Former Prime Minister of the Netherlands, Jan Peter Balkenende, has a question for all CEOs: What is your legacy?
This question helps business leaders reflect on their company’s contribution to society, he says, and forces them to consider whether their business is part of the solution to the world’s challenges — or the problem.
Speaking in a recent interview with Eco-Business in Singapore, the Erasmus University Rotterdam professor observes that in the past year, “attention from CEOs on issues around legacy, the values of a company, its purpose and its goals are increasing.”
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This is good news, he says, because it means businesses are evolving to define their success beyond traditional measures such as revenue.
Balkenende, who also chairs the Dutch Sustainable Growth Coalition — a group of eight Dutch multinational companies pursuing sustainability strategies — adds that companies today are more conscious than ever of their social responsibilities.
This is also reflected in the growing number of companies aligning themselves with the United Nations’ Sustainable Development Goals (SDGs), a set of development targets adopted by the international community.
“I think it is also necessary for companies to have an honest story,” he adds, noticing that the media is increasingly scrutinising businesses.
Professor Balknende, who in September was appointed a member of the supervisory board of Dutch bank ING, says this in turn has also impacted the finance sector. In this wide-ranging interview, he speaks about the progress of the Paris Agreement, mainstreaming sustainable business practices, and why the banking sector needs to change.
The last time we interviewed you was before the Paris Agreement was achieved. How do you think the world has progressed on this front?
I think we’ve made a lot of progress from the Copenhagen climate meeting in 2009. Now, countries are obliged to report every five years about their progress and that’s good because you have a way to help countries to cope and meet their targets.
But what differentiates the Paris Agreement is that the business sector was more highly involved, and awareness on climate issues has increased. Nobody can say ‘that’s none of my business’; I think people know something serious is happening. So I’m happy with the outcome of Paris and now it’s a matter of the right implementation.
I, of course, disagree with US President Donald Trump’s decision to withdraw but there are some 30 states in the US saying they are standing behind the agreement, and many US businesses doing the same.
The result of US saying they don’t want to be part of the game is that China will become more important. It was remarkable that shortly after that decision by Trump there was an agreement between China and the European Union on climate.
The other point is that the business sector plays a key role and I’m happy that many are aware of this and are thinking about how climate trends affect their company’s strategy and key performance indicators.
We cannot wait, we have to act, we already see that things in nature are occurring. The easy way is just to deny it but I don’t think that that is right. Nobody can deny that we have huge environmental issues. When you’re in Beijing for example, sometimes you cannot see the sky because it is just so polluted; our oceans are also being massively polluted with plastics… I can give you so many examples. We need to be doing the right things for society.
How do you think businesses have evolved in their thinking with regards to the United Nation’s Sustainable Development Goals (SDGs)? We can see some level of awareness, but is it being translated into actual action?
I think people are increasingly aware of the fact that we cannot go on with our current styles of production and consumption. We are using our planet too intensively… So the key question is – how can we act in a more responsible way? What about natural resources? How can we re-use materials?
We also need partnerships. There are government regulations but you need the cooperation of companies, and you need civil society organisations, so it’s a responsibility for everyone. This includes universities and schools. I think more can be done with education and the training of people. Sustainability, the SDGs, and circular economy… all these [concepts] should be part of the education curriculum in universities and in schools.
How do you appeal to CEOs so they consider their legacy and think about other considerations apart from profits?
There are two important elements regarding this issue of legacy—mindset and mainstream. Mindset has to do with asking the right questions: What is the goal of our business? Is making profit in short run the story?
And of course the core of businesses deliver services and goods, but there’s another quesiton: Why are we doing these things? How can we contribute to global challenges? What I have noticed increasingly is the question of values are becoming more important.
We’re starting to get many new discussions, for example, in the sphere of energy efficiency, renewables, reducing carbon emissions, human rights, inequality and job creation.
The other point is on mainstreaming - this should be the new normal and apply to all companies. We need new views, new insights, and this is an interesting time in which we are re-thinking business models, re-thinking universities, re-thinking research. So we need to have a meaningful debate about what we should do differently.
It’s not only in Asia, but we also have Anglo-Saxon tendencies in banking that’s still very traditional and focused on making profits in the short run.
This is the story that should change and I think also society expects something different from the financial sector.
Sustainable finance is a growing area in Singapore and in Asia. How can banks and financial institutions play a part in being responsible lenders to companies, so they reward them instead of irresponsible ones; and also in investing in projects that help achieve sustainability?
My conviction is that these new business practices are not only for companies that are producing goods - they are requally relevant for the financial sector. It would not be right for banks to say, let’s keep to our traditional ways of banking, while other companies are changing business models. You must balance what’s happening in the real economy and in the financial sector.
The same counts for insurance companies, they ask the same questions: What should we invest in? Even private equity companies are confronted with issues around stranded assets. In the entire financial sector, it’s very important that there is an awareness on these issues regarding sustainability, and it also requires new creativity, because this is not business as usual.
How do you get the Asian banks and institutions to think that way though; they are still very much stuck in the traditional banking mindset?
A banker here in Asia should ask him or herself: What is the future of my bank in this new world?
There are two components - financial risk, and financial opportunity. If you are investing in activities that will not lead to a return in investment, there is a risk of stranded assets. Mark Carney, the governor of the bank of England, has warned us of denying the risk of stranded assets; this is the reason you have to consider sustainability when making your investment decisions.
Then the second one is opportunities. This morning I gave a presentation and spoke about the circular economy. Ellen MacArthur, founder of the Ellen MacArthur Foundation, is known for her work in this area and for pointing out that there are so many economic opportunities to do things in another way that can lead to enormous economic advantages.
This is the positive side of sustainable business practices. So you have to be aware of the risk, but also you have to be aware of the opportunities.
It’s not only in Asia, but we also have Anglo-Saxon tendencies in banking that’s still very traditional and focused on making profits in the short run. This is the story that should change and I think also society expects something different from the financial sector.
We now expect companies to have a good sustainability policy, to do their utmost to reduce carbon dioxide emissions… these are the expectations of people so I think it is better to be proactive as a financial institution, than be reactive, because you’ll be too late.
Institutions like Singapore’s state investment firm Temasek has been communicating a lot on the SDGs recently. How do you think we can achieve a meaningful pace of transformation among companies? How can Singapore contribute?
I’ve had several talks with people doing business here in Singapore and they also are thinking about sustainability issues.
There are a lot of questions that should be on the agenda, that’s why I always focus on mindset. What does this mean for my business, what is the role of the board in the company, what does it mean for transparency?
This is the responsibility that people have and I think it’s doable. But you have to work on it, every day, and the good thing is that it is possible to combine doing good for society, and at the same moment, being profitable. And this is the challenge — to bring these things together.