Not enough room for profit and public good
Everybody wants more for less, out of everything – from trains, tracks, and transmission lines, to privacy, privilege, and peace of mind. But increasingly, the 'less' includes not just financial costs but also lesser 'carbon' and all the other negative impacts on ecosystems and environments. That puts a lot of new pressure on enterprises to make space for sustainability while leaving enough room for profit.
The pressure will only increase with new rules and regulations, such as the EU directive that requires enterprises to disclose double materiality i.e. show with third-party assurance how profitability affects sustainability (impact materiality) and how sustainability affects profitability (financial materiality). Under pressure, enterprises will have to make significant changes to their promises of demand and supply just to maintain course.
But they cannot force the changes on customers and suppliers. That would create unnecessary conflict and erode goodwill and trust. After all, contracts are fair weather friendships; commercial in purpose and temporary by nature. Customers and suppliers may choose to do business with other less stressful parties. Where there is not much competition, regulators may intervene. In other words, heavy-handed tactics may backfire. It is better to entice customers and suppliers to make reciprocal changes to their promises of demand and supply.
The problem is, too many contracts are lean and mean. There is very little wiggle room for adjustments because of all the terms and conditions parties impose on each other, based on pro forma perceptions of risks. Such standard strictures and stipulations make contracts costlier than they need to be. This is true not only of the €240 million contract for aircraft maintenance, but also the €2400 health insurance, the €240 airline ticket, and the €24 dinner. All kinds of contracts fall short of expectations not despite but because they are 'carefully' written.
All these years, whenever it was difficult to convince customers or suppliers to accept costs, enterprises could simply dump those costs into ecosystems and environments; and hope nobody cares. But new regulations are making that difficult, as societies force more and more such costs back into the contracts they come from. We are seeing, for example, governments limiting the expansion of airports to reduce air and noise pollution; forcing employers to extend employee rights and benefits to contractors; and restricting listings on platforms such as Airbnb, to maintain the availability of affordable housing.
Under increasing pressure and scrutiny, enterprises will end up implicating each other in materiality assessments, like the way they do when reporting value added tax. With several scopes of impact assessment, imagine concentric circles of materiality around each enterprise, intersecting with circles from other enterprises. At each intersection is a problem that cannot be ignored once it appears on a materiality assessment.
We have entered an era of frequent political turmoil and economic turbulence, in which the annoying cliché of 'constant change' will be an irritating reality. With so many contracts taut, and relationships tense, how will thousands of enterprises find room for profitable growth? How can they full participate in efforts to slow down climate change? How can they promise 'more for less' year after year, under chronic stress? The answer lies not at the end of a rainbow, but a leap of imagination.