Is your social licence expiring? - EY · PDF fileIs your social licence expiring? Three...
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Is your social licence expiring? Three imperatives for executive Australia “This paper offers our candid view of the three imperatives facing all large organisations in protecting value and social licence to operate in what is a changed socio-economic environment.” The popular perception of big business is changing. Most of us feel it, less of us accept it, but few of us will avoid its ramifications entirely. Eight years after the global financial crisis failed to coalesce into a popular reformist agenda, the notion of ‘too big’ has crept back to mainstream debate. This time, however, it is not in reaction to one central controversy, it is a more subtle accumulation of experiences, frustrations and ideas that are taking root across the ideological spectrum. While the debate that followed the global financial crisis was framed by fear and anger (which dissipated with time), the current celebration of disruptive innovation by business has, perhaps ironically, brought a sense of optimism and confidence to the agenda for change. To avoid becoming the test case for society’s growing appetite for economic intervention, businesses must urgently restore public interest and trust in the concept of their truly Sustainable Development. This means much more than an incremental investment in public disclosure, but instead requires a fundamental re-think of the issues against which business accepts accountability and the language with which it does so. This paper offers our candid view of the three imperatives facing all large organisations in protecting value and social licence to operate in what is a changed socio-economic environment. Written by: Adam Carrel Contact info: [email protected]
Transcript of Is your social licence expiring? - EY · PDF fileIs your social licence expiring? Three...
Is your social licence expiring? Three imperatives for executive Australia
“ This paper offers our candid view of the three imperatives facing all large organisations in protecting value and social licence to operate in what is a changed socio-economic environment.”
The popular perception of big business is changing. Most of us feel it, less of us accept it, but few of us will avoid its ramifications entirely. Eight years after the global financial crisis failed to coalesce into a popular reformist agenda, the notion of ‘too big’ has crept back to mainstream debate. This time, however, it is not in reaction to one central controversy, it is a more subtle accumulation of experiences, frustrations and ideas that are taking root across the ideological spectrum. While the debate that followed the global financial crisis was framed by fear and anger (which dissipated with time), the current celebration of disruptive innovation by business has, perhaps ironically, brought a sense of optimism and confidence to the agenda
for change. To avoid becoming the test case for society’s growing appetite for economic intervention, businesses must urgently restore public interest and trust in the concept of their truly Sustainable Development. This means much more than an incremental investment in public disclosure, but instead requires a fundamental re-think of the issues against which business accepts accountability and the language with which it does so.
This paper offers our candid view of the three imperatives facing all large organisations in protecting value and social licence to operate in what is a changed socio-economic environment.
Written by: Adam Carrel Contact info: [email protected]
2 | Is your social licence expiring? Three imperatives for executive Australia
Imperative 1 Take a good look outsideMost major Australian corporations have invested extensively in community consultation over the years and have dedicated sustainability functions that maintain frequent dialogue with non-government organisations, community reference groups, and customer advocates. Despite this, large portions of Australia’s executive ranks still reject the notion that big business is engaged in a contest of ideas, let alone that it might lose it. This means one of three things: that the terms of these dialogues skirt the real issues; that the message is being censured before it reaches the executive; or that they simply don’t believe it when they hear it. Whatever the problem, it must be remedied; business cannot effectively combat an issue it does not fully appreciate.
Australia maintains a very high standard of corporate governance. However, it must also be acknowledged that the perspectives of today’s executive classes reflect decades of positive affirmation from society and government alike. Even the most tenured of Australia’s corporate governors have never really confronted co-ordinated ideological opposition. It is understandable, therefore, that despite the intellect and foresight at hand within Australian boardrooms they are finding this new paradigm difficult to adapt to.
Executives must stop to genuinely consider which of their own ideas regarding the entitlements of business are legitimate and which may be remnant of a passing generation. This will be a difficult message for some executives to hear, which makes it all the more important. Simply insisting that some Australians are inconsiderate of the critical role played by a business in society will only serve to advance the notion that some sectors are incapable of meaningful introspection and
effective self-regulation. The fact remains there is a popular appetite to re-visit the terms of the social licence to operate — whether this is done pragmatically or combatively is substantially in the hands of today’s business leaders.
Corporate Australia cannot hope to embrace disruption and innovation while quarantining the process to the relatively safe domain of ‘digital’ and ‘big data’. Executives and Boards of Directors must take the opportunity to engage with all frontiers of change with an open mind. Today’s more alert, connected, and cynical public requires issues such as executive remuneration, tax transparency, market power, vertical integration, trading personal information and zero-carbon business models to be brought to the forefront of community relations if the sustainable development agenda is to have any hope of remaining a vehicle for constructive engagement.
“ The fact remains there is a popular appetite to re-visit the terms of the social licence to operate — whether this is done pragmatically or combatively is substantially in the hands of today’s business leaders.”
The Equation
Mistrust of the establishment
Conspicuous inequality
Rising populism
Generational disconnect
Optimism in disruption
Underemployment
Slow growth(r)evolution
The choice
3Is your social licence expiring? Three imperatives for executive Australia |
At about the same time that the sustainable development agenda merged into the ‘sustainability’ agenda an important concept was lost. That concept was that the carrying capacity of the earth has limits, and to sustain equitable intergenerational growth businesses had to find a way to marry their short-term growth aspirations within hard planetary boundaries. While this equation has only become more urgent, the sustainability agenda has slowly devolved into a world of relativity, where incremental improvements and unrelated social contributions are offered as alignment to the cause of sustainable development. This simply is not good enough anymore.
We now know precisely how much greenhouse gas can be emitted to the environment to give ourselves a chance of avoiding catastrophic climate change; we know precisely the deficit of freshwater supply to demand, and the unprecedented rate of biodiversity and habitat loss. Business needs to start using these numbers as the common denominators of their own performance to re-calibrate sustainability strategy and disclosure back to the unavoidable realities of a finite planet.
At the time of writing, the Paris Climate Agreement has just taken effect with a critical mass of countries and global emissions now legally bound to the agreement. This means that business has never had a better reason to align their sustainable development strategies and disclosures to the global pursuit of a sub-2 degree climate future, and rise to an occasion that has been a long time coming.
The same rule applies to issues of social equity and human rights. Reporting year-on-year improvements in gender diversity or fair labour audits is fine, but if it is not related to the underlying structural impediments to equality then it is of limited practical relevance. Alternatively, those companies that are linking their own programs to the United Nations Sustainable Development Goals, the seventeen priorities of the global Sustainable Development agenda, have taken the right step in demonstrating that corporate sustainability does not exist in a vacuum, it exists for at least seventeen very good reasons.
Imperative 2 Do the math
If fifteen years of non-financial disclosure has demonstrated anything, it is that if a business does not find the process at least slightly uncomfortable it is not doing it properly. If a legal counsel or other executive has not raised the question ‘why on earth would we disclose this voluntarily’ then you are not telling the public anything they don’t already know. In all the recent public debate on ethical misconduct, climate change, modern slavery, or globalisation there haven’t been any instances where a politician, NGO or journalist has held up a sustainability report as an effective source of context, candour or insight. This might be exactly what some corporate affairs departments may have been hoping for, but must be seen as a failure of sustainability reporting in general. The reason for this is that in general sustainability reporting has become highly curated and unnecessarily safe. It has also become too ‘solution orientated’ to remain credible in the current environment.
The goal of sustainability reporting has to be demonstrating that you see the problem — not that you have all the solutions. Of course there is nothing wrong with telling your side of the story or celebrating the numerous hard-won successes with corporate sustainability.
However the tone within so much current sustainability reporting is ‘don’t worry, we’ve got this’, which is not a tone consistent with current sentiment. More people are now aware of the wicked problems and dilemmas at the nexus of private interests and public concerns, taking a triumphant tone to sustainability issues will lead to the perception that the real issues are being glossed over, or worse — hidden.
This does not mean sustainability reporting has to be a laborious exercise in mea culpa, either; if such a strategy works, it only works once. It means that if certain problems don’t have easy solutions, don’t try to pose one — pose the question instead. Nowhere is it written that sustainability reporting needs to be a one-way exercise, nor that a company should have all the answers. Imagine if some of the significant financial and intellectual capital presently devoted to justifying current sustainability strategies of business could be diverted to engaging civil society and the broader public in contemplating better sustainability strategies. Imagine if annual reports where not just the presentation of historical information — but updates on the maturation of new ideas.
Imperative 3 Do something that scares you
… Is that most of Australia’s large corporations have the resident expertise to implement the imperatives described in this paper; it simply needs to empower and enable them to do their jobs properly. This is far from the first time that the assertions of this document have been made - they are voiced within corporate Australia on a daily basis — but they are generally de-emphasised as ‘long term’, ‘nice-to-have’, or mostly commonly, ‘really important but not on top-of-the-to-do list’. Anyone still inclined to these perspectives should reflect closely on why the term disruption is increasingly synonymous with progress in the new economy. Society is valuing change over continuity, which means business-as-usual is not the safest default option, but an increasingly risky bet that the corporate trust deficit will sort itself out on its own accord. It might. But if it doesn’t, the window to legitimately reinforce the foundations of your social licence may be closing fast.
The good news...
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