John Elkington is founder and chief entrepreneur of SustainAbility, a firm based in London and Washington that advises business on social responsibility and sustainability issues—and is one of our inaugural Social Profit Award winners. Elkington has been researching and consulting at the intersection of business and society for nearly 30 years; he actually coined the expression "triple-bottom-line" to characterize companies that accounted for their financial, environmental, and social impact. Here, he discusses the slow convergence of the for-profit and non-profit sectors.
For-profit businesses are paying more and more attention to their social impact, sustainability questions, corporate responsibility, stakeholder rights, and the like. In other words, they're behaving more like non-profits always have. To what extent are historical distinctions between the sectors blurring?
I see it rather like an ecosystem. When you see a territory that is unoccupied, you get pioneer species coming in. That's what non-profits did early on, moving into market failures where for-profits simply couldn't afford to venture.
Then you get the succession, where new species succeed the pioneers. We certainly don't underestimate the scale of challenges we face. We don't think we're going to see an acceleration of an invasion by for-profits of the spaces that non-profits have historically been in. Many of those areas where there are market failures, there are broader structural issues in the way.
We often tend to overestimate how fast fundamental innovations happen. They take a long time to gestate. I think we're 40 or 50 years into process that will take 70 years to happen. So 20 years from now, we'll see an inflection point. Eventually, we'll see an acceleration of for-profit and hybrid outfits—and also a higher rate of failure. Out of that phase of experimentation, there will be a mulching effect; the early models will lay down the conditions for what will come next and succeed.
But a lot of that experimentation is actually happening now, isn't it?
It is. We are in period that [economist] Joseph Schumpeter would have referred to as creative destruction. The mainstream is going to shift profoundly in the next several decades. Most entrepreneurs will fail, and fail repeatedly—but they'll eventually create change.
But they have to overcome all sorts of inertia. We recently got a grant from the Skoll Foundation to work with social entrepreneurs. We sent a note about the grant to our corporate clients—and some replied, "We're sorry that we're losing you." I thought, how sad, even companies that have built relationships with the social sector still don't get why the more entrepreneurial folks are so interesting—that they're experimenting with new business models and new market spaces. Companies you would have thought particularly interested in engaging with these folks, weren't. That's part of the challenge, building bridges between the fringes where most social entrepreneurs operate, and the mainstream.
What will change that?
Mainstream companies need to be encouraged to open up their accounting systems to reflect wider social value. Two things can change that: market discontinuities or government action. I don't think stock markets as they're currently constituted are open to recognize potential future. And some of the pressures are going to have to be more acutely felt before governments act—as the city of London did in introducing traffic congestion charges. The market wouldn't have done that, but the government weighed in.
After a shock, entirely new ecosystems can emerge, like after a forest fire. Given the combination of discontinuity plus reasonably intelligent government involvement to reshape markets, then you can see change coming.
What about the well-publicized efforts around sustainability by corporate leaders like General Electric and Wal-Mart?
They're moving in the right direction, but not quickly enough. With GE and Wal-Mart, you see companies picking up pieces of the agenda, but very selectively. They're reacting to demand—but also, they reflect an emerging generation of C-suite leaders who see the world differently.
Combine that with early-stage symptoms of system change, like Katrina. [Wal-Mart CEO] Lee Scott realized that many of the environmental changes people were telling him about were manifest with Katrina. Businesses are very effective at lobbying against government rulemaking. The market is a lot more powerful: If Wal-Mart imposes market edict on sustainable packaging, say, its suppliers have to react very quickly. Capitalism is quite good at morphing.
Correction: An earlier version of this article attributed the concept of creative destruction to mathematician John Nash.