Let’s talk about ‘regenerative business’ not sustainability

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Oliver Dudok van Heel, Global Sustainability Director, Kearney

• In recent years sustainability has risen up the corporate agenda and is now part and parcel of corporate strategies.
• There are concerns that the current boom in sustainability and net-zero commitments may not be enough to combat the vast social, environmental and economic challenges.
• Businesses should take a long-term view and become a regenerative business, promoting the restoration and regeneration of natural resources and social systems.

In recent years, a significant change has occurred in how companies view sustainability and the actions required to deliver this. Whereas previously, environmental, social, and corporate governance (ESG) was considered by many to be a burden – a compliance issue that came with risk and cost – it is now understood as one of the key drivers of long-term growth.

This transformation in attitude has been catalyzed by growing customer awareness, more robust regulation and increasing demands in this area from investors and banks. In practical terms, this view of sustainability has meant more companies have set net-zero goals, investments in sustainability issues have exploded and new departments and roles have been created whose purpose is to tackle the organization’s ESG agenda.

Sustainability research and consulting firm G&A Institute found that more than 96% of S&P 500 companies now publish ESG reports in some form, as do approximately 81% of Russell 1000 companies. Meanwhile, a Bloomberg study found that sustainable investing had $37.8 trillion in assets under management in 2022, highlighting the value placed on sustainable transformation and growth.

While this change is positive, it may not be enough to resolve the system-wide crisis we now find ourselves in.

The challenges we are presented with today are numerous. Not only are we causing irreversible climate change and crossing planetary boundaries but we are also running out of critical resources and seeing biodiversity loss on a shocking scale.

The resulting issues affect everyone, whether human rights issues, soaring inflation or natural disasters.

The challenge is real. So is the opportunity

Ironically, pre-occupation with growth, which drives many companies could be their very downfall as scarcer mean stakeholder needs change and the impact of climate change threatens physical assets, meaning that businesses must adapt and incorporate sustainable practices. There needs to be more than just focusing on the short term; rather, businesses must embed a sustainable approach in their long-term strategy and culture.

While these challenges may seem threatening, they also present an enormous opportunity. Companies able to embrace the changing paradigm stand to reap significant rewards. The business case for sustainability is strong and growing, ranging from reducing costs, increasing revenue, attracting more talent, boosting employee productivity and gaining investment.

So how can companies navigate this challenging environment while taking full advantage of the opportunities that present themselves along the way?

We need a paradigm shift: Regenerative business

In our opinion, they must take a regenerative approach to business. This idea involves a strategy that promotes the restoration and regeneration of natural resources and social systems. It goes beyond sustainability and seeks to create positive impacts on the environment, society and economy.

This approach requires a fundamental shift in business practices and is integral for any organization with ambition for positive impact and growth. Until now, organizations have predominantly focused on their carbon footprint as a metric, which is too narrow to capture the breadth of issues in our current economy.

Companies not looking to reduce impact more widely demonstrate a lack of understanding of the systemic implications of their operations – something without which they cannot hope to put impactful solutions in place.

There are two important points that define a regenerative business model and make it markedly different from a sustainable model.

“

The priority now must be to move on from making regenerative gestures, to putting the idea of being regenerative at the core of every business strategy. ”— Oliver Dudok van Heel, Global Sustainability Director, Kearney

The first is that a regenerative model takes into account not just the impacts of its own current business but also the impacts of the wider temporal and geographic system in which it operates.

Secondly, the goal of a regenerative business is not merely to limit the impact that it has on the planet and society but to contribute positively to the economy and the world around it – achieving a net positive impact as a result. The graph below shows the differing aims of each approach:

While there has been a healthy focus from many companies on becoming sustainable, those trying to become regenerative are few and far between. This doesn’t mean that regenerative aspects in many businesses aren’t there. Renewable resources are becoming more and more sought after in many arenas, often even commanding a premium, while circular markets were valued at $339 billion in 2022.

However, the priority now must be to move on from making regenerative gestures, to putting the idea of being regenerative at the core of every business strategy. In this way, the end goal is a regenerative economy, where systemic change has caused a fundamental shift in how businesses impact people and the planet.

Doing so is no mean feat, given the immediate challenges facing businesses. Becoming regenerative is certainly not a priority for many. Despite this, organizations must start to understand the critical nature of becoming regenerative in the long term and start taking steps to achieve this right away.

How to start building a regenerative business

Here are five things to get right for companies starting this journey:

• Articulate your vision for systemic change: Through a clear understanding of your purpose, impact and influence, articulate where you believe you can reshape economies.
  
• Map systems and identify leverage points: Based on a mapping of different systems (internal, operations, value-chain and the macro-economy), assess through an analysis of feedback loops, your role in the system, highlighting where you have the ability to restore social and natural systems by strategically allocating resources.
  
• Set a regenerative strategy: Define how you will deliver value through regenerative outcomes. Understand your key areas of impact and where you can deliver the greatest stakeholder value.
• Review business models: Assess your products and services and review how you can deliver value through regenerative practices e.g. through product-to-service models, where the focus is on value of service provided, rather than quantity of goods sold.
  
• Define and deliver value: Understanding that regenerative approaches can drive financial value-creation is key to their success and durability. We need sophisticated approaches to understand value creation that consider the financial value delivered across the entire enterprise ecosystem.

By moving beyond sustainability and towards regeneration, we can take on the monumental challenges that lie ahead.