How the private sector can meet sustainability goals

13 May 2021

Core Insights: Sustainability

By Frederik Dahlmann

In 2020 some 70 million people were pushed back into extreme poverty as a result of the COVID-19 pandemic, while the climate crisis intensified as global greenhouse emissions and average temperatures continued to rise relentlessly. 

There is a pressing need for concerted action to tackle the myriad complex and interconnected challenges, from climate change to pandemics, that threaten the wellbeing of humanity.

Yet, while the nations of the world attempt to address these critical issues through institutions such as the United Nations (UN) with initiatives like the Paris Agreement on climate change and its 17 Sustainable Development Goals (SDGs),  progress is slow.

Any successful response must involve the private sector, both in terms of promoting sustainable behaviour and harnessing the sector's tremendous energy and innovation.

However, a longstanding fixation on shareholder value and financial metrics, often enshrined in corporate governance systems, has proved a major obstacle. While moves to embrace social responsibility are welcome, they are often employed to serve a strategy that still places sustaining shareholder returns, rather than the needs of the Earth's ecosystem, at its core. Or worse, they are merely a superficial adoption of socially responsible practices for the sake of appearances.

More recently, though, there have been welcome signs of a move beyond self-interest and wealth maximisation to encompass a broader vision focusing on both financial and non-financial objectives and performance metrics. There has been an increasing acceptance by business leaders, encouraged by a range of stakeholders including investors, employees, consumers and society more generally, of the need to re-examine the purpose of their organisation. A recognition that business does not exist in isolation, but is embedded in society and the natural ecological system, and should operate in a way that takes this into account.

But many organisations find the journey to become a business that integrates a combination of economic, social and environmental goals into its fundamental raison d'être a difficult transition. Unsurprising, given the transformative implications for their strategy, business model, and products and services.

This is where an emerging phenomenon, that I have been studying in a joint project with Monash University in Australia, can potentially play a vitally important role. 

We call it 'the purpose ecosystem' - a self-organised community of organisations and independent entities including for-profits, non-profits, NGOs, charities, social movements, micro-consultancies and stakeholder coalitions. Although highly diverse, the groups in the ecosystem are united by a strong desire to transform the way businesses operates, helping them become more purpose driven and connecting them more closely to the sustainable challenges the world faces.

The members of the purpose ecosystem can be loosely divided into three groups. First, there are funding organisations that share a belief that the market-led economy has more to offer than pure financial returns. They use impact investing strategies to influence the re-framing of purpose and focus on returns from a social and environmental perspective. 

Separately, a wide-ranging coalition of organisations offer advice on sustainability targets and how to integrate them into business operations based on scientific evidence.

A third very diverse group of business-purpose change agents work with senior executives and board directors, (and sometimes whole organisations), across a range of activities aimed at changing mindsets, re-working business models and equipping companies with the tools they need to re-purpose their organisations.

We believe the purpose ecosystem could make a valuable contribution in meeting the UN's SDGs in particular and global challenges more generally. However, after speaking with a number of ecosystem members, we also identified several barriers, such as the lack of co-ordination and widespread duplication of effort and resources, both in terms of sourcing funding and delivering products and services, that may limit its transformative impact on the private sector. In order for this ecosystem to maximise its efficiency and effectiveness we believe a number of steps, commonly associated with well-functioning market ecosystems, are necessary.

First, we recommend a mapping exercise to create a clear understanding of the organisational composition of the purpose ecosystem. This will enable better collaboration and co-operation between ecosystem members and better access to the ecosystem for private sector organisations that want to re-examine their purpose, and anyone else, funders, for example, that wants to engage with the ecosystem.

It would also facilitate the creation of a community of practice, which is a second recommendation. This community of practice, whether through conferences, workshops or more informal networking, provides opportunities for greater knowledge sharing and collaboration, identifying gaps in practice and knowledge, and detecting duplication of effort.

Another useful resource would be the development of a platform that offers ecosystem members greater visibility on the different funding sources and opportunities available. This should help avoid unnecessary competition and overlap and promote co-ordination, both on funding and service provision.

A fourth recommendation concerns the development of suitable metrics to enable ecosystem members to measure and demonstrate the impact and efficacy of their engagement with businesses.

One of the great benefits of an efficiently functioning, self-organising, purpose ecosystem, is its potential to drive progress towards meeting the UN's SDGs. The SDGs are a common starting point for ecosystem change agents to begin a conversation about redefining purpose. They offer an effective way of translating purpose into tangible goals and targets to be incorporated into organisational strategy. Similarly, an impact investing approach focusing on the Environmental, Social and Governance (ESG) credentials of firms, usually has broad overlap with the SDGs.

The purpose ecosystem can also help introduce companies to another new way of thinking about a multifaceted approach to purpose - nexus thinking. The concept of nexus thinking - nexus simply means the connection of at least two things - emerged from policy scholars working on issues relating to energy, water and food, and realising that the tightly connected nature of the three areas warranted studying them together. Thus, nexus thinking involves considering more broadly how different sustainability issues and problems might be interrelated and understanding the associated tensions, trade-offs, and complementarities.

This approach could also be applied to the challenge of re-framing and translating purpose into meaningful corporate strategy and objectives in the context of the SDGs; recognising, for example, that there are positive and negative interactions - such as the tension between achieving economic growth and many of the other SDGs - rather than merely engaging with them through a siloed, tick-box exercise. 

Corporate decision-makers should be thinking about win-wins, co-benefits and trade-offs in everything that they do, from launching a new renewable energy system to deciding how to engage with farmers in a supply chain.

My research suggests that many companies are either unaware of integrative thinking or have yet to adopt it. By contrast, many purpose ecosystem members are familiar with systems and nexus thinking and are able to assist companies.

While our research into the purpose ecosystem continues, it is already apparent that it is an important emerging phenomenon and deserves the attention of policymakers, academics and business.

In a world stricken by COVID-19, with many countries increasingly burdened by debt as a result, the focus of governments is diverted from sustainability issues. The purpose ecosystem has the potential to pick up the slack, galvanising private sector firms into abandoning business as usual and rethinking their reason for being in a way that accelerates progress towards the UN's SDGs and benefits the world.

Further reading: 

Dahlmann, F., Stubbs, W., Raven, R. and Porto de Albuquerque, J. (2020) "The ‘purpose ecosystem’ : emerging private sector actors in earth system governance", Earth System Governance.

Dahlmann, F. and Bullock, G. (2020) "Nexus thinking in business : analysing corporate responses to interconnected global sustainability challenges", Environmental Science & Policy.

Dahlmann, F., Stubbs, W., Griggs, D. and Morrell, K. (2019) "Corporate actors, the UN sustainable development goals and earth system governance : a research agenda", Anthropocene Review.

 

Frederik Dahlmann is Associate Professor of Strategy and Sustainability and lectures on Creating Sustainable Organisations on the Distance Learning MBA plus Business & Sustainability on the Executive MBA and Executive MBA (London). He also teaches Business in Practice on the suite of MSc Business programmes.

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