Short-term gains will destroy us all in the long run

14 April 2023 – If humans are to survive and thrive, organizations must learn to become regenerative – a shift that will be nothing short of a rebirth for many, argues Carlos Álvarez Pereira of the Club of Rome. Here he offers advice on how to begin the transformation.

For more than three decades, governments, companies, institutions and other organizations of all sizes and hues have talked about sustainability. Many have adopted targets based on environmental, social and governance (ESG) factors. A growing number have pledged ambitions to become carbon neutral by 2050 or sooner. I am not alone in saying that none of this is enough to meet the challenges that confront us. If we wait for most organizations to recognize that we are on the wrong path, major emergencies will continue piling up and produce huge suffering, which the most vulnerable people are already enduring. If organizations around the world are serious about creating equitable well-being and restoring the health of the biosphere, they need to become regenerative. That means going much deeper and further. It means reconnecting with humanity. And, of course, it means reconnecting with nature.

Becoming regenerative involves replacing the obsession with short-term market returns by the creation of long-term value for all parties, human and non-human. Companies have a pivotal role to play in this transformation. For most, it will require nothing short of their complete rebirth.

In both Limits and Beyond and Earth for All – A Survival Guide for Humanity, the Club of Rome proposes antidotes to the current malaise and suggests pathways to a better future. Building on the foundations of the Club’s seminal 1972 work The Limits to Growth, which showed how the combined exhaustion of natural resources and massive pollution were pushing humanity towards a cliff edge, Earth for All demonstrates that options exist to save us from self-destruction and create the conditions of decent lives for all in a healthy planet. Limits and Beyond shows that this requires a shift in the way we think and feel, and hence a total transformation of today’s approach to business.

To understand why, it’s important to undertake a reality check of corporate sustainability efforts to date. ESG might sound good in principle, but all too often it ends up being a box-ticking exercise – a “nice to have” rather than a company-defining strategy. One problem is that much of companies’ sustainability efforts have gone in the direction of technicalities and particularly designing metrics. While not entirely useless, this focus on metrics has turned the sustainability imperative into yet another compliance issue. It is something that companies now have to do, not something they have established as a core strategy and an existential purpose.

A second problem is that when sustainability issues get translated into rigid rules and standards instead of nurturing a cultural shift, they become a constraining framework, easily leading companies to continue ticking boxes and remaining compliant for the sake of the tax authorities as well as their shareholders. All of this creates an additional layer of bureaucracy. And if bureaucracy is what’s driving the business, we are all in deep trouble.

Half a century on since The Limits to Growth, humanity is still stumbling down the same path while the house burns. Global warming has accelerated to more than 0.3°C per decade, raising the specter that we will probably overshoot the 1.5°C warming limit that the world agreed to in Paris. Meanwhile, progress on the United Nations 2030 Agenda for Sustainable Development, now just seven years away from its deadline, remains woefully adrift.

As UN Secretary-General António Guterres told the General Assembly this month: “Wars grind on. The climate crisis burns on. Extreme wealth and extreme poverty rage on. The gulf between the haves and have-nots is cleaving societies, countries, and our wider world. Epic geopolitical divisions are undermining global solidarity and trust. This path is a dead end. We need a course correction.”

Regenerative organizations offer that course correction. But what is it? And how do companies begin the transformation?

Becoming a regenerative organization starts by recognizing that the existential risks Guterres talks about are also existential for every company, whether or not they appear as such on its balance sheet or in its risk assessment procedures. We have to stop pretending that we don’t know we are pretending when not factoring in the growing risk of collapse of human civilizations.

But regeneration is not about doomsday prophecies or being better prepared for collapse. It is about the opposite, to explore what it takes to contribute to equitable well-being for all, humans and non-humans, as the right way to restore the health of the biosphere. It requires recognizing that whatever we do part of it will be harmful to others and then we have the responsibility to take care of those consequences.

Among other things, innovation and technology are in urgent need of reframing to target a dramatic reduction in the total consumption of energy and resources while still providing well-being. This is a big shift; not a technical one, since it means using technology to slow down and serve humans, instead of replacing them with machines to go faster to nowhere. It is about using much less stuff, reconnecting with our humanity, and feeling happier.

Regenerative organizations:

• Regard as existential for themselves what are existential risks for the future of humanity.

• Contribute to equitable human well-being within a healthy biosphere, now and in the future.

• Know that some consequences of their actions are inevitably harmful to others (humans and non-humans), and work to prevent and take care of those consequences.

• Reframe innovation and technology to serve humans, reduce dramatically total energy and resource consumption, and slow down.

• Find ways to sense what is good or not so good, beyond quantitative metrics, and to be appreciated and rewarded by the communities they serve, beyond stock markets valuations.

• Do not talk and brag about regeneration. They try to live it and learn along the way what it means to be regenerative.

Many organizations are already learning to do all this. Many start-ups are founded with a central mission to serve the world, human and non-human. A new generation of social entrepreneurs has established as their core mission rebuilding communities and strengthening their social fabric. This new generation of entrepreneurs, many of them women, should be a role model for more established corporations to follow. And they should remind bigger and older companies to ensure they are taking care of the totality of factors in their ecosystem and that they have an unequivocal mission to make nature and humanity healthier.

This is where business schools bear a huge responsibility. Until now, these crucial organizations have not given sustainability the importance it deserves. Just like many of the world’s biggest companies, sustainability is a bolt-on, a “nice to have” addition to give the impression that they are covering the bases. Meanwhile, business school rankings take in metrics such as which ones produce the alumni with the highest salaries. From the perspective of a transformation toward sustainability, this type of criterion is irrelevant. Business schools need to change their model and become the powerful disseminators of the regenerative culture that they could be.

From a company perspective, the transformation goes beyond a call for executives to mandate mindfulness workshops for their C-suite teams. Regenerative organizations are not obliged to arrange retreats or encourage employees to walk around barefoot. It is rather a call to rethink priorities and establish regeneration as a foundational principle and guiding mission of the organization.

One criticism of regenerative organizations as the way forward is that the entire global financial system has to change for it to work. Economic rules need to be reimagined; we need to begin again. If that sounds like a tall order, it is. But it is also already evident that we cannot continue doing business as usual.

So how do companies know whether they’re on the right track, and how do they assess their progress? Current financial metrics will not help, since they do not represent the negative externalities nor the cultural shift that is needed. If a company continues to pilot from quarterly statements of revenue, operating profit, and other earnings data, it can be sure it is not being regenerative. Far more important is to find ways to sense what is correct and what is not, and to do that together with the communities that the company serves. Some quantitative indicators might help, just in the way that body temperature is an indicator of physical health. But developing the guidance tools will be a learning exercise, specific to each company rather than based on global accounting rules. Once a company’s mission becomes meaningful as a positive force for humanity and for nature, the chances are that its staff will feel more engaged, and that is an essential part of the learning process.

Transformation towards becoming a regenerative organization should tap into humans’ innate love of adventure, excitement, and a passion to be involved with something greater than oneself. And the excitement of exploring what is meaningful together is what makes the journey of life valuable – not just thinking of the earnings per share.

First published in IMD magazine.

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This article gives the views of the author(s), and not the position of The Club of Rome or its members.

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