The BSR conference ended last Friday in New York City and then came hurricane Sandy, bringing with it chaos, damage and providing even more significance to the issues and challenges discussed at the conference. Celebrating its 20th anniversary, the BSR conference was a great opportunity to reflect on the impressive progress business have made so far when it comes to sustainability, as well as the enormous challenges ahead.
Aron Cramer, BSR President and CEO, wrote that “as we reflect on the past 20 years, it seems that everything has changed, and nothing has changed.” This observation was also reflected in the conference theme – Fast Forward, and the constant exploration at the conference of ways to accelerate progress in the business sector.
I left the conference with many thoughts but no specific answers as to the best way(s) to move forward at a faster pace. Only after Hurricane Sandy did I have a bit of an aha! moment, realizing that if we want to push the fast forward button, what we really need is nothing less than a hurricane. A CSR hurricane.
Think about it in terms of two soccer teams competing on the field – one is adopting CSR and the other isn’t – let’s call it the “business as usual” team. Now, CSR is supposed to provide business with a better and more comprehensive outlook. In other words, seeing and addressing the world through a triple bottom line prism is supposed to be better than doing it with the “business as usual” prism. So in theory, the “business as usual” team should be disadvantaged because its players were playing with “old world” weights on their legs. Yet, somehow, in reality, it looks like the team with the weights on its legs is none other than the CSR team.
Why? While it’s true that there is growing evidence that there are long-term benefits to adopting and embedding CSR, the jury is still out about the short-term effects and the common perception is that more CSR means less profits in the near term. This perception gets companies to move forward cautiously and somewhat slowly when it comes to CSR, looking for ways to ensure that the benefits will outweigh costs even in the short-term. Add to it short-termism in business, lack of interest among consumers and insufficient supportive regulation, and suddenly the weights on the legs of the CSR team players seem to make more sense.
Still, none of these factors are the real weights. If you want to know what the weights are, I’ve got one word for you – externalities. “As with our financial markets, which don’t yet account for ‘externalities,’ the business focus on value creation is hampered by inability to measure fully – or accurately – the financial value of our most important issues and activities,” BSR wrote in a special report issued for the conference. BSR is definitely right, but not only that externalities hamper business ability to fully appreciate the value in sustainability, but they also become the main obstacle for structural change.
Externalities make bad choices more attractive than they should be to both companies and consumers. We do want companies especially to be responsible and take externalities into consideration, given that it makes sense for a planet with finite resources and a growing population. Some companies, indeed, take it seriously, calculating and managing their carbon and water footprints, moving to use renewable energy and buy raw materials only from sustainable resources. Some companies, like Puma, push the envelope even further, creating an environmental profit and loss accounting model (EP&L) and adding a tag with the true cost to some of its products.
Although we see a rapid growth in measuring and valuing ecosystem services, this approach still represents only a fraction of the business activity. Most companies, as I learned at a session on this topic, are more concerned about liability issues arising from monetary valuation of ecosystems than the risks of ignoring such valuations may pose for their future. The bottom line is that for the majority of the companies, true costs remain an experimental idea they don’t want or believe they cannot afford to play with.
So we have two options – continue to have hidden costs and a growing trickle of companies that start taking them into consideration, work hard to get consumers make better choices, and lead business slowly into a more sustainable future. This is the Forward path. The other option is to start calculating and using the true costs of every part of the value chain. Then you would see every company, and not just Puma, creating EP&L and it won’t be about future-proofing business in the face of future challenges anymore, but about present-proofing business in the face of current challenges. This is the Fast Forward path.
The difficult question is, of course, how do you do it – how do you get everyone to start internalizing externalities? Regulation is one way, but I’m not sure it’s realistic. The other way is creating, just like BSR suggests, a network of interested parties, from companies to citizens to organizations, which will lead the change and make true costs the only option for companies who want to stay in business.
It might sounds like a fantasy, but if we’re really interested to pursue the fast forward path we need a game changer, hurricane style, to shuffle the cards. Then, not only will the CSR team win, but we all will win.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.