Can companies grow, and profit, with no impact?

Two Steps Forward

Can companies grow, and profit, with no impact?

One of the Big 4 accounting firms has been noodling the idea that we can create an economic model "that allows 9-10 billion people to live in harmony with nature and in well-being." One might reasonably conclude that they've been sniffing a little too much red ink.

That's not the case. Indeed, the folks at Deloitte couldn't be more sober, or more serious. They're envisioning a world in which "a new bottom line would arise, not allowing economic success on the back of nature and society."

Welcome to the brave new world of Zero Impact Growth.

A new report, from Deloitte’s Netherlands office, researched 65 companies in 10 industries on their readiness for a “green and inclusive economy.” The Zero Impact Growth Monitor 2012 (PDF) reveals that only six of those companies — Puma, Nike, Nestlé, Unilever, Natura and Ricoh — “have reached a level on which they are ready to take radical steps to transform their industries.” The majority of the companies “are still vague about their strategic growth ambition in a world where ‘growth as usual’ is not an option anymore.”

The report also reveals four key gaps that decrease the ability of companies to move forward in their sustainability journey:

  • Comparability gap — a lack of consistent definitions and descriptions that companies use to explain their sustainability efforts in the various components examined.
     
  • Implementation gap 
— a wide discrepency of implementation effectiveness among companies that have proposed ambitious sustainability strategies.
     
  • Balance gap
— an overall tendency that environmental goal-setting is more consistent than social goal-setting in supporting overall strategies, primarily because it is easier to monetize environmental benefits and, therefore, easier to assess their contributions to overall economic success.
     
  • Gaps in and between industries
 — while the research focused only on the so-called “leading companies,” there are still considerable differences, even within the same industry.

That last point is noteworthy. Said Deloitte: “We have seen the biggest gaps in some of those industries that will see the highest EBITDA loss in case of the internalization of additional external costs.” In other words, the companies that could face the biggest hits to their bottom lines if they are required to account for their environmental impacts are some of the sectors least prepared to do so.

The report is the result of a 2011 collaboration between Deloitte Innovation and John Elkington in the run-up to the publication of Elkington’s book, The Zeronauts, which looks at individuals and organizations that try to minimize their natural and societal impact to a zero level. The report summarizes the outcomes of a Zeronauts Symposium held this past June and the Zero Impact Growth Monitor 2012. Deloitte Innovation and Volans, Elkington’s firm, hope to build a Zero Impact Growth Community focusing on "innovations in measurement, leadership and new business models."

The report raises more questions than it answers. Clearly, we’re not yet at the point where there’s a roadmap to Zero Impact Growth any more than there is to sustainability itself. Among the key issues Deloitte raises:

  • Intention: Companies need to ponder on the societal purpose of their existence beyond a simple license to operate. “In a 1-Earth Economy, only those players would stay in business that clearly define their intention to give back at least as much as they take from planet earth and society, and possibly even more in the future.”
  • Ambition: Zero Impact Growth is a viable concept only if there is a clear understanding about achievement levels required in different industries. “Companies are tasked to think about their roadmap towards achieving Zero Impact Growth, defining their long-term targets, timelines and areas to get there.”
     
  • Bottom line: In a Zero Impact Growth economy, a new bottom line would arise, not allowing economic success on the back of nature and society. “It would be challenging to define the ‘Zeronautics’ of this new paradigm, but some steps in the monetization of ecosystem services already show signs towards a new consolidation. The internalization of all possible external effects into the profit and loss accounts of companies is one foreseeable way, but others could be explored as well.”
     
  • Progress and success: In a Zero Impact Growth world, progress can be made only in global value cycles, factoring in the thinking of a circular economy and zero tolerance towards social injustice. “A new definition of success would be needed, enlarging today’s one-dimensional financial success thinking through additional aspects, especially looking at ‘synchronized, joint and balanced’ success measures that show how a company adds to the success of others.”
     
  • Effectiveness: So far, we are unable to measure whether what has altogether been achieved in the different industries is actually moving the needle. “The only thing we can state so far is that we became ‘less bad.’ So the question Zero Impact Growth tries to answer is: what, as a minimum, constitutes ‘enough’?”
     
  • Roles and responsibilities: The idea of Zero Impact Growth means redefining roles and responsibilities of certain industries. “For example, is it necessary that companies in consumer business, an industry that would have a negative EBITDA if all external effects they cause were to be internalized, shrink their direct ecological footprint to zero if other industries could achieve more, more effectively? We do not have these answers available right now.”

Like I said, far more questions than answers, but this is early-stage stuff. The report is, at minimum, an important conversation starter that should be the basis for every sustainability conference and forum going forward. It's high time we had some bold, audacious thinking in this space.