Chapter 1 introduced the concept of a systems framework as an enhanced and more effective mental model with which to understand the complexities present in the world and specifically in business today. The notion of sustainability was introduced, and was then further developed and tied into the systems perspective in Chapter 2, providing a foundation for illustrating how these related concepts are creating a shift in the world of global commerce. This chapter delves deeper into the three aspects of sustainability, the economic, social, and environmental, and their impact on commerce. It starts with a look at how conceptions of wealth are related to both systems and business.
Examining Economic Assumptions
Does Growth Benefit Everyone?
The media feature stories about “the economic system,” but the understanding of it changes when viewed through a systems lens. The predominant current view of the economy is that it operates by rules that are well understood, and that policy makers and economists manipulate the variables within those rules for everyone’s benefit. That view also assumes that the economic system’s purpose is to continue to grow at as fast a rate as feasible in order to create wealth for all, summed up in that aphorism, “a rising tide lifts all boats.” However, since the income gap has been steadily increasing rather than decreasing, this assumption must be called into question.1
Evaluating that assumption more deeply leads to some problems. As management expert Henry Mintzberg and colleagues point out, a rising tide does not rise forever, and boats that are moored will be inundated, as will everything in low lying areas.2 When a tide has risen above normal levels it becomes a flood; when it cycles out, ruin is left in its wake.
With an indefinitely rising tide—equivalent in this metaphor to unceasing economic growth—only those who have made it to the highest elevations are safe. A sad and ironic parallel is that climate-change-induced rising sea levels may be imperiling the most vulnerable populations residing in coastal areas, amounting to 10% of the world’s population—and some predictions include impacts to coastal cities in the United States.3
One significant difference between the standard conceptualization and a systems perspective on the economic system is a system/subsystem hierarchy. Business experts, scientists, and even economists are realizing the flaws in positioning the economy as the bigger and more important system within which people and the natural world exist (see Figure 1.1 in Chapter 1). As economic progress has fueled progress in lifespan and quality of life, as discussed in previous chapters, these measures are somewhat lopsided and come at a cost to people and other planetary life. Table 3.1 offers some useful distinctions between current assumptions and systems assumptions of economic components.
Table 3.1. Economic Assumptions
Component |
Current assumption |
Systems assumption |
Breadth of benefit |
Unceasing growth benefits everyone |
Unceasing growth benefits a small segment |
Individual as |
Economic (rational) man |
Using both emotion and logic |
Goal |
Limitless growth |
Prosperity for society and ecosystems |
Resources |
Substitutability of monetary and human capital for nature |
Losses in nature cannot be made up for by monetary gains |
Depth of benefit |
Progress measured by single quantitative monetary gain |
Progress measured by multiple qualitative gains (employment, literacy, life expectancy) |
The Myth of the Economic Man
Another component of economic theory that begs re-examination is the view of “economic man” as a rational decision maker.4 The marketing department of any firm is a testament to the fact that consumers do not depend exclusively or dependably on rationality in making purchasing decisions. While people use a combination of logic and emotion, the former is clearly not the basis for most choices.
The economic man theory also does not account for values or inclinations other than self-interest. Examples of greed may abound, yet the growing push toward CSR and corporate citizenship, as well as the rise of social entrepreneurship are a few examples of evidence that belie the notion that self-interest is the only guide for every person and in any economic transaction. The theory recognizes the individual, but fails to account for the fact that commerce (and life) is inherently and fundamentally social and built on trust. Competition is a strong driver of all life, and humans are no exception, but cooperation is just as elemental. Without it there would not be families, communities, corporations, or nation states.
The Myth of Limitless Growth and its Sustainability Implications
Assessing the assumption of unbounded economic growth from a resource perspective leads fairly quickly to the realization of its flaws. The planet’s resources are finite, and economic growth is not possible without continued supplies of resources. Of course, one business opportunity exists in radically improving resource efficiencies, and this is slowly happening. There are two constraints on eco-efficiencies, though. The first is a growing population, and the second is the rebound effect.
The rebound effect is a response to technological and income improvements that minimize the benefit of resource efficiencies. Homes have become larger, from a median size of 1500 square feet in the 1960s to about 2200 square feet during the period 2004 to 2009 in the United States of America.5
The number of homes with air conditioning has increased from 56% in 1978 to 72% in 1997, and the percentage of homes cooled with central air increased from 23% to 47%. People have been using their air conditioners more often, too. Even as efficiencies in new air conditioners improved in that time by 20%, household electricity usage for air conditioning rose by 35%. Larger homes with bigger rooms cooled by central units meant that more space was cooled, leading to higher energy use.6
As income and living standards in developing countries improve, more people are building homes, buying cars and appliances, and the rate of use of resources and energy continues to climb. That doesn’t mean resource efficiencies should not be pursued—indeed, they need to be, vigorously and expeditiously. What it does mean is that resource use has continued to grow despite efficiency technologies.
One model that revises economic theory is called Natural Capitalism.7 In this model, all economic activity is informed by four principles: radical resource productivity, biomimicry, a service and flow economy, and investing in natural capital.
- The radical restructuring of resource use, tripling and quadrupling efficiencies, lowers resource extraction and waste pollution, and has the potential to spread resources and employment more widely.
- Biomimicry refers to a revision of the current “take—make— waste” scenario of resource use to “borrow—use—return,” echoing natural processes and reducing toxicity.
- Transition to economic activity that enhances quality of human well-being versus a current prioritization of quantity can be achieved by increasing the delivery of services instead of products.
- Jobs can be created, human well-being advanced, resources replenished, and the future made more secure by investing in sustaining and restoring natural capital.
Innovations in technology may alleviate some current constraints, yet many resources and ecosystem services are not substitutable through technology, at least, not yet. Stable weather patterns, fresh water supplies, and arable soils that produce foodstuffs or forage for livestock are the bare minimum for survival, and studies indicate they are all in jeopardy.
Living systems cycle air, water, and nutrients. The health of these systems is declining. Biodiversity, which provides ecosystem resilience, has evolved over hundreds of thousands, and millions of years. Such complex systems, which are not yet fully understood, are not replaceable within a few decades. The risk in upsetting this delicately balanced set of arrangements is immense, and its ramifications will likely affect everyone, everywhere.
A frequently used business aphorism originally uttered by John F. Kennedy, and echoed by Nixon, Gore, and others over the years, speaks especially to the current wind of change toward sustainability: “When written in Chinese the word crisis is composed of two characters. One represents danger, and the other represents opportunity.”8 While this interpretation of the Chinese symbol has been challenged, the concept of equating risk with opportunity has established roots in commerce. Social and environmental change will have an impact on your company, if it has not already. What strategic objective could be more compelling and urgent than addressing the risks and opportunities created by these circumstances?
The Myth of Externalization
The biosphere, then, might be thought of as the envelope within which all social and economic activity occurs. That doesn’t mean the environment is prioritized above them, only that social and economic processes and policies must be aligned with the viability of global, regional, and local ecosystems rather than disregard them. The aim of the economic system and its subsystem of industry cannot work at cross-purposes to the larger biospheric system on which it depends. Similarly, economic and environmental processes and policies will not work in the long run if they operate at odds with social health.
The term that is used to identify the disconnect between economic prioritization and social and ecological viability is “negative externalization.” The term refers to the costs associated with economic activity that are externalized, or not accounted for by the firm in their operating costs or price structure, but instead imposed, knowingly or unknowingly on parties who have not agreed to these costs. These are the costs mentioned earlier, such as public safety hazards, pollution, and resource depletion.
A number of these costs have started coming back to roost:
- In the late 1980s, Exxon made headlines with the Exxon Valdez oil spill, costing the firm over $3 billion in cleanup costs, fines, and compensation.
- The costs to BP for the 2010 Deepwater Horizon spill are likely to dwarf that.
- Nike experienced a scandal over child labor and sweatshop suppliers in the 1990s, damaging its global reputation, motivating it to improve its practices, and attend to these and other labor issues in their supply chain. They are still working through these problems more than 20 years later.
- In 2012, Apple had its “Nike Moment” incurring a prolonged spate of negative publicity over the labor practices of one of their suppliers, Foxconn, one of the world’s largest electronics parts suppliers. Forced overtime, underpayment of wages, manufacturing health hazards, and safety issues were among the problems cited.
Methods to work GHG emissions into commerce, such as a cap and trade scheme or a carbon tax, have not yet been successful but many experts believe it is only a matter of time before the capture of these costs into business operations is mandated.
Some of these errors in assumptions, discussed above, may already be obvious. That still doesn’t make the adoption of sustainability practices less daunting, especially with a number of myths circulating about CSR and sustainability business efforts. This next section debunks a number of those falsehoods.
Top CSR/Sustainability Myths
“It’s Expensive”
Actually, the opposite is most often true. Much of the low-hanging fruit of sustainability initiatives ties directly to expense reduction. Reducing energy costs through improving efficiencies in heating, air conditioning, lighting, transportation fuel costs, and manufacturing processes adds to the bottom line. Retooling production to minimize inputs and maximize resource use lowers the cost of raw materials. Recycling, reuse, and other waste diversion techniques lessen disposal costs. Engaging employees in sustainability efforts increases their engagement in the firm, and enhances attraction and retention, improving productivity and reducing turnover costs.
“It’s Too Intangible”
There are a host of quantifiable metrics, as mentioned in the paragraph above. Even so, there are those intangibles, but just about every firm values competitive advantage, brand image, and reputation, and these are intangibles that must be managed. One way to manage them is to find relevant ways to measure, baseline, and monitor them. Practices toward sustainability can be, and often are, designed to do exactly that. Customer and employee surveys and market research designed to capture such information can identify trends, as well as the some of the specifics responsible for the change.
“We Have Other Strategic Objectives to Attend to”
It’s likely that sustainability initiatives will help you achieve your objectives and may directly tie in to key performance indicators. In essence, incorporating sustainability practices into your business operations and, further, into your business model, is about seizing opportunities and lowering risks. As will be discussed in the next section, these practices aren’t about add-ons but about doing things differently, and better, with quantifiable results.
Building Sustainability into Business Processes
As many forces are driving the internalization of costs that were previously externalized, firms are finding ways to integrate them, while lowering costs, reducing risks, or both, through shifts in business processes. In May 2012, Microsoft announced a commitment to achieving carbon neutrality in their energy use; this means a net zero contribution of GHGs for the energy use of their operations in over 100 countries.9 To achieve this goal, they are implementing an incentive, a carbon fee chargeback that will be assessed to each business unit in addition to their energy costs. Improving efficiency, incorporating renewable energy, and retrofitting buildings are among the strategies that will be used.
Around that same time, Whole Foods became the first major North American retail food chain to sell only seafood harvested in a sustainable manner. The fraudulent mislabeling of seafood by some distributors was reported earlier in the year, documenting through DNA analysis that the majority of types of fish purchased from restaurants, sushi bars, and grocery stores for the study were not accurately labeled.10 Whole Foods, however, recognized their risks and worked with the Marine Stewardship Council to participate in its Certified Sustainable Seafood program.11 The food retailer sources its seafood directly from fishing companies and processes it themselves, thereby making it easier to track and verify the source and species of the seafood it offers. This strategy results in no net negative impact, by their own company, on the future supply of their product.
The Peabody Hotel chain has recently added post-consumer food waste to their organic waste composting program, which was already removing tens of tons of pre-consumer food waste from their waste stream.12 This relatively small-scale program is an example of investment in restoring natural resources, in this case, soil.
Building incentive into pay, from the front-line employee to the CEO, is one of the process strategies that Intel uses to motivate toward their sustainability initiatives through a bonus plan that links those bonuses to operational goals. Such a strategy serves to link economic benefit for the company to corporate action to reduce the firm’s environmental and indirect public safety impact while also tying in to the economic health and engagement level of all employees.
Building Sustainability into Business Models
There is no best way to incorporate practices promoting sustainability into a firm. Every business can increase efficiencies, reduce waste and expense, and innovate its operations. Where the sustainability muscle really meets the bone, though, is through re-examining a company’s business model so as to integrate sustainability into all processes, rather than as an add-on afterthought.
Most companies can push sustainability further down into their operations so that it is evident in their business model. Interface, a carpet manufacturer, is an often cited exemplar. The firm was started in 1973 with the idea to offer an improvement on broadloom carpeting: free laying replaceable modular carpet tile.
Interface’s founder, Ray Anderson, “got green” in 1994 after reading Paul Hawken’s The Ecology of Commerce, and made sustainability a strategic priority.13 In addition to reworking, over time, all of their processes so as to achieve a net zero negative environmental impact by 2020, they also segued from a product business model to a service business model. Instead of selling carpet outright, their commercial division leases it to their customers. When its useful life is over, the carpet is returned to Interface for recycling, removing it from the waste stream.
Cat Reman, the parts division of Caterpillar, charges a deposit as an incentive for customers to return equipment for remanufacture. A number of utilities are changing their business model from selling energy units to providing energy services. Zipcar, a car-sharing model, reduces the need for car ownership or rentals, also eliminating the resources used in the making of what might otherwise be privately owned vehicles.
Business model change might be in the area of value proposition, such as the way revenue is generated, how segments are targeted, or the type of products and services that are offered. Changed models might, instead, or in addition, be based on operating models: retooling the cost and asset model, reconfiguring the value chain, or deploying organizational change strategies to drive competitive advantage.14
There are other means beyond a reworking of existing policies, processes, structures, and operations. Some companies have gone further in integrating sustainability into commerce. Social enterprise organizations are organized around providing commercial answers to social issues.15 Benefit corporations, known as B Corporations, solve environmental social problems by committing to higher legal accountability standards, meeting comprehensive and transparent environmental, governance, and social standards, and support public policies by building a supportive business constituency.16 See Chapter 5 for more on these forms of enterprise.
Patagonia, the outdoor clothing company and a certified B Corporation, is frequently mentioned as a leader in sustainability practices. Among the first to offer organic cotton in their clothing, even going so far to work with their suppliers in this effort, they have integrated many other practices into their supply, manufacturing, distribution, and administration. They have designed policies to reduce raw material use, toxic waste and energy use, cooperate with regional conservation efforts, and even educate consumers. They have even initiated a “buy less” promotional campaign that features a partner agreement with eBay that provides an internet portal so that customers may sell their used clothing. As radical as this appears, they still expect to maintain financial health by raising prices, selling products to a wider sustainability-oriented consumer base, and expanding into new categories.
Environmental Qualities of Sustainability
There is progress at building momentum around sustainability on the micro level. More companies are issuing sustainability reports, consumers are becoming more aware and educated about sustainable consumption strategies, and governments are starting to develop sustainability departments. Yet, on the macro level, just about all the indicators continue to go the wrong way: GHG emissions, deforestation, soil loss, species extinctions, and energy and water use continue to climb. As serious as these problems are, and they are the most urgent and important issues of our time, all of them harbor a host of possible profitable ventures with massive payoffs.
Air
Of course, air itself is abundant, but clean air is another matter. The ramification of particulates in the air from sources of pollution includes health impacts, alteration of rainfall patterns, reduced visibility, and reduction of sunlight. The WHO reported in 2011 that the air quality of a great majority of urban areas around the globe exceeds their recommended guidelines. The WHO’s research estimates that deaths worldwide due to breathing particulate matter are over 2 million each year.
Coal plants are certainly not the only culprits: industrial processes and transport, as well as personal transport and biomass burning for cooking and heating use, along with biomass burning for agricultural purposes contribute to the decline in air quality. The loss of human life is compounded by the economic cost of related health expenditures (estimated to be in billions of dollars in Europe alone).17
Ensuring clean air for use in business operations, particularly in and near urban areas, is getting harder to accomplish. Even if vigorous steps are taken, firms are at risk of increased expenses, and not only for facilities management to filter air or fleet management costs to reduce exhaust emissions. Health and insurance costs are likely to increase, while at the same time employee productivity may decline from respiratory ailments. Insurers are likely to begin requiring their policyholders to address these issues or face steeply rising premiums or policy cancellations.
Technologies and processes to reduce particulate matter during combustion, radically increase efficiency of fuels, and to scrub emissions are among the opportunities in this sphere.
Water
With over 70% of the earth’s surface covered by water, you would reasonably think that there is more than enough to go around, but only 2.5% is fresh water. Of all water resources, 97.5% is contained in the oceans. It would be great if climate-change-related sea level rise could be resolved by using more ocean water, but the amount of energy and the expense in desalinization has historically prohibited its widespread use. The search for more efficient and affordable desalinization processes is growing and represents a huge business opportunity, especially as meteorological forecasts predict more frequent and widespread drought, notably in areas that are already arid.18
How critical are fresh water supplies to your firm? Consider the risks it would face through an extended drought-induced water shortage, such as occurred in China, East Africa, and areas of the United States in 2011 and throughout the U.S. Midwest, Russia, and the Ukraine in 2012. While agricultural firms and utilities are among those most obviously at risk, manufacturing and operational processes are likely to face higher costs and constraints on water use.
Wastewater represents both a management problem and a solution to fresh water resource constraints. The treatment of wastewater for reclaimed use is becoming more widespread, particularly as drier conditions prompt water utilities, cities, and municipalities to take action to reduce risks to the public water supply. Businesses that provide products and services related to water conservation and reclamation practices and technologies that hold promise to increase efficiencies have a variety of markets they might operate in, from the utility and local government level, to business clients, and to consumers.
Soil
The thin crust of soil that sits atop the surface of landmasses may seem like just dirt, but it provides the nutrition, anchoring, and moisture crucial for plants, upon which all life, including human, depends. Like a skin covering the earth, it creates a boundary that also absorbs and breaks down compounds in air, water, plant material, and minerals. Aside from its service as the source from which all nutrition is derived, soil performs another function: it sequesters carbon from the atmosphere, which is then taken up by plants. The skin peeled off one quarter of a quarter (1/16) of an apple would approximate the comparative percentage of earth that comprises soil.
Soil erosion is a natural process caused by wind and water, but clear-cutting, mountaintop removal, modern agricultural tillage practices, land development, and other human influences have accelerated soil loss. The term for the result of soil loss, rendering land unable to hold moisture, provide nutrients, and create a stable base for plant life, is “desertification.” Close to three quarters of the world’s rangelands have been degraded by desertification, and over the last 20 years the amount of soil that eroded amounted to enough to cover the entire cropland of the United States.19 It takes 1000 years for one inch of soil to form, but only seconds for it to be eroded.
Fortunately, there are many techniques for conserving soil: tilling, cover-cropping, and land contouring practices, selective cutting, amendment of soil with organic matter, permacultural practices, and smarter land development, are among them. They are not yet widely practiced, however, so there is room for substantial growth possibilities for providers of services and products that conserve or prevent the erosion of soil.
Oceans
Fisheries provide about 16% of the world’s animal protein, with higher percentages in industrialized nations.20 As climate change is predicted to impact agriculture negatively in many locations, dependence on fisheries may grow in importance. Seafood is currently harvested at a rate that has resulted in the decline of 13 of the 15 major global fisheries, with a steadily declining catch, in spite of one-third of fish stocks being fully or overexploited. In the process of obtaining seafood, over one-third of the total amount caught is bycatch, or sea life that is thrown back, increasing the mortality of other ocean creatures that are potential future food stocks, and reducing ocean diversity and resilience.
Pollutants and waste from industry and human consumption, and rising acidity levels due to dissolved carbon dioxide and declining oxygen levels due to increased temperatures have been documented as profound threats to ocean life.21 Phytoplankton in the oceans generate fully half of all oxygen in the atmosphere, and are the base of the food chain for most of the fish consumed, as well as much other marine life. But the population of phytoplankton has dropped by 40% in the last 60 years.22
The fishing, seafood, and tourism industries have already felt sharp impacts from these developments, but all businesses will have to contend with the effects of lower oxygen levels and higher carbon dioxide levels in the atmosphere as well as the oceans. Already three U.S. states, California, New York, and Washington State, had begun to mandate that insurers disclose climate-change response risks and plans. Insurance companies not yet requiring their policy holders to address climate-change risk and action plans are likely to soon begin doing so.
As with all problems, opportunities abound. Services and products that aim to increase the health and future output of fisheries, that reduce bycatch, that find and market other types of marine products, and that monitor and measure factors affecting ocean health are business gaps in the current future of this resource.
Another influence upon the oceans that impacts human economic (and all other) activity is its contribution to weather. Research shows that changes in temperature influence surface and deep ocean currents, which then influence atmospheric air and precipitation patterns, leading to short- and long-term weather changes. See Climate, below, for more on this connection.
Climate
One or two hot spells do not equal climate change. Weather extremes can and do happen from year to year across the globe. Climate change is judged on more rigorous and extended observations. Meteorologists have, unfortunately, come to that conclusion, based on the increase in frequency and severity of extreme weather events. Tornadic activity, droughts, floods, and heat waves, as well as the incidence of disease among human and livestock populations, and insect infestation impacting agricultural output are causing steep increases in economic losses, not to mention human suffering.23
Added to the risks mentioned in the discussions of other resources above, the effects of climate change hold the greatest potential for infrastructure breakdown, regional and national economic blows, and social upheaval. There is, arguably, the largest window of opportunity for businesses that provide services and products for governments, businesses, and individuals to mitigate and adapt to climate change.
Biodiversity
The number and range of life-forms, including animals, plants, and microorganisms on earth is estimated to be over 100 million, yet 91% of marine species and 86% of land species have yet to be discovered and identified, according to the journal Nature.24 Biodiversity is important for many reasons, the broadest being the ability to rebound after damaging impacts. A diverse biological environment provides ecosystem, biological, and social services. The smaller species aid in soil formation, nutrient recycling and storage, breakdown and absorption of pollutants, and water cleansing, among other services.
The fishing industry offers an extensive range of materials and food stocks, each of which needs a wide enough genetic diversity to keep its populations viable. As some of these resources are being depleted, their gene pools are shrinking, leaving stocks that are more vulnerable to diseases and other environmental pressures that could, and apparently are, causing their numbers to crash. A research study in 2011 that concluded that species extinction rates are overestimated still cautioned that species extinction was a very real and present threat that required attention, and that was likely to accelerate quickly.25
Extinctions represent not only the loss of a life-form that has been millions of years in the making, but fit into an environmental niche that is largely not yet understood. Without that understanding it is impossible to know how significant those losses are, nor how severely the losses will affect the vigor of the systems within which they are interdependent. Due to the complexity of biospheric systems, science is as yet, and perhaps will never be, able to understand no less replicate or replace these losses. Even if the costs could be calculated, they are likely to be incredibly expensive due to the interdependent nature of ecosystems and their subsystems.
Here, too, there are many places for commerce to intervene. Ventures such as ecotourism, organic agriculture, and sustainably harvested timber are already experiencing growth despite a shrinkage in overall global economic vitality. Mitigation and monitoring services, technical services, innovative financing, and bioprospecting are other avenues for growth.
While the threats to environmental health are serious and numerous, businesses are in the best position to address them. Firms that ignore these perils set themselves at a competitive disadvantage both in the short term and in regard to their longevity.
Economy and Social Sustainability: Conceptions of Wealth
Recalling a point made earlier, when employing a systems perspective, it is crucial that any subsystem operates within its enveloping system’s purposes and constraints. Stepping back from commerce to take a broader view, this section examines the economic system within which it functions. Noted American economist and Columbia University professor Joseph Stiglitz said about the purpose of the economy: “It’s not to produce GDP. Let me make that clear. The purpose of an economy is not producing GDP. It’s increasing the welfare of citizens, and it’s increasing the welfare of most citizens.”26
The global economic system is currently premised on material wealth. The concept of wealth is typically considered to be a state of economic abundance. But there are other aspects to wealth, aspects that actually describe why people seek to accumulate it in financial form. Aside from providing for basic needs, financial wealth may—but not always does— afford an acceptable state of health, an adequate sense of security, access to education, a satisfying family and social life, involvement and voice in one’s community, and sense of purpose. In a broader sense, financial wealth is pursued because it is believed to increase levels of freedom and happiness.
For those in the developed world, beyond a moderate level of wealth, additional income and added material comfort do not necessarily equate with positive feelings. A large multinational study, surveying over 130,000 individuals in 132 countries, evaluated income against a set of measures of well-being. Although income was related to life evaluation, it was not related to positive and negative feelings of social psychological prosperity.27
Other studies have shown that even with rising incomes, measured by real gross domestic product (GDP), happiness levels within most countries, including the United States, have remained flat over a period of decades. Well-being increases significantly at lower income levels, but greater and greater levels of income do little to improve well-being.28
Research has also been conducted to evaluate measures of well-being with material flows. One such study measured human well-being as life expectancy, flows of physical capital as GDP per capita, flows of natural capital as the ecological footprint, and human capital as education. This study assessed data from 135 countries and found that human well-being was not increased through the exploitation of environmental capital (consumption).29
Consumer spending is the largest component of GDP, although it also measures net exports, government spending, and investments. As a metric for gauging national economic health, it reduces monetary activity to a simple quantitative answer, separating it from, and potentially leading to conflict with, the larger system within which it operates.
Enterprise at the Base of the Pyramid
As confusing as the statistics are, while the global middle class is mushrooming it is also estimated that half of the world’s population lives on less than $2.50 per day and over 80% live on less than $10 per day. The number of children worldwide living in poverty represents one of every two children on earth. The ratio of those in wealth to those in poverty has steadily increased from 1 in 11 in 1913 to 1 in 35 in 1950 and to 1 in 72 by 1992.30 As sobering as these facts are, they point to some of the enterprise activities being recognized and mined by savvy business organizations.
The bottom of the market is known as base-of-the-pyramid (BOP), meaning that it occupies the lower end of a figurative socioeconomic pyramid. Businesses designed to reach acceptable commercial rates of return and scalability are providing basic services such as access to water, education, and healthcare, sometimes partnering with government agencies or NGOs. Organizations such as Grameen Bank, a for-profit antipoverty bank, and Sanasa Development Bank are among a growing slate of microfinance institutions serving this market.31 Those in the BOP also represent a pool of largely untapped entrepreneurial talent, labor, productivity, and innovative distribution systems.
The private sector has barely explored the BOP to date, apparently having decided that this market is not lucrative enough, or perhaps too risky, and leaving it to development organizations to address. Some needs being filled at the BOP by enterprises are rural electrification, health and medical products and services, water extraction and purification, food production, communications, transportation, and housing.
Chapter Summary: Key Takeaways
This chapter delved deeper into the TBL aspects of sustainability, employing a systemic perspective to explore existing economic, environmental, and social circumstances. It began by reviewing evidence, or the lack of evidence, supporting a number of economic assumptions, which are based on a worldview that is less sufficient in explaining facts, and for which a systemic explanation and the long view of sustainability make a lot more sense.
These flawed assumptions include that growth benefits everyone, that people make decisions rationally and only for their own benefit, that unceasing continual growth is possible, and that costs for business impacts not directly incurred by a firm are outside their responsibility.
Instead, research shows that growth benefits few, and that it fuels growing income inequity, that emotion drives decision making as much or more than logic and cooperation is as potent a force as competition, that constrained resources are forcing disruptive innovation in business, and that commercial interests can no longer externalize their impacts on society and the natural environment.
Similarly debunked were commonly held assumptions about CSR and sustainability in the business context; that it’s too expensive, too intangible, and not important enough to pursue. Sustainability efforts can and often do lower expenses, are tied to solid metrics, and will boost any short- and long-term strategic plans.
In the global context, sustainability must address well-researched and documented crises within the environment and society. Industry is among the most significant drivers of the degradation of air, water, soil, oceans, climate, and biodiversity, all vital natural capital at considerable risk of becoming ever more scarce, expensive, and insecure.
At the same time, these problems offer solutions for enterprises to address a subject covered further in the next chapter. A systemic examination of the social side of sustainability reveals that economic and environmental issues are related to issues of poverty: access to clean water, food, energy, education, healthcare, and livelihoods are all areas around which enterprises can build new businesses and models.