Download the Harvard Business School Working Paper
Whether you call it inclusive growth, stakeholder capitalism, the triple-bottom-line, or simply doing the right thing, CEOs and investors across the globe are talking about the role of corporations in society. But while companies are making commitments to sustainability and ethical practices, only 2% of these programs are actually achieving their goals. According to a new Harvard Business School Working Paper, the reason for this lack of success can be found in a single, missing ingredient: a “Catalyst”.
The paper’s authors, Harvard Business School Professors Robert Kaplan and George Serafeim, and Palladium’s Eduardo Tugendhat, are experts in what they call “inclusive growth strategies.” These strategies integrate a company’s core business with social outcomes by transforming the entire “ecosystem” in which it operates, using scalable business models that deliver outcomes sought by key stakeholders and local communities.
In many systems, there are different perspectives and short-term transactional relationships, often characterized by a lack of trust. The catalyst is needed to identify value-creating opportunities and help align the different actors around shared objectives and strategies for achieving them. Very critically, the catalyst needs to help structure an organizational model that facilitates access to the investment and financing required, ensuring that risks and rewards are shared. Last, the catalyst helps co-create explicit strategies and scorecards for measuring progress towards economic, social, and environmental outcomes that provide transparency and visibility for all system stakeholders.
This range of tasks makes a good catalyst hard to find. According to the authors, companies should be looking for a partner who:
- Has visibility into the full ecosystem and can understand the perspective and aspirations of different actors, including those that may not yet be included in the present system, and can help visualize what a transformed system can look like
- Is trusted by the different system actors to create approaches and an implementation plan that is fair to all
- Understands and values the need for structures and longer-term relationships that incentivize behavior change and mitigate risks
- Will ensure that residents of local communities realize demonstrable and significant improvements in key socio-economic indicators that are important to them (net income, family diet, children’s education)
- Can facilitate the mobilization of capital, from multiple funding sources, to finance the establishment of the ecosystem and its initial growth trajectory
“Some may say that this role already exists within a company, like a Sustainability Officer,” says Tugendhat. “But if these tasks were easy to do, they would have already occurred.”
Moving the Needle
Research by consultancy Bain says that only 2% of sustainability programs succeed, and poor integration with a company’s core business, difficulty engaging with key stakeholders, and a lack of ambition are to blame
Companies should continue to be philanthropic, comply with regulations and societal expectations, and operate efficiently to reduce waste – all these things deliver incremental societal benefits. But to truly “move the needle” on poverty, inequality, and environmental degradation, companies need to embed new programs with a compelling business case into their core operating strategy.
“Changing culture, changing incentives, changing institutions; they’re very, very difficult tasks,” says
Dr. Serafeim. Companies find it very difficult to implement profitable, scalable strategies for growth that are beneficial and inclusive to all involved.
To form long-lasting, sustainable, and accountable relationships with multiple new actors in the communities where they work, companies must work with a catalyst.