The merging of enterprise and social enterprise

The merging of enterprise and social enterprise.

The Big Pivot was written in 2014. And at that stage, it was ahead of its time. It is great news that the book is nearly outdated as most principles,  the author discusses, are now a lot more commonplace. The merging of “enterprise” and “social enterprise”. Going “teal” as in “Reinventing organisations”.

Definition of capitalism

There is a hard edge to “The Big Pivot”. Climate change, resource constraints, rising commodity prices and the need for transparency. Consider the first three forces as nonnegotiable system conditions and take the new level of openness as an enforcer or multiplier. All force companies to have a hard look at their business processes and model. Including examining the definition of capitalism.

We are using the wrong metrics

Corporations, using markets and capitalism to their ultimate ends, have drained shared resources such as fisheries, clean water, or a stable climate with ruthless precision. With an unthinking drive toward “maximising” growth itself, rather than optimising for value and well-being, plus a complete lack of recognition of the impossibility of continued exponential growth. Using the wrong metrics. GDP does not measure clean air or water for example or the future cost of climate change. We are practising bad capitalism.

Natural capital is worth 48 trillion annually

We need to put a value on everything the world provides, which is called natural capital. Forests give us timber for homes and clean our water; fisheries and healthy soil feed us; the earth’s crust offers up its metals for cars, cities, and electronics; coastal wetlands and marshes protect us from storm surges and floods … I could go on. We need to put numbers on the real value of shared resources (like air, water, climate, fish, forestry, soil, etc.), The most quoted estimate of the total value that nature provides is $48 trillion annually.

A call for green accountants!

The new capitalist manifesto

Strategy guru Gary Hamel put it this way in the foreword to Umair Haque’s book, “The New Capitalist Manifesto“. “Executives need to understand that today they face the same hard choices that confront every teenager—drive responsibly or lose your license. From linear to circular. From wasteful to regenerative. From individual to collaborative. From short-term to long term. Quality. Long lasting. Prioritising environmental and social challenges. Treating them as central to business success or failure, not as philanthropy or niche issues.

Biggest business opportunity

Forget “teal”, forget “social enterprise”. In the words of billionaire entrepreneur Sir Richard Branson, tackling climate change is “one of the greatest wealth-generating opportunities of our generation.”

There is no planet B

There is no planet B (got that from http://sdg-foundation.org/).  And the planet A is not going anywhere. We are! The planet will shake us off like a bad case of fleas. And the way we are behaving, good riddance. Wrote a long rant here.

Wicked problem

Agreed, it is a wicked problem and humans are not designed to solve these type of problems. Climate change is invisible. It is slow moving, although speeding up at alarming (exponential) rates and the responsibility for climate change and its effects are spread out over 7 billion of us. Taking action on it can feel like a sacrifice, which we don’t like very much. High five for big data and artificial intelligence. Watson to the rescue.

Fever

A couple degrees warmer may sound pleasant, but we are not talking about going from 75 to 77 degrees Fahrenheit on a nice spring day. The right metaphor is fever. Take your core body temperature up one degree, and you don’t feel so great. Five degrees and you are sick as a dog. Ten degrees and you’re dead. To put this fever in numbers. The world can only emit an additional 565 gigatons (that is 565 billion tons) of carbon dioxide (CO2) to keep global warming below this 2-degree limit. That means that we must reduce carbon emissions by at least 80% by 2050. Addressing climate change is rapidly becoming an “at all costs” issue, with every other goal secondary.

The good news

The good news is that it that pursuing the annual reductions we need in carbon would, over a decade, produce a net present value of $780 billion for US companies alone. Five million people already work in renewable energy and a greener economy will create a net gain of tens of millions of jobs over the next generation.

The big boys

A large majority of the world’s biggest organisations—over three-quarters say they integrate climate change into business strategy (up from 10% in 2010). Eighty per cent identify physical risks to their business from climate change, and 37% see these risks as “immediate. Better yet, companies are discovering that the attack on carbon emissions is profitable. So are counties:

• Saudi Arabia, with 19% of the world’s oil reserves, is investing $109 billion in solar power.
• South Korea committed about $135 billion, or 2% of its GDP, to environmental industries and renewable energy.
• Japan has made building a $600 billion-plus green energy market a central target of the country’s growth strategy.
• On a sunny day in May 2012, Germany produced more than 50% of its electricity needs from solar alone.
• One winter evening in 2013, Denmark’s offshore wind farms made more than 100% of what the country needed that night.
• In 2012, half the new electrical capacity put on the grid in the United States came from renewables (it was over 70% in the European Union).
• Wind power has passed nuclear as China’s third-largest energy source.

The supply challenge

By 2030 the world’s growing population and increased prosperity will push up global demand for water by 30%, energy by 40&, and food by 50%. And we already need 1.5 Earths to support our current consumption,

Water

Today, about 20% of the world’s economy is produced in areas facing severe water scarcity. By 2050, projections show, 45% of global GDP (about $63 trillion) will be at risk. Even if your business doesn’t seem too reliant on water, check your value chain.  Also, water is chronically underpriced relative to its real value, in part because it’s seen as a human right. And it’s necessary for our very existence. Someone (=business) is going to pay. Soon.

Our accounting system is wrong

If you start with a large enough endowment and then treat assets like income, you can hide a fundamental problem for a long time. Water, air, nature have a value and a price. Carbon will become a cost. Companies and countries that don’t get much (c)leaner are going to face some serious challenges to their viability.

Transparency

And the truth will come out. Increasingly, employees, customers, and consumers will use information about how things are produced to make critical decisions about which companies they work for and which products they buy.

What do you need to do as a business?

You need to start with questioning everything the that is generally accepted. It is called heresy innovation. Create a belief or opinion contrary to orthodox doctrine. Asking the disruptive questions. For example:

• Why do toilet paper rolls need cardboard cores?
• Can a plane fly with no jet fuel?
• Packaging: Why do we need it?
• What if we asked customers to use less of our product?
• Can we work with our fiercest competitor?

You might find this useful.

The questions you need to ask

• Do you measure carbon emissions?
• How much energy do you use and how much is renewable?
• Do you have a waste reduction program?
• How circular are you?
• How zero are you?
• How regenerative are you?
• Are you applying biomimicry?
• What are your value chain metrics?
• How anti-fragile are you?
• Shareholder or stakeholder?
• What is your purpose?

Pressure from the multinationals

If you are not asking, somebody else will. A few years ago, IBM started requiring its large suppliers (28,000 of them) to track core environmental data like energy use, greenhouse gas emissions, and waste. IBM’s suppliers would also have to share the data publicly. But the most interesting aspect of the new demands was that suppliers would be required to ask their subcontractors to do all the same things.

You need to question your supply lines

The essence of the “scarcer” mega challenge. Leading companies are realising that to continue growing, which Wall Street and their own interests demand, they need to do so without increasing the use of energy, water, and other materials. A few organisations have effectively decoupled growth from inputs.

You need to question growth

All growth has to be re-examined. Decoupling is gaining traction. Unilever, led by CEO Paul Polman has set a big goal of doubling revenue while seeking to “halve the environmental footprint of the making and use of our products,” all by the year 2020. Growth as a goal in and of itself needs to give way to prosperity, a much healthier, more mathematically feasible idea.

You need to question your waste

Zero is the new black. Increasingly companies consider zero as the starting point and then create restorative products and enterprises. For example:

• Nearly 50 of P&G’s 140 manufacturing sites are waste-free. GM now has more than 100 plants with no waste going to landfill, turning an expense into a multi-billion-dollar profit centre.
• DuPont’s construction materials business went from 81 million pounds of waste to zero in three years.

One key way to get to zero impacts is to close every loop you can and go completely circular

The circular economy

McKinsey calculated that a “circular economy,” one that reuses dramatically more products, components, and “precious material,” would be worth up to $630 billion per year in the European Union economy. Globally, the value of circularity is in the trillions.

Biomimicry at scale

The circular economy and the decoupling of growth and impact isn’t a future trend—it’s our current reality. Decoupling, regeneration, and circularity combine to tell a simple story: in the natural world, nothing goes to waste. With principles honed over 5 billion years, the natural world is the ultimate efficiency machine, and we would be wise to learn from it. Biomimicry at scale.

Antifragile

In his book Antifragile, Nassim Taleb expresses intense respect for what nature has produced. In other words, it would defy logic not to learn from nature’s best practices. In a Big-Pivot world, we’re going to build companies and economies that borrow the best from nature.

What do you need to do

1. Redefine return on investment to make better strategic decisions.
2. Map out what a “use less” strategy would mean for your business.
3. Consider the product end of life as an opportunity.
4. Become a B Corp.
5. Set aside dedicated funds for green investments.
6. Change the ROI or hurdle rate.
7. Start with value-chain data to identify big risks and opportunities.
8. Map out what is the material risks to the company.
9. Set the goals from the top.
10. Set big, science-based goals.
11. Create context-based metrics.
12. Price carbon internally.
13. Implemented a rigorous process of collecting ideas for emissions cuts and estimating the costs.
14. Collaborate with others.
15. Show personal leadership (walk the talk).
16. Allow everyone in the company to question the heresies (including the small ones)
17. Take innovation ideas to the extreme, but logical conclusions.
18. Use open innovation and co-creation.
19. Reward the wackiest ideas, and celebrate failure. 
20. Engage the whole organisation.
21. Build green and social issues into key performance indicators and bonuses for everyone.
22. Require operational managers to add a sustainability target to their performance reviews.
23. Connect employee actions to larger issues.
24. Assess your key hotspots and dependencies on natural capital.
25. Connect your core brand promise to mega-challenges.

The large corporations

What you need to consider is this. If it is good enough for Unilever, Wallmart, HP, IBM. Patagonia, Johnson and Johnson, Ford, GE, BT, Diageo, EMC, UPS, Toyota, Nestle, Carrefour, Pepsi, AkzoNobel, Dow, Puma, BASF, Colgate, Kingfisher, Marks & Spencer and the US Military, it should be good enough for you, You can question their sincerity, but it is coming. Of the world’s 200 largest corporations, 56 have set a clear goal for carbon reduction in a major part of their business—manufacturing, product use, or supply chain—at the required pace (about 6% per year in carbon intensity improvement, or 3% per year in absolute reduction). Most of those corporations report that they will deselect suppliers that do not adopt good carbon management practices. To put that in context; the largest 200 companies have revenues of over $20 trillion—that’s about 29% of global GDP.

Wallmart

For example, Walmart’s 100,000 suppliers know that the retail giant wants them to improve their environmental performance. The pressure has changed how thousands of products are made, packaged, and sold. But now, in addition to Walmart’s laser-like focus on cost, its merchants must include environmental and social performance in their buying decisions or risk a weak performance review and lower bonus. Walmart’s revenues, if it were a country, would rank it twenty-seventh in the world in GDP (above Austria). So the standards it sets create markets and can push the agenda on many issues. When the retail giant established a goal for its suppliers to reduce carbon emissions by 20 million metric tons, people noticed. You should notice,

The risk

In business, we are trained to reduce risk, not court it. Materiality is an accounting term that gauges how important something is. Climate change poses an unusual materiality challenge. But if your company mimics nature (remember, biomimicry should be a key operating principle) in products, processes, and strategies, you will survive better than competitors—nature-inspired.

Your future

Companies that value and integrate biodiversity and ecosystem services into their strategic plans are best positioned for the future. The companies that understand what the real costs of doing business are going to be, including natural capital cost. Knowing what resources it relies on and currently gets for free.

Customer demand

Companies will need to deal with rapid shifts in customer demands for climate-friendly products and services. They will also find employees, and many other stakeholders are increasingly expecting action on climate change. In a scarcer world, businesses will have to manage rising cost structures as prices keep going up on most major inputs into the economy. Or they will face an outright lack of availability of some critical inputs like water. In a more open world, everyone will know how your business operates up and down your value chain.  Customers, employees, and communities will judge you on whether you’re part of the problem or the solution,

The role of business in tackling climate change

By helping build a more resilient, antifragile, prosperous world, corporations will establish a new role in society as a force for real progress, leading our ineffectual governments to better, more efficient, market-based outcomes.

Utopia!