brussels etui - may 2014 - pavan
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ETUI The social-ecological transition: the role of business and labour
Brussels, 23rd May 2014
“Corporation 2020”Transforming Business for Tomorrow’s World
Pavan Sukhdev, Founder & CEO, GIST AdvisoryAuthor, “Corporation 2020”
74.9%
7.1%
5.5%
12.5%
U.S. Gross Value Added
Private Business
Households
Nonprofit institutions serving households
Government
Total = GDP (US$14,526.5 billion)
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”www.unep.org/greeneconomy
Without “Corporation 2020” we cannot deliver a “Green Economy”
www.corp2020.com@corp2020
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, 2010.
“Externalities”… Global Picture
Water Abstraction
Greenhouse Gases
Greenhouse Gases
Natural Resources
Natural Resources
Natural Resources
….. Are Pushing Planetary Boundaries
“Corporation 1920” Four Defining Behaviours
Pursuit of Size Active Lobbying Leverage without Limits Advertising without Ethics
….
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
Evolutionof the Corporation
From : “Corporation 2020”
Why “Stakeholder Reporting?”
Business today depends on, and/or has impacts on, ALL dimensions of private & public wealth… but..
EXAMPLES Physical Capital Human Capital Social Capital Natural Capital
Private Ownership
- Factories- Buildings- Securities- Cash
- Health- Education- Job Skills
- Gardens- Fields- Forests
CommunityOwnership *(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
EXAMPLES Physical Capital Human Capital Social Capital Natural Capital
Private Ownership
- Factories- Buildings- Securities- Cash
- Health- Education- Job Skills
- Gardens- Fields- Forests
CommunityOwnership(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 …
EXAMPLES Physical Capital Human Capital Social Capital Natural Capital
Private Ownership
- Factories- Buildings- Securities- Cash
- Health- Education- Job Skills
- Gardens- Fields- Forests
CommunityOwnership *(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
Reported Value Addition
Human Capital Externalities
Social Capital Externalities
Natural Capital Externalities
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 ExternalitiesHuman 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 (<IR>, 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/ Level Politics Economy Sociology Psychology
IndividualIncrease skills
level Increase earnings Increase 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 frameworksStage 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.
Source: http://www.managementexchange.com/story/innovation-in-well-beinghttp://totallybeautyaddict.fr/mon-jolieapero-chez-natura-brasil/
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 Issue Micro Driver Micro Solution
Public Capital Losses Externalized costs Measure & Disclose Externalities
Underpriced Supply Unlimited leverageLimit
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 Carlucci Pavan SukhdevCEO, Natura Author, “Corporacao 2020”
Corporation as “Community”: Natura
Thank You !
www.gistadvisory.comwww.corp2020.com
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