Positive Impact Blog

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Author Archives: Prof. em. HSG Dr. Thomas Dyllick


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Moving Business from Net Zero to Positive Impact

Business is playing a central role in causing many of the societal problems we are facing globally. As I will argue in this contribution, we will also need business to help solving the societal challenges. We need business because it has the know-how, the resources, and the reach to effectively address the challenges. I will show, what business needs to do to be successful. It will not be an easy task. There remains a lot to do for a new generation of leaders from business and from society who are prepared to approach this task collaboratively in a new and different way. You can also view this post in this TEDx talk.

Introduction

As a researcher and teacher in business sustainability, I became more and more concerned about the escalating problems our humanity is facing. We were living far beyond the planet’s means.[i] And governments were incapable to effectively deal with these problems. I was relieved and hopeful to see business get into the game and make sustainability increasingly their business. Why? Because they have the know-how, the resources, and the global reach needed to address these problems. But it has been troubling to see that there was a big disconnect between the approach to business sustainability taken and the scale of the problems we are facing. Something was badly out of sync.

As a response to these concerns, we developed a model of “True Business Sustainability” [ii] to adequately address the sustainability challenges of our times. In doing this, two fundamental problems became clear to us. Existing models of business sustainability, in theory and in practice, don’t address the problems our societies are facing, but the economic benefits for business in addressing societal issues. This so-called “business case” of sustainability is primarily good for business, but not for the world. The second problem we found, was that business sustainability is focused on minimizing the negative impacts of business activities, not on creating a positive impact in relevant areas for society and the planet. What is needed, however, is aiming to increase the societal goods, not only to decrease the bads done by business itself. In other words, reducing carbon emissions is good but capturing carbon from the air is much better and in reality, it is essential.

Watch a video about True Business Sustainability

The model of “true business sustainability” helps us to move business from net zero, where the negative impacts of business are driven towards zero, to positive impact, where business contributes to solving societal challenges. In this contribution I will put the model of true business sustainability into practice. My focus will be on five big questions and answers.

1. Societal Challenges as Opportunities

My first question: How can business make a positive contribution to society? And my answer is: by looking at societal challenges as opportunities. In support of this insight, let me cite Management Guru Peter Drucker who remarked a long time ago:[iii]

Positive contributions to societal challenges can be found in all areas of the economy. And they offer great opportunities. In the food sector, they lie in the development of healthy diets and lifestyles in highly developed countries and the creation of affordable food and access to clean water in developing countries. They lie in areas like developing a sustainable energy supply without having to accept irresponsible climate risks and in creative approaches to using construction waste to produce new construction materials.

2. Putting purpose into strategy

My second question is: Why are so many companies today committed to a wider societal purpose that goes beyond a purely economic purpose? My answer is: They do it because their stakeholders are demanding it.

Employees are expecting it from their employers. The social commitment of their employer is of great concern to the employees, often a matter close to their hearts. And on the market for talent, it needs a clear and convincing purpose to attract the highly sensitized millennials, which make up 35% of the market.[iv]  Consumers prefer companies that take a position on issues like sustainability, transparency, and human rights. And the millennials are leading again.[v] Investors have been rushing into social and sustainable investments because they want to combine social impact with economic goals. And financial institutions are happily offering products to support this trend.

A purpose is aimed at a positive societal goal, not at increasing profit. It defines the company’s reason to be and are not in contradiction to economic goals. They are rather their precondition. They secure support from society and guide the company’s development in the longer term.[vi] But a true purpose is certainly more than a lofty declaration on paper. It needs to be backed by credible action. It must reflect in the company’s products, its investments, and its incentive systems. Actions speak louder than words![vii]

A good example is outdoor clothing company Patagonia with its bold purpose “to be in business to save our home planet.” [viii] How do they act on it? Among other things they use 100% organic cotton. And while globally 15% of used clothing is recycled, 87% of their raw materials are made with recycled inputs. They also offer repair services and recycle products that are beyond repair.

3. Integrating sustainability into regular business

My third question is: What should companies do to create maximum impact? My answer is they should integrate sustainability into regular business.

Sustainability efforts of companies are mostly handled by specialized units for sustainability, social responsibility, or communication. Their function is often reduced to shielding the corporate core from disruptive influences. This is extremely limiting.

It should be easy to see that the necessary “clout” for mastering sustainability challenges can only be achieved if sustainability is integrated into regular business, so that all the strengths and competencies of the company are brought to bear on the issues. Only then we can succeed in creating an offensive dynamic that points the way forward instead of a defensive dynamic that neither gives pleasure nor corresponds to entrepreneurial thinking.

What needs to be integrated? Sustainability needs to be integrated into company processes, so that it will be taken care of automatically in the company’s decisions and actions. Product innovations need to focus on products with a net positive impact, not simply on making existing products a bit better. And it will need fully committed leaders, who can win the hearts and minds of the people, internally and externally.

4. Simultaneous orientation on several time horizons

My fourth question is: How do companies go about innovating their business? My answer is they must orient their business on several time horizons.[ix] In times of far-reaching and dynamic structural changes, companies will have to build the business of tomorrow and the day after tomorrow in parallel to keeping-up today’s business as long as necessary.

Sustainability problems are dynamically evolving. Take the automotive industry which started out in a first phase with modest sustainability demands driven by the quest to make cars better. Issues were increasing fuel efficiency, reducing unhealthy exhaust, and recycling cars. In a second phase, the discussion centered around the more fundamental question “How long will oil reserves last?” Its focus was on the core of the car, its internal combustion engine. The race for alternative drive technologies and fuels has seen hybrid cars and electric cars come out as winners. And in a future third phase, driven by traffic jams, congested cities, and individualized demand,  we will see transform car companies into networked mobility providers offering rent, leasing, car sharing and ride sharing, in short: mobility-on-demand. In each phase the business models are dramatically different and need dynamically changing companies.

5. Collaborations

My fifths question is: Is it a good thing we see more and more collaborations between business and government? My last answer is that collaborations are necessary.[x]

Overcoming the societal problems of our time is beyond the reach of even large companies. Challenges such as the phasing out of plastic waste or the switch to renewable energies are simply too big and too complex. These challenges require collaborations across supply chains and sectors as well as the integration of private, public, and civil society actors.

We have seen many collaborative platforms being created in recent years. Platforms for sustainable forest management or fisheries, for palm oil, cocoa, or fashion. They demonstrate that global problems require collective solutions that bring all relevant stakeholder groups together at one table.

We will also need creative solutions to shape political change. Companies still view government relations mostly as a way to resist regulation or fight for preferential treatment. But some companies approach regulators openly and transparently to help them improve the collective rules and solve larger problems. Establishing circular economy models for products and packaging for example, need active support from companies. And it needs business also to support policies that accelerate investments in areas that improve the living conditions for everyone. Think of health care and education. This will not only make the world a better place, but it will also allow business to flourish in a healthy and stable environment.

Closing

In closing, let me summarize the five areas discussed in this contribution to move business from net zero to positive impact:

  1. Societal challenges as opportunities
  2. Putting purpose into strategy
  3. Integrating sustainability into regular business
  4. Simultaneous orientation on several time horizons
  5. Collaborations

My message has been, that we need business to help solving societal challenges. I have shown how business can do it. Clearly, there is lots to do for a new generation of leaders from business and from society.  For them, my five answers developed above should help to get off to a good start.

This contribution is based on the author’s TEDx HSG talk delivered on December 4, 2021, at University

[i] Nobel Prize Laureates and other experts (2021): Our planet, our future. An urgent call for action. The National Academies of Sciences, Engineering, and Medicine. Statement: April 29, 2021.  https://www.nationalacademies.org/news/2021/04/nobel-prize-laureates-and-other-experts-issue-urgent-call-for-action-after-our-planet-our-future-summit (accessed Dec 8, 2021); Union of Concerned Scientists (1992): 1992 World Scientists’ Warning to Humanity. Published Jul 16, 1992 (Updated Oct 29, 2002) https://www.ucsusa.org/resources/1992-world-scientists-warning-humanity (accessed: Dec. 8, 2021); World Scientists’ Warning to Humanity (2017): A Second Notice. BioScience, Volume 67, Issue 12, pages 1026–1028; https://academic.oup.com/bioscience/article/67/12/1026/4605229 (accessed: Dec. 8, 2021).

[ii] Thomas Dyllick & Katrin Muff (2016): Clarifying the Meaning of Sustainable Business: Introducing a Typology from Business-as-usual to True Sustainability. In: Organization & Environment, Vol. 29, No. 2, 156-174. (2016 Organization & Environment Best Paper Award)

[iii] Cited in: Cooperrider, D. (2008). Social Innovation. BizEd, July/August, 32-38.

[iv] Dhingra, N.; Samo, A., Schaninger, B.; Schrimper, M. (2021): Help your employees find purpose – or watch them leave, McKinsey Quarterly, September, 93-100. Gast, A.; Illanes, P.; Probst, N.; Schaninger, B.; Simpson, B. (2020): Purpose: Shifting from why to how, McKinsey Quarterly, April.

[v] Edelmann (2018): Two thirds of consumers worldwide now buy on beliefs. October 2, 2018. https://www.edelman.com/news-awards/two-thirds-consumers-worldwide-now-buy-beliefs (accessed:  October 12, 2021)

[vi] Fink, Larry (2019):  Profit & Purpose. Larry Fink’s 2019 letter to CEOs, https://www.blackrock.com/americas-offshore/en/2019-larry-fink-ceo-letter (Accessed: 12.15.2020). Fink, Larry (2018): A Sense of Purpose. Larry Fink’s 2018 letter to CEOs, https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter

(accessed: December 15.2020). Dyllick, T. & Muff, K. (2021): Anforderungen an eine echte Purpose – Orientierung von Unternehmen, in: Controlling, Vol. 33., Special Issue «Purpose und Controlling», Spring, 31-35. Grayson D./Coulter C./Lee M. (2018): All in. The future of business leadership, 1st ed., Milton Park.

Polman, P. & Winston, A. (2021). Net Positive. How courageous companies thrive by giving more than they take. Harvard Business Review Press, Boston, pp. 74.

[vii] Samuelson, Judy (2021): The Six New Rules of Business: Creating Real Value in a Changing World. Berret-Koehler, Oakland.

[viii] Beer, Jeff (2018): Exclusive: “Patagonia is in business to save our home planet.” In an exclusive interview, founder Yvon Chouinard talks about how the new mission will reshape how the company does business. Fast Company, December 13.  https://www.fastcompany.com/90280950/exclusive-patagonia-is-in-business-to-save-our-home-planet (Accessed: Dec. 8, 2021)

[ix] Business & Sustainable Development Commission, Better Business Better World, January 2017 https://sustainabledevelopment.un.org/content/documents/2399BetterBusinessBetterWorld.pdf (accessed: December 10, 2021)


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When the Stakeholder Perspective takes a Purpose Orientation

Understanding Business Sustainability Types in terms of stakeholder engagement

Every organization talks about stakeholder engagement – yet what does this really mean? In the era of positive impact, engaging with stakeholders goes beyond reaching out to your employees, customers, suppliers and concerned civil society institutions. A truly sustainable organization will have recognized that it is itself a stakeholder in a much larger context, in which it doesn’t play the central role. Creating a positive impact through focusing on purpose is all about recognizing one’s own limited perspective and value contribution to a society which includes other perspectives such as civil society and government.

The purpose orientation of business has become a popular topic recently. It is hard to open a new book on the current and future challenges for business and society and not stumble over the purpose topic. In analyzing the evolution of business sustainability empirically, Grayson et al. conclude in their book “All In” (2018: 30-32) that we have entered the “Purpose Driven Era” in 2016. For them, today’s best corporate leaders focus what they do through the lens of the purposeful and positive impact they aspire to have in the world.

This understanding of purpose contrasts with another popular interpretation of the role of business, the stakeholder model. The Business Roundtable, an association of some 200 CEOs of major U.S. companies, published a widely acclaimed statement on the purpose of a corporation in August 2019. These companies committed for the first time since 1997 to a responsibility to all stakeholders – namely customers, employees, suppliers, the communities in which they operate, and their owners. All stakeholders are seen by them as important, and value must be created for all of them. This is a significant extension of understanding from seeing the shareholder as the one primary stakeholder of business.

What is the difference between these two interpretations of business and its role in society?

What is the difference between the purpose orientation of business and the stakeholder model? And how do they relate to each other?

A helpful answer can be found in the Davos Manifesto 2020 on the role of business in the 21st century presented by Klaus Schwab, the founder and chairman of the World Economic Forum. This manifesto goes beyond the Business Roundtable’s position in two different ways. First, it includes society in the catalog of stakeholders. Second and more significantly, it sees business not only as an economic entity in the service of wealth creation for different stakeholders, but also as a societal institution delivering multiple values. Along with government and civil society, business here is seen as another, equally important “stakeholder of our global future”. Business is expected to contribute through its specific resources and capabilities to improve the state of the world, together with government and civil society. To achieve this, a purpose orientation is needed to guide the business.

How do we make sense of this evolution of understanding of stakeholders?

In a first step, an organization extends its understanding from a single stakeholder, often the owner or shareholder, to a more extensive group of business-relevant stakeholders. This is the shift from Business Sustainability 1.0 to Business Sustainability 2.0 in the Dyllick-Muff Typology (see below).  This extension from a single to a number of relevant stakeholder groups can be viewed as a “horizontal extension,” with new stakeholder groups being added to existing ones. A majority of organizations are in this conceptual phase of understanding stakeholder engagement. At this stage, the central focus, however, remains on the business, which is seen to fulfill multiple demands through its activities.

When an organization, in a further step, starts to consider itself as a societal stakeholder, this is a completely different perspective. It represents the shift from inside-out to outside-in thinking which means that an organization is able to look at its own role from an external meta level. It starts perceiving itself as just another stakeholder in society. It is society which takes on the central space, no longer the organizations which sees its role as providing a positive value to society. This shift introduces an additional dimension and can be seen as a “vertical expansion” of the relevant perspective. This new position is what Business Sustainability 3.0, or true business sustainability, is all about.

The graph illustrates that we are in effect dealing with two different perspectives on business and society. And these two perspectives bring about two quite different discussions, as has been demonstrated also in developing our concept of True Business Sustainability.

In reviewing the established approaches to Business Sustainability, we developed a typology that focuses on effective business contributions to sustainable development (Dyllick and Muff, 2016). We call it the Business Sustainability Typology (BST). It ranges from Business Sustainability (BST) 1.0 to BST 2.0 and BST 3.0.

What do we mean by this?

In a first phase of BST 1.0 companies recognize that through sustainability management they can save costs and reduce risks, they can increase their reputation on the job market as well as their differentiation in the product markets. We defined this early form of Business Sustainability 1.0 as a form of “refined shareholder value-management” where shareholders play the dominating role. This is reflected in the interaction between business and their shareholders in the graphic.

In a second phase, companies start broadening their stakeholder perspective beyond their shareholders, thereby pursuing a triple bottom line approach. Value creation mow includes economic or social values to other stakeholders as well. This advanced view of BST 2.0 we have called “Managing for the Triple Bottom Line”. In contrast to BST 1.0 not only economic objectives, but also social and environmental objectives are pursued by business as part of their stakeholder management. But the companies still look at things from the inside out, from its own activities to stakeholders and to society. And it is about diminishing the negative side effects of the economic activities. This is well reflected in the horizontal extension to multiple stakeholders in the above graphic.

In a third phase, companies shift from an “Inside-Out-Thinking” to an “Outside-In-Thinking”, i.e. when the company starts from society and its problems and then asks itself which opportunities arise by contributing to solving societal challenges? This results in BST 3.0 or “True Business Sustainability” and is well reflected in the perspective where an organization sees itself as a societal stakeholder.

With regard to the vertical expansion the relevant questions address the needs of society to continue solving its problems and the relevant contributions made by government, civil society, and business. It raises questions about the role of business and its purpose in the development of the economy and society. This requires business to engage with the broader external environment, beyond the economic and market environments. And it requires an “outside-in perspective” instead of the dominant “inside-out perspective.” Such a perspective considers the company and its impact from the outside, starting with the societal problems and challenges; rather than from the inside, starting from the goals and concerns of the company itself.

This is a major step change in thinking about the development of business sustainability, or more generally, about business and society. It opens the discussion for the new question about corporate purpose. And it frames the discussion in a different way. Not as adding value to more stakeholder groups, but as focusing on very different challenges, societal challenges, where corporate contributions are much in need.


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Reimagining capitalism – Three concrete options for business

Rebeccca Henderson is a University Professor at Harvard Business School in the area of sustainable business. In her passionate new book “Reimagining capitalism” she looks at a world on fire and develops a model of what sustainable business in a fundamentally transformed capitalism would require and look like.  She distinguishes three strategy levels for business, which I find very helpful and which I link to my experiences in Switzerland.

Massive environmental degradation, skyrocketing economic inequality, and institutional collapse (by looking at the USA and other nations turning increasingly autocratic, but also at multilateral organizations like the WHO or the WTO) grow more important by the day. She argues convincingly that this is something that cannot be left to governments and civil society alone, as classical economic thinking declares, while companies continue with business-as-usual. If we fail in transforming capitalism and putting its significant power and resources to better use, we will not be able to effectively address these problems. And business will put its own – but also our future at risk.

What can be done in such a situation? What are the available options for business?

Three different progressively more far reaching but also more demanding strategy levels can be found in the book, although in a somewhat different logic and argumentation as presented here.

Creating Shared Value

A first strategy level is based on the idea of creating shared value, a concept championed by Michael Porter and Mark Kramer. They define shared value creation as creating economic value in a way that also creates value for society by addressing its needs and challenges. “In today’s world, reimagining capitalism requires embracing the idea that while firms must be profitable if they are to thrive, their purpose must be not only to make money but also to build prosperity and freedom in the context of a livable planet and a healthy society.” (R. Henderson) However, as long as shared values are defined by business looking from the inside out, their perspective will focus on reducing the bads of their existing activities. They will reduce waste, resources, or risks and happily report on newly created shared values. This cannot be sufficient. Only when they start to look from the outside in, starting from the problems society is facing and finding economic solutions for them, will their contributions address problems of real social relevance. Only then, they may be approaching what Katrin Muff and I call “true business sustainability”. For this, they clearly will have to follow a larger purpose than simply maximizing their profits.

Cooperative Self-Regulation

A second strategy level is based on cooperative self-regulation. It engages firms with each other, with the third sector, and with government partners in the pursuit of solutions to common problems, which cannot be solved by any of the partners alone, often prototyping solutions that prove to be a model for subsequent practice. Famous examples are Nike trying to get child labor out of its supply chain by creating the Sustainable Apparel Coalition or WWF and Unilever which spearheaded the creation of the Round Table on Sustainable Palm Oil, both as a response to the massive critique by NGOs. A current example on a national level, where the author is personally engaged, is PRISMA, an inter-industry cooperation of major companies in the food production, retailing, and packaging sector engaged in bringing about a circular economy solution in Switzerland for consumer goods packaging. While the existing system of materially separated collection systems has been working well in the past, it has reached its limits of including new packaging materials and of demanding an increasingly difficult contribution from the consumers to separate and collect the different materials. The new model developed and promoted by the PRISMA-coalition is an innovative One-For-All collection and recycling system. It consists of a blueprint for a future collection system, prototypes of different elements of a practical solution, and a roadmap for developing and promoting an industry agreement.

Supporting Inclusive Political Action

Cooperative self-regulation is a powerful new way to mobilize the business community in support of promoting collective goods. The increased reach, however, comes at a price. It is hard to achieve and even harder to sustain over time. It needs to be carefully managed. To create more stability and to counter market deficiencies, we need to turn to the third strategy level which is supporting inclusive  political action. Environmental degradation, climate collapse, inequality, and public health are systemic problems that cannot be solved without government action. Free markets need democratic, transparent and effective governments, if they are to survive, as well as the other institutions of an open, inclusive society including the rule of law, shared respect for the truth, and a commitment to vigorous free media. Free markets need free and effective politics to continuously balance and rebalance the evolving rules of the market in light of changing conditions and challenges.

The challenges are huge

Energy demand is projected to double over the next 50 years. Stopping global warming will mean ensuring that every new plant that’s built is carbon-free. It also means shutting down or decarbonizing the world’s existing fossil fuel infrastructure. Inequality, poverty, and migration present a similarly tough set of intertwined systemic problems that can only be fully addressed through government action. Most of these challenges are beyond the reach of individual countries and need international political cooperation. A good example is the Montreal Protocol, an international agreement to phase out ozone-destroying chemicals which became effective 1989. It has been remarkably successful. It proved to be possible to find CFC substitutes relatively quickly, despite strong opposition from major business players, and the Antarctic ozone hole is expected to return to its 1980 status by 2030. It has also reduced global Green House Gas emissions by about 5,5%.

The systemic problems we are facing today confront us with the fact that we must build effective global institutions. Business must become an active partner in shoring up the institutions that we have and in building the new ones that we need. And to be clear, this is not about improving the framework conditions for one’s own business or industry. It is about supporting the foundations of our society and of its healthy development. It is about protecting and developing the institutions that have made business and all of us rich and free.

A current example from Switzerland is the public vote on a popular initiative holding Swiss corporations legally accountable for environmental and human rights violations outside Switzerland. While 50,7% of the people voted in favor of the initiative, the second condition for an acceptance – the majority of cantons – was not achieved. The strong lobby of multinational corporations, their business associations and political allies prevented a move that could have paved the way for a more responsible and accountable form of supply chain management in a developing world context. In this case, it was a missed chance to go beyond simply reporting good news and demonstrate real engagement in one of the current hot spots of global development, although public and political pressure in Switzerland and on an international level will not go away It demonstrates how challenging it is for business to find a new role in this profound process of social change and business transformation.

Different strategy levels – different reach – different competences

Creating shared value, cooperative self-regulation, and supporting inclusive political action – on a national or an international level, depending on the issue at case – must be seen as three crucial sustainability strategies for business. While the first strategy is located on an organizational level and allows companies to act by themselves, this is easier to do, but its reach is also limited. Cooperative self-regulations offer a wider reach, often including whole industries or multi-industry and stakeholder coalitions. But this is clearly more challenging and demands very different competences and resources in the collaborative field to practically succeed. And a strategy of supporting inclusive political action aims at the political level and needs again very different competences and resources to act effectively. Here it will need political coalitions with business being only one player among many. But this level may prove to be the most important in the years to come.