World Business Council for Sustainable Development (WBCSD), an organisation led by heads of over 200 global businesses, studies ways to transition to sustainable development. Following a Vision 2050 report, Peter Bakker, President & CEO of WBCSD, spoke to Sanjiv Shankaran:
Just asking the engineers to find better technological solutions is not going to be good enough. Of mindset shifts, rethinking capitalism is by far the most important. If we can reinvent capitalism that will accelerate all other transformations.
What do we mean? Today, capitalism has become the optimisation of financial capital. If you’re a company, you invest money, you want a return on investment and you measure that in the cash flow or profit. But we know there are more capitals than just finance. There’s nature, people and money. This is not new thinking, the triple bottom line (profit, people and the planet). The mistake, in my mind, is underestimating the magnetic powers of the finance bottom line. That became the dominant factor in our economic thinking. Business should be held accountable, obviously, for its financial results. But it should equally be held accountable for its non-financial results. How do you do that?
First, every company must integrate into their financial risk management systems, the environmental and social risks. Covid was a great example, many supply chains got disrupted. Those type of risks are traditionally not captured in risk management systems. The second thing is how we make decisions that include these risks, or we see opportunities for new types of solutions and therefore can grow our business. The third thing business needs to do is transparently disclose its results. We do not yet all do that for non-financial information. We need to integrate ESG (environmental, social and governance) into the accounting rules. On my emissions or social impact, there are no accounting rules. I could publish what I like. That needs to become an accounting rule. Fourth step is what capital markets need to do. If and when companies start to disclose ESG performance in ways comparable to other companies around, then that will change capital allocation models, evaluation models that investors use to select one investment over another. If you get those four steps in place then you will have the true value. We need to move to capitalism of true value. Value that includes financial, natural and social performance. We need to differentiate between more sustainable companies by giving them a lower cost of capital. The minute we are there, you will see all capital will flow towards sustainability. Then the conversation about needing to transform will go away because it is the market that will drive it.
If the market’s going to drive it, last decade’s results haven’t been satisfactory. Why?
It’s true and it’s not true. A lot has happened: You look at the Paris Agreement, Sustainable Development Goals, look at what is happening in the accounting rules space, the amount of companies that have net zero carbon targets. Yet, collectively, we are nowhere near fast enough in the transition. The main reasons for that are it’s taken much longer for the urgency to be widely understood.
Covid has probably done three things. One, it has showed how interconnected all these things are. Secondly, it has shown how ill-prepared we are for these types of shocks. Thirdly, the pandemic has come to almost every doorstep. It has made it very personal. The fourth thing, the best scientists put their mind to it and within a year we begin to see solutions in terms of vaccines that work. This shows again that if a crisis is urgent enough, humanity is capable of a lot.
Everyone talks about climate change. What about materials waste, particularly electronic waste?
The vision we have identified is resource use optimised to meet society’s needs while allowing the systems that provide the resources to regenerate. This is the whole space where the economy is circular. Products should be circular by design. The flow of waste into the environment is ended and nature is restored. Those are the transitions we need.
We believe that after plastic, e-waste is the most pressing materials issue where circularity is needed. We have launched the e-waste alliance. It’s the fastest growing waste. Only 17% of e-waste is being collected. My hope is that the companies involved recognise they can’t wait as long as the plastic industry. Plastic has almost lost the battle now. The technology companies should avoid that moment. And we see them step up.
Do you see enough governments stepping up?
Not to the same degree as I see on the plastic issue. The World Circular Economy Forum is one of the main driving platforms for it. There they have good government involvement from a limited number. We should be able to grow the engagement.
Views expressed above are the author’s own.
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