Sustainable Business | Frank Wijen | TEDxErasmusUniversityRotterdam

Sustainability is a hot topic these days. It used to be the realm of the occasional tree hogger and bird lover, but it seems that today everybody has embraced sustainability. Be it firms, governments, citizens, everyone is talking the sustainability buzz. In the context of business, sustainability is also known under one of its many related terms, such as corporate responsibility, shared value creation, inclusive capitalism, social enterprise, and so on and so forth. As an academic, you might expect me to disentangle all these different terms, but I would just say forget about the academic crap, because in essence all these terms boil down to sustainable development, a term that was coined in 1987 by the United Nations Commission headed by Gro Brundtland, defining sustainable development as meeting the needs of the present without compromising the ability of future generations to meet their own needs. In other words, you can have your share of the pie, but you should also leave enough for others so that they can have theirs as well. Sustainable development is sometimes misinterpreted as saving the planet. Forget about that. The planet will easily outlive humanity. It is rather about us saving us from ourselves by wisely managing natural resources. Sustainable development is also about social inclusion, making sure that marginalized actors, the have-nots, will have equal access to job opportunities and will be elevated out of poverty. So, sustainable development has both an environmental and a social dimension. Now, at a higher level, this may seem quite obvious or appealing, but what if we want to translate these principles into actual practices? As an academic researcher in management, I've been trying to get my head around that question for the past 20 plus years. And I must admit, I haven't managed to do so properly. And this just freaks me out. It drives me crazy. What is underlying this difficulty to come to practical terms with sustainable business? In essence, it's a combination of three factors. Sustainable business is value-laden or normative. It is about what is good, what is bad, and who decides what's good and what is bad. It is complex. There is a multitude of interactions among and between actors and factors. And it is dynamic. It is a moving target, hard to catch. And this combination of factors renders it so damn hard to operationalize sustainable business. This does not mean, though, that we should give up on our ambition to come to terms with it, or that all interpretations are equally imperfect. Some are clearly better than others. Let me give you a few examples of bad interpretations. I was recently in a hotel that proudly served fair trade shampoo from Mauritius, an island off the Southeast African coast. And at first sight, you would say, that's a great idea. You give a decent price to these poor farmers so that they can sustain a better livelihood. So who would be against that? But if you think more carefully about it, what about the carbon footprint of bringing the ingredients all the way from Mauritius to the Netherlands? And what about the plastic disposable packaging of that shampoo? How sustainable is that? Another example in a related vein is the use of microcredits, these small loans given to marginalized actors so that they can have access to credit and to develop some business. In itself, this can be an effective tool to pull marginalized actors out of their poverty cycle. However, the popularity of microcredits has led to a genuine proliferation of schemes and sometimes flooding markets such as Kenya and India. And in combination with the social pressure of local communities who are jointly liable for individual microloans, this has sometimes led desperate defaulting micro-borrowers in India to commit suicide. How sustainable is that? We have finally sort of collectively understood that we need to move away from fossil fuels towards more renewable types of energy. And in the domain of mobility, electric cars are a very promising contribution to that energy transition. There are, though, a few tiny problems with electric cars at this moment. In particular, the batteries, they have some issues. The production of a battery is extremely energy intensive. Where does that energy come from? Is that from renewable sources? What about the recharging of the batteries? Does that come from renewable energy? The batteries themselves, they contain all kinds of toxic materials you'd rather not be exposed to. What about their sourcing? What about their use, including the possibility of the release of these toxic chemicals during a car accident? What about their disposal after their useful lifetimes? Furthermore, these batteries contain cobalt and other rare earth minerals mined from conflict-ridden areas such as Sudan and Democratic Congo. What is the impact of this mining on the local, sometimes armed conflicts? The mining itself, furthermore, literally devastates the local landscapes. So how sustainable is that? Fortunately, there are also better interpretations. One is, oddly enough, in the domain of child labor. To be sure, in an ideal world, there is no child labor. Kids should go to school, they should play, they should relax, be kids. And when I was first confronted with child labor, I was a marketing manager, frequently traveling to Africa. I was really shocked and I thought we should ban child labor for sure. But if you think more closely about this, what if you ban child labor and there are no better alternatives? What happens to the fate of these kids? They might actually end up in worse outcomes, such as prostitution, such as mining, and their families might further impoverish. That is why certain companies, rather than washing their hands in innocence, have taken a bold step forward to address this problem heads on. IKEA teamed up with UNICEF, accepting child labor in the production of Indian carpet drug manufacturing. Provided there would be structural solutions, including schooling, including access to credit facilities for their parents, so that the debts of their parents, which are in India often a root cause of child labor, could be addressed and that the kids would have prospects of a brighter future. You might have heard of sustainability standards. These are, for example, ecological labels, social schemes, signaling that certain products have social and or environmental benefits. The American non-governmental organization Rainforest Alliance issues such standards. And the nice thing about their work is they have differentiated standards per region and per group of users. For example, they have different water management practices prescribed for dryland farming than for agriculture in tropical rainforests, and they have different standards for smallholder farmers than for larger, more industrially operating farmers. Because the local needs and possibilities are different per region, they are different per group. And by matching these needs and possibilities with the prescriptions, they come to more effective solutions. I'm a chocolate lover, and apparently I'm not the only one. Because the demand for cocoa beans, a major ingredient of chocolate, has been on the rise for years. The supply of cocoa beans fluctuates depending on the harvests, but we can see that structurally speaking it is sort of stagnating. Why? 60% of the cocoa bean production originates from Ghana and Ivory Coast. And due to unsustainable agricultural practices in the past, the soil had been eroded and it was impossible to increase the production volumes. Therefore, Mars, the chocolate bar producer, set up a scheme whereby technology was transferred and farmers were schooled in order to enrich the soils and to come to more sustainable solutions for the longer run. Speaking about the longer run, the Dutch government, believe it or not, has sometimes proceeded from simply buying products towards procuring services. In a traditional tender, the government would simply buy from the lowest bidder, meaning that companies will be incentivized to offer inferior products. In a new system, it works quite differently. Rather than simply buying the goods, they would tender the services. Take the example of a road construction company. The company would not just sell a road to the government. No, instead it would build a road, but also maintain that piece of road over a period of 20 years. Maintaining it, and therefore the company is obviously incentivized to use very durable materials. This is one example of a circular economy, where we move away from a system of frequently procuring, using and discarding of resources, towards closing the loop and using and reusing resources over and over and over. If you take the good and the bad examples, what are some lessons we can distill? What are some key principles to effectuate more sustainable practices? First, we need to see the bigger picture. Rather than focus only on specific issues, say carbon footprint, say direct farmer income, we need to see all the different issues combined. We need to see not only the direct effects, but also the indirect effects. Think of addressing the problem of child labor, where there might be a sort of a loophole, if we don't have better alternatives. We should think not only of the short-run outcomes, but also of the longer-run outcomes. Think of the short-run effect of direct access to credit versus the possibility of over-indebtedness. If we want to avoid such situations, we need to see that bigger picture. Now, obviously, this is easier said than done. It's quite complex, but fortunately, with the advancements in information technology, think of big data, think of artificial intelligence, this should become increasingly feasible. How sustainable could that be? Second, we need to contextualize actions. We need to move away from broad-brush, universal, one-size-fits-all solutions towards more contextualized solutions that fit with the needs of local regions and local groups. Think of dryland farming versus rainforest farming, and also think of the needs of small farms and the managerial practices and resources they have versus large, more industrially operating farms. If you contextualize actions, looking on a case-by-case basis, what are the most optimal practices you can apply, we can make bold steps forward. How sustainable could that be? Thirdly, we need to align incentives. We need to ensure that the short-term incentives for individual producers and consumers become aligned with the longer-term collective interests that we all cherish. And this means that we need to redesign the game structure. Think, for example, of moving away from linear towards more circular solutions. Also, think in terms of moving away from short-term agricultural practices exploiting the soil, degrading it towards longer-run solutions, incentivizing people to work towards the sustenance of their agricultural areas. So, if you combine these three principles, what can we infer? I think it's fair to say that sustainable business will, to a certain extent, always remain somewhat contested because we all have different values and interests and we all have an imperfect understanding of reality. We can, though, surely make bold steps forward if we live up to the three principles of seeing the bigger picture, of contextualizing actions, and of aligning incentives. Sustainable business should not be about quarrels over the use of the right terminology. Neither should it be about good intentions and bad practices. But it should definitely be about moving towards more effective solutions that work both locally and globally. For sure, this will be a demanding but also a very important and a fascinating journey. And I invite you to join me on that journey. Thank you.