In it together

Governments are an essential partner for successful business, even if predicting elections is a tricky business

Last month I commented on the UK general election. The outcome looked too close to call, I thought, and concluded… “one thing is clear, though. All the parties have ambitions for change, and none have the resources to pay for it through conventional tax and spend. Whatever the hue of the next government, it will surely come knocking at the door of companies for help, willing or unwilling.” (For our analysis of the Conservative manifesto, see here, where we noted a resurrection of the Big Society concept and some interesting detail about corporate responsibility.)

This month I want to take the argument a stage further and say that companies should see governments as an essential partner, rather than a demanding supplicant to be held at bay. That’s not to say I accept the full Mariana Mazzucato thesis (The Entrepreneurial State) that it’s governments who are the real innovators and risk-takers. But I do think the much-quoted concept of ‘shared value’ focuses too much on companies and their own social impacts, and not enough on the essential role played by government. To plot a reliable path towards an economically prosperous, social just and environmentally sustainable future, we need a tripartite approach involving business, government and civil society. If you doubted governments are an essential part of the equation, just look at the topics addressed in our guest articles this month – urban sanitation by Neil Jeffrey from WSUP and food security by Anna Simpson from Forum for the Future.

That becomes harder if government is not a stable partner. The UK political outlook may now be more certain, but the picture internationally is less so. The US presidential election kicks off in just eight months with the Iowa caucus in February 2016, and the final vote in November. In Europe, 2017 is bookended with French presidential elections in the spring and German federal elections in the autumn. Meanwhile this year sees major intergovernmental agreements due on sustainable development in September and climate change in December.

For global companies, the sustainable development goals (SDGs) offer a framework which – if agreed as new ‘world goals’ at the United Nations – will transcend the shifting priorities of national governments. Here at Corporate Citizenship we’re embarking on a 17 week effort in the run up to September to analyse each of the 17 proposed goals in turn, asking what they mean for business. You can track our progress here and follow us on Twitter for a weekly prompt.

The case for more joined-up thinking was driven home for me by a recent study by the IMF on the sheer scale of government subsidies for energy, estimated at a $333 billion this year. That’s money governments spend to reduce the purchase price of energy. Where the study broke new ground was in quantifying the cost of the damage done by burning that energy, in air pollution, road congestion and global warming. Calling that a post-tax subsidy, the IMF puts the price tag at a stonking $5.3 trillion – 16 times more. Much of that is paid by companies and citizens, in lost productivity, and by the governments themselves in remedial spending. The IMF modestly concludes “the fiscal, environmental and welfare gains from removing energy subsidies are substantial” – worth 3.6% of global GDP.

Now that’s a prize worth winning from getting government policy-making right.

What the UK general election campaign says about the future for responsible and sustainable business

Here at Corporate Citizenship we’ve been analysing the manifestos of nine of the political parties contesting the UK general election. At time of writing it’s impossible to say which will end up with a role in the future government, save that the pundits predict it’ll be more than one.

But let’s stand back from the sound and fury of the election contest itself, and ask: have the issues that preoccupy professionals working on corporate responsibility and sustainability cut through to the general public?

Most obviously, on concerns about how employees are treated – from zero hour contracts to minimum wages and pay differentials – the parties have traded blows nightly on our TV screens. More surprisingly, in the manifestos at least, detailed proposals on corporate governance, such as gender balance and employee representation on boards, reflect continuing concerns about accountability in big business.

On the other hand, newer issues – such as the circular economy, resource minimisation and sustainable consumption – have barely featured. The LibDem manifesto did include some references to building a green economy, and one if its ‘five green laws’ was on zero waste, but these weren’t central to its pitch. Similarly, the Green Party manifesto sets out an alternative economic vision, but they focused their actual campaign on austerity.

Likewise, no one has put the central issue of climate change before the people, nor sought a democratic mandate for the tough actions needed to counter the threat and adjust to its consequences. Still, if Sherlock Holmes was reading the runes of the campaign, he might observe that on this issue the dog hasn’t barked; only one party (UKIP) has promised to repeal the Climate Change Act, the others preferring to put off the implications to another time.

Ostensibly, the election has been about the big choices facing the future of country, but the campaign has focused on the more mundane concerns of today.  The Greens came closest to offering a radical alternative, but then undermined their credibility by publishing detailed costings of their proposals. The price tag is £250 billion in extra public spending compared to today’s annual total for central government of £560 billion. Few in the world of corporate sustainability think the answer is to leave it to governments and grow the public sector by 50%.

One thing is clear, though. All the parties have ambitions for change, and none have the resources to pay for it through conventional tax and spend. Whatever the hue of the next government, it will surely come knocking at the door of companies for help, willing or unwilling. Those companies committed to a sustainable future need to do a better job in spelling out what’s needed. And then next time perhaps one of the parties will at least find a way to convey that to the voting public.

Now is the time to tackle carbon pricing, when the oil price collapse will sugar the pill

Britain’s last financial budget before polling day, announced on March 18, included the inevitable pre-election boondoggles. It also sent mixed messages on the environment.

A £1.3 billion cut in taxes to boost North Sea fossil fuel production after the halving in global oil prices predictably had climate change campaigners up in arms. Also included was funding (through complex contracts-for-difference in the electricity market) for a big new renewable energy project, the Swansea Bay tidal lagoon, along with a slew of smaller measures such as another increase in the landfill tax and a boost for ultra low emission vehicles.

Green window-dressing from a business-as-usual Chancellor, perhaps? Or, less cynically, just another example of the messy reality of transitioning from the old economy to a new and by no means yet certain green economy.

One week later came news of another knock-on from the oil price drop: the possible immediate collapse of Closed Loop Recycling, the UK’s principal food grade recycled plastic manufacturer. I visited the plant in Dagenham some years ago while a London Assembly member and am still in awe of the hi-tech machines that take a jumble of mixed plastic waste in at one end and produce pristine PET and HDPE at the other end, clean enough to eat off, literally.

However, with virgin plastic prices currently falling 20% or more a year, according to WRAP, the financial model is clearly under severe threat. In this instance at least, the circular economy risks rapidly switching to a straight line, downwards.

What can be done?

One option for public policy makers is to seize the opportunity of lower oil prices to make a start on introducing a carbon tax. The lesson from landfill is that taxes can make a big difference. That started out at £8 per tonne, climbing steadily to today’s £80, without the economic roof falling in. The ultimate impact has been transformative.

Earlier this year, The Economist newspaper highlighted a recent OECD study on the economic cost of environmental regulations. Straying from the publication’s usual party line, that surprisingly concluded “an increase in stringency of environmental policies does not harm productivity growth.”

What better time to bring in counter-cyclical measures against planet-threatening fossil fuels? Indeed, if not now, then when?

Thoughtful business leaders will not get much airtime in the coming UK general election.

The countdown is underway. With fewer than 60 days to go until voting, the next few weeks in Britain will be dominated by an increasingly febrile debate from which the voice of business risks being largely absent. That contrasts with the closing stages of the Scottish referendum last year, when companies made a telling and arguably decisive intervention, spelling out the damaging consequences of independence.

At the start of March, one thoughtful business leader – Nigel Wilson, chief executive of Legal & General – gave it a go in a woefully unreported speech to a City audience. His themes were simple: the need to think long term, for business to consider its social usefulness, and for “constructive collaboration across central and local government, regulators and the investment industry to deliver long-term investment, growth and jobs in the new economy”.

With ultra-low interest rates, the time to invest is now, he said. Contrasting “very grandiose schemes”, like the HS2 railway, ‘Boris Island’ airport and the Hinkley nuclear power station, he highlighted ‘slow money’ investments with immediate practical benefit that Legal & General is making, in the likes of private rented housing, student accommodation and retirement villages – very much against the grain of conventional City and government thinking.

References to the social usefulness of business resonate with remarks by Adair Turner back in 2009 about the big banks, and by ex-FT editor Richard Lambert more recently. And those with longer memories will recall what Will Hutton was saying in the run up to the 1997 general election, in his book, The State We’re In. Picked up by Tony Blair in a speech in Singapore, the notion of a ‘stakeholder economy’ briefly offered the prospect of a socially useful model of reformed capitalism.

But New Labour was not about fundamental change, and on getting into government the idea was kicked into the long grass of the company law review. By 2005, in a deregulatory gesture to a business audience, Gordon Brown killed off even the limited idea of an operating and financial review (although in fairness some elements have crept back in subsequently).

Now Will Hutton is back with a new book, How Good We Can Be, reviewed here by Vince Cable’s former special adviser, who brings a world-weary reality check to the diagnosis of the problem as well as the prescribed cure.

Still, Hutton sets out a vision which I for one find compelling, certainly when compared to the thin gruel we’ll be offered in the major parties’ manifestos over the next couple of weeks.  “With technological possibilities multiplying, a wholesale makeover of the state, business and the financial system is needed to seize the opportunities by being both fairer and more innovative”, he argues. “The aim must be to create an economy, society and democracy in which the mass of citizens flourish.”

The question is – will any other CEOs follow Nigel Wilson’s lead with a vision of what could be? Or will they simply line up with the politicians in the yah-boo disputatiousness that passes today for political discourse?

Reflections on different understandings of corporate purpose – and what that means for business-government relations.

These days everyone seems to want to know the views of the ‘young leaders of tomorrow’. If the present is tough, the future offers hope, although it does have a habit of catching up with you. As David Cameron cruelly observed of Tony Blair – you were the future once. How times change.

To polish up my crystal ball, I studied with interest a report published by Coca-Cola Enterprises towards the end of last year about the role of business in society. Conducted by the Doughty Centre at Cranfield University School of Management, Combining profit with purpose compared the views of current business leaders with so-called future leaders, essentially MBA and MSc graduates.

Nine in ten out of both generations agree that business should have a social purpose. So far, so good. But then two findings stood out starkly for their differences. Asked whether businesses today do have a clear sense of social purpose, nearly nine in ten current executives said yes. But only two in ten future leaders agreed.

That reveals a profound disagreement about what a social purpose actually is. My hunch is that the old guard see it in terms of having a social benefit spin-off, whereas the young people are looking for something more profound. I’m with the youngsters on this. We need companies that define their very existence in terms of meeting genuine needs over the long term, and organise the business accordingly.

The second stark difference was about what’s stopping companies adopting a social purpose. Here current managers name governments as top of the list of barriers; but future leaders put it bottom of their list alongside regulators. Again this is likely to arise from a different understanding.

On this one I’m with the old guard. However, my hunch here is that too many think the answer is still to ‘get government off our backs’. They see things simplistically as pro- or anti-business – witness the ill-judged intervention into UK politics of the Walgreens Boots Alliance boss, Stefano Pessina.

More thoughtful leaders, like the ubiquitous Paul Polman of Unilever, talk more constructively of “a great opportunity to work together with the government” – as he just said to India’s new prime minister, Narendra Modi.

We need business leaders – current or future – to move away from lobbying against things and towards advocacy of the public policy changes that will genuinely harness the power of business to make a difference. We need more companies to answer the question posed by Charles Handy back in 1990: “what is a company for?” Sadly, the prospects for this over the next 90 days in the UK election campaign, and elsewhere in the world, aren’t encouraging at all.

This article was also published by Responsible Business

Let’s welcome moves to get business and politics talking to each other.

The idea of a parallel universe is a staple of science fiction. Indeed the latest Hollywood blockbuster, Interstellar, is all about a mission to save humanity from devastating crop blight by travelling through a wormhole to find new planets – or so my teenage son assures me. (I fear the purported climate change allegory was rather lost on him.)

However a parallel existence is alive and well here on earth, in the two worlds occupied by business and politics, or so it seems to me.

In business, forward thinking leaders are grappling with how to build prosperous companies for the long term, faced with rising costs, potential shortages of raw materials and fractured societies, against the backdrop of a profound loss of trust in corporate motives. In politics, thoughtful leaders are grappling with the absence of prosperity, with rising energy bills, massive youth unemployment and the overhang of debt and austerity –  and a breakdown of trust in institutions and now a nasty streak of xenophobia too. In short, many of the same issues in both realms.

Of course both sides have made many mistakes, but the solutions – as this commentary has long argued – lie in working together. Thankfully one initiative is trying to cross the divide. An Economy That Works (also covered in a recent media briefing) is setting out how to make the transition to an economy that delivers prosperity, competitiveness and sustainability for both companies and citizens. The model is built around six core characteristics including high employment, low carbon and zero waste. It has identified four enablers that will encourage this transition.

I’ve played a modest part in discussions to build this vision, and was pleased to see the latest step just announced – a set of priorities for the forthcoming UK general election: 50 ‘asks’ clustered in six themes. This manifesto contains many good ideas on how to close the UK’s skills gap, finance a shift to a low carbon economy and (interestingly) work more with European partners.

The only trouble – said with a heavy heart – is that virtually none of the 50 asks is framed in a way that a political party could put into its manifesto, still less use on the doorstep with real voters. The analysis is laudable and the technocratic solutions correct, but there’s little apparent voter benefit. In democratic politics you have to persuade people to vote for the change in policies. And that’s rather like the challenge sustainable companies have in persuading consumers to buy the new products.

Oh dear, another example of both sides struggling to convey the same message, and with no wormhole in sight.

Meanwhile this month’s crop of commentators address some of the key steps that we can be taking towards the goal: Grace Young and Simon Hill on what business is doing in education, Arpita Raksit on the role of women in Africa’s growing economy and Yohan Hill on shifting to a low carbon future, while John Morrison calls for a new ‘social contract’ for business in society. Amen to that!

Years of effort to increase corporate reporting on sustainability is having little impact on global stock exchanges, despite reports showing growing demand from investors.

Only 128 of the 4,609 largest companies listed on the world’s stock exchanges currently disclose basic information on their social responsibilities. This is “disconcertingly low” according the Canadian investment advisory firm, Corporate Knights Capital, whose study Measuring Sustainability Disclosure crunched the numbers in October.

Also in October, the largest ever gathering of stock exchanges met to discuss sustainability disclosure under UN auspices in Geneva. Organised by the Sustainable Stock Exchanges initiative, some of the largest took part including NYSE, NasdaqOMX and LSE. This provided “a global platform to demonstrate leadership and understanding of the sustainability-related opportunities and challenges”, or so the initiative claimed. Unfortunately its annual review of the 55 exchanges around the world found that only 12 currently require any aspects of environmental and social reporting for at least some of their companies, with just seven requiring such reporting for all listed companies.

Something isn’t working, as investors increasingly want this information – at least according to those responding to a PwC survey earlier in the year. Four in five investors – with assets under management worth $7.6 trillion – said they do consider sustainability issues in their investment strategies, citing risk mitigation, ethical conduct and performance as their driving concerns.

If investors want it but stock exchanges won’t require it, what should sustainability-driven companies do? First, keeping disclosing the information yourselves, as forward thinking investors will come looking for it. Second, make much clearer than most do today that sustainability issues are an integral part of your business strategy and that future earnings depend on overcoming environmental constraints and enhancing social outcomes. That will join up the dots for investors.

What about the majority of stock exchanges who still don’t get it? Ultimately investors will vote with their feet and find other ways of raising capital and monitoring their investments. For the laggards, the message is – require disclosure or die.

Meanwhile, news comes that businesses based on the London-based Social Stock Exchange – dubbed the “home of impact investing” – are increasing market capitalisation while delivering social impact, according to the Exchange’s second anniversary assessment report.

Not all acorns grow into mighty oaks to rival the established players, but some do.