The end of sustainability-as-usual is in sight
I’m starting today a series of articles in preparation for the release of my upcoming book “Rethinking Corporate Sustainability in the Era of Climate Crisis — A Strategic Design Approach” (Palgrave MacMillan, July 2021). The first piece is about the signs we can already see of the (hopefully near) end of sustainability-as-usual.
If you look around corporate sustainability seems bolder and more promising than ever with new commitments of companies for net-zero emission targets, efforts to create global standardization for sustainability reporting, circular economy innovations, greater attention to social justice issues, and so on. Furthermore, there is increasing recognition at the C-suite level that the climate crisis is a critical issue for business, as reflected in Larry Fink’s latest letter to CEOs, where he noted: “There is no company whose business model won’t be profoundly affected by the transition to a net zero economy.”
And yet, when we take a closer look we find that while corporate sustainability is moving forward, the progress that is made may not be as bold as it may seem to be. The net-zero targets are for 2050 with little to no attention to the much needed short-term goals, sustainability reporting is still not yet context-based, circular economy developments are at the margins, social justice is more hailed than exercised, and Larry Fink still fails to walk the talk.
In 2012 BSR wrote the following about the progress in corporate sustainability: “It seems that everything has changed, and nothing has changed”. Almost a decade later this reflection seems more accurate than ever. While companies move forward and keep improving their sustainability practices, the issues we face, first and foremost the climate crisis, are becoming more critical as well. U.N. Secretary-General António Guterres emphasized this point back in 2018, stating that “climate change is running faster than we are and we must catch up sooner rather than later before it is too late”. The point he makes suggests that the notion of progress on corporate sustainability may be false as the problem moves faster than the solution.
I describe the current state of corporate sustainability as “sustainability-as-usual”. In this state, efforts to make companies more sustainable are the normal course of things, but at the same time, these efforts are subjected to the shareholder capitalism mental model, which significantly limits their effectiveness. In other words, companies pursue sustainability as long as it is aligned in general with shareholder capitalism or does not deviate from it significantly. The notion of sustainability-as-usual is consistent with Joel Bakan’s description of companies in his new book The New Corporation:
“.. if we assume that the ways corporations have changed, though real and significant, are not fundamental. Making money for themselves and their shareholders remains their top priority, as it always has been. So while they might care about social and environmental values, they care only to the point such caring might cut into profits. Then they stop caring.” (p. 27)
Not too surprisingly, the result of sustainability-as-usual is incremental and insufficient progress, i.e. too little, too slow. One indication comes from the 2021 State of Green Business report, which suggested that current stated targets for global companies are “72 percent short of required emissions reductions to achieve the Paris Agreement.” In my book, I describe in detail the shortcomings of sustainability-as-usual, and I will also refer to it in future articles, but I wanted to start this series of articles with a positive note, which is why I’d like to focus here on some early signs we can see of the end of sustainability-as-usual.
It may not be easy to spot indications of the end of sustainability-as-usual given its dominance in corporate sustainability, but it is a worthwhile exercise showing us different possibilities on how might we move beyond sustainability as usual!
Taking a systemic point of view I tried to look for patterns rather than single events, which may suggest potential meaningful changes on deeper levels (think iceberg model). Furthermore, I didn’t want to look for changes randomly, but within a relevant context, in this case, a framework that pertains to changemaking. Therefore, I draw on Lessig’s New Chicago School’s framework (which I also use in my book) to present a few examples along with four forces that shape organizational behavior — laws, social norms, markets, and organizational culture (the latter refers to the architectural constraint in Lessig’s model). Lastly, I use the term “bright spots”, which Chip and Dan Heath describe in their book Switch: How to Change Things When Change Is Hard as “the early glimmers that something is going right”. To paraphrase them, bright spots here show early indications that sustainability as usual is going away.
The law plays an important role in shaping how companies behave. In general, according to Lessig “law (in its traditional, or Austinian, sense) directs behavior in certain ways; it threatens sanctions ex post if those orders are not obeyed”. More specifically, in the context of companies, Colin Mayer suggests that “since the corporation is a product of the law, the law can define the nature of the corporation.” This is certainly true when it comes to sustainability in business.
Where do I find bright spots? Aligned with the shareholder capitalism mindset, sustainability-as-usual is mainly based on voluntary action aiming to provide companies with maximum control on what they need to do to “green up their act”. Therefore, I’m encouraged with the signs of legislation aiming at enforcing critical sustainability principles that hopefully could succeed where voluntary-based measures failed so far. One example relates to the extension of the life of products, which is the cornerstone of any strategy looking to move companies away from planned obsolescence. First, we see “right to repair” legislation in the EU, UK, and in many states in the U.S., ensuring customers have the access, information, and tools needed to repair products they bought. Second, there are growing legislative efforts, especially in the EU, to extend Extended Producer Responsibility (EPR) regulation to industries such as fashion in the hope that such end-of-life regulation could help reduce significantly the waste these industries create. The importance of these legislative efforts goes beyond changing the cost-benefit analysis of companies to enforcing them to consider more seriously their responsibility to the unsustainable production-consumption culture in the Global North.
Playing an important role in shaping environmental behavior changes in companies in the past, social norms can be considered as a key change enabler. As Leslie Crutchfield points out In her book How Change Happens: Why Some Social Movements Succeed While Others Don’t: “ savvy social change makers understand that, if they want to achieve impact on their issues, they must shift social norms, not just reform policies and laws”.
Where do I find bright spots? I see encouraging signs in the growing pressure on companies to change their relationships with politicians and political groups that reject climate action, democratic values, and other elements necessary to ensure our future. The latest news from Georgia on the mounting pressure on companies based in the state to oppose bills that will restrict voting is just one example of the changing norms in this context. Thanks to the work of norm entrepreneurs “ who oppose existing norms and try to change them”, such as Judd Legum and Emily Atkin, we see a shift in social norms on what is considered acceptable and unacceptable when it comes to companies’ engagement with the political sphere. This is important progress given the growing understanding that the most powerful tool corporations have in the fight against climate change is their political clout.
Transformations in the financial system are essential to fighting climate change. Meaningful changes could take place in different parts of the financial system, but the general rule is that banks, insurers, investors, and other financial service providers can send clear and powerful signals to companies on the direction they should take. These signals should reflect both the risks and opportunities created by the climate crisis.
Where do I find bright spots? Insurance companies seem to be advancing somewhat faster than others in the financial sector. I see growing signs of hope in insurance companies that are moving away from insuring fossil fuel projects and particularly refusing to insure coal projects. The latest example came from Swiss Re, the second-largest reinsurer, which just announced a ”long-term objective to exit coal-based assets for the portfolio by 2030”. A few days earlier Zurich Insurance Group said that “as of 2020 it has stopped insuring and will no longer invest in more than one-third of companies exposed to thermal coal, oil sands and oil shale that were unable or unwilling to adopt greener practices.” Last December, Lloyd’s of London announced it will “stop issuing new insurance for coal projects, oil sands and Arctic energy exploration” as of January 2022 and stop renewing existing cover no later than 2030. These announcements reflect a growing acknowledgment of the financial markets that fossil fuel projects, and coal in particular, become uninsurable from both financial and social standpoints.
The final piece concerns the design of an organization as a critical force shaping the behavior and actions of the people operating in it. Organizational culture is used to represent organizational design given its impact on how organizations operate, including their corporate sustainability practices. As Baumgartner notes: “one important point for companies willing to be more sustainable is the awareness of their organizational culture and to reach a fit between the culture and the sustainability activities”.
Where do I find bright spots? While it is difficult to see promising changes that go beyond sustainability-as-usual in organizational culture, there are signs of hope in the changing expectations of young job seekers, especially when it comes to social issues, such as inclusion and diversity. If you wonder what social issues have to do with the climate crisis, the answer is simple — while we understand that social systems cannot exist without a healthy environment, we also need to accept that this dependency exists on both ends, i.e. “there can be no ecological sustainability without social justice.” With this notion in mind, I want to focus on the trend of young professionals who “are avoiding companies without a diverse workforce, clear promotion traffic and a commitment to confronting systemic racism in their ranks”. Perhaps one of the clearest indications of this trend is the announcement of the career website Glassdoor that it will begin ranking companies on their diversity and inclusion.
My sense is that this trend will open companies to new recruits that will change how these organizations think not only about diversity and inclusion but also about the need to prioritize sustainability and the fight against the climate crisis, as these are all parts of one whole.
While it is certainly too soon to predict when sustainability-as-usual will no longer be the dominant form of corporate sustainability, the abovementioned examples suggest that this process has already begun and the end of sustainability-as-usual may be actually closer than we think.
Raz is an Assistant Professor of Strategic Design and Management at Parsons School of Design — The New School in NY, where he serves as an Associate Director of the Strategic Design & Management BBA Program. His new book “Rethinking Corporate Sustainability in the Era of Climate Crisis — A Strategic Design Approach” will be published by Palgrave Macmillan in July 2021. For more information on his work see Sandbox Zero. Feel free to connect on Twitter and LinkedIn.