Figure 1. Sustainability Venn diagram model

Source: Based on Sadler (1990)

Sustainable capitalism assumes a higher purpose than just making profits. That is the reason some of the more recent models of sustainability have substituted the term prosperity for profits. Prosperity broadens the purpose of a business to benefit all members of society, not just maximizing value for the shareholders. The purpose of our economic system, and thus our businesses, should be creating value for all members of society not maximizing value for just one type of member of our society: those fortunate enough to hold ownership in our corporations through their stockholdings.

Something that is sustainable is maintained, continued in existence, or kept going over the long term. The basic concept is that we need to balance these three dimensions in our decision making. Even though we often discuss sustainability in the context of business operations, every entity, whether an individual, employee of a for-profit or nonprofit organization, or a government and its agencies, must address three basic questions for each activity or project in which we engage.

• • Is it economically or financially feasible?
• • How does it affect (positively and negatively) the air, water, land, and other elements of our planet?
• • How does it affect (positively and negatively) humans regarding their health, well-being, and quality of life?

Each dimension of sustainability has specific characteristics. Table 1.1 helps comprehend the importance of these dimensions, their strengths, limitations, and interdependencies.

Table 1.1 Characteristics of the dimensions of sustainability

Economic Dimension	Environmental Dimension	Social Dimension
Represents transactions that have economic value and can be purchased or sold in the market place.	Represents the surroundings in which we live including, but not limited to, the many ecosystem communities, their components, and relationships.	Represents the activities that occur by living in groups or communities and the way group members treat each other.
• Extracting, producing, distributing, and consuming. • Monetary value of transactions, property, or possessions. • Ease of measuring and tracking through business documents determined by markets. • Damage to environmental and social goods from economic activities (externalities) often not included in the market price unless internalized through regulations. • Therefore, many goods/services can be underpriced.	• Maintaining the balance in our many ecosystems (including air, water, and land). • Privately held resources (such as raw materials) or charges for resource use (such as water) carry a monetary amount. • Public goods belong to everyone but do not have a ready monetary value, such as the air we breathe. • Externalities (such as air pollution) are borne by the public unless a law or regulation internalizes them to the company. • Internalizing external costs follows the polluter pays principle. (Those who pollute pay for the cleanup cost, e.g., carbon tax).	• Balancing individual rights with community rights to satisfy basic human needs and improve quality of life. • Difficult to quantify and value. • Values will vary depending on regional culture and beliefs. • Examples include gender and racial equity, human rights, safe working conditions, access to education, arts, recreation opportunities, and health care. • Because social aspects are difficult to value, they often are provided through community resources or monitored through regulation.

Stakeholders

To address the environmental and social dimensions, sustainable companies engage with their stakeholders to create wealth for all of those affected by their operations. Stakeholders are classified as both primary and secondary. Primary stakeholders engage in economic transactions with a company as shareholders, creditors, employees, suppliers, and customers and are often referred to as the company’s value chain. Secondary stakeholders are affected by a company’s activities and consist of regulators, governments, community groups, environmental and social institutions, and members of society, to name a few (Freeman 1984). Secondary stakeholders generally do not engage in economic transactions with the company, as primary stakeholders do, but are touched by a company’s activities either positively or negatively (Figures 1.2 and 1.3).

Figure 1.2 Primary stakeholders (value chain)

Source: Based on Freeman (1984)

Figure 1.3 Secondary stakeholders (indirect)

Source: Based on Freeman (1984)

Even though the change to a more sustainable society requires perseverance and innovation, the old way of doing business (only in the self-interest of the owners) will not work in a society that has limited resources to serve the needs and wants of a growing population. Therefore, when facing major global challenges (such as the elimination of poverty, a better standard of living for everyone, and the mitigation of climate change) companies that practice sustainable capitalism implement a strategy of sharing resources to remain competitive as a group or sector. The way forward is less about the survival of the fittest and more about joining forces so everyone survives and prospers. There is strength in numbers, and better outcomes can result when all are moving in the same direction.

Beinhocker and Hanauer discuss Redefining Capitalism in McKinsey Quarterly (2014). Considering the role of the stakeholders, they suggest that a better measure of prosperity or wealth, as well as the success of its economic system and its businesses, is the number of solutions to human problems society has produced. Consequently, rather than measuring the rate of growth by gross domestic product, a better indicator is “the rate at which new solutions to human problems become available” (p. 5). The conventional financial measures of business success such as profits, growth rates, and shareholder value are not indicators of solution generation for all stakeholders. Therefore, if an economic system and its businesses are generating more environmental and social problems than solutions for those problems, change is necessary.

Sustainability in Evolution: Changing Expectations

To understand where we are regarding sustainability, it is best to understand how we got here. Therefore, we start with a brief history of the evolution of sustainability. There is a concept called legitimacy theory that underlies the sustainability concept and helps to understand the actions of organizations and how they must constantly change as society’s needs and desires change (Dowling and Pfeffer 1975). The theory in very simple terms is this. Hypothetically, society grants a company a social license to operate as long as it produces a good or service in a form that is acceptable to society. However, the types of products and the acceptable manner for producing those products change over the years. If a company does not change as society changes, it will no longer be allowed to operate.

Let’s look at a brief history of how the context of implicit social license has changed from 1945 to current times.

Economic Emphasis Only

During World War II (1940 to 1945), many resources were needed to support the war, leaving few resources for consumer goods. There was a shortage of consumer goods because most resources were used to produce war equipment and supplies. After the war people wanted to get on with their lives, set up their homes, and start families. When the war was over, everyone wanted a car, a refrigerator, a washer and dryer, a television set, and many other household goods that were not available during the war years.

Because of the enormous demand for products and very little capacity to produce these products (much of the world’s production capacity was destroyed), consumers were willing to accept any product that was available, defects and all. There was little concern about how it was produced or, within reason, how many defects it had. At that time, companies’ primary roles were to produce goods and services that consumers wanted. There was limited consideration of the role of business beyond its economic function. Organizations were deemed to be legitimate on the basis of the economic benefits they provided. If consumers did not perceive economic benefit, then the free market system based on supply and demand would deem the product unacceptable and production would be discontinued with little thought given to the environmental and social implications of the product’s production process. The sustainability model looked similar to Figure 1.4 with strong emphasis on the economic dimension and little attention paid to the environment and social dimensions.

Figure 1.4 Unbalanced and unsustainable

Growing Attention to the Environmental Dimension

Later in the 1960s and 1970s, our world population continued to grow and much of the world’s production capacity was rebuilt. Consumers could be selective about the types of products that they wanted to buy. Society expected goods and services that were economically beneficial without causing extreme harm to the environment. For example, Rachel Carson wrote Silent Spring in 1962 revealing the harm that the chemical DDT, widely used to rid agricultural crops of weeds, was causing to our bird population. As birds ate the plants that were sprayed with DDT, the shells on their eggs became very thin, causing birth rates to decline.

Growing Attention to the Social Dimension

The use of DDT also brought concern about health issues, placing emphasis on the social aspect of sustainability. Other social concerns also arose. In the 1970s factory workers fought hard with picket lines and strikes for safer working conditions and a share of the profits that they were instrumental in creating. Often corporations showed large profits, but employees’ wages remained stagnant. Companies pushed employees to work harder for increased productivity as global competition got stronger. Even today, we hear about poor working conditions, often in the textile industry, that are referred to as “sweat shops.”

Therefore, acceptable methods under which products were produced were changing. Society now wanted products that met higher standards: economically beneficial, socially acceptable, and environmentally responsible.

While Carson is often credited with initiating the environmental movement, many individuals promoted environmental awareness at this time. In response to a changing world context and changing definitions of what are legitimate products and services, in 1983 the United Nations convened the World Commission on Environment and Development (WCED). This Commission provided an opportunity for all nations to work together to address both human degradation and deteriorating environment conditions. The document that emerged from the Commission was published in 1987 and is referred to as the Brundtland Report or Our Common Future. It is named after the Commission’s Chair Gro Harlem Brundtland. The Commission recognized that finding solutions to our problems requires everyone’s efforts. Sustainable development was defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

• • “Needs” refers to the basic necessities of the world’s poor;
• • “Limitations” refers to the Earth’s resources as finite (Brundtland 1987).

In 1992 (five years later) the first international Earth Summit followed the WCED. Because it was held in Rio de Janeiro, Brazil, it was called the Rio Earth Summit. The heads of state agreed to work together to address concerns regarding climate change, biological diversity, and loss of forests. The focus was primarily on environmental sustainability. Agenda 21 was the plan for implementing sustainable development, and a Commission was created to report on performance (United Nations 1992). Early attempts to achieve goals in one dimension sometimes were perceived to conflict with the ability to achieve goals in another dimension. Through experience organizations have learned to reduce the conflict and find joint solutions, but we are all learning how to resolve these conflicts in innovative ways. Throughout the chapters of this book, we will work together to clarify how the dimensions can be harmonized by using examples from companies that are finding a better way to do business.

Sustainability Models

After the Brundtland report, the United Nations has continued to lead the sustainability movement with accords, conventions, conferences, agreements, compacts, guidance, objectives, goals, and more. Stakeholders of all types have worked with the United Nations to support the movement, which we will study in the ensuring chapters. Illustrations can help us understand the evolution of these concepts.

Venn Diagram

Even though the diagram of the three overlapping circles of economic, social and environment (Figure 1.1) is likely the most common depiction of sustainability, as we learn more about sustainability, our thinking evolves as well.

Nested Circles

Because of concern that the scale of resource use might continue to grow to outpace the limits of our planet, the nested circle diagram joined the Venn diagram as a depiction of sustainability. This model shows that the economic dimension is a subset of society, and society is a subset of the natural environment. The nested circles diagram illustrates that companies and societies must not consume resources, especially nonrenewable, outside the limits of its carrying capacity (the number of people the planet can hold without harmful destruction) and without concern for the resources needed by future generations (Figure 1.5).

Figure 1.5 Sustainability: Nested circles

Sources: Based on Senge et al. (2008)

Millennium Development Goals

In 2000 the United Nations emphasized the social needs of people living in poverty, especially in developing countries. The eight Millennium Development Goals (MDGs) were introduced with a target date of 2015 for fulfilling the goals (see Figure 1.6).

Figure 1.6 Millennium development goals

Source: United Nations (2015)

Sustainable Development Goals

Even though considerable progress was made on the MDGs, world leaders felt that redirecting the goals into the 17 Sustainable Development Goals (SDGs) would be more inclusive. Every organization and person should take responsibility for working toward the goals most relevant to them. This approach would increase participation through a world effort with every type of entity helping: for-profit; nonprofit; governments (cities, states/provinces, and federal); government agencies; universities; civil society groups; and individuals (Figure 1.7).

With 193 countries of the UN General Assembly all working together the possibility would be much higher for accomplishing the 169 targets for the 17 goals. Even though sustainability is a continuous journey, the targeted date for reassessment of the SDGs is 2030. There is already a strong movement by companies to take on a role in achieving the SDGs.

Five Ps Model

With the expansion of the MDGs to the SDGs, the concept of the 3Ps expanded into the 5Ps, adding peace and partnerships to profits (sometimes broadened to prosperity), people, and planet (Figure 1.8) (United Nations SDG Guide 2015).

Five Capitals, Value Creation Model

Although not coming out of the United Nations initiatives, one more concept is worth mentioning here (discussed more thoroughly later). Porritt (2007) and his Forum for the Future has introduced the concept of maintenance of five capitals. The five capitals consist of financial, manufactured/built, natural, human, and social/relationship. The International Integrated Reporting Council (IIRC) added intellectual property as a sixth capital. Each capital (better defined as asset) is described briefly in Table 1.2.