Facilitate adaptive innovation to find the right leverage points
Companies often take the same approach for sustainability as they do for strategy: top-down, deliberate planning. But this approach is likely to be inadequate, and innovation is required. Moreover, making a shift to “societal needs-in” strategy in the complex adaptive systems of business and society will require leaders to find the link between local behavior and global impact and to find the right leverage point to effect global change, realizing that “leverage points [are] not necessarily found where the problems arise” (Mandi, 2019). Given the inherent unpredictability of the nested CAS, leaders will need to experiment rather than rely on deduction and planning. Leaders will need to look beyond financial levers, and beyond short-term efficiency and returns to find the right levers to foster sustainability by embracing key principles of biological management that foster adaptive innovation, especially heterogeneity and modularity (Reeves, Levin, and Ueda, 2016).
Finding leverage points in any system will first require a clear understanding of how it is structured and organized, how it evolves, and interdependencies between different elements (Mandi, 2019). Crucially, this involves engaging with stakeholders on the periphery—those who have been excluded or lack access—who often see the world differently and can provoke important insights for how to create value for the broader system. Companies will then need to develop a portfolio of experiments, smaller bets, monitor changes in the environment, and continuously scale up the most promising experiments to push on the right leverage points at the right time (BCG, 2019b). Leaders should take action, tinker, and get their hands dirty. Finance can play a critical role in monitoring the aggregate progress of such experimentation.
Invest in bottom-up solutions
Elinor Ostrom’s research on self-organization in fisheries also showed that communal management is an effective way to prevent the “Tragedy of the Commons”—depletion of a scarce shared resource (Ostrom, 2009). While top-down centralized government regulations are hard to bring about, and often fail to prevent overfishing, rules for managing the fisheries and sanctions for violations developed and enforced by local communities can be ver}' effective in long-term stock preservation and fishing yield maintenance. In a separate recent study, evolutionary-game-theoretic analysis indicates the importance of a building blocks approach to substantially deepen cooperation on complex issues (e.g., climate change) (Hannam et al., 2017). Bottom-up approaches are also a lot more feasible in many cases, since the scale of coordination required is more tractable. Taking a lesson from these findings, business leaders should invest time and effort into forming targeted industry-level agreements which are more feasible and effective than larger all-inclusive collaborations to promote communal management to reach sustainability goals.
Commit to corporate statesmanship
Governments alone might not be able to address climate and socioeconomic issues that society is currently facing due to the magnitude of challenges, the divisiveness of contemporary politics, and declining global cooperation. Corporations and financial institutions need to step up to the challenge. We define corporate statesmanship as actions, especially by a company’s CEO, to intervene in public affairs to foster collective action in support of the common good, beyond the scope of their narrow self-interest (Reeves, Kell, and Hassan, 2018). This requires a shift in mindset for corporate leaders, who must consider the health of not only their organizations but the systems in which they are embedded. Businesses should engage in corporate statesmanship by acting in the interest of the common good, rather than being solely motivated by self-interest. Farsighted leaders should build coalitions within their industry to find and scale new solutions to broader challenges. Sustainability goals should be adjusted to the specific circumstances of each industry. For example, a pharmaceutical company and a power plant would need very different goals that truly capture the unique value added and points of highest risk to the sustainability for each business.
Use the power of financial sector as point of high leverage
Over time, the financial system has demonstrated power to effect meaningful societal and commercial innovation through its oversight of business, access to capital, ability to visualize broad trends and institute new metrics, and unique capacity to serve as a connection between different layers of the nested CAS. Finance can serve as a multiplier because all businesses depend on financial institutions and markets in multiple ways, including issuing debt, raising equity, rating credit worthiness, analysis of performance, and so on (Dunn, 2019). Furthermore, internally, CFOs are usually the second most powerful people in companies and have more power to bring about fundamental change than the head of corporate affairs. Finance can also deploy capital to make a difference, and can use capital to promote the right goals. Finance can potentially promote holism through comprehensive metrics and help visualize issues that may be currently invisible or unmanaged. Finance can serve as a connecting function between different layers and players of the nested system. Since financial institutions (FIs) and insurers depend on the financial health of their many customer companies, system-wide stability and sustainability are crucial to them, providing a strong incentive to innovate. Financial institutions therefore possess incredible power to help move the needle on the big challenges facing society today, and should use this power for good.
Expect that some solutions will require going beyond financial impact
In evolution, “winning” means surviving to play another round of an infinite game (Slobodkin, 1964). Without survival, performance is irrelevant. And this may require companies to focus on what is of value, rather than only that which can be easily quantified. We should expect therefore that not all solutions will be reducible to quantitative metrics and financial payoffs. At the highest level, the norms and values that guide a complex system are critical to survival. We need therefore to reinforce the notion that at least in part, an ethical revolution in business is necessary. A healthy economy and a healthy planet are inseparable.