Business for posterity

Companies must create value through transformational impact on the planet

The recent agitations against “indiscriminate coal mining” and “nationwide interlinking of rivers” have brought back the oft-forgotten principle of “intergenerational equity” firmly into focus.

The Rio Declaration of 1992 urged all countries to identify “natural resources that are national assets” and to “use them in such a manner that it does not compromise the ability of future generations, to benefit equitably from them”. Indeed, in recent times, people of Goa have successfully argued that “coal is a finite resource” and its unhindered extraction limits the extent to which future generations can benefit from it.

Is “intergenerational equity” relevant to corporates? To founders and company promoters of yore, it would ring a familiar bell. That of passing on a legacy — of trust and familiarity built over time — to the next generation. Consumers experience this first hand with a Tata salt, a Bajaj two-wheeler, an Amul milk offering or a Cipla medicine. These brands have evolved over two or more generations to evoke trust, dependability, fairness and even social concern, through the nation building causes that the founders were associated with.

Paul Polman, CEO of Unilever, was one of the first proponents of an enterprise strategy that had “sustainability” at its core. His famous “Unilever Sustainable Living Plan” aimed to make “sustainable living commonplace” through three levers — to improve health and well-being, to significantly reduce environmental footprint and to enhance livelihoods noticeably. For the first time, “an equitable society and a sustainable planet” gained prominence in business strategy. This is way beyond the conventional understanding of “corporate social responsibility”. A recent review of this plan seems to indicate very encouraging results in growth of business and the 200 per cent returns it has given to shareholders. In his 2016 statement on “Living our Purpose” he says, “At a time when we have difficulties growing our economies and creating employment, the cost of not acting is becoming more expensive. With 9 per cent of global GDP devoted to conflict prevention or wars, and climate change costing 5 per cent, it is easy to see why—both morally and economically—we need to act. Companies that cannot show they are making a positive impact in addressing challenges like hunger, climate change, gender equality or access to education will soon, in my view, have no reason for being. There is no business case for enduring poverty and no reason to accept companies that are run for the benefit of a few at a cost to many.”

Innovation and efficiency will drive growth and profitability and result in attractive returns to shareholders, is a mantra that corporates have religiously followed.

Results from Polman’s approach indicate a new default — Companies must drive innovation, adaptability and efficiency that create value through transformational impact on people, society and planet. For example, you cannot create just a healthier, purer “bottled mineral water”. You must create an offering that is “all of above” which, through its creation, has positively impacted poverty and livelihood and has taken care to replenish the earth’s resources with the aim to be carbon positive.

Will this “organic wave” be embraced by other industries? Pharmaceutical industries start with an advantage. Medicine making and positively impacting health is central to their core purpose. Will this be enough?

Would we like to see a “transport device” made of “natural materials”, assembled in the most impoverished nations, running on renewable energy? Can Apple go “green”? Will we desire “fashion from recycled apparel”?

Disruption through technology and changing consumer desires may bring swings much faster and could shift focus from myopic fixation on quarterly earnings to consistent durability beyond a generation. We are not far from realising that “return on equity” is but a natural subset of “intergenerational equity”!