Directions 2014: New Sustainability Thinking

CIRCULA
ECONOM
BENEFIT
CORPORATION
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS
SHARED
VALUE
14
of new sustainability leadership thinking

CIRCULAR
ECONOMY
BENEFIT
CORPORATION
NET POSITIVE
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS
ENVIRONMENTAL
PROFIT & LOSS
SHARED
VALUE

DIRECTIONS 14:
GETTING
UNDER THE
SURFACE
It has long been clear that if we are to tackle the major challenges facing
humanity – whether it be access to healthcare, environmental degradation,
poverty, food shortages, education or human rights abuses - business has a
vital role to play. However, many companies are still struggling to reconcile
the challenge of unceasing demands for growth and economic returns with
the less tangible, but nevertheless real, opportunities presented by playing a
positive role in society
Yet a growing number of businesses are moving beyond the tactical responses
to these issues – energy effi ciency, carbon reduction, codes of conduct – to form
a more strategic view of how their businesses need to adapt. These are businesses
that will not just be viable, but will thrive in the starkly different future that lies
ahead of us.
This is no easy task. But the rise of a number of potentially transformative
approaches to business sustainability – Shared Value, Environmental Profi t &
Loss, Circular Economy, Net Positive, Benefi t Corporations – offers solutions for
moving away from ‘business as usual’ on a much broader scale than has been
previously seen.
So what is it about these particular approaches that has seen them become the
new power behind some of the worlds most sustainable companies?
Are these concepts genuinely transformative? Or are they just the latest ‘big ideas’
that will be shelved in times of trouble or replaced by shiny, new alternatives in
the near future?
Directions 2014 dives under the surface of these approaches and concepts for
sustainable business to analyse what lies at their core, their strengths and
weaknesses and their potential impacts.
By bringing together insight from the academics behind the concepts, experiences
from the companies pioneering them and the ambitions of the organisations
trying to bring them into the mainstream, we hope to shed some light on the inner
workings of these models and to help you explore which – or which combination
– might be the right fi t for your business.
Directions 2014 Team
NIGEL SALTER
Founder & CEO
JIM PEACOCK
Director, Consultancy and
Communications
ANNIE LANCASTER
Senior Consultant
TOM LOVE
Senior Designer
ARIAN OLDROYD
Digital Design Director
ELLEN ALM
Account Manager
LOUISE MOYNA
Production Team Manager
GARY McCALL
Manager of Print
Production and Resources
JEFF SUTTON
Business Development
Director
KIM FORSBERG
Marketing Executive
DIRECTIONS 2014 SALTERBAXTER MSLGROUP

CONTENTS
Evolutionary Timeline..........................................................................................................................................................................................................2
Edging towards a Tipping Point.........................................................................................................................................................................................4
RIP: The End of Business As Usual...................................................................................................................................................................................6
SUSTAINABILITY THINKING:
THE CONCEPTS UNDER REVIEW
1CIRCULAR ECONOMY
New Opportunities Seen
in the Round.............................10
Vision 2030...............................12
China Looks to take a
Leading Role.............................16
Every company should have
a ‘North Star’............................18
35 EP&L
4
SHARED VALUE NET POSITIVE 2The Next Frontier of
Sustainability Leadership ....22
One Year In;
Many Years to Go ....................26
A Quantum Leap Forward......30
EP&L and the Triple
Bottom Line...............................32
Forging the link between
economic and social value.....36
CSR into CSV..............................40
Our contributors............................................46
About us..........................................................48
B CORP
Profi t with Purpose................44
1

DIRECTIONS 2013 SALTERBAXTER
The question of how business can be more sustainable is not
new; indeed, the thinking we’re reviewing in Directions 2014
originated as early as the 1960s, with principles that hark
back to the dawn of capitalism.
Here, we explore how the concepts and models under review
have evolved in parallel, some key moments in their
development, and their adoption by fl agship brands.
2
2014 MSLGROUP
1976
In their research report to
the European Commission,
‘The Potential for
Substituting Manpower for
Energy’, Walter Stahel and
Genevieve Reday sketched
the vision of an economy in
loops (or circular economy).
2006
The concept of Creating
Shared Value (CSV) is fi rst
introduced in The Harvard
Business Review
2006
Nestlé signs up to CSV
2006
Promoting a circular
economy was identifi ed as
national policy in China’s
11th fi ve-year plan.
2005
General Electric launches
‘Ecomagination’
1966 1982 2005 2006 2007 2008
2006
Certifi ed B Corp
Founded
2007
First B Corp
certifi ed
2008
Policy efforts to support
B Corps fi rst launched
EVOLUTIONARY
TIMELINE
1982
The report was published
in the book ‘Jobs for
Tomorrow: The Potential
for Substituting Manpower
for Energy’.
1966
The idea of circular material
fl ows as a model for the
economy was presented by
Kenneth E Boulding in his
paper ‘The Economics of the
Coming Spaceship Earth’.
CIRCULAR
ECONOMY
SHARED
VALUE

3
2010
The Ellen MacArthur
Foundation is established.
2012
IKEA announce net
positive intentions
(not offi cially affi liated
with the movement)
2012
Kingfi sher announce net
positive intentions (not
offi cially affi liated with
the movement)
2012
The Ellen MacArthur
Foundation and McKinsey
release a report entitled
‘Towards the Circular
Economy: Economic and
business rationale for an
accelerated transition’
– the fi rst of its kind to
consider the economic and
business opportunity for
the transition to a
restorative, circular model.
2011
Offi cial Launch by PUMA
2011
UK Government uses
the PUMA EP&L as a
case study for
sustainable business
in a DEFRA white paper
2009 2010 2011 2012 2013 2014
2012
the European Commission
published a document
entitled Manifesto for
a Resource Effi cient
Europe. This manifesto
clearly stated that “In a
world with growing
pressures on resources
and the environment, the
EU has no choice but to go
for the transition to a
resource-effi cient and
ultimately regenerative
circular economy.”
2013
Some big-name brands
sign up to the circular
economy: IKEA, Cisco,
Coca-Cola, Renault
2014
Unilever joins the movement
2009
Conceived by PUMA
chairman Jochen Zeitz
2011
EP&L theory announced
by PUMA
2014
Novo Nordisk becomes the
fi rst big pharma company to
publish an EP&L report.
2011
Shared Value concept
further explained
in The Harvard Business
Review
2012
Kramer & Porter & FSG
found the Shared Value
Initiative – to enhance
knowledge-sharing and
best practice for CSV,
globally.
2013
BT announce net positive
intentions (not offi cially
affi liated with the
movement)
2013
Forum for the Future
partners with WWF
and The Climate Group to
form Net Positive Group,
which aids companies
in accelerating their
progress towards
becoming Net Positive
2014
Forum for the Future, WWF,
and The Climate Group
publish a report (sponsored
by BT) that captures the
principles of what it means
to take a Net Positive
approach
2010
Maryland becomes fi rst
U.S State to pass Benefi t
Corporation legislation
2011
500 Companies have
signed on as B Corps
2012
Patagonia becomes a
certifi ed B Corp
2013
19 US states have passed
Benefi t Corporation
legislation
B CORP
EP&L
NET
POSITIVE

4
Nigel Salter asks: do these new schools
of thought on sustainability provide
business with the tools of transformation
– or are they just more smoke and mirrors?
There’s something different about this
latest edition of our Directions report.
All of this year’s inputs and contributions
seem to confi rm that business and
brands are now focused very much on
the question of how to drive sustainable
commercial success, rather than on
whether or not this is an agenda that
actually matters to them.
It seems to me that, in their different
ways, all of the ideas and methodologies
– circular economy, Shared Value, EP&L,
Net Positive and Benefi t Corporations –
discussed here (there are others of course
too, but we have highlighted the ones that
we see as the most signifi cant) are proof
that business is trying to integrate
sustainability thinking more fully and
make it more operational – clearly a good
thing, regardless of the alignment or
choice of one method over another.
But what are the key factors at work here?
THE NEED FOR PRACTICALITY
There is simply no doubt in my mind –
sustainability thinking has spent too long
with its head in the clouds and not enough
time homing in on the commercial
realities. This is now changing.
Business knows that there is a huge
opportunity in the sustainability challenge.
It is now trying to work out how to
maximise this opportunity to achieve
competitive advantage and ensure future
viability and profi tability. These different
methodologies and ideas give business
leaders and managers some of the tools
and processes needed to plot a path to the
desired results. They may not be perfect
yet, but they are at least valid attempts to
move from management theory to real,
NIGEL N
SALTER
F
Founder & CEO
Sa
Salterbaxter MSLGROUP

5
on-the-ground transformation that
delivers useful outcomes – social,
environmental and commercial.
LEGITIMISING THE
TRANSFORMATION
And it is perhaps also down to the fact
that these models are not perfect yet that
they are acting slightly as totem poles
around which there’s growing
collaboration, innovation and momentum.
The fact is that managers within business
often need the legitimising effect of a
credible school of thought in order to get
adequate buy-in within their companies
to spur on real change.
We should not underestimate the important
legitimising effect within business that’s
come from the names of the Ellen
MacArthur Foundation and McKinsey
sitting comfortably alongside the circular
economy movement and the Michael
Porter/Harvard name being put squarely
behind the concept of Shared Value.
As well as the legitimising effect, the fact
that these concepts are seen to be
increasingly credible also provides another
kind of much needed security. It offers
cover for some of the failure that is going to
be an inevitable and, indeed, essential part
of the journey to fi nd workable solutions.
As Kingfi sher confi rms, not all the
innovation and new thinking will work and
so it is essential to experiment within a
framework that creates enough room for
failure, as well as success, to be acceptable.
Innovative thinking needs an umbrella!
COMMUNICATING TO BUILD
CRITICAL MASS
We should also not underestimate the
massive role that communications and
effective engagement have to play in
driving change.
As everyone knows, good stories really do
help to get people on board and, to a
degree, all of the models and ideas covered
here have a storytelling role to play as well
as doing the actual job of turning science
into substance. The circular economy
somehow wouldn’t be as memorable or as
attractive if it was called The Regenerative
Economy. Net Positive is a simple story to
capture. The EP&L is a neat blend of
sustainability and fi nance – written in a
language business can understand. All of
these methodologies enable business to
explain itself better.
And one step beyond just storytelling is
actual engagement – where people are
compelled to act and get more involved.
As Robert Metzke from Philips explains,
all businesses need an ambition – a
‘North Star’ to strive for. Over and above
just storytelling, these models provide the
desired destination and a sense of
purpose that gets organisations, teams,
people and processes all properly and
effectively lined up.
These organisations themselves would
undoubtedly prefer to emphasise the
substance and science part of the
argument. But in the practical, messy
reality of business, there is no doubt these
models also help with the important task
of communicating new ways of thinking
and getting people to engage with them.
BUSINESS FILLING THE
GOVERNMENT VOID
It was probably shortly after COP15 that
business woke up to the reality that
governments were not going to be the
force for change needed to address the
world’s sustainability challenge.
Since then, business has taken on the
responsibility much more by itself – or in
sector or even multi-sector collaborations
– to build the momentum needed. All of
these models and processes could be said,
at least partially or indirectly, to have been
borne out of that lack of leadership from
government – or at least from the sense
that if business is to gain commercially
from the agenda then it needs to apply its
own rules and operate on its own terms.
That’s not to say that government and
other policymakers have failed to
respond totally.
The big focus on public-private
partnerships we’ve seen in the last few
years, particularly in developing markets,
is evidence of a changing mindset – Guido
Schmidt-Traub makes this point well in his
article and underlines that, actually, the
scale of the challenges we face means that
public-private collaboration is essential.
And the fact that the United Nations
Sustainable Development goals (UN SDGs)
appear to be a more relevant framework
for business to engage with, and have been
relatively well received by business, points
to some positive potential.
THE NEED FOR SCALE
But we also have to be honest with
ourselves. Despite all the talk of the last
decade and the great theories, has that
much really changed?
Michael Porter made this point well in last
year’s TED talk called ‘Why business can
be good at solving social problems’.
As he points out, business really has to
roll its sleeves up now and apply the profi t
motive to the societal challenge of
sustainability.
This is partly because business is good at
solving problems. But it’s also down to the
simple fact that it controls the vast
majority of the world’s resources, and
most of the efforts and initiatives to date
have operated at too small a level.
The only way to truly address the issues
is to operate at scale across the system.
And only business has the model (profi t
based) and the resources to deliver this
effectively. Porter’s statistics underline
the dilemma pretty dramatically – total
global revenues by stakeholders split
like this: Non-profi t organisations –
$1.2 trillion; Governments – $3.1 trillion;
Business – $20.1 trillion.
These new models and schools of thought
are all signifi cant attempts to square this
circle and to apply commercial thinking to
society’s key sustainability challenges – in
a way that can be quickly scaled up.
They may not provide the fi nal answers.
But, taken together, they are starting to
look like a tipping point.

We’ve come to the end of ‘business as
usual’. Guido Schmidt-Traub argues
that if we are to meet the scale of the
environmental challenges that face us,
and to have a chance of achieving the
UN’s Sustainable Development Goals,
the models under review here are only
the start: the private sector must play
a central role in making a reality of
sustainable development. Here he
outlines the need to fundamentally
change how business works, and the
major transformations that need to
take place.
According to NASA fi gures, the frequency
of extreme temperature events – events
that should occur only once every 700
years – has already risen 100-fold, even
though the earth has warmed by “only”
0.9°C. Warming by another 0.4–0.6°C is
built into the system at today’s
concentration of greenhouse gases,
meaning that even if we were able to stop
emitting greenhouse gases today, things
would still get signifi cantly worse.
But if we carry on along the road we are
currently on, the earth will be 4–5°C
warmer by the end of this century.
This will put the climate system outside
the stable range of the Holocene epoch
that has enabled human civilization to
fl ourish over the past 10,000 years.
It’s clear that ‘business as usual’ simply
does not offer a viable long-term
perspective for economic growth. And yet
rapid growth is still possible, but only if it
becomes sustainable by respecting
environmental boundaries at local,
regional, and planetary levels.
FOUR MAJOR TRANSFORMATIONS TO
SUSTAINABLE DEVELOPMENT STAND
OUT FOR BUSINESS.
01. EMISSIONS
A drastic reduction of greenhouse gas
emissions – from 5.2 tons of carbon
dioxide per capita to 1.6 tons by 2050.
This will require massive increases in
energy effi ciency; low-carbon electricity
generation; the electrifi cation of
transport, heating and cooling in
buildings; and the decarbonisation of
industrial processes, such as cement,
steel and chemical production.
02. AGRICULTURE
An increase in agricultural production by
at least 50 per cent to serve the needs of
a growing and increasingly prosperous
global population.
This need must be met using far fewer
resources. Before 2030, the world needs
to stop land degradation and net
conversion of land to agricultural use,
bring water use in line with sustainable
supply, reduce excessive nutrient fl ows,
and lower chemical pollution.
03. SUSTAINABLE CITIES
Cities will require higher-density
housing and land-use planning;
resource-effi cient infrastructure and
services; and drastically reduced
pollution of air, water, and land.
This urban transformation must occur
soon. If not, countries will get locked into
unsustainable infrastructure and land-use
patterns that might have a lifetime of
70–100 years.
04. PRODUCTION
Industry must transform itself to
respond to rapidly changing tastes and
lower resource intensity and
environmental pollution.
This will require higher resource effi ciency
in energy, water, and other material
inputs; drastically lower levels of
emissions and pollution; and innovative
life-cycle management of all industrial
products – particularly long-lived
pollutants, such as plastics. With some
four to fi ve billion people aspiring to
middle-class lifestyles, this process of
industrial transformation needs to
happen at an unprecedented pace.
GUIDO SCHMIDT-TRAUB
Executive Director
UN Sustainable Development Solutions Network
RIP: THE
END OF
‘BUSINESS
AS USUAL’
“IT’S CLEAR THAT ‘BUSINESS
AS USUAL’ SIMPLY DOES
NOT OFFER A VIABLE
LONG-TERM PERSPECTIVE
FOR ECONOMIC GROWTH.”
6

7
SOME PROGRESS –
BUT A LACK OF SERIOUS ACTION
Each of these four transformations marks
a major departure from ‘business as
usual’. The “circular economy”, “Net
Positive”, “Shared Value”, and other
emerging business strategies for
sustainability are an important step
towards launching the four
transformations.
Some businesses are already fi nding new
opportunities in these transformations,
but overall, governments and business
have not begun to tackle these
transformations seriously.
So the question is: how can governments
and business harness such innovation to
drive transformations in energy,
agriculture, cities and industry?
DIRECTED CHANGE
The Sustainable Development Solutions
Network (SDSN) – commissioned by UN
Secretary-General Ban Ki-moon to
accelerate practical problem-solving for
sustainable development – shows that
each transformation requires long-term
change in technologies, in business
models, in regulation, and in consumer
behaviour.
Achieving the transformations will require
“directed technological change”, a
process involving six steps:
01. GOAL SETTING
Just as business requires clear goals to
succeed, the world needs to adopt long-term
goals for sustainable development.
Building on the success of the Millennium
Development Goals (which set
quantitative targets for reducing extreme
poverty), governments are now debating a
new set of Sustainable Development
Goals for the period 2015–2030.
02. BACK-CASTING AND NATIONAL PATHWAYS
Countries and businesses need to back-cast
feasible trajectories to work out what
needs to be done today to achieve long-term
goals. These should be transparent
and public to promote open debates with
the active participation of business.
03. TECHNOLOGY BENCHMARKS AND
R&D ROADMAPS
Countries and businesses can set
technology benchmarks, providing the
long-term incentives that businesses
need to innovate and to mobilise the
ingenuity of their engineers.
Benchmarks also provide a framework
within which businesses and other
innovators can develop long-term R&D
roadmaps. We could do something similar
for energy transition, with the
International Energy Agency perhaps
leading roadmapping processes for
energy storage, solar power, wind power,
carbon capture storage, electric vehicles,
residential energy effi ciency, smart grids
and fourth generation nuclear power.
04. PROTOTYPING
Prototyping of new technologies requires
extensive public-private partnerships to
ensure adequate public co-fi nancing,
supportive regulation, and effective
monitoring and evaluation. Unfortunately,
public fi nancing and support for
prototyping are widely inadequate. A vivid
example is provided by lacklustre efforts
to invest in large-scale demonstration
projects for carbon capture and storage
(CCS) even though all available pathways
suggest that this technology is required to
decarbonise energy in countries that rely
heavily on coal, such as China and India.
05. PUBLIC-PRIVATE PARTNERSHIPS FOR
SCALING UP
Public-private partnerships can roll out
new technologies at the requisite scale.
Such partnerships need to mobilise
public and private fi nancing, ensure
sound regulation, and promote
technology diffusion. Business leadership
will be required to think through how
partnerships can be designed.
06. BEHAVIOUR CHANGE
The scale of the sustainable development
challenges requires mass adoption of new
technologies, but also of healthier
lifestyles and resource-saving
behaviours. Mass education will need to
be promoted to raise awareness.
DYNAMIC PARTNERSHIPS
Some worry that such directed
technological change smacks of Gosplan-style
central planning, but this is a
profound misunderstanding of the
challenges facing us, and the available
responses.
All successful technology
transformations have relied on strong and
dynamic public-private partnerships
around shared goals.
Responsible businesses and their leaders
who invest in such partnerships should
and will be amply rewarded in terms of
their bottom line, their brand, and their
ability to attract the best available talent.
“RESPONSIBLE BUSINESSES…
WILL BE AMPLY REWARDED
IN TERMS OF THEIR
BOTTOM LINE, THEIR BRAND,
AND THEIR ABILITY TO
ATTRACT TALENT.”

8

The circular economy aims to
move us towards an industrial
economy that is restorative in
nature. Moving from the current
linear model – take, make, dispose
– to a circular economy requires a
fundamental rethink of how
business operates, with emphasis
placed on reducing the use of
natural resources, designing-out
waste and allowing valuable
biological and technical materials
to deliver value beyond the life of a
single specifi c product or service.
KEY FACTS
• The Ellen MacArthur Foundation was
founded in 2010 with the aim of
accelerating the adoption of the circular
economy. This crystallised and unifi ed
thinking dating back to the 1970s
• The Ellen MacArthur Foundation and
McKinsey & Company have
collaborated in making the business
case for the adoption of the circular
economy with their reports, titled
‘Towards the circular economy’
• In 2014, Project MainStream was
announced: a collaboration between
World Economic Forum, Ellen
MacArthur Foundation and McKinsey &
Company to help businesses shift
towards a circular economy and as a
result save US$500 million in materials
• Key players include Philips, IKEA, Cisco,
Coca-Cola, Renault, H&M, The LEGO
Group, and Unilever.
9
OPTIMISING THE
VALUE OF BUSINESS

NEW
OPPORTUNITIES
SEEN IN THE
ROUND
ELLEN MACARTHUR FOUNDATION CIRCULAR ECONOMY MODEL
10
we reached an infl ection point in 2002,
when commodity prices started to rise
sharply and we entered an era of
increasing price volatility.
Suddenly it became far harder to predict
resource and energy prices with any
certainty. This has potentially devastating
effects for companies with high fi xed
costs, which rely on achieving economies
of scale to continue growing. Clearly, in
this volatile context, making gradual
effi ciency gains will not be enough to fuel
that growth. Indeed the very notion of
“business as usual” is put under the
spotlight in this new environment and,
with three billion new middle class
consumers coming into the market by
2050, just using a bit less and recycling a
bit more material might not be enough to
cut it.
Moreover, a throughput economy relies on
high volumes of goods and services being
sold, and that calls for a healthy customer
base. However, while productivity has
been steadily increasing over the past 60
years, wages have been largely stagnant
since the 1970s. To counteract this and to
keep the wheels of the economy turning,
large amounts of credit were made
available at low cost. But the era of cheap
credit hit a roadblock with the fi nancial
crisis of 2008, resulting in less disposable
income for consumers.
THE RULES HAVE CHANGED
So, in two very fundamental ways, the
‘rules of the game’ for our economy are
changing, and business leaders,
innovators, academics, students and
scientists are looking for a way out – a
new model which will allow us to redefi ne
our notion of economic progress in the
twenty-fi rst century.
One option is the circular economy, a
model that has been gaining traction
around the world in recent years. Unlike
the linear model – based on the idea of
mine, make, sell, dispose – the circular
model is regenerative by design.
It relies primarily on optimising two
distinct material fl ows, biological and
ELLEN MACARTHUR
Founder
The Ellen MacArthur Foundation
Today’s linear economy – in which
resources are extracted, made into
products, sold and ultimately thrown
away – is facing fundamental
challenges. A new regenerative model
– the circular economy – is taking
root, offering huge opportunities to
those progressive enough to make an
early shift, says Ellen MacArthur.
The economic model we have lived by for
the best part of 200 years has served us
well. In terms of cheap and accessible
energy and materials, the linear model
inherited from the Industrial Revolution
has proved successful, fuelling
unprecedented economic development
throughout the twentieth century. And,
boosted by new discoveries, increased
effi ciency and new technologies, we’ve
also felt the benefi ts of steadily declining
commodity prices.
But all that changed in the early years of
the new century. As investment expert
Jeremy Grantham fi rst observed,
MINING/MATERIALS MANUFACTURING
TECHNICAL NUTRIENTS
RECYCLE
REFURBISH/
REMANUFACTURE
REUSE/
REDISTRIBUTE
PARTS MANUFACTURER
PRODUCT MANUFACTURER
SERVICE PROVIDER
MAINTENANCE
COLLECTION COLLECTION
BIOLOGICAL NUTRIENTS
FARMING/COLLECTION
BIOCHEMICAL
FEEDSTOCK
RESTORATION
BIOGAS
ANAEROBIC
DIGESTION/
COMPOSTING
BIOSPHERE
EXTRACTION OF
BIOCHEMICAL
FEEDSTOCK
Ellen MacArthur Foundation, adapted from McDonough &
Braungart (C2C Protocol) and Stahel (Performance Economy)

THE CIRCULAR ECONOMY
11
technical. Products and services in this
model are designed to circulate
effi ciently, with biological materials
returning to the food and farming
system, and technical materials being
kept in production and put to new use,
without loss of quality. A circular model
generates new revenue streams, reveals
overcapacity and puts assets to good
use while ensuring that, as leading
Performance Economy thinker Walter
Stahel puts it: “The goods of today
become the resources of tomorrow, at
yesterday’s prices”.
GROWING MOMENTUM
As well as the decline of cheap materials,
energy and credit, there are other
changes underway that are supporting
the transition to a circular economy.
A combination of factors – including
reducing home sizes, less disposable
income, the prevalence of the mobile web
and smartphone capabilities – has led to
the emergence of a “new consumer”, one
who is less concerned about owning
‘stuff’, and more interested in the services
or power technology provides.
We see evidence of this in a number of
ways. Just look at the momentum growing
behind the collaborative consumption
movement or ‘sharing economy’, and the
huge number of new businesses set up to
exploit the idling capacity of a range of
assets. Empty rooms can be booked
through AirBnB, journeys through Lyft,
and even musical instruments through
Sparkplug. Clothing company Le Tote
provides access to women’s fashion for a
fl at monthly fee, in the same way people
use Netfl ix or Spotify instead of owning
physical DVDs or CDs.
Technological advances are facilitating
these business models – fi nding and
booking the nearest communal car or bike
has only been made convenient with the
advent of smartphones and mobile
networking. Product tagging and tracking
and the the ability to analyse huge
amounts of data through the ‘Internet of
Things’ are also enabling manufacturers
“THE GOODS OF TODAY
BECOME THE RESOURCES
OF TOMORROW, AT
YESTERDAY’S PRICES.”
or service providers to keep an eye on
their products – how much they’re being
used, if they’re performing properly and
when they’re about to go wrong. This
makes product recovery feasible, and
opens up valuable new customer service
or aftermarket opportunities.
Global trends are providing a fertile
environment for a shift in the economy.
And, in addition to offering an exciting new
lens for innovation, increasing circularity
could offer a signifi cant economic
advantage too.
In 2012, the Ellen MacArthur Foundation
published the fi rst in a series of reports
entitled ‘Towards the Circular Economy’.
These reports have concluded that a
circular economy would not only help
decouple economic development from
use and overuse of fi nite resources, but
also represent new economic
opportunities worth more than $1 trillion.
As our fi rst report showed, circular
processes could play straight to one of
Europe’s greatest strengths – its high-value
manufacturing sector, where up to
$630 billion of net material savings can be
achieved per year through improvements
in design, business models, reverse
cycles and improvements in education
and policymaking.
In a world of uncertainty, many are asking
what the future economy will look like in
the context of population growth and
resource constraints. Our research and
analysis tends to indicate that a circular
economy framework could offer guiding
principles for rethinking and redesigning
the future.
There are promising signs that a shift is
taking place. But creating a new system,
which rebuilds economic, social and
natural capital, will require real ambition,
a pioneering spirit and the willingness and
ability to collaborate in new ways.

MARTIN STUCHTEY
Director
McKinsey & Company
VISION 2030:
The logic behind creating a circular
rather than linear becoming increasingly companies, argue and Helga Vanthournout, McKinsey & Company. slow, with businesses needing to break lifetimes to reap industrial era.
By 2030, up to three from the developing middle class, putting on natural resources. showing up in the commodity prices global economic output. even as global competition there is growing political pressure on business environmental and The “circular economy” address all these issues.
This regenerative companies to create their dependence designing products use, disassembly, economy aims to just from manufacturing throughout the life their components.
HELGA VANTHOURNOUT
Knowledge Expert
McKinsey & Company
12
d ar economy is
asingly clear to many
ue Martin Stuchtey
hournout, of
mpany. But progress is
esses and consumers
k the habits of several
the benefi ts of a new
ee billion consumers
ng world will enter the
ing enormous pressure
ces. This is already
market: since 2009,
have grown faster than
utput. At the same time,
mpetition intensifi es,
olitical and public
ess to improve its
d social performance.
omy” offers a way to
ssues.
economic model helps
ate value while reducing
on resources by
s for multiple cycles of
and re-use. The circular
eradicate waste –not
cturing processes, but
e cycle of products and
.
It is built on four principles:
1. Creating business models to capture
more value from a manufactured
product
2. Designing products with multiple
useful lives in mind
3. Developing “reverse logistics” that keep
the need for quality and cost effi ciency
in balance
4. Co-ordinating with players within and
across supply chains to create scale
and to identify higher-value uses.
This approach contrasts sharply with the
mind-set embedded in most of today’s
industrial operations, where even the
everyday terminology – value chain,
supply chain, end user – describes a
rigid linear approach.
In the circular economy, the traditional
linear model of manufacturing – take,
make, and throw out – becomes a
regenerative one that retains and
restores material, energy, and labour
inputs. Re-use, refurbishing or
recycling, not disposal, is the new
default option.

HERE ARE SOME EXAMPLES OF
HOW THE CIRCULAR ECONOMY
CAN WORK:
RENAULT
Renault leases batteries for electric cars,
in large part to recover them more easily
so they can be re-engineered or recycled
for additional use. The French carmaker
has a dedicated plant near Paris that
remanufactures automotive engines,
transmissions, injection pumps, and
other components for resale. The plant’s
operations use 80 per
and almost 90 per cent
compared with a comparable
facility. The plant also
operating margins.
“JUST BECAUSE SOMETHING
IS DIFFICULT, THOUGH, DOES
NOT MEAN THAT IT CANNOT,
OR SHOULD NOT, BE DONE.”
H&M
Global apparel retailer H&M encourages
customers to bring in old clothes in
exchange for discount vouchers. Most
are dispatched to the global
secondhand apparel market. The rest
can be used as substitutes for virgin
materials in other applications, such as
cleaning cloths and textile yarns or to
create damping and insulation materials
for the auto or construction industries.
When all other options are exhausted,
the remaining textiles become fuel to
produce electricity.
CATERPILLAR
Caterpillar anticipates remanufacturing
needs when designing its products and
then uses its dealer network and
aftermarket service infrastructure to
ensure that its components are returned
at minimal cost. The Cat Reman business
refurbishes and uses the parts in
remanufacturing, with the resulting
products sold on at a fraction of the price
of new. The company moved 70,000 tons
remanufactured products in 2010.
results,” says Caterpillar, are
productivity and lower costs”.
RENAULT
ELECTRIC CAR BATTERY
LEASING SCHEME
CATERPILLAR REMAN ENGINE PARTS
H&M LONG LIVE FASHION
13
remanufacturing op
cent less energy, an
less water, compare
new production faci
delivers higher oper
S
of remanufa
“The results
“maximum
CATERPILL

VALUE CREATION AND CAPTURE CAN BE MAXIMISED BY
ADDRESSING PRODUCT AND SYSTEM DESIGN SIMULTANEOUSLY
Optimise resource effi ciency
through system design of
> Manufacturing
> Retail sales channel
> Supply chain
Optimise resource effi ciency
through
> Specifi cations
> Material selection
> Reduction of materials
14
DESIGN CHOICES
CREATE USE
Optimise EoL treatment
> Component selection
> Product modularity
Optimise customer
interaction through
> New business models
> Closer interaction
with customer
Optimise for effi ciency
in use through
> Component selection
> Technology/software usage
Complement product w/
ancillary services
that increase effi ciency
Optimise collection
infrastructure through
increased collection rates
> New business models
> Value chain design &
incentives
> Alignment of external
infl uencers
System Design
Product Design
RETURN
PROJECT MAINSTREAM
Project MainStream is a collaboration
led by the World Economic Forum,
Ellen MacArthur Foundation and
McKinsey & Company as knowledge
partner. MainStream will accelerate
the transition to the circular economy
by taking CEO-led collaboration on
carefully selected pressure points to a
new level. This will unlock the
stalemates that individual
organisations cannot resolve, even
when working with their own partners
and supply chains. MainStream is now
launching its fi rst three fl agship
delivery projects – on plastic
packaging (bringing together cities
and large players in the consumer
industries), paper eco-design
(improving yields through better
choice and use of inks and additives),
and asset tracking (better end-of-use
value recovery through knowledge
of product whereabouts, ownership,
and quality).

“COMPANIES COULD SAVE
MORE THAN $1 TRILLION PER
YEAR USING CIRCULAR
ECONOMY PRINCIPLES.”
15
The circular economy benefi ts the
environment, by reducing extraction
and manufacturing emissions and
moderating the consumption of natural
resources. But for corporate leaders
who need to satisfy investors and
shareholders with tangible benefi ts,
what does the circular economy have
to offer?
First, more effi cient energy and resource
use translates directly into lower
production and operational costs. On
materials alone, McKinsey estimates that
companies could save more than $1 trillion
per year using circular economy principles.
For example, P&G identifi es partners that
can use its process waste and non-performing
inventory. The strategy has
created $1 billion in value over the last fi ve
years and the consumer-goods giant has
also achieved zero waste at 25 per cent of
its manufacturing facilities.
“ IT HAS TO BE SAID THAT
IS NOT EXACTLY TAKING
THE BUSINESS WORLD
BY STORM.”
Second, the circular economy provides
additional ways for companies to connect
with their consumers and thus to build
loyalty. Instead of selling a product, and
not seeing the consumer until it is time to
buy again, in the circular system there can
be more (and more interesting)
touchpoints. For instance, Philips is
beginning to sell lighting as a service,
not as a product. In some cities and
institutions, customers pay for the light,
and the fi rm does everything else, from
installation to maintenance to recycling.
It makes for a much stronger relationship
than ringing up light bulbs at the cash
register. Caterpillar’s programme allows
it to make money on second-hand parts,
so that it captures a bigger share of the
total lifecycle.
So that is the case, and it makes sense.
But it has to be said that the circular
economy is not exactly taking the
business world by storm.
Few companies have gone in this direction
in a big way – and that is understandable,
given the diffi culties of adapting business
practices according to the four principles.
Closing product and component loops is
no easy task, despite attractive arbitrage
opportunities. With dozens of
components from dozens of suppliers
(and even countries) embedded in a
product, it can also be diffi cult to
develop alternative supply chains.
“A circular economy on a worldwide scale
will require a lot of players to change
simultaneously,” notes Philips CEO Frans
van Houten, “and that’s a bit of a chicken-and-
egg problem”.
Moreover, the power of inertia should
never be underestimated. Many aspects
of business-as-usual refl ect decisions
made long ago. The “take-make-and
throw out” model of production has been
familiar since the earliest days of the
Industrial Revolution and companies have
spent 150 years optimising their
production, logistics, and marketing
operations around it.
Consumers have their own hard-to-break
habits. For instance, most people
evaluate the expense of products only at
the point of sale, though that does not
always make sense. The Ellen MacArthur
Foundation has estimated that leasing
high-end home washing machines would
lower the cost of use for consumers by a
third over fi ve years. Manufacturers
would also earn more by leasing their
fl eets of machines multiple times before
refurbishment. But who thinks about
renting a washing machine?
Just because something is diffi cult,
though, does not mean that it cannot,
or should not, be done. Clearly, the era
of low and falling resource costs is
over. At the same time, the idea of
sustainability is spreading.
In the past, respondents most often cited
cost cutting or reputation management
as reasons for pursuing sustainability
initiatives. That is changing. In a recent
McKinsey survey, 43 per cent said their
companies were trying to align
sustainability with their overall business
goals, mission, or values, up from
21 per cent in 2010. Almost half of CEOs
(49 per cent) said they considered
sustainability a top-three priority,
up from 34 per cent in 2010.
As sustainability rises in signifi cance,
capturing its full value grows more
challenging. To do so, the four principles
need to be ever more integrated into the
core business, and this is not easy. There
are, however, proven approaches and
techniques. The larger point is that
moving toward a circular economy can
help forward-looking companies innovate
and fi nd new paths to growth, while also
laying the foundations for a new industrial
era that benefi ts companies, economies,
and the environment alike.

PROFESSOR HAIFENG HUANG
Assistant Dean, Peking University HSBC Business School
Executive Chairman
Ecological Development Union International
With growing environmental and
technological challenges, China has
very clear reasons to search for a new
model of economic development. But
it’s not just about achieving the
‘Chinese Dream’ in a new, more
sustainable way, says Haifeng Huang
of Peking University. China wants to be
part of a global transition.
The Industrial Revolution brought huge
benefi ts to society, benefi ts that were felt
throughout the twentieth century. But
today the picture has changed.
With many countries facing a growing
income gap and wrestling with serious
environmental problems, it is becoming
increasingly clear that – as the Club of
Rome’s book The Limits to Growth argues
– our previous approach to economic
development now has the power to
destroy human life. We need to fi nd a new
way to secure growth.
It is in this context that the idea
of a circular economy has emerged,
and gained serious consideration
across the world as a creative way
to balance economic, environmental
and social sustainability.
CHINA’S CIRCULAR ECONOMY –
IT’S TIME TO CHANGE
Not surprisingly, the circular economy is
being looked at carefully in China where
industrialisation, urbanisation and
modernisation are still in their early stages,
and where it’s an increasingly tough task to
16
strike a balance between stimulating
growth, improving people’s livelihoods and
protecting the environment.
The government’s own strategic goals for
2020 indicate why a shift to a circular
economy holds so much appeal.
Within that time, the Chinese economy is
expected to reach RMB35–36 trillion, GDP
per capita has been forecast to exceed
RMB250,000, and the population is
expected to grow to 1.4 billion, with 55 per
cent of people living in cities and towns.
However, in these forecasts, traditionally
polluting industries still make up a large
part of China’s industrial output.
Clearly, if the country continues its
traditional approach to economic
development, the environment and
society will not be able to bear the burden.
And there are dangers for Chinese
industry too, if things do not shift. Chinese
enterprises lack advanced technology
and market competitiveness, and as a
result are about an eighth as effi cient as
those in Japan and a fi fth as effi cient as
their US competitors. If energy prices
continue to rise sharply, or if global
environmental regulation gets tighter,
China, the so-called ‘factory of the world’,
will face a series of signifi cant problems.
PROGRESS AT EVERY LEVEL
To stimulate a healthier economy and
tackle the growing logjam of
environmental constraints, China is
paying increasing attention to a circular
economy and sustainable development to
fi nd a new way to pursue the “Chinese
Dream.” It is something you see at every
level, from government to businesses,
to individual consumers.
First, the government is focusing more on
the quality of economic development
rather than, as in the past, its speed. The
emphasis on economic development is
also being transferred away from the
heavy manufacturing industry, and more
to the soft service industry.
A high-effi ciency, low-emission energy
system is being built, and the
development of renewable energy
sources, including hydropower, biomass,
solar energy, geothermal, and ocean
energy, are being sped up. Enterprises
are also focusing on improving labour
standards and testing new approaches
to management.
For the individual, lifestyle and
consumption patterns are also changing.
Environmental issues have become an
increasingly important concern for
informed consumers. For them, products
labelled ‘circular’ have a growing appeal.
A NEW KIND OF DIALOGUE
In the past, a number of stumbling blocks
have stood in the way of progress, and
two of them relate to China’s relations
with the rest of the world.
Take technology transfer, for example.
America has the world’s leading
CHINA LOOKS
TO TAKE THE
LEADING ROLE
“CLEARLY, IF THE COUNTRY
CONTINUES ITS TRADITIONAL
APPROACH TO ECONOMIC
DEVELOPMENT, THE
ENVIRONMENT AND SOCIETY
WILL NOT BE ABLE TO BEAR
THE BURDEN.”

17
technology for controlling sulphur
dioxide emissions. However, because of
tariff barriers, US fi rms can only export
the second best technology, not the best
and most effi cient, to countries like
China. The circumstance is the same
when China brings its own products to
international markets.
Foreign investment in China is obviously
welcome, but it can have negative
impacts too. Investing in exporting old-fashioned
products and processes to
China and concentrating investment in
environmentally unfriendly industries like
textiles, chemicals, and electronic
manufacturing, has played a big part in
creating China’s current environmental
and pollution problems.
This has been an issue in the past but,
thankfully, the dialogue between China
and the rest of the world is changing.
Nowadays, it tends to focus much more
on green issues and on the circular
economy. You can understand why. Mr.
MA Jun, the chief economist of the
Central Bank’s research bureau, predicts
that China will have the demand for a
staggering RMB2 trillion of green
investment a year in the future.
WHAT CAN CHINA BRING
TO THE WORLD?
In July 2014, China staged its Eco Forum
Global Conference with the theme of
“Joining Hands, Leveraging Reforms to
Bring Forth a New Era of Eco-civilization.”
As China’s Prime Minister, LI Keqiang,
stated, “Protecting the environment and
stimulating green development requires
the cooperation of the whole world”.
Embracing a circular economy is a good
way to promote mutual trust and
business benefi ts between China and
other countries.
China has made its position clear. It is
ready to play a big role in developing a
circular economy – not only at home,
but across the world.
PUBLIC POLICY IN CHINA
IS ALSO DEVELOPING
RAPIDLY TO REFLECT
THESE NEW ECONOMIC
AND ENVIRONMENTAL
REALITIES.
Specifi cally, the government is trying to stimulate
green and circular development in nine ways:
Establishing a ‘green bank’, using green bonds
as the major fi nancing mechanism
Completing the fi scal interest rate mechanism
to encourage green debt
Banks and rating agencies are introducing more
indices on environmental risk and building up a
green credit system
An environmental measurement system, based
on natural capital liabilities, is being created
A pilot mandatory green insurance plan has
been launched
Listed companies are being encouraged to disclose
important environmental information
A network of green investors is being established
A carbon trading market is being developed
Consumers are getting much better information
to help them choose green products.
1
2
3
4
5
6
7
8
9
MADE IN CHINA

EVERY
COMPANY
SHOULD
HAVE A
‘NORTH STAR’
Robert Metzke tells Jim Peacock why and how Philips
has embraced circular economy thinking as its
strategic guiding light. Short-term pressures might
stop other companies following suit, but there is a
real danger they will cease to exist if they fail to
adapt to a more sustainable model.
18
JP: How did circular economy thinking
come into being at Philips?
RM: It emerged as part of our EcoVision5
programme. We understood from life-cycle
analysis that the impact of our
products and services on society and the
environment is orders of magnitude
bigger than the impact that we have
within our own factories.
When you think about sustainable
development in a nutshell, it is really
about providing more people with better
opportunities, whilst meeting the
boundary conditions for environmental
sustainability. We just have this one
planet for all the nine billion people that
will be living here in 2050. If you zoom in a
bit and try to understand some key drivers
behind this, you very quickly get to
econometrics that measure quality of life.
As a leading company in health and
wellbeing, Philips can make a signifi cant
contribution in the fi eld of access to
health care. But on the environmental
axis, the biggest two components are
energy use and material resources.
Now, energy use is something Philips has
been addressing for decades, pioneering
in the fi eld of energy effi cient lighting, for
instance – leading the LED revolution. But
trying to understand the importance of
closed material loops was the next logical
step for Philips – it was the missing piece
needing to be put in place.
And that is what we sought to address
with EcoVision5, by doubling the amount
of recycled materials in our products and
doubling the amount of recycled products
themselves. Formulating that into a
specifi c programme around the circular
economy is just the next logical step – as
well as asking: how can this help us to
drive business, reinvent our business
models, and make it attractive for our
customers and suppliers to support and
participate in it?
ROBERT METZKE
Senior Director of Group
Strategy and Alliances, Philips
JIM PEACOCK
Director, Consultancy and Communications

19
JP: What did you do to bring the rest of
the business on board? Was it a pure
business case argument? Or was it
about connecting it to improving the
lives of three billion people?
RM: It was a bit of both. We started with
the megatrends and the strategy piece to
understand what is relevant to us. We
were in discussion with our supply chain
experts to understand resource security
for example. The interesting thing is that
everything points in the same direction
and leads to the same conclusion.
The other discussion was: what really
has the biggest impact on people in the
world, on our customers? That was linked
to our vision to improve the lives of three
billion people, so we had to dig into what
ways we can have an infl uence on
improving lives.
And of course we were looking into new
business opportunities. The early works
published by the Ellen MacArthur
Foundation and McKinsey really helped
to kick-start our thinking; we just put it
on the agenda for internal meetings – to
discuss what it all means for Philips.
We tried to quantify it, using individuals
from various markets to translate the
thinking for the regions, to make the
overall business case for a change in
thinking for Philips.
JP: What’s been behind the recent rise to
prominence of the circular economy?
RM: One factor is the ‘perfect vortex’ in
terms of societal interest. There is a huge
societal interest in environmental issues,
and the debate about climate has
broadened signifi cantly. Also the
perception of what to expect from whom
has shifted: should we wait for
government to defi ne new rules of the
game? What is the role of companies?
What can you expect from good
corporate citizens?
This thinking is changing.
Part of it is becoming mainstream
thinking amongst strategists and
economists. On all sides it is coming out
of the niche.
JP: So what role have Ellen MacArthur
and McKinsey played in driving this into
the line of fi re for business?
RM: I would not underestimate the role
they’ve played. It has been stunning and
successful. The trends are there, the
insights are there, but they created a
platform to exchange thinking around it
and to bundle the forces, and that was
very useful.
Ellen MacArthur has determination and
an all-encompassing vision that enables
people to join and to build on it. But the
partnership with McKinsey – translating
the thinking into language specifi cally
understandable for business – was
hugely important too.
JP: What are the barriers to its adoption?
RM: I don’t think it can be stopped.
Companies that don’t get it will put
themselves at a signifi cant strategic
disadvantage and may eventually cease
to exist. So eventually it will spread, and
the question perhaps is whether there
are accelerators that will help us to get
through this transition more quickly and
without the huge supply disruptions
that might happen if we run out of
precious materials.
JP: Is short-termism a threat?
RM: There is enough distraction in the
short term to duck the issues for a while
and not do the right thing; everybody
knows this.
But it will catch up. Investors are
becoming more interested in the role of a
good sustainability strategy on driving
shareholder value. They are increasingly
learning what the impact is on stock
markets. This will enable them to ask the
right questions at shareholder meetings
to trigger action in businesses that have
not yet engaged.
The rest comes back to execution. Every
company should have a ‘north star’ –
where you want to go, who you want to
be in 5, 10, 20 years. And then you have
to back-cast it and make it part of your
strategic planning cycle, and eventually
it can be broken down into very
operational stuff that can be managed
quarter to quarter.
JP: What would be your advice for
organisations looking to adopt circular
economy thinking?
RM: I would urge them to think about what
their company is all about: where they
really can make a difference and what
they want to achieve. Then explore the link
between this and circular economies. If
you can link it to your core strategies, to
your reason for being, then you tap into
the intrinsic motivation of your people.
You make it strategically relevant, and it
creates a lot of energy and direction.
“I DON’T THINK IT CAN
BE STOPPED. COMPANIES THAT
DON’T GET IT WILL
PUT THEMSELVES AT A
SIGNIFICANT STRATEGIC
DISADVANTAGE AND MAY
EVENTUALLY CEASE TO EXIST.”
“EVERY COMPANY
SHOULD HAVE A ‘NORTH STAR’
– WHERE YOU WANT TO GO,
WHO YOU WANT TO BE IN
5, 10, 20 YEARS.”

KY 120
mA 170
NET POSITIVE
10.00
Tilt: 0.0
2.0s 17:21:10:09
v:74 1:90
20

21
FROM ZERO IMPACT
TO POSITIVE
CONTRIBUTION
Net Positive asserts that the
ambition of many businesses to ‘do
less harm’ is simply not enough to
effectively tackle the social,
environmental and economic
challenges we face. Companies
therefore have a duty to go beyond
‘zero harm’ and deliver a ‘Net
Positive’ impact to society that
leaves the world better off than
they found it.
KEY FACTS
• The Net Positive Group, made up of
Forum for the Future, WWF, and The
Climate Group, was established in
2013 to crystallise the net positive
intentions announced by several
fl agship brands
• Key players include IKEA, Kingfi sher,
SKF, Capgemini, Coca-Cola
Enterprises, The Crown Estate and BT.

Zoe Le Grand invites you to imagine
what your business would look like if
the net effect of its existence were
positive – in the widest sense. More and
more businesses are taking this “Net
Positive” approach, but the window of
opportunity to create a more equal and
sustainable future is closing.
22
Imagine a world where businesses exist
for three main purposes: to deliver social
value to customers and society, to restore
the natural environment and to deliver
healthy profi ts to their shareholders.
It’s a world where businesses replant and
replenish the land, use their buildings to
generate clean and green energy and help
their customers to do the same. A world
where they provide fulfi lling, well-paid
jobs and apprenticeships, and help
communities to gain skills. And one where
they work with their clients and supply
chain partners on amazing new
innovations which not only make people’s
lives easier, without damaging
the environment, but also provide
their shareholders with healthy,
long-term returns.
Some sustainability leaders have called
this approach: “Net Positive”. It’s a step
change beyond more conventional
approaches to sustainability and for
those companies slogging their way
towards targets that start with a zero –
zero carbon, zero waste – becoming Net
Positive can sound like a tall order.
ZOE LE GRAND
Principal Sustainability Advisor
Forum for the Future
THE NEXT
FRONTIER OF
SUSTAINABILITY
LEADERSHIP

23
If you’re Kingfi sher and you’re reliant on a
product like timber to make 40 per cent
of your products, you need to be sure
that the supply of timber doesn’t run out.
So you don’t just need to reduce the
trees you cut down, you need to actively
plant more.
Ikea have chosen to focus on greening
their own, and their customers’, energy
supplies. By selling more effi cient
electrical products and even solar
panels, they can expand market share
whilst reducing carbon emissions for
them and their customers.
Being Net Positive goes beyond
mitigating risk and making incremental
improvements. It encourages companies
to get innovative with their products
and services and enter new partnerships
and markets.
So what does Net Positive really mean?
Why should your business adopt this
approach? Where should you start?
REASONS TO REACH FURTHER
The foundations that businesses rely
upon – raw materials, supply chains and a
supportive civil society – are being
eroded. To survive in the long term,
businesses need to work harder to shore
up those foundations.
Aiming to minimise harm or to have zero
impact won’t be enough. Businesses
need to reach further, become active
contributors to the environment and
society, and move from just minimising
the harm they do towards a position
where the “net” effect of their existence
is “positive”.
Many companies may feel they make
enough of a contribution to society
through their tax contributions and the
jobs they provide. But being Net Positive
means taking this even further and in
doing so securing benefi ts for both
society and the business itself.
“IF YOU WANT YOUR
BUSINESS TO SURVIVE
FOR THE LONG TERM THE
TIME TO ACT IS NOW.”
NET POSITIVE

THAT’S GREAT, BUT WHERE SHOULD I START?
Together with The Climate Group and WWF, we brought together
an exciting new partnership of businesses keen to make this a reality
– the Net Positive group. The group includes Ikea, Kingfi sher, SKF, Capgemini,
Coca-Cola Enterprises, The Crown Estate and BT. Together we’ve identifi ed a set
of key principles that characterise a Net Positive approach and provide a simple
framework to help develop a new strategy or test an existing one. The full list is
in the Net Positive Group report – but here are a few of the main ones:
01. FOCUS ON THE AREAS THAT
MATTER MOST
The fi rst step is to look right along the
value chain and fi nd out where your
biggest material impacts are, including
the areas which have the biggest impact
on your business, and those that your
business has the biggest infl uence over.
BT, for example, realised it could reduce
the amount of carbon emissions created
by its customers. By innovating products,
such as home hubs, and delivering
tele-conferencing and other services
to reduce customer travel, BT managed
to cut carbon while growing its business.
Good news all round.
24
02. SHOW WHERE YOUR
POSITIVE AND NEGATIVE
IMPACTS ARE
Becoming Net Positive brings signifi cant
measurement challenges. How do you
demonstrate that your contribution is
really additive? No company can measure
everything down to the nearest decimal
point. So it’s critical to be clear about
where you draw your boundaries and
report in a transparent, consistent and
authentic way. If you have to make trade-offs,
be clear about where and why. The
Net Positive group will be working this
year to make measurement of Net
Positive impacts easier. Watch this space!
03. INNOVATE ACROSS THE
VALUE CHAIN AND BEYOND
Becoming Net Positive requires
companies to think bigger and to enter
into new partnerships and networks to
create wider positive impacts than would
be achievable alone. For instance, The
Crown Estate is working with farming
tenants to investigate new and improved
methods of food production.
04. CHALLENGE
BUSINESS-AS-USUAL
A Net Positive impact can’t be achieved
by business as usual. Indeed, for some,
it challenges their very business model.
Kingfi sher is trying to move beyond the
“selling more stuff to more people”
model by experimenting with small-scale,
rental models that provide access
to all the tools customers need for a job
without having to buy new products. It
also provides online tutorials to improve
customers’ skills.

25
05. WORK WITH OTHERS TO
INCREASE YOUR IMPACT
A Net Positive approach challenges
business to work in new ways. For
instance, the only way Coca-Cola
Enterprises could recycle more packaging
than it uses was to establish JV
businesses in France and the UK to
transform the PET recycling
infrastructure for the benefi t of the wider
community. Where communities will be
affected, work with them to create a
positive impact for you and for them.
06. BREAK DOWN BARRIERS
The regulatory landscape may not be
designed to support the level of
innovation that a Net Positive approach
requires. You will need to work with
policymakers and lobby for change.
07. DO THE RIGHT THING
Some things can’t be replaced. A new
pine forest won’t make up for the
destruction of ancient woodlands. Net
Positive results in one area will never
compensate for irreplaceable natural
losses, or ill treatment of individuals
and communities, somewhere else.
Proving you’ve got this balance right can
be tricky – and that’s why the Net
Positive group will be looking at this in
more detail this year.
Some cynics believe that being Net
Positive in some areas could make up for
bad practice elsewhere. Don’t use it as a
smoke screen. Being Net Positive means
that you also demonstrate a good level of
corporate responsibility across the
board, in line with internationally
recognised guidelines.
THE WINDOW IS
CLOSING – ACT NOW
More and more companies are making
Net Positive commitments.
Manufacturers such as SKF are
committing to going “Beyond Zero”. Velvet
toilet tissue has promised to “put more
trees in the world”. And it’s not just the
private sector; public organisations are
stepping up as well. Greater Manchester
Fire and Rescue service, for instance, has
committed to being carbon positive by
focusing on preventing fi res as well as
putting them out. It is also using fi re
stations to generate clean, green energy,
reducing carbon and saving taxpayers’
money too.
But our window of opportunity to create a
more equal and sustainable future is
closing. It’s time for businesses to make a
positive contribution to the environment
and society as well as to the bottom line.
It won’t be easy, and there may be some
mistakes made along the way, but if you
want your business to survive for the long
term the time to act is now.
NET POSITIVE
Net Positive Group members

JAE MATHER
Guest Lecturer at the University of Cambridge Institute
for Sustainable Leadership (CISL) and
Non-Executive Director at Newform Energy
Jae Mather looks at one company’s
experience of putting a Net Positive
approach at the heart of its business
strategy. Kingfi sher is not only
prepared to experiment boldly, he says,
but also to learn from the mistakes that
inevitably come with being a pioneer.
For many years, zero carbon – having no
impact on the environment – has been the
goal of forward thinking organisations.
But, in reality, zero isn’t enough for those
companies that are right out in front in
terms of sustainability. Increasingly they
see the need not only to tackle their own
impacts, but also impacts that would, in
the past, have been seen as outside their
direct control.
Kingfi sher – whose interests include
B&Q, Castorama, BricoDépôt, Screwfi x
and Koctas – falls into this more ambitious
category. It has embraced Net Positive so
that a restorative approach to operating
sits at the centre of how it does business.
THROUGH ITS NET POSITIVE
APPROACH, KINGFISHER AIMS TO:
> Have a positive impact on
people and communities
> Be restorative to the environment
> Become carbon positive
> Waste nothing
> Create wealth and grow
26
This transition – from business as it was
to business as it will be – will lead to large-scale
transformations across most areas
of the business, from redesigning its stores
and buildings to changing the products
and services it offers to customers.
But why embark on such a journey?
It comes from a powerful realisation
that global macro trends are all leading
to an increasingly challenging business
environment for a company of its kind,
where pressure on natural resources, and
the impact of growing populations and
climate change all mean that continuing
with a strategy of “business as usual” is,
simply, not viable.
In order to maintain growth and reduce
businesses exposure to resource
limitations and increasing price volatility
in global supply chains, Kingfi sher has
decided it needs to completely re-evaluate
and re-design its existing business model.
Simply put, it has transformed a basic
business strategy into a much broader
sustainability strategy.
Take timber, for example. It was identifi ed
that timber is used in up to 40 per cent of
its products. Expected price rises of up to
75 per cent and supply shortages of up to
30 per cent are anticipated by as early as
2020. With global forest cover steadily
reducing year on year, it became readily
apparent that this reliance on timber is
unsustainable, not only for Kingfi sher itself
but also for the global community. So it has
decided that, to protect timber resources, it
needs to go far beyond just replacing what
it uses to becoming a Net Positive producer
of timber.
The lofty aim is that a Net Positive
threshold is achieved by 2021. This
will be hugely challenging and equally
rewarding and an example of the kind
of champion leadership that is so very
needed in our world.
The fi rst year’s 2013/14 Net Positive Report
begins with a quote from group CEO, Sir Ian
Cheshire: “What we’ve learnt in our fi rst
year is that our challenge is the right one,
but that business ‘unusual’ isn’t easy”.
What I like the most about Kingfi sher’s Net
Positive model is that it recognises that
mistakes will be made; there will be failures
– and that this is OK.
In fact, not only is failure OK, it is to be
embraced and welcomed. We have for
many years been used to living within
social, educational, business and political
systems built on the idea that failure is
something that should be avoided at all
costs. In reality, taking risks and being brave
enough to fail is an essential part of
learning, growing and evolving.
The Chinese character for “threat” is a
combination of the characters for “danger”
and “opportunity”. Net Positive embraces
this type of thinking.
There will be many climate change
billionaires in the world in the years
to come.
Those business leaders who understand
the need to embrace circular business
models and Net Positive thinking will
reduce exposure to the risks that lie ahead.
But they will also build a valuable
new business model – one offering
huge material, reputational and
fi nancial benefi ts.
ONE YEAR IN;
MANY YEARS
TO GO...
“IN REALITY, ZERO ISN’T
ENOUGH FOR THOSE
COMPANIES THAT ARE
RIGHT OUT IN FRONT IN
TERMS OF SUSTAINABILITY.”

27
Here’s how the timber strategy fi ts
alongside the company’s other Net
Positive goals, in terms of overall vision,
aspiration and concrete targets:
BECOMING NET POSITIVE
COMMUNITIES
Vision
To achieve a global net reforestation
Aspiration
To create more forest than is used
2020 target
To achieve 100 per cent
responsibly sourced timber
and paper in all operations
Vision
All homes are zero carbon or net
generators of energy
Aspiration
Every store and customer’s home
is zero carbon or generates more
energy than it consumes
2020 targets
To achieve energy savings of 37TWh for
customers and 45 per cent reduction
in energy intensity of own properties
Vision
Creating and using products
wastes nothing
Aspiration
Every product will enable a
more sustainable and ultimately
Net Positive lifestyle
2020 target
To achieve 1,000 products with
closed-loop credentials
Vision
Businesses help people to help
each other
Aspiration
Every store and location supports
projects that build local communities
or equip people with skills
2020 target
To achieve 4,000 community projects
completed by internal people that
deliver “Better Homes, Better Lives”
TIMBER
INNOVATION
ENERGY
NET POSITIVE

28

29
WHAT’S THE
BOTTOM LINE?
Environmental profi t & loss
(EP&L) accounting puts a
fi nancial value on the
environmental impacts across
the entirety of a company’s value
chain. This approach not only
gives complex environmental
metrics greater resonance by
translating them into the core
language of business – fi nance –
but also provides a measure that
enables companies to better assess
and manage risks and
opportunities.
KEY FACTS
• Introduced by Jochen Zeitz, then-CEO
of PUMA, in 2009
• PUMA conducted fi rst ever EP&L
assessment in 2011
• Novo Nordisk became the fi rst
pharmaceutical company in the world
to conduct an EP&L account in 2014
• Kering has committed to rolling out the
EP&L assessment across its brands
(including Gucci, Stella McCartney,
Yves Saint Laurent, and Volcom) by 2015.

A QUANTUM
LEAP FORWARD
IN VALUING
IMPACTS
It takes both hard work and a
pioneering spirit to become known as
one of the greenest companies in the
world1. Here, Michael Beutler, Director
of Operations in Kering’s Sustainability
Department, talks to Annie Lancaster
about how the company’s commitment
to rolling out an Environmental
Profi t and Loss assessment across
their brands is paving the way for a
standardised measurement tool that
benefi ts everyone.
AL: How would you sum up the EP&L
in simple terms?
MB: It’s a way to understand your
environmental footprint going all the way
back to the raw material level, and putting
a value on it so you can understand the
differences between what resources you
use, and what kind of impact that has on
society.
AL: Tell me about how the EP&L came
into being.
MB: The initial concept – from then CEO of
PUMA, Jochen Zeitz – was created by
Kering and PUMA in 2010 and the fi rst-ever
30
EP&L was published in 2011.
And our leadership took that initial
analysis and decided to turn it into an
integral part of how we work with all our
brands on sustainability: how we
understand our supply chain, our
processes, our suppliers, and the impacts
of all our activities.
AL: Was it challenging to get the buy-in
needed across Kering’s stakeholders
to start the process?
MB: Once François-Henri Pinault decided
we were going to do an EP&L, there wasn’t
any pushback from the individual brands.
It makes sense.
But the level of engagement we’ve had
across the business has been fantastic.
AL: And why do you think engagement
was so good?
MB: Firstly, there’s a lot of business value
in mapping and understanding the
supply chain.
Secondly, from a sustainability
standpoint, I think everyone saw that
the EP&L represented the next frontier –
a quantum leap forwards. In the sense
that traditional environmental reporting
is one dimensional, an EP&L is a three-dimensional
view.
AL: Presumably it comes with a
corresponding leap in the amount of
effort or work that goes into conducting
something like this.
MB: In the beginning, when we were
mapping processes and categorising
inventory and our suppliers, yes.
But we’ve completed EP&L reports for
about 73 per cent of the Group thus far,
and in the process we’re becoming more
and more effi cient.
It has taken a lot of dedication to
streamline the process – across the
business but particularly from our
sustainability team – but our level of
effort per EP&L now is probably one-tenth
of what it was when we fi rst started.
AL: The EP&L is primarily a
measurement tool; the obvious question
it throws up is, having understood your
environmental footprints, what next?
MB: We take the results and we work with
our brands to identify opportunities to
reduce them. We also have a roadmap of
projects that align into our 2015 targets,
and they all link up – we can calculate the
savings each would generate from an
EP&L perspective. So it helps us to
evaluate where we can have the
maximum impact.
AL: Have there already been benefi ts
from its implementation?
MB: Yes defi nitely. We’ve created many
initiatives – both public and internal –
that are driven by reducing the impacts
we’ve discovered through the EP&L, for
example metal-free tanning, or sourcing
strategies for some of our key materials.
It’s not just environmental sustainability –
it’s also about long-term viability. In terms
of supply chain security, the EP&L tells us
where we can fi nd sources that are more
reliable for our business to plan around.
Social issues also come to the fore,
such as local livelihoods. On sourcing
particularly, we’ve defi nitely identifi ed
issues that we can scale into really
signifi cant impacts in the long run.
AL: As you mention, it’s not only about
the environmental impact. Is a Social
Profi t and Loss on the cards for Kering?
MB: We’re doing something far more
extensive than any other company with
the EP&L – in terms of methodology,
depth of analysis, and across all of our
business units.
MICHAEL BEUTLER
Sustainability Operations Director
Kering
A
ANNIE LANCASTER
Senior Consultant
SS
1 Newsweek, 06/05/2014

EP&L
31
So while there’s a lot of value in
something like the SP&L, having
pioneered the EP&L it’s incumbent on us
to see it through, so it’s not just an
innovative new methodology, but also an
effective tool that is understood across
the board in terms of its importance from
a business standpoint.
AL: So to what extent would you call
the EP&L a sustainability tool, vs.
a strategic business tool?
MB: It’s really both. Every business that
makes something is depleting natural
capital. If you don’t understand how you’re
using natural capital – what the risks are,
the stress points, and the potential for
doing it more effi ciently and in a way that
is less impactful – there’s a whole aspect
of your business risk that you just don’t
understand. And that means your future
viability and your future strategy can’t be
well informed.
AL: You’re very much a pioneer of this
tool; have you seen a lot of interest from
other organisations wanting to run
EP&Ls of their own?
MB: There’s been a lot of interest. That’s
why we’re working to make a more
standardised EP&L that is comparative
across companies and industries. A
fi nancial statement is a fi nancial
statement, but right now in sustainability
reporting, even EP&Ls may not be
“IF THEIR SOURCING
AND SUPPLY CHAIN ISN’T
HEALTHY – THEN THE
COMPANY ISN’T HEALTHY.”
comparable across companies. So it’s
very important for us that we collaborate
with other businesses in the hope that it
becomes standardised.
We’re not working on the EP&L for
competitive advantage for us; in the long
run it’s to benefi t everyone.
AL: By its nature, an EP&L is about
increased transparency and could
potentially expose you to critical voices.
Have you felt that?
MB: There are risks to transparency.
Some companies believe that an EP&L
account could open them up to criticism
from their shareholders or even to
litigation.
But on the fl ip side, if you’re not
transparent, you’re not meeting your
fi duciary duty.
We’ve had nothing but enthusiasm as a
result of the EP&L, but of course
different industries have different
perspectives and issues to wrestle with,
that might make the level of exposure
associated with conducting an EP&L
publicly feel less comfortable.
AL: Do you think the concept of an
EP&L arose as a result of something
specifi c within Kering, or could it have
happened anywhere?
MB: It could have happened anywhere.
We happened to have a leader, fi rst in
Jochen Zeitz who had the vision and came
up with the concept, and then with
François-Henri Pinault who saw how it
could be taken to the next level. So we
had the leadership. I think someone
would have done it eventually, but like
anything new and innovative someone
had to do it initially.
AL: Where do you see the EP&L going in
the next 10 or 20 years?
MB: I hope to see it standardized; scaled
across our industry and other industries;
and standing next to fi nancial reporting
as a deeper understanding of a
company’s risk and opportunities.
If their sourcing and supply chain isn’t
healthy – then the company isn’t healthy.
So it could go in two directions. As an
internal tool, much like management
accounting; or externally, integrated
into fi nancial performance as a broader
indicator of a company’s health.

SUSANNE STORMER
Vice President, Corporate
Sustainability
Novo Nordisk
ENVIRONMENTAL
PROFIT AND LOSS
AND THE TRIPLE
BOTTOM LINE
AL: Tell me about how the EP&L fi ts
within Novo Nordisk’s broader
philosophy.
SS: For more than 25 years our approach
to sustainability has been built on the
philosophy of the Triple Bottom Line.
This gives us a 360° lens on how we
make decisions: we consider the
potential implications for the
environment and for society, as well
as the fi nancial dimension.
This way we are able to make more
balanced choices; by recognising their
implications, we can take action to
mitigate any potentially negative impacts.
On the social side, it is possible for
companies to have a net positive
contribution. In the case of Novo Nordisk,
we benefi t patients through the products
that we provide; we can develop the skills
of our employees so we have a positive
social dimension there. If we were to do a
social P&L it would most likely be a
positive one.
But on the environmental side there is a
cost. We need to understand that cost,
and recognise that if you consider the
externalities, some of these costs are not
currently priced adequately.
32
The link to the EP&L is clear. By default
any company using resources to
produce its materials has a negative
environmental footprint. So how can
we reduce that negative footprint?
That is what we’re trying to answer
with the EP&L.
AL: And what have you learned through
this approach?
SS: Inspired by Puma’s activities, the
Danish Environmental Protection Agency
(EPA) wanted to look into whether it would
be possible to do an EP&L for a company
such as Novo Nordisk.
So we agreed to be a pilot, working both
with the EPA and Trucost. Over several
years we’ve been reporting on our
environmental performance, but we
wanted to go further – to take a value
chain approach. So we looked into our
supply chain, going several steps deeper
than our standard reporting.
What we learned when we added it all up
was that of the total cost of our
environmental impact, about 87 per cent,
is generated through our supply chain.
Only the remaining 13 per cent happens
within the company’s own operations.
AL: Having understood that the majority
of environmental impacts are happening
outside of your direct control, what
steps are you now taking to mitigate
your impact?
SS: This is where it ties in with our ongoing
sustainability initiatives. For over a
decade we’ve been managing our
supply chain on the basis of responsible
sourcing – asking our suppliers to meet
certain standards and requirements.
Now we’re seeking to understand what
kinds of suppliers generate the biggest
environmental impacts, and what we
can do about it.
We are working with our suppliers to help
them be more sustainable. We’ve found
that our suppliers are keen – they see the
benefi t. And it translates into a better
fi nancial bottom line because it can be
tied to energy savings, or conversion to
renewable energy, or smarter processes
in so many ways.
AL: As the fi rst pharmaceutical
company in the world to run an EP&L
account, have you experienced
challenges in being the front runner?
SS: I think any innovation initiative such as
this will have challenges.
One we’ve faced is a practical one – how
do you fi nd the data for a robust analysis?
As a science-led company we are
generally quite data-driven in our
approach, and the fact that we’ve been
Novo Nordisk has been called the ‘world’s most sustainable
corporation’1. Here, Susanne Stormer – Vice President, Corporate
Sustainability – describes to Annie Lancaster how measuring the
company’s EP&L is just one strand of a corporate philosophy that
balances economic, social, and environmental perspectives.
1 Corporate Knights, 2012
ANNIE LANCASTER
Senior Consultant
SALTE

working with data reporting on our
environmental and social performance for
many years has facilitated that process,
but clearly Trucost needed to go into lots
of what you might call ‘sensitive data’ –
for instance data relating to fi nancial
interactions with suppliers – so it requires
a large degree of trust in your partners.
Another challenge, having understood the
data, is what are you going to do about it.
If you’re just going to say ‘oh, that’s
interesting…’ it’s a pointless exercise.
“BY DEFAULT ANY COMPANY
USING RESOURCES HAS
A NEGATIVE ENVIRONMENTAL
FOOTPRINT. SO HOW CAN WE
REDUCE THAT FOOTPRINT?”
A third challenge is how to translate
the impact into a value in a monetary
sense. We don’t have a currency for these
things; the closest we get is with carbon,
because there is a price on carbon. When
it comes to something like water – how do
you put a real cost on the availability of
fresh water?
AL: Given these challenges, was it
diffi cult to convince the whole company
that an EP&L assessment was the right
road to go down?
SS: When reaching out internally in order
to compile the data needed, we were
aware that we were asking people to lot of extra work on top of their already
busy schedules. When you are persuading
people to go out of their way to dig out
data, they have to appreciate the
reasoning behind it.
Here, again, we benefi ted from the fact
that we have been working with
responsible sourcing and data analysis
for many years. As a result of our Triple
Bottom Line philosophy, there is an
understanding within the company of importance and value of sustainability.
Nevertheless, you need to be able to
rely on good working relationships,
not just with external partners but
with colleagues.
A lesson we’ve learned is that while you
can push your way through an
organisation to get the information or
results you want, if you are unable to
convince internal partners that it is
meaningful and value-creating for them,
you’ll have a very hard time.
AL: Having gone through that process,
do you feel the EP&L assessment has
generated real value?
SS: It certainly reveals perspectives that
we previously may not have thought
about. For years we’ve been working at
reducing our environmental impact, so we
have a pretty good idea about how that
impact is split out amongst our own
operations. But looking at carbon
emissions as an example, we began by
focusing on the emissions generated from
production, which was the immediate
largest impact, and then worked our way
into managing emissions from
transportation of products and people.
Now we can see that production, and
indeed the direct impacts of our activities,
is actually only a small contributor to total
carbon emissions – with the majority
coming from other parts of the supply
chain. That kind of information is a real
eye-opener, and facilitates conversations
AL: The EP&L remains a somewhat
‘niche’ measurement & reporting tool at
current; do you think we will see a
broader uptake in the future?
SS: The expectation is defi nitely growing
for companies to be accountable for their
performance throughout their value
chain. In that regard the EP&L is most
likely the best method. But then again,
it’s only one dimension – looking at
environmental performance.
What would be more benefi cial
would be to be able to also look at the
social and economic dimension of a
company’s contribution.
AL: And that ties into some of the other
approaches we’re looking at in
Directions – such as Net Positive.
SS: Novo Nordisk hasn’t made a formal
commitment to being Net Positive the
way some other companies have, but
that is exactly what we are trying to
achieve with the Triple Bottom Line:
our impact should be a net positive one.
If it weren’t, the world would be better
off if we weren’t here.
By implication I would say that every
company should be able to say its
contribution to global society is a net
positive one. Otherwise we are in
big trouble!
33
ght
der
do a
y
ading
t
ct
is
e
the
y.
about what we can do across all the
functions of the business – from offi ces
all the way through to the selection of
materials or processes. It becomes a
much richer and more nuanced
discussion than it would be were you
just looking at your impact from a
‘helicopter’ perspective.
EP&L

34

HEALTHYSOCIETY,
SUCCESSFUL
BUSINESS
35
At the heart of the shared value concept is the idea that the future success
and competitiveness of businesses is directly linked to health of the
communities within which they operate. By working to tackle the big
issues faced by society, whether economic, environmental or social,
companies will generate economic value through new innovations,
access to new markets and by creating business models that foster
long-term sustainable growth.
KEY FACTS
• Concept fi rst introduced by Mark Kramer and Michael Porter in The Harvard
Business Review in 2006
• The Shared Value Initiative – seeking to enhance knowledge-sharing and
Shared Value best practice – founded in 2012 by Kramer & Porter and FSG
• Key players include Nestlé, General Electric, Walmart and Dow AgroSciences.

DIRECTIONS 2014 SALTE
SALTERBAXTER MSLGROUP
MARC PFITZER
Managing Director
FSG
FORGING
THE LINK
BETWEEN
ECONOMIC
AND SOCIAL
VALUE
36
MF
F

Marc Pfi tzer charts the emergence of
Shared Value as a driving force for
innovation and growth in companies
determined to create both social and
economic value. Like other new
approaches to sustainability, it is
fi lling in huge gaps left by earlier
experiments with philanthropy and
CSR – but is still in its infancy and its
potential is vast.
For well over a decade, we’ve searched
systematically for practices that lead to
extraordinary social impact. Our journey
with Shared Value started with the same
idea: what were companies doing that
truly changed the world? 1
SHARED VALUE
MITIGATION
Back then, the emphasis was on
mitigating the negatives. We loved the
principles, but questioned the results.
‘Tick box CSR’ had pushed companies into
a multitude of efforts in areas of concern
to all. But were emission reductions,
water saving efforts, or human rights
standards truly making a difference to
climate change, water basins or working
conditions?
Meanwhile, some truly impressive
outcomes did begin to stare us in the face.
India’s Jain Irrigation wasn’t trying to save
water in manufacturing; it was growing
the world’s largest drip irrigation
business. Toyota didn’t focus on factory
emissions, but led the way in developing
clean mobility solutions.
Here were truly world-changing
developments, promising a thousand
times more potential. Unmet needs were
the target for product innovation, profi ts
enabled reinvestment and – once again
– impact was scaled up.
But it all started with investigating other,
ultimately disappointing approaches. Our
deep dive into corporate philanthropy in
2002, for instance, left us unimpressed.
Guided by notions of moral obligations,
investments were diluted. We saw many
heartfelt projects which had little impact.
There were exceptions, of course. Cisco,
with its Network Academies, was on its
way to training four million young people
in ICT around the world because it
powered the global adoption of its
technologies. Nestlé’s vast agricultural
development programmes similarly
enabled it to localise and expand its dairy
or coffee businesses. Social constraints
to growth were the target, changing
conditions unlocked new business
prospects, impact was increased in scale.
Then we turned to the sustainability and
CSR movements.
“WE ALSO GRASPED THAT PROFITS ARE NOT ALL
EQUAL. THOSE THAT ADVANCE SOCIETY CREATE
THE CONDITIONS FOR FUTURE GROWTH. PROFIT IS
NOT THE PROBLEM, BUT THE NATURE OF PROFIT
MATTERS IMMENSELY.”
1 See : “The Competitive Advantage of Corporate Philanthropy” by Michael Porter & Mark Kramer in Harvard Business Review Dec 2002; “Strategy & Society; “The Link
Between Competitive Advantage and Corporate Social Responsibility” by Michael Porter & Mark Kramer in Harvard Business Review, Dec 2006; “Creating Shared
Value: How to Reinvent Capitalism and Unleash a Wave of Innovation and Growth” by Michael Porter & Mark Kramer in Harvard Business Review, Jan 2011.
37

“SHARED VALUE REPRESENTS
THE MOST SIGNIFICANT
OPPORTUNITY FOR
INNOVATION AND GROWTH IN
BUSINESS TODAY.”
Shared Value gives the competitive leader
a language for adopting purpose-based
strategies, as well as concrete guidance
on how to turn on the social innovation
engine in their companies.4
POSITIVE AND COMPREHENSIVE
Shared Value is positive – it moves the
rationale for investing in society from a
licence to a reason to operate. Purpose is
immensely powerful: it channels
resources to the right kind of ideas and
partners, and it puts fi re in the
organisation and in people’s hearts.
Shared Value is bringing the best talent
back into business or into partnership
with business.
And it is comprehensive: based in the
interdependence between business and
society, it acknowledges remaining areas
of trade-off while opening the possibility
for breaking these through innovation.
A measure of its comprehensiveness is its
consistency with the related movements
featured in this report. The EP&L and
SP&L movements focus on trade-offs and
seek to apply a price to externalities.
Companies internalising such
environmental and social costs will fi nd a
way to innovate out of them, and that will
create Shared Value.
CREATING SOCIAL AND
ECONOMIC VALUE
Shared Value had crystallised. Companies
that changed the world found ways to
create social and economic value
simultaneously. By 2011, we were no
longer looking at marginal initiatives but
‘Shared Value companies,’ who defi ned
their purpose around social progress,
powered by strong economics.
We sharpened our understanding of the
linkage between society and business,
and helped codify how Shared Value is
created (through products, value chain
reconfi guration, and investments in the
enabling environment). We understood
the enormous potential here: solving
social problems profi tably meant
solutions would not be limited by scarce
public or non-profi t budgets.
Yet we also grasped that profi ts are not all
equal. Those that advance society create
the conditions for future growth. Profi t is
not the problem, but the nature of profi t
matters immensely.
Shared Value practices are spreading
throughout the world in name or form.
A million viewers have followed Michael
Porter’s TED talk, thousands of corporate
and cross-sector members have joined
the Shared Value Initiative, hundreds of
companies contribute to the annual
Shared Value summit, dozens of fi rms
(some trained by us) in every continent are
consulting on Shared Value across the
world: why?
Well, because many now understand
that simply managing the footprint is
not enough.
Shared Value does sit on the shoulders of
the sustainability and CSR giants, and the
mitigation work is far from over. But it is
not suffi cient.
For two decades now, a multitude of
companies has scored high on CSR
ratings. And yet simultaneously, trust in
business has crashed and a Living Planet
Index has worsened year-on-year.
Where Shared Value is different is in the
fact that it gives the moral leader a new
set of tools so that their best work on
footprint management is just the
foundation of a whole new world of impact
and value creation.
Another reality is that our social defi cits
are hurting companies. Mining companies
have seen a ten-fold increase in
community confl icts in the last decade,
and over two-thirds of the discount
applied to gold mining companies by
investors today, for example, is due to
political and social risks.2
Globally, companies face another
paradox. They can’t access well-trained
vocational staff, while massive youth
unemployment threatens stability in
key markets. Shared Value gives the
cost conscious leader guidance for
driving both resource and labour
productivity in the value chain. And it
gives the risk averse a business case
for mobilising kindred spirits, both
internally and externally, to address
local development needs.
And Shared Value opens the fi eld to
immense market opportunities,
represented by the billions who lack
access to proper nutrition, housing,
sanitation, health, energy – you name it.
Our recent work in fi nancial services
uncovered 2.5 billion “unbanked” people,
$2.1 trillion in unmet credit needs for
SMEs, and a $3–10 trillion future market
opportunity in impact investing.3
The reality is, Shared Value represents the
most signifi cant opportunity for
innovation and growth in business today,
as demonstrated by GE in environmental
and health technologies, Nestlé or Dow in
nutrition, Veolia or Kemira in water
treatment, and Intel or Pearson in
education technology and content.
38

The circular economy and Net Positive
movements are providing guidance on
achieving resource productivity (value
chain reconfi guration) and the B Corp
movement is giving an institutional
framework to a purpose-driven company.
MEASUREMENT
Our focus has been on illustrating the
management practices that advance
both social and business conditions. And
in many ways, Shared Value is still in its
infancy. The big frontier is measurement.
We have described how companies,
which systematically measure the link
between achieving new social outcomes
and business returns, unlock further
value creation – but these practices are
just emerging.5
Measurement validates purpose, and
opens the door for authentic cross-sector
collaboration. Measurement provides the
foundation for a new discourse between
government and business, not anchored
in traditional wealth extraction through
taxation, but in incentives to drive social
outcomes in ways that decrease cost to
the public sector.
And importantly, as shown by leading
practitioners, measurement will guide
investors to fulfi l their social purpose
in allocating resources to ventures
that outperform the market through
their extraordinary contribution to
social progress.
2 See “Spinning Gold: The Financial Returns to
External Stakeholder Engagement” by Witold
J. Henisz, 2011
3 See “Banking on Shared Value” by Bockstette,
Smith, Pfi tzer et al. FSG, 2014
4 See“Innovating for Shared Value” by Marc Pfi tzer
et al in Harvard Business Review, Sept 2013.
5 See “Measuring Shared Value” by Porter, Hills &
Pfi tzer, 2013
SHARED VALUE
39

Directions 2014: New Sustainability Thinking

Directions 2014: New Sustainability Thinking

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (16)

Similar to Directions 2014: New Sustainability Thinking

Similar to Directions 2014: New Sustainability Thinking (20)

More from MSL

More from MSL (20)

Directions 2014: New Sustainability Thinking