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28 May 2014

Greening the economy: from 1920s thinking to corporation 2020

Sukhdev social-ecological transition

In the second of the ETUI’s conferences on ‘the social-ecological transition’, economist and former banker Pavan Sukhdev was invited to Brussels on 23 May to explain his vision for a new type of corporation, which leaves behind the current globalised economic model that is neither good for workers or the planet. He explained how corporation 2020 companies no longer view the bottom line as the key measure of success, but instead care about their influence on society and communities, measure their impact on nature and workers, their social capital, and are open and transparent to all stakeholders.

The brains behind the UN’s ground-breaking study The Economics of Ecosystems and Biodiversity (TEEB), Pavan Sukhdev turned his back on his career as a banker at Deutsche Bank to turn his “hobby” of green economics into his day job. This has involved setting up the sustainability consultancy GIST Advisory and most recently authoring the book ‘Corporation 2020: Transforming Business for Tomorrow's World’. In his speech at the ETUI conference, Mr Sukhdev outlined the main premise of his book, which foresees a move from the “bad genes of the corporation 1920” model that is in place in most companies today to corporation 2020. While governments have a part to play in greening the economy, Mr Sukhdev believes that macro level reforms are insufficient, and that the private sector must have a leading role in tackling the environmental, social and labour challenges of today, particularly given that it globally accounts for 60-70% of GDP and jobs, and 75-80% in the US.

This means leaving behind a corporate obsession with company size and turnover supported by active lobbying often based on “false statistics, manipulation, and disinformation”. Instead, Mr Sukhdev believes companies need to start thinking “in terms of stakeholder value” centred on their customers and society as a whole. In particular, he wants CEOs of corporations 2020 to think broadly about the idea of capital and to report on all capitals, not simply those that are privately owned such as factories, buildings, securities and cash. “The idea of a wider corporation with a social purpose has been in abeyance…It is time for it to come back,” said Mr Sukhdev. “People have said it was too difficult [to measure other capitals], but it can be done and is being done.” He cited several companies such as the sportswear behemoth Puma, the Indian IT training company Infosys, and Natura, a Brazilian natural cosmetics company, as examples of firms reporting on “positive externalities” like human capital, in terms of skills and health, not simply earnings.

Likewise, the role of lobbying needs to change, said Mr Sukhdev. “Lobbying does not have to be bad. The question is what are you lobbying for? Just for profits?” He also questioned the idea of being able to leverage capital “without limits - we need to be able to borrow, but how much?” At the moment the fund manager has become “the conscience of society, god help us,” he said. “This is not a smart idea.” Another of Mr Sukhdev’s bugbears is the current lack of control over advertising, which he believes is seen as a “freedom, almost a rights issue”. He slammed the industry for “converting our concerns into wants” and forcing people to buy what they don’t need. He asked why “nobody sells longevity”, but instead focuses on new gimmicks, meaning that “profits are driven by volume” rather than value.

The “too big to fail concept” whereby governments bail out big companies with taxpayers’ money was also held up for scrutiny by Mr Sukhdev. The notion of having to save a company because of its size is “absurd,” he said, not least because governments raise the necessary cash by taxing goods such as “hard work”. But the “bads,” such as “resource depletion and carbon emissions are not taxed”. Governments are therefore “mis-incentivising by tax”. Such “wonky logic…can’t go on because the tax base is declining - more people are not getting higher paid jobs, and companies are not making more profit because of [depressed] markets and the recession and so they will not be able to pay more tax,” he argued. In short, if governments think they can raise “more income and company tax…[they] need their heads examined,” he said. Instead, they should be examining the “negative externalities” of commodities, such as the health problems caused by car emissions, which are currently not included in a company’s balance sheet and which are pushing the human race closer to passing the planet’s boundaries. “If we look at total externalities, the true cost of the top 3000 companies is estimated at 2.15 trillion dollars per annum,” he said. Further, once the Earth’s boundaries are surpassed, scientists are doubtful the equilibrium they offered could be regained, added Mr Sukhdev.

Martina Bianchini, chair of the Green Economy Task Force of the International Chamber of Commerce (ICC), welcomed Mr Sukhdev’s speech, but called for more cooperation between government and business to make change happen faster. “From the business side, lots of changes are happening”, but initiatives and investments are “not mainstreamed and not sufficiently scaled up,” she said. “We need much more multilateralism and collaboration…Not everybody is so interested in collaborating with the private sector and so there are missed opportunities”.

Jozef Niemiec, deputy secretary of the ETUC, said it was “inspiring to hear about a future economic model that takes into account nature, human capital and social aspects”. But he suggested that for the moment Mr Sukhdev’s vision remained “a fairy tale” given that “short-term externalities to shareholders”, mainly in the form of company profit, remained the leading concern of most corporations. He also called on the economist to be clearer about where the “money to make changes leading to good quality jobs and the green economy” would come from. Mr Sukhdev said the money was available, but needed to be rerouted, highlighting that 1 trillion dollars are spent annually on subsidising a fossil fuel-based brown economy. “The green economy is not a beggar going round with a begging bowl, it just wants a level football field,” he said.

Mr Sukhdev said he was confident that this and other challenges would be met. “Corporation 2020 will become the dominant gene and the dinosaurs will die,” he asserted.

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