2.1: Business as Sustainability Actors

The purpose of this chapter is to explain the crucial role that businesses play in the global effort towards sustainability. Climate change is a wicked problem that cannot be solved while businesses operate under traditional methods of operation. The private sector is not separate from environmental, social, and economic well-being but is an actor within all three. The overlap between them can be used as a tool for powerful change. Businesses have the resources and connections to play an influential role in achieving a sustainable future. The power of consumer demand and businesses’ collective ability to meet the needs of society can affect monumental change in the development of a circular economy. Implementing methods of creating shared value, attaining measurable certifications, and participating in collective action will generate cross-industry awareness and positive societal change.

Free Market Capitalism

Under the economic model of free-market capitalism businesses or firms, act as the key drivers of societal development and controll all natural resources. The theory of capitalism claims that society should depend on private companies for all of their goods and services, and reject regulation from governing bodies. Without government regulation, capitalism depends on the quality, affordability, and overall value of products to be regulated by competition.

However, without legal restrictions and government regulations, nothing is stopping these profits maximizing corporations from polluting public reservoirs, over-exploiting natural resources, and underpaying their workers.

Private companies today have more power than some governments, which is why they are key actors in the global issue of sustainability. Out of the world’s 100 largest economies, private corporations make up 52 of them. However powerful the private sector may seem, most modern day free-market economies still implement necessary regulations to prevent private companies from causing an excessive amount of harm. In America the government has the authority to place a carbon tax on companies creating excessive greenhouse gases and additionally ban all single-use plastic, but they currently choose not to. It is in situations like this where the responsibility to regulate sustainable business practices fall upon the private sector. Growing market trends show that modern consumers are becoming more aware of the environmental impacts of global manufacturing and industrialization. Consumers have power in each dollar they spend to call upon businesses to hold accountability. Some companies are now using recycled materials, renewable energy sources, and other more sustainible practices. These practices can actually help companies reduce thier costs and increase customer loyalty, both which lead to greater profits. If the sole intentions of creating less polution is not enough, eco-conscious companies have a head start in the rapidly growing and previously untapped market of sustainable goods and services.

The Triple Bottom Line

In 1984, Edward Freeman introduced a new approach to business, which differed from how a typical business would aim their efforts. Freeman’s stakeholder theory suggests that a business should value all stakeholders of a business while also considering profits. A stakeholder can be defined as a person or entity that is affected by or has an interest in the company. A business’s stakeholders would consist of customers, employees, the local community, the environment, and any other influenced entity. This approach is now referred to when a business implements a Triple Bottom Line. The Triple Bottom Line is a business structure with the three responsibilities of People, Planet, and Profit. This theory requires a business to not only generate value within the economy, but to also reduce, and hopefully eliminate, negative externalities in the societal and environmental sectors.

With this new focus of the triple bottom line approach, negative impacts caused by profit-focused companies can now be reduced. Businesses implementing the triple bottom line structure focus on creating value for their stakeholders, rather than exploiting them. The TBL approach has been implemented by many companies and is seen as a solution to balancing profits with mitigating externalities. Most businesses can’t afford to make the drastic changes to put all three of these bottom lines on an equal scale, because it would be too costly to redirect business operations from profit. Most businesses implementing a TBL structure must gradually shift by making small changes within the business without compromising profit. These gradual changes in business operations differ from businesses and will be covered later in the chapter. Finding a balance between creating value within people, planet, and profit is where business can begin to reduce, and possibly reverse negative impacts, whilst growing the economy.

 

Figure 1 The Triple Bottom Line, created by Marten van den Berg, ChainPoint, 2018

Linear Economy vs Circular Economy

The free-market capitalist model currently operates under a linear economy. The linear economy follows a process that many refer to as the “Take, Make, Dispose” system.  It begins with taking natural resources, making them into something useful, and finishes with disposing of the product after its short-term use. In a world with people that have unlimited wants and needs with a limited number of resources, we run into the problem of scarcity. In the past three decades alone, one-third of our natural resources have been consumed. The solution lies in rethinking and redesigning our relationship with the materials that we use and thus the circular economy was born.

The circular economy is an economic model that is designed to create zero waste. This system was designed to mimic the biological cycle, where species start their life and grow old until eventually their nutrients are returned to the Earth to provide for the life of another species. Closed loop firms would design their products with the intention to either be reused in the future or made out of biodegradable materials. These products are also designed to have the longest possible useful life, instead of being designed to be disposable or cheap and replaceable. At the end of the product’s useful life, they are returned and regenerated into something useful, and the cycle repeats.

Two models showing the contrast between the linear economy and the circular economy.  (Image by Sust 501 Students, 2020)

Companies with products that are not designed to be compostable or recyclable or biodegradable follow a different process. Technology can be deconstructed into its basic components, battery, screen, camera, and instead of upgrading your entire phone for a new one, you could interchange the old features for future innovations. In this example, our economy shifts from being a “buy to own” product-based economy, to one that is more reliant on continuous services. The circular economy challenges any excuse to deplete our resources, and instead gives businesses an incentive to minimize waste, design for future reuse, and build stronger customer relations.