THE BLOG

Sustainable Business in an Era of Austerity

06/29/2011 11:00 am ET | Updated Aug 29, 2011

A generation ago, the modern corporate responsibility movement emerged just as globalization took hold of the world's economy and captured our imagination. With the significant exception of the 2008-09 recession, we've since experienced a period of relative prosperity in the Western economies and fast-growing economies in much of the rest of the world. During that time, CSR often focused on ways Western companies could improve environmental and labor practices in emerging economies.

Is it possible that this basic framework is about to change? There is a lot of evidence suggesting that it is.

As bad as the sharp, initial shock of the recession was, the anemic recovery looks set to last longer, and take its own special toll. Sovereign debt in the eurozone, consumer debt in the United States and the U.K., and a host of troubles in Japan suggest that the OECD countries will struggle to emerge from the recession. Economic growth -- though perhaps tenuous -- continues apace in the BRICs (Brazil, Russia, India, China, and South Africa) and elsewhere. Sub-Saharan Africa continues to deliver annual growth rates of 5 percent or more. Commodity prices have recovered from their recessionary lows and resumed their upward march, putting a further squeeze on wage earners. Rising wage levels in China and elsewhere are good news in local markets, but they are leading to inflationary pressures not seen for a generation.

All this has led to a basic shift in the political environment. The "Battle in Seattle" was the most photogenic symbol of the debate over globalization in the late 1990s. Today's reality is better reflected in this week's general strike opposing austerity plans in Athens. And popular support for government action on climate change has faded fast.

In light of this, we need to rethink the global sustainability agenda, with a focus on three steps that will grow more important as companies grapple with the emerging challenges likely to persist in the coming years.

Renewed focus on home markets. Western companies will again have to focus attention on their home markets. If, as it appears, we are facing an era of chronic unemployment and shrinking safety nets, companies' actions will be scrutinized in this context. Questions related to executive pay and what companies are doing to invest cash on their balance sheets will become more prominent. CSR strategies that focus attention on the health of workers a world away, while remaining important, won't address the concerns of employees or governments at home. On the other hand, companies that pay increased attention to the communities closest to them will enjoy a trust dividend.

Doubling down on innovation.
In a weak economy, innovation grows even more important. Past periods of economic weakness have brought great bursts of creativity. GE and Microsoft, to name just two examples, emerged from sharp economic declines in the United States. And with environmental challenges growing even as the economy sputters, the need to maintain a commitment to innovation remains paramount. Companies that maintain -- or extend -- their investments, looking at sustainability as a business opportunity, will navigate this era best.

Preparing for a shift in values. Difficult economic times also lead to cultural change. Two changes, both already emerging, have significant implications for business. First, as BSR has written elsewhere, it is not clear that a consumption-oriented economy is sustainable. It is entirely possible that new cultural norms around the consumer economy will emerge, with sustainable consumption gaining favor as a way of achieving well-being while buying less. This is good news for companies looking hard at their business models, and it will test those who aren't. The second has to do with the scapegoating of immigrants and others that often accompanies hard times. Business relies on open societies and open markets, and has a self-interested reason to support these principles when some turn their backs on them. During times of turbulence, companies have all the more reason to understand how the cultural winds are blowing.

Weak economic performance in the "rich" countries is likely to be with us for some time. The strategies that have served Western companies well during an era of strong growth and low inflation won't get the job done when those conditions are gone. BSR will be working on this question with our member companies and others in the months ahead.

In the meantime, let us know what you think: How will we think differently about sustainability if we face a "lost decade" across the West?