Can sustainable business really save the world?

Time is running out to decarbonise the world’s economies. Can the business world respond in time? Eco-Business asks the two leaders of the World Business Council for Sustainable Development, Peter Bakker and Olam boss Sunny Verghese, if sustainable capitalism can avert planetary disaster.

Sunrise behind Perth's central business district
Sunrise behind Perth's central business district. Can businesses reverse climate change? Image: doigstar1, CC BY-NC-ND 2.0

The origins of the World Business Council for Sustainable Development (WBCSD), an organisation of big business leaders designed to set the corporate world on the path to sustainability, were born in the wake of the Rio Earth Summit in 1992. 

The council, formed in 1995 and whose members include multinational goliaths DuPont, Nestlé, BP, and Danone, works towards achieving sustainability ambitions that emerged after the Paris Agreement in 2015for which the Rio Summit laid the foundations 23 years priorthe United Nations’ Sustainable Development Goals (SDGs).

However, nearly three decades after Rio, carbon emissions show no signs of falling, global temperatures continue to set records, and the very existence of life on Earth is under threat as ecosystems wane under pressure from a human population expected to hit 8.6 billion by 2030the target year for the SDGs, and the deadline the Intergovernmental Panel on Climate Change (IPCC) has given humanity to decarbonise or face the worst consequences of climate change.

So can big business be trusted to help secure our future? Is there such a thing as sustainable capitalism? Or is it something of an oxymoron?

It is the responsibility of two men to convince the world otherwise. 

One is Peter Bakker, who led global logistics giant TNT for a decade and is now president and chief executive of WBCSD. The other is Sunny Verghese, CEO of agribusiness giant Olam, who was appointed WBCSD’s chairman in 2018, following in the footsteps of the likes of the former BP boss Rodney Chase, Shell’s Sir Philip Watts and Unilever’s recently departed sustainable business pin-up Paul Polman.

WBCSD chairman Sunny Verghese and president Peter Bakker

Sunny Verghese and Peter Bakker at Olam’s headquarters in Singapore. Image: Eco-Business

In this interview with Eco-Business, Bakker and Verghese talk about how capitalism can be transformed into a force for good, the impact of global climate movements such as Extinction Rebellion and Climate Strike in company boardrooms, and their hopes and fears for the future of our planet.

Sustainable capitalism is not an oxymoron, and the notion that you cannot pursue profit and purpose is a false debate. 

Sunny Verghese, chairman, World Business Council for Sustainable Development and CEO, Olam

All companies are talking about sustainability noweven in Asia. But as carbon emissions show no sign of falling, is sustainable business merely all talk, Sunny?

Verghese: The consciousness and sensibility around sustainability is clearly changing in Asia, not only within companies but with individuals and society as a whole. But it is sobering to see Asia’s progress report on the SDGs. Four years into their implementation, the region is not on track to achieve any of the Goals. The only one where Asia is doing relatively well is Quality Education. 

Another cause for concern is that last year, Asia raised just US$605 million in sustainability loans. This compares to US$4.9 billion in the US and US$15.8 billion in Europe. So while things are changing in Asia, there’s a lot of catching up to do.

What do you see as the drivers of change for sustainable business in Asia, Sunny?

Verghese: The first stems from millennials. We are looking to attract young talent, and young people want to join a company where they can make a difference and feel inspired that their employer is doing the right thing.

The second push comes from investors. Most large funds use ESG [environmental, social and governance] criteria to determine whether they’re making the right investments in the right companies.

The third is customers. They are asking suppliers like us to provide raw materials that are sustainably sourced, because their consumers are asking them about the sustainability story behind their products and services.

The final trigger is competition. Many brands now want to become more sustainable, so there is competition to drive more companies to raise their games.

Capitalism is broken. Sustainable capitalism is the right vision, but we’ve not been bold enough at realising it.

Peter Bakker, president and CEO, World Business Council for Sustainable Development

What’s your view on the impact of sustainable business in Asia, Peter?

Bakker: In Asia just 3 years ago, the sustainability conversation was stuck at the corporate social responsibility and philanthropy level. Now it’s changed completely to: how do we integrate sustainability into the core of our business?

The global mood is rapidly changing. With big companies like Olam it takes a long time for an idea to turn into a strategy, and to embed sustainability into operations—and we are running out of time.

The “governance” in ESG is going to be critical. Soon it will be the fiduciary duty of boards to not only manage their financials well. They won’t succeed if they continue to wreck the environment or disregard the social tensions that are now everywhere as a result of the climate crisis.

Sustainability is no longer a matter of taking care of the environment to please millennials. It’s now a cost of capital issue. Your supply chain won’t be secure if we fail to respond. When the River Rhine almost dried up last year, [German chemicals giant] BASF shut down plants and issued a profit warning.

We need the environmental and social footprints of companies to be integrated into capital markets. There are CEOs like Sunny Verghese and Paul Polman who get it. But unless these firms attract a premium in the stock market, there won’t be more Sunnys or Paulsbecause there’s no incentive.

Eco-Business’ Zafirah Zein recently wrote that there is no such thing as sustainable capitalism, which she argued is merely a rebranding of capitalism in the pursuit of continued growth. Sunny, how do you respond to the idea that sustainable capitalism is an oxymoron?

Verghese: I don’t think sustainable capitalism is an oxymoron, and the notion that you cannot pursue profit and purpose is a false debate. You can do both. It’s a question of how you create sustainable strategic assets that drive long term value.

Our current financial system is focused on measuring economic and financial capital, true. But a lot of the value we create for our organisation [Olam] comes from building multiple sources of capital beyond the financial and economic. 

Take human capital. What’s the value of having more inspired or engaged employees? Or lower attrition rates? They’re difficult to measure. You spend millions of dollars on training and development programmes, but nobody is able to measure the result of that investment. All you see in your P&L is the cost of training and development, which reduces your profitability. But you’re driving long-term value.

Same thing with social capital. The capital you create from building relationships with all sorts of stakeholders—at Olam, we have nine stakeholder groups, including NGOs—drives long term value.

And natural capital. How we conserve or regenerate an ecosystem where we’re producing will create natural capital, which helps us over the long term.

But is the market willing or mature enough to reward companies that are more sustainable, and therefore have lower ESG risk? 

Look at what happened in the tech space. People started losing faith in the approach to privacy of a company, and its capital value fell. The market determined that the company was a high ESG risk, and it would be difficult for it to protect and grow existing cash flows. 

This is happening across the economy. And it’s beginning to get factored in when analysts, investors, asset managers and fund managers look at companies and establish what their ESG risk is.

The messaging from Extinction Rebellion is more powerful than any IPCC report. 

Peter Bakker

We raised US$500 million through a sustainability-linked loan 18 months ago—Asia’s first. The pricing on those bonds was based on us meeting 40 sustainability targets, verified by an external firm. Based on our performance, the banks lowered the cost of borrowing.

Peter, what are your thoughts on the viability of sustainable capitalism? 

Bakker: I think capitalism, as is, is broken. I think sustainable capitalism is the right vision, but we’ve not been bold enough at realising that vision. 

The idea of the environmental profit and loss statement (EP&L), where you calculate your externalities as a non-cash cost, was implemented by Puma in 2013 [and has led to a 15 per cent decrease in environmental impact in the years since, according to the German sportswear brand]. But since then, no other company of any significant size has published an EP&L. 

It’s not that we don’t know how to measure sustainability. There are plenty of companies that do. But none have publicly said: this is my footprint and this is what I need to fix.

The problem is, there are so many methodologies out there for measuring sustainability—GRI, SASBE, CDSD, the list goes on. The number of surveys a company like Olam will have to fill to satisfy stakeholders is totally out of hand. 

We need to see consolidation in the reporting space, fast. We need a simple, standardised understanding of what ESG is, and how to value it. Then make it mandatory, and force it into capital markets. 

A sustainable version of capitalism is probably the best model we have. We can all dream about totally new models, but that will take too long—and we don’t have the time.

Peter, what do you make of the mobilisation of civil disobedience movements like Extinction Rebellion and Climate Strike and their impact in the boardroom?

Bakker: I cannot go into any boardroom these days where Greta Thunberg is not discussed. The messaging from Extinction Rebellion is more powerful than any IPCC report I’ve seen. Although, to be fair, the recent 1.5 degrees IPCC report [released in October 2018] has had a strong impact globally. 

The antagonistic relationship between NGOs and companies has to fundamentally change. 

Sunny Verghese

The combination of more robust science and previously uninvolved voices—school kids and the highly educated Extinction Rebellion groups—are changing the conversation and demanding that all the old rules be thrown out. If the business world continues to say that it will take a while to change the accounting rules to make the shift to sustainable capitalism, these new groups will say that the place is on fire, and the rules have to change now.

Any business leader who presents any strategy will now be asked, what are you doing about the climate emergency? If they don’t have an answer, their strategy is simply not viable. 

Sunny, Olam has been targeted by green groups in the recent past over deforestation concerns. What’s your view on the relationship between non-government organisations (NGOs) and the business world?

Verghese: NGOs and companies have to work in partnership. The antagonistic relationship between NGOs and companies has to fundamentally change. 

After the report came out from Mighty Earth, we met regularly for updates on how we can address the issues in play. If NGOs are viewed [by companies] with suspicion, that they’re out to go you, then it will not work. And vice versa.

Peter, WBCSD has launched a number of initiatives recently, such as the Alliance to End Plastic Waste and Circular Metrics for businesses. What do you hope to achieve?

Bakker: When we started to look at circular economy, we were struck by the work that the Ellen MacArthur Foundation has done to raise awareness and find solutions to the plastic problem. But when we asked businesses what the circular economy means for, say, agriculture, textiles or the car industry, the answers were very light. Even the companies that have solutions do not measure their impact, and in their sustainability reports, there was no mention of how circular their business is.

So we created a Greenhouse Gas Protocol [WBCSD’s accounting tool for businesses to quantify and manage greenhouse gas emissions] for the circular economy. It’s more of a building block than a revolution. But if businesses want to go to the capital markets saying the circular economy is important, they need to integrate it into their cost of capital calculations and show how circular their business is. Circular Metrics is one way to do this.

I don’t deal in optimism or pessimism. It depends how jetlagged I am. 

Peter Bakker

The Alliance to End Plastic Waste is a platform of more than 40 companies with US$1.5 billion committed [to tackle the plastic crisis]. That money will go to building waste collection systems, river clean-ups and developing recycling technology. Given that a big part of the plastic pollution problem starts in Asia, the initial focus will be here. But we will eventually extend it to Europe and the US, where a lot of the world’s plastic waste originates.

What is particularly interesting about the Alliance to End Plastic Waste is the inclusion of a company like ExxonMobil, which is not exactly known to be a sustainability leader. Are you not concerned about the real intentions of a company like that?

Bakker: When we started talking to them, we had the same concerns. They told us that every company is on a journey, and some have progressed further than others. They said they wanted to be on this journey as well, and plastic is where they want to move the fastest. So we said, let’s test your appetite. They’re now one of the key members in the plastic waste alliance.

The good thing about an alliance like this is that no one company, not even one the size of Exxon, can dictate how it works. Our task is, we don’t just need the chemical companies. We need the buyers, the brands, the waste collectors—the whole value chain—to be at the table. Only then can we change the system.

Sunny, as a business person, how optimistic are you for the future of our planet?

Verghese: There’s a clear sense now that we face a climate emergency, and have a massive challenge ahead of us. It’s also clear that the sensibility of sustainability is more than a nice-to-have for businesses. Even people without natural environmental intelligence have realised that the climate crisis will manifest itself in our lifetimes.

Now the critical question is, what are we going to do about it, and how are we going to work together—because no one company can tackle a problem this big on its own. Unless we can answer that question decisively and clearly, we’re not going to make the changes we need to.

Peter, how hopeful are you about the future?

Bakker: In my job, I don’t deal in optimism or pessimism. It depends how jetlagged I am. 

The realisation that we’ve pushed ecosystems to the limit has finally come. Five years ago, I would walk into boardrooms and need to explain why I wanted to talk about climate change. Now I can just go in and say, ‘Dudes, we have 10 years to change the system, what are you doing about it?’ and no one calls me a hippie and throws me out of the room.

The bottom line is, if we don’t radically change in the next decade, there is no point in optimism, because we will have run of time.

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