Working with brands and their agencies on sustainability, I’ve come to realise that our biggest barrier to progress on sustainability isn’t consumer behaviour, political inertia or market structures. It’s something less complicated, more insidious and cruelly ironic. It’s the enemy within: CSR!
That loose collection of terminologies, concepts and examples that has created the illusion of a distinct discipline, detached from the cut-and-thrust of business and brand; that ominous acronym, in many circles synonymous with greenwash, which has facilitated a tick box mentality based on compliance and reputation management.
As a result, when it comes to the gaining buy-in for progressive approaches to sustainability, the conversation all-too-often stalls at one of two points. Either “It’s CSR. We’re already doing that.” Or “It’s CSR Been there before, nothing happened.”
As a wake-up call for business owners, brand managers and agency teams here’s 10 clear reasons why we’ve never been here before. The conditions are unprecedented; the challenges are unprecedented; and if our brands and businesses are going to survive, the response must be unprecedented. This isn’t about CSR. It’s about business.
1. Market failure
Never before has the interdependent relationship between business and society been laid so bare. Following the financial collapse of 2008, trust in business plummeted to an all time low. And whilst latest figures report a slight increase in overall consumer trust, only 19% would trust business leaders to make ethical and moral decisions.
Unlike in previous eras, the contemporary beef with business is not driven by philosophical values, political ideology or remote events. It is driven by the visceral, proximate and direct consequences of the behaviour of business in a free market context. The shockwave triggered by market failure reverberated through public services and crashed into the real lives of real people.
Economic hardship is not only fuelling demands for an overhaul of business practice and purpose, it is creating new needs for those businesses to fulfil. As austerity becomes the norm, market forces will favour brands that demonstrate restraint, take action on income equality and innovate products and services that make an economic hardship easier to bear.
2. Rapid Growth Economies
The market potential of emerging consumer classes in developing countries is estimated to be as high as 15 trillion US dollars. However, the highly specific nature of these new markets will create conditions that require fundamentally different models of value creation—models based on the fulfilment of social needs in local contexts.
At the ‘Bottom of the Pyramid’ new consumers need accessible, affordable products that improve wellbeing and drive social progress: micro finance, low cost, off grid energy solutions, cheap and effective communications technology, healthcare and product service systems based on mobile technologies. Only those brands that can evolve or create value in this context will be able to take advantage of this emerging market.
Further up the socio-economic scale, the emergence of a new middle class will demand new standards in corporate citizenship. Research consistently shows that consumers in these markets are considerably more sensitive to the social and environmental impact of business and are more than willing to translate this into purchasing behaviour.
In the same way that we are witnessing the rise of a generation of Digital Natives, we are seeing the emergence of a highly significant segment of Responsibility Natives—citizens that have only ever consumed within a context of sustainable, responsible business and against a backdrop of abject poverty and need. For these consumers, responsible brands are the norm; sustainability a simple hygiene factor; positive social impact a license to trade.
3. A growing population
Between 1950 and 2000 the earth’s population rocketed from 2.5 billion to 6 billion. We’re currently around 7 billion and are predicted to hit 9.3 by 2050.
This represents a massive opportunity for brands to extend their reach and increase revenue (more people = more consumers). However, in the context of peak resource crises, market forces will ensure that only those brands that increase value whilst reducing reliance on natural resources will benefit. That is, meet the needs of more and more people, with less and less resources.
4. An ageing population
The number of elderly people is predicted to hit 1 billion within 10 years, but then soar to 2 billion by 2050. This seismic demographic shift will trigger market forces that will generate opportunity for brands built around positive social impact and risk for those that aren’t.
Firstly, an increasingly aged population will put ever-greater pressure on public services to respond to growing health and social care needs. This will create a service vacuum that business and brand will be required to (and have an opportunity to) fill.
In addition to the need for more responsive, cost-effective service delivery, this shift is creating a market for product innovations based on the physical needs of an increasingly active, affluent and aspirational elderly population.
Secondly, significant shifts in the demographic make-up of the population ultimately affect societal values and norms. As older people become the statistical majority, the values that characterise later life stages will become dominant: reflection, altruism, and a search for meaning. The short-termist, extrinsically motivated individualism that served the era of unsustainable growth so well will give way to a more intrinsic value set, based on genuine human needs.
Brands that can authentically exemplify these more intrinsic values will be the ones that build relationships and win loyalty. More importantly, those brands that can innovate products/services that help consumers live out these values will be the ones that drive growth through new revenue streams.
5. Supply Chain Disruption
Anthropogenic carbon dioxide emissions between 1850 and 1950 amounted to an average of 2 billion tonnes per year. During the 1980s this rose to 7.1 billion and by 2020 we’re estimated to running at 9.8 billion. Despite a persistent fringe of climate change sceptics, the causal connection between human behaviour and the warming of our planet is now well established.
Freak weather events caused by these changes are (amongst other things) triggering unexpected commodity shortages and price volatility. This is creating unprecedented supply chain instability and introducing new levels of risk and uncertainty into markets.
Only those businesses that can adapt to this unprecedented context will survive. Stable supply chains in the future will depend on action being taken at multiple levels to reduce greenhouse gas emission and mitigate climate change:
- Technological innovation to create cradle-to-cradle product systems that result in at least net neutral environmental impact.
- Communications, products and services that more effectively empower consumer behaviour change.
- Business model innovation driven by a service-dominant logic to create consumer value based on experience, rather than ownership.
6. Resource Depletion
Estimates regarding peak resource thresholds vary wildly, but the trends are consistent: the demands we are currently placing on our planet are far outstripping its ability to supply.
Most businesses rely on natural resources to create consumer value. As resources peak, economic survival will depend on finding more sustainable ways to create value, de-coupled from reliance on natural resources. More specifically, as energy prices increase businesses will be forced to find less intensive methods of production in order to control costs and protect margins.
7. True Cost Accounting
The vast majority of businesses currently externalise the cost of natural resources, creating a distorted picture of financial performance and stock value. Estimates show that our global economy currently depends on between US $21-72 trillion of ‘services’ provided by the environment that are not factored into financial reporting mechanisms.
The pressure on business to correct this distortion through True Cost Accounting is growing—a system in which the monetary value of natural resources such as water, timber and fossil fuels are included as costs that come off the bottom line.
As True Cost Accounting becomes the norm, and businesses are forced to ‘pay’ for their use of natural resources, market dynamics will drive businesses to reduce their dependency in order to preserve margins and stock value.
8. Political Shifts
Whilst political responses to many of these issues are glacial, the demographic, cultural and economic realities outlined above will force governments to follow a trend towards increased legislation and regulation as a means of controlling business impact.
At every link of the value chain, from extraction of raw materials to brand communication, to product disposal and beyond, operating parameters will close in. Forward thinking brands understand this and are making changes now in order to pre-empt more draconian incentives.
Those businesses that don’t respond pre-emptively will be forced to fall in line at the last minute. Their lack of foresight will result in punishing investment costs and consumer backlash.
9. Technological change
Social media is facilitating a level of connection, collaboration and communication amongst consumers that is unprecedented. It is now impossible for businesses to hide their actions and inconsistencies from public view: we are entering an age of extreme transparency.
Those brands that fail to cleanse their supply chains and conduct themselves appropriately will be exposed by a new generation of consumer-activists and held to account by market forces.
10. The demand for meaningful careers
In response to growing awareness of many of the issues outlined above, ethical and sustainability issues are beginning to influence the career choices of highly motivated, talented graduates and professionals.
As these trends play out, those brands and businesses that don’t evolve to incorporate social good as an inherent element of their positioning and offering will be hit with a talent drought. The brightest and best are already making career choices based on a prospective employer’s behaviour as a corporate citizen and the demand for jobs that allow employees to make a positive difference through their work is soaring. As a direct reflection and glaring example of how values are fundamentally shifting, many would be happy to take a drop in salary if it meant they could make a difference through their work.
What this analysis makes clear is that decisive action on sustainability is no longer a matter of moral choice. In fact, it is no longer a choice at all. With new operating conditions emerging around every link in the value chain, the brands and businesses that fail to respond appropriately will simply fall foul of market-driven natural selection.
And the point of all this is surely sharp enough to puncture even the thickest cynicism: we must innovate or die!