Green, inclusive, and open economy, or why sustainability is not enough
Interview with Ralph Thurm
This is a transcript of the podcast interview recorded for Sustainability Explored on 13 of February 2020.
This is Season 2 Episode 20.
You can listen to it here, or join on any of your favorite podcast platforms.
Anna: [00:00:00] Hi and welcome to Episode # 20 of Sustainability Explored. A Podcast where we discover and explore different shapes of sustainability in business and economy.
Every week I invite one leading professional in the field of sustainability across any industry to share his or her views on the present and future of the world through the prism of sustainable development.
Stay with us if you want to know why we need this regenerative and distributive economy and why just sustainability is not enough. While waiting for our guest, a short musical pause for you.
[00:01:17] Hi, and my guest today is Ralph Thurm. He is a leading professional in sustainable innovation and strategy, operational sustainability, sustainability change management, reporting, and thrivability. Ralph today will tell us about his initiative called “R3.0”. Ralph, hi!
Ralph: [00:01:38] Hey, Anna. Nice to be on your show.
Anna: [00:01:40] Can you please introduce yourself a little bit more?
Ralph: [00:01:43] Yes, of course. I funnily started to call myself a young veteran in the field of sustainability. I’ve been involved in the fields actually since 1988 that was one year after the launch of the Brundtland report, which was the first real international report about sustainable development. That caught me very much.
I studied economics. I was wanting to know what can sustainability actually do to economic theory, and that got me into the field. I then worked for Siemens the company for about 10 years and became the first sustainability head, you can say. It was the sustainability strategy council that Siemens set up at that time.
That was still the time when you had to do with a board that was sort of half excited and the other half was asking you to make sustainability go away.
You have to be a real activist in the field. And one of the things that I was interested in during that time was to get some more structure into what is it that sustainability is all about.
And that is when I learned about an initiative called GRI, the Global Reporting Initiative. I got involved in the GRI in 1998, so it was shortly after they formed, and when they moved to Amsterdam in 2002 I became their first COO and under my leadership also the third generation of the GRI guidelines was developed.
I was responsible for the principles workstream. We’ll talk a little bit about that I’m pretty sure.
And in 2008 I stopped working for GRI and joined Deloitte because during my time at GRI, I was also very much looking into the world of accounting and consulting and what they can do for sustainability if they got it right.
I worked for them for a couple of years, and then in 2012 the “RIO +20” conference happened. That was 20 years after the first Rio conference. And we looked at the outcome document called the “Future we want”, looked at each other and we thought, well, is that really the right thing to do? The future we want, isn’t it the future we design?
Actually, we thought it’s time for a redesign of all of the tools and standards and benchmarks to really serve the idea of a green inclusive open economy.
That’s how we started “R3.0” in early 2013, now going into our 7th years of existence.
Anna: [00:04:07] What does “ R3.0” do? What does this ‘3’ stand for, “R” stand for?
Ralph: [00:04:14] We started actually, because many of us were in the reporting, transparency, disclosure field, and you already heard I was working for GRI, so very much looking into GRI based reporting. Thinking that reporting is really a very important piece of that transparency agenda, that sustainability needs.
We started actually as “Reporting 3.0” until last year, because through the work that we’ve been doing in the last 6–7 years, it has really become more of a work ecosystem where reporting is just one part of the overall field. And we actually reshaped our name into “R3.0”.
And that stands for Redesign, Regeneration and Resilience.
And you may then say, okay, now I know the three “R”. What is the “.0”? And that actually also has a meaning. It stands for the aim that if we want to achieve a green inclusive and open economy, or as we will later call it “regenerative and distributive”, then there is more needed than just reducing negative impact.
It is actually going beyond a zero-negative impact line, and that’s where the “.0” stands for. That is a minimum requirement to achieve sustainability on its way to regeneration and to a green inclusive and open the economy.
So, “R3” stands for Redesign for Regeneration and Resilience beyond a Zero-Negative Impact Line.
Anna: [00:05:42] That’s very interesting indeed. I want to let the listeners know that when I approached Ralph for this interview, I wanted to talk to him about circular economy and green economy. I wanted to learn about it myself and at the same time, share broadly with the audience. But then Ralph, you said, we are not talking about the green or circular economy.
It’s rather inclusive, regenerative and distributive economy. How are those terms different? In which way?
Ralph: [00:06:11] Let me go back a little bit into the history of sustainability, and at the same time also critique how it is mainly used in most organizations nowadays.
When the original concept was received in 1987 through the Brundtland report, it was really about the wellbeing of every human on this planet.
It was really about People, Planet, and Prosperity. And when you look at how sustainability is understood all over the world, it’s mainly People, Planet, and Profit. It has been degenerated into something that fits better to the corporate world and their quarterly reporting demands.
At the same time, one of the major preconditions of sustainability is what we call Intergenerational equity.
You may know that sentence or may have heard that sentence from the Brundtland report, I mentioned quite often, where we say “Don’t do anything that would restrict future generations to have the same opportunity than your generation has.”
That’s what intergenerational equity stands for.
And at the same time, look at any company or ask anybody in the company: “What are you doing to secure that intergenerational equity?”
And you will look into questioning eyes.
In the end, what we are saying is that, honestly speaking, we were advocating or were using sort of a comic version of the original concept of sustainability which is much too short to achieve what the original plan was.
And that was really a macroeconomically based concept that wants system change.
And what you see overall, you know, while many of the organizations do something and are reporting about it. The global footprint, the environmental footprint has just moved up to 1.7 planet Earth. So, the impact that we’re having is just, well, incremental, and by far not enough because we’re really moving into a true planet world, which we don’t have.
What you see as a consequence of that on the political level and on the social level, is that we’re really having stress. You see that in the increased nationalism. You see that in many, many other areas where social issues come under pressure because of the economic system and the environmental status, are not allowing us to become sustainable.
That is just an introduction to the idea of regeneration and what we call ‘thriving’.
If you look at how to best describe what that is and how it also differentiates from green and circular, let me first sort of define what regenerative and thriving means for us.
In the end, sustainability, as I explained it so far, is at the moment, a process that can minimally achieve that we’re not doing harm. But at the same time, this is not what is exciting people. It is a rather boring issue for many. And it’s not making us excited.
When you talk to people and companies about sustainability, and you’ve described it in a pre-conversation as well, you know, it’s not that exciting big strategic issue that really gets organizations to transform or to change.
It is really more seen as a sort of a hygiene factor. Well, something that we have to do because somebody outside demands it.
When we talk about regenerative and distributive and about thriving, we mean a new excitement that goes beyond just doing no harm. It is really moving the needle towards doing good.
That actually means active strategies to first clarify that whatever an organization does has to be positive, the best, or often described as “Net Positive” — so that you give more than you take.
There’s just one connotation here that, you cannot substitute one negative effect with another positive effect.
We’re aiming at something that we call thriving, where it’s meant to be gross positive — so that you have no negative impact, that’s minimal sustainability, but you’re actually doing good.
Adding positive impact. That should be sort of the basic idea of a regenerative and distributive economy as well.
And the economy is always something that should serve humans. And that also connects us back to the sustainability concept, as it was originally conceived.
It was not saving the planet. It was finding a way for human wellbeing in an environment that is resource-constraint.
It was very, very human-based. And that is something that we totally forgot. We have out-engineered the human being out of our normal processes around sustainability.
Just to sum it up, sustainability as engineered today, is just the reduction of negative impact. There’s more, there’s the other side, and that is what we call regenerative and distributive, where you actually do good or add a give more than you take.
And by that actually also, you know, excite people into that new paradigm, which would be regenerative and thriving.
Anna: [00:11:09] Right. Here is the question. You mentioned the organizations that have to strive for more than just the negative impact or zero impact. What shall they do if the CEO or the top management, of course, these are the people that are very far from environmentalism, sustainability. These are just buzzwords to them. They are business-, finance- people.
Would you suggest them having it, dedicated sustainability, I don’t know, officer in the team? Or is there a way that everybody in the company, everyone in the organization gets the “sustainability pill”, some sustainability training / shaping? Kind of shaping of a mentality in a sustainable way.
Ralph: [00:11:54] I think you’re touching on a very important point. I’ve been in this field for roundabout 30 years now. And I’ve seen the rise of sustainability managers. First, they were environmental managers, then they became sustainability managers, then the rise of sustainability departments within organizations, but in the end, they have always somehow stayed alienated.
In the end, what I was always wanting is that if there is a sustainability manager, he should be the most important strategist for the board of an organization. And over the years, what I’ve learned is that’s most success in companies happens if sustainability or thrivability would be much more (what I would be looking at) is actually part of everybody’s job description within an organization.
[00:12:40] Because sustainability or thrivability is, per se, a cross-cutting issue. You cannot say it’s a very limited something, that you pack into a department and at the end of the year, there comes a report. That’s not what sustainability just per se is all about, it is really the thriving of human beings in a certain environment, and that includes every human being.
From that perspective, when you talk to somebody and he says, “well, sustainability is not in my job description”, you already know that something is wrong.
That’s one part of the answer.
But the other part of the answer to me is really a leadership issue. And that has a lot to do with how our current economic system and the incentives it gives has also impacted on education.
From my perspective, if people are studying economics and they’re not covering sustainability as the basic construct of how an economy or an economic behavioral lives within a social and an environmental environment. There is the illusion of separation. And that is what I think we see in mainstream education still today.
There are just a couple of sustainability MBAs or minors, that you see popping up. But the overall education system needs to be turned upside down -sustainability and the sort of the disconnect between chemical education, physical education, biological education, and economic education is representative of that illusion of separation.
And we’re not separated from this planet.
It’s also funny that we’re talking about the externalization of effects.
Well, this planet is a closed system.
We cannot externalize into space.
The only thing that we can do is externalize effects into the future. And that is exactly what intergenerational equity, a precondition of sustainability that I was talking about covers.
Well, if you do that, you’re diminishing the ability of future generations to have the same opportunity that your generation had. So, from that perspective, education, learning, especially also for those in leadership positions, including CEOs, COOs and CFOs has to include sustainability. And it’s actually also one of the fields that “R3.O” is putting a lot of emphasis on. We can talk about that little bit later if you want.
Anna: [00:15:00] Yes. Which areas does every generative and distributive economy entail?
Ralph: [00:15:06] Well, when we were thinking about the 2012 outcome documents, the “Future we want” from “RIO+20” summit, we were looking at each other and we said, “What do we see in reporting, in accounting, in data management, in the creation of business models, in transformation models?”
And we concluded none of that is fit for the future, fit for that task to actually get us to a regenerative and distributive economy.
And I sometimes use that, and I sometimes say, “green inclusive and open economy”. Maybe to just explain that “green” “inclusive” and “open” is more the sort of wording that is used in political fields and in the UN fields.
When you really look into more corporate areas, “regenerative” and “distributive”, seems to be the better wording for that, but it means the same thing.
That is maybe a good moment to also say a little bit how we actually approach this idea because that gives an overview of what change needs we have.
As I said in the beginning, we started as “Reporting 3.0”, we were looking into the existing reporting standards, we were looking into the benchmarks that do exist, and what we concluded is that they actually say nothing about sustainability.
And I want to explain very quickly what it is.
If you look at sustainability reports nowadays, they give you performance of an organization in various so-called ‘material topic areas’: emissions and energy, and water, and biodiversity, and anti-corruption, human rights, labor rights. You name it.
And what you see is that the companies say, okay, “this is our performance in that field”. They compare it to the performance of last year, well, the performance over the last three years, or sometimes an industry average or something like that.
Well, ask yourself, what does that tell you about sustainability? Does it give you any hint that any performance is, let’s say, minimally good enough to be called sustainable? And the answer is — “You don’t know! You have no clue about that.” Because what you’re doing is what we call “numerator management”.
You just collect these data and these material topics, you compare it to last year or two something else, but there is no denominator that tells you, okay, “this is what you would need to do to actually call any performance sustainable.”
And I will become a little bit technical. This denominator actually entails what the GRI is asking for since 2002 in their Sustainability Context Principle. They call for so-called thresholds and allocations.
So, thresholds are - what’s the playmat, you know, how big is the pie? Or look at Kate Raworth donuts, you know, what’s the operating space between the environmental ceiling and the social floors? That’s what’s available.
And then the more important question is: how much of that pie is for me? What’s my piece of the pie? That’s the so-called allocation.
And that’s what you measure your actual performance against. And only if this is available or that information is available, you can say, “I do better than what my allocation is”, or “I do worse than my allocation is”. And only then by that point you can actually talk about any performance to be sustainable.
What we’re seeing is, is that we have 6,000–8,000 sustainability reports coming out every year and there are no sustainability reports.
What they talk about is ESG progress, Environmental, Social Governance progress. But that’s not saying anything about sustainability. And at the same time, you have about more than 1000 products in the rating, rankings, and index world that then look at the question, who is best in a class of those that tell me that they became less bad.
And they call that ‘sustainability rating’.
None of them say anything about sustainability, actually.
We’re living in a sort of a blind flight world, where everybody shouts “sustainability” and nobody can prove it.
This is actually, that was our first major recommendation where we say: if you want to be sustainability-based, you need to have a sustainability context in place.
And at the same time, we’re seeing the rise of the idea of multiple capitals and measuring multiple capitals — not only just financial capital, but also natural capital, social capital, human capital, intellectual capital.
How to bring that into perspective with those context-based approaches and then have something that we would actually call a “total contribution of an organization”. And contribution means doing good, and not just only decreasing your negative impact.
This is what we actually pulled together as the first part of our work.
And then we discovered in order to allow those reports to happen, you would need a change in accounting. You would need a change in the way how we gather data. It’s not just company data, it’s also outside data where you get your thresholds and locations from.
If that would be available, how would it change your business models, so that you’re actually serving the idea of a regenerative and distributive economy.
What that led to was what we call our “R3.O” work ecosystem and the deliberations that we’re bringing out, our so-called blueprints.
We have already published five blueprints in the areas of reporting. That’s what I mentioned right at the start here, on accounting, on data management, on new business model design.
And then finally, as a sort of a summary of those four, also a step by step process of how you can implement that in an organization. And actually, that would lead to transformation. So, we call that blueprint, our transformation journey blueprint.
To some of what you were asking, well, an organization that really clearly wants to look into sustainability and wants to serve the idea of the green, inclusive and open economy, would need to look into those blueprints and into the recommendations that we give with regard to reporting, with regards to accounting, data management, new business model design.
And how to implement that through a transformation journey process.
That is the sort of what an organization can actually do in order to be future-ready for the idea of such an economy.
And when you then ask, okay, what is then a green inclusive and open economy or a regenerative or distributive economy? It is really very much looking into a sort of five different aspects.
And that is where companies can actually be active in. It will look into true costing. So, what are the, if you internalize external effects into your cost accounting, what would that entail?
It would also need what we call true benefiting. How would you measure the positive impact that an organization has towards what we call ‘system value’?
You would look into true pricing. If you translate that into pricing information of your products leading to the sustainable product becoming cheaper and the less sustainable product becoming more expensive. That would have a big impact on markets and the preference of consumers to actually buy more sustainably.
Then you would also need to look into true taxation because at the moment, we’re taxing the most valuable thing that we have — that’s the workforce of labor. We’re not taxing the resource use. A sustainable taxation system would turn that perspective upside down.
And then you would finally look into true remuneration, where you need governance regimes that actually are not benefiting leaders to be unsustainable but benefiting leaders that are sustainable.
The sort of golden handshake mentality that we’ve seen of leaders driving down or letting organizations close to collapse and then disappear with a golden handshake is just perverse.
If you sum that up with those five trues, so to say, you have the basic idea of what an organization does and what a macro system change would look like in order to design an economic system that would allow to be green, inclusive and open or regenerative and distributive.
Because that is what the markets with an automatically do, and that would be to benefit the most sustainable solution and to punish the unsustainable solution.
We’re far away from that, but those are the areas that need to be covered. And this is where “Reporting 3.0” puts the majority of its work towards just simply also because we see ourselves different from others.
We call ourselves pre-competitive and market- making.
Everything that we do is what we think is necessary for achieving the greening tools of an open economy, whereas the standard`s world, the benchmarking world, the corporate world, the finance world at the moment is not going further than just to do what’s politically opportune or practically possible.
That, honestly speaking, is not enough. And again, it goes back to the original definition of sustainability that was given already in 1987 and since then is bluntly ignored.
Anna: [00:24:11] I love this pre-competitive and market-making. The GRI reporting globally is recognized as the one, like the most famous one and the most “in-use”, globally, all over the world.
We can use it at the bank, here that I told you, in Ukraine. But even though even I noticed I did it once, but I notice it does not reflect a lot of (how shall I even put it) trustworthy information.
You don’t know what to compare yourself to. If you’re doing it for the first time, you’re just reporting where you are, but you are not compared to where you were before and you’re not compared to anyone else because it’s not compulsory.
Because there is no obligation that companies or banks or whoever else reports on sustainability or just the GRI reporting yearly, on an annual basis, like for everyone. Will we arrive ever to the point of compulsory reporting?
Ralph: [00:25:11] I think it’s inevitable. And even GRI recognizes that. The point is just simply, what is it that you need to actually disclose?
If you’re doing sustainability reporting, then you need to confer to what the GRI actually put into its own guidelines described very well and the sustainability context principle. And it says even the organization is not able to compare itself to the demands and limits.
Those are other words for thresholds and allocations.
Honestly, then you’re failing your disclosure requirement.
And still, only 0.3% of all sustainability reports worldwide refer to sustainability context.
It’s a total failure in the sense of applying the principles of the GRI guidelines.
In our reporting blueprint, we actually have something that we call “the new impetus” and where it says, ‘what is it really that an organization has to report on?’
And it’s mainly three things.
- What is your purpose?
- Why do you need to exist now?
- And why do you need to exist in the future?
2. Secondly, define what success and sustainability mean for you. That would include context-based multi capitalism and explaining that you are not crossing your own allocations. Only then you can call any performance sustainable.
3. And finally, the third pillar is scalability. How is it or how are you contributing as an organization to the education, collaboration, advocation for economic system change? And only then I do believe you can really call a sustainability report really a sustainability report.
Anna: [00:26:52] Is there a chance we will see “R3.0” report and framework globally recognized? What do you think?
Ralph: [00:27:00] Well, we hope so. That’s what we’re actually advocating for. But at the same time, and that is what I explained, you would also need moves or synchronize moves in accounting, in data architecture and management, in the design of how business models are created.
There is a synchronicity here between those four areas. Reporting, accounting data, your business models to enable any organization to transform into something that really serves the idea of a green, inclusive and open economy.
Reporting in itself is not the solution. It is one part of a solution.
Anna: [00:27:37] Right.
Last question probably for today. How could an individual engage in the organization, in the “R3.O”, to help with this agenda?
Ralph: [00:27:48] Well, yes. As I said, we are mainly a pre-competitive and market-making community of all of those people who have the same gut feeling that something is really wrong here, something needs to change.
This is a community of about 7,000 individuals all over the world stretched over all continents. They have all inscribed into a newsletter or they receive a monthly newsletter from us.
And then what they can actually really do is to organize or take part in what we call these transformation journey programs. Where you learn all of the content that “Reporting 3.0” in its blueprints has actually innovated.
At the same time, we’re also developing new blueprints. We go deeper in certain areas. For example, we’re now working on, in total four new blueprints, one on sustainable finance that really looks at the finance sector (that might actually be interesting for your ex-colleagues from the bank).
We are working on a blueprint, which is called Value Cycles. Which looks at the definition of value and the idea of circularity, circular economy. In what I explained to you, you will maybe sniff that circular or being circular or a circular economy is not the end goal. It’s a means to an end.
And what still needs to be proven as with any sustainability performance is as well, any circular solution actually sustainable, honestly speaking, you don’t know yet.
That needs to be safeguarded as well. And that’s what this blueprint tries to achieve. To actually say anything that is circular has to achieve system value.
If it doesn’t do that, it’s not circular. Well, it is circular, but it’s not sustainable.
We’re working on a blueprint or just setting up the process for an education blueprint. Also, address what we’ve been discussing here as well. How education has to look, if it truly serves the idea of sustainability, regeneration, and thriving. It has to be very, very different than the typical education schemes that we see nowadays.
And finally, we’re going to write a blueprint about governments, multilaterals, and foundations. Because we are in touch with many of those organizations and we see how stuck they are in their own idea about how to support the idea of “green, inclusive and open”.
They have a very important role to play as an advocator, as a legal function, but mainly as a funder of important initiatives in that area.
They don’t even know what impact they have. There needs to be some handholding, some recommendations for these groups as well to explain what is expected from that in an era and that once to achieve a green, inclusive and open economy.
These are the things that we’re doing.
Apart from that, we are organizing a yearly conference. The next conference is in September in Rotterdam, in the Netherlands.
And especially when you look at consultancies, universities, we have two very important programs. One is called the Advocation Partner program. We already have about 90 organizations there that became advocation partners. That means that they use that publicly available “know-how” from “R3.O”.
And I should say that all of our blueprints are global public goods, they are free of charge. Everybody can have them. We’re not interested in any sort of fencing of our knowhow.
And then implement that with their clients, so creating sort of a snowball effect of the application of that knowhow with their clients.
The Academic Alliance, is really a response to universities, institutes, centers coming to us and saying, well, it is interesting what you do for curriculum building, for case studies and maybe for joint research.
There are different answers to your question for different constituencies, but we are very welcoming and very embracing for everybody who is wanting to be involved in this community.
Anna: [00:31:45] I am your advocate now. I will certainly leave the links to everything that you mentioned: to the blueprints on the website and so on. And it was very insightful talking to you today! Thank you very much, Ralph, for all for your participation, for agreeing to be on this podcast, on this program.
[00:32:11] Thanks for being here with us today and listening to this episode. This was Episode # 20 Season 2 of the podcast called Sustainability Explored.
If you liked this episode, found it useful, or going to implement any advice given by Ralph, or check the articles on the website of “R3.0” or check the blog on “Medium”, please let me know or Ralph via LinkedIn or any other way.
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Thank you once again for listening, and until next time.
Take care. Stay sustainable!
Podcast host Anna Chashchyna
Episode guest Ralph Thurm
Transcript editor Anna Kharybina