Is business growth compatible with sustainability?
The answer is YES….unless you’re stuck in the 20th century! Long gone are the days where you can grow a business without worrying about the damage you cause in the process of success. There has long been the assumption that business growth and sustainability are mutually exclusive. Let's dive in and see if this is true.
Why it is compatible:
When discussing business growth and sustainability, there is a good chance you’ll come across the name Kate Raworth, and the term Doughnut Model. The Doughnut Model has reinvented what we view as business success in the 21st century. Doughnut economics is a transition from growing a business at all costs, to making sure it grows within the doughnut. Growing within the doughnut includes making sure things aren’t being sacrificed as a result of your growth so everyone wins.
The outer ring of the doughnut highlights the boundaries across which humankind should not go to avoid damaging the climate, soil and oceans etc. China, for example, is the fastest growing economy in the world. Since China began to open up and reform its economy in 1978, GDP growth has averaged almost 9% every year over the last 25 years. This extremely rapid economic growth has brought significant benefits such as the lifting out of poverty of more than 800 million people and by allowing the Chinese population the access to essential services such as health and education.
However, this has come at great cost. China’s growing energy consumption, as well as its heavy reliance on coal has made it the world’s top emitter, producing more than a quarter of the world’s annual greenhouse gas emissions, which contribute to climate change.
China is therefore succeeding but on the outer ring. The definition of business “growth” is key here. From a purely profitable point of view, China is growing. However in many other non profit aspects, they aren’t. Their rapid industrialisation has been one of the main reasons for this. The model helps provide further context.
The inner ring of the doughnut sets out the minimum we need to lead a good life. It ranges from food and clean water to a certain level of housing, sanitation, energy, education, healthcare, gender equality, income and political voice. Having these parts of life under control is an absolute necessity. Without it, you are in the doughnut’s hole which means inequality.
So where does a business that represents sustainable business growth find itself? Between the two rings. The bit you bite into. This is the target for 150 countries worldwide.
The first step in using Doughnut economics for business growth is recognising that ‘team work makes the dream work’. Recognising that the economy thrives best when every aspect of life and the environment is considered, when the economy is embedded within our community, gives us a much needed different insight.
So has anyone ever had success with the use of the Doughnut model?
An example of the doughnut model being put to good use comes from Amsterdam, Netherlands. The city has used the economic crisis that the coronavirus pandemic caused as the perfect opportunity to rework how their economic system works. Marieke van Doorninck, deputy mayor of Amsterdam, says the city plans to regulate to ensure builders use materials that are as often as possible recycled and bio-based, such as wood.
Van Doornink wants to get away from the reliance on fossil fuels. She also wants to get away from child labour being used to produce cocoa for Amsterdam by reviewing production and supply chain choices. They are willing to take the economic hit from losing cheaper suppliers, and that’s in a city where 1 in 5 households qualify for social benefits already.
Why it isn’t:
You can still grow, but you just have to grow differently. Growth depends on how you view success. For example, reducing waste by a certain year may be seen as a success even if direct profits have reduced. You will make savings through reduced material and disposal costs to counteract this and may have become a better rounded business. The profit will also come later as you have gained a competitive edge on your rivals and adapted to the inevitable and growing sustainable world of business before everyone else.
The lightbulb used to be purposely made to wear out quickly so that companies could get more money from new sales. We’ve come a long way from there to LEDs. You can charge more, because sustainability and longer lasting goods have become your unique selling point.
Unfortunately, over the course of the 20th century capitalism moulded the ordinary person into a consumer. Approximately 1.7 billion people worldwide now belong to the "consumer class" - the group of people characterised by diets of highly processed food, desire for bigger houses, more and bigger cars, higher levels of debt, and lifestyles devoted to the accumulation of non-essential goods.
This behaviour has always been encouraged by big corporations that earn most of their economic profit thanks to this insatiable thirst for material possessions. However, consumer behaviour in the 21st century is shifting, especially as a consequence of the COVID-19 pandemic.
Indeed, according to a study by research group Kantar, since Covid-19 sustainability has become more of a concern for consumers than before the outbreak. 65% of UK respondents told a survey by Ipsos Mori "that it is important that climate change is prioritised in the economic recovery after coronavirus".
Whilst in the past the answer to our starting question would have been negative as business growth was closely tied to mass production with no regard to sustainability and environmental impact, today the picture has changed. As sales of organic products have risen on both sides of the Atlantic, consumers are demanding more transparency of the stories behind the brands and their impact, and society is starting to question whether less (or longer lasting) is more, sustainability has become no longer a choice for 21st century businesses, but rather the key to their success. Mass consumerism is dying and with it pure growth profit strategies; businesses need to keep up to survive.
One of the best ways to keep sustainability at the core of your business is to ensure growth is in line with ESG criteria and sustainable finance. Currently, it is proposed that by 2024 all businesses with over 250 employees will be mandated to report their CO2 emissions along with any SMEs in their supply chains with many companies already ESG reporting. To stay ahead of competitors and show off your environmental intentions, it is best for your business to adopt this. We are running a webinar ‘ESG Investments - Successfully Transitioning to ESG’ in partnership with UKSIF’s Good Money Week where we will be joined by finance experts who will explore how to successfully incorporate ESG. This webinar is for CFOs, CEOs, entrepreneurs, business experts, investors, financial advisors and founders who are interested in either diversifying their portfolios with more ethical investments or those seeking more knowledge on refining their business plans to attract this type of investment. For more information on the session, click here.