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The business of business…is creating shared value

Published: 
15 Nov 2017

Corporations, governments and NGOs need to work together for mankind to exist sustainably, says the former Prime Minister of the Netherlands

Within six months of taking office, U.S. president Donald Trump announced the decision to pull the United States out of the Paris Agreement on climate change mitigation. Reaction from international reaction was predictably negative, culminating in thinly veiled criticism at the United Nations General Assembly where British Prime Minister spoke of “states deliberately flouting – for their own gain – the rules and standards that have secured our collective prosperity and security”.
 
“Of course it’s disappointing that President Trump is pulling the United States out of the Paris Agreement,” says Jan Peter Balkenende, former Prime Minister of the Netherlands. “But there are still 30 [U.S.] states who stand behind the Paris Agreement. There are also lots of companies who do so. In the U.S. it’s a mixed picture.
 
“The geopolitical picture is a bit different. If the U.S. is not in the picture, people, countries, governments will look at other countries. People are looking to China. Very rapidly after the remarks of President Trump, there was a climate agreement between the European Union and China. That’s just an example.”
 
Balkenende was responding to questions in a Q&A session following his recent SMU Presidential Distinguished Lecturer Series talk titled “Partnership towards sustainable business” where he laid out the need to re-evaluate the modern economy and adjust consumption to save the Earth.
 
“We live in fascinating times,” he says. “We have opportunities and challenges. The global agenda is clear: sustainable goals and climate change and the circular economy. We cannot go on with the current production and consumption styles. We have to rethink our business models.
 
“We have work together. We need a circular economy. It is out obligation to do the right thing for society. It starts with everyone – governments, NGOs, businesses, universities.”
Citing Milton Friedman’s famous statement that “the business of business is business”, Balkenende followed up by pointing to Michael Porter’s vision of creating shared value as the new goal of business leaders.
 
“A company must create economic value otherwise you cannot invest, and you cannot keep people employed,” says Balkenende, now Professor of Governance, Institutions and Internationalisation at Erasmus University Rotterdam. “But at the same time you have to generate societal value by addressing the needs of society. That means the companies are not just there to create profit, they must also address environmental issues, human rights issues, energy issues. In fact, all these elements should be integrated in the role you have as a company. “
 
Balkenende, who also chairs the Dutch Sustainable Growth Coalition (DSGC), points out how companies of the DSGC - AkzoNobel, DSM, FrieslandCampina, Heineken, KLM, Philips, Shell and Unilever – promote sustainable  growth strategies and ‘share the conviction that long-term financial and economic value is inextricably linked to minimized environmental impact, social progress and inclusiveness’.
 

 

“In Africa, Heinken has the policy of local sourcing, meaning that 60 percent of the grains needed for the production of beer must be procured on the continent by 2020,” referring to the company’s CREATE Ethiopia programme. “Why do they do that? Less transport of grain would be needed, less environmental pressure would be created, less CO2 emissions, and more economic opportunities for local farms and residents.”
 
While corporations change the ways of modern economic production, Balkenende points out the crucial role financial institutions play in producing a comprehensive change.
 
“Banks and pension funds play a role too,” Balkenende emphasises. “The bank has an obligation to think about its investment policy: In which project do you invest or not? If you talk with your partners and clients, do you talk about your business model? Banks like ING are involved in financing the circular economy.
 
“We used to talk about government regulation, and you need that. You need fiscal measures too. But at the same time, we also need the business sector on board. There is a difference between Copenhagen 2009 and Paris 2015. Copenhagen was predominantly governments, in Paris it was also about businesses. Ban Ki-Moon said you’ll never reach SDGs (sustainable development goals) without the private sector. That means governments must be partners in a network of relationships.”
As a former head of government, Balkenende also provided a perspective into the role of governments in tough decisions regarding the consumption of resources.
 
“Do you have the willingness to tackle difficult issues? Do you have the courage to stand alone?” he asks. “A politician should talk about what is necessary for now and tomorrow. It is more important than being re-elected.
 
“I remember my second cabinet. We had to realise reforms on social security. We were criticised many times and faced demonstrations. We never spoke about the next elections or the polls. We said, ‘This is necessary.’ At the same time, we had confidential meetings with the unions to tell them, ‘We have to change things.’ We fixed things because the unions were willing to talk to us.”
 
He adds: “I learnt from that: Do not talk about your own position; talk about what needs to be done for the country. Also, be honest. Sometimes you have to say, ‘We cannot go on with these measures.’ With regard to pensions, with life expectancies going up, it will be unbearable and it is not right for the younger generation.
 
“For politics it’s about honesty. It’s about convincing people to change things. It also about hope and getting new perspectives.”
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