In the past 50-100 years, we have created immense prosperity. In 2019, global GDP is expected to reach almost US$ 90,000 billion, compared to just over US$ 1,000 billion at the start of the previous century. Economic growth and globalization have brought enormous prosperity for many: global life expectancy, for instance, has doubled since then. In many ways, our lives have never been better, which applies to many, though not to all.
Still, there is a cost as well: today, the wealthiest 1 billion people use nearly half of global resources and produce the same percentage of global waste. However, we don’t live on this planet with 2 billion people, but with more than 7 billion. This inequality isn’t sustainable.
Also, it should be unacceptable that we have around one billion people who go to bed hungry, and another billion are malnourished. Meanwhile, almost two billion people are overweight, and of these, over 650 million are obese.
Due to our dependency on coal, oil, and gas, among other things, over the last 150 years, we have created a climate emergency, also influencing our food-supply chain and the lives of many. In addition, we have brought our oceans and forests into danger.
We obviously cannot continue to put an unsustainable burden on our planet.
‘Money is a means, not an objective’
Is the economy serving us here, or are we serving the economy? The economy hasn’t developed to earn money. It is a model for distributing competences and prosperity. Money is a means, not an objective. Yet somehow, we lost track of that in the past decades when the focus of investors and companies became on making money or creating shareholder value only. “Doing good for society” was about charity.
At the same time, companies started having more impact and power, and with that comes more responsibility. The good news is that companies of today often have the scale, power and innovative strength to contribute to a better world.
About fifteen years ago, when meeting with investors and telling them about DSM’s sustainability progress and how it’s an integral part of our strategy, often the question was raised: ‘Nice story, but which of the two is number one: financial or sustainability performance?’ And I would say: ‘Both, both are equally important”.
Increasingly, it is becoming clear that it can be both: in fact, it should be both. Contributing to a better world and making money are not in conflict with each other.
CSR – Corporate Social Responsibility – for sure played its role, but we are now far beyond that. Doing good for society needs to be part of the core of a company. Business leaders need to look to the core of their competences and ask how they can contribute.
Making sustainability mainstream
As the world’s largest producer of nutritional ingredients, we have the competences to contribute to addressing the (hidden) hunger problem, together with the public sector and civil society. As a leader in sustainable materials and industrial biotechnology we also have competences to help improving our climate and addressing resource scarcity.
We embedded this principle in our company. It isn’t a corporate ‘narrative’. The moment you integrate contributing to society in your business model, it will automatically be embedded in the company as the core of what you do. Sustainability can’t be sustainable if the entire organization does not own it: this is also why leaders need to be clear about the purpose of a company and act accordingly and embed it in the core of the business.
When implemented successfully, it will be owned by investors and shareholders as well; your customers will support you and your employees will be proud and motivated. And society will continue to give you a license to operate.
Since serving the above would benefit all, there should be no fundamental disagreement with investors or shareholders on this, perhaps with a discussion on timing. Companies need to make returns, since they aren’t charities, and contribute for example to provide pensions to people via the funds invested in them. With the majority of the money deployed in the capital markets have a long-term horizon, like pension funds, long-term value creation focus should be a non-controversial discussion. Especially for shareholders – not share traders – this model can work well. Of course, it doesn’t mean there shouldn’t be any delivery on the short-term.
Doing well and doing good
During DSM’s transformation from a bulk chemical company to a company active in nutrition, health and sustainable materials, we promised our shareholders a stable, preferably rising dividend for the short term. A promise we have kept while pursuing our long-term goals and value creation (400% total shareholder return since 2007). We have been able to show that doing well can go together with doing good.
As more and more companies start to embrace this model, it is becoming increasingly important to accurately measure progress. In the last ten years we have seen a five-fold increase in the number of ESG benchmarks and ratings. There are now more than 650. We need to work on a common framework – an IFRS for Non-Financial Reporting if you will – where investors can compare apples to apples and companies can avoid being accused of ‘greenwashing.’ If we don’t have a transparent way of how we measure our value creation for people and our planet, all our efforts cannot be judged properly.
Meanwhile, I support all business leaders to start connecting their company’s competences to the global challenges and the UN Sustainable Development Goals. Where can you contribute? Where are the opportunities? Step away from CSR as a side activity, but make it the core of your business model, develop a clear roadmap, involve all stakeholders, and dare to focus on the long-term. The multi-stakeholder approach offers great future-proof perspectives for all companies.
Source: World Economic Forum, 20 January 2020