Will a world beset with challenges spin into catastrophic breakdown or spur humanity to change and reach new heights? John Elkington, widely regarded as the ‘godfather of sustainability’, contemplates the future with AIQ.

Elkington, an authoritative voice on corporate responsibility, warns that key elements of the climate, biosphere and established economic order are under threat, which begs the question: is it too late to change? “We are headed into a hellish world of systemic breakdowns,” he declared in the opening pages of his latest book,1 Green Swans.

As an advisor to leading companies for over four decades, including through his latest venture Volans, a London-based sustainability and innovation thinktank, Elkington’s views carry weight. Yet far from feeling negative, he sees the breakdown of the established order as an opportunity to create a better, more sustainable world. It could be the start of an adventure, Elkington says, as we rethink the future of the planet, societies, and capitalism itself.

Last November, you said: “We are moving through a point in our history where the reality we all grew up with is starting to unravel. This is an extraordinarily challenging time in our history, but also one of the biggest opportunities we have ever had.” Can you elaborate?

Economists like Nikolai Kondratiev and Joseph Schumpeter flagged long-wave cycles, with periods of investment and periods of disinvestment, periods of order and periods of chaos. The point I made is about the spirit of long-wave cycles of change.

I think we are entering one of the chaotic periods of disinvestment. This is not simply financial and economic; it is social, psychological and emotional as well. So, for example, after the Second World War, the Bretton Woods Agreement established an unparalleled global political and economic order. It is something we have all benefited from to some considerable degree. We have grown up with it and taken it for granted, but now it is unravelling.

It tends to take at least 12 to 15 years to work through change

Several years ago, we started to witness that process with populism emerging as one symptom. Ordinary people began to feel something needed to change. I don't think the change is going to be over by next Tuesday or next year; historically it tends to take at least 12 to 15 years to work through, and the result is that the political and economic landscape is transformed. At that point, many of the big brands and companies you have grown up with, worked for, bought from and – to some degree – relied on and even loved will not be there any longer.

What factors will determine the outcome?

The critical dimension is the political realm. In the worlds of politics and governance, there is no guarantee we will emerge in good time and in good order, because our species tends to deny responsibilities as long as it can. But when backed into a corner, Homo sapiens sometimes does its best work and moves to a different level of innovative thinking and creativity. It is no accident the order created by Bretton Woods flowed from the crucible of the Second World War. It changed expectations entirely, because people were so horrified by what they had seen they were prepared to do the previously unthinkable, sharing sovereignty and so on.

The evidence of climate change is pressing in hard

I believe we are in one of those times again, this time with the focus on our natural environment given the terrible fires, floods, storms, droughts and so on. The evidence of climate change is pressing in hard. Increasingly, people are primed to understand something dramatic is needed.

The other thing is that the inadequacies of political leadership are being exposed. The current generation of leaders does not understand what it is being called upon to do. Greta Thunberg is 18-years old, speaking for emerging generations and giving the UN General Assembly and the World Economic Forum some sense of urgency and direction. The 1960s was the last time we saw a fracturing of the relationships between younger people and older people of this kind. I believe it is starting again, and that can be profoundly dangerous if mishandled.

But in some ways, counterintuitively, I am strangely optimistic. We have talked about needing system change for years, decades even. But when you try to change an existing system, there is often internal resistance. Vested interests, the incumbents, do not wish to see that change. But when the established system begins to disassemble, the opportunities to create something different are radically greater than in “normal” times.

In your latest book, you introduce the idea of ‘green swans’ as symbols of better times to come. Can you tell us more about the genesis of this? Have you discussed your thoughts with Nassim Nicholas Taleb, whose ideas on black swans you build from?

Green swans were introduced in my 20th book to capture positive solutions with the potential to take us exponentially towards breakthroughs that could deliver a sustainable future for everyone. Many years ago, I introduced the concept of the triple bottom line (a framework integrating social, environmental and financial considerations), in effect going head-to-head with Milton Friedman’s ideas on profit maximising. Of course, I never had the chance to speak to the late Friedman myself.

I prefer to focus on areas of positive, deliberate action

Similarly, I have not met Taleb. He might suggest I have misinterpreted his conception of a black swan, because that captures both problems and solutions with exponential characteristics. But rather than concentrating on the ‘problem’ side, I prefer to focus on areas of positive, deliberate action.

Like Taleb, I also believe many of the issues we face have exponential characteristics, which subvert our ability to understand what is going on. They take us beyond the competence of most governance mechanisms we have in place. Climate change, biodiversity loss and antibiotic resistance are all issues with these characteristics that we must now address.

Your new Green Swans Observatory is actively seeking scaleable solutions to challenges. Do you have any examples of solutions that might look ‘weird’ or surprising at the outset, but could have remarkable upsides?

The Observatory was almost forced upon us, because I have engaged with audiences in over 35 countries since my book came out. People expressed great interest in the ideas, but tended to say: ‘I'm operating in this sector, in this geography, these are my risks, these are my opportunities…what can you tell us about relevant solutions?’ The Observatory was set up in response to this. It takes different pieces of a puzzle and examines them in more detail. We look at soils, water, farming, food, nutrition, health, finance and so on, and try to assess what's going on.

We are creating living case studies

I'm always impressed by business schools doing case studies of successful businesses, but very often they appear at the pinnacle of the relevant organisation’s success. These studies explore what led to the current success, but surprisingly often things fall apart shortly afterwards. What we are doing is creating living case studies, where we take organisations in the process of transformation and investigate what happens over time.

One example is the Scottish Environmental Protection Agency. We are looking at the way in which it is trying to bring regenerative solutions into an area around the River Leven in the Scottish Highlands with its chief executive Terry A'Hearn. We talked last year about what an environmental protection agency fit for the 21st century might look like; then the organisation was subject to a huge cyber-attack. It had to decide whether to pay a ransom demand to recover 50 years of environmental data. It decided it would not. A’Hearn is now saying: ‘This is a blank sheet. This is an opportunity to rethink what an environmental protection agency does and how it does it, and how that might play into a positive, green swan narrative’.

These living case studies are important, and we have been invited to profile our work in universities and business schools around the world, including in Japan, Egypt, Portugal, America, UK and so on.

What you see now is how comprehensively expectations have been disrupted

If I had to pick case studies now, I would include Tesla. When I first came across its founder Elon Musk 15 years ago, I was advising the Ford Motor Company in Detroit. It seemed electric mobility was likely to be a powerful trend, but people would say: ‘We tried that 100 years ago and it did not work. It's not going to work this time.’ What you see now is how comprehensively expectations have been disrupted. By 2023, there will be about 500 electric vehicle models on the market and intense competition will drive down the cost of batteries and charging infrastructure.

The work of the thinktank RethinkX is another example. It looks at the speed and scale of technological disruption, underscoring how sectors as diverse as transport, energy and cattle ranching face exponential disruption. The result will be to turn current expectations on their head.

Things that look impossible now are going to become possible in short order

These examples underpin my optimism. Things that look impossible now are going to become possible in short order, and then society’s views will flip. We will come to see the relevant changes as inevitable. We often do this as a species. We might say with Tesla: ‘Of course, it was inevitable. Tesla was guaranteed to be a success, wasn’t it?’ The answer is ‘absolutely not’. The company skirted disaster at a number of points in its evolution.

I have read enough about these exponential trajectories to know that in the early stages of a paradigm shift, people don't see the change. In fact, more often than not they fight against what's coming in their direction, even if there were great benefits for the wider world.

Does the financial services sector appreciate the scale of change ahead? Could you set out how different the sector might need to be to align finance to a net-zero economy?

I think it will be very different. New actors are appearing and will continue to appear. The Elon Musks of the financial future, if you like. Some of the expectations we might have about what future banking, insurance and reinsurance and investment might look like will be blown apart by these innovators.

The financial sector seems to be configured to stop rather than enable people to do the right thing

Let me give an example. For 30 years I have sat on the advisory boards of socially responsible investment funds and similar boards with venture capitalists and so on. Our own family pension is something I have largely managed myself, drawing on different advice along the way, and I thought it would hold up to scrutiny quite well. But a former colleague recently reviewed all our holdings and identified a number of key issues. What shocked me, once we began to shift gears, was just how long it took us to exit some legacy holdings.

My view is that the financial sector seems to be configured to stop rather than enable people to do the right thing. I look at the environmental, social and governance (ESG) trend now and see a stampede, a feeding frenzy. It worries me, partly because we are herd animals who tend to do things on reflex. If everyone is moving in one direction, we tend to do the same thing. I have always seen ESG as necessary, but only as a stepping stone. This is a sector that will be rocked by tomorrow’s mis-selling scandals.

In finance, does big mean bad?

Not necessarily. Scale is needed in any market, including finance. There are certain benefits that come from scale and stability, including the opening up of access to products and services to wider populations.

Scale often goes with monopolistic or oligopolistic tendencies

The issue is that scale often goes with monopolistic or oligopolistic tendencies, as we see with the largest US technology companies, the FAANGS (Facebook, Amazon, Apple, Netflix and Alphabet (Google)). I think they need to be broken up. If not, we will certainly regret it.

So, the next question is: will we have to break up the banks and insurers as well? I'm not convinced of that, although much will depend on how the big financial institutions behave. It is more important, I think, that we change the rules of the game.

In a recent paper, you suggested speculative, short-term trading activity needs to be curtailed. What other changes do you see on the horizon?

High-frequency trading is a symptom of a much deeper malaise, where we expect financial returns over shorter and shorter timescales. Trading is so fast that there is little or no time to consider wider consequences, intended or unintended. Some form of transaction taxation to slow the pace of speculative trading is now essential. People inside today's financial system may be nervous and argue against it, but we must do it, just as we have to tax carbon dioxide and other greenhouse gases in a robust way. But these changes are harder to achieve when you have a fragmenting political landscape.

Changes are harder to achieve when you have a fragmenting political landscape

In my view, most people in the financial sector do not yet think in the way that they – or the survivors - will be thinking in the 2030s. Many of the people who occupy senior positions in finance today will no longer be there for various reasons. Considerable numbers may need to be forcibly retired in a period of convulsive change.

I'm a baby boomer. I'm 72, so I begin to understand what happens to people as they age; one tendency is to become more conservative. As a result, the pensions industry is going to find itself under growing pressure to consider shorter time horizons, to build the financial returns people expect to receive on their investments. I am worried about the impact this greying of populations will have, both in pensions and in political voting. We risk seeing the necessary radical changes being slowed, stalled or disrupted by growing conservatism, with a small ‘c’.

We cannot simply stand back and say: ‘This is a younger person’s problem.’ This is an intergenerational challenge with massive consequences for us all as part of the wider – and clearly dysfunctional – financial system.

What is most striking about the operating environment today?

In the past, companies often claimed investors would not support certain actions. Now, company after company is telling us they are being asked penetrating questions on ESG issues by investors and financial analysts. Initially that may have been about analysts trying to move up their own learning curves, but it seems they are starting to think more rigorously and systematically about the related market dynamics. There are also many different groups coming together ahead of COP26, including bankers and central bankers; in the past, some of these parties tended to lag the curve.

We are moving into a period of significant deglobalisation

I believe we are moving into a period of significant deglobalisation, where current expectations about where we are heading will be challenged profoundly. What is going on in Afghanistan again signals the end of an era. The old order – the Pax Americana – can no longer be relied on. It does not necessarily mean it disappears entirely, but geopolitics are also going through convulsive change. These are sink or swim times.

As a result, in business the spotlight is increasingly on CEOs and boards. Business leaders are coming together with new initiatives for shaping markets and taking part in the transition toward a more sustainable world. We see more businesses aligning differently, ahead of regulatory pressure to do it.

The fact Walmart’s CEO Doug McMillon has committed to make it a ‘regenerative’ company is a sign of the times. We are yet to see it happen in full, as with so many companies’ net zero carbon commitments, but large companies in Walmart’s supply chain like PepsiCo and Unilever are scurrying about and asking: ‘What does this mean for us?’

We need serious efforts to change the system

These are axial, pivotal times. Young people are starting to articulate a very different future from their parents, let alone grandparents, and the financial sector is – and going to be – in the eye of the storm. We need serious efforts to change the system, particularly the rules of the economic game. Those who get this right will sometimes enjoy quite disproportionate benefits, as those long-wave economists concluded long ago.

Reference

  1. John Elkington, ‘Green swans: The coming boom in regenerative capitalism’, Fast Company Press, 2021

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AIQ: Cleaning Up Capitalism

To tackle the climate crisis, economies and markets need a systems reboot. In AIQ: Cleaning Up Capitalism, we examine what it will take to get us back on track to achieve net zero; from transforming the financial system and accounting, to decarbonising heavy industries and ensuring polluters pay.

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AIQ: Cleaning up capitalism

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