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CREATING the NEW ECONOMY Business Models That Put People and Planet First

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CREATING the NEW ECONOMY Business Models That Put People and Planet First CREATING THE NEW ECONOMY Business models that put people and planet first By Prof. Bob Doherty (University of York), Prof. Helen Haugh (Judge Business School, Cambridge University), Dr. Erinch Sahan (WFTO) and Mr. Tom Wills (Traidcraft Exchange), Dr. Simon Croft (Stock- holm Environment Institute) CONTENTS 1. Executive Summary 1 2. The Problem with Profit-Primacy 2 2.1 Driving Inequality 2 2.2 Damaging the Planet 4 3. Introducing Mission-Primacy 5 3.1 How Fair Trade Enterprises do Things Differently 10 3.1.1 Fighting Inequality 11 3.1.2 Women Leading the Change 15 3.1.3 Saving our Planet 18 3.1.4 Going Places other Businesses won’t 21 3.1.5 Commercial Resilience 24 4. Other alternative business models 27 5. Conclusions 31 6. Recommendations 32 6.1 Recommendations for Policy-Makers 32 6.2 Recommendations for Businesses 33 6.3 Recommendations for Investors 33 7. Annex (Additional Case Studies) 34 8. Notes 42 Creating The New Economy: Business Models That Put People and Planet First EXECUTIVE SUMMARY new economy is emerging, one populated protect our planet. Fair Trade Enterprises prove A by enterprises born to put people and pla- this business model can be more resilient while net first. These businesses are a stark contrast fostering innovation. Key insights about Fair to today’s mainstream businesses, who largely Trade Enterprises include: remain trapped in a model of profit-primacy. Based on new research, this report uncovers • 92 per cent reinvest all profits in their social insights from one of the most global and de- mission; ep-rooted communities of mission-led enter- • 52 per cent are led by women; prises: Fair Trade Enterprises. This growing • 4 times less likely to go bankrupt; and global network, spread across over 70 countries, • 85 per cent report actively sacrificing finan- demonstrates commercially-viable business cial goals to pursue social or environmental models that put people and planet first. These goals, while retaining commercial viability. enterprises practice Fair Trade holistically across their business, reinvest the majority of To tackle inequality, end poverty and save our their profits in their social mission and deploy planet, these enterprise models must be foste- mission-primacy in their governance. Built to red. The report ends with a challenge to govern- make management and investment decisions to ments, investors and all companies to shape favour workers, farmers and artisans, they are the broader business ecosystem so as to spread effective in some of the most challenging con- such enterprise models far and wide. texts. They also drive ecological practices that Photo credit: Manos del Uruguay 1 CreatingCreating The The New New Economy: Economy: BusinessBusiness Models That PutPut PeoplePeople and and Planet Planet First First THE PROBLEM WITH PROFIT-PRIMACY Business is not working as it should. Millions the 1980s, a cocoa farmer would get about 18 are hungry, millions remain entrenched in per cent of the value of a chocolate bar, while poverty and inequality is growing. The reasons today that same farmer gets below six per cent7. for this are many and varied, but it is clear that Similar trends can be found across the board, businesses have failed to spread the fruits of as workers overall get a decreasing share of the economic growth adequately. global economy8. In global supply chains, prices paid are failing to cover the costs of sustainable Driving inequality production in products from tea to t-shirts9. Inequality is socially, economically and politi- cally destabilising, and is hindering our fight Directors of corporations have a fiduciary duty: to end global poverty1. Since the turn of the they have to act ‘in the best interests’ of share- century, the poorest half of the world’s popula- holders. In the absence of any broader concept tion has received just one per cent of the total of what the shared ‘best interests’ of investors increase in global wealth2. Meanwhile, half of might be, corporations have opted to interpret newly-created wealth has gone to the richest their brief as one of profit maximisation, a deci- one per cent. In 2018, just 26 people owned sion driven by, in the words of Lynn Stout, the the same wealth as the poorest 50 per cent of Distinguished Professor of corporate and busi- humanity3. Inequality is rampant and has been ness law at Cornell Law School: getting worse. This is detrimental to all hu- “…powerful activist hedge funds that profit mans, to our shared society, and to the planet. from harassing boards into adopting strategies World Bank research has found that global goals that raise share price in the short term, and by of eliminating poverty by 2030 cannot be achie- corporate executives driven by “pay for perfor- ved without significantly reducing inequality4. mance” schemes that tie their compensation to each year’s shareholder returns.”10 What does business have to do with this? Bu- sinesses populate our economies, channel Highly financialised capital has transformed investments and wages, and are pivotal in the traditional shareholder model. The expecta- determining how the fruits of our economies tion of high shareholder returns and the com- are shared. For some time now, profits have petition to attract shareholder investment by grown, but real incomes have not5. Economi- generating dividends means that businesses are es are expanding, but farmers and workers less inclined to invest in furthering social goals. are getting a decreasing share of the pie6. In 2 CreatingCreating The The New New Economy: Economy: BusinessBusiness Models That PutPut PeoplePeople and and Planet Planet First First Photo credit: Hermes Rivera In a world where unequal distribution of capital Rather than benefiting workers, rising profits is the key driver of inequality (according to the are being distributed to investors. In the past World Inequality Report11), prioritising growing few decades, many larger corporations have the capital of investors essentially supercharges pursued an extreme strategy where only one inequality. While anyone can be a shareholder stakeholder group is prioritised – the share- (through a pension fund for instance), if econo- holder. In the 1970s, a typical corporation in mic spoils are shared according to the size of the U.S. would return about 33 per cent of its capital, we give a growing share of the pie to the profits to shareholders14. Today, it is 70 per cent. people who have the most to invest. In the UK, returns to FTSE 100 shareholders increased by 56 per cent from 2014 to 2018: if This has contributed to a situation where, pay across the UK economy had kept pace with across the world, capital is increasingly more shareholder returns, the average worker would valuable than labour. Those with money are now be over £9,500 better off15. able to profit from interest payments, capital gains and dividends. Those with only their This trend is seen around the world: from labour to sell have seen their wages stagnate12. South Africa to India, shareholder capitalism Why work for money, when your money can has become supercharged16. This is central to work for you? This stymies social mobility and the global story of rising inequality. As long as promotes inequality, which since 1980 has risen businesses have a governance and management almost everywhere around the world13. structure that prioritises shareholder profits we can expect our societies to become more unequal. 3 CreatingCreating The The New New Economy: Economy: BusinessBusiness Models That PutPut PeoplePeople and and Planet Planet First First Damaging the planet without which businesses cannot function, is All the while, we are over-stretching the car- being eroded: corporate tax avoidance and eva- rying capacity of our planet. We are now living sion continues to spiral upwards, and trust in in the era of the Anthropocene, with overwhel- the private sector is low18. ming global evidence that the atmosphere and geology of the earth has been irreversibly alte- In a world where consumers are bombarded red by humans17. Businesses that pollute and with information, and investigative reporting is deplete the planet’s finite resources are a major under-resourced, many businesses understand part of this problem. the need to be seen to do the right thing, whilst not necessarily feeling under the same pressure The drive to maximise profits shapes corpora- to follow through with their actions. This has te decision-making leads to profit-primacy. As become known as corporate ‘purpose-washing’. most companies are set up to maximise profits, This is a bleak picture. But it does not have to investments in sustainability are justified only be the case. Growing inequality, entrenched where they increase returns. Most companies poverty and a pending ecological crisis mean are doing what they are designed to do – extra- that it is time to revisit the central design featu- cting maximum returns for their sharehol- res of business and explore the alternatives that ders. Meanwhile the social license to operate, exist the world over. "The extractive economy of profits at any cost have brought us to an ecological brink and polarised society between the 1% and 99%. Fair trade based on ecological sustainability and social justice have become a survival imperative. Fair trade is based on giving back to the Earth and society." Vandana Shiva (Environmental activist, food sovereignty advocate, founder and director of Navdanya International) Photo credit: Wilsan U 4 Creating The New Economy: Business Models That Put People and Planet First INTRODUCING MISSION-PRIMACY ncreasingly, the world is asking about the enterprise. As a community of enterprises Ikinds of companies we need. Fortunately, built around the same values, they buy and sell a variety of models already exist that demon- from each other, collaborate in marketing and strate a way of doing business differently, from in production, and jointly campaign for trade social enterprises to cooperatives, employ- and social justice.
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