The explosion in the private sector’s importance since the 1980s is why companies now need to take the lead on sustainability
The recent death of Margaret Thatcher prompted me to think of her broad legacy in terms of sustainability and corporate responsibility. One might not instantly associate her time in office with these issues, but at the global level, two things do stand out.
The first was that by opening the space for the private sector – some might say kicking the door open – she also inadvertently passed it the poisoned chalice of increased visibility and responsibility for its social and environmental impacts. In the process of liberalising markets and reducing the role of governments, business came more directly under the gaze of its stakeholders.
Thatcherism, and for that matter Reaganism too, was not the whole cause of the post 1990s increased tendency on the part of consumers and NGOs to direct their calls for change to business, but it was arguably an important factor.
Previously, concerns about international human rights and environmental issues were addressed to governments and UN agencies. As the flurry of treaties and conferences on these issues in the last decades of the 20th century shows, this was the golden age of internationalism. Governments were looked to not only to provide principles and direction, but also the regulatory mechanisms to implement their commitments.
Now we live in another age (silver? bronze?) characterised by the general failure of governments to effectively map out a practical regulatory response pathway to address climate and other sustainability issues, and to address the rising power of the corporate sector.
Under these circumstances, it is only to be expected that activists, consumers and others are balancing calls for more regulation with highly targeted corporate campaigns. New media and IT technologies have just made it all the easier.
She got science
Thatcher’s second legacy was support for science-based policy on global issues. As a chemist, she quickly got how issues such as ozone depletion and climate change could be caused. It should not be forgotten that she was among the first heads of government to come out strongly on the need for coordinated and decisive international action on climate change.
One doesn’t know what she would have made of the sorry story of the climate negotiations over the last decade, but the conviction and commitment to this issue she showed in office has never quite been matched by political leaders since. Angela Merkel, another scientist, is perhaps an exception.
Thatcher might well have been more pro-active than the current bunch in putting out the challenge to both political and business leaders.
Private sector dilemma
But the big “so what?” is this: in this post-Thatcher period, the private sector is on the horns of a dilemma of historic proportions.
On the one hand, it wants a light regulatory touch in order to harvest the abundant fruits of globalisation and a liberalised market economy. In short, a business as usual approach. Indeed, the discovery of (what is being pushed as vast) reserves of shale gas plays into a narrative of a new era of economic bonanza.
On the other hand, in the wake of the global financial crisis, a growing part of the business community now recognises that that crisis was triggered by dangerously liberalised financial markets.
The emerging consensus seems to be that we need more regulation, at least for critical issues that pose a systemic threat. And while this is true of finance, it is doubly true for social and environmental issues.
Many business leaders now realise that the “golden age” of the current resource and waste intensive model is coming to an end. Almost any materiality analysis for large companies now features game-changing mega-trend sustainability issues such as poverty, urbanisation, social unrest, energy, climate change, fresh water and food.
If key planetary thresholds are not to be violated, especially climate, and playing fields are to be kept level, this means agreements, regulation and governmental support to build awareness, good management and behavioural change.
The practical reality of these challenges was underlined for me at a recent business gathering in Geneva. Under the auspices of the United Nations Conference on Trade and Development (UNCTAD), the heads of corporate responsibility departments from some 26 mature and emerging market multinational companies from around the world came together to share experiences and workshop specific challenges.
Tougher challenges
While there were the expected sectoral and regional differences, a common concern was that companies were beginning to run out of drivers to improve CR performance. There was a perception that most of the low hanging fruit had been plucked.
The economic and social drivers for further action on the sustainability agenda were simply not present. Indeed, some were finding it increasingly hard to justify current programmes to CEOs, CFOs and investors pressing for short-term returns.
Although businesses are instinctively reluctant to call for increased regulation, it was clear that none of the participants saw any performance step-change forthcoming in the absence of new public-policy initiatives, whether in the form of taxes, investment or other legislation.
Indeed, many companies, while trying to address critical social and environmental issues, often feel a sense of frustration and are looking to governments to play a stronger role with targeted regulatory initiatives.
Public policy debate
While most hopes for change were pinned on industry-driven sector-based standards, where everyone from supplier to consumer talked the same language and did business on the mythical level playing field, there was a clear sense that this approach would not ensure that the planetary level social and environmental challenges would be addressed.
Indeed, as UNCTAD itself observed in a report to the G20 in 2011, without public policy, existing sustainability standards and initiatives will not achieve their potential.
It’s against this background that talk is now being heard of the need for greater governmental intervention. And these calls are increasingly coming come from those in the business sector that have inherited the liberal market world order that the Iron Lady helped usher in.
While the world continues to press companies to shoulder their responsibility, companies are now asking governments to shoulder their own responsibility.
Thatcher’s period in power marked the beginning of a pendulum swing in the direction of liberalisation. The financial crisis and today’s multiple social and environmental crises may be seen by historians as marking a turning point, where the pendulum begins to swing in the direction of more public sector involvement.
Far from fighting this trend, smart business leaders should recognise it as an opportunity. The very future of their business probably depends on it.
Paul Hohnen is an Amsterdam-based consultant who advises, speaks and writes on global sustainable development and CR issues. Among his affiliations he is an associate fellow of Chatham House and a member of the Ethical Corporation advisory board. For more info visit here.