5 Reasons the Future of Business is Regenerative
The next generation of business is regenerative, designed to contribute value into their ecosystems, rather than constantly extracting from them. Organizations across industries are awakening to this imperative: to align business and profits in service of people and planet– not just to neutralize harms, but to do better.
This is not about feel-good PR or “greenwashing”, it is about leaders confronting the practical reality that the fate of any business wishing to survive for the long-term is directly tied to the fate of the planet and functional society. The belief system that doing (financially) well is incompatible with doing “good” is crumbling, alongside other outdated assumptions. These five forces are catalyzing regenerative transformation.
1. Business structures are transforming from stability to resilience.
Businesses have traditionally been structured for stability, predictability, and specialization, but two realities render this assumption obsolete. First, the accelerating pace of change, as advancements in software, silicon, genomics, manufacturing, and connectivity are radically reshaping media, industry, economics, politics, and more. Second, the (now more apparent than ever) fragility of our interconnected systems–economic, health, logistical, labor, environmental, political, digital, trust…
Even before 2020, it was clear that businesses exist within complex systems, which require flexibility and change to be resilient. Just as regenerative systems in nature are how ecosystems restore, replenish, and regrow themselves, regenerative businesses are resilient by design: operations, relationships, and value chains are structured to support living systems.
2. Business purpose is evolving from shareholder-centric to stakeholder-centric.
There is growing awareness that the singular purpose of maximizing shareholder returns, espoused by Milton Friedman in the 1970s, no longer suffices. With businesses now facing radical uncertainties of the pandemic, ecological, and social instability, (not to mention other “jurisdictionless” (shared) challenges like cybersecurity threats, supply chain bottlenecks, and skills shortages), the practical meets the strategic: profits follow when producing solutions for the problems of people and planet. Indeed, a recent study analyzing 11 years of data finds that companies that prioritize a multi-stakeholder approach generate higher returns than those that do not.
More and more organizations are integrating internal and external stakeholder identification, mapping, design, and related metrics across business decisions and reporting. (Image Source: Inspirente)
- Design-thinking models (for product/service innovation, re-use/re-furbish, second-market)
- Business models (with multi-stakeholder metrics and financial value distribution)
- Operational models (for organizational collaboration, supply chain and circular economics)
- Governance models (for decision-making, accountability, and more effective risk response)
As renowned economist and Professor of Management Studies at the University of Oxford, Colin Mayer defines it, business purpose is inherently multi-stakeholder and regenerative.
“The purpose of a business is to help us as individuals, societies, and the natural world to solve problems, and to do so in a way that is commercially viable for business and yields profits for business. There is a second very important part of the notion of purpose: that it is not to produce or to profit from producing problems for people or the planet.”
3. Environmental crisis demands shift to accelerate decarbonization, beyond net zero to net positive.
Devastating and increasing climate events around the world may have inspired a surge in ESG funding, but treating the crises as a cost center, something to offset, or worse, relegated to singular business functions, misses the point. Businesses are only as viable as the ecosystems on which they rely. This includes both planetary and societal ecosystems, obviously necessary for sustaining life and culture, as well as business ecosystems, networks of partners which collectively comprise a coherent solution or platform. Whereas sustainable businesses simply try to reduce their carbon footprints to curb their negative impact, regenerative businesses structure the entire organization to re-create value by recycling energy, materials, and information, to increase positive impacts across stakeholders.
As companies become evermore reliant on their ecosystems, the addressable scope of any single organization’s impact–positive or negative– is expanding to include the broader network of contributors as well. Several of the world’s largest businesses are tracking “Scope 3” environmental impacts across their supply chains. Apple, for example reports a total carbon footprint of 22.6 metric tons of CO₂, of which 71% is associated with the entire product manufacturing value chain, which encompasses its suppliers.
Several adjacent market signals underscore both the urgency and opportunity of this transition
- One hundred and thirty countries and hundreds of enterprises, covering some 70% of global GDP and 70-ish% of carbon emissions, have made commitments to decarbonize
- Capital markets recognize they play a crucial role in the transition, as asset managers world over up the pressure on clients representing trillions in assets
- Carbon markets are expanding, with numerous developments towards improved credibility, demand signals from corporates and governments, even integration with crypto…
- Venture capital flowing into these “climate tech” technologies is surging: a recent report by PwC found that just in the first half of 2021, more than 600 climate tech startups raised over $60 billion, a 210% increase from the prior year, with VC firms are now spending on average 14 cents out of every dollar on climate tech.
4. Consumer demands for “empowerment” have merged with an intensifying desire to participate in local and global causes.
2020 marked a turning point or “eco-wakening” for consumer preferences. The widespread painful combination of climate hazards, health consciousness, and leadership scrutiny sparked unprecedented urgency and action around the climate crisis. A recent BCG study examined how the pandemic has shifted global consumer attitudes toward environmental issues. Ninety percent of consumer respondents said they were equally or more concerned about these issues after the COVID-19 outbreak, and some 95% said they believed their personal actions could help reduce unsustainable waste, tackle climate change, and protect wildlife and biodiversity, with 27% to 30% noting that this belief had strengthened as a result of the crisis. Another study finds 90% of GenZ believe companies must act to help social and environmental issues. And many consumers believe brands bear as much responsibility for positive change as do governments.
“Empowering” consumers–long a mantra of customer-centricity– now means empowering sustainable and regenerative decisions.
Consumption patterns are shifting across each of these areas, towards supporting sustainable lifestyles, a recent Deloitte study finds. Consider the wide range of product/service categories impacted.
Values have value. Study after study reinforces consumers (and employees) are re-evaluating assumptions around brand value, trust, and contribution. Business in service of what? Harmful to whom? Using what resources? Governed how? The answers to these questions inform the future of demand, talent, and investment. Companies that are embracing regenerative value creation understand that customer value is evolving:
- From harm to health
- From obfuscation to transparency
- From linear/wasteful to circular/re- or upcyclable
- From destructive to renewable
- From closed to open (knowledge, governance, markets, opportunities to monetize)
These value propositions are starting points from regenerative design, benefitting both individuals and broader networks.
5. Tech innovation is shifting from “digital transformation” to broader business transformation.
For years, “digital transformation” has been a synonym for digitizing analogue processes, using data to drive efficiency gains, cost optimization, and novel customer experiences. But compounding crises have shifted the orientation of digital (and related investments). Our research discussions with executives and leaders across ESG programs echoes this finding: technological solutions are increasingly the infrastructure for innovation: how to transform the business to improve outcomes at scale.
Just as in the dot.com, social and mobile eras, innovative entrepreneurs offer a bellwether for where technologies are headed. As echoed by the VC funding mentioned above, it is noteworthy that entrepreneurs are building companies across every sector to tackle the reinvention of our economies with sustainable and regenerative principles at the core.
As the climate crisis is a “code red” for humanity, these forces signal “green lights” for forward-thinking business leaders. The shift towards regenerative business is not only strategic, the forces driving it are already well underway.
This piece is an extract from nexxworks’ brand new trend e-book “On Building A Better Future”. Check it here for more trends, scenarios and insights from top experts like Nir Eyal, Dave Snowden, Naomi Oreskes, Adrian Bejan, Greg Satell, Frederik Anseel, Chris Skinner, Steven Van Belleghem, Brett King, Jeremy Lent, Celine Schillinger, Rik Vera and many, many more!
This article also appeared on kaleidoinsights.com.