Posted By Meenu Chopra On Dec 26, 2009

Thank you for inviting me to talk about a subject close to my heart, Sustainability and Business, because I straddle both fields - environment and business
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Posted By Meenu Chopra On Dec 26, 2009

Sustainable Business or Sustainable Earth ?

Making Business Accountable


Thank you for inviting me to talk about a subject close to my heart, Sustainability and Business, because I straddle both fields - environment and business.

This subject is really about “Doing Business in a way which is in Harmony with Nature” – and about why it does not happen, why it must  happpen, and how it must happen. “Making Business Accountable” is really about Sustainability and Business, about making Corporations  measure and manage their impacts on Nature and Society, about making them internalize the so-called “externalities” that economists talk about, about making Corporations which are responsible to their stakeholders and not just about their shareholders… and about… That’s a lot of “abouts” , so lets take it in stages !

Firstly, Sustainability is not an Option

Sustainability is all about giving future generations the same right to a healthy living planet that our parents gave to us, a capacity which we are about to destroy for ever. However, the human race is consuming more than the Earth can produce on an ongoing basis – by some estimates, 20% more already.  

Per-capita GDP in tomorrow’s economic giants India ($800), China ($ 1500), Brazil and Russia is still low enough for energy use and therefore Carbon Dioxide emissions to be low ( India’s per-capita emissions are 1.2 tCO2    – compare that with the USA, 20 tCO2  ) but as consumption picks up, all this will change dramatically.  In his book “The Future of Life”, the famous author and biologist Edward O. Wilson says that if every person in the developing world were to be able to consume like every American does today, the “ecological footprint” of that consumption would be our times Planet Earth.

Friends, we have a problem. There is only one Planet Earth.
 

Carbon Dioxide Emissions have Three Causes : these are also Three Levers we can pull to solve our Problem

Global emissions of Global Warming gases including Carbon Dioxide are estimated at 45 Billion tonnes per year (Stern Review, IPCC, etc) and  some scientists estimate that is as much as five times as much as the Earth can absorb in oceans and soil on an ongoing basis. These emissions are happening not only because of consumption in some form or other, because of the amount of energy that is used to produce what we consume, and most importantly, because of our generation’s devastating dependence on fossil fuels (Petroleum and Coal) to provide our energy needs.

In other words, the three factors that are causing the problem are

                                       Per-capita consumption

                                       Energy-intensity of Production

                                       Carbon-intensity of Energy

 

Consumption does not have to destroy us, we as individuals can consume less,  we can be more conscientious and aware, we can select goods and services which have a lower carbon cost. Thus there is really no choice : we have to change this. We stand here today at Raj Ghat, in the shadow of our nation’s founder, Mohandas Karamchand Gandhi. Let me remind you what Gandhiji said about this : “

“The earth provides enough to satisfy every man's needs, but not every man's greed.”


However, abstinence alone may not suffice, because that only addresses one of the three factors I mentioned. Educated consumer choice will help lower the other two factors, but producers also have to be conscientious, aware, and innovative, and that is where Business has a key role to play. You will hear a few times over the next two days what  the IPCC, Al Gore and others have been saying for years : that Climate Change is real and that we have probably no more than  8 or 10 years in which to achieve a total transformation of our so-called “carbon economy” into a sustainable economy which produces much more efficiently than it does now and relies on renewable energy and not on fossil fuels.

Some lessons from History

In the 1970’s in America, the people and their Gov’t awoke to environmental protection due to a string of natural disasters. A river was so polluted, it actually burned. Rachel Carson wrote a book called “Silent Spring” in which she blamed the poisonous effects of chemical wastes, pesticides, and fertilizers for the disappearance of Nature. In the villages and small towns of America, people were getting more diseased,  farm animals were sick or dying, and no birds could be heard. It was as if Spring itself had gone silent. There was a national furore, and the Government of the US awoke and passed a series of legislations to stop pollution and to protect the environment.

Here in Delhi, I need hardly remind you of the problems of chemical pollution on water quality, or the impact of vehicular pollution on air quality. However, these are all solvable problems – just look at the US example. A combination of new laws  such as their  Environment Protection Act, Clean Air Act, & others and new business disciplines were imposed, such as transparent reporting of pollutants made by or stored by industries. They do not have burning rivers in the US anymore. The air is not polluted, despite the worlds largest concentrations of  industrialization. The water supply of the City of New York does not  come from some large chemical treatment plant, or from some massive desalination plant, but straight from the reservoirs in the protected forests of the Catskills Mountains  nearby. This water is so pure, it does not even have to be treated !

But after thirty years, the US learnt that pollution is not only emitted by the chimneys and pipes of factories (the so-called “point sources of pollution”) but that it is more insidious and all-pervasive : it is now from excessive use of freshwater and chemicals in car-washing, from excessive use and run-off of fertilizers in residential gardens, and most important of all, from excessive use of that famous fossil-fuel called petroleum in America’s 2.2 cars per person !  Now this is all about consumer habits, and about lack of consumer choices : for those who want to be responsible, what solutions were there ? And this is what we are also facing in India today. We have numerous carmakers in India, but is there an Indian equivalent of the “Toyota Prius” ? Do we have Green Rankings on the consumer goods on our shop shelves ?

Friends, everything I have said about America of thirty years ago, and America now, applies to us right here in India today. We are the ultimate Battleground for the Environment, because battles past, present and future are all being fought in India in the same place at the same time !

Some Corporations in India still believe it is okay to mine in forests inhabited by tribal communities and by threatened species. Other Corporations draw freshwater at an unsustainable rate from aquifers and replace it with polluted waste. Others find it acceptable to build ecologically damaging facilities along fragile coastlines. Environmentalists of course challenge these actions in Court, and sometimes they win, sometimes they do not. Please bear in mind, there are over 5,000 listed Companies and countless unlisted ones, and that there are not so many environmentalists, and not many Courts ! So if nothing changes, then the direction for India is clear. We shall become an arid wasteland, polluted, diseased and impoverished, and that’s not what any of us want.  So you all should be up in arms when these things happen. The free  Press should cover Corporations which behave irresponsibly. Consumer activists should ask citizens to shun their products. Investor activists should object at their AGM’s and write to their international investors to sell their shareholdings. The power of people to change things is immense. Satyagraha  and the spirit of Satyagraha  did not have to stop at Independence – in fact, I have often argued that the real test of Satyagraha  is HERE and NOW,  when the oppressor is not some foreign power, but us Indians !

Why should it be so -  we are not a bad people ? And yet, because it is us, let us pause to wonder…. why do we behave differently when we wear Corporate hats ?

I want to illustrate my point with just three causes of todays problems, each of which bols down to an underlying belief which I have encountered in Business, and I want to challenge those beliefs and suggest some alternatives.

What 3 beliefs most prevent Businesses from being in Harmony with Nature ?

Belief 1 : “Our job is to make profits, we are doing so without breaking any laws, so what more do you want from us ?”.  Unlike new Promoter-Entrepreneurs, the Managements of widely-held Companies are rarely driven by a personal vision of what their Company is for. So instead, they busy themselves with pleasing Financial Investors, not the wider Stakeholders, and thus there is no real recognition of ecological sustainability.  By pleasing Financial Investors (EVA, Shareholder Value ) and Analysts to the exclusion of ALL other stakeholders..... (govts, creditors, employees, children, society,  planet..... ) they are in fact keeping their Company at the lowest rung of Corporate evolution : the Anglo-Saxon model for the Company. As a Company evolves, it must take into account not just Shareholders, but all Stakeholders. It will soon realize what this means in terms of business model ; that it is in business not just to increase the financial capital that it owns and reports in annual Balance sheets, but also the undeclared Human capital it employs and trains, and the unstated Natural capital it consumes to exist.

Belief 2 : “We have a CSR Dept which is doing a lot of good work, now why don’t you just leave us alone  ?”  Because, unlike Govt's and Individuals, there are no standardized measures of a Corporation's Sustainability, so Sustainability is not Measured and there is no real Disclosure !  “Green Accounting” measures a State’s sustainability, and carbon calculators are available on the Internet for measuring Individuals footprint .... but there are no standard measures for a Corporations ecological footprint.  Let me give you an example. Just a few days ago, I called for and went through a random selection of 5 Corporate Sustainability Statements, each of which was published according to the GRI ( Global Reporting Initiaitve – formed by CERES/UNEP in 1997) .  And these were not  small reports – the shortest ( a mining company) was 15 pages long, and the longest ( a bank) was 100 pages long ! And I was looking for just ONE number in all these reports : the Carbon Footprint of the Corporation, i.e. the amount of Carbon Dioxide emitted by the operations of the company and its employees in the course of business. This is not rocket-science. But, I did not find that number in a SINGLE one of these 5 reports. Meanwhile, I had scanned through 285 pages of glossy text which made  each of these Corporations sound like a charitable institution run by Mother Teresa herself ! What was I missing ? Where is the "name-and-shame" from compulsory reporting of key numbers like Carbon Footprint? Where is the "FAS-B" or the "SSAP" equivalent of these Corporate Sustainability Statements ? That’s what our Corporate world needs. “You cannot manage what you do not measure” is one of my earliest learnings as a young banker, and it sees that the time has come to force Corporations to measure their externalities, starting with their Total Carbon Footprint.
 

Belief 3 : “We have a CDM project which is saving Carbon Dioxide emissions and earning us good money – isn’t that enough ?” Unfortunately, most Corporate CEO’s do not appreciate or accept that the ONLY acceptable Carbon Footprint for a Corporation today is a ZERO footprint. Anything else is an accountable, taxable, “negative externality” which happens to have escaped regulation because modern-day Economics generally does not account for “externalities”. However, you can be sure it is costing someone a health problem, or some species a survival problem, or some resource a replenishment problem. It is costing the Earth, and as we say in business, friends, it’s the same with the Earth : there are “No Free  Lunches “ !  Corporate CFO’s and CEO’s are usually proud that they have obtained and sold Carbon Credits for some project or other. Indeed, India is a leader in the pack as far as the Clean Development Mechanism (“CDM”) of the Kyoto Protocol goes. As of last month, CDM has 824 registered projects, of which India has the highest number of any country (283), China lags behind at 123. But the question is, how significant is that in the overall context ?

Why stop at Business Beliefs ?

Since I have criticized Corporations somewhat, I shall not let my Environmentalist friends get away Scot-free either. I think the environmental movement  in India places too much emphasis on strategies and tactics, and too little on beliefs and “story”. The former are perceived as “hard”, and the latter are perceived as “soft.” But without both in equal measure this movement can never flourish.   

Martin Luther King did not say, “I have a plan”. He said “I have a dream”, and then he spoke of his values, without offering strategies and tactics about how we might achieve them. He knew that if he could reach out to people with shared values then he could respect them to move in the right directions of their own accord. And so it should be with the business world. I see plenty of opportunity and ability to change, but we in Business need first to change our beliefs, evolve our ideologies beyond the Neanderthal world of the Anglo-Saxon Corporation !

"Economism" : the Unstated Ideology of Business

We live in a world of ideologies – Socialism, Communism, Environmentalism… notice how each ideology has a name ending with “-ism” and each is emotive – it stirs something, it means something. However the science or concept on which each ideology is based are un-emotive…. “Society” is un-emotive, but Socialism is. Environmental Science is un-emotive, Environmentalism is. So what about the science of Economics, and of micro-Economics, which is all about Business ?  What is its ideology ? is there a name, an “-ism” , for the ideology of Economics ?  No, there is not , but  having been in business 25 years I can tell you there IS an ideology in business, and I think that  “Money Matters Most” is its ideology, its belief statement.

The economist Prof Richard Norgaard gives a name to this ideology behind the science of Economics  - an “ism” : he calls it ECONOMISM. He says this it is indeed an unspoken ideology. How often have you heard a CEO saying  “I am a believer of Economism”. And yet, I know hardly any CEO’s who are not. Richard Norgaard writes :-

•          " the pervasiveness of economism throughout our lives makes it very difficult to even discuss how we could be more in harmony with nature. It is so powerful that we basically have to argue how “going green is good for the economy.”

Now I shall quote you something written by another Economist, who clearly understands thatMoney isn’t everything, and I’ll let you guess who that was :-

The word value… has two different meanings, and sometimes expresses the utility … and sometimes the power of purchasing other goods  (with it)…….. The one may be called "value in use"; the other, "value in exchange." The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but …….. scarce(ly) anything can be had in exchange for it. A diamond, on the contrary, has scarce(ly) any value in use; but a very great quantity of other goods may frequently be had in exchange for it.”

A beautiful  and most topical example, isn’t it ? A diamond versus water ?

Friends, this was not written by an economist any of you would have met. This was Adam Smith, the founding father of economics, writing in 1776 …..  pardon the pun, but what on Earth have we done to his subject ?!?

For Capital to have any meaning at all, it must be recognized in all its four dimensions – Physical / Financial capital, Human capital, Social capital, and Natural capital. This also goes back as far as Adam Smith’s concepts of “land, labour and capital”. In his days, land was plenteous, the scarce input was financial capital, and energy was not a key factor of production.  Adam Smith designed his thinking framework in a world in which total capital and trade was measured in Millions, not Trillions of dollars. That’s over now. We need a new economics, and as it was then, Business mustl lead the way and define new rules and behaviours which will be summarized by some new Adam Smith as the New Economics – perhaps “Naturenomics”  

In today’s Corporation,  just one dimension of capital being focused on : financial capital. As I see it, today’s Typical Corporation is not yet a true “Capitalist” but  only a partial Capitalist, because it has not evolved beyond its basic Anglo-saxon model.  It must.

Measuring What Matters

Some friends and I started India's "Green Accounting" project in 2004, and its results are coming out now. This project has set up a hard-money measure of sustainable growth which we hope will finally dislodge India's starry-eyed fixation with "GDP growth". Unfortunately, society today does not manage what it does not measure. GDP does not measure wealth, so not surprisingly, India does not measure per capita “wealth”… which is just the average of capitals (physical, human, natural) available to an  Indian citizen. I for one do not find it accceptable that my fellow citizens of India, year after year, are brainwashed into thinking that they should rejoice in GDP growth ?

What does this mantra of 9% GDP growth actually mean ? that India’s per-capita wealth grew 9 % ? that our citizens’ health improved 9% last year ? that education increased 9% ? that natural resources increased by 9% ? that poverty went down 9% ? the answers to these questions are No, No, No, No and No !! So what is point of boasting about “9% GDP growth” ?

I tell you, India's development is fundamentally unsustainable : that is why we have farmers committing suicide, industries discharging effluents, tribals clearing forests, and coal mines sprouting everywhere.  All these things are disharmonious with Nature , AND they are also examples of the economic "externalities" that unsustainable development sweeps under the carpet.  We need to give them a negative value tag. This will finally nail the dangerous of traditional metrics such as GDP growth, and prove to the Politicians and the Press that the numbers they have been touting for a decade as the answer to India’s problems are in fact among India’s biggest problems ; we simply do not measure true wealth, which is defined as sustainable wealth !

Our “Green Accounting” project shows that externalities can be captured at the State level, so why not at the Corporation level ? I do not wish to lecture for an hour, you have heard enough …most of you already know what to do, please make it happen !  I request  though that you measure it, so that its not just talk, and so that we have a “level playing field” albeit at a much higher altitude and of a new generation.

You Can Do It !

Here is an example from just ONE company I have been reading about, called Interface Ltd. They make carpets and carpet tiles in the US. Their founder and CEO, Ray Anderson, wrote a paper for a conference I was fortunate to participate in last month, and in a few pages he summarized  no less than SEVEN ways in which his Company had been nature-inspired, environment-friendly, and had broken new ground – on productivity, on energy savings,  on costs, on creating new markets, on improving carpet tile design … All because Ray Anderson  and his management team had asked them at all times, to listen to Nature, respect Nature, imitate Nature.

That’s from a manufacturer of Carpet tiles from the USA – you would think, that’s old world, old economy ?  India is a new World, a land of creativity and opportunity. Surely, we can do better ?

Name the game, I say, stand up for what you believe, and if you don’t know what you believe in, then get out of the way. Make space for the business leaders of tomorrow. Todays SME’s, today’s youth, todays inventors of green technologies, new producers of environmentally friendly building materials, renewable energy & recyclable goods, some of todays CEO’s who are showing a way towards responsible stewardship of Nature and Society …. These are the Business Leaders of Tomorrow !
 

Jai Hind !