Up to 9bn people are forecast to be alive in 40 years time and they can all be expected to want a fair share of economic wealth and social welfare. This will put the “global commons” under increasing strain. Ecosystems will suffer from more and more pollution, lost biodiversity and climate change and competition for natural resources will accelerate. In such precarious circumstances, broad-based economic growth will only continue if we all subscribe to equitable and sustainable polices. It remains to be seen whether the foundations for such share objectives can be laid down during tough economic times. But it will certainly require the combined north and south expertise of business, civil society and governments to find solutions to these colossal problems.
The scale of the task ahead raises some basic questions about whether the current players in the world economy are up to the challenge, and whether the current connections between the public and private sectors are adequate for the job. Do we need to create new local and international institutions? And can we judge if either the players or our institutions are “fit for purpose” until we define their roles in the 21st century? A good starting point to answer these questions is to identify the core elements of “inclusive growth” which could create the conditions for sustainable wealth creation. There are three dimensions to consider: people, the planet and profit.
Social justice demands that economic growth should benefit all the people of the world, so we have a duty to close the extreme gaps between rich and poor. This also means that “equal access to opportunity” must be recognised as a fundamental human right. People are entirely dependent on nature, so economic growth will not be sustainable if it causes irreparable damage to the planet’s ecosystems and natural resources. Therefore, inclusive growth must also recognise the precautionary approach and “internalise” all the costs to nature of man’s economic activities. Third, the free market and capitalistic profit-motives are essential drivers of efficient and effective investment; they lay a solid foundation for further growth and future commercial initiatives.
The implications of inclusive growth are, inevitably, profound. New south-south trade flows show that shifts in the worldwide division of labour are already underway. Globalisation and growing “connectivity” are increasing economic, commercial and political interdependence. But global citizens live in different parts of the world, experience different levels of development and have different roles to play. So the world economy is becoming increasingly multi-polar, with multiple stakeholders pursuing diverse purposes. This makes international cooperation by governments and business all the more complex and important. The challenge now is to bring more order into the way the world deals with diversity and to find a common, consistent and coherent global economic mission.
How is the business community responding to these new circumstances? More and more companies are recognising the importance of the people-planet-profit approach. They realise that while commercial operations can prosper when governments fall, they cannot survive when societies fail. Hence the phrase: no people, no planet, no profit. But corporate profit-making cannot be viewed in isolation. Companies depend on the approval of a range of stakeholders − clients, staff, partners, government and civil society − to earn the right to make profits. So damage inflicted on the plant by business may not only result in future liabilities, but also the loss of their “license to operate”.
The changing perceptions about the role of business in tackling global challenges are already evident in certain international forums. Business was noticeable by its absence at the 1992 United Nation’s conference on sustainable development in Rio de Janeiro. Commerce and industry were very much seen at the time as major problems for the environment. Since then, business has woken up to the need to be part of the solution and was an active participant at the UN’s 2002 earth summit in Johannesburg. By the time the post-2012 Kyoto Protocol negotiations were underway in earnest in Bali last December, it was generally accepted that no solution to the climate challenge could be achieved without policy input, finance and action by business. The UN Framework Convention on Climate Change, for example, estimated that as much as 80% of the required funding for world climate plans may come from business. If the Copenhagen climate summit next year produces a “long, loud, legal” accord, or at least a strong price signal on cutting CO2 emissions, that finance may be forthcoming. However, it is still far from clear whether the world can reach a fair, effective and efficient framework at Copenhagen. Despite clear scientific evidence and initial optimism about the Bali Action Plan, the jury is still very much out on the outcome for climate change.
“Mandatory reporting on the sustainability of both private and public sector developments could also be introduced. While possibly contentious, it would be a very useful mechanism to ensure market-based solutions were sustainable”
Meanwhile, business is playing a more active part over other issues on the new global agenda. Since the 1990s there has been a rapid increase in the number of business platforms addressing − and even taking collective action − on sustainable development. The World Business Council for Sustainable Development (WBCSD) has been prominent in government forums, as has the UN Global Compact. Both have extensive national networks. The number of sustainability reports by businesses has increased significantly and collaboration with non-governmental organisations is on the rise. For instance, a landmark study was conducted in 2004/5 by OXFAM-NOVIB and Unilever, on the long-term economic and social impact of the company’s operations in Indonesia. The verdict was mildly positive.
Many top corporations are developing responsible and sustainable “value chains” and social and environmental certification of products and processes is gaining prominence. In the financial sector, the voluntary Equator Principles code of conduct for project finance is now supported by 60 banks worldwide. Leading long-term financial investment funds have agreed the Principles for Responsible Investment. Micro-finance for small, sustainable commercial businesses has also attracted interest from local and international banks in Asia, Latin America and Africa. And a new generation of social venture capital funds is emerging which allows strategic investors to put their money into, say, small-scale projects and micro-finance institutions. They expect only a modest financial return plus a Social Return on Investment.
In other words, companies are becoming more pro-active about corporate responsibility for people’s welfare and the environment. They are evolving value-creating business propositions based on explicit principles and values. And sustainable development is being recognised as part of sound strategic thinking and action, even by some small and medium enterprises. Thus more ethical strategies are moving into the commercial mainstream, hastened by NGO, media and peer pressure.
These developments have implications for the core role of business and its relationship with government and civil society. Traditionally, the main business of business has been to do well in terms of creating profits and market value for shareholders and other stakeholders. Business fulfils this role by mobilising resources such as talent and finance; it also innovates, takes risks and operates in a cost-efficient and targeted manner. Sustainable development and inclusive growth add a new dimension to these basic functions: business must now also do good for communities and nature.
Governments have a complementary role to play in relation to business in many respects. They serve as catalysts for important innovations through, say, funding for early research and development. They must act when markets become dysfunctional, as in the case of financial markets today, but should resist the temptation to meddle when the private sector is working well. Of course, business associations already talk to governments about policy issues, but this is mostly informal and ad hoc. They now need to work more closely together to define the challenges ahead, draft long term policies and find practical solutions to the world’s social, economic and environmental problems.
The relationship between business, government and civil society is more complex, given the diverse nature of civil society organisations (CSOs). Community service organisations, pressure groups, foundations, academic research centres et al. have a critical role to play in society. They challenge, complement and even fulfil functions which neither governments nor business accomplish. CSO knowledge centres also have great potential to pull together multiple stakeholders in the new global economy. However, parts of civil society are suspicious of self-serving business motives. However, in the age of information technology, there is no where for companies to hide when things go wrong, and incidents – both real and imaginary – affect public perceptions, corporate reputations and brand-value.
“Inclusive growth must also recognise the precautionary approach and “internalise” all the costs to nature of man’s economic activities”
What the world economy needs now is for business, government and civil society to find new ways to collaborate. This would allow them to capitalise on their individual strengths in order to develop complementary strategies. In simplified terms, this should combine policy input and official aid from governments, practical outputs and entrepreneurship from business and a raft of services from CSOs, including advocacy, education, capacity building, grants and impact assessments. For such collaboration to work, all three parties must share a clear, practical purpose and set SMART objectives. These are targets that are Specific, Measurable, Agreed, Realistic and Time-bound. The three partners must also make sure their roles are complementary not competitive and, above all, show respect and mutual trust in one another.
So what practical forms could such new tripartite ventures take? One example would be a multi-stakeholder sustainable development advisory council for governments or international organisations. The new standing council could focus on policy issues, including climate change and national or international development cooperation. Members could include business and foundation representatives, NGOs and academics. In developing countries, such an advisory council might draft an inclusive national development strategy, for example.
A new international grievance procedure could be built upon the recently created Dutch National Contact Point for OECD guidelines for companies operating internationally. This multi-stakeholder forum took over the role of mediator from the government of the Netherlands. More major non-OECD countries should now join in and accept these corporate guidelines, including China, India, South Africa and Russia.
A new and entrepreneurial Joint Development Initiative could bring together business investment and official development aid. Qualifying companies and financial institutions could be allowed to bid competitively for these government funds. The new JDI would have to be run on a strictly “additional” basis to make sure that only bids that critically depended upon official support could win the auction. Of course, the proper governance of this new instrument would be crucial.
A system of mandatory reporting on the sustainability of both private and public sector developments could also be introduced. While possibly contentious, it would be a very useful mechanism to ensure market-based solutions were sustainable. It should be open to all stakeholders and be overseen by a multi-stakeholder body. An independent panel could also be established to inspect and assess the sustainability of projects that got government aid. While it could be run along the lines of the World Bank current panel, the new system would have to represent multiple stakeholders. We also need to learn the lessons of the 1990s and ensure that local capital markets are able to finance large infrastructure projects in developing countries. These are still necessary to overcome economic bottlenecks through investment in transport, energy, water, sanitation and communications.
The serious problems facing our planet and its people are setting a new global agenda. It will need a great effort by everyone, north and south, business, government and civil society to address these complex issues. Ultimate political responsibility will still rest with governments, but business and civil society must have a clear role in bridging the gaps between the public and private sectors. Pro-active engagement with non-traditional partners is needed to create new, or reform existing multi-stakeholder institutions which are “fit for purpose”. These institutions should be given co-responsibility for delivering policies and action. In essence, we need collective, action-oriented initiatives and investments, delivered by modern institutions that represent all participants. It amounts to a new “architecture” for national and international development for the 21st century, one that is designed to deliver sustainable growth, social well-being and equitable wealth distribution for all. The climate challenge may well be the driver to bring this about.