Da Costa, Anna - Workspace

EXECUTIVE SUMMARY: MSc Thesis Exploring Pathways to Enterprise Sustainability: A Systems Approach By Anna da Costa Centre for Environmental Policy, Imperial College London Academic Year: 2010-­‐11 Supervisor: Professor Nigel Bell Aims and Objectives This project aimed to explore the degree to which the presence of alternative pathways to enterprise sustainability within a business model is correlated with its potential sustainability. Within this context the principle objectives were as follows: • Develop two systems-­‐based assessment frameworks to assess (a) the ‘Sustainability Potential’ (relative sustainability) and (b) the ‘Leverage Potential’ (potential to affect deep-­‐acting change) of a business model. • Use these frameworks to explore the relationship between Leverage Potential and Sustainability Potential for a series of enterprises that are working towards improved sustainability in a variety of ways. • Explore the implications of these findings in the context of today’s systems crisis. Introduction As the winds of John Beddington’s ‘perfect storm’ rapidly gain force, taking us ever closer to Earth’s natural system limits, societies across the world are under growing pressure to find ways to avert or mitigate this impending crisis. Some of the many interconnected challenges threatening our socio-­‐economic and environmental stability over the coming decades are a rocketing population, food shortages, dwindling freshwater supplies, peaking energy reserves, global biodiversity loss and climate change. Deep-­‐acting, systems-­‐based solutions are required to simultaneously address these challenges. In response to this need, a diversity of pioneering initiatives are emerging across the world. As they do so, it is vital to differentiate between them in terms of potential impact. One theoretical basis for such assessment was developed in 1999 by systems theorist Donella Meadows, who defined a framework of twelve leverage points via which system dynamics can be altered. These span work with the physical, informational, social and even ‘conscious’ properties of a system. These factors, says Meadows, possess increasing potency yet simultaneously increasing resistance (from the physical to the conscious dimension). For the purposes of this study, this framework was adapted to assess pathways to system change and their relative potency, or ‘Leverage Potential’ in the context of enterprise. While Meadows’ framework provided a means to assess the Leverage Potential of a business model from a systems perspective, it was necessary to concurrently assess the enterprise’s potential sustainability so as to explore relationships between the two. The science of Industrial Ecology provided a rich theoretical basis from which to construct a simple yet robust assessment framework of enterprise ‘Sustainability Potential’, with its rich and well-­‐
reviewed literature on sustainable system features, goals and outcomes for both natural and industrial systems. Enterprise was chosen as the primary system unit for this research for the following reasons. First, driving the majority of the world’s material and energy flows, industry has central relevance to sustainability challenges and potential solutions; and second, because a great amount of innovation towards improved sustainability is taking place within the enterprise space today, both within and beyond the capitalist paradigm. EXECUTIVE SUMMARY: MSc Thesis Methodology 1. Two theory-­‐based frameworks were developed to facilitate a semi-­‐quantitative comparative analysis of the Leverage Potential and Sustainability Potential of an enterprise. These are summaried as follows: a. Leverage Potential: Meadows’ twelve leverage points were contextualised in terms of features they might exhibit within an enterprise. Enterprises were then scored on the presence and strength of each leverage point within its business model. Scores were weighted to reflect the relative potency of different leverage points (with ‘1’ being the most potent, and ‘12’ the least) and then combined to derive a single score representing the total Leverage Potential for any single enterprise. b. Sustainability Potential: Industrial Ecology theory was used to define a series of 20 features against which an enterprise could be scored in terms of their presence or absence. Quite simply, the more features present at the core of a business model, the higher its Sustainability Potential. 2. Ten UK-­‐based companies, spanning a wide range of sectors, scales and business models, were selected for evaluation. Enterprise values, attitudes and sustainability approaches were qualitatively assessed through semi-­‐structured interview and enterprises were simultaneously scored for their Leverage and Sustainability Potential. 3. Leverage and Sustainability Potential scores for the ten companies were graphically mapped to characterise potential relationships between the two. 4. These results were contextualized and evaluated against the qualitative themes that emerged through interview to draw conclusions about the relative potential of different business models to affect sustainable system change. Results There was a strong correlation (R2 = 0.85) between Leverage and Sustainability Potential for the ten companies analysed, revealing that those utilising higher leverage points within their business model also had a higher potential sustainability (see Fig.1). While the semi-­‐
quantitative nature of the methodology meant that no causality could be inferred from the results, a number of interesting trends were identified through the accompanying qualitative analysis that helped to contextualise the findings. Most notably, the five highest scorers defined themselves as ‘social enterprises’ whereas the five lowest scorers -­‐ all commercial enterprises -­‐ did not. Fig. 1: Sustainability/Leverage Spectrum EXECUTIVE SUMMARY: MSc Thesis Many of the further differences that emerged from the analysis corresponded with this broad differentiation. There were, for examples, clear differences in primary goal between the two groups, with the social enterprises prioritising social or environmental goals and the commercial, primarily financial goals (although often with secondary social and environmental goals). These differences in primary goal were reflected in company profitability as the social enterprises struggled with financial sustainability whereas the commercial enterprises, prioritizing financial profit, did not. The social enterprises also expressed more nuanced attitudes to scale and growth than the commercial enterprises, expressing smaller optimum size aspirations and caution around pathways to scale. Finally, the social enterprises exhibited more bottom-­‐up, interactive governance structures than the commercial, with a higher degree of cross-­‐sector collaboration inherent in their business model. All companies acknowledged the importance of natural, economic and social system sustainability for their long-­‐term success. Discussion This study provoked significant questions around the role and potential of business in society today. While the traditional business ethic promotes the maximization of profit and shareholder returns, an increasing number of businesses are moving away from this paradigm towards one that utilizes the potential of a business differently, through redefining its goals and structure. While the results of this research were by no means conclusive, they revealed some interesting insights. First and foremost, there was evidence for a great degree of variation exists within business models today, quite simply illustrating that not all businesses are the same. This variation, made evident by differences in Sustainability and Leverage Potential, could be argued to provide an ‘evolutionary substrate’ from which there is the potential for change within the business community towards more a sustainable industrial paradigm. While no causality could be inferred from the finding that Leverage and Sustainability Potential share a high correlation for the assessed enterprises, this strong correlation supports a growing volume of literature on the transformative potential of social enterprise business model. It also lends anecdotal support to Meadows’ theory of system change. In terms of corporate sustainability, it was also interesting to note that those businesses with the highest Sustainability Potential were those with arguably the highest adaptive potential, rather than those with the strongest adherence to environmental goals. This could be a result of their higher capacity to respond and adapt to changing selection pressures within the social, economic and political systems in which enterprise sits. While the social enterprise models exhibited a number of promising features, many of these had associated weaknesses, calling into question the competitiveness of this emergent model. The principle challenges resulted from particular attitudes to scale, profitability and governance. While staying smaller and growing more slowly could arguably enhance enterprise impact, for example, it can also reduce resilience against financial and social instability. It also limits the reach of an individual enterprise. Similarly, the demotion of financial return generation to the status of means rather than end, while providing the scope to pursue social and environmental goals more determinedly, left financial sustainability as one of the most significant challenges to the long-­‐term success of social enterprises. Additionally, although bottom-­‐up governance models offered greater potential to tailor business models and allow multiple inputs into the system, they could also prove a source of conflict, instability and inertia when not carefully managed. EXECUTIVE SUMMARY: MSc Thesis One of the principle challenges to prioritizing sustainability for all enterprises was the lack of adequate valuation of social and environmental capital. While current attempts to value this capital have predominantly used financial proxies, some of the social enterprises demonstrated the use of alternate socially-­‐derived proxies, such as relationship, as a means of valuing these alternative forms of capital. While such an opportunity was only hinted at by this study, the role of relationship and other socially-­‐derived platforms for capital valuation would form a very interesting area for further research. The greater depth and range of cross-­‐sector partnerships exhibited by the social enterprises also evoked speculation around the capacity of such models to affect change within the broader political, social and economic systems in which they sit from within. This insight led to further questions around the potential for such business models to promote a more cohesive approach to the challenges we face both within and beyond the industrial system. While social enterprises were delineated from commercial enterprises for the purposes of this study, many of the differentiating themes that emerged were more gradient-­‐like than binary. Viewed in this light, social enterprise may be better viewed as an evolving philosophy rather than a definite prescription: one that is characterised by the utilisation of higher leverage points and one that is refined over time by the very implementers who seek to advance the principles it expounds. Conclusions and Implications The findings of this study underscore the importance of working not only with the parameters of a system, but with its structure, relationships and goals, to affect deep-­‐acting change. This implies work at social and even what Meadows terms ‘conscious’ levels of the system: in this case, an enterprise. While these findings do not negate the value of current approaches to sustainability, they suggest that until changes take place at simultaneously ‘higher’ levels of a system, the scope of such efforts may be limited. While this research highlighted some potentially valuable trends, its qualitative, high-­‐level nature also evoked many more questions than it provided answers, many of which will be important areas for further research. Firstly, conducting this assessment in a more quantitative fashion would be a valuable step towards assessing whether a causal relationship exists between Sustainability and Leverage Potential. Secondly, this study demonstrated a wide range of applications for the field of Industrial Ecology, through the incorporation of not only physical system parallels, but also informational, political and social parallels. The potential for natural world comparisons to support our sustainability efforts in a systems context was therefore also demonstrated as an important area for further research. While specific further research into these areas is important for the reasons outlined, one of the principles outcomes of this research was also an acknowledgement of the fact that it is only through nurturing a state of humility and ‘un-­‐knowing’, and recognising that multiple pathways to system change exist, that we can truly create the space for new, more fruitful paradigms to emerge.