HomeThe Human-Centred Business Model: An Innovative Ecosystem for Sustainable Development
The Human-Centred Business Model: An Innovative Ecosystem for Sustainable Development
21 October 2019 14 December 2020 Development Matters Private Sectorbusiness, HCBM, Private Sector, sustainable development
By Federico Bonaglia, Deputy Director, OECD Development Centre, and Marco Nicoli, Special Advisor to the Director of the OECD Development Centre
This blog is part of a special series exploring subjects at the core of the Human-Centred Business Model (HCBM). The HCBM seeks to develop an innovative – human-centred – business model based on a common, holistic and integrated set of economic, social, environmental and ethical rights-based principles.
Read more about the HCBM here, and check out an event about it here
The HCBM project originated in 2015 within the World Bank's Global Forum on Law, Justice and Development and is now based at the OECD's Development Centre.
Many argue that current public policies and business practices are not delivering widespread prosperity for people and the planet (Wolf). During the last ten years, the OECD has gathered a significant body of evidence on the increased inequalities of income and opportunities in many countries. The top 20% of the income distribution earns 9 times more on average than the bottom 20%. The distribution of wealth is even more unequal, with the top 20% keeping half, while the bottom 40% holds only 3%. Corporate profits are at historic highs in many countries: shareholder payouts hit a new record in 2018 as global dividend payments neared the USD 500 billion mark.[1] Simultaneously, median wages and living standards continue to stagnate, productivity growth falters in many countries and whole swathes of citizens are excluded from contributing to, and benefiting from, economic prosperity. Our economic system continues to wreak incredible environmental destruction, the costs of which disproportionately fall on the poor and vulnerable in addition to the planet's flora and fauna. As United Nations Secretary General Guterres recently stated, "we are losing the race against climate change. Our world is off-track in meeting the Sustainable Development Goals".
Changing course towards more sustainable growth models: Business must be on board
Any solution to reverse this trend will involve the business sector as the main driver of employment, innovation and growth. What would happen if we could maximise shareholder value while also delivering positive impact for employees, consumers, suppliers, communities, societies and the environment? The question, once confined to academic debates on the theory and objectives of the enterprise (e.g. Lazonick, Stout, Bower and Paine), has gained traction within the business sector itself. Three recent examples confirm this dynamism. In August 2019, several companies signed up to the Business Pledge to Fight Inequalities during the G7 Summit in Biarritz. They committed to take action on issues such as territorial disparities, gender inequality, diversity and inclusion, and equality of opportunities to achieve more inclusive growth. Just days before, 181 CEOs of the largest US companies gathered in the Business Roundtable committed to redefining the purpose of corporations, moving away from shareholder primacy, to include all stakeholders. Finally, on the eve of the UN Climate Summit, the number of companies signing the UN Global Compact commitment to keep global warming below 1.5 degrees centigrade almost tripled.
Do policy makers and regulators have the capacity and willingness to keep pace with this dynamism and adapt policy frameworks? And where to start?
Building an ecosystem for sustainable development: A principled approach
Encouraging a more responsible role for business is at the heart of the Human-Centred Business Model (HCBM). The HCBM is a new approach that brings together diverse stakeholders – academia, private sector and professional associations, civil society, and international organisations – to develop a business ecosystem where corporate strategies, public policies and regulations incentivise companies to pursue sustainable development[2]. Experts' contributions to this project have tackled issues such as the private sector's role in sustainable development; the need for standards and tools to measure the private sector's compliance with social objectives, including gender equality; the private sector's contributions to fiscal policies; the role of public procurement ; and shifts in corporate governance to advance social purposes.
The HCBM balances profitability with social and environmental sustainability as well as ethical and integrity principles. Businesses volunteer to adopt and embed certain principles and values into their bylaws as goals and to establish performance indicators to assess and measure how they are reaching those goals. In short, the HCBM is a market answer to sustainability, advancing the triple bottom line – people, planet, profit – and creating shared value. While the Model calls on businesses to change their behaviours and financial players to support responsible financial decisions, it also requires policy makers to do their part on legal frameworks, taxation systems and public procurement. Finally, it needs responsible consumers to support sustainable and inclusive business practices with their choices.
This proposal for a new ecosystem of sustainable business rests on several pillars. First, a set of principles that give a new purpose to corporations. Second, updated legal frameworks and corporate governance coherent with those principles. Third, the alignment of business goals and practices with environmental, social and governance (ESG) requirements set by responsible financiers and shareholders. Fourth, good practices of public and private procurement, e.g. to encourage green, social and sustainable procurement. Fifth, effective tax systems that reward/penalise the positive/negative social and environmental impact of businesses. Sixth, and final, a change of business paradigm from shareholders to stakeholders' primacy.
The change in business approach which the HCBM Model champions is instrumental to achieving Agenda 2030 and the Sustainable Development Goals. The initiative complements internationally agreed instruments and private sector initiatives on responsible business conduct, integrity and the fight against bribery and corruption, fair competition, better corporate governance, employment and job quality, gender equality and health in the workplace, the environment, responsible and green finance, and entrepreneurship and social enterprises.
Thanks to experts' validation over the last year, most recently during the World Bank Spring Meetings, the HCBM is now ready to be tested on the ground. The OECD Development Centre is committed to advancing its implementation, including by piloting the Model at national and sub-national levels, with the initiative's partners and other interested actors. Ultimately, if we are serious about advancing sustainable and inclusive prosperity for all, then embracing the role and contributions of the private sector and their sustainable business models has never been more urgent.
[1] Janus Henderson (2018), Global Dividend Index, https://en-us.janushenderson.com/advisor/global-dividend-index
[2] Some 46 project-partners contributed their knowledge pro-bono to the HCBM over the last four years. The OECD Development Centre serves as the HCBM project's leader and co-ordinator.
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