High-Level System Change: The Most Important Sustainability Issue

High-Level System Change: The Most Important Sustainability Issue

Frank Dixon
November 1, 2017
www.GlobalSystemChange.com

Sustainability has become mainstream in the corporate and financial sectors over the past 15 years. Nearly all large companies have sustainability strategies. The global socially responsible investing (SRI) market has grown to over $20 trillion. The UN Sustainable Development Goals are widely embraced by governments and businesses. Many academic institutions, foundations, NGOs and other organizations strongly promote sustainability. But in spite of this excellent work, environmental and social conditions are declining rapidly in many regions. The best that all corporate, government, NGO and other sustainability actions can do probably is to slow the rate of descent because they largely are not focused on root causes.

Flawed economic and political systems unintentionally put business in conflict with society and humanity in conflict with nature. These systems are the root causes of the major environmental, social and economic challenges facing humanity. Attempting to resolve these problems without addressing the systems that caused them in the first place will not work. Evolving economic, political and social systems into sustainable forms (high-level system change) is the most important sustainability issue. This is the only action that can reverse environmental and social degradation and enable humanity to achieve sustainability and real prosperity.

Changing economic and political systems is highly complex. Many leaders and experts say or imply that this work is impractical, or even impossible. Instead, they focus on easier actions, such as changing accounting and disclosure standards, addressing particular environmental or social issues, or seeking specific policy and regulatory changes. In effect, they are saying, the only action that has the potential to achieve sustainability is too difficult. Therefore, we will focus on more ‘practical’ actions that have little or no ability to produce sustainability. This is not practical. It is highly unlikely that many uncoordinated efforts focused on different parts of the sustainability solution would achieve sustainability, especially when the most important part of the solution is not being adequately addressed.

Many actions that once seemed difficult or impossible, such as outer space exploration and women’s suffrage, are taken for granted today. High-level system change might seem impossible. But a whole system perspective shows that it is inevitable. All flawed human systems change, usually by collapsing. This occurred with the American and French revolutions, end of slavery in the US and fall of communism in the Soviet Union.

Modern economic and political systems grossly violate the laws of reality and nature. Given the widespread environmental and social degradation they are causing, it is highly likely that they will change soon. Our only options are voluntary or involuntary system change. Involuntary change (i.e. collapse) would cause unprecedented trauma and disruption, because human society is larger, more interconnected and closer to environmental and social tipping points than ever before.

Voluntary high-level system change is the vastly superior option. It may be difficult. But it definitely is not impossible. Humanity is highly resourceful and talented. If we devote enough time, attention and resources, we can make high-level system change happen. This article summarizes the why, what and how of high-level system change.

Why

In reality, all major aspects of human society are connected. The economic is not separate from the political, social, environmental, or even psychological, spiritual and religious. But the human mind did not evolve to consider the whole system of human society at once. As a result, we broke the system into parts and studied them without adequate reference to the whole system that contains them, a process known as reductionism. We developed ivory tower economic and other theories and systems that ignore much of reality. This myopia (short-sightedness) produced unintended consequences, such as widespread environmental and social degradation.

To illustrate the unintended consequences of myopia and reductionism, flawed economic and political systems compel all companies to degrade the environment and society. Very generally speaking, companies can mitigate about 20 percent of tangible and intangible, short-term and long-term, negative environmental and social impacts in a profit-neutral or profit-enhancing manner. Beyond this point, costs usually go up. If companies continue down this path of voluntary corporate responsibility, they will put themselves out of business long before reaching full impact mitigation.

Myopic systems also often compel individuals, governments and other organizations to degrade the environment and society. They see short-term benefits, but frequently do not understand the long-term negative impacts of their actions. Flawed systems often present individuals, businesses and governments with harmful and non-harmful options. The sustainability movement largely is focused on helping these groups to choose non-harmful actions. However, if human systems were sustainable, only non-harmful options would be profitable and legal.

Humanity currently is making the same mistakes as past societies. During the times of feudalism, slavery and other unjust, unsustainable systems, many people did not understand that their systems were grossly flawed and inevitably would change. With the benefit of a broader time perspective, the gross flaws of past systems are obvious. But we are too close to current systems. Our lives usually depend on them. As a result, we often do not see the gross flaws that will be obvious to people in the future. We take for granted many actions and system components that one day will be seen as horrible, equivalent to slavery and witch burning.

What

The primary overarching system flaw in the business area is the failure to hold companies fully responsible for negative environmental, social and economic impacts. This is the general mechanism that puts businesses in conflict with society, and thereby compels them to degrade the environment and society. Failing to hold companies fully responsible violates a foundational principle of civilized, sustainable society – the rule of law. This principle states that individuals and businesses should be free to do what they want, provided that they cause no harm. The rule of law usually is applied well to individuals. They are held responsible through murder, assault and many other laws. But the principle is applied poorly to businesses in many countries. They are allowed to cause extensive environmental and social degradation (harm).

There are many specific economic and political system flaws that fail to hold companies responsible for negative impacts (i.e. fail to apply the rule of law). Examples relate to externalities, limited liability, time value of money, overemphasizing economic growth and shareholder returns, failure to adequately measure social well-being, inappropriate government influence (through campaign finance, lobbying and job rotation between business and government), lack of democracy, lack of congressional and judicial term limits in the US, political parties, media deception, public division and disempowerment, corporate welfare, private sector money creation (i.e. fractional reserve lending), and myopic application of the concepts of economies of scale, free trade and competitive advantage (i.e. failure to use a whole system approach that accounts for all negative and positive impacts).

Through many different mechanisms, economic and political system flaws such as these compel businesses and broader society to cause environmental, social and economic problems. Sector and issue-specific efforts to resolve climate change and other problems (mid-level system change) often are beneficial. But they essentially are end-of-the-pipe solutions, and therefore frequently are ineffective. These mid-level efforts can help to clean up some environmental and social problems. But if the economic and political systems that caused them in the first place are not addressed, the problems can return or not be fully resolved.

Political parties and media deception are two of the most important and destructive systems flaws. Citizens collectively are the most powerful force in society. They could compel any government or business to change. But vested interests use political parties and deceptive media to divide and disempower citizens. This prevents them from working together in their many areas of common interest, such as protecting life support systems, establishing true democracy and using the public wealth to equally and fairly benefit all citizens.

The main US Founders, except Alexander Hamilton, were greatly alarmed by the establishment of political parties. They did not want the new union divided into debating fractions. In his Farewell Address, George Washington called political parties the worst enemy of elected government. Vested interests use political parties and deceptive media to divide citizens into acrimonious groups, such as conservatives and liberals. People are manipulated into disliking or attacking citizens and leaders in the other party, rather than focusing on major problems, such as vested interest control of government, unfair concentration of wealth through many forms of corporate welfare, and destruction of life support systems.

Citizens often focus on incompetent leaders instead of the flawed systems that put them in office. They are deceived into thinking that keeping their party in power or putting it back in power will enhance society. They often do not see that wealth has been concentrated at the top of society in the US for the past 40 years, while life became more difficult for the vast majority of citizens, regardless of which party was in power. Wealthy campaign donors largely control both major US political parties. Neither party is responsible for the degradation of US society since deregulation began in the 1980s. The root causes are flawed economic and political systems that suppress democracy and make life unnecessarily difficult for those who do not spend large amounts on political campaigns (i.e. nearly everyone).

How

Academic and other experts have been discussing system change, systems theory, economic reform and similar issues for decades. But this work has not reversed environmental and social degradation, in large part because it often is reductionistic. Systems theories are developed that discuss the whole system of human society, but then only are applied to parts of it or to particular issues, such as climate change. Economic reform efforts frequently have limited impacts because they only focus on the economy.

A whole system approach is essential for successful high-level system change. Root causes, systemic barriers, key leverage points and optimal solutions often lie outside issue-specific areas. To illustrate, failure to hold companies fully responsible/apply the rule of law is a foundational economic and political system flaw. Only government can do this. But vested interest controlled government will not change itself, unless a catastrophe occurs. Several key leverage points for political reform lie outside the government area. These include influence from the corporate sector, financial sector and general public.

A true whole system approach would focus first on the highest level whole system that humans influence – the whole Earth system with human society as a sub-element. A sustainable human society would be defined to the greatest extent possible. This would serve as the frame of reference or context for sub-actions, such as economic and political reform.

A whole system perspective reveals that the economy should be the servant of society. Economic reform cannot be done successfully in isolation. The first action is to define a sustainable society. This sets the parameters and operating conditions for a sustainable economy. A whole system perspective also reveals that the most important economic and political systems largely are established and managed at the national level. Therefore, high-level system change efforts often would be focused on this level.

In addition, a whole system perspective reveals that nature provides a nearly perfect model for sustainable human society. Nature produces no waste, equitably distributes resources, implicitly values current and future generations equally, lives on renewable resources, decentralizes production, seeks balance instead of growth, implicitly values and takes all factors into account, and enables nearly all plants and animals to reach their fullest potential. Nature displays nearly infinite levels of coordination, cooperation, symmetry, sophistication, resilience, sustainability and true prosperity. We are parts of nature. Therefore, we have the innate ability to display the same high level of sustainability and prosperity seen in nature. A whole system perspective reveals that we only have reached the tiniest fraction of our potential.

The book Global System Change: A Whole System Approach to Achieving Sustainability and Real Prosperity employs the above approach. All major physical aspects of society (economic, political, social, environmental) and nonphysical aspects (psychological, spiritual, religious) are addressed and linked. The major economic, political and social system changes needed to achieve sustainability and real prosperity are extensively discussed. Many system changes also are suggested for specific areas, including population stabilization, education, food production, crime, privacy, energy, chemicals, genetic engineering, environmental protection, advertising and media.

The last ten percent of the whole system book also is published as a separate book, called Global System Change: We the People Achieving True Democracy, Sustainable Economy and Total Corporate Responsibility. This book summarizes many economic, political and social system changes discussed in the whole system book. However, it mainly is focused on what probably is the most important action needed to achieve sustainability and real prosperity – uniting and empowering citizens to work together in their massive areas of common interest.

A whole system approach can seem overwhelming. But it does not mean addressing everything at once. Instead, a whole system vision informs and guides specific actions. Collaborative groups would identify necessary changes, prioritize them, and implement practical, relatively easy first steps. Different segments of society would implement different strategies, all ideally focused and coordinated by the same whole system vision.

One of the most important early actions is raising awareness in all areas of society about the need for system change. Darkness cannot survive in the light. We tolerate grossly flawed systems because many individuals and organizations do not understand their extremely destructive nature. As it becomes clear that flawed economic and political systems (and the myopic thinking that created them) are the root causes of the major environmental, social and economic challenges facing humanity, pressure to change these systems will grow substantially.

Another critical action is engaging the financial and corporate sectors in system change. This requires providing a strong business case and practical engagement processes. Chapter Eight of the Global System Change books describes a practical and profitable system change methodology, called Total Corporate Responsibility (TCR®).

The business case for system change is strong and clear. Flawed economic and political systems compel all companies to negatively impact the environment and society. As the human economy expands in the finite Earth system, these impacts return more quickly to harm businesses and investors, often in the form of market rejection, lawsuits and reputation damage. Companies have strong financial incentives to reduce negative impacts. But they only can mitigate about 20 percent on their own. System change is required to eliminate the remaining 80 percent.

The TCR model provides a relatively simple and straightforward means of integrating system change into the financial sector. It defines two broad levels of system change – mid-level (sector, stakeholder or environmental/social issue-level) and high-level (overarching economic, political and social systems). Many organizations analyze and rate corporate environmental, social and governance (ESG) performance. TCR describes how to expand conventional ESG research to include mid-level and high-level system change analysis.

Growing investor interest over the past 20 years was a main factor causing nearly all large companies to implement sustainability strategies. The same mechanism can be used to drive system change. As the financial community uses corporate system change performance ratings to develop funds, companies will be compelled to more effectively engage in system change.

The over $20 trillion global SRI market increasingly focuses on unmanaged systemic risks, such as those related to carbon emissions. But the most important systemic risks by far are the systems themselves. These are the root causes of growing problems for business and society. Therefore, they are highly financially relevant.

Sustainability leaders often outperform in the stock market because sustainability is a strong indicator of management quality, the primary determinant of financial performance. Sustainability is a complex issue. Companies doing well in this area implicitly have the ability to do well in other business areas, and thereby achieve superior financial returns.

The same logic applies to system change. Working with others to change overarching systems probably is the most complex management challenge. This makes system change another strong indicator of management quality. TCR funds have high potential to capture a substantial share of the SRI market. They can provide far higher sustainability benefits than any other type of SRI, because they are focused on the most important sustainability issue. They also have strong potential to provide superior financial returns.

Integrating system change into the corporate sector also is fairly straightforward. Many companies already are engaging in collaborative sector-level efforts to improve sustainability performance (mid-level system change). However, high-level system change is vastly more important. Companies and sectors are severely constrained by overarching economic and political systems. These systems strongly inhibit the ability to utilize low-impact technologies and other sustainability strategies. High-level system change will greatly accelerate responsible, low-impact technologies, products and services by making them the profit-maximizing options.

Many actions are needed to engage the corporate sector in high-level system change. One of the most important initial actions is to convene high-level system change collaborative efforts. No company or segment of society is powerful enough to drive high-level system change. Collaboration enables businesses to work with NGOs, academia, governments and civil society on the most complex and important sustainability action.

A primary focus of high-level system change collaboration should be on providing quick wins and benefits to participants. Reputation enhancement is one of the most important initial benefits. As it becomes clear that high-level system change is the most important sustainability issue, companies that proactively engage in it will be seen as the true sustainability leaders. This can increase share prices as the large and growing SRI market invests in these leaders.

In summary, environmental, social and economic problems have a common root cause – myopic thinking and resulting flawed systems. As a result, they have a common solution – using whole system thinking to evolve economic, political and social systems into sustainable forms. As this occurs, much of the sustainability movement will become unnecessary. We no longer will need to encourage companies to stop harming the environment and society. Causing harm (violating the rule of law) will be prohibitively expensive and illegal.

Currently, organizational and leadership development programs help business leaders to see the bigger picture. They come to understand that their companies are not separate from society. Business well-being ultimately depends on societal well-being. From this enlightened perspective, they realize that it no longer is acceptable to focus primarily on maximizing shareholder returns. They have an obligation to benefit, or at least not harm, all stakeholders and broader society.

Once economic and political systems are sustainable, all leaders, enlightened and unenlightened, will implement sustainable, non-harmful strategies because this will be the profit-maximizing approach. However, voluntarily changing current, unintentionally destructive systems requires enlightened leadership.

 

Frank Dixon oversaw the sustainability analysis and rating of the world’s 2,000 largest companies for many years as the Managing Director of Research at Innovest Strategic Value Advisors, formerly the largest corporate sustainability research firm in the world. Institutional investors used Innovest research to develop high-performing socially responsible investing products. Extensive corporate sustainability experience made it clear that flawed systems compel all companies to degrade the environment and society. Frank Dixon developed the TCR® approach to provide a practical and profitable way for companies and investors to engage in system change. Following Innovest, he provided sustainability and system change consulting to companies in the US and Europe. Most recently, he wrote the Global System Change series of books. Using a whole system approach, the books describe the major economic, political and social system changes needed to achieve sustainability and real prosperity.

Frank Dixon has an MBA from the Harvard Business School.

www.GlobalSystemChange.com

Copyright © 2017 Frank Dixon