Why the World Needs Systemic Change
- Focusing on entire systems is a better way for companies and governments to solve social, economic, and ecological problems.
- Government can’t solve global issues on its own; it must draw on the reach, agility, knowledge, and innovative capacity of business.
- Business schools must develop leaders with the mindsets, skills, and tools they need to become drivers of systemic change.
Climate change is one of the biggest challenges the world is facing. The United Nations Framework Convention on Climate Change estimates that, to keep global warming from becoming catastrophic, the world needs to reduce greenhouse gas emissions by 45 percent from 2010 levels, and it must do so by 2030. Since India recently joined the list of countries committed to achieving net zero emissions, 87 percent of the world’s greenhouse gas emissions are now covered by such commitments. But these national action plans might not be enough. Emissions are still projected to rise by 14 percent in the next eight years.
On the corporate side, there is a similar pattern of companies making commitments that might not achieve the desired results. As of June 2022, more than 35 percent of the largest publicly traded companies in the world had committed to net-zero emissions, but 65 percent of them have no clear roadmap yet on how to get there, according to Net Zero Tracker. Only 32 percent of the commitments cover scope 3 emissions, which include all indirect emissions that occur in a company’s value chain—and which are typically responsible for 70 percent to 80 percent of a product’s life cycle emissions. If this trend continues, the world will not be able to reach the Paris Agreement goal of limiting global warming to 1.5 degrees above pre-industrial levels.
Marginal improvements are not going to steer us away from the unsustainable pathway that we are on today. To effectively accelerate the sustainability transition and live within the planet’s natural boundaries in socially just ways, we must improve the sustainability of legacy industries. We must radically reinvent some of the most critical systems that support us, including those dedicated to food, transport, energy, and infrastructure. And we must rethink critical enabling mechanisms such as financial, urban, educational, and social systems.
In other words, we need to redesign the plane while flying it. We can only do this by embracing systemic change.
Why Look at Systems?
Systems thinking allows us to imagine how to satisfy the needs of society in the most responsible ways. By focusing on entire systems, we can better understand how our decisions are impacting critical social, economic, and ecological challenges, and we can find the gaps for innovation and growth that will enable us to meet our targets.
The United States and the European Union have launched projects of unprecedented ambition in response to climate change. President Joe Biden has pledged that, by 2030, the U.S. will reduce its carbon emissions by 50 percent from 2005 levels. The EU has announced the Green Deal, which would make the world’s third-largest economy climate-neutral by 2050. In the Asia-Pacific region, sustainability assets under management tripled between 2020 and 2021, showing that this part of the world is quickly joining the race to create more sustainable models.
Despite all the big commitments, history tells us that grand collaborations between big business and government are likely to disappoint or fail. A review of progress against plastic packaging commitments shows signatories making scant progress—or falling behind schedule. There are two main reasons large initiatives fall apart. First, voluntary commitments without regulatory reinforcement lend themselves to greenwashing. Second, many commitments traditionally have been structured as deals between industry sectors and governments—they are strongly influenced by industry lobbyists and biased toward the status quo.
History tells us that grand collaborations between big business and government are likely to disappoint or fail.
Teen activist Greta Thunberg pointed out the hypocrisy in testimony before a U.S. Congressional subcommittee in April 2021 when she said that governments boast of ambitious goals while subsidizing the same legacy industries they claim they want to phase out or transform.
To rise above self-interested lobbying and defensive reactions, we need system-level thinking that enables dialogue among business, government, financial markets, and civil society. Together, these stakeholders can create the perfect storm of policy incentives, co-innovation systems, and financial returns that will reward companies that disrupt legacy models and build future-fit growth models.
Business as an Agent of Change
Business must be involved in solving the climate crisis, because government doesn’t have the expertise or the permanence to do the work alone. Government needs the skills and knowledge of business to develop the technical specificities of the transition and to institutionalize transition mechanisms. Business has the reach, agility, and intellectual and innovative capacity to be a powerful driver of the sustainability transition. Additionally, when public and private finance options are blended, risks are shared during the transition to sustainable models.
Despite the fact that a jaw-dropping 56 percent of the global population believes that capitalism in its current form is doing more harm than good in the world, 86 percent of people feel that corporate leaders should lead on societal issues, according to the Edelman Trust Barometer report of 2021. Industry- and issue-specific corporate lobbying has harmed public trust. System-level collaboration, advocacy, and action could restore it, and thus increase support for measures proposed by both governmental and business leaders.
But systemic change is hard, because the systems we live in are complex and made up of many actors and stakeholders, and their causal relationships and feedback loops often lead to unforeseen consequences. The world’s “wicked” problems—such as climate change, migration, inequality, an inefficient food system, and insufficient access to affordable healthcare—can be solved only through the collaboration of multiple and diverse actors.
The good news is that all these actors have strong incentives to cooperate. Business is inherently motivated to organize resources to respond to needs and capture the commercial opportunities in suboptimal systems. And governments are focused on shaping systems that support societies’ needs as effectively as possible.
A Few Illustrations
Systemic change doesn’t start by optimizing production assets; instead, it focuses on solving the needs of the consumer. A consumer-centric design-thinking approach to innovating and reimagining systems can lead to drastically different solutions to current challenges. For example, we need mobility, but we don’t necessarily need cars. We need light, heat, and cooling systems, but we don’t necessarily need kilowatt-hours. Humans need to consume proteins, but no law states that these must come from animal meat.
There are many examples of systems that have been transformed through business-driven and regulator-supported initiatives that took innovative approaches to old problems.
For instance, in 2007, telecommunications company Vodafone launched the mobile money-transfer system M-PESA in Kenya. By leveraging the country’s high rate of mobile phone penetration, M-PESA offered a new service to the unbanked members of Kenya’s population, who were relying on inefficient and insecure cash-based payments. Financial institutions, regulators, and the Central Bank of Kenya worked together to support regulation. Today, nearly 50 percent of the country’s GDP flows through M-PESA, and 2 percent of Kenyan households have been lifted out of poverty. Currently, M-PESA is used by more than 51 million customers across seven African nations.
At other times, large consumer-facing businesses have looked at their own systems and asked themselves how they could become change agents. As an example, the furniture company IKEA sells more than one billion meatballs per year through its shops, and it is planning to replace all of its meatballs with plant-based versions. According to the Sierra Club, the production of a plant-based burger generates 12 times fewer greenhouse gas emissions than the production of a beef burger, uses 50 times less water, and requires 20 times less land. IKEA’s swap will help the company meet its objective of being climate-positive by 2030. But more important, it will encourage its customers to adopt consumption patterns that are healthier for them and the planet.
Systemic change doesn’t optimize production assets; it focuses on solving the needs of the consumer. For example, we need mobility, but we don’t necessarily need cars.
Of course, there are times that companies only become sustainability leaders because they previously have been some of the worst offenders. In 2015, car manufacturer Volkswagen was notoriously at the epicenter of the diesel emissions scandal when it manipulated test results in defense of legacy fossil fuel motors. The move cost the company more than 33 billion USD in fines, settlements, and recall expenses. Since then, Volkswagen has reinvented its strategy, organization, and products. It is now set to become one of the world’s biggest players in the electric vehicles market.
Similarly, Danish energy company Ørsted (formerly Dong) used to be one of the dirtiest carbon-intense energy producers in Europe. But under visionary leadership and in collaboration with its government, in just one decade it transformed itself into one of the world’s most sustainable energy companies. It has become a global example of clean energy transition, and it is on track to become carbon neutral in scope 1 and 2 by 2025 and in scope 3 by 2040.
While legacy industries often see system innovation as a threat, some companies realize they can actually become more successful if they figure out how to reinvent themselves and the ways they serve customers. One of those is consumer goods giant Unilever, which increasingly uses systems thinking to drive the redesign of products and operations. The company has been outspoken about the need for policymakers to support systemic changes, and it is leading advocacy and initiatives for change in the energy, water, and agricultural systems that affect it.
Implications for Management Education
Business schools have a role to play in enabling the corporate sector to become an agent of systemic change.
We need to equip our future leaders with the mindsets, skills, and tools they will require to achieve systemic change in an increasingly volatile, uncertain, complex, and ambiguous world. We need to develop leaders who have the contextual curiosity, critical thinking skills, and humility to understand the bigger picture and engage with trends before these trends become “clear and present.” We need to produce leaders who have strong stakeholder empathy and who feel responsible for enriching and co-shaping the complex systems in which they operate.
Leaders with collaborative competence will successfully mobilize nontraditional change partners around a compelling shared vision. These agile leaders will be able to think in scenarios and harness entrepreneurial mindsets to drive action. Leaders with strong self-knowledge, authenticity, moral compasses, and clarity of purpose will inspire others to reimagine and align their activities with a bigger purpose.
Business schools can train future-fit leaders by adding a whole new layer on top of the traditional functional areas of management education. At the Sasin School of Management in Bangkok, we believe that successful businesses must implement sustainable practices and reinvent themselves while they grow and maintain profitability. Because this approach demands that leaders have an entrepreneurial mindset, we integrate sustainability and entrepreneurship throughout all our core courses. We help students reflect on their values and purpose so they can become intentional leaders with entrepreneurial behavior.
We achieve this goal through a variety of practice-based activities. These include action learning labs, group and individual projects focused on sustainable innovation, startup competitions that emphasize sustainability, and an alumni business project that caps off our module on Skills and Values for Mindful Leaders. We also introduce students to tools that will help them develop systems thinking and stakeholder empathy. Finally, we teach them the key concepts of sustainability and the “sufficiency economy” philosophy that was developed under Thailand’s King Rama IX.
Other business schools are rolling out their own initiatives, and we strongly support the sharing of best practices across the leadership development community. Together, we can produce a generation of well-rounded, humanistic leaders who will achieve sustainable and socially just models of value creation.
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