A responsible business is essentially one that benefits society and addresses negative impacts it might have on society, people and planet.  

Larry Fink, BlackRock’s  CEO, one of the world's largest asset managers, sets out in a letter to shareholders that the purpose of a business is to create a positive impact on society. He also explains why it’s becoming necessary for companies today as all business is affected by climate change. He also points out how creating this positive impact can benefit them.

Jim Collins described this in Built to Last as the “genius of the AND”, where a successful company doesn’t succumb to compromise (a ‘balanced’ or 50:50 outcome) or the “Tyranny of the OR”.  Instead they find a path, which in this discussion is to be financially successful AND responsible.  

This way of looking at a business can help decision makers make more responsible decisions, ensuring that considerations of social and environmental impact are assessed with those of financial gain.  This approach requires leaders and decision makers to go on a journey to think differently compared to previously held paradigms and previous understanding.  Business success in the future will require leaders to be aware of their own biases and be prepared to learn and thrive in a more complex world and embrace uncertainty.

A responsible business can build greater trust and strengthen its relationships to its stakeholders on every level, including its consumers, employees, investors and the communities it operates in, which generates greater value over time. Applying sustainable business practices can also help reduce costs, and drive innovation, which are both positive contributors to the bottom line. But primarily a responsible business leaves the planet and people better off.

We need to move towards a tipping point of engagement where embedding responsible business practices are no longer just a ‘nice to have’ but an essential part of any business venture. There is a growing share of corporate executives considering sustainability as a necessity to be competitive today. Yet there is still a gap between good intentions and real actions. There is a need to turn words into actions.  Actions are starting, but there is a lot to be done.

Increasing regulation and consumer awareness means that good intentions today are no longer good enough. For some further food for thought and inspiration, check out this video that illustrates the importance of sustainable business models and how to implement them:

A responsible business is one that has a positive impact on the society and the environment in which it operates. The vision of a responsible business differs and has evolved throughout time and across countries. There has been a marked shift from when Corporate Social Responsibility (CSR) activities were not even related to the company’s core business and were largely philanthropic or reactive.  As stated by Daniel Runde, there has been a shift in the perception of CSR:

• Companies have begun recognising that aligning projects with strategic business goals can improve their competitive advantage. It can improve the skills and engagement of their employees, enhance their understanding of local markets and help them to be full, productive members of the communities they serve. They increasingly leverage core assets to these ends.


• Increasingly, people believe companies are important actors in societies with important means and impact; that responsible businesses have the power to nurture a more cohesive society; and that they can contribute to a sustainable economic system.


• Enterprises are recognising the potential of responsible practices to provide important benefits in terms of risk management, cost savings, access to capital, customer relationships, employee satisfaction, sustainability of operations, ability to innovate and profit.

Ensuring a business has sound and good practices with regard to all of its stakeholders, as well as reducing or eliminating negative impact/externalities, are the foundations for a responsible business. The first step towards responsible business is often to stop doing the things that have a negative impact and start to rethink your business model and mobilise resources to activities that are sustainable - and have a more positive impact.   

For an eloquent explanation of the marked shift in corporate responsibility over the past few decades, see Daniel Runde’s article, The Evolution of Corporate Social Responsibility. This has been further enforced by the WEF in this article further detailing the evolution of responsible business.

Created nearly 40 years ago by HRH King Charles III when he was the Prince of Wales, Business in the Community “is the oldest and largest business-led membership organisation dedicated to responsible business”. As they put it: “The prosperity of business and society is inextricably linked. If every individual business strives to be the best it can be in all areas as a responsible business, there will be a positive multiplier effect that will benefit society, the economy and the environment. If businesses collaborate, they can have a greater impact upon key issues than if acting alone.” (Source: BITC’s The Responsible Business Map)

The above map from Business in the Community’s helpful overview of Responsible Business and the requirements of leaders identifies the key issues businesses need to address to achieve long-term financial value, enabling both society and the planet to thrive. It explains the actions and outcomes businesses are expected to aim for against each issue. It helps companies to navigate and make their contribution to the Sustainable Development Goals (SDGs) and has a time horizon of 2030, in line with SDG delivery. 

The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. At its heart are the 17 Sustainable Development Goals (SDGs), which are an urgent call for action by all, including businesses. This is an update regarding progress against the SDGs.

For a more academic deep dive on the topic and various differing models of responsible business, see this Corporate Social Responsibility article on Wikipedia.  Of the various models in existence, we specifically refer you to the following:

• In this video, Michael Porter introduced the model of Creating Shared Value. It proposes to re-think capitalism in order to solve contemporary issues while creating value. This can be done through the identification of new markets and the creation of innovative business models. Thus, organisations are able to contribute to society’s well-being, while sustaining themselves in the long-term.

• A company’s stakeholders go far beyond their shareholders. The Business Roundtable (BRT) released a new stakeholder model in August 2019, which aims to serve multiple stakeholders such as customers, employees, communities, environment, and suppliers, in addition to shareholders. This model has been publicly supported by 181 CEOs of major corporations and could significantly impact corporate incentive designs, metrics, and governance. The COVID-19 pandemic and the focus on social justice have increased expectations on corporate leaders to address social issues that extend beyond the traditional view of the business purpose of the corporation. As a result, companies are re-evaluating their impact on numerous stakeholder groups and how it impacts their success. Environmental, Social, and Governance (ESG) metrics can be used to assess and measure a company’s performance and its relative positioning on a range of topics relevant to the broader set of company stakeholders. 

• The Doughnut model, explained in this video here and in this article here, attempts to answer how businesses can operate in “the safe and just space for humanity”, i.e., that between social and planetary boundaries lies an environmentally safe and socially just space in which humanity can thrive.

The principle of a circular system is to:

1. Design out waste from the beginning, rather than trying to deal with waste at the end of the cycle. This can be done through systems and product design.
2. Keep the materials in cycle as long as possible, in the highest possible value. The best option for environmental footprint is to reuse, then resell, repair, and remanufacture. Recycling is the last resort, although it is better than landfilling, it still creates a significant footprint, and often is “downcycling” which degrades the materials from the initial product.
3. Regenerate the natural ecosystem. In nature, there is no waste as everything is circular. The key is to mimic nature as it returns nutrients back into the biosphere.   

• Ellen MacArthur Foundation: They offer great materials like this that helps you understand how to transform your business model. 
• Cradle to Cradle Institute: C2C certification is one of the most rigorous ones for circular economy product certifications. 
• Circular Economy Institute: Offers education, training and certifications for businesses.

Please see the section on Impact Measurement for more information on this topic.

Definition

According to the NetZero climate platform, net zero ‘refers to a state in which the greenhouse gasses going into the atmosphere are balanced by removal out of the atmosphere.’

Why it’s important

Achieving net zero is crucial because it highlights the challenge of completely eliminating emissions within the timeframe required to address climate change. It is about understanding the company’s impact and trying to address it. Along with implementing significant and comprehensive emission reductions, increasing efforts to remove greenhouse gases from the atmosphere will also be necessary. In order to be truly impactful, achieving net zero must be sustained indefinitely. This means that any greenhouse gases removed must not be reintroduced into the atmosphere over an extended period, such as through deforestation or faulty carbon sequestration methods.

Scope and guidelines

The scope of net zero includes some greenhouse gases and activities. In general, net zero refers to all greenhouse gases listed under the Kyoto Protocol. National and sub-national organisations typically follow guidelines from the Intergovernmental Panel on Climate Change (IPCC) for calculating emissions within a certain territory. However, the private sector may have different approaches, often following the Greenhouse Gas Protocol's "scoped" approach. Companies working towards net zero should aim to cover three types of emissions:

• Direct emissions coming from company-owned or controlled sources (Scope 1)
• Emissions generated from the production of energy consumed by the company (Scope 2)
• Indirect emissions caused by company activities from sources not owned or controlled by the company (Scope 3).

The Science Based Target Initiative provides guidelines on how to set science-based targets for climate impact reduction industry by industry, with standards to measure this impact, communicate around it and disclose the company’s progress over time.

More than a pledge, companies need a strategy to meet their target, as well as accurate and transparent reporting on their progress, as well as intermediate targets before 2050.

Limits

It is important to stress that the net zero framework for companies only recommends offsetting emissions by funding carbon capture or reduction programmes elsewhere only when it is absolutely impossible to reduce these emissions in the first place.

Many offsetting programmes have been criticised for not delivering the carbon capture they promised and certified. This is partly due to the fact that it’s very hard to assess the carbon impact of many of the offsetting projects, as you need to compare them to a hypothetical scenario of what would have happened without these projects. 

Another limit with many of these projects is that the carbon benefits are hard to guarantee over the long term. As Greenpeace puts it: ‘A newly planted tree can take as many as 20 years to capture the amount of CO2 that a carbon-offset scheme promises. We would have to plant and protect a massive number of trees for decades to offset even a fraction of global emissions. Even then, there is always the risk that these efforts will be wiped out by droughts, wildfires, tree diseases and deforestation.’

Finally, the net zero framework is centred around green-house gas emissions, which is only one of the planet’s thresholds. A responsible business policy needs to take into account all of them, including the impact on the biodiversity crisis, air, land and water pollution, etc… For many of these areas, a bookkeeping approach to balance the books where the positive actions balance the negative actions simply doesn’t work.

Beyond Net Zero

Also, Net Zero strategies can’t be seen as particularly ambitious strategies, but more as companies doing their fair share. Indeed, if all organisations were meeting science-based net zero targets, the world would just be on track to limiting global warming to 1.5 degrees Celsius above pre-industrial times. Since many companies (especially in developing countries) are unlikely to meet these targets for various reasons, ambitious companies should have more ambitious targets. This can also be justified by the concept of common but differentiated responsibilities, interpreted at a company-level.

Environmental Sustainability in the Supply Chain

When corporations start their sustainability efforts, many start with their carbon footprint reductions in Scope 1 and Scope 2, which are within their control and are easier to measure and tackle first off. However, in the case of companies that deal with physical products or materials, Scope 3 emissions often are the company’s largest footprint and therefore is critical to immediately start their efforts in measurement and mitigation. The graph below shows that in consumer goods, more than 80% of their carbon footprint is from their supply chains.

Source: Chris Bolman (2023), 10 Trends that will Define Sustainability in 2023

The major areas to be reduced as Scope 3 are at both upstream and downstream of the company: 1. Materials, 2. Transportation, and 3. Utilisation, and 4. Disposal and Recycling (Farver, 2019). Both internal and external value chain members and consumers need to be engaged accurately to capture and reduce the emissions.

As many companies offshore their manufacturing overseas due to cost benefits / increased profitability as well as material availability, it becomes increasingly difficult to have a full grasp of their own supply chain. In many cases, the suppliers are multi-layered from Tier-1 suppliers whom companies directly deal with, to Tier-2 suppliers who are suppliers of the Tier-1 supplier, further trickling down to Tier 3 and 4. It becomes increasingly difficult to track the activities as the tiers are increasingly indirectly related to the company, in both environmental and social sustainability. It is critical that companies engage with their Tier 1 and key Tier 2 suppliers to ensure they control their supply chain further down the line.

Social Sustainability in the Supply Chain

In situations when corporations push their suppliers to lower their costs for profitability as a “race to the bottom”, there are often compromises in environmental as well as social sustainability standards as cost-saving measures. This could be from polluting the environment to exploiting their supply chain workers with minimal wages leading to human rights abuses such as modern slavery and child labour, and hazardous working conditions leading to human health issues. From natural raw materials extraction and cultivation such as heavy metal, fossil-fuels, timber, and plants, to its manufacturing plants, it is very difficult for organisations to fully grasp what is going on in the labour force from Tier 1 suppliers all the way down to Tier 3 suppliers with the complex modern supply chain. However, corporations will face public condemnation if such abuses and conditions are found in their supply chains, resulting in revenue and reputation decline. It is crucial that organisations not only comply with local labour laws (this is an example from the Australian government), but ensure not to use suppliers with violation risk in the first place, bind their suppliers with a set of agreed upon Codes of Conduct and monitor and audit their key suppliers. This includes, where violations such as child labour are found, making sure that the problems are addressed and management systems are put in place for future prevention.

Greenwashing is the practice of companies making themselves appear more environmentally or socially conscious than they actually are.  It can be quite subtle, by moving the focus away from negative impacts to an organisation’s positive ones, to blatantly misleading consumers into believing a product is sustainable when it is far from it.  

Greenwashing has been found in many global business sectors large and small, from big oil, finance, to consumer goods. As many as 40% of online UK businesses have made misleading green marketing claims. Businesses need to be cautiously aware so that they are not greenwashing their company, products, or services. Misleading claims could lead not only to consumer mistrust and damage to businesses, but also costly lawsuits.

TerraChoice, a Canadian marketing agency explains the “Seven Sins of Greenwashing”. With actual corporate examples, it explains the common greenwashing mistakes that companies purposely or inadvertently make. Further, with increasing consumer awareness of sustainability issues, there has been an increase in greenwashing in recent years. This article identifies the 6 types of corporate greenwashing that are commonly found such as “green labelling” and “greenhushing”.     

One of the largest examples of greenwashing is found with net zero company targets. While many large organisations have publicly made net zero and other carbon-reduction commitments which give impressions that they are “green”, these commitments may be unsubstantiated, some continue their investment in greenhouse gas emitting fossil fuels.

As a result global anti-greenwashing guidance and laws have been put into place:

• U.N Net zero Guidelines substantiated in COP27 to combat greenwashing
• EU: Unfair Commercial Practices Directive - to be in effect 2024-25
• EU: Sustainable Finance Disclosure Regulation - to be updated 2023
• France: Climate and Resilience Law- to be in effect 2023
• Australia: Mandatory corporate climate disclosures - to be in effect 2023
• U.S.A: Federal Trade Commission's Green Guides - to be updated

Here are some inspiring videos and articles of business leaders and catalysts who have been spearheading the sustainability work in responsible businesses.  

Leaders Talk about the Business Case of Sustainability

• Michael Porter: According to Fortune magazine, “the most famous and influential business professor who has ever lived” with a career at Harvard Business School, he has been giving talks (video) and articles about how businesses can solve the social problems in the world.

• Wendy Woods: Boston Consulting Group’s executive, Vice Chair has given this well-known TED talk, and talks about how investing in sustainability is good for the environment and for company profits.  

• John Elkington: First coined the term the Triple Bottom Line, People, Planet, and Profits critical for businesses - and this term has entered into the corporate lexicon. More than two decades later, he argues that companies must go further. 

• Caroline D Ditlev-Simonsen: a Professor at BI Norwegian Business School explains how to approach CSR in a sustainable manner in this TED talk.

• Yvon Chouinard: Founder of a purpose-driven company Patagonia, a retailer of outdoor apparel goods, explains in this article how he and his family decided to donate his 3-billion-dollar company to a nonprofit organisation to combat climate change.

• Paul Polman: Former CEO of Unilever, and leader in corporate sustainability and responsible capitalism talks about the social purpose of corporations in this video.

In this section we have collected a number of further noteworthy resources, studies and articles, for those wanting to take a further dive into the topic. Hope you enjoy!

• The Dunphy model; presenting phases in the development of corporate sustainability for businesses, MC Ganescu - Theoretical & Applied Economics, 2012. This paper illustrates how the Dunphy model is applied practically. 

• The triple layered business model canvas, A Joyce, RL Paquin - researchgate.net

• Wiki is not a bad place to start for CSR if you are going deep, with a lot of links to further resources. 

• Common purpose: Realigning business, economies, and society – This is an in-depth article illustrating the importance of healthy society for a healthy economy and vice versa. Autumn 2017 issue of strategy+business.

• Disclosure on GHG emissions (Spain, Mexico, UK etc)
• Dodd-Frank Act for conflict minerals in the US
• Modern Slavery Act UK for forced labour
• King III Code requires that listed companies on Johannesburg Stock Exchange integrate sustainability reporting with financial reporting

• For the business case for, and many benefits of, volunteering, take a look at the CIPD’s Employer Supported Volunteering fact sheet and Deloitte’s Volunteer Impact Research.

• W(h)ither ecology? The triple bottom line, the global reporting initiative, and corporate sustainability reporting, MJ Milne, R Gray - Journal of business ethics, 2013

• The Sustainability Accounting Standards Board (SASB) released in November 2018 a complete set of 77 industry-specific sustainability accounting standards, as the result of six years of research and extensive market consultation. 

• Marketing for transformational futures, the case of Marshalls PLC 

• Beyond the triple bottom line

• Big Pivot: Radically Practical Strategies for a Hotter, Scarcer, and More Open World - Andrew Winston

• The True Cost - The price of clothing has been decreasing for decades, while the human and environmental costs have grown dramatically. The True Cost is a groundbreaking documentary film that pulls back the curtain on the untold story and asks us to consider, who really pays the price for our clothing?

To further help you along your journey we have provided you with links to forums, networks and readings that have provided us or continue to provide us with inspirations and insights and that we hope that they can for you as well.  

• Barrick stood up to MSCI ESG and no-one noticed

• BSR blog

• Gender Smart Podcast - Gender Smart is a podcast where guests share their stories about closing the gender gap in the circular economy. 
• Getting In the Loop: Circular Economy - Experts and pioneers from across industry sectors talk about their strategies and actions for a Circular Economy.
• Degrees: Real talk about planet-saving careers - Degrees is an uplifting podcast for sustainability jobseekers with interviews of professionals in the field.
• Equalities Podcast - by the Diversity Trust, influencing social change for a fairer and safer society for everyone.