Speaker: Andrew Winston, globally recognized expert on megatrends and how to build companies that thrive by serving the world, author of Net Positive, The Big Pivot and Green to Gold.
The Sustainable Value Chains podcast series features senior sustainability experts and executives who explore a wide range of environmental, labor and human rights, ethics, and sustainable procurement issues and looks at how companies can develop more sustainable value chains.
Net Positive: Envisioning a New Era of Business
The inaugural episode of the Sustainable Value Chains series starts with a powerful observation: Sustainability, Andrew Winston explains, is akin to survival or keeping one’s head above water. It pertains to whether we can perpetuate our current actions indefinitely without causing irreversible damage. Sustainability, while a worthwhile goal, only brings us to a baseline level of existence where we aren’t negatively impacting the planet.
But with the world’s challenges mounting we need to move beyond that. This is how Winston’s and Pullman’s collaborative effort on Net Positive came about. Companies need to evolve beyond making incremental changes and aim for transformational shifts. A net profit company is one that grows and profits by solving world issues rather than contributing to them.
Net Positive, however, is about going beyond merely sustaining. It is about improving or regenerating the world. The perspective of this term urges businesses to re-envision their metrics, not as lowering negative impacts towards zero, but as elevating from the negatives and moving towards positive contribution. This shift in mindset challenges companies to become more than sustainable.
A Net Positive company is designed to enhance the well-being of every stakeholder it interacts with. This broad approach requires companies to consider their entire value chain and take ownership of their impacts, intended or unintended. This concept forms one of the key principles in the book. The others include taking a long-term view, focusing on multiple stakeholders, producing shareholder value by addressing stakeholder issues, and fostering transformative partnerships for collective action.
Moving into a positive territory means more than just avoiding harm; it involves actively improving circumstances. It is not just about creating a safe working environment with no accidents but enhancing the well-being of employees and all stakeholders. It is not only about cutting carbon emissions and using renewable energy sources but also about sequestering carbon.
How Recent Events Have Impacted Net Positive Strategy
The COVID-19 pandemic was a turning point that has had far-reaching effects on humanity and business practices. This pandemic has instigated profound changes in human interactions and workplace dynamics, consequently, challenging companies to redefine their meaning and purpose. Businesses had to extend beyond the normalcy of profit maximization during the pandemic and focus on societal contributions, supporting their communities, employees, suppliers, and customers.
At the same time, a surge in social awakening occurred around the globe with events such as the murder of George Floyd in the U.S. leading to significant shifts in conversations about race, equality, and indigenous rights, thereby compelling companies to address these issues. Rapid technological advancements, particularly in AI and the clean economy, combined with societal changes, have dramatically reshaped the business landscape. Consequently, the expectations from businesses have transformed more in recent years than in the prior decades.
In this new era, companies must take stances on climate change, inequality, biodiversity, democracy, misinformation, race, LGBTQ rights, and gender equality. Companies can no longer sit on the sideline, especially when these issues become political debates. This situation creates tension but does not change the fundamental forces driving this shift.
The Importance of Supply Chains in Companies’ Sustainability and Net Positive Efforts
Supply chains are crucial for these efforts. Unless a business operates in heavy industry or energy production, most of its impacts are typically not under its direct control. Instead, they are associated with their Scope 3 emissions, those indirect emissions that occur in the value chain. Therefore, having a meaningful discussion about a company’s impact on the world and enhancing that impact necessitates a focus on the full value chain, which includes suppliers, distributors, and customers.
There is an increasing demand for transparency and data needs. The reporting on these areas is becoming regulated, with the European Union and the Securities and Exchange Commission in the United States requiring more specific measurements and reports. These regulatory bodies will swiftly expand their reporting requirements to include Scope 3 emissions, which will further expedite the conversation around sustainable and net positive supply chains.
Megatrends Impacting Sustainable Value Chains and Net Positive Business
First megatrend, ongoing supply chain issues, including delays and inflation. Winston believes these problems, which have persisted for the last three years, are changing the landscape of global trade, as countries invest more in onshore manufacturing. He notes that the pandemic has demonstrated the need for more resilient supply chains, with many companies learning that reliance on a single location for production isn’t sustainable.
The second megatrend is the increasing demand for transparency, driven by societal expectations and consumer demands. People want to know more about the origins and manufacturing processes of the products they buy, including whether workers involved were paid a living wage. This trend also extends to businesses wanting to understand their supply chains better.
The third megatrend revolves around the increasing regulation of transparency. This is being driven by bodies such as the Securities and Exchange Commission in the US and the European Union, who are demanding businesses to measure and report their Scope 1, 2, and soon Scope 3 emissions, as well as any climate risks to their operations.
The Challenge of Increased Transparency and the Impact of Regulations
Winston suggests that companies that embrace transparency, build upon the principles of being net positive, and work with open information will still have a competitive edge, particularly in terms of agility and innovation. One of the most significant barriers to transparency is data availability, particularly when it comes to Scope 3 emissions, which represent all other indirect emissions in a company’s value chain. While larger companies in the supply chain might have a reasonable understanding of their emissions, the further you delve into the chain, especially towards smaller and mid-sized companies, the less likely it is that they will have this information.
Winston highlights a type of regulation known as de facto regulation, which can be equally influential. De facto regulations occur when influential customers such as Walmart or Target, set their own standards and demand that their suppliers meet these. For instance, they may require reporting on, and reduction of, certain chemicals in products. These demands can have a significant impact on industries, influencing them even more than governmental regulations.
