Peter Bakker says business leaders must shift mindsets to build long-term resilience in the pandemic aftermath and take a regenerative approach to business models. ...
Is it time to reinvent capitalism? For Peter Bakker, President and CEO at the World Business Council for Sustainable Development (WBCSD), the answer is a resounding “yes”, and he called for new ways of doing business beyond pure shareholder value creation.
“Yes, we need to continue to perform financially well and therefore shareholder capitalism will remain a part of the mix,” says Bakker, in an exclusive dialogue with David Bach, Professor Strategy and Dean of Innovation at IMD. However, Bakker argues for a new type of leadership, in which individuals show the courage to build regenerative business models and ensure a just transition that leaves no one behind: “We need to understand and be able to manage and improve the environmental and the social impacts of our business…in a truly integrated style of management.”
Bakker spotlights three momentous worldwide challenges: the climate emergency, nature loss, and mounting inequality. The COVID-19 pandemic proved that these challenges are interconnected, and that our economic systems are ill-prepared for massive shocks — like the shortage of semiconductors rippling through global supply chains.
WBCSD is the premier global, CEO-led community of over 200 of the world’s leading sustainable businesses working collectively to accelerate the system transformations needed for a net zero, nature positive, and more equitable future. Bakker, a Dutchman who has for a decade led WBCSD based in Geneva, Switzerland, says business leaders must perform three mindset shifts:
He says that “in order to restore nature’s capacity to support us all, we need to have regenerative business models,” approaches that make the restoration of the health of individuals, communities and the planet part of corporate purpose. It is a departure from current models based on environmental or human resource exploitation and waste, contributing to climate change and insecure livelihoods.
Another central leadership attribute needed to confront these challenges is courage. “We’re going to have to fundamentally challenge everything we do,” says Bakker, citing the electric vehicle revolution as an example. Several carmakers are now doing what was previously unthinkable: phasing out the internal combustion engine altogether, despite its striking commercial success.
“This is going to be the decade of transformation,” he says. “That’s where courage will be needed,” adds Bakker, since it’s not easy “telling your investors: ‘Hey, my business model today is actually broken.” The transition is the challenge: “’My business model a decade out’ is pretty clear. But what’s going to happen to the cash flow in-between? That’s where courage comes in.”
Bakker was formerly CFO and then CEO of TNT NV, the global transport and logistics company. In his view, the risk for organizations which do not undertake drastic business model transitions is that some their key assets become stranded — unable to earn an economic return. In recent years, stranded assets, such as oil and coal reserves, have resulted from the policy- and societal responses to climate change and investors are now pricing the diminished value in.
Customers and employees have for some time pressured companies to become part of the solution. But the emergence of investors as another pivotal stakeholder pushing for change has created a new sense of urgency. Bakker says: “What we’re now beginning to see is that capital markets are beginning to price in the risks…That is really making this a boardroom topic of the highest priority.”
Another growing risk factor is litigation. “Very new legal threats are emerging,” he says. “Companies have lost court cases, forcing them to have more ambitious [carbon reduction] plans. This is a trend that is beginning to pop up. So it’s not just capital markets [driving change], it’s a completely changing landscape.”
In a landmark legal case last spring, for instance, Royal Dutch Shell, now Shell plc, was ordered by a Dutch court to increase its emissions cuts, potentially setting a global precedent for corporations with big carbon footprints.
This is going to be the decade of transformation. That’s where courage will be needed.Peter Bakker
As organizations worldwide race to decarbonize, Bakker stresses the need for a “just transition” to a green economy that ensures broad-based opportunities. “If we do not take people along in the transition, then people will reject it,” he says, noting the eruption of huge social unrest in various parts of the world, from the gilets jaunes (yellow vest) protests in France starting in late 2018 to the worldwide Black Lives Matter Protests in 2020.
Last summer, WBCSD launched the Business Commission to Tackle Inequality (BCTI), an initiative to mobilize the global business community to address escalating levels of inequality and generate shared prosperity for all. Bakker wants to bring inequality up to par with climate change (and increasingly nature loss) in terms of attention and action from business. “That’s an area where I think we really need to put a lot of focus,” he says.
One step companies can take is to ensure a living wage is paid across their supply chain. “I think it’s going to be essential that we change value chains so that [action] goes way beyond the boundaries of [any] one company,” says Bakker, stressing the concept of “systems transformation”, or players across government, industry, academia, and civil society working together to achieve sustainable development.
While business can take a leading role, he believes it must work together with scientists, policymakers, investors and consumers to create the impact and speed necessary to achieve Vision 2050, a shared vision for business— the goal of which is to transform enough so that the world’s more than nine billion inhabitants are able to live well, within planetary boundaries, by mid-century.
Vision 2050 sets out a new framework to guide business action in the coming decades across nine areas of business activity that are essential to society — including energy, transportation, health and wellbeing, water and sanitation.
This will only be possible with collaboration at unprecedented levels, says Bakker. In particular, he sees a role for business in helping governments be bolder on climate action. Many scientists and activists view the commitments made at COP26, the recent climate summit in Glasgow, as insufficient.
With the private sector accounting for the bulk of global emissions, Bakker says it falls to companies to show policymakers the way by setting and benchmarking their own targets. “Sustainability is too often seen as a doom and gloom story, whereas I actually think it’s the biggest technological innovation opportunity that business has ever had. There’s enormous potential to differentiate from competitors by taking action.”
He urges companies to measure themselves and report their activities to investors, which could change behaviour effectively and give businesses a credible position from which to lobby governments. “Accountants will save the world,” as he stated in 2013 already.
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