TCR: The Most Advanced Corporate Sustainability Strategies

Frank Dixon
August 11, 2017
www.CSRwire.com

A major opportunity exists for companies to position themselves as global sustainability leaders by focusing on system change. This is by far the most important sustainability issue. As a result, companies taking the lead on it can credibly claim that they have implemented the most advanced strategies. Like current sustainability leaders, they will gain many benefits, often including enhanced reputation, market share and stock market returns.

Twenty years ago, corporate responsibility was seen as a risk management issue that frequently increased costs. This view has evolved. As environmental and social issues became increasingly financially relevant, many companies realized that implementing proactive sustainability strategies could add substantial financial and competitive value. Now nearly every large company has some type of sustainability strategy.

The field is on the verge of evolving again. Flawed economic and political systems force all companies to degrade the environment and society. Very generally speaking, businesses 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. As companies are forced to degrade the environment and society, negative impacts increasingly return to harm them, often in the form of reputation damage, lawsuits, market rejection, and ultimately reduced profitability and shareholder returns.

To protect themselves and society, businesses must find ways to further reduce negative impacts. System change is the most effective way to do this. Currently, nearly all corporate sustainability actions are focused on unilateral impact mitigation. But this only can reduce about 20 percent of impacts. In other words, nearly 100 percent of corporate sustainability efforts are focused on about 20 percent of the problem. System change represents about 80 percent of the sustainability solution. But it gets relatively little attention compared to company change (i.e. unilateral impact litigation).

A whole system perspective reveals that humanity’s unsustainability ultimately is not caused by negative corporate impacts. It largely is caused by the flawed systems that compel companies to degrade the environment and society. As this becomes widely known, businesses aggressively addressing system change will be seen as the true sustainability leaders.

The Total Corporate Responsibility (TCR^®) methodology provides a practical and profitable way for companies to substantially shift the focus of their sustainability strategies from company change to system change. Developed in 2003, TCR identifies two broad levels of system change – mid-level and high-level. Mid-level system change involves systemic changes at the sector, stakeholder or environmental/social issue levels. High-level system change refers to evolving overarching economic, political and social systems into sustainable forms.

The methodology combines leading-edge sustainability strategies with system change. Current leading-edge approaches involve integrating sustainability into business strategies. Aspects of this include minimizing risks, selling environmentally and socially responsible products and services, and implementing rigorous management, governance, accounting and reporting systems. The new leading-edge involves adding mid-level and high-level system change actions to existing sustainability strategies.

System change is highly complex. No organization or segment of society is powerful enough to drive it. Higher-level systemic changes only can be achieved through collaboration. A growing number of companies are engaging in collaborative sector-level (i.e. mid-level) system change. Walmart is a leader in this field. Nearly ten years ago, the company established Sustainable Value Networks in several sectors. Through collaboration with suppliers, NGOs and other stakeholders, Walmart was able to reduce negative impacts more than it could through unilateral efforts.

While mid-level system change is growing, there are few opportunities for companies to engage in collaborative high-level system change. This is by far the most important sustainability issue in the corporate sector. Overarching economic and political systems constrain and compel corporate behavior. Companies cannot stop degrading the environment and society unless these systems are changed.

The most effective corporate sustainability rating approaches use best-in-class ranking. Companies are compared to peers with similar risk and opportunity profiles. Businesses with the highest best-in-class ratings are not perfect. They simply are more proactive and effective at mitigating impacts than competitors. Flawed systems make it impossible for any company to achieve perfection in the sustainability area (i.e. full impact mitigation). As sectors address new issues, the sustainability rating bar is set low. Little effort is required to outperform peers and get the highest ratings. However, as more companies address the issues, the bar is raised. Intelligent, proactive efforts are required to outperform competitors and attain superior ratings. In this way, best-in-class sustainability rating drives sector-wide improvement.

Collaborative high-level system change is a new issue in the corporate sector. For many years, sustainability leaders engaged in limited, frequently unilateral types of high-level system change. These efforts include using campaign finance and lobbying to promote regulatory changes that make environmentally and socially responsible behavior more profitable and launching media campaigns that honestly inform citizens about environmental and social issues. These corporate efforts are beneficial, and therefore should be expanded. But they cannot bring business and society anywhere near sustainability. Only collaborative high-level system change can achieve this.

But few companies are engaged in it. Therefore, in this early phase, only limited efforts are needed for businesses to honestly portray themselves as leaders in this area. Even publicly acknowledging the importance of high-level system change and saying that they are exploring collaboration opportunities will set companies above peers. As more businesses get involved, proactive efforts will be needed to maintain sustainability leadership.

The TCR approach guides companies through the process of successfully addressing mid-level and high-level system change. It also helps businesses to implement proactive conventional sustainability strategies (i.e. unilateral impact litigation) if they have not already done so. The book Global System Change: We the People Achieving True Democracy, Sustainable Economy and Total Corporate Responsibility describes the TCR system change rationale and implementation process.

System change, especially high-level system change, will become the most important corporate sustainability issue of the 21^st Century. Flawed economic and political systems drive widespread, rapidly expanding environmental and social degradation. This causes growing problems for business and society. These systems inevitably will change, probably soon. Nature and reality force all flawed human systems to change. If we do not figure out how to do this voluntarily, systems will collapse in a highly disruptive and traumatic manner.

Many people already understand that current economic and political systems are grossly flawed and in the process of changing or collapsing. No one intended that these systems would degrade and possibly destroy society. The systems were developed from a reductionistic perspective that ignores much of reality. A whole system perspective is needed to evolve our myopic, unintentionally destructive systems into sustainable forms. Another book (Global System Change: A Whole System Approach to Achieving Sustainability and Real Prosperity) uses a whole system perspective to extensively describe the economic, political and social system changes needed to achieve sustainability and real prosperity.

In summary, high-level system change is the most important sustainability issue. It is the only business and broader society activity that has the potential to achieve sustainability. Companies that publicly acknowledge this and proactively facilitate or engage in collaborative high-level system change can credibly position themselves as global sustainability leaders. They are the true pioneers in this next major, inevitable phase of corporate sustainability strategies.

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.