The Age of responsibility
In April 2018, IKEA announced its goal to be a fully circular business by 2030. After this date, the company should be exclusively powered by renewable energies and only be using recycled materials. Up from 3 billion dollars in 2012 to 13.3 billion in 2016, socially responsible investing is expanding rapidly. Millennials may also be more willing to invest in these funds even if they underperform (The Economist, 2017).
Since August 2018, LEGO has been marketing several pieces made of vegetable polyethylene obtained from sugar cane. This choice is part of LEGO’s strategy to produce all small bricks from sustainable materials by 2030 – currently they are produced with ABS plastic, a petroleum derivative.
In France, the PACTE bill plans to amend legislation to reinforce the social and environmental role of companies and help them acquire a sense of purpose.
These are not just a few isolated cases. Nor are they public relations stunts or attempts at greenwashing. These examples show that a fundamental trend is underway.
I am convinced that we are entering a new era, in which companies will increasingly be judged by their overall impact on society and the environment. Companies that refuse to assume these responsibilities are doomed.
The most obvious of a company’s responsibilities – indeed the only one according to the famous economist Milton Friedman – is to increase the company’s profits and defend shareholders’ interests. However, many other groups are affected by the company’s decisions: employees, customers, the communities in which they are located. In a sector such as energy, responsible for 60% of CO2 emissions, it is even humanity as a whole that ends up suffering the consequences of these choices.
Can a company ignore the overall impact of its activities and hide behind the pursuit of profit alone?
I believe that the fortress company model, deaf to the expectations of its wider environment, is doomed to disappear under the pressure exerted by four figures: the consumer, the employee, the regulator and the investor.
First of all, there is the consumer, who is increasingly sensitive to the impact of companies and capable of rapidly mobilising social networks.. At a time when the slightest scandal can become viral, when a boycott or “name and shame ” campaign can be organised with hashtags, nothing is more devastating for a company than being caught in the act of inconsistency between stated values and actual practice.
Then there is the employee, whose commitment depends on the meaning and relevance they find in their work and the company’s projects. . While 85% of European employees declare that they are disengaged in the workplace and that the loss of meaning is one of the reasons for their flagging motivation, companies are being forced to explain their purpose to employees.
Next, the regulator, who forces companies to account for the consequences of their actions and to act. . This can take the form of the requirement for many companies in France to publish an annual extra-financial report, in which they must explain how they take into account “the social and environmental consequences of their activity”. Or the obligation since 2017 for very large companies to implement all possible means to reduce the environmental, social or corruption risks involved not only in their operations but also in those of the companies with which they do business.
Finally, the investor, who has become more sensitive to these risks and quicker to hold the company to account for its overall impact. .In January, BlackRock CEO Larry Fink urged business leaders to highlight “their positive contributions to society” and promised to increase his vigilance as a shareholder. A few weeks ago, BlackRock indicated its intention to contact firearms manufacturers and the networks that distribute them in the United States “to understand their response” to a shooting in Florida.
This development is particularly noticeable in the area of environmental and climate risks. The Task Force on Climate-related Financial Disclosures, chaired by Michael Bloomberg, identified the risk of massive asset depreciation and regulatory risks for companies that ignore climate change in their strategy. The group made recommendations to encourage companies to be more transparent and publicly report on the consistency of their strategy with the Paris Agreement.
Contrary to Milton Friedman’s conservative position, an economic sector, namely social business, is developing around the insight that companies must have a mission that goes far beyond profit creation. . It is no longer enough to limit the negative effects of a company’s activity. It is necessary that the activities at the heart of the company make it possible to solve a human problem, as Muhammad Yunus, the father of micro-credit, puts it.
Among the companies in this new sector is Grameen Bank, created by Muhammad Yunus, whose aim is to facilitate access to credit for the poorest populations. In addition, there are the 2650 companies who have been awarded B Corporation certification, which is granted to companies that respect very strict environmental and governance criteria and amend their statutes to include social and environmental objectives. As announced at its AGM on 26 April 2018, Danone is the first CAC 40 group to embark on this approach.
At the forefront of thinking about the role of business, social business serves as a stimulus for the rest of the economy.
I am convinced that the future of companies, of all companies, and not just those in the social and solidarity sector, lies in reconciling economic performance with social and environmental sustainability; that only companies that focus on repairing the rifts in our world will grow in the long term.
This conviction has led us to make crucial choices at ENGIE.
The choice to focus on long-term value creation and be at the front line of the energy transition trend. That is why we have chosen to completely withdraw from coal – since 2015 we have already halved our coal-fired power generation capacity. To establish an internal carbon price, which has an impact on our investment decisions, and to advocate for a meaningful carbon price around the world.
The choice to pursue a very ambitious corporate social responsibility (CSR) policy, recognised by the major non-financial rating agencies (RobecoSam, Vigeo Eiris, CDP, Dow Jones Sustainability Index, etc.) and to put CSR at the heart of our activities. Both in the way we conduct our projects – they must be developed in constant dialogue with civil society. And in the way we design our commercial offers: like our green electricity offer for private customers in France last year, which has already attracted 1.3 million people. One third said they chose this offer because of the green guarantee.
Or our development of offers for companies to help them achieve their environmental sustainability objectives. At a time when companies like Facebook and IKEA are aiming for carbon neutrality, when Pepsi and Coca-Cola are committed to recovering 100% of the water they use to manufacture their products, a market is opening up for companies that are sensitive to the evolution of society.
The choice to put our expertise to work towards universal access to sustainable energy. That is the reason why we created the Energy Gathering Impact Fund in 2011. The fund manages a portfolio of 18 companies operating in more than 15 countries. These companies cover a wide range of activities: energy efficiency in social housing in Europe, decentralised energy through individual solar systems or micro networks, access to clean cooking solutions in emerging countries, etc. The number of direct beneficiaries is estimated at 2 million people.
These investments also allow us to test new business models and then deploy clean and accessible technologies on a large scale.
The choice to extend our strong CSR ambitions to our entire value chain. . By becoming the world’s leading issuer of green bonds (6.25 billion), we aim to make our financial structure more sustainable. We have also announced our ambition to significantly reduce CO2 emissions throughout our value chain in order to commit to the target of limiting global warming to 2 degrees centigrade. Finally, we are in dialogue with our suppliers in a number of countries to encourage them to improve the working conditions of their employees.
It is not always easy for a large company to make these choices. The main difficulty lies in the gap between short-term financial profitability and the need to create long-term value..The balance between these conflicting demands is delicate and difficult to strike, for both staff and management.
However, whatever the difficulties, a company must strive for greater consistency between its values and its activities. It is also because it has significant resources – financial and human resources, persuasive power, real soft power – that it must put these assets at the service of a balanced form of progress.
This article is part of a series of articles published on the occasion of the MEDEF 2018 Summer University. Share, comment and like on Linkedin with #UEMedef18.