ETUI The social-ecological transition: the role of business and labour

Brussels, 23rd May 2014

“Corporation 2020”Transforming Business for Tomorrow’s World

Pavan Sukhdev, Founder & CEO, GIST AdvisoryAuthor, “Corporation 2020”

NOT THE FUTURE WE WANT…

74.9%

7.1%

5.5%

12.5%

U.S. Gross Value Added

Private Business

Households

Nonprofit institutions serving households

Government

Total = GDP (US$14,526.5 billion)

Is a ‘Green Economy’ Possible without greening the Private Sector?

(eg: USA)

2010 data. Source: U.S. Bureau of Economic Analysis

Without a “Green Economy” we cannot achieve the goals of “Sustainable Development”www.unep.org/greeneconomy

Without “Corporation 2020” we cannot deliver a “Green Economy”

www.corp2020.com@corp2020

Sustainable Development,Green Economy, Corporation 2020…

“Corporation 1920” Four Defining Behaviours

Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics

….

“Corporation 1920” Four Defining Behaviours

Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics

…. Causing “Negative Externalities”

Negative externalities of top 3,000 companies estimated at US$2.15 trillion per annum

Source: Trucost for UNPRI, 2010.

“Externalities”… Global Picture

Global Picture:Planetary Boundaries…

Source: Trucost for UNPRI, 2010.

Top 3,000 Listed Companies

Negative Corporate Externalities …..

Water Abstraction

Greenhouse Gases

Greenhouse Gases

Natural Resources

Natural Resources

Natural Resources

….. Are Pushing Planetary Boundaries

“Corporation 1920” Four Defining Behaviours

Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics

….

Smoke and Mirrors in 1920…

Fifty Years On …

“You’ve come a long way, baby”

Accountable Advertising : PUMA

Key Featre of “Corporation 2020”Creating Positive Externalities, not Negative..

Type of Capital

Category of Stakeholder

Stakeholder Expectations

Financial Capital

- Shareholders - Government - Creditors

- Sustainable Growth in Profits - Sustainable Tax Payment - Capital to Withstand Losses

Human Capital

- Employees - Youth - Customers - Society

- Sustainable Incomes (“careers”) - Vocational Training - Sustainable Service Quality - No Health Damage

Natural Capital

- Society - Planet

- Carbon Neutrality - Sustainable use of Resources & No Biodiversity Losses

Evolutionof the Corporation

From : “Corporation 2020”

Why “Stakeholder Reporting?”

Business today depends on, and/or has impacts on, ALL dimensions of private & public wealth… but..

EXAMPLES Physical Capital Human Capital Social Capital Natural Capital

Private Ownership

- Factories- Buildings- Securities- Cash

- Health- Education- Job Skills

- Gardens- Fields- Forests

CommunityOwnership *(club goods)

- Community Centres

- Community Schools

- Traditional knowledge

- Community Norms and Customs

- Community Forests

- Grazing Commons

Public Ownership * (public goods)

- Roads- Bridges

- Public databases

- Non-patent knowledge

- Law & Order- Taxation- Social Equity

& Inclusion

- High Seas fisheries

- National Parks/ Forests

* Creating community wealth and public wealth creates “shared value”

Why “Stakeholder Reporting?”

Business today generally measures & reports only shareholder wealth impacts: private physical capital

EXAMPLES Physical Capital Human Capital Social Capital Natural Capital

Private Ownership

- Factories- Buildings- Securities- Cash

- Health- Education- Job Skills

- Gardens- Fields- Forests

CommunityOwnership(club goods)

- Community Centres

- Community Schools

- Traditional knowledge

- Community Norms and Customs

- Community Forests

- Grazing Commons

Public Ownership (public goods)

- Roads- Bridges

- Public databases

- Non-patent knowledge

- Law & Order- Taxation- Social Equity

& Inclusion

- High Seas fisheries

- National Parks/ Forests

Why “Stakeholder Reporting?”

Business for a sustainable tomorrow – will measure & report on ALL dimensions of its impacts …

EXAMPLES Physical Capital Human Capital Social Capital Natural Capital

Private Ownership

- Factories- Buildings- Securities- Cash

- Health- Education- Job Skills

- Gardens- Fields- Forests

CommunityOwnership *(club goods)

- Community Centres

- Community Schools

- Traditional knowledge

- Community Norms and Customs

- Community Forests

- Grazing Commons

Public Ownership * (public goods)

- Roads- Bridges

- Public databases

- Non-patent knowledge

- Law & Order- Taxation- Social Equity

& Inclusion

- High Seas fisheries

- National Parks/ Forests

How Stakeholder Reporting?GIST 360 ™ Assessment Scope

Reported Value Addition

Human Capital Externalities

Social Capital Externalities

Natural Capital Externalities

Measuring “Value Addition” holistically, including all material Externalities

Mysore Campus, Infosys - World-class Training for 30,000 p.a.

- Attrition feeds trained IT talent to the world- Positive externalities over US$ 1 billion p.a.

Positive Human Capital ExternalitiesHuman Capital Factory for IT Talent: INFOSYS

• “Human Capital refers to the knowledge, skills, competences, and other attributes embodied in individuals that are relevant to economic activity” (OECD, 1998).

• Among the most important assets and a key determinant of country’s overall economic performance

• Among the most important assets for any business and a key determinant of business performance

• One of the “Six Capitals” in IIRC’s recent consultation draft of their “Integrated Reporting” framework (<IR>, 2013)

• Neither national accounts nor business accounts reflect human capital creation or loss, nor human capital externalities

What is “Human Capital”?

Levels & Dimensions of Human Capital

Dimension/ Level Politics Economy Sociology Psychology

IndividualIncrease skills

level Increase earnings Increase equality Increase self-esteem

Company / Organisation

Comply with norms and regulations

Increase competitiveness

Improve image / brand value, & secure social

licence to operate

Improve workplace

environment

Government / Economy

Complement labour market

and employment policies

Drive innovation; Create incomes

from & share costs of

education and skills training

Value knowledge & skills;

Implement life-long learning

concept

Add dynamism to government, & permanence to the economy

Level and Dimensions of Human Capital (Adapted from CEDEFOP, 2001)

Progress of Corporate Reporting on Human Capital: the last 50 years

Stage 4 - From early/mid 1990s - Human Capital as Benchmark of Human Resources

Stage 3 - From early 1990s - Human Capital within globally oriented management frameworksStage 2 - From late 1970s - Human Capital within internally oriented management frameworks

Stage 1 - From early 1960s - Human Capital within accounting frameworks

Approaches to Valuing Human Capital

Cost-based Approach

Originates from Engel's (1883)

cost-of-production method

Based on hisorical cost of production of human capital; via depreciation of value of total amount spent on

an individual

Income-based Approach

Jorgenson & Fraumeni (1989,

1992), Lev & Schwartz (1971)

Based on discounted values of future stream

of lifetime earnings of an

individual

Educational Stock-based

Approach

Le, Gibson and Oxley (2006); Barro and Lee (1993, 1996,

2001)

Based on actual and opportunity costs of formal

education, on-the-job training,

specific training, etc.

HCXTM Model: Results from Infosys Annual Report 2011-12

Source: http://www.managementexchange.com/story/innovation-in-well-beinghttp://totallybeautyaddict.fr/mon-jolieapero-chez-natura-brasil/

Positive Social Capital Externalities A Business Model delivering Social Benefits: NATURA

1.4 million housewives earn 33% sales commission- Economic security improves family & social status for women- Training is used to sell other companies’ goods- Greater proportion of household expenditure on health & education- Increased labour market flexibility and efficiency

• Social Capital can be defined (source: IIRC) as “the institutions and relationships established within and between communities, groups of stakeholders and other networks, and the ability to share information, to enhance individual and collective well-being. Social and relationship capital includes:

• Shared norms & common values and behaviours

• Key relationships and the trust and loyalty that an organization has developed and strives to build and protect with customers, suppliers and business partners

• An organization’s social licence to operate”

• Some business models, company policies and CSR activities are designed to improve such institutions and relationships, and in doing so, will usually generate positive externalities (eg: improvements in public health, societal job creation, environmental conditions, etc.).

What is “Social Capital”?

What will drive change?

Excessive Demand

Culture of Consumerism

Fuelled by Marketing/ Advtg

Ethics & Accountability in

Advertising

Macro Issue Micro Driver Micro Solution

Public Capital Losses Externalized costs Measure & Disclose Externalities

Underpriced Supply Unlimited leverageLimit

Leverage/capital adequacy/etc.

Resource Depletion

Underpriced resources (Low royalties /

perverse subsidies)

Resource Taxes replace corporate

taxes

What will define a “Corporation 2020”?

Four Characteristics Goal Alignment with Society Positive Externalities“Community” “Institute”

“Corporation 2020” views of Labour and the Community

Mondragon: “Risking capital to create labour, not risking labour to create capital”

Tata: “The community is not merely a stakeholder in the business, it is its very purpose”

Alessandro Carlucci Pavan SukhdevCEO, Natura Author, “Corporacao 2020”

Corporation as “Community”: Natura

Thank You !

www.gistadvisory.comwww.corp2020.com