Capitalism as a Force for Good

Capitalism as a Force for Good Corporate Social Responsibility and Eco and Social Entrepreneurship April 2012

Why do organisations exist? Value = Benefits - Costs• Organisations exist to create value by producing goods and services that customers want. They 2 compete with other organisations on the basis of these goods and services.• Customers make choices by weighing up the costs and benefits of the available alternatives, and selecting the option that offers the best value.

Organisations strive to produce value by operating their value chain. Value = Benefits - Costs• If the good or service they produce is attractive and unique, and their particular value chain gives them an advantage in producing it, the organisation will be able to compete successfully, and make a margin. 3

The value that the organisation creates issplit between customers andshareholders. Value = Benefits - Costs 4

When many organisations come together in a network, it creates a value system.• This system creates wealth for its participants, and (in theory), via the notion of the “invisible hand”, for society.• It is the basis of capitalism, where the means of production are privately owned.• Within this system, business is regarded as solely an economic institution, whose purpose is to create more and more economic wealth.• The success of society as a whole is measured by an increase or decrease in GDP .

Wealth is created via a linear flow ofproduction and consumption. 6

Which would be fine if we had aninfinite planet. 7

But we don’t.• So if we run a linear system that converts natural resources into goods for consumption and disposal indefinitely, we will eventually deplete all the available natural capital.

• In fact, ecological footprinting analysis reveals that 1.5 planet Earths are needed to cope sustainably with the world’s current levels of consumption and waste.• If everyone in the world enjoyed the same lifestyle as the average Australian, more than 5 planet Earths would be needed. 9

Wealth tends to accumulate to thosewho own or control capital.• Unfettered capitalism leads to inequality. “We thought that markets work. They are not working, and what’s individually rational… [is] a self-destructive process.” - Nouriel Roubini 10

• So we can begin to plot shareholder capitalism against a few key dimensions (see overleaf).• But societies need more than wealth to thrive – people also need culture, meaning, identity (as more than just a consumer), connection with the natural world… and social services beyond those provided by the government.• Also, by making the individual the focus, capitalism can isolate us and disempower us by weakening our sense of community. 11

MORAL INTENTIONS & OUTCOMES DIMENSION UNIT OF OF CSR VALUE Self-interest (good for me) l nd In oce ga a (e di n le mic g vi tr du ic o on al ) Ec Profit before inequality Survive planet SocialENVIRONMENTAL LEVEL OF and IMPACT EQUALITY thrive pi ma on l e e c e co ca an- sis Gr om plin ta d on u ow y g) m ha d h u mp th (no E Competition (survival of the fittest) Human instinct Shareholder capitalism VALUE ECONOMIC GROWTH CREATION ASPIRATIONS FOCUS Shared value capitalism MARKET Sustainable capitalism DYNAMICS

Social and eco entrepreneurship offersolutions to some of these problems viathe notion of creating shared value• The pollination service provided by bees as they go about collecting nectar and pollen from flowers is a wonderful example of how shared value can be created during the execution of day- to-day work. 13

• The symbiotic relationship between bees and flowering plants creates benefits for the bees, benefits for the pollinated plants and benefits for humankind.• Thus, bees create outcomes for people and planet via their core business.• Nature is incredibly adept at evolving value-creating, symbiotic systems.

Social and eco entrepreneurship is theuse of entrepreneurial principles tocreate outcomes for people and planet. • An entrepreneur is someone who creates value via their own willingness to pursue opportunity and take on risk. • While a business entrepreneur typically measures performance in terms of profit (honey), a social or eco entrepreneur focuses on using a viable business model to create social or environmental returns (pollination service) as well. • To be viable, the business model is still compelled to deliver something of value, so that it can attract the financial fuel required to operate. • Thus, social and eco entrepreneurship is about evolving the traditional profit-centric business model to leverage new value, preferably via a systems approach.

• The following options for additional value creation are available to social and eco entrepreneurs: • Integrate outcomes for people and planet into their organisation’s value chain, • Or into the value of the goods and services produced, • Or by collaborating to drive change within the whole value system (e.g. local cluster development to increase innovation), • Or via philanthropy.• The best possible outcome is that in doing this, we actually create additional value for all the organisation’s stakeholders: its owners, its customers, our environment and society. 16

Social and eco entrepreneurs carefully manage the balance between people, planet and profit. $ Planet People Profit• The most effective business models have social and environmental objectives at the core, not the periphery.

Businesses can be plotted according to their“business model” and “the importance of social andenvironmental outcomes to their core purpose”.$ Business Model Greenwash zone Insulation installers Origin Energy The Body Shop For profit Profit for Tom’s Shoes purpose Increasing emphasis on profitability The Big Issue NFP: commercial NFP: no commercial Australian Conservation Foundation Importance of Increasing importance of environmental and social outcomes to core purpose outcomes to core purpose Low importance Medium importance High importance Very high importance · Not values-based · Not values-based · Values-based · Values-based · Not core activity · Core activity · Not core activity · Core activity 18

Social and eco entrepreneurship often involvescreating links between the for-profit and not-for-profit sectors.$ Business Model Greenwash zone Insulation installers Origin Energy The Body Shop For profit Profit for Tom’s Shoes purpose Increasing emphasis on profitability The Big Issue NFP: commercial NFP: no commercial Australian Conservation Foundation Importance of Increasing importance of environmental and social outcomes to core purpose outcomes to core purpose Low importance Medium importance High importance Very high importance · Not values-based · Not values-based · Values-based · Values-based · Not core activity · Core activity · Not core activity · Core activity 19

What might the world be like if all organisationswere based on a social or eco entrepreneurshipmodel?

Perhaps…• Society with the possibility of being more equitable.• Greater community focus.• Investment in social capital.• Environmental harm minimisation via some relative decoupling.• Cooperation between for-profit and NFP.• (See overleaf) 21

MORAL INTENTIONS & OUTCOMES DIMENSION UNIT OF OF CSR Reciprocity VALUE (good for society) (a Co rop n m oc th al m e ic un nt h Et ity ric Self-interest (good for me) l nd In oce ga a ) (e di n le mic g vi tr du ic o on al ) Ec Social equality Profit before minimisation inequality Survive planet Social HarmENVIRONMENTAL LEVEL OF and IMPACT EQUALITY thrive pi ma on l e e c co ca an- sis Gr om lin ta d on up ow y g) m ha de h u mp th (no E Competition ca so a n G r a t iv d -m s o (r pi ci de (survival of el ow e an an asi t h de ta al the fittest) m h h u mp ec cou Human instinct l E on pl om ing y ) Cooperation (creating Shareholder capitalism shared value) VALUE ECONOMIC GROWTH CREATION ASPIRATIONS FOCUS Shared value capitalism MARKET Sustainable capitalism DYNAMICS

Case Studies• The following slides present five case studies of Western Australian businesses using an eco or social entrepreneurship-based business model. 23

1. BenchAD• “In all that we do we look to innovate and re-use.”• BenchAD is a local innovator in advertising-funded street furniture.• The organisation provides street furniture at no cost to councils and communities while creating affordable access to the main street for local businesses. They are committed to sustainability - both environmental and social - and reflect this in the design of their street furniture and promotion of the positive in the community.• BenchAD recycles the majority of advertising posters, and works to reduce their carbon footprint through initiatives such as eWood bus shelters and street furniture (made from recycled print cartridges). They are in the process of developing Australia’s most sustainable bus shelter.• BenchAD donates thousands of dollars worth of media space annually to support not-for-profit organisations, charities and sporting clubs in WA.

2. Force• Force is a leading mobile phone accessories distributor, supplying a wide range of mobile and technology brands through a network of Australia’s premier retail and operator channels. They are a rapidly growing business, with a high volume of transactions, distributing thousands of products every day.• Force donate a percentage of their margin to Carbon Neutral for every Force branded product they sell. Their donations to Carbon Neutral have resulted in over 19,000 trees planted and Force being recognised as a Gold Supporter.• Force promotes their Gold Supporter status and the Carbon Neutral logo on all their Force branded packaging and marketing collateral, including their website. This not only differentiates their range from alternative products, it also offers their customers and end-consumers the chance to feel they are contributing to Carbon Neutral too.• Force have created a tool that allows their customers to further support Carbon Neutral via their e-commerce portal. Customers now have the option to donate a ‘carbon neutral fee’ when they proceed through the website checkout process. The fee is calculated based on units of Force branded product ordered or can be overridden to apply a voluntary fee.• This has resulted in a very positive response from customers. Force has demonstrated their commitment to Carbon Neutral without passing on any costs to their customers and end-consumers and have had a number of customers voluntarily donate to Carbon Neutral via their e-commerce website.

3. AIM WA• AIM is Western Australia’s leading private provider of management, learning and development services. It is a private not-for- profit membership based organisation, and is committed to raising the standards of management and leadership in the Region. • As the peak professional body for managers and leaders, AIM strives to be a role model for West Australian organisations. • In recognition of this responsibility, AIM recently completed construction of the Katitjin Centre, the first 6 Star educational building in WA. The new facility achieved the third highest sustainability design rating of any building in Australia. • AIM CEO Patrick Cullen said “The building not only significantly increases the Institute’s capacity to offer more learning and development initiatives in the market place, but also recognises our commitment to sustainable development including the management of people, resources, and the environment.”• The centre is emissions-neutral, meaning it produces as much energy in operation as it consumes. 26

4. Dismantle• Dismantle is a project aimed at encouraging people of all ages and backgrounds to create long-term social change and feel a sense of belonging through the simple activity of cycling.• Dismantle believes in a world where bicycles are the preferred vehicle of transport resulting in healthy people, connected communities and a thriving environment.• Their first challenge is a recycling and education venture called the Bike Rescue Project (BRP), that gives people the opportunity to rebuild and repair old bikes for reuse in the community.• Dismantle have recently opened their first bicycle recycling workshop on the esplanade in Fremantle, which is used as a launching pad for education and engagement programs with a focus on disadvantaged groups.• To cover the program’s costs, Dismantle uses a number of fundraising initiatives, including selling a range of memberships (which give 12 months’ access to the workshop), charging a small cover fee for bicycle repair courses and selling a range of branded cotton T-shirts. The shirts are WRAP certified (Worldwide Responsible Apparel Production). 27

5. Pollen Strategy• Pollen Strategy is a boutique management consultancy that offers a range of strategic planning services “to help organisations improve their performance and increase their contribution to our world.”• The firm encourages clients to view performance not only from the point of view of profits and growth, but also in terms of the social and environmental capital these companies return to society.• Pollen Strategy’s business model sees it allocate 25 per cent of revenue to various charitable, social and environmental projects. The consultancy regards the total funds contributed to these projects as an important measure of its performance.• The charities supported by Pollen Strategy are split between those that are important to the firm and those that are nominated by clients.• In the future the organisation plans to establish an independent foundation to run creative campaigns that inspire a sense of custodianship for the planet and that empower people to drive change in the capitalist system.• The campaigns will link to a website that sets a compelling vision of the “sustainable future” and provides case studies of local and global businesses that are leading the way. As the foundation brand grows, Pollen Strategy will seek partnerships with aligned businesses, with the ultimate goal of creating a national call to action for a sustainable economy, and a roadmap to show the way. 28

These organisations are striving to make a difference via the process of creating shared value. • But despite their best efforts, many social and environmental businesses are still contributing in one way or another to resource depletion. • This is because most businesses’ operations are still “coupled” to resource use.“Being less bad is not being good.” - William McDonough, author of Cradle to Cradle 29

Decoupling compares resource use toeconomic growth.• Relative decoupling means resource use may increase, however, at a slower rate than economic growth.• Absolute decoupling is achieved when resource use declines over time while the economy grows. 30

To keep economic activity withinecological limits, we must achieveabsolute decoupling.• There is some limited evidence of relative decoupling occurring thanks to efficiency gains over the last three decades. – This means that economic growth has outpaced efficiency improvements, and there has been growth in resource use overall.• There is little to no evidence of absolute decoupling. <

Our imperative is therefore to evolve our economy to a trulysustainable model where our ability to survive and thrive isactually maximised – but what will it take to get us there?• It will require a new moral philosophy, a reassessment of where humans fit in the world, and a redefinition of the core purpose of business: corporations must reimagine themselves as vehicles for creating true social and in particular environmental value, in addition to profit.• For a sustainable economy we may need to accept some one-way value transfer to the environment. This requires a more altruistic approach – giving without expectation of return. But of course, we do get the ultimate return – which is a habitat we can live in and the rewards that a thriving natural world brings.• (See overleaf). 32

MORAL INTENTIONS & OUTCOMES Altruism (good for the planet) DIMENSION UNIT OF c OF CSR VALUE Bi oce Reciprocity pi (e os n ro c (good for ph t r th er ic) n society) la e i Ph (a Co rop n m oc th al m e ic un nt h Et ity ric Self-interest (good for me) l nd In oce ga a ) (e di n le mic g vi tr du ic o on al ) Ec Environmental Social equality Profit before minimisation regeneration Ecological inequality Survive justice planet Social HarmENVIRONMENTAL LEVEL OF and IMPACT EQUALITY thrive pi ma on l e e c co ca an- sis Gr om lin ta d on up ow y g) m ha de h u mp th (no E Competition ca so a n G r a t iv d -m s o (r pi ci de (survival of el ow e an an asi t h de ta al the fittest) m h h u mp ec cou Human instinct l E on pl l c so n om ing it a a l Lo no e d ra e, ee ec lati a p ci w my e c tu ad tw (r y ) l o v /n : o e Cooperation n a m be o “s up d n- e gr ta lin (creating a n ma a n c Shareholder capitalism ow si g shared value) hu Bal VALUE th s” ) ECONOMIC GROWTH CREATION ASPIRATIONS FOCUS Symbiosis (harmony Shared value capitalism between people, planet and profit) MARKET Sustainable capitalism DYNAMICS

Interface Global Case Study• Interface Global are a company demonstrating how to operate in the outer green ring of the schematic, and do so while increasing profits.• So far their experience is that investment in environmental outcomes brings enormous financial benefits, the value transfer for them has not been one-way. 34

Interface Global • Interface manufactures carpets, textiles, chemicals, architectural products and access flooring systems. The company supplies more than 40 per cent of all new carpet tiles fitted in commercial buildings worldwide. • Interface aims to be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions - people, process, product, place and profits – and in doing so will become restorative to nature (putting back more than it takes) through the power of influence. • The company calls this Mission Zero® and aims to achieve zero negative impact on the environment by 2020. 35Source: Interface Global

Interface Global – Policy Drivers The following drivers motivate Interface’s sustainability policy: • Believing it is the right thing to do. "For the sake of humankinds continued survival, enjoying acceptable and healthy life styles for all, industrialised civilisation must recognise and accept an imperative" Ray Andersen. • Increasing the companys competitiveness through “sustainability innovation” of products, activities and services, both through improved efficiency and by reflecting the consumers increasing desire for greener products. • Improving efficiency and achieving cost savings through waste minimisation and reduction programs. • Improving the companys image and reputation to gain market place advantage - setting Interface apart from the rest of the pack by embracing sustainable development. 36Source: Interface Global

Interface Global – Social Sustainability • Interface’s social sustainability policy focuses on the development of programs and processes that promote social interaction and cultural enrichment. It emphasises protecting the vulnerable, respecting social diversity and ensuring that all staff put priority on social capital. • “Social sustainability is related to how we make choices that affect other humans in our "global community" — the Earth. It covers the broadest aspects of business operations and the effect that they have on employees, suppliers, investors, local and global communities and customers. Social sustainability is also related to more basic needs of happiness, safety, freedom, dignity and affection.” 37Source: Interface Global

Interface Global – Sustainable Development • Interface believes that recycling alone is not enough - it is one- dimensional. The company has expanded its concerns to the Seven Fronts of Sustainability and is determined to: 1. Eliminate Waste: Eliminating the concept of waste, not just incrementally reducing it; 2. Benign Emissions: Focusing on the elimination of molecular waste emissions. Eliminating waste streams that have negative or toxic effects on natural systems; 3. Renewable Energy: Reducing the energy demands of Interface processes while substituting non-renewable sources with sustainable ones; 4. Closing the Loop: Redesigning Interface processes and products into cyclical material flows; 5. Resource-Efficient Transportation: Exploring methods to reduce the transportation of molecules (products and people) in favour of moving information. This includes plant location, logistics, information technology, video conferencing, e-mail, and telecommuting; 6. Sensitivity Hookup: Creating a community within and around Interface that understands natural systems and the firm’s impact on them; 7. Redesign Commerce: Redesigning commerce to focus on the delivery of service and value instead of material. Encouraging external organisations to create policies and market incentives promoting sustainable practices. 38Source: Interface Global

Interface Global – Biomimicry • The core idea behind biomimicry is that nature has already solved many of the problems designers are grappling with. • As a direct result of practicing biomimicry, Interface developed a carpet called Entropy, that mimics the random patterns of the forest floor. Because the subtly-shaded carpet tiles blend together like leaves, without strict patterning, there is easier matching of replacement tiles, fewer discards and easier installation, all resulting in waste reduction. • In another example of biomimicry, inspired by the many examples of adhesion without glue in nature, Interface developed TacTiles, a carpet tile installation system that uses small adhesive squares to connect carpet without the need for glue. 39Source: Interface Global

Interface Global - Business Benefits • “We have found Mission Zero to be incredibly good for business, a better business model, a better way to bigger profits. This is the business case for sustainability. From real life experience, costs are down, not up, reflecting some $400 million of avoided costs in pursuit of zero waste.” Ray Anderson. • Other benefits include: – Use of water down significantly. – Perception of Interface and its products as "green" and environmentally responsible. – Inclusion in socially responsible investment portfolios. – The corporate philosophy has served as tiebreaker in numerous commercial contracts. 40Source: Interface Global

Where to from here?• Educate yourself – read widely.• You do have the power to make a difference: – As individuals – “be the change you want to see in the world”. – As consumers – create green markets, reward socially and environmentally responsible businesses. – As future decision makers – help the organisations you work for to do good. – As entrepreneurs – be part of a new movement to transform the way we do business. “Find the thing that you are passionate about, do it to the best of your ability, and in the process make positive change.” - David Suzuki

Recommended reading• Prosperity Without Growth – Tim Jackson• Rethinking Capitalism – Rogene Buchholz• Biomimicry - Janine Benyus• Cradle to Cradle – William McDonough & Michael Braungart• Confessions of a Radical Industrialist – Ray Anderson• The Ecology of Commerce – Paul Hawken• Natural Capitalism: The Next Industrial Revolution – Hawken, Lovins & Lovins• Screw Business as Usual – Richard Branson 42

Pollen Strategy PO Box 5363 East Victoria Park Western Australia 6981 M: +61 419 923383E: info@pollenstrategy.com.auW: www.pollenstrategy.com.au

Capitalism as a Force for Good

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