Sustainability: Economic, Environmental and Social Dimensions PDF

Critical Approach & Business Ethics Sustainability: Economic, environmental and social dimensions Hein Schellekens www.fhnw.ch Sustainability: an introduction The term sustainability is derived from the Latin word sustinere, meaning: to mai...

Critical Approach & Business Ethics Sustainability: Economic, environmental and social dimensions Hein Schellekens www.fhnw.ch Sustainability: an introduction The term sustainability is derived from the Latin word sustinere, meaning: to maintain, support, uphold, or endure. Sustainability therefore refers to a capacity of being maintained or continued at a certain rate or level. As such, the concept is value-neutral, depending on the (moral) values that ought to be “maintained”. Through its close association with environmental concerns (starting with the Club of Rome), “sustainability” over time developed into a normative concept: Sustainable adjective Designating forms of human activity (esp. of an economic nature) in which environmental degradation is minimized. (Source: Oxford English Dictionary) Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Environmental sustainability: the tragedy of the commons One way of understanding «sustainability» is by "That which is common to the seeing it as a collective action problem. greatest number gets the least amount of care. Men pay most attention to what is their own: The tragedy of the commons describes the they care less for what is conflict between short-term self-interest and common.“ (Aristotle. Politics, Book II, Chapter 3.) long-term common good. Free access and unrestricted demand for a finite resource ultimately reduces the resource through over-exploitation, temporarily or permanently. The benefits of exploitation accrue to individuals or groups, while the costs are borne by all those to whom the resource is available. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Environmental sustainability: externalities Over usage can be understood as a negative externality, which occurs when the negative effect(s) on an unrelated third party are not captured by the market price. Externalities often arise from poorly defined property rights. The typical solution proposed by economists is taxation. In the case of climate change through CO2-emissions, this would imply:  A carbon tax on each unit of pollution produced;  A cap-and-trade system which sets a total quantity of emissions and issues tradable “pollution” permits. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Some examples Sustainability CO2 EMISSIONS DEFORESTATION GROUNDWATER OVER-EXPLOITATION ANTIMICROBIAL RESISTANCE 10 November 2024 Critical Approach & Business Ethics: Sustainability www.fhnw.ch 5 Sustainability: why bother? Environmental ethics reflects on the relationship between humans and the environment and formulates arguments that can be made for protecting natural entities and the sustainable use of natural resources. Anthropocentrism (anthropos = human): Preservation of nature for humans (nature serves man and is worth protecting only insofar as it brings benefit to man). Ecocentrism: Preservation of nature for its own sake (intrinsic value of nature). Human beings are part of a system of interdependence. Different interpretations of our place in the world, different valuation of the natural world: instrumental vs. intrinsic, as well as a different interpretation of responsibility. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Sustainability: why bother? An anthropocentric view Focus is on human life, with nature as the precondition of a good life. Accompanying human right to a ‘clean, healthy, and sustainable environment’ (United Nations). >> INSTRUMENTAL VALUE A just, i.e., sustainable, usage of natural resources requires that all human beings, now and in the future, can have their basic needs fulfilled: 1. Intra-generational justice: An appropriate global distribution principle in the present between different people of the present generation 2. Inter-generational justice: An appropriate distribution of natural resources across generations, i.e. once nature has been destroyed, it is no longer available to future generations, which is unjust. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Sustainability: why bother? An ecocentric view Focus is on human and non-human life. It interprets the Earth as a subject of rights rather than a collection of objects that can be used for human exploitation. >> INTRINSIC VALUE Consumption of natural resources is justified only to the extent that it is necessary for survival (e.g. gorillas that eat only as much of the eucalyptus trees as it can regrow). Ecocide: Introduction of a legal concept “ecocide” (destruction of nature) analogue to “genocide” as a serious crime. Ecocentrism would imply a radical shift in our way of living; its core principles are in stark contract with the current economic system (continuous growth) and the corresponding system of law (property rights). Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Sustainability: three (interconnected) dimensions However: environmental sustainability requires a consideration of the social and economic of relevant communities and their activities as well: Economic sustainability is the approach whereby economic activities are conducted in such a way as to preserve and promote long-term economic well-being. In practice, it aims to create a balance between economic growth, resource efficiency, social equity and financial stability. Social sustainability involves a focus on the well-being of people and communities. It’s about promoting equality, human rights, access to education and health care, and decent work. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Case: Patagonia and the paradox of «sustainable» profits The company has a long history in environmental sustainability. It promotes to buy less of its own products (and reuse it instead) and explicitly states it no longer seeks revenue growth. It’s founder and former owner transferred ownership of Patagonia, valued at about $3 billion, to a specially designed trust and a nonprofit organization. Patagonia makes a distinction between “bad” growth and “good” growth. Bad growth is when people engage in continued consumption without attaching value to the lifetime of a product or how it is made. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Case: Tesla and social sustainability It has pushed the auto industry towards EV technology. Tesla Energy is one of the largest solar-panel players in the United States. At the same time, Tesla was taken out of the S&P 500′s ESG index because of its poor record on labour issues and human capital. Employees in the US sued the firm after claims from hundreds of workers that they were the targets of discrimination, including the use of racial slurs by co-workers. Employees in Germany flagged poor working conditions and safety hazards. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Case: Unilever and the room for maneuver Unilever is a global consumer packaged goods company. Its products include personal-care (52% of 2022 sales by value), homecare (14%), and packaged food (34%). Over the last two decades, Unilever has been an outspoken and ambitious actor in terms of its sustainability goals, notably through its former CEO, Paul Polman. After a hostile take-over bid in 2016, pressure from shareholders increased. Some accuse the management of being "obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.” Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Case: Blackrock and a (possible) conflict of interests BlackRock is the worlds largest assets manager, with a portfolio worth of €7.49 trillion. BlackRock - voiced by CEO Larry Fink - vowed to put sustainable investment at the heart of its future investment decisions worldwide. Several US states threatened to withdraw their funds in response to “the ongoing and growing economic boycott of traditional energy production industries”. Former employees, NGO’s and activist investors question the sincerity of BlackRock’s commitment. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Sustainability: frameworks and performance metrics The three-dimensional concept of sustainability has been translated into frameworks such as the Tripple Bottom Line and the UN Sustainable Development Goals. Accompanying business performance metrics such as the ESG score (Environmental, Social and Governance) assess an organization’s sustainability efforts and should ultimately divert investments from unsustainable activities («divestment»). Both these performance metrics and sustainability frameworks have been criticised both because of their content and impact:  The frameworks exclude social aspects such inequality.  Performance metrics can promote “greenwashing”.  The frameworks assume that sustainability dimensions can be achieved within the current economic paradigm of growth. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Greenwashing Greenwashing: Misleading consumers and/or authorities into thinking a good or service is more environmentally friendly than it really is. Updated regulation and watchdogs are set-up to enforce the disclosure and standardization of information. In return, corporate strategies are also changing:  Greencrowding: hiding in a group and moving at the speed of the slowest adopter of sustainability policies  Greenlighting: emphasizing green credentials to draw attention away from environmentally damaging activities  Greenshifting: shifting the blame up or down the value chain, usually toward consumers.  Greenrinsing: regularly changing climate and sustainability targets before they’ve been achieved. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Growth and sustainability: have the cake and eat it too? > Are economic growth and (environmental) sustainability compatible? Answers might be grouped into three categories:  Environmental factors pose no limitation to economic growth “If the present growth trends in world population, industrialization, Provided technological progress continues, economic growth can pollution, food production, and be sustained indefinitely (limitless growth). resource depletion continue unchanged, the limits to growth  Environmental limitations exert a ‘drag’ on economic growth on this planet will be reached Natural resource limitations and the various negative effects of sometime within the next one pollution slow down productivity and human well-being. hundred years.” - Meadows, D. H. (1972). The limits to growth: A  Environmental limitations prevent sustained economic growth report for the Club of Rome’s project on the The conflict between continuous economic growth and the finite predicament of mankind. availability of natural resources is leading to a systemic collapse. (the tragedy of the commons) Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Green growth: decoupling Economic growth does not necessarily equal more environmental impact (GDP does not say anything about how things are produced). > Environmental quality is often better in rich(er) countries (the environmental Kuznets curve), because: Economic growth changes preferences > prosperity advances our concern for the environment. Economic growth is driven by technological progress, which leads to resource reduction, rather than an increase: eco- economic decoupling. > What remains unclear is the extend to which decoupling can be achieved: relative (to GDP) or absolute (in terms of total resource usage)… Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Sustainable growth as an oxymoron Degrowth: Economic growth itself is the problem. An infinite expansion of the economy is fundamentally contradictory to the finiteness of material resources on Earth. Instead, what is required is a different notion of “wealth”: prosperity without growth (“degrowth”), achievable through re-localization, alternative measures of progress and currencies. But what about the social consequences? “The costs of deliberate non-growth, in terms of the political and social transformation that would be required in society, are astronomical.” (Wilfred Beckerman – In Defence of Economic Growth, 1974) > Argument: degrowth fuels distributional conflicts. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Doughnut economics Instead of understanding sustainability in terms of objectives, the economist Kate Raworth developed a model which translates water food “sustainability” in terms of limitations: the health social foundation and the ecological ceiling. The ecological ceiling consists of nine income & work planetary boundaries, beyond which lie unacceptable environmental degradation and peace & justice social potential tipping points. equity political voice The social foundation (based on the UN’s SDGs) consist of a minimum amount of economic sufficiency and social fairness, which every human being deserves. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch A selfie of the world Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Economics revisited: different assumptions, different goals Change the goal From maximising the monetary value of all goods and services to meeting the needs of all people within the means of the living planet. Agnostic about growth From economies that need to grow, whether or not they make us thrive, to economies that enable us to thrive, whether or not they grow. Nurture human nature (virtues!) From seeing human beings as isolated, self- interested, calculating and competitive individuals to a caring, reciprocating, compassionate community. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch A new business model: from degenerative to regenerative Degenerative Sustainable Regenerative take take make make regenerate restore biological technical materials materials Landscape degradation Zero deforestation Landscape restoration use use lose lose Built-in obsolescence 100% recyclable Repair & modular design Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch A new business model: from divisive to distributive Divisive Inclusive Distributive Poverty wages Living wage Living wage and profit share Divisive Distributive Capturing opportunity Sharing opportunity and value in the and value with all who hands of a few co-create it Aggressively enforced patents Technology partnerships Open source design Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions www.fhnw.ch Business as usual: limited by design We should introduce senior executive, refillable perfume bottles – major beauty brand but bringing consumers on board needs investment, and the payback period on that I’ve been asked to create capital expenditure is too a range of regenerative long. clothing – while being expected to deliver the usual 15% profit margins from the Paying tea pluckers a living outset. Impossible. wage cannot mean paying suppliers more for their tea. The market just won’t head of innovation, major clothing brand reward this. Plantations need to fund it by raising Tea industry productivity. executive Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Exploring a new business model Degenerative Divisive Regenerative Distributive Commons Business & communities as usual designed to Public services maximise margins and NGOs & dividends charities What’s possible with current business design Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Exploring a new business model Degenerative Divisive Regenerative Distributive Business Commons Business redesigned & communities as usual designed to to unlock Public services maximise regenerative & margins and distributive NGOs & dividends possibilities charities Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Exploring a new business model Degenerative Regenerative and divisive and distributive Purpose How much value How many benefits can we extract Networks can we generate through this through this enterprise? Governance enterprise? Ownership Finance Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: purpose Regenerative and distributive Profit driven business Purpose driven business Purpose Mission statement Products & services Networks Operations & supply chain Governance Disruptive innovations Profit-driven business, such as Ownership Purpose focused on benefits for fast fashion, aims to make and people and the living world can be sell products as cheaply and Finance expressed through the founding quickly as possible - often mission, operations and supply resulting in social and ecological chains, core products and exploitation. services, and by disrupting and innovating in the industry. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: purpose - example Degenerative Regenerative and divisive and distributive Profit driven business Purpose driven business Purpose Networks Governance Profit-driven business, such as Ownership Manos del Uruguay exists to fast fashion, aims to make and sell support its extensive network of products as cheaply and quickly Finance rural artisans who make its natural as possible - often causing social wool-based products, and who co- and ecological harm in the own the business. process. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business : networks Degenerative Regenerative and divisive and distributive Extractive relationships Collaborative partnerships Commodified relationships Purpose Fair Trade Fair Tax Mark accredited Networks Progressive alliances Governanc Circular industry networks e Short-term, pressured, Ownership Long-term, committed and commodified relations. impact-focused relationships Membership of regressive lobby Finance Joining progressive alliances that groups that block change. promote transformation. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: networks - example Degenerative Regenerative and divisive and distributive Extractive relationships Collaborative partnerships Purpose Commodified relationships Networks Governance Short-term, pressured, Ownership During the COVID-19 pandemic, many global brands commodified relations. cut orders and reduced prices for suppliers. In stark Membership of regressive lobby Finance contrast, the food and homewares importer El groups that block change. Puente provided extra financial flexibility, paid upfront, and supported its suppliers - all enabled by its model of multi-stakeholder governance. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: governance Degenerative Regenerative and divisive and distributive Governance in service of finance Governance in service of purpose Purpose Board representation Transparency Networks Metrics of success Governance Management incentives Focused on maximising margins Ownership This is enabled by designs such and dividends for shareholders as: multi-stakeholder boards, and owners. Quarterly reporting Finance including employee drives short-term pressure to representation, and giving a voice deliver growing sales, growing to nature; full transparency; and market share, and growing profits. rewarding management for social and ecological impacts. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: governance – example Degenerative Regenerative and divisive and distributive Governance in service of finance Governance in service of purpose Purpose Networks Governance Focused on maximising margins Ownership Riversimple, a maker of hydrogen and dividends for shareholders cars, seeks to balance interests and owners. Quarterly reporting Finance through a board with six drives short-term pressure to custodians who represent: the deliver growing sales, growing environment, users, neighbours, market share, and growing profits. staff, investors and commercial partners. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: ownership Degenerative Regenerative and divisive and distributive Extractive ownership Generative ownership Purpose Steward ownership Venture capital Cooperatives Networks Employee ownership Governance Community ownership Owners pressures the business to Ownership Many ownership models enable focus solely on growing margins businesses to focus on regenerative and dividends, even if this Finance and distributive results, including undermines the business’s focus ownership by employees, on social and ecological goals. cooperatives, stewards, Only financial interests are communities, multi-stakeholders and represented in the ownership mix. impact investors. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: ownership - example Degenerative Regenerative and divisive and distributive Extractive ownership Generative ownership Purpose Venture capital Networks Governance Owners pressures the business to Ownership The clothing company Patagonia redesigned its focus solely on growing margins ownership to lock-in its commitment to and dividends, even if this Finance protecting and restoring nature. The company undermines the business’s focus set up a trust that controls all shares with voting on social and ecological goals. rights, and an environmental nonprofit collective Only financial interests are that controls all shares with dividend rights. It represented in the ownership mix. draws from the Steward Ownership model. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: finance Degenerative Regenerative and divisive and distributive Finance serving financial returns Finance serving purpose Purpose Dividend caps Flexible margins Networks Revenue sharing Governance Profit share to charity When the quarterly report is king, Ownership There are many ways to ensure that companies focus on short-term finance serves purpose, such as growth in sales, profits and market Finance through: flexible margins; dividend share. This sets the limits and caps; funds for transformative ideas; possibilities for businesses. It can profit distribution to employees and block new ideas and strategies. charities, revenue sharing etc. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Designing a sustainable business: finance - example Degenerative Regenerative and divisive and distributive Finance serving financial returns Finance serving purpose Purpose Networks Governance When the quarterly report is king, Ownership The Body Shop and Plastics for companies focus on short-term Change partnered up to create the growth in sales, profits and market Finance world’s first large-scale Fair Trade share. This sets the limits and recycled plastic. Thanks to their possibilities for businesses. It can holistic perceptions of value, they block new ideas and strategies. were able to depart from standard cost and margin expectations. Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Assignment: from understanding to redesigning (1) Ask how the current design of your business (2) Identify specific changes to your blocks or unlocks your most transformative ideas enterprise design Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch (1) Understanding the current business model Think about what holds Purpose Networks Governance Ownership Finance back both the generation and What is the gap How collaborative are How does your board How does your How do expectations on implementation of between your you able to be with your navigate trade-offs ownership shape the margins determine the transformative ideas. company’s stated industry peers, suppliers between ecological, kinds of strategies and kinds of ideas your purpose and its day-to- and broader social and financial ideas your business is business can pursue? The questions here can day culture and actual commercial partners? goals? able to pursue? How do processes and help identify ways in operational impacts? Can you always pursue Which stakeholders do, What expectations do requirements for capital which your current Are there limits to the long-term, committed or don’t, have a say in owners have on the expenditure determine design can block or way you can change or and open partnerships? key decisions? ecological, social, and your ability to invest in enable your ability to fundamentally financial performance transformative ideas? Which networks are you How do decision- transform your core of the business? pursue your most in, and which do you making processes treat How do dividends and products or services? transformative ideas. support? Are you able to transformative ideas For how long are the exit expectations enable Are there transformative advocate for that challenge the owners committed to or hinder the ability of ideas you cannot regenerative and status quo? the business? How does the business to pursue pursue because it is distributive this impact your transformative ideas? How transparent are considered unfeasible transformations planning? you able to be about or is not a strategic through these? impacts, operations and priority? finances? Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch (2) Redesign the business model Purpose Networks Governance Ownership Finance Use the canvas to If you were to write a How will you achieve How can those most Which stakeholders How and when should desired purpose from a long-term committed impacted have a voice could become part margins adapt to enable identify necessary Doughnut perspective, partnerships with your in your governance? owners? transformative ideas? changes in the deep rather than a financial suppliers and other design, clarifying how Who will represent the How could voting rights How can reinvestment perspective, what would commercial partners? interests of our planet? among owners best be be enabled? they will help and ways it be? How will you join and distributed to protect to implement them. Which processes can Should there be a Which ecological and support networks of the purpose? ensure that social and dividend cap? social challenges could businesses that are Consider the questions you potentially solve? collaborating and ecological goals are How can ownership be What is a fair return for here to help you prioritised in decisions? structured to prioritise advocating to drive investors and how can Are there strategies social and ecological identify areas of your much-needed Who should be on your exits (if needed) be which aren't currently goals? business design which transformations? board? managed to protect feasible, but which can evolve. your purpose? could help your business pursue How will your purpose transformative ideas? be prioritised in situations where it competes with financial goals? Critical Approach & Business Ethics - Sustainability: Economic, environmental and social dimensions Source: Doughnut Economics Action Lab www.fhnw.ch Introduction There is growing recognition that the current global economic system is driving Getting into the Doughnut calls for nothing less than a transformation in the ecological crises and extremes of social deprivation and inequity. dynamics of the global economy. Today’s degenerative industrial systems – inherited from the last century – are still using up and running down the living Doughnut Economics provides one possible compass for turning this situation world, and must rapidly be turned into regenerative industries that work with around, with the goal of meeting the needs of all people within the means of the Earth’s cycles and within Earth’s means. At the same time, today’s divisive living planet. The Doughnut consists of two concentric rings: one representing a context – thanks to the concentration of ownership and power in far too few social foundation, to ensure that no one is left falling short on life’s essentials; hands – must be turned into distributive outcomes, through an economy that and the other representing an ecological ceiling, to ensure that humanity does shares value and opportunity far more equitably with all who co-create it. not collectively overshoot the planetary boundaries that protect Earth's life-supporting systems. Between these two sets of boundaries lies a What, then, does Doughnut Economics mean for business? doughnut-shaped space that is both ecologically safe and socially just: a space in which humanity can thrive. It calls on businesses to demonstrate how they are going to transform so that they will belong in this future – aligned to, and in service of, a world where all Figure 1: The Doughnut of social and planetary boundaries people and the living planet thrive. For many companies, moving towards such a transformation typically begins with innovations in product design, eliminating single-use plastics and built-in obsolescence, while committing to paying living wages for the supply-chain workers making the products. Such actions are an important start, but they are far from sufficient if business is to become not just ‘more sustainable’ but regenerative by design, and not just ‘more inclusive’ but distributive by design. Reaching this scale of ambition calls for transforming not only the design of products, but the deep design of business itself. Innovations in the five layers of business design – through Purpose, Networks, Governance, Ownership, and Finance – are essential if business is to become regenerative and distributive in its strategies, operations, and impacts, thereby helping to bring humanity into the Doughnut. Doughnut Economics is, of course, far from the only initiative calling for business transformation. Many other initiatives and approaches are already underway, with many different points of focus: shifting the mindset of business leaders; promoting consumer and investor action; supporting collective action Version 1.0 (November 2022) | What Doughnut Economics means for business 4 by workers, farmers, and communities; promoting democratisation of business; From a distributive perspective, consider the transformative actions that can be and developing impact measurement to set better targets for businesses. pursued when the interests of the people most connected to, or impacted by, a Governments have likewise introduced rules and regulations, taxes, subsidies, business are core to its deep design. Examples exist, such as wool and fashion new alliances, and innovation programmes intended to promote sustainable producers Manos del Uruguay, whose profits are always used to generate and social business practices, such as through ESG (environmental, social, and benefits for its artisans across rural Uruguay.3 Consider Amul, a dairy company governance) reporting, carbon pricing, and extended producer responsibility. in India whose small-scale farmers own the business, thus benefitting both from its profits and from having purchasing practices designed to support their These are all important contributions to achieving the change needed in the needs.4 Likewise consider the rise of affordable community-owned renewable business world but, as this paper argues, the transformative change required energy suppliers, such as the 1,900 citizen-led energy cooperatives in the will only be achieved by also transforming the deep design of business itself. REScoop Federation, representing over 1.25 million people across Europe.5 Deep design focuses on the ownership and financial structure of an enterprise; how it manages relationships with suppliers, clients, and stakeholders; how it While none of these businesses would yet claim to be fully regenerative and makes and monitors key decisions; and how it sets and protects its purpose. In distributive by design, they collectively demonstrate that innovations in the this sense, enterprise (re)design is foundational for many other deep design of business – its Purpose, Networks, Governance, Ownership, and transformations, in both business and the wider economy, that can help to Finance – can unlock transformative action to open up far greater scope for bring humanity within the safe and just space of the Doughnut. business to become part of a regenerative and distributive future. Focusing on deep design is a fast-evolving approach to transforming business. In order to introduce businesses to Doughnut Economics and facilitate such New design innovations necessary for business to become regenerative and journeys of redesign for companies of many kinds, DEAL has created the distributive are now being created and explored; already the scope of what may Doughnut Design for Business tool. This is a set of materials, activities, and be possible is emerging. From a regenerative perspective, for example, consider guidance for individuals and organisations interested in supporting businesses business designs that make Earth the sole shareholder, a board director, or the to engage with Doughnut Economics through activity-based workshops. chief executive of a company. Examples like this already exist: U.S. outdoor Central to the creation of this tool was a pilot workshop series that DEAL and clothing company Patagonia has made Earth its ‘only shareholder’ (see page CET co-created and co-hosted with businesses from across Europe.6 Much of 15), U.K. based shampoo company Faith In Nature has ‘appointed Nature to its this paper presents insights arising from these pilot workshops, along with board’1 and Willicroft, a Dutch plant-based cheese company, has shaped the insights from other businesses whose innovations in their own deep design are chief executive role to ensure that Nature is the priority.2 Design innovations like enabling them to pursue an ambitious agenda of transformation and to these can fundamentally affect the likelihood of a business taking become regenerative and distributive in their strategies, operations, and transformative regenerative action, for instance by giving the green light to a impacts, and so helping to bring humanity into the Doughnut. regenerative agriculture proposal, making significant investments in carbon-positive construction, or achieving beyond a living wage for supply chain workers. While the counterfactual outcome – ‘what would have happened without that particular business design?’ – is hard to determine, the deep design of a business is certainly a pivotal factor in shaping its key strategies, decisions and actions. Version 1.0 (November 2022) | What Doughnut Economics means for business 5  First is the transformation from degenerative to regenerative design. Currently, 1. Regenerative and distributive a large number of businesses take Earth's materials and make them into stuff, which consumers use for a while and then throw away. This linear ‘take, make, business dynamics use, lose’ model is still embedded at the heart of business models around the world, yet it does not belong on a delicately balanced living planet. Transition to Working with Doughnut Economics helps businesses to understand the scale a regenerative economy is urgently needed, where Earth’s resources are not of transformation that is needed. The global economy is overshooting Earth’s used up but are used again and again, working with and within the cycles of the capacity to support life, while billions of people are still falling short on life’s living world. Examples of businesses moving towards regenerative design essentials. For humanity to thrive, it is essential to move into the include Fairphone, producing modular phones instead of ones with built-in doughnut-shaped space between the ecological ceiling and the social obsolescence, or Interface, whose carpet factories aim to sequester carbon foundation by creating a regenerative and distributive economy. The and match the ecological generosity of the nearby forest. implications for business are profound, requiring two major transformations. Figure 3: From degenerative to regenerative design Figure 2: A world in double crisis: global shortfall and overshoot Version 1.0 (November 2022) | What Doughnut Economics means for business 6 Second is the transformation from divisive to distributive design. Doughnut Figure 4: From divisive to distributive design Economics recognises that current models of business, finance, and trade tend to concentrate value and opportunity in the hands of a few, to the detriment of the many. The majority of the world’s population live in countries where inequality has been increasing.7 At the same time, the world’s richest 1% of people have seen their wealth increase, to the point that they now own almost half of all global wealth.8 As such economic inequality grows,9 it exacerbates health and social problems, from reduced life expectancy and higher infant mortality to poor educational attainment, lower social mobility, and increased levels of violence and mental illness.10 To turn this around it is essential to transform towards distributive economic models that share value and opportunity far more equitably, thereby tackling and reducing such extremes of inequity and marginalisation. Examples of businesses moving towards distributive design include the UK based home entertainment retailer Richer Sounds, making long-term commitments to workers through employee ownership, as an alternative to low wages and precarious employment; or the German food and homewares importer El Puente, and Manos del Uruguay, making long-term commitments to farmers, workers, and artisans in their supply chains through comprehensive fair trade practices. All of these are examples of distributive practices that are made possible by the design of the business. For businesses, adopting practices, strategies and investments that are both regenerative and distributive is far from easy, but it is possible. Businesses already know many of the actions that they should take, based on human rights, labour rights, circular economy, biomimicry, agro-ecology, fair tax commitments and more. But too many businesses are held back from embracing, or even considering, these actions due to their current design. It is here where the greatest potential, and imperative, for redesign lies. Version 1.0 (November 2022) | What Doughnut Economics means for business 7  employment practices to product design, transformative ideas for more 2. The deep design of business regenerative and distributive practices get blocked by the deep design of a business (see further examples in figure 5). In the next section, we will explore The application of Doughnut Economics to business focuses on transforming in more depth how business design can enable or hold back such the deep design of business. By deep design we mean the purpose of the transformative ideas. business, how it operates in networks, how it is governed, how it is owned, and the nature of its relationship with finance. The deep design of business is Figure 5: How business design can limit transformative ideas crucial for the creation and implementation of the transformative regenerative and distributive actions which are required to get humanity into the Doughnut. This is different to the way in which Doughnut Economics is applied to places (see Doughnut Unrolled tools).11 With business, the application of Doughnut Economics is not through developing indicator frameworks, calculating targets, or other such strategies for achieving change; it simply focuses on deep design since this is where the greatest potential lies. Business redesign is not an alternative to other change strategies: rather, it complements, empowers, and profoundly reinforces them. Changing the deep design of business is crucial in two key respects. First, business design enables or limits transformative action. One example comes from a product design team in a major footwear company. They designed a lower-priced shoe that would be affordable for millions of children who currently lack good quality footwear. The shoe would also be more durable, as it could be expanded as the child’s foot grew, avoiding the need to replace it regularly.This shoe would be both ecologically beneficial (reducing waste and Second, a redesign of business will help to support, foster, and empower a the total production volume) and socially beneficial (providing high quality broader transformation of the wider economic system. There are already many footwear to children from low-income households around the world). The shoe initiatives for positive change, including calls for regulating business practices, would be profitable, providing a margin for the business and allowing them to setting impact targets, fostering enlightened leadership, supporting sustainable reach new customers around the world who normally could not afford their finance, and enabling unions and other forms of collective action.Transforming products. When the idea was pitched within the company, however, it was the deep design of businesses will help to create businesses that embrace declined as it didn’t meet the standard high margin requirements of the progressive regulation, ambitiously pursue impact targets, support enlightened business. Every day, decision-making processes like this one limit what is leaders, align with sustainable finance, and enable collective action by workers. possible in the world of business. They impose strict financial parameters on Aligning the deep design of business with the goals of other transformative margins and internal investment (capital expenditure) that are shaped by the strategies will enable business to help create and be part of a regenerative and deep design of the business. From supply chains to product pricing, from distributive future. Version 1.0 (November 2022) | What Doughnut Economics means for business 8 The vast majority of emerging business designs are adaptations and hybrids of ideas and models that have tailored design features based on standard legal forms of business. Legal forms (such as limited companies or non-profit entities) vary across jurisdictions. A business may benefit from changing its legal form, but that is not always essential for transforming its deep design. Similarly, certifications and established models of business structure can be helpful in raising important questions and providing a source of inspiration. But ultimately, transforming the deep design of a business will require innovation and tailoring for the context of that specific business. Doughnut Economics invites an exploration of business redesign that does not depend on any specific legal form or certification. Version 1.0 (November 2022) | What Doughnut Economics means for business 9 3. The five layers of business design In order to explore the layers of the deep design of business, we have taken Governance The governance structure of a Multi-stakeholder inspiration from the work of author and thought leader Marjorie Kelly.1213 In business determines how representation on the particular, Doughnut Economics has drawn from Kelly's five “design elements of decisions are made. This covers board. enterprise ownership”. Doughnut Economics summarises these as Purpose, who is represented on the board, how trade-offs are navigated, Mission-lock through an Networks, Governance, Ownership, and Finance. transparency of the business, NGO or purpose what information and metrics are foundation holding veto Here are the five layers of business design that are at the heart of applying included in annual accounts, and power. Doughnut Economics to businesses. the use of internal incentives to pursue the company’s purpose. Design Summary Examples of design in layer practice Ownership Who owns the business, and to Steward ownership. Purpose The purpose of a business is the Mission-lock through a what extent can these owners fundamental reason why it exists. social enterprise change or undermine its intended Employee ownership. It is not only found in a company’s structure. purpose? Deciding which Cooperatives. words but in its culture and stakeholders are represented in operations, and across its core The stated social the ownership mix, and the Multi-stakeholder products and services. It is and/or ecological expectations of owners on ownership. reinforced by the broader design purpose is embedded ecological, social, and financial of the business. through other layers of performance, can be pivotal. the design. Finance The relationship with finance is a Flexible margins for Networks Businesses create and belong to Long-term and key determinant of a business’s positive impact ideas. multiple networks. This includes committed partnerships ability to become regenerative trading networks across their with suppliers. and distributive. Margin Dividend cap to enable supply chains, networks with requirements, dividend internal investment in commercial partners, and Long-term commitment expectations, and internal regenerative ideas. networks with their staff, to staff, upholding all reinvestment (capital expenditure) customers, and governments. labour rights. and profit allocation rules are a Businesses also belong to key part of this. To shape financial networks of peers in their industry Part of progressive parameters so as to enable and broader business business networks. transformative ideas, the question associations. of a fair return for investors will also arise. Version 1.0 (November 2022) | What Doughnut Economics means for business 10 Purpose Exploring the purpose of a business through Doughnut Economics means posing questions such as: The purpose of a business is the fundamental reason why it exists. Today, the underlying purpose (despite whatever may be stated in company reports) of What is the gap between your company’s stated purpose and its many businesses around the world is to maximise profits to grow the wealth of day-to-day culture and actual operational impacts? their owners and investors. Yet there are also businesses that have been set up If you were to write a desired purpose from a Doughnut perspective, rather to pursue a fundamentally different purpose, one that is aligned with meeting than a financial perspective, what would it be? the needs of all people within the means of our living planet. The purpose of a business is not only found in its words but also in its culture and actions, and across its core products and services. Purpose goes beyond the statements in Networks company reports and marketing campaigns and is found in the shared goals Businesses create and belong to multiple networks including trading networks that staff across the business understand and pursue. It is made visible in the across supply chains and with commercial partners, service providers, and way the business navigates trade-offs. It is found not only in what the business customers. Other networks include relationships with staff, communities, and does but also in what it decides to stop doing. A business that aims to improve governments, as well as networks of peers in their industry, or business the health of its customers would discontinue unhealthy products. A business networks that speak on behalf of the broader business community. Depending that wants to become regenerative would rapidly divest from high-emitting on its purpose, a business will shape how it relates to all of these relationships operations. And a business that takes transformative action only when it also and networks. In a business’s trading relationships, for instance, Kelly proposes maximises profits means that profit maximisation remains the true purpose of that, “instead of commodity networks, where goods are traded based solely on the business. price,” a business can instead be, “supported by ethical networks—which offer collective support for social and ecological norms.”15 Fair trade is a model that For instance, Manos del Uruguay is a fashion business that makes all of its has proven that this is possible, by promoting long-term trading partnerships design, production, and marketing decisions with the goal of creating maximum that share social and ecological goals, including through prices that can enable benefits for the women artisans who own and democratically govern the these goals.16 The relationships with staff, communities, and governments can company. In contrast to fast fashion brands, it plans all production, costing, and also take many shapes, ranging from uncommitted low wage, low tax pricing in a way that maximises benefits to the communities of producers approaches to committed long-term relationships that, for instance, result in behind the business. Likewise, Houdini is a sportswear brand based in Sweden fair tax, upholding labour rights, and forging partnerships that are committed to that demonstrates its purpose of reconnecting with nature by opening up the shared goals. Often, the networks that emerge at industry level are critical to use of its circular product designs and textile innovations to its industry peers.14 transforming practices in that industry. By making its designs open source, Houdini bucks the trend of aggressively protecting intellectual property and instead promotes the circular textile To achieve broader economic transformation, it is also pivotal that businesses ecosystem that a regenerative future needs. Both Manos del Uruguay and join and play an ambitious and progressive role in industry initiatives to enable Houdini demonstrate that the purpose of the business shapes core commercial industry-wide efforts to achieve social and ecological goals. More broadly, decisions and strategies, even where it presents trade-offs with profit businesses can also reshape their industry networks, for instance by leaving maximisation. regressive associations (e.g. Chambers of Commerce that lobby against Version 1.0 (November 2022) | What Doughnut Economics means for business 11 regulations to protect human and labour rights, or against environmental governance models across the business world, but currently the dominant protections) and joining more progressive business networks. model focuses on rules and processes that ensure corporate decisions result in maximum returns to shareholders.18 The structure of the board is central to Examples of businesses embracing long-term and committed trading networks determining who has power and accountability in the governance of a are numerous, including the licensees of the Fairtrade International certification business. There are many alternatives to models dominated by financial and members of the World Fair Trade Organization. There are also many interests alone, and new innovations in the design of governance are fast pioneering businesses such as Dr. Bronner’s in the U.S., and the Body Shop’s emerging. Community Trade programme, both demonstrating exceptional efforts to forge multi-decade partnerships with specific producer communities around the An example of innovation in governance comes from Riversimple, makers of a world, based on fair trade principles. In addition, there are examples of hydrogen-powered electric car. The company’s corporate structure has been businesses embodying regenerative and distributive design in their networks, designed so that a broad range of stakeholders have a stake in the business.19 by joining business communities that lobby for progressive action on human The Riversimple board’s duty is to balance and protect the benefits that it rights and climate, as well as businesses which join initiatives such as the Fair delivers to six critical stakeholder groups: environment, users, neighbours, staff, Tax Mark, living wage organisations, and regenerative agriculture networks. All investors, and commercial partners. The business is answerable to six of these, when combined with other layers of deep design, help to ensure a ‘custodians’ who represent each of these stakeholder groups and, as such, hold business can pursue the goal of helping bring humanity into the Doughnut. the voting shares. Exploring the networks of a business through Doughnut Economics means Another example of multi-stakeholder governance comes from the German posing questions such as: food and homewares brand and distribution business El Puente. Their suppliers, employees, customers, and founders each have equal shares and How will you achieve long-term committed partnerships with your representation on the board. For instance, El Puente’s suppliers (who are suppliers and other commercial partners? long-term business partners committed to Fair Trade and the goal of How will you join and support progressive networks of businesses supporting economically marginalised farmers, workers, and artisans collaborating and advocating to drive necessary transformations? worldwide) elect among themselves a representative for the El Puente board.20 When crises hit, the boards of Riversimple and El Puente can consider a broad range of perspectives; this allows them to shape commercial decisions in ways Governance that are distinct from their competitors which only have investors represented The governance of business “identifies who has power and accountability, and on their boards. who makes decisions.”17 It sets the objectives of a business and shapes how Such a difference in approach is summed up by Marjorie Kelly: “while extractive these are pursued. It shapes the strategies and plans of a business, ownership involves governance by markets – with control by capital markets on determining the processes for its decision-making. These may be decisions autopilot – generative designs have mission-controlled governance, with around the future products and services of a business, how it allows or control by those focused on social mission.”21 prevents particular strategies, and whether it is able to invest in them. Within governance, transparency on decisions and impact is pivotal, and so is transparency and breadth of financial reporting. There are a broad range of Version 1.0 (November 2022) | What Doughnut Economics means for business 12 Exploring the governance of a business through Doughnut Economics means (non-dividend collecting but holding a veto right) are held by foundations that posing questions such as: have a social or ecological purpose underpinning them. Who should be on your board? Who will represent the interests of all those One example of this model is Ecosia, a search engine that uses its profits to who are affected by your business? plant trees in deforestation-impacted places.23 In order to protect the privacy of How do your approach to governance navigate trade-offs between its users, Ecosia also avoids selling data to advertisers and has no third-party ecological, social, and financial goals? trackers. It also uses 100% solar energy for its servers. It has a steward ownership model through a 1% share that the Purpose Foundation holds, which How should decision-making processes engage with transformative includes veto rights but no dividend rights. The Purpose Foundation can use ideas? this share to block any efforts to sell the company and any changes to the charter that would undermine its core purpose. Ownership Exploring the ownership of a business through Doughnut Economics means Owners of a business typically hold the power to decide what the purpose and posing questions such as: goals of the business should be. However, who owns businesses and their rights over the business can vary greatly, resulting in a range of ownership What expectations do owners have on the ecological, social, and financial models that have a significant impact on the ability of businesses to pursue performance of the business? social and ecological goals. Businesses can be owned by individuals and Which stakeholders could become part owners? And how could voting families, by foundations and trusts, by workers and farmers, by venture capital rights among owners best be distributed to protect the purpose? and private equity funds, and they can be owned by a mix of institutional and individual shareholders through listing on stock exchanges. There are also many other ways business ownership can be structured. The priorities of these Finance many different kinds of owners can vary, and s