BLOG

Corporate Strategies for Sustainable Growth

By Matthew Mausner

Much of the world is oriented towards economic growth, or even expects it. Our capitalist system, most people’s companies and jobs, and even the tax revenues of the governments and the fortunes that fund most non-profits, derive from all these kinds of growth.

Dividend payout ratio, returns on investment, returns on equity, growth rates, growth strategy, net income, financial leverage, cash flow, returns to shareholders, sustainable growth rate (when ‘sustainable’ is referring to profits, not to anything explicitly environmental), profitability, earnings, revenue, financing, short term earnings, long term growth, all are fundamental metrics by which we judge the health of our society.

Economic Growth is Good

A growing market is conceived as the prerequisite for investment; a growing economy is a given baseline expectation for a country’s leadership, jobs, consumerism, and business in general. The formula of maximum growth and maximum profit being equated with the public good, with ‘GDP’, and with things going well as a society, is a fundamental belief shared by decision makers in almost every country on our planet today.

Sustainable Growth Versus Economic Growth

Yet the scope of policy makers and business leaders who make almost all the decisions that matter rarely take ‘externalities’ into consideration, except as a minimal concession to regulation or to public relations. Growth is the goal of almost all of these impulses- the growth of their respective companies, countries, trade, and economies.

But, is that growth genuinely sustainable in a way that takes into account the fate of the web of life, other species, or even the social fabric of all the human societies affected? It seems fair to say that despite the lip service paid by many public figures to the importance of the environment, ecologically sustainable growth is not their goal.

At most, it is an incidental benefit that occasionally helps PR and marketing, or an onerous impediment of restrictive regulations that retard or inhibit the economic growth they primarily seek.

Is Sustainable Growth an Oxymoron?

When one envisages the full picture of human civilization on earth, one is confronted with some very real limits. The math games we play with money, GDP, equity, cash flow, and future projections of any given company’s future earnings and debt can exist in their own self-referencing cyclical logic, even if they ‘grow’.

However, our consumption of the earth’s resources, fisheries, forests, and land cannot continue to grow, nor can our population, without using up a larger and larger share of the earth’s biomass.

This growth has both known and unknown impacts on the ability of the ecosystem as a whole to even support our current population, much less a larger one.

Can Economic Growth Be Sustainable Growth?

Development and progress, e.g. economic growth, can have large measurable benefits on much of the world’s human population and raise people out of poverty and insecurity.

However, if it means everyone in China or India is ‘raised’ up to American-style resource use, owning two cars and living a western lifestyle, there are sheer math limits that we would shatter, with potentially catastrophic consequences.

It is perhaps therefore not a stretch to question whether any growth at all is ‘sustainable’ if we include this fuller set of measures in our accounting.

The Trade-Offs of Sustainable Growth

While it is not practical or possible for every third world family to own two cars, an improving standard of living does in fact correlate with some positive economic indicators. As people become more prosperous, they tend to become more educated, and to prioritize educating their children; and with more education, they are likely to bear less children.

Slowing population growth is probably the single biggest factor to reduce the net human impact on the earth. Higher standard of living is also associated with being able to prioritize healthier and more sustainable habits, such as gas instead of wood cooking, caring about air quality, and longer-term rather than short-term-survival decision making.

Thus there can be what appears to be a contradiction: increased economic growth leads to slower population growth- and thus more sustainable growth.

Long-term Growth Strategy

So, despite the genuine concerns of ecological or true cost accounting, there is still a strong argument to be made for growth that a company aims for: return on equity, maximizing rate of growth, maximizing value to shareholders, dividend payout ratio, and seeking to sustain and achieve key indicators of improving profit. Appreciating value of assets depends on strongly grounded growth factors, not dependent on debt financing but on reliable revenue that does not itself destroy the conditions for its success.

While capital industry is often centered on net income that cannot happen without a focus on resource use and growth, despite the finite resources of the world, a wise approach can keep the ratio of resource use to the replenishment of resources within sustainable limits.

A sustainable growth rate (SGR) is a useful measure of this, as it incorporates many of these factors in a calculated balance for a company or even a country.

The Role of Religion in Sustainable Growth

While Marx called religion “the opiate of the Masses,” we know that religion can be one of the most powerful engines of awareness and change. A recent study explored the power of religion for reaching sustainability goals and documented the following discovery:

“After decades of being ignored by global development processes, greater portions of development aid are now channeled via faith-based organizations, and religion is increasingly recognized as a human resource rather than just an obstacle to development.”

Religion can unite communities, clarify our values and broaden our perspectives. Religion will have a key role to play in our planet’s transition from frenetic to sustainable growth.

All we have to do is believe and get to work.

* Featured image source

Curious to learn more? Follow this link to learn about the Three Pillars of Sustainability.