and boost yields. Lego is on a path to make all its colored blocks from low cost bio-material, instead of plastic, by 2030. H&M and other garment companies are designing clothes under ‘circular’ principles – using sustainably grown cotton and paying living wages in their supply chain, a story they can tell consumers. South African insurance company Discovery gives incentives to policy-holders to get more exercise. Discovery benefits from lower claims, customers get cheaper insurance, and society gets healthier people. Interface, a pioneering US carpet company, reduced its environmental impact to zero and is now aiming to be ‘net positive.’
The corporate world is abuzz with experimenting, testing and scaling.
And it seems to work.
Harvard Business School research shows that companies with clearly articulated societal purpose – and who treat environmental and social value as innovation challenges – are more trusted, more profitable, and outperform in the stock market.
Other companies are watching. Isn’t there a danger of taking your eye off the financial ball, missing KPIs and getting fired? It’s a fair question.
We’d make five recommendations to safely embark on the journey to becoming a regenerative business:
1. Start at the top
It’s a cliché, but the top team’s authentic commitment is essential. They need to believe – at a personal level – their company’s reason for being. Not by using slogans or tag-lines, but by weaving it into their budgets, and by communicating it to middle managers (which is where grand purpose gets gritty). Talk to the Board and get their buy-in, and do the same with investors.
2. Pick your battles
Companies have social and environmental impact along hundreds of dimensions, but only a few are ‘material.’ The Sustainability Accounting Standards Board (SASB) has materiality maps for every industry, which is a great place to begin.
3. Set targets
Once you’ve diagnosed the critical areas of impact, where you can use your distinctive expertise to genuinely change the system, then come up with ambitious medium-term targets. The Science Based Targets approach has momentum, with almost 1,000 companies involved so far. Most SBTs have been related to greenhouse gas reductions, but the concept works for other goals too.
4. Join the party
To improve the wider system, companies must cooperate. The collaborative mindset can be a tough adjustment, but it’s vital. Mars, the food company, built the principle of mutuality into its culture, where it seeks mutually beneficial deals with suppliers and customers. In clothing, the Sustainable Apparel Coalition has helped competitors agree common supply chain standards and codes of conduct. This minimizes the risk of a ‘race to the bottom’ when rivals don’t always play by the new rules.
5. Give it time
Becoming regenerative is a journey measured in decades, with plenty of speed bumps. Interface tried thousands of innovations to make carpet, and many experiments failed. The CEO described the process like mountain climbing. They cultivated team participation, honest discussion of problems, and an attitude of persistence.
Many mainstream companies have got stuck at the gesture stage on people and planet: glossy reports and greenwashed brands. As they say in Texas – big hat, few cattle. To redesign the global economy so that it regenerates our planet instead of devouring it, we all need to step up.
With $80 trillion dollars of financial assets now managed under the Principles for Responsible Investing (PRI), we’re living in a world where business-owning investment funds are looking for companies with genuine purpose. Why? Because these companies are better bets. Capitalism’s greatest strength has always been its success as an innovation machine. Now it needs to innovate itself.
It’s the right thing to do and it’s the best way to win. No company needs any more incentive than that.
Start your engines.
By Giles Goodhead, Managing Partner, Leaders' Quest
Works with financial services and technology clients across China, India, Brazil, Russia, Turkey, Southern Africa and the USA.