In an environment where trust in CEOs is dropping, distrust in corporations is growing and the markets with the greatest future opportunities are in emerging economies, a group of business and civil society leaders are calling for business models to radically change and become more socially focused.
Companies across all sectors must operate fundamentally differently or risk helping create further global economic downturns and jeopardizing their businesses. They must restore trust, tackle the Sustainable Development Goals and work to put the global economy on a surer footing, according to a new report from the Business and Sustainable Development Commission released Monday.
“This has got to be about a real business revolution in partnership with governments and civil society,” said Lord Mark Malloch-Brown, the chair of the commission, a group of about 35 business, finance, civil society and labor leaders, which launched a year ago to promote the business case for the SDGs and outline how it can contribute.
“It's not business as usual with a little CSR sort of sparkle-sprinkled on top. This is about a transformation of business to acknowledge that globalization in its current form has left a lot of people behind and spread its benefits unevenly and that is no longer politically sustainable. Business has got to sort of reboot itself into a new ethical business place,” he said.
The report lays out a road map for business, but also for the development community as it seeks to engage companies in helping achieve the 2030 agenda. And it does so, in large part, by making a business case that tackling the SDGs is good for business and will provide access to markets that will offer higher returns.
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Achieving the Global Goals opens up $12 trillion in market opportunities in food and agriculture, cities, energy and materials, and health and well-being sectors alone, according to the report.
“To capture these opportunities in full, businesses need to pursue social and environmental sustainability as avidly as they pursue market share and shareholder value. If a critical mass of companies joins us in doing this now, together we will become an unstoppable force. If they don’t, the costs and uncertainty of unsustainable development could swell until there is no viable world in which to do business,” the report read.
The report was released Monday, just ahead of the annual World Economic Forum meeting in Davos, Switzerland, that brings together top business and government leaders from around the world. The timing is intentional, said Malloch-Brown. It’s meant to challenge world leaders gathered at the Swiss resort, not merely make them feel better about themselves, he said.
“It’s a difficult world out there and people have turned against elite institutions, including business, and if we let this backlash go unchallenged the world economy is going to suffer mightily and your businesses are going to suffer mightily,” Malloch-Brown said. “To turn that around it’s not enough to promise to do good, you've got to win back the trust and license to do good and then you've got to demonstrate by your actions that you mean something much more than nice aspirations issued once a year from a Swiss mountaintop.”
His remarks echo the report which states that “Big business and major financial institutions are increasingly perceived as detached and rootless, more willing to justify themselves to each other at meetings like the World Economic Forum than to national legislatures, let alone at town halls in the communities where they operate.”
The need for business to work to regain its license to operate is a key theme of the report. Part of that work means acknowledging past transgressions — of which the list is long — and working to gain respect and understanding from the development community as well, Malloch-Brown said.
“We're very conscious as a commission that bad old big business can't sort of just plunge itself into development and pat itself on the shoulder and say we're the heroes who've come to save you and be like the lone ranger over the hill,” he said. “Business has to live down a sort of very mixed history from the past and so there's no mistaking the ambition of this report, it’s of a transformed business sector which is operating in a highly ethical transparent way.”
Getting there will be about much more than publishing a report and members of the commission — which includes Unilever, Merck & Co., Mars Inc. and the Alibaba Group, among others — have spent a lot of time thinking about how to spur action, Malloch-Brown said.
The report is meant as a starting point and the commission has discussed a variety of ways to continue to get the word out.
“They're willing to be leaders on this but they don't want to walk right out to the end of the tree branch and look back over their shoulder and realize nobody's followed them,” he said. “So creating this tipping point where industry sectors as a whole follow and mutually commit to this agenda is very important.”
The strategy includes spreading the word through organizations such as the International Chamber of Commerce, U.N. Global Compact, the World Business Council for Sustainable Development, which are all members, and working with business schools to teach these issues to future business leaders. One member of the commission, Aviva CEO Mark Wilson is leading a research project that will create a sort of SDG scorecard that can build the case for investing in companies that address the SDGs.
“We think we're on solid ground to do this because all the evidence which we reference in the report, academic evidence, is that companies which are complying with social and environmental standards deliver more value and return to their shareholders than noncompliant companies,” said Malloch-Brown. “We think that companies which score on these benchmarks will actually outperform their rivals.”
They’ve also discussed a pyramid scheme of sorts in which each member would have to recruit 10 other CEOs and they would go on to do the same.
And it may be a more important time than ever to generate corporate action, particularly in light of the political changes that took place all over the world last year, such as the Brexit vote and populist surges in numerous countries, including the United States. Those changes may elevate the role of business even further; while it always needed to play a critical role in financing the 2030 agenda, it may now also take on a new role — helping to explain and make the political case for why action is important, Malloch-Brown said.
“We just can’t afford to just fall into a sort of protectionist crouch that ignores global markets, ignores environmental threats, ignores security and migration threats that will increase if the global economy is not invested in basically in the ways we describe,” he said. “So I think that, you know, suddenly business becomes in a strange way the new opposition to some of the political orthodoxies which seem to be being established.”
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But there are critical barriers, some of which are regulatory, that stand in the way of achieving the SDGs — notably, the challenge of short-term thinking. Whether it’s shareholders requiring quarterly reports, which might not weigh long-term benefits even if there are short-term losses, to a lack of long-term capital that is needed for many development and infrastructure projects.
Following the financial crisis in the 2000s, the solution seemed to be that banks would keep high levels of liquidity, which makes it difficult to make some of the types of investments, such as those that may take 10 to 15 years, that development will require, Malloch-Brown said.
“We want to see smart, thoughtful regulation which is aligning with the investment development needs with the world,” he said.
If there is less leadership from governments, many companies will still act. As the support of the private sector in the lead up to the climate agreement in Paris demonstrated — many now see climate change as a true threat to the long-term growth and prosperity of their businesses and see no choice but to act. In that sense, on issues like climate there is momentum that cannot be stopped as a result of new leadership.
Automotive manufacturers in the U.S., for example, will continue to produce cars with lower emissions because California, the country’s biggest car market, will demand it, even if the federal regulations do not. China and India and many other countries are faced with smog levels related to climate change that present not only public health but political challenges, and so those countries will act.
Some industries have other mechanisms that don’t require government support or regulation. The report cites the Consumer Goods Forum, which brought together industry members and worked through a process that resulted in agreements about minimum standards for supply chain management that guaranteed certain wages, workers rights and transparency.
While the report outlines a vision, it doesn’t outline an exact path for companies to take. It was intentional in not being prescriptive in actions so that companies can employ the market in the ways that make the most sense, Malloch-Brown said.
“We think that the whole virtue of bringing the private sector into this development space is its competitive character which produces its innovation and offers its consumers, in this case development, competitively priced products and services,” he said. “So you don't want to kind of betray the discipline of the market and end up with some sort of great, fat, sloppy, centrally planned exercise which is no better than the government activity that we're seeking to replace.”
There’s a lot of work to do to change the existing system. After all, about half of business leaders see addressing issues of climate change, youth employment, ending violence and gender equality as primarily the purvey of government, even as they support them, according to a PricewaterhouseCoopers survey. Those types of social or environmental programs, projects or issues have often been viewed by businesses as a cost, and the the development community has been skeptical of the private sector’s role.
“Our research tells a very different story. First, it shows that business really needs the Global Goals: they offer a compelling growth strategy for individual businesses, for business generally and for the world economy. Second, the Global Goals really need business: unless private companies seize the market opportunities they open up and advance progress on the whole Global Goals package, the abundance they offer won’t materialize,” the report read.