The new social contract for business reimagines the relationship between industry and the planet
Businesses that seek financial gain at the expense of environmental stewardship and human rights are losing their “social license” in the modern market. In the new social contract, societies expect businesses to give back.
Challenge:
Communities do not want to host or support businesses that harm the environment or exploit local labor
Opportunity:
Coaches can help clients develop firm social and environmental commitments to help build rapport with stakeholders
Impact:
Organizations with strong reputations will attract top talent and have a competitive advantage in their sectors
Wisdom Weavers
In a social contract, society determines the “value” of business
In his 1970s essay, Economist Milton Friedman declared that a business’s responsibility is to maximize profits for its shareholders. Leaders following this framework prioritize quarterly profit and growth above other metrics. However, Wisdom Weaver John Friedman describes how this doctrine has been losing favor in recent years because “while Friedman acknowledged the need for business to meet social and legal expectations, society often is ahead when deciding what is value adding, and it goes beyond shareholder profit.” Reflecting on the 2019 Business Roundtable Statement of Corporate Purpose, John shares that beyond shareholder obligations, businesses are also expected “to be a good steward of the environment and a good member of the community because people recognize that businesses have those impacts.” This updated statement of corporate purpose recognizes that organizations must adhere to a social contract because the community acts as a host, consumer, and labor source for their business.
“People talk about doing well by doing good. This is a fundamental shift in defining the purpose of business and the role of business in our society. What do we expect? And we haven’t universally agreed on what this means.”
Beyond the law, social contracts reflect the cultural norms and expectations of the local market. Communities and consumers can collectively use their voices to shape business through boycotts, labor strikes, and unionization. When there is enough pressure, social contracts are formalized into regulation. The social contract can also be renegotiated as cultural and social values change. Wisdom Weaver Ken Bruder explains that with growing environmental awareness, “society, particularly younger generations, are putting much more value on the environmental impacts associated with business.” As a result of the growing demand, he notes, “we’re getting better and better at monetizing it, or at least recognizing the value of it in non-monetary terms.” International movements to regulate labor conditions, carbon emissions, and resource management illustrate how social pressure shapes business.
The shift from shareholders to stakeholders increases social and environmental accountability
Businesses are also changing their strategic language to consider local communities. In 2020, The World Economic Forum updated its Davos Manifesto, urging business leaders to shift from a ‘shareholder economy’ to a ‘stakeholder economy.’ Stakeholder capitalism considers how an organization impacts different types of entities across the value chain. Wisdom Weaver Peter Hawkins notes that when it comes to stakeholders, “There are at least six we have to think about: employees, investors, customers, suppliers and partner organizations, communities where we operate, and the broader, more-than-human world of the ecology.” Reflecting on his work and research as a Professor of Leadership at Henley Business School, Peter explains that because business depends on finite natural resources, organizations will need to maintain the ecology to ensure their longevity. “Every organization is a wholly owned subsidiary of the ecology, and the ecology can shut any of us down…if the individual’s agenda is not the agenda of the world around them, they’ve got problems.”
“One of the biggest things happening right now is the recognition that there are more stakeholder groups, including customer groups, demanding more socially responsible behavior by corporations. This includes shareholder groups saying, ‘I’m not going to invest in someone that pollutes the Earth.’”
Wisdom Weaver Dorothy Maseke works for one of the largest financial services groups in East Africa. She illustrates how the financial sector across the African continent is adjusting because “clients are becoming choosier when it comes to what they expect of an underwriter or an insurer. They want to insure with people who are responsible. They want to put their money with companies that are concerned about the youth or social challenges.” Responding to growing community demand for socially and environmentally responsible business, over ninety African insurers have signed onto the Nairobi Declaration on Sustainable Insurance. Dorothy helped co-lead the development of the declaration at ICEA LION as part of a joint initiative between ICEA LION and UNEP FI. As a result of this work, declaration signatories are committing resources to sustainable development across the continent.
The future of business is innovating to promote social good
Looking beyond the scope of minimizing harm, innovative leaders are finding ways to restore human-caused environmental degradation and support vibrant ecosystems. As a leader in corporate sustainability and climate strategy, Wisdom Weaver Nadine Gudz is excited by global efforts to develop green technologies, repurpose waste, and rethink the impact of business on society. She highlights how “the social purpose movement is challenging the business community to rethink its purpose on the planet. We don’t have time to support businesses that are doing more harm, and the purpose movement gets at some of those critical questions.” A survey by Porter Novelli found that 80% of US Americans believe companies have a responsibility to be solving the climate crisis. Looking globally, the 2023 Edelman Trust Barometer reports that 63% of respondents make purchasing decisions based on their beliefs and values, while nearly 70% expect their employer to have a greater social impact. Most of these respondents believe that companies are not doing enough to address climate change.
Along with aligning business to social and environmental purposes, Ken highlights impact investing as a potential way to catalyze and reward sustainable innovation. He points out the “many investor groups with an interest in preserving the planet who are pooling their resources together and restructuring companies to establish a purpose trust that enables a values-driven culture rather than one that is purely profit-driven. Then, the activities of the company and the resulting dynamics from the C-suite individual to the middle manager to the front-line person will all resonate with a broader mission than to produce a profit.”
Coaches can help clients address changing social expectations around sustainability by:
- Helping clients identify how their work serves different stakeholders, including ecosystems so that they can communicate social and environmental impact
- Engaging entrepreneurial clients to imagine how their skills or business can support social and environmental needs
- Encouraging clients to explore ways they can reduce environmental harm and contribute to ecological restoration
Coaching Empowers People
Eco-coaching and sustainability coaching are gaining popularity as more businesses look to reduce their environmental impact. From entrepreneurs to multi-national companies, coaches can help leaders identify the motivations and values behind sustainability initiatives and then formulate those values into an overarching sustainability strategy. This includes identifying long-term impact, developing goals, identifying progress indicators, allocating resources for scale-up, and communicating impact to a variety of stakeholders.
YFY Group is a collection of companies in “Greater China” focusing on paper, pulp, printing, biotech, and financial services. When the company set out to strengthen its social impact, leaders realized that the paper and pulp industry contributes to China’s poor air quality. To address this challenge, leaders called on Life Cycle Assessment coaching and EarthShift Global to help identify how the new product reduces waste, is less resource-intensive to produce compared to traditional recycling methods, and provides new income sources for agricultural communities. EarthShift Global used the assessment to inform a sustainability strategy, including communication and marketing around the new product. As a result, YFY developed a new way to recycle agricultural waste pulp from rice and straw into livestock feed, paper products, and packaging. As the demand for sustainable packaging expands, YFY continues to invest in innovative technologies to improve its environmental impact.
