The Approaches Of Business To Sustainability

Bringing earth overshoot day back to December 31 by including systems thinking into the formulation of the corporate sustainability strategy of firms.

Many of the earth its resources will be running out in a very close future (Berke, 2018). So, even though many firms have incorporated sustainability into their corporate strategies, something still seems to be going wrong. This raises the question if companies are incorporating sustainability, which is, even though a standardized definition does not exist, most commonly defined as ‘‘meeting the needs of a firm’s direct and indirect, without compromising its ability to meet the needs of future stakeholders as well’’, in the right way (Dyllick & Hockerts, 2002, p.131; Montiel & Delgado-Ceballos, 2014).

In order to answer this question, it is useful to first take a step back and demonstrate the previous approaches of business to sustainability. In the traditional economic paradigm, the firms takes an inside-out perspective, with the mere objective of the firm being to act in the interest of the shareholders by maximizing economic outcomes (Marcus, Kurucz, Colbert, 2010; Dyllick & Muff, 2016).

The social and ecological dimensions can be taken into account in business, but only if they can be translated into economical value relevant to the business (Marcus et al., 2010). This view can be extended by the realization of firms that there are also challenges outside of the economic market, however, the view and goal are still the same in this perspective (Dyllick & Muff, 2016). This perspective fails to take into account the non-substitutability, irreversibility and non-linearity of capital (Dyllick & Hockerts, 2002).

Therefore, research has argued for an intertwined perspective, which recognizes that economical, ecological and societal spheres overlap and thus states that firms should and could pursue goals and create value in all spheres (Dyllick & Muff, 2016, Marcus et al., 2010, Wilson, 2003). Performance of the firm in each sphere should be measured, which is referred to as the triple bottom line as defined by Elkington in 1997 (Jeurissen, 2000). This triple bottom line approach has been the basis for corporate sustainability of firms (Willard, 2012). However, the triple bottom line approach fails to take into account the interconnectivity between the spheres (Bansal & Song, 2017).

As they only overlap partially in this view, companies still take an inside-out perspective, pursuing only social and ecological goals when it also positively affects their business, hereby failing to address the true needs of their socio-ecological surroundings (Marcus et al., 2010; Dyllick & Muff, 2016).Hence, a need exist for a different starting point for corporate sustainability strategies. This starting point can be found within systems thinking. All systems are complex systems, which can be defined as ‘‘a set of interconnected elements with a certain function that produce their own pattern of behavior over time” (Meadows, 2008, p.2).

If you split that definition in two, two important attributes of complex systems are exposed. Firstly, all systems are highly interconnected and these interconnections, rather than separate elements, explain the dynamics of the system as a whole (Merali and Allen, 2011; Bansal & Song, 2017; Hoffman, 2003; Kaufmann, 1993). These interconnections exist because of feedback loops, which can in turn be defined as “The secondary effects of a direct effect of one variable on another, they cause a change in the magnitude of that effect’’ (Williams, Kennedy, Philipp & Whiteman, 2017, p.871).

These feedback loops can either reinforce the initial effect, or balancing the initial effect out (Senge, 1991). This brings us to the second part of the definition; complex systems produce their own pattern of behavior over time (Meadows, 2008). Whenever an external force affects the system, the system changes its connections to form a new structure in which it can create accumulated capital adjusted to the new situation through feedback loops (Rotmans & Loorbach, 2009; Holling, 2001). So, systems are always changing, going through adapted cycles triggered by outside events, going from rapid growth, to conservation, to release and to reorganization (Walker & Salt, 2012).

These cycles take place on different levels of time and space, causing that cause and effect might be far apart, subject to delay and reinforced or balanced by feedback loops (Sterman, 2013). Every complex system is embedded into larger, slower system, which implies a hierarchy, but in a different sense than the traditional one of top-down control (Holling, 2001). In the case of a firm as a complex system, it is embedded in the larger business system, which is embedded in the larger social system, which is in turn part of a larger, ecological system (Bansal & Song, 2017; Marcus et al., 2010; Whiteman, Forbes, Niemelä, & Chapin III, 2004).

As the firm thus cannot be seen as separate from its environment, because of the interconnections between all systems and feedback loops, one decision of a firm can have an effect on many different elements within many different levels of the total system, in the end affecting the firm itself as well. Each system has an adaptive capacity, or resilience, which is the ability of the system to adapt to unexpected changes from the outside environment (Holling, 2001; Williams et al., 2017).

Moreover, each system has certain thresholds, which, if crossed, causes the system to behave in different ways with different feedbacks causing different structures (Walker & Salt, 2012 The thresholds of the larger systems can protect destructive disruptions of the smaller systems, while changes in the smaller system can, in the right environment, enforce change in the larger systems (Holling, 2001). However, if the thresholds of the largest system are crossed, this causes a so-called regime shift for the entire system which is usually irreversible (Walker & Salt, 2012; Sterman, 2013).

Hence, in order for the systems to remain in their current regime, their resilience must be enhanced, meaning that they must be able to respond to drastic changes in the external environment. In conclusion, sustainability through a systems thinking lens can best be defined as‘‘The ability of systems to persist, adapt, transform or transition in the face of constantly changing conditions’’ (Williams et al., 2017). Moreover, sustainability is managing the complex system according to the thresholds of that system (Walker & Salt, 2012).

As firms are, as mentioned earlier, embedded in the socio-ecological systems, it must take into account the thresholds of the larger system. Models like the Planetary Boundaries and the Doughnut adequately display where the thresholds of the earth system lie (Rockstrom et al., 2009; Steffen et al., 2015; Raworth, 2017). In setting targets for sustainability, firms can use the knowledge of being part of a larger system to set targets for their own sustainable strategy.

For example, Philips set using 100 percent renewable energy as a target, taking into account the thresholds for the earth system for climate change caused by carbon dioxide in the atmosphere (Koninklijke Philips N.V., n.d.). They realized that their emissions had an effect on the system and through feedback loops would in the end affect their own business. Moreover, climate change is, next to biosphere integrity, the process that already crossed their planetary boundary and, when the threshold is crossed, can have large effect on all other processes (Steffen et al., 2015).

Another example: SOLVE created 100 percent biodegradable clothing, as they realized that textile waste was a treat to the resilience of the earth system (Dan, 2018). Moreover, as firms realize they are part of a larger system, they can take an outside-in approach, questioning how they can transform their operations to resolve the needs of the larger socio-ecological system (Dyllick & Muff, 2016). Taking again a look at the example of Philips: Philips changed its business model in 2016 to lighting as a service, being involved from end to end in the cycle (SmartCitiesWorld news team, 2016).

They transformed their business model to the needs of the ecological system for the reduction of waste which resulted from their initial sales of lamps. Another example of this would be HP that formulated its corporate strategy based on a selection of the Sustainable Development Goals, which can be considered to reflect the needs of the larger social-ecological system (United Nations, 2012; HP, 2017, p.26). Additionally, a systems perspective can help a firm realize its overdependency on certain kind of resources. This makes the firm vulnerable, as these resources are finite and can run out if it is taken out faster than it can be created by the system.

By understanding this connection, firms can decrease its dependency on one resource by encouraging learning, diversification and managing connectivity (Biggs et al., 2015). This increases the resilience of a firm, making it more adaptable to change, but also enhances the resilience of the larger ecosystem. For example, the Port of Rotterdam realized that it could not remain dependent on fossil fuels, which are finite resources (‘‘Non-renewable resource’’, n.d.) Thus, it introduced a car that runs on hydrogen into its fleet, as hydrogen is not received from the earth, thereby decreasing its dependency on a resource and enhancing the resilience of the ecosystem (Port of Rotterdam Authority, 2016).

Lastly, every firm is part of the business system, which is in turn part of the socio-ecological system. When one firm changes its strategy to resolve a certain need of the larger system, this has a small impact. However, as all firms are interconnected as well in the business system, collaboration between firms might create a larger effect of these sustainable strategies on the system as a whole to larger feedback loops. For example, the Roundtable Sustainable Palm Oil, consisting of members from the entire palm oil system, collaborate to protect the earth its system resilience in for example soil quality (Unruh, 2017).

In summary, systems thinking allows firms to realize that they are part of a larger system and that every action of the firm has a direct or indirect influence on the larger systems it is embedded in, and, through feedback loops, on the firm itself. It helps firms to be dedicated to preserving the resilience of the earth system as a whole, as it helps them understand that a regime shift of the earth system can have catastrophic effects on the firm itself as everything is interconnected. Even though this realization might be overwhelming for firms at first, taking this fact as a starting point can in fact help firms in overcoming the complexity that seems to come with sustainability, as there is not one clear definition of it, by giving them the ability to set targets of their strategy according to the thresholds of the system, which can be defined scientifically (Montiel & Delgado-Ceballos, 2014; Steffen et al., 2015).

It helps them switch from an inside-out to an outside-in perspective, helping them to effectively transform to meet the actual needs of the larger system (Dyllick & Muff, 2016). In the end, when all companies have taken a systems perspective in defining their corporate strategies, hopefully the entire earth system will increase its resilience and stay in the current regime, so that earth overshoot day will soon be on December 31, the date where it is supposed to be.

Reference List:

Bansal, P., & Song, H. C. (2017). Similar but not the same: Differentiating corporate sustainability from corporate responsibility. Academy of Management Annals, 11(1), 105-149.

Berke, J. (2018, August 7). One of the largest banks issued an alarming warning that Earth is running out of the resources to sustain life. Business Insider. Retrieved September 21, 2018, from https://www.businessinsider.nl/hsbc-warns-earth-is-running-out-of-resources-for-life-2018-8/?international=true&r=US.

Biggs, R., Schlüter, M., Biggs, D., Bohensky, E. L., BurnSilver, S., Cundill, G., ... & Leitch, A. M. (2012). Toward principles for enhancing the resilience of ecosystem services. Annual review of environment and resources, 37, 421-448.

Dan, C. (2018, July 10). SOLVE creates three biodegradable pieces of clothing that transform into 30 different styles. Designboom. Retrieved September 22, 2018, from https://www.designboom.com/design/solve-three-biodegradable-clothing-transform-into-thirty-styles-07-10-2018/.

Dyllick, T., & Hockerts, K. (2002). Beyond the business case for corporate sustainability. Business strategy and the environment, 11(2), 130-141.

Dyllick, T., & Muff, K. (2016). Clarifying the meaning of sustainable business: Introducing a typology from business-as-usual to true business sustainability. Organization & Environment, 29(2), 156-174.

Elkington, J. (1997). Cannibals with Forks: The Triple Bottom Line of 21st Century Business. John Wily and Sons Ltd.

Hoffman, A. J. (2003). Linking social systems analysis to the industrial ecology framework. Organization & Environment, 16(1), 66-86.

Holling, C. S. (2001). Understanding the complexity of economic, ecological, and social systems. Ecosystems, 4(5), 390-405.HP. (2017). HP Sustainable Impact Report 2017. Retrieved September 22, 2018, from http://www8.hp.com/h20195/v2/GetPDF.aspx/c05968415.pdf.Jeurissen, R. (2000). John Elkington, Cannibals with forks: The triple bottom line of 21st century business. Journal of Business Ethics, 23(2), 229-231.

Kauffman, S.A. (1993). The origins of order. Self-organization and selection in evolution. Oxford University Press. Koninlijke Philips N.V. (n.d.). Commited to the United Nation’s Sustainable Development Goals Linking 95% of Philips revenues to SDG 3 and SDG 12. Retrieved September 21, 2018, from https://www.philips.com/a-w/about/sustainability/downloads.html.

Marcus, J., Kurucz, E. C., & Colbert, B. A. (2010). Conceptions of the business-society-nature interface: Implications for management scholarship. Business & Society, 49(3), 402-438.

McCamy, L. (2018, July 31). On August 1, we’ll have consumed more resources than the Earth can regenerate in a year — here’s how you can reduce your ecological footprint. Business Insider. Retrieved September 23, 2018, from https://www.businessinsider.nl/earth-overshoot-day-is-august-1-2018-7/?international=true&r=US.

Meadows, D. H. (2008). Thinking in systems: A primer. Chelsea green publishing.Merali, Y., & Allen, P. (2011). Complexity and systems thinking. The SAGE handbook of complexity and management, 31-52.

Montiel, I., & Delgado-Ceballos, J. (2014). Defining and measuring corporate sustainability: Are we there yet?. Organization & Environment, 27(2), 113-139.Non-renewable resource. (n.d.). In Wikipedia. Retrieved September 19, 2018, from https://en.wikipedia.org/wiki/Non-renewable_resource. Port of Rotterdam Authority. (2016, January 4). The Port of Rotterdam Authority flashes into the future with the hydrogen car. [Press release]. Retrieved September 22, 2018, from https://www.portofrotterdam.com/en/news-and-press-releases/the-port-of-rotterdam-authority-flashes-into-the-future-with-the-hydrogen.

Raworth, K. (2017). A Doughnut for the Anthropocene: humanity's compass in the 21st century. The Lancet Planetary Health, 1(2), 48-49.

Rockström, J., Steffen, W., Noone, K., Persson, Å., Chapin, F. S., Lambin, E. F., ... & Nykvist, B. (2009). A safe operating space for humanity. Nature, 461(7263), 472-475.Rotmans, J., & Loorbach, D. (2009). Complexity and transition management. Journal of Industrial Ecology, 13(2), 184-196.

Senge, P. M. (1991). The fifth discipline, the art and practice of the learning organization. Performance+ Instruction, 30(5), 37-37.SmartcitiesWorld news team. (2016, November 22). Philips’ light-as-a-service offering. SmartCitiesWorld. Retrieved September 21, 2018, from https://www.smartcitiesworld.net/news/news/philips-light-as-a-service-offering-1137.

Steffen, W., Richardson, K., Rockström, J., Cornell, S. E., Fetzer, I., Bennett, E. M., ... & Folke, C. (2015). Planetary boundaries: Guiding human development on a changing planet. Science, 347(6223), 1259855.

Sterman, J. (2013). Making systems thinking more than a slogan. Network for Business Sustainability. Retrieved September 19, 2018, from https://nbs.net/p/making-systems-thinking-more-than-a-slogan-ad50eb4b-7a55-48c9-bb10-4e71d69b38ff.

United Nations. (2012). The Millenium Development Goals Report 2012. Retrieved September 21, 2018, from http://www.un.org/en/development/desa/publications/mdg-report-2012.html.

Unruh, G. (2017, August 9). Sustainability Demands Collaboration. Huffington Post. Retrieved September 23, 2018, from https://www.huffingtonpost.com/entry/sustainability-demands-collaboration_us_592eef83e4b017b267edff40?guccounter=1.

Walker, B., & Salt, D. (2012). Resilience thinking: sustaining ecosystems and people in a changing world. Island Press.

Whiteman, G., Forbes, B. C., Niemelä, J., & Chapin III, F. S. (2004). Bringing feedback and resilience of high-latitude ecosystems into the corporate boardroom. AMBIO: A Journal of the Human Environment, 33(6), 371-376.

Willard, B. (2012). The new sustainability advantage: seven business case benefits of a triple bottom line. New Society Publishers.

Williams, A., Kennedy, S., Philipp, F., & Whiteman, G. (2017). Systems thinking: A review of sustainability management research. Journal of Cleaner Production, 148, 866-881.

Wilson, M. (2003). Corporate sustainability: What is it and where does it come from. Ivey business journal, 67(6), 1-5.