Elevated Economics

How Conscious Consumers Will Fuel the Future of Business

Richard Steel

• Publisher: Fast Company Press
• Year: 2020
• Print ISBN: 9781734324846
• eBook ISBN: 9781734324853
• Topic: Business
• Subtopic: Business General
• Index: Business

A vital leadership guide to understanding and engaging socially responsible consumers and investors

Consumers and investors have innovated their game. Now you as a leader must innovate with them or face the consequences.

In this engaging and persuasive guide to the new world of conscious capitalism, entrepreneur and investor Richard Steel details the inevitability of the coming changes in capitalism.

Our economy has become increasingly values-driven, and consumers have begun to care more about the principles of the companies from which they buy. With an eye toward the future of sustainability, Elevated Economics provides you with:

* Crucial information on the rise of ESG (Environmental, Social, and Governance) practices.

* Informative, firsthand interviews with Ivy League business school professors and CEOs of successful companies who actively follow the ESG model.

* A framework for understanding trends in Socially Responsible Investing (SRI).

Steel makes the case that ESG is more than a burgeoning trend, and as a leader, you must get on board or risk extinction.

CHAPTER 1

UP AND TO THE RIGHT

“Anyone can hold the helm when the sea is calm.”

—Publilius Syrus

EEverybody thinks Chernobyl exploded.

They picture flashing lights and blaring alarms as the power plant erupted into a morbidly fantastic mushroom cloud. They picture something immediate and spectacular. They picture a single moment of disaster. But that’s not how it happened.

On February 21, 1979, Yuri Andropov—then chairman of the KGB—filed a report. Two years before, construction on the nowinfamous nuclear power plant had been completed, deep behind Ukraine’s Iron Curtain. As a dutiful servant of his beloved Soviet Union, Andropov felt compelled to alert his superiors to some errors he had been made aware of in the plant’s construction. If ignored, Andropov wrote, these flaws might “lead to failures and accidents.”

The report was sent, delivered, and completely ignored. Chernobyl was the crown jewel in the Soviet’s nuclear kingdom. In their rapidly expanding effort to compete with the West’s nuclear power plants, weapons, and technology, it was easier to ignore Andropov’s report than it would have been to admit defeat, flaws, or both.

However, seven years after Andropov’s first report, those same superiors received another report. And this one was a lot harder to ignore. Its title was as devastating as its contents: “Urgent Report: Accident at the Chernobyl Atomic Power Station.”

There it was. Andropov had been correct. The damage was being done. All the indicators in the plant were showing levels well past the red line. Disaster was imminent. The best action at that point would have been for the government to immediately evacuate the area, repair the breaches, and help the affected citizenry recover.

Except they didn’t.

For a report detailing a nuclear meltdown, the most chilling line comes in a moment of shocking bureaucratic detachment: “It is not required to take special measures, including the evacuation of the population from the city.”

The Chernobyl disaster occurred on April 26, 1986. Before the close of 1986, two more reports had been filed. These explained that atmospheric and agriculture tests were detecting levels of radiation “dangerous to the health of the population.”

By the end of the year, the radiation levels were more than 50 times higher than Soviet standards of safe levels for human exposure. The experts writing these reports projected that at least 4,000 lives would be lost due to radiation poisoning and environmental collapse. But to this day, the true consequences of this disaster remain a closely guarded state secret.

The husk of the power plant that remains, and the surrounding areas, are waiting to become habitable once more. They should be ready in just under 20,000 years.

Delayed reactions, willful ignorance, and pride cost the lives of thousands and made the area around Chernobyl uninhabitable for the next 650 generations.

Everybody thinks Chernobyl exploded without warning. But it didn’t.

It leaked.

And that’s the real horror. Because while an explosion happens suddenly and without warning, a leak can be patched over. An accidental explosion can take lives and destroy communities. It is sudden, tragic, and unexpected. But a leak has to be tolerated. It has to be recognized. It has to be ignored long enough for it to become a disaster.

The lesson of Chernobyl has little to do with humanity’s technological hubris or fate’s spite and everything to do with the consequences of intentional inaction. It’s a lesson worth revisiting.

Today, the global economy is having its Yuri Andropov moment. The indicator lights aren’t yet flashing. The alarms aren’t yet blaring, but we are approaching a red line of our own.

CERTIFIED SUSTAINABLE

A friend of mine was having lunch one afternoon at a large outdoor shopping center. The center was under renovation, and many of its new storefronts had yet to be filled. One such lot was emblazoned with a wraparound banner the size of a Buick advertising a new sushi restaurant. Nothing strange about that, but the copy of this particular ad caught his eye:

“The world’s first certified-sustainable sushi restaurant”

And that was it. Nothing about the way the food would taste or how affordable the meals would be. The sole message that this new business wanted passersby to know was not “We’re delicious!” or “We’re so fresh.” Rather, it was “We are sustainable.”

As he recounted this to me, I was struck by the laser focus of it all. Because it meant that somewhere, sometime, at some meeting this group of entrepreneurs had decided to build a food business on the back of sustainability. Not price. Not convenience. Not taste. Sustainability. And they aren’t alone.

Business has started to change. It’s far from omnipresent, but the shift has started.

Tech giants like Facebook and Alphabet are tripping over themselves to show the world how seriously they are taking things like emissions, ethical supply chains, diversity, and employee satisfaction. Fast-food companies are replacing meat with plant-based alternatives. Even Gillette is attacking its core market with advertisements addressing toxic masculinity.

I started my first company in 2000. This wasn’t how the world worked back then. Back then the name of the game was convenience; people wanted things easier, cheaper, and faster, and businesses were all too happy to oblige. Door-to-door delivery, digital payments, and online commerce were emerging trends of the early 2000s. A sushi restaurant emblazoned with certified sustainability accolades in 2000 would have been a non sequitur at best, and alienating at worst. One would be right to ask: What happened over the last 20 years?

But the better question is: What is happening now, and what will happen next?

Businesses have always, and will always, act primarily in their own interest. In the same manner, consumers have always, and will always, make purchases that reflect and support their own interests. Commerce lives at the intersection between the self-interests of these two groups, but it’s the consumer that really sets the rules of the relationship.

Al Gore can make all the movies he wants. Rising sea levels could have submerged the Eastern seaboard and companies still wouldn’t launch environmentally friendly ad campaigns unless they had data showing that consumers actually care enough to buy environmentally friendly products. But when they do care, the opportunity is massive.

Drew Fraser, president and CEO of Method Products, attributes a healthy amount of his company’s meteoric success to its environmentally friendly reputation. According to Fraser:

We want to make sure that these are hardworking heavy-duty cleaning products that also work in ways that are totally sustainable. So it’s not just efficacy, the manner in which the product is made and manufactured needs to be sustainable as well. And then style, we want to be a little lighter, a little more whimsical in a very serious category where there’s not a lot of fun going on. So, bringing a little color, joy, shape, and design to our products was the way in which we combined fun and function with positive global impact.

. . . These are still small market shares in massive categories. So, there’s just tons of upside for these products and brands to continue to scale.¹

The signs we’re seeing now—whether they’re splashed across the front page of The Wall Street Journal or covering the windows of an upcoming sushi restaurant—are not reflections of a change in corporate ethics. They are evidence of a change in consumer behavior. And it’s a big change. The signals are all around us.

We are getting closer to another red line: consumer disaffection.

SIGNAL ONE: THE ESG RENAISSANCE

Fortunately for all of us, the state of business is not something that requires guesswork. There are systems, reports, statistics, and tools at our disposal ready to help us diagnose, strategize, and act. When it comes to understanding economic forces, there’s still no place like Wall Street.

Over the last few years, and in the last year especially, a certain slice of the market has received a notable amount of increased attention and enhanced relevance: ESG Investing. ESG stands for environmental, social, and governance. Together, E, S, and G comprise the investing world’s best attempt to measure the impact of business practices that relate to the good of the planet, society at large, and how firms behave. As Harvard professor Vikram S. Gandhi explained recently: “Impact investments are investments with the intention to generate positive, measurable social and environmental impact alongside a financial return.”²

More specifically, when we’re talking about ESG we are talking about outcomes, specifically externalities. Currently, firms force negative externalities like polluted air or water, poor working conditions, and the like on society at large if those actions result in greater profit maximization. This is the classic behavior illustrated by “the tragedy of the commons”—a situation in a shared-resource system where individual users, acting independently according to their own self-interest, behave contrary to the common good of all users by depleting or spoiling that resource through their collective action.

But now, investors have more options. They can easily invest in companies or funds that have a positive impact on all users by buying ESG funds, or by direc...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Introduction
• Chapter 1: Up and to the Right
• Chapter 2: Survival of the Physics
• Chapter 3: The New Consumers
• Chapter 4: The Age of Convenience
• Chapter 5: The Day the Shareholders Died
• Chapter 6: The Fourfold Foundation
• Chapter 7: ESG
• Chapter 8: Like Sales in an Hourglass
• Chapter 9: More Powerful Than a Locomotive
• Chapter 10: The Hole in the Universe
• Chapter 11: Willing to Pay
• Chapter 12: Whom Do You Serve?
• Conclusion
• Acknowledgments
• Index
• About the Author