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Published on: March 29, 2022, 12:57 p.m.
Saving our only world
  • 84.4 crore people globally are living without access to clean water, while a staggering 230 crore are without access to a decent toilet

By Dr. Shashank Shah. The author is Visiting scholar, ’17 Harvard Business School

On 13 September, 1970, Milton Friedman, wrote his celebrated article in the New York Times titled ‘The Social Responsibility of Business is to Increase its Profits’. Half a decade later, he was awarded the prestigious Nobel Prize in Economic Sciences. But his paradigm of ‘The business of business is business’ continued to dominate the corporate scenario for four decades. The doctrine of ‘shareholder primacy’ became the Mantra in Corporate America and inspired developing economies across the globe to align corporate priorities solely with profit-making.

So strong was the influence of the primacy of shareholder wealth maximisation in the corridors of leading American Corporations that nearly a quarter century later, in 1997, the Business Roundtable (BRT), an influential association of 200 leading CEOs of American Corporations defined the purpose of a corporation as: “The paramount duty of management and of boards of directors is to the corporation’s stockholders. The interests of other stakeholders are relevant as a derivative of the duty to stockholders.”

New purpose of corporation

Interestingly, in the last quarter of 2019, the BRT, announced a new purpose for the corporation, a 300-word statement that focuses on five key stakeholders that should be the priority of every American Corporation for the future success of companies, communities, and the country. These five stakeholders and corporations’ commitment to them include:

• Delivering value to customers

• Investing in employees

• Dealing fairly and ethically with suppliers

• Supporting the communities 

• Generating long-term value for shareholders

For those who closely follow management thought in the West, this is an unprecedented development. The dominant capitalist thought has mostly prioritised profits over purpose, people, or the planet. However, this new version by BRT aims at ‘promoting an economy that serves all Americans’. This did not happen overnight. The scenario of the fortunate few and the miserable many has been an increasingly dominant development across nations in the decades post World War II.

The phenomenal growth in the number and size of industrial enterprises at national and multinational levels brought to the fore contentious issues of environmental degradation and human inequities. In the form of ‘solutions’ came several international initiatives. An observer at the ILO, stated that 400 such codes and agreements exist across the world. Though the issues covered in them are similar, there are differences in language and focus due to the time, place, and circumstances under which they were proposed. The significant ones among these have been chronologically listed here. (See table).

Thus, multifarious policy documents have been proposed by countries across the globe focusing on how corporate organisations can and should be more inclusive in their business approach. 

Historical context

In fact, the notion that there is a limit for the total ‘carrying capacity’ of the earth is old. During the 19th century, Thomas Malthus formulated it with emphasis. The idea of sustainability was born from the confrontation of two trends of thought regarding global issues – one which claimed the priority of development, and another that claimed the safeguarding of environment. It was soon realised that sustainable development would not be possible without certain social and economic changes such as reduction in poverty levels and greater social equity between people and nations, and that environmental protection and economic development were complementary rather than antagonistic processes. 

 

Initiative/Agreement

Year / Period

1. UN Conference on the Human Environment

1972

2. The Cocoyoc Declaration

1974

3. The World Conservation Strategy

1980

4. The Global 2000 Report

1981

5. The Montreal Protocol

1987

6. World Business Council for Sustainable Development

1991

7. The Rio Earth Summit

1992

8. The UN Framework Convention on Climate Change

1992

9. The Caux Round Table: Principles of Business

1994

10. The Principles of Global Corporate Responsibility

1995

11. The Kyoto Protocol

1997

12. Social Accountability 8000 (SA 8000)

1998

13. Global Sullivan Principles

1999

14. Global Reporting Initiative (GRI)

1999

15. OECD Guidelines for Multinational Enterprises

2000

16. The Millennium Development Goals (MDGs)

2000

17. The UN Global Compact

2000

18. The Green Paper of the European Commission

2001

19. The World Summit on Sustainable Development

2002

20. Environmental Performance Index (EPI)

2002

21. Amsterdam Global Conferences on Sustainability and Transparency

2006-2013

22. UN Climate Change Conference (Copenhagen Summit)

2009

23. Guidelines for Social Responsibility – ISO 26000

2010

In the decade when Milton Friedman gave his call for ‘business of business is business’, scholars realised that development in the conventional sense could not be sustained for long, given the reckless consumption of non-renewable resources. So, they added an adjective to the already confused term of ‘development’ and termed it as ‘Sustainable Development’. After four decades, during which governments and multilateral institutions repeatedly underscored the need for corporations to espouse a new approach, corporate captains too started asking fundamental questions about how well ‘capitalism’ had served society at large.

Especially, post the 2008 financial crisis, which witnessed ‘privatisation of profits and socialisation of losses’. The ‘Occupy Wall Street’ Movement that grabbed global attention was an outcome of this inconvenient truth. In the same year, Bill Gates, while addressing the World Economic Forum at Davos, in his last year as Chairman of Microsoft, spoke of ‘Creative Capitalism’. This became a trend and was followed by a series of new versions of capitalism, with an innovative adjective. In 2013, John Mackey, then CEO of Whole Foods, co-authored a book ‘Conscious Capitalism’. In subsequent years, ‘Compassionate Capitalism’, ‘Inclusive Capitalism’, ‘Sustaining Capitalism’ and more terms emerged. Why was capitalism in need of an image makeover? Did it need a new definition for its continued existence? 

Unprecedented challenges

The scale and influence of corporations can be gauged from the fact that 72 of the 100 largest economies of the world in 2020 were corporations. Hence some of the most daunting challenges that the planet is collectively facing would remain unresolved without their proactive participation. Here is a sample of statistics across sectors:

• 84.4 crore people globally are living without access to clean water, while a staggering 230 crore are without access to a decent toilet.

• 77 crore people still live without access to electricity, primarily in Africa and parts of Asia. Despite positive developments, two-thirds of India’s rural population and two-fifths of its urban population face power outages at least once a day.

• Nearly 40 per cent of food produced in India gets wasted even before it reaches the consumer. In monetary terms, this amounts to a loss of Rs1 lakh crore. 

• Disparity in access to housing in India is visible when 1.3 crore households live in slums even as 1.1 crore houses remain vacant.

• Oil remains a major component of the global energy mix with global demand for oil at 92.8 million barrels/day. The automobile sector has been the primary guzzler of oil with nearly 480 crore cars on the road. If 100 per cent of the vehicles sold were electric starting today, it will still take 25 years to replace the entire fleet. Hence, according to IEA, demand for oil will plateau, not decline, by 2040. 

• Consequently, greenhouse gas concentrations are at their highest levels in 20 lakh years. NASA indicated that 2020 was the hottest year on record, when Greenland lost 152 gigatons (60.8 crore Olympic-sized swimming pools) of ice, added to our oceans. If the entire ice sheet of Greenland thaws, it could add 20 feet to the height of global seas leading to 11 megacities going under water including Jakarta, Manila, Shanghai, Tokyo, Los Angeles, San Francisco, New York, London, Mumbai, and Kolkata. For disbelievers in the impact of climate change, the last two years have been an eye opener. Forest fires in Amazon, Australia and Siberia, once-in-a-millennium kind of floods in Europe, unprecedented heat wave in North America, and the costliest cyclone – Amphan, in South Asia. No continent has been spared!

The UNSDG agenda 

To effectively address these stark social, economic, and ecological inequities affecting people across levels of the economic pyramid, in 2015, the United Nations adopted the 2030 Agenda for Sustainable Development, called ‘Transforming our World’. The goal was to define the future we want through a blueprint for peace and prosperity for people and the planet, now and for the future.

The new plan outlined 17 SDGs or ‘global goals’, and 169 targets that carried unprecedented potential for changing the existing socioeconomic, political, and cultural conditions in society for creating an equitable world. The goals recognised that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests. 

The size, range and complexity of the tasks are such that the traditional concept of their being the exclusive domain of the government is no longer valid. The situation demands that the variety of available and potential resources and talents are pressed into service. At the highest international levels, the conviction is that the global community has enough financial resources and technical capacity to meet the SDGs, but the critical factors are political will and corporate commitment.

The SDGs provide guidelines regarding areas in which corporate organisations, with vast financial, human, and intellectual resources at their disposal, can contribute. The current, annual investment gap stands at $2.5 trillion. According to UNCTAD estimates, the private sector has the potential to bridge this gap by at least $0.9 trillion annually.

While this may appear doable, the challenges are immense. India needs an investment of $2.64 trillion to meet SDGs by 2030. The pandemic has already placed an unprecedented burden on available resources with governments. Major corporations have also been badly hit. Yet, the only hope for corporations and their leaders to survive this decade and succeed in the next is to have an inclusive, sustainable, and responsible approach to business as advocated by the UNSDGs.

This would be possible not by mere compliance but through genuine corporate transformation and top leadership commitment. For this, they will need to embrace a fundamental transition from the antagonistic paradigm of business vs. society, to the synergistic paradigm of business and society, and proactively work towards embracing the enlightened paradigm of business for society. Then, and only then, would the UNSDGs be achieved in letter and spirit.

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