ETUI The social-ecological transition: the role of business and labour Brussels, 23 rd May 2014 “Corporation 2020” Transforming Business for Tomorrow’s World Pavan Sukhdev, Founder & CEO, GIST Advisory Author, “Corporation 2020”

NOT THE FUTURE WE WANT…

Is a ‘Green Economy’ Possible without greening the Private Sector? (eg: USA) 2010 data. Source: U.S. Bureau of Economic Analysis

Without a “Green Economy” we cannot achieve the goals of “Sustainable Development” Without “Corporation 2020” we cannot deliver a “Green Economy” Sustainable Development, Green Economy, Corporation 2020…

“Corporation 1920”  Four Defining Behaviours  Pursuit of Size  Active Lobbying  Leverage without Limits  Advertising without Ethics ….

“Corporation 1920”  Four Defining Behaviours  Pursuit of Size  Active Lobbying  Leverage without Limits  Advertising without Ethics …. Causing “Negative Externalities”

 Negative externalities of top 3,000 companies estimated at US$2.15 trillion per annum Source: Trucost for UNPRI, “Externalities”… Global Picture

Global Picture: Planetary Boundaries…

Source: Trucost for UNPRI, Top 3,000 Listed Companies Negative Corporate Externalities …..

Water Abstraction Greenhouse Gases Natural Resources ….. Are Pushing Planetary Boundaries

“Corporation 1920”  Four Defining Behaviours  Pursuit of Size  Active Lobbying  Leverage without Limits  Advertising without Ethics ….

Smoke and Mirrors in 1920…

Fifty Years On … “You’ve come a long way, baby”

Accountable Advertising : PUMA

Key Featre of “Corporation 2020” Creating Positive Externalities, not Negative.. Type of Capital Category of Stakeholder Stakeholder Expectations Financial Capital - Shareholders - Government - Creditors - Sustainable Growth in Profits - Sustainable Tax Payment - Capital to Withstand Losses Human Capital - Employees - Youth - Customers - Society - Sustainable Incomes (“careers”) - Vocational Training - Sustainable Service Quality - No Health Damage Natural Capital - Society - Planet - Carbon Neutrality - Sustainable use of Resources & No Biodiversity Losses Evolution of the Corporation From : “Corporation 2020”

Why “Stakeholder Reporting?” Business today depends on, and/or has impacts on, ALL dimensions of private & public wealth… but.. EXAMPLESPhysical CapitalHuman CapitalSocial CapitalNatural Capital Private Ownership -Factories -Buildings -Securities -Cash -Health -Education -Job Skills -Gardens -Fields -Forests Community Ownership * (club goods) -Community Centres -Community Schools - Traditional knowledge -Community Norms and Customs -Community Forests -Grazing Commons Public Ownership * (public goods) -Roads -Bridges -Public databases -Non-patent knowledge -Law & Order -Taxation -Social Equity & Inclusion -High Seas fisheries -National Parks/ Forests * Creating community wealth and public wealth creates “shared value”

Why “Stakeholder Reporting?” Business today generally measures & reports only shareholder wealth impacts: private physical capital EXAMPLESPhysical CapitalHuman CapitalSocial CapitalNatural Capital Private Ownership -Factories -Buildings -Securities -Cash -Health -Education -Job Skills -Gardens -Fields -Forests Community Ownership (club goods) -Community Centres -Community Schools - Traditional knowledge -Community Norms and Customs -Community Forests -Grazing Commons Public Ownership (public goods) -Roads -Bridges -Public databases -Non-patent knowledge -Law & Order -Taxation -Social Equity & Inclusion -High Seas fisheries -National Parks/ Forests

Why “Stakeholder Reporting?” Business for a sustainable tomorrow – will measure & report on ALL dimensions of its impacts … EXAMPLESPhysical CapitalHuman CapitalSocial CapitalNatural Capital Private Ownership -Factories -Buildings -Securities -Cash -Health -Education -Job Skills -Gardens -Fields -Forests Community Ownership * (club goods) -Community Centres -Community Schools - Traditional knowledge -Community Norms and Customs -Community Forests -Grazing Commons Public Ownership * (public goods) -Roads -Bridges -Public databases -Non-patent knowledge -Law & Order -Taxation -Social Equity & Inclusion -High Seas fisheries -National Parks/ Forests

How Stakeholder Reporting? GIST 360  ™ Assessment Scope Measuring “Value Addition” holistically, including all material Externalities

Mysore Campus, Infosys - World-class Training for 30,000 p.a. -Attrition feeds trained IT talent to the world -Positive externalities over US$ 1 billion p.a. Positive Human Capital Externalities Human Capital Factory for IT Talent: INFOSYS

“Human Capital refers to the knowledge, skills, competences, and other attributes embodied in individuals that are relevant to economic activity” (OECD, 1998). Among the most important assets and a key determinant of country’s overall economic performance Among the most important assets for any business and a key determinant of business performance One of the “Six Capitals” in IIRC’s recent consultation draft of their “Integrated Reporting” framework (, 2013) Neither national accounts nor business accounts reflect human capital creation or loss, nor human capital externalities What is “Human Capital”?

Levels & Dimensions of Human Capital Dimension/ LevelPoliticsEconomySociologyPsychology Individual Increase skills level Increase earningsIncrease equality Increase self- esteem Company / Organisation Comply with norms and regulations Increase competitiveness Improve image / brand value, & secure social licence to operate Improve workplace environment Government / Economy Complement labour market and employment policies Drive innovation; Create incomes from & share costs of education and skills training Value knowledge & skills; Implement life- long learning concept Add dynamism to government, & permanence to the economy Level and Dimensions of Human Capital (Adapted from CEDEFOP, 2001)

Progress of Corporate Reporting on Human Capital: the last 50 years Stage 4 - From early/mid 1990s - Human Capital as Benchmark of Human Resources Stage 3 - From early 1990s - Human Capital within globally oriented management frameworks Stage 2 - From late 1970s - Human Capital within internally oriented management frameworks Stage 1 - From early 1960s - Human Capital within accounting frameworks

Approaches to Valuing Human Capital Cost-based Approach Originates from Engel's (1883) cost- of-production method Based on hisorical cost of production of human capital; via depreciation of value of total amount spent on an individual Income-based Approach Jorgenson & Fraumeni (1989, 1992), Lev & Schwartz (1971) Based on discounted values of future stream of lifetime earnings of an individual Educational Stock-based Approach Le, Gibson and Oxley (2006); Barro and Lee (1993, 1996, 2001) Based on actual and opportunity costs of formal education, on- the-job training, specific training, etc.

HCX TM Model: Results from Infosys Annual Report

Source: Positive Social Capital Externalities A Business Model delivering Social Benefits: NATURA 1.4 million housewives earn 33% sales commission -Economic security improves family & social status for women -Training is used to sell other companies’ goods -Greater proportion of household expenditure on health & education -Increased labour market flexibility and efficiency

Social Capital can be defined (source: IIRC) as “the institutions and relationships established within and between communities, groups of stakeholders and other networks, and the ability to share information, to enhance individual and collective well-being. Social and relationship capital includes: Shared norms & common values and behaviours Key relationships and the trust and loyalty that an organization has developed and strives to build and protect with customers, suppliers and business partners An organization’s social licence to operate” Some business models, company policies and CSR activities are designed to improve such institutions and relationships, and in doing so, will usually generate positive externalities (eg: improvements in public health, societal job creation, environmental conditions, etc.). What is “Social Capital”?

What will drive change? Excessive Demand Culture of Consumerism Fuelled by Marketing/ Advtg Ethics & Accountability in Advertising Macro IssueMicro DriverMicro Solution Public Capital LossesExternalized costs Measure & Disclose Externalities Underpriced SupplyUnlimited leverage Limit Leverage/capital adequacy/etc. Resource Depletion Underpriced resources (Low royalties / perverse subsidies) Resource Taxes replace corporate taxes

What will define a “Corporation 2020”?  Four Characteristics  Goal Alignment with Society  Positive Externalities  “Community”  “Institute”

“Corporation 2020” views of Labour and the Community  Mondragon: “Risking capital to create labour, not risking labour to create capital”  Tata: “The community is not merely a stakeholder in the business, it is its very purpose”

Alessandro CarlucciPavan Sukhdev CEO, NaturaAuthor, “Corporacao 2020” Corporation as “Community”: Natura

Thank You !