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How apply ethics to a sustainable business innovation

Road To Forest Valley Podcast

Published on 2021-12-29

Listen the full podcast or read the article below!

The question "How to apply ethics to sustainable business innovation?" was the starting point for Thorsten Harstall, who gave us a presentation on how ethics can be applied to different types of business strategies both for start-ups and established companies, and some useful tips on how to start a journey towards sustainable ethics.

 

The research’s title is "How is ethics applied to sustainable business innovation?" and my main motivation to deep dive into that context was first an outside-in view on what is happening in the world around us. 
The reference I took was primarily at the Earth Overshoot Day, which is giving us some sort of an indication of how we, in economic terms, manage what the planet can regenerate within a year. According to this index, we're having a bad trend line from the beginning of the seventies where this date was at the end of December. In 2021 we're already at the end of July, so that means we are overconsuming and in other words, we're getting worse and worse. 

This was my main motivation to understand what it means to be sustainable and not just to do less bad things - now I am already using the ethical terminology: good and bad. 

But what can companies, in particular, do to contribute to sustainable development? In the sense of a positive net contribution to the economy, but in particular now also to environmental and social contributions. 


 

The findings from this research

 

Findings were multifaceted and I have summarized them in three groups: one was more a theoretical finding on the definition, the history, the concept, and the conception of sustainability and also the role ethics plays in these different Eras and definitions of sustainability.
For me, that was a very important finding because I think today sustainability is such an overused word that sustainability as a concept almost lost a bit of meaning. After all, we're just using it so often without even thinking about it. And also, the ethical feature of sustainability is not often clear to all people who use the terminology.

The second finding was more focused on the application of ethics as part of a sustainability strategy within organizations. 

My third result concerned the assessment of the current state and the identification of barriers, basically developing a framework and a recommendation on how companies can transform into a true business sustainability team.

I'm happy to give a bit more background on what that terminology represents and also how companies and corporations can apply ethics, not only as the majority of a company does today like a more of a defence and compliance concept, but use ethics as a creative transformational system thinking concept which can produce more sustainable solutions for corporations and drive a higher level of innovation.


 

The evolution of the integration of ethics and sustainability in business 

 

Is important to look into history and I believe there are two parallel movements to understand the relationship historically between sustainability and ethics.

I would like to start by talking about the role first of ethics in business education, in particular business school education. According to my research, until roughly the beginning of the seventies ethics was usually part of a business school education, but from the 1970s until the beginning of the century - 2010, 2012 - it almost disappeared.

The business schools educated upcoming new managers based on thought schools like Milton Friedman, in which the only social responsibility of a business is to maximize profits. In this way, a business manager is often educated not as a humanistic discipline, but almost more as a technical-engineering school of thought. 

Since the beginning of 2010, 2012 lots of cutting edge business schools went back to integrate ethics also into a business school education. So that's good news for the new generation, which we're now seeing coming into the worker markets and companies and taking over important roles.

The second part is the evolution and the incorporation of sustainability and ethics. There are three key milestones in the modern interpretation of sustainability: the first is the Club of Rome, which made an important publication at the beginning of the seventies called "The limits of growth". I am quoting the book now because it managed to shake up a public opinion at the time. Mankind has made virtually no discoveries to increase the role of ethical change. We can see here that ethics as part of the sustainability agenda was very important in the seventies and that thought school was also continued.

The second important milestone is the Brundtland report, which was done in preparation for the first United Nations Earth Summit in Rio de Janeiro, which took place at the beginning of the nineties. Inside this report, we can see the most recognized definition of sustainability here, which says sustainable development implies limits but that humanity can make sustainable development that meets the needs of the present without compromising the ability of future generations.

The sentence tells us sustainability has a lot to do with intragenerational and intergenerational justice today. Furthermore, there is much talk of climate justice in the Brundtland report and this is strongly embedded into ethics. 

In that report, I also found out that we can manage what we today would call the decoupling of economic growth and negative social and environmental impacts with a lot of technology and knowledge, but we first and foremost have to focus on innovating a new ethic.

The third chapter of sustainable development is the Paris Agreement. The word ethics only appears once in the entire 2030 agenda for sustainability and I think at the moment we are a bit of an arrow where the sustainability agenda oftentimes is more driven by technological hope. But there is a growing part of the discussion that says we have to rethink, discover and develop how ethics could be a  compound or a stronger part of sustainability.

 

Ethics in business

 

I surveyed more than 70 professionals online and here I asked for example questions: "How familiar are you with the sustainable development goals?" just as a macro framework. But then I ask "at which stage are you in the implementation of these goals?" and it was very surprising because a lot of companies that report on the SDGs or that use the logos that you can see if you go on their homepages or in the report’s pages, 60% of the people didn't know or said he was not very familiar with the SDGs.

In the second step, I asked the questions assuming that ethics is a key feature of sustainability and when I asked managers "have you ever been trained on ethics or business ethics?" it turned out that about 30% had ever had ethical training. 

Obviously this is not good news, I have some hope also looking at a future younger generation - let's say, people who graduated in the last five years, maybe at the beginning of their career - I think they now integrate SDGs in different causes, might it be in chemistry and engineering, but also in business. Business ethics also become a cutting edge business school, more and more part of the curriculum. So I see a new generation coming up with a completely different set of awareness and consciousness. But according to my statistics, the current leaders in charge of taking the main decisions have a very low level of ethical training and also have a relatively low level of a deeper understanding of sustainable development.


 

Traditional established corporation vs startup: two way of thinking

 

The cutting edge schools are integrating ethics and business, but also they link it oftentimes to this old debate in which Milton Friedman said "what is the purpose of business? Is it to maximize profits" versus a more stakeholder-oriented approach. It is not only to satisfy your investors and consumers:  as an organization, as a corporation, you're a moral actor and you need to include nature in society, so a different set of stakeholders. 

I think coming along with that ethical education is certainly coming to a huge shift from what is, in general, a call to shareholder management and a shareholder focus towards stakeholder management. I think those two things come almost together.

What is the difference between an established organization - who typically has to defend old existing business based on classical economic indicators, doing a really good job because they allegedly grow the bottom line, the net sales, the customer base; and then you have a completely different conversation with startups or in particular that say if you talk with people who work in the environment of social entrepreneurship. 

In that group of social entrepreneurship startups, their founding thought was purpose-driven, ethical driven. So they're not coming from Milton Friedman taught school: often their first motivation is to fix a social or an environmental problem, and the utmost they believe that if they can fix those things with their competency, with their passion they, as a consequence, can make money with it. 

Traditional thinking - and that I think is the general transformational challenge of established organization - often has a mindset that people and planet and then profits are like two different goalposts and it's always a trade-off, it's always a dilemma

What I found to try to transform this biggest barrier is culture, is mindset awareness, it's also organizational setup. The most cutting edge companies I talked to, create some sort of separate units oftentimes called corporate entrepreneurs or innovation departments. They have different names but essentially they sort of say connect the attributes, the culture, the consciousness of a social entrepreneur with the resource and the access to human capital, to the financial capital of a huge organization. 

Obviously, if you bring those two things together, you can not only do cutting edge sustainability innovation at the highest level that would be contributing positives to sustainable development goals, but you can also make the huge change by scale because this huge organization needed to drive the agenda and to transform


 

The different drivers to ethics business

 

My subtitle master thesis I called "A truly sustainable innovation and the invisible hand, hat and heart" and maybe by the word "invisible hand" people who studied economics can feel some sort of connection with Adam Smith. And in fact, what I'm trying to signal, and I try to research in my work, is that sustainability transformation requires the full set: you need the heart, you need the moral element, you need the moral conviction that is the right thing to do and not just to do the right thing.

But equally, I would not discard an element that Adam Smith called the "invisible hand", so the self-interest and drive of a corporation, an entrepreneur, or a human being, should not be completely neglected. Entrepreneurs oftentimes come from a more ethical motivation, but there is still market competition and the big corporations, in a combination with the three things, will always aim to be competitive in the marketplace.

What's happening is almost like a cool evolutionary approach: you have on one hand moving a push from what I would like to call the "greedy entrepreneurs", and then you have the big "green David", and then on the other hand you have the "big Golia" trying to become green. And so I think it's both the moral belief but also the competitiveness that come together to make it happen. I think that is what ultimately is driving transformation for both, for the smaller entrepreneurs, as much as for the big established corporations. 


 

The sustainable business categorization: 1.0 - 2.0 - 3.0

 

What is good enough sustainable or what is just a little bit sustainable?

To answer this question I'm referring to a typology by two professors from St. Gallen Thomas Dyllick, Katrin Muff, who have created: is a system where sustainability is subdivided into 1.0, 2.0 and 3.0. 
According to their logic to say that a company is sustainably 1.0, the company has to focus on risk management reputation. In simple terms: they put a flag and say" I'm part of the new sustainability party" but they're not changing from within, they're not changing their operating mindset, the operating model. In other terms they do things a little bit better but they’re not fundamentally transforming.

A sustainability 2.0 company would be a company that set up a business, monitored, and ran already with a triple bottom line. So they want to know what is their impact on a social, environmental and economic dimension.

This is a really difficult journey to go from 1.0 to 2.0: there could be criticism about that doesn't guarantee they're making a positive net contribution to sustainable development goals, and eventually it's still possible they're just doing things less bad. Again, we're in a category of ethical terms of good and bad. 

A 3.0 company set themselves up to contribute to positive sustainable development goal transformations on social economic and environmental aspects. Their founding logic is completely different because they look more at "what is my contribution to the world?", they look beyond their balance sheet performance, but it would actually be more correct says that they look at "what is my contribution as a moral actor to the sustainable development of the society and the planet?". 

 

How many businesses are ready for the sustainable transition?

 

According to my research, starting on a 2.0, or aiming to become a 3.0, you can find mostly social entrepreneurship startup environments. Most big companies are on a journey from 1.0 to 2.0, and as I said before, they eventually come up with some sort of separation.

Let me take the example of Unilever: when they bought Ben and Jerry, the ice cream company. Ben and Jerry were founded with the aspiration to be a 3.0, and I think a big corporation like Unilever eventually acquired them or integrated them into their portfolio not only because they have smart additions to their product portfolio. They also acquired some sort of cultural intelligence, sustainability intelligence and with those separate units Unilever can also experiment, can explore new sustainability ways and this is a manner for big corporations to accelerate transformation. 

It is really hard within an existing business environment, within their efficiency drive, within their short-term requirements to give the head of mind space to explore such necessary solutions.


 

Four ethical recommendations for future employees

 

The first two recommendations are indeed some sort of upskilling training: first on the SDGs for me is a must-know for every company to understand that framework and also understand the complexities, the difficulties, the contradiction of that whole concept that requires a lot of system thinking capabilities. 

As sustainability holds a very strong justice stroke ethical feature, my second recommendation is: do a parallel upskilling into ethics and business ethics. I do not recommend that companies simply hire a philosopher on the board and all the others remain business as usual, I indeed, suggest and recommend that every manager, every employee needs to be some sort of small philosopher or to have that ethical reflection but also the techniques needed to apply it.

My third recommendation goes mainly to establish companies who have a more challenging job to transform: start to consider separate units with a different exploration spirit, to really experiment to "how can I become a 3.0?". 

Last recommendation is strongly related to the G - the governance of ESGs: again, it's not the old Bill Friedman thought school where a corporation should perform within the rules of the game and the only moral obligation is to focus on profit maximization. On the contrary, the cutting edge is that every organization is a moral actor and I think the best company I talked to actively pushed the institutional regulations. 

The really big game changes will only be possible if you have some sort of institutional or cross competitor, cross-industry alignment to also change the rules of the game: you can not wait until legislation comes up with new regulations because oftentimes legislation is just too slow to react to the agility of corporations. 


 

The importance of ethical upskilling in modern organizations


If we talk about the governance part of ESG, the ethical guidelines it's part of the corporate governance codex and in those documents it is possible to find a lot of ethical features incorporated into them. 

There are two parallel positive forces: ethical traineeship and guidelines. Guidelines can help but at the same time they're not the driving force, what is really important is the ethical training and ethical upskilling. 

In my experiences, when you have done ethical workshops for example, you start in almost like transforming ethics as a topic related to regulations, to compliance, applying the rule. Then you move the conversation into a creative framework: what is possible? How do I arrange organizational set settings to do good?

I think our regulations are important, they create some sort of a standard, also a comparison. But equally, you need to train your ethics and reset your ethical frameworks, how human beings can perform in an organization. And with that, you certainly come up with more creative, ethical, and sustainable solutions. 


 

My takeaways to put in practice sustainability in organizations


It was fascinating, in my research, to put the topic of ethics in front of a lot of diverse people across different generations. For example, I have had experiences where a manager aged 50 to 65 admitted that it was never part of his education, but he wants to know more about it. So they have a positive relation to it, but they maybe didn't have many opportunities and chances to relate to it. It was a really rewarding experience. 

The second one was on the organizational unit: we have unchained some of our most talented people, most educated people when it comes to sustainability and ethics, and give them a new playing field where they can creatively explore more sustainable solutions. We have the people, we have the technology, we have the financial capital, but we have to unchained that existing framework and organizational structure to get the best out of what we have. And so in summary, that gives hope that we, as human beings will be able to turn the Earth Overshoot Day in the right direction, back to December instead of January.

 

About the author

Thorsten Harstall

Sustainability Brand Strategist and Master in Behavioral Ethics, Economics and Psychology

 

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