Business’ social licence to innovate

To shape tomorrow’s sustainable economy business’ innovative capacity is essential. However the public trust in business innovations is dwindling and that is a problem for all. Ernst Ligteringen explores what could be done

Carbon pricing and the establishment of a wind energy park have in common that their success depends on widespread buy-in. But this is difficult to achieve in a world where social trust is becoming as scarce as clean air. Positions on climate change are deeply divided as is illustrated by the gap between Bank of England Governor Mark Carney’s advocacy for action on stranded carbon assets and Donald Trump’s belief in variable weather. Sceptics often raise doubts about the foundations of climate science, but what appears to be a discussion about the strength of scientific evidence is actually is more about sceptics’ distrust of proposed climate action. 

Innovators should be aware that climate sceptics won’t be convinced by science or technology alone. It is a lesson that Monsanto had to learn in its defence of GMOs; people on the whole are more persuaded by their friends and peers’ perception of a company’s interest than by technical or scientific reasoning. Low trust in underlying motives hinders the acceptance of change and innovation; the very social asset we will need a lot of to come to an effective energy mix able needed to set the world on a 2C degree pathway.
That public trust in business is dwindling should be of concern to all because business has by far the most capacity to develop practical solutions to our climate challenge at scale. However, in its 2015 Trust Barometer PR firm Edelman noted that consumers are growing more sceptical of business’ innovations, which they believe to be driven more often by companies’ self-interest than any intention of making the world a better place.

Companies that want to put large scale innovations to market would do well to consider what causes this public wariness of business. The spread of public misgivings about business seem to be driven by its focus on profit maximisation. The pursuit of individual advantage has been the cornerstone of capitalism for over a century and the main operating principle of the market economy. Belief in the rationality of individual choice had its heydays in the 1990’s when market champions were boasting that greed was good (for all). However two factors have caused public perceptions to change.

First, growth in income inequality between shareholders and executives on the one hand and wage earners and the self-employed on the other. Income inequality has increased continuously since the mid-1970s and its effects on the economy and society has caused many to raise the alarm from the head of the IMF Christine Lagarde to campaigners of the 1% movement.

Secondly, the historic idea that natural resources are boundless is now accepted as obsolete but most companies are failing to assimilate this insight in their business models. Climate change, oil exploration threatening artic wildlife and the destruction of forests for palm oil production are just a few examples where business is seen to generate profit at the expense of vital natural resources and of poorer people whose livelihoods depend on them.

While wealthier consumers around the world benefit from related products, the growing inequality is generating the feeling that business is working principally for its own benefit. It is also affecting levels of trust in the relations between wealthy consumer countries and low income countries where poorly paid workers feed the supplies chains of global food, apparel and electronics companies, often under unhealthy and unsafe conditions.

The combination of growing inequality and the extent of business’ social and environmental externalities is generating this generalised scepticism about business’ intent. Companies working to put innovative sustainability solutions to market needed need to be mindful of that their innovations will not be judged just on the basis of their technical and scientific quality but also on the perceived purpose of the innovation.

A new social licence
The social licence to operate is a concept used in the field of Corporate Social Responsibility represents the public’s tacit acceptance or approval of a company’s operations. An absence of a social licence to operate can affect a company’s operations in a material way through the number of stoppages or the stability of supplies.

The social licence idea captures the public’s view on the compatibility of the company’s operations with the public interest. It can usefully be extended beyond the realms of the extractive industry where it is mostly applied to capture the public trust in the compatibility of company’s innovations with our common interest in a different economy generating wealth equitably and sustainably for all.

The millennial generation in particular is increasingly judging companies by their sense of purpose rather than their current impacts. In their vision sustainability is about changing lifestyles that integrate prosperity, health and wellbeing. Millennials are more oriented towards the total value proposition a company and its products offer for their future than to risk mitigation aimed at reducing social and environmental harm of conventional industry in the short term.

Implicitly millennials apply a social licence to innovate principle. They expect innovation and want it to be positive for the economy, society and nature. Major companies that have most successfully introduced green innovations achieved this by offering products that offer environmental benefit and social equity integrally. In her recent book Green Giants, Freya Williams describes how companies ranging from GE and Tesla to Unilever and Natura Cosmeticos have seen the market share of product with such an integrated value proposition grow significantly. Their social licence to innovate results from the integrated quality of their products and perceived purpose of the business.

However, industries whose innovations require consumers to change their daily habits beyond the choice of one product over another face a tougher challenge, particularly among the climate sceptics.

A social licence to innovate depends more on the public perception whether a company’s purpose is fitting a more equitable and sustainable future. Companies introducing innovations that are seen prioritise shareholders’ and executives’ benefits will have a low social licence to innovate. They can expect their innovations, however technically sound, to be met with scepticism. Companies that are seen to operate inclusively and compatibly with our common interest will have a stronger social licence to innovate.

Companies that want to lead change and be relevant to a vision of a sustainable and equitable future will acquire a strong social licence to innovate by evolving their corporate social responsibility focus from reducing harm of the conventional short-term profit internalisation model to a future fit business model generating equitable and sustainable value for the company, its principal stakeholders and nature. Government should do two things to promote this transformation.

Firstly, it should promote the UN Sustainable Development Goals as a relevant benchmark against which a business’ value for our common interest in a sustainable future can be assessed. Secondly, it should ensure public transparency on business performance as it is the only way for consumers and investors to distinguish companies trusted to innovate from those that persist with business models that caused the current low trust in the first place. 

Ernst Ligteringen, the former CE of GRI, is an advisor and consultant on business and sustainability