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Sustainability

The right thing: Triple bottom line has renewed purpose

IbyIMD+ Published 6 November 2023 in Sustainability • 9 min read • Audio availableAudio available

Focusing on a company’s ecological and social impact as well as its economic performance has yielded mixed results. However, there is increasing evidence that even legacy companies are now making positive strides. Here’s how  all businesses can ‘do the right thing’.

It’s nearly 30 years since John Elkington first posed the concept of the “triple bottom line” (TBL) in his milestone book Cannibals with Forks. Moving beyond shareholder and financial value alone, Elkington postulated that success in this century would be determined by companies that look at three bottom lines the economic, the ecological, and the social. In short, he was de facto signaling the end of the Friedman era that focused purely on financial shareholder value and not stakeholder implications. 

Almost a quarter of the way into the century, the results for the TBL are decidedly mixed as determined by the creator himself, who called for a rethink of the concept five years ago because he felt it had been reduced to an accounting tool rather than a genuine lever for change. While the concept has given rise to a variety of reporting methods (SROI, integrated reporting, and ESG, to name a few), the plethora of standards and measurements has created enough “wiggle room” for inaction from companies. The adoption of the concept has been positive, but the consultant-led corporate interpretation, adoption, and realization of it have not always been so. Reporting standards can be adhered to strictly and companies can thereby get a green/clean chit, but that is not necessarily a true reflection of the impact of their activities. This is why some fossil fuel companies get a better environmental rating than the world’s largest EV manufacturer.  

At face value, it may seem that the concept is riddled with problems or has had its time. But I would argue that it is just getting started. The idea of this being a seismic shift in the way companies conduct their business, incorporate the stakeholder universe into their orbit, and evaluate their performance has clearly been ignited. The calling out of companies for their lack of environmental responsibility or exposing human rights issues in their supply chains as well as holding directors responsible for governance issues are a direct product of this orientation. Major stock markets and shareholders demand the above transparency and reporting, and consumers actively seek this information and reward or punish a company’s brands accordingly.  

In effect, business as a whole has moved up on the responsibility spectrum to create a new normal and this, in turn, has led to the concept of corporate purpose being reimagined. For many years, and even to this day, defining purpose for some companies has been about simply articulating its vision and bringing it together with the skills and passion of the workforce what the firm is good at, its economic output, and the need it has fulfilled. 

“The example of the redefinition of the tech sector led by Google, Meta, and now Microsoft and Apple with respect to investing in renewable energy and carbon removal technologies in the operation of their energy-intensive data centers is a powerful statement for the new and the old and all things 'right'. Bravo!”

Purpose and ‘doing things right’ 

Since the TBL discussion started, purpose has undergone a metamorphosis. No longer is it about a company “building the best x” or “providing the toughest y”. Increasingly, purpose encapsulates the social and environmental intent of the company its raison d’etre, built into its business model.  

Let’s illustrate this for clarity. A call center committed to hiring convicts and ex-convicts as staff is executing its business (call center services) to address a need (no question there) while impacting society in a positive way by providing opportunities for rehabilitation. Or take indoor farming as another example: greenhouses and vertical farming (a sector I have been associated with) are designed to grow crops with a significantly lighter tread on the natural resources of the planet in terms of land, water, and pesticides.  

Both examples illustrate businesses that have been designed from scratch with a clear purpose that is built deep into their business model so that, by simply operating, they impart a positive value to society or the environment. 

While it is undoubtedly easier for new businesses to be conceived in this way, it is far more complex for legacy businesses to reflect the same in their model simply because they were set up well before this thinking came about. But this doesn’t prevent legacy companies from transforming their approach to help the environment or society in the course of conducting their business. To be clear, we are not talking about the CSR type of activities where, for example, companies continue to pollute a river or lake at an operating level and build children’s parks elsewhere in the name of corporate citizenship. Such blatant greenwashing tactics are clearly unacceptable. 

A glance through the listed purpose statements of Fortune 500 companies shows that the trend toward redefining corporate purpose is being embraced and experimented with by more and more companies, whether or not it is leading to a positive impact.  

However, it is apparent on scanning these mission statements that an overwhelming majority still have an internal orientation (for example, “Real food that matters for life’s moments”; “Achieve superior shareholder returns”; “Powering global investments to help our clients succeed”) versus an external one that impacts the environment, societies, or communities (for example, “To celebrate and liberate the diversity of your beauty”; “Working together for a healthier world”). Clearly, we still have some way to go, alongside the recognition that not all legacy companies will be able to adhere to this paradigm though there are other ways for them to make a positive impact as we will explore later in this article. Furthermore, there is an argument that there are inherent dangers in companies trying to define purpose for individual brands and taking the concept too far when it may not be necessary especially when the overarching corporate purpose is not clearly articulated.    

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For those new and legacy businesses that are embedding a TBL-inspired purpose, how does it influence their activities beyond those bold words on the first page of the annual report?  

I like to think of them as existing in two categories concerned with the idea of doing the “right thing”: new businesses that are set up with purpose built into their model, are, commendably, “doing things right”. Legacy companies that have redefined their purpose and are undergoing a transformation in their business operation to benefit the environment and society, in my view, are “doing the right thing”. 

Both are necessary for the simple reason that legacy companies are responsible for a significant majority of the output in global goods and services, and their “doing the right thing” has a massive impact on society and the environment. Over time, hopefully, there will also be enough purpose-born companies that are “doing things right” to begin with that will help define the new normal. The example of the redefinition of the tech sector led by Google, Meta, and now Microsoft and Apple with respect to investing in renewable energy and carbon removal technologies in the operation of their energy-intensive data centers is a powerful statement for the new and the old and all things “right”. Bravo! 

A resultant development in this journey has been the birth and exponential growth of the B Corp movement. B Corp Certification seeks to recognize companies that are a “force for good” very much along the lines of “doing things right” or “doing the right thing”. A critical aspect is the consideration and active engagement of stakeholders to the point of enshrining a commitment to them in the articles of the company in question. In the next avatar of the movement, it is proposed that the human and workers’ rights aspects will be strengthened so as to ensure that the social aspect is as robust as the environmental one.   

Environmental, social, and governance impact at scale can only truly be felt when industry players gather around a table and discuss pre-competitive issues with a view to creating systemic change.

At present, while there are only around 6,000 B Corp certified companies, there are more than 200,000 that have used the open-source B Impact Assessment tool to measure their company’s effectiveness on the environmental, social, and governance front. (Full disclosure, I am an Affiliate B Leader.) 

Next, we will move into how decision-makers can translate the new concept of corporate purpose and the idea of “doing things right” into a business context by embedding transformation in their organizations and building alliances with all stakeholders. 

Priming your organization for holistic transformation 

The journey to a sustainable future environmental, social, and governance belongs at the highest level of the company as well as at the deepest operational level. If it doesn’t pervade throughout the organization, it will be short-lived or, at best, dependent on the one person driving it. Encouraging organizational readiness is, therefore, essential for sustainability to reside and thrive in the DNA of the operational entity so that it becomes a true way of doing business. The sustainability team should exist to help collaborate with and guide teams and decision-makers, but the targets and the intent must belong to the divisions that want to shine throughout the company for their sustainable methods and stakeholder engagement.  

 This is not a simple process and involves the various divisions co-creating an agenda with the sustainability team. It involves answering tough questions about the various aspects of sourcing, production, operations, and supply chain to create a joint list of actions that need to be taken over a defined timeline and that can be seen in the context of the entire company. Triaging the various recommendations is a delicate exercise involving leadership, division heads, and sustainability experts and requires a corporate culture that sparks courageous actions.  

This starts at the top: a core aspect of successful sustainable business transformation is for the board and leadership to actively enable and encourage courageous decisions. This involves looking at critical decisions through a multi-lens of ESG and not just the financials. This is easier said than done, but if not facilitated at the top, it will almost always fall by the wayside, leaving the financial lens to dominate decision-making processes.  

Looking beyond your company to systemic change 

A stark reality that companies and their key executives must recognize is that, no matter how good their company becomes in the sustainability space, systemic change in any industry can only come about if multiple key players move in a common direction with aligned standards to “tip” the sector into systemic sustainability. Environmental, social, and governance impact at scale can only truly be felt when industry players gather around a table and discuss pre-competitive issues with a view to creating systemic change.  

This could involve human rights issues for supply-chain-heavy organizations, sourcing issues for production companies, and carbon measurement issues for carbon-intensive industries. Unless industries tip in this way and systemic changes are created, sustainability efforts while noteworthy for a single company can be reduced to an internal achievement or worse, just bragging rights. 

Hence, for systemic change, there is a crucial need to look at the broader concept of impact in the sustainability space: of recognizing the absolute and critical need for engaging stakeholders and bringing the various actors, competitors, and value-chain members to the table to thrash out the issues and agree on alignments in terms of sustainability standards, measurements, third-party verifications, and the resultant communications that benefit the industry as a whole, as much as it will help an individual player. 

Regardless of the resistance to and politicization of ESG in some quarters, a steadily increasing number of companies are defining their purpose through the lens of their desired individual impact on the environment and on society. Industries, on the other hand, can define impact at scale and bring about systemic change. Business transformation needs both aspects a company’s commitment internally and the sector’s commitment collectively and externally to make a difference and deliver the impact needed.   

Authors

Sudhanshu Sarronwala

Sudhanshu Sarronwala is a commercially oriented C-suite professional and Affiliate B Leader with 30+ years of global experience in business, NGOs, startups and purpose-driven companies. He has demonstrated expertise in identifying shifting trends and creating new industries, establishing new businesses and embedding sustainability in companies. Prior to his time with Infarm (Chief Impact Officer) and WWF International (Executive Director, Communications and Marketing) in Switzerland, Sarronwala was based in the Asia-Pacific across Hong Kong, Singapore, and India in the digital music and TV entertainment space. 

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