Future Business Fitness: ‘Less Bad’ Isn’t Good Enough

The article and interview Future Business Fitness: ‘Less Bad’ Isn’t Good Enough written by Brynn McNally, Sustainable Brands, was originally published on sustainablebrands.com. The Future-Fit Business Benchmark is a project that is co-led by The Natural Step Canada and 3D Investment Foundation.


How do we judge corporate sustainability? Say you’re a consumer eager to support companies managing their environmental impact. Or, you’re an investor interested in securing returns over the long term. You might review a company’s annual sustainability report, where you discover goals to reduce water consumption ‘15% percent by 2025’ or ‘to 1990 levels over ten years’. Sounds ambitious! But how ‘bad’ was this company’s performance to start? Will a 15% reduction be enough to sustain company operations once 2025 rolls around? You could also reference one of hundreds of sustainability ratings. Maybe you find a company ranked higher than 90% of its peers. Great! Looks like it’s a frontrunner among companies today. But what about next year? Are current ‘best practices’ bold enough for businesses to last?

Enter the Future Fit Business Benchmark (FFBB), a new framework aiming to evaluate companies based on defined sustainability criteria for a “flourishing future.” The open-source framework outlines 28 social and environmental goals across business areas that apply to all companies, regardless of industry or size. The Benchmark’s Public Draft 1.0 is open for comment, with a second draft planned for release this Fall. I spoke with Geoff Kendall and Bob Willard, co-authors of the FFBB, about the process of creating the Benchmark, their theory of change, and how society may benefit from some “design constraints” for business.

SB: How would you describe the Future Fit Business Benchmark (FFBB) to a non-expert?

GK: It is a way to measure how far away a company is, in terms of its non-financial performance – its environmental and social performance – from where it needs to be, according to best available science. Instead of measuring progress based on previous years, or relative to peers, it’s the only initiative, to our knowledge, that is actually measuring progress relative to the sustainable future rather than the unsustainable present.

BW: Environmental and social science is requiring us to aspire to the kinds of goals that we are putting in place. We’re defining the goals that are necessary if a company is really going to thrive in the future, on a planet that’s more resource-constrained, water constrained, carbon constrained, and crowded. It’s a finite planet, and we’re trying to acknowledge that with the goals that we’ve set.

SB: The FFBB defines the minimum acceptable level of companies’ social and environmental performance for society to sustain and flourish. What science and/or experts did you draw upon in defining the conditions for a “flourishing future”?

GK: The vast majority of that work had already been done for us by a group of scientists led by an organization called The Natural Step. Twnety-five years ago the founders of the Natural Step decided that in order to understand what a company or a city, or any other entity, needed to be sustainable, you’d need to understand what sustainability actually looks like. So they came up with an approach involving upwards of 50 scientists to define a set of system conditions that defined the boundaries within which society must operate if it is to be truly sustainable. That’s gone through a rigorous peer-review process and been the subject of hundreds of academic papers and a number of books. The principles have been used by individual cities, by governments and by companies, as a way to help develop their own response to the need to be more sustainable. We’re taking those same principles and simply applying them in a more generic way such that they could be used to measure progress across a wide range of entities – in this case, companies.

SB: What are the advantages (or disadvantages) of creating a generic framework for all companies regardless of sector/industry, as opposed to beginning with sector-specific KPIs like the ones SASB and others are pursuing?

GK: I think there are advantages and disadvantages to any approach. At one extreme, you’ve got metrics that attempt to put a single number on a company’s performance – things like the Dow Jones Sustainability Index – which will say that, for example, Nestle is 80% sustainable and Unilever is 85% sustainable. But what does that actually mean? That information doesn’t really tell the CEO or investors in those companies what they need to do differently – it’s just a single number.

At the other extreme, you’ve got things like SASB, which attempt to identify all of the material indicators that any company across a range of sectors should look at, which is helpful for those companies, I’m sure. But if you’re an investor trying to figure out where you should be putting your money and trying to compare one company to another, it’s very hard to draw comparisons.

So you’ve got those two extremes: at one end you don’t really have actionable information, and at the other end you’ve got so much information that it’s really confusing. We’re providing a generic framework with the same set of issues, because we all live on the same planet – in the same society. There will of course be certain issues; certain future-fit goals that are harder for some sectors to hit than others. But the goals themselves will be the same.

BW: We’re calling it a benchmark very deliberately. We are trying very hard to not position the FFBB as one more standard. There are over a hundred different frameworks and standards and reporting guides out there – we don’t need more! What we’re hoping is that the FFBB will be useful to integrate into existing standards and frameworks so that it makes them a little more rigorous than they already are.

SB: Who are you soliciting feedback from on the first Public Draft, and how is it being received so far?

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GK: Feedback so far has been very encouraging. We’ve got over a hundred pages of documentation as a whole to go through, so that’s been really helpful. I’ve been pleasantly surprised with the number of companies who’ve gotten in touch with us to say they really want to understand what it’s going to take to make them future-fit. I must admit, I was initially thinking these goals are so far away for some companies that they’re going to run away in horror. But that hasn’t been the case. Companies that really understand that their long-term success depends on the long-term well being of society and the planet, actively want to figure out what this stuff means for them.

BW: We’ve done a good search of the Pivot Goals database just to see whether companies have goals that are similar to the kinds of goals that we’re talking about. And in many cases, they do. They already have aspirational goals that are aligned with the kinds of goals we have in the FFBB. In general, I think there is a readiness factor that’s there in the corporate community that says this is a timely addition to the discussion, and a welcome one.

It is quite a spectrum of individuals providing feedback. It covers people who are in business and have a role in their companies to look at sustainability. It covers people that have standards that we are dialoguing with to see whether these are relevant or useful to them in their work. It includes ‘gurus’ in sustainability – people that have been into the corporate incarnation of sustainability for years. It also includes a couple of academics who are working on these things. So it’s a pretty rich cross section of perspectives and extremely helpful because of that.

SB: Let’s go a bit broader on your vision for change. What do the steps look like for getting to the next economy – one that doesn’t assume infinite growth is possible or desirableand a world in which the FFBB is adopted globally?

GK: Steps makes it sound linear, I wish it was! I think we’ve got a number of levers we’ve got to pull. One is getting leading companies to understand that the FFBB will actually highlight the good stuff that they’re already doing in ways that the current crop of metrics can’t do, because they’re focused on best practice instead of real ambition. Another thing we need to do is really engage mainstream institutional investors. There’s a stereotype of a mainstream investor, of someone that doesn’t care about anything except getting a quick return. There are probably a number of those people out there. But as with all stereotypes, the reality is a bit more nuanced. A lot of the institutional investors we’ve been speaking to do care about sustainability, they just don’t know what to do with it. At the moment, figuring out how to look at a company’s resilience to climate change or water scarcity, and how that impacts their investment decisions, is really difficult for them to grasp.

In my four years consulting with global companies on sustainability, I’ve learned that what really gets the CEO’s attention is when his or her investor relations director comes and says, ‘I’ve just been asked about this particular issue’ – whether it’s water or climate or another environmental issue. That’s what gets the CEO’s attention. Because if investors start asking about sustainability and he doesn’t have a good answer, it could increase the cost of capital, and that’s something no CEO wants to hear. So by attracting leading companies, by also getting institutional investors to embrace this and understand it and start asking other companies what they’re doing about these issues, we hope we can start a bit of a snowball effect.

BW: We also believe the FFBB might be useful for other players – like raters, consultants, business schools and policy makers – all of whom can influence the thinking in the boardroom with what they expect or demand or ask about. So those are other levers that we’re trying to pull as well. As we start to legitimate this conversation in society, that puts additional pressure on companies to ‘get with the program’. We’re trying to use every possible approach to try to change the mindset in the C-suite around sustainability, and legitimize the kinds of goals we define in the FFBB.

SB: Some of principles the FFBB outlines as “design constraints” for business seem counter to the nature of private interest (e.g., ‘does not contribute to conditions that undermine equality’). How can we reconcile these principles with the competitive ethos of capitalism, whereby winners and losers are produced? Relatedly, how do we convince companies to adopt FFBB goals if benefits, such as cost savings or enhanced reputation, aren’t immediately apparent?

GK: I think there’s self-interest and there’s enlightened self-interest. There are always going to be people who think ‘well I’m just out for number one and screw the rest’. I happen to be quite a strong believer in nature in general being better than that – and that ultimately people do care about what happens to their families and their children and their grandchildren and so forth. This is all about just taking a long-term view. Design constraints sound like something intrinsically negative. But I don’t think that’s the case. If you use an analogy- think of something like soccer. One design constraint in soccer is that the ball must not leave the field of play. Another design constraint is that outfield players mustn’t touch the ball with their hands. Without these kind of constraints, these design principles, the whole game would degenerate into a free-for-all. And you can think of the Future Fit principles in the same way; all we’re really doing is setting out the rules for the game, the game being society in this case, to flourish indefinitely into the future.

People that understand that the long-term prosperity of business depends on operating within the boundaries of the planet and social norms, have embraced the fact that we’re trying to define the FFBB in a way that they can understand. There are always going to be people that are the ‘corner cases’ that will not embrace that, but hopefully society will weed them out.

BW: Nobody wants to be sacrificing their competitive position just to try to save the world. The reason we’re calling this Future Fit is not because you have to wait years and years before you get the benefits. What we’re saying is that meeting FFBB goals will position companies to be more successful than competitors – that they’ll be more fit the closer they are to achieving these goals. So the business case for this, which we echo throughout each of the goals when we talk about business benefits, is trying to reinforce the fact that this is not a sacrifice; that this is actually going to position companies, now and in the future, to flourish in a very competitive environment.

GK: Let me give you a specific example around greenhouse gas emissions (GHGs). Let’s imagine a company gets to the point that it’s carbon neutral. Well of course, that’s good for society. But it’s also very good for the company’s bottom line. The reason is, you’ve only got to look at what the fossil fuel markets have been doing the last few years – the volatility is insane. A company that is emitting no GHGs because it has no dependence on fossil fuels is totally insulated from those market dynamics. It is also totally protected from any upcoming legislation around, for example, a carbon tax. So companies that are aspiring to hitting these Future Fit goals are making themselves inherently more resilient to unexpected changes in the market that we know will start impacting business soon. The more resilient you can be, the more fit you can be, just like if you’re a person. If you’re physically fit and well, as opposed to sitting on the couch all day, then if you come down with some sort of illness, your body is going to be better able to fight it. It’s the same kind of situation.

SB: How do you envision the FFBB being implemented once standard Key Performance Indicators (KPIs) are developed? What does this look like year to year?

GK: There are two sides of this, in my mind: there’s the company’s point of view and the investor’s point of view. On the company side, it’s about looking at each Future Fit goal and each KPI, and understanding the gap between where the company is now and where it needs to be in order to be future fit. It might find for some goals, all it has to do is what it does now but slightly more efficiently or with a few tweaks. But in some cases it might find its business model has to fundamentally change if it’s ever going to hit that goal. That’s the first step it needs to take.

The second step companies will need to take is to start telling its stakeholders about this: ‘here’s the gap we need to cross for us to become future fit’. And then they need to say, ‘here is the trajectory we’re committing to in order to get there, here are the targets we’re going to hit, here’s the date by which we expect to be future fit.’ Then, companies will report year to year on their performance towards their future fit goals. My ideal world is that in ten years time, every company in the world, certainly every public company, is reporting on its future fit performance. It might be called something differently by then, that’s fine, but every company would be reporting on its nonfinancial performance according to science-based goals in a comparable way. And that’s what takes us to investors. If we can deliver KPIs that will allow investors to compare performance on any future fit goal across multiple companies no matter their sector or size, then they can start factoring that into their portfolio decisions. The FFBB gives them more tools to start tweaking that portfolio strategy to decide where to deploy their money. Let’s imagine you’ve got company A and company B, and it looks like more or less the same risk/reward profile as an investment. But imagine company A is twice as good in terms of its future fitness as company B. As an investor, why wouldn’t you start biasing your decisions towards company A? That’s how we see things going there.

BW: It really boils down to the company embracing these as their aspirational goals on each of the 28 topics. And the second way is starting to report their progress towards those goals using the kinds of metrics and algorithms that we will have in our KPIs. Those are the two ways. And hopefully that will help them see the advantages of doing all of these things, and they’ll start to reap those benefits sooner. But essentially it’s the aspirational goals and reporting frameworks that we hope to be able to influence.

Written by Brynn McNally, Sustainable Brands