At a glance

Why do people do things which on any objective analysis make the world a worse environment for everyone?

The way we measure a business is not the same way as we measure society.

Changing the way we measure business requires understanding the 'why' as well as the 'what'.

Aligning objectives 

Aligning the objectives of private enterprise with those of society should offer the most efficient path to meeting the objectives of society.

In a global economy where the connection between stakeholders and decision-makers stretches across continents, how decisions are made may need rethinking.

Rethinking their approach, businesses and governments embrace measures such as the B-Corp status and the UN’s Sustainable Development Goals. Alongside these initiatives, entities are exploring the concept of integrated reporting, looking beyond the single measure of financial capital to six interconnected and complementary capitals forming a holistic model driving long-term sustainable value.  

By measuring and reporting on a wider range of factors, business decision makers form a broader picture of success. 

Circular economies 

Conventional models of accounting often visualise the business as a pipeline. Inputs are processed into outputs, with an element of waste and, hopefully, profit. But in order to truly embrace the UN’s definition of sustainability – ‘Meeting the needs of the present without compromising the ability of future generations to meet their own needs’ – businesses will need to consider circular, or regenerative, economic models.

Beyond finance 

Under current legal models businesses and their stakeholders are subservient to financial capital downplaying or ignoring the other capitals (see boxout The Six Capitals). Prioritising any of the other capitals is likely to diminish profits, while the pursuit of maximisation of profits will invariably compromise results for one or more of the other capitals. A legal form is needed that encourages decision-makers to act in the interests of society and the environment in general, rather than the discrete class of shareholders in the business.

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How to build better business 

Considering how best to build business that benefits society as well as their shareholders requires reflecting on a number of key considerations. 

These are:  

  • Who are the key stakeholders? 
  • What is ‘value’ to them? 
  • What are the expected flows of ‘value’ from economic activity to each group of stakeholders? 
  • How do value flows align with the legal form of the business? 
  • What guidance and support exists in the regulatory and legislative ecosystem? Are there gaps? 
  • What are the ethical considerations in filling those gaps? 
  • What non-regulatory voices exist to guide potential form? 
  • How will record keeping, communication and reporting need to operate to fit in with the form?
  • What are the qualitative characteristics needed to ensure trust in the reporting, form etc? 
  • What other safeguards are needed to protect the interests of the stakeholders? 

Next steps  

Business models are changing.  

Traditional business models were built on human labour and material goods, but the digital economy relies far more instead on energy use and a relatively small number of highly specialised and capital-intensive machines. 

The circular economy principles form a compelling model for sustainable business, and there is nothing to prevent businesses (and their advisers) adopting the appropriate practices and accounting models.

Legal frameworks that offered basic protections have become a ceiling beyond which many businesses and their stakeholders will not go.  

For the relationship between business and society to be properly reset, we need to look again at the fundamental drivers of economic decision making in private enterprise and explore new forms that can not only reflect the needs of stakeholders, but also embrace the potential of the digitalised economy.