WHAT ARE STAKEHOLDERS CONCEREND ABOUT PART 2

This article looks into common concerns amongst stakeholders. The first part analysed the concerns amongst customers, employees and shareholders. In most businesses these will be the three most important stakeholder groups. You can find a link to the first part below.

WHAT ARE STAKEHOLDERS CONCERNED ABOUT?

Stakez

This part looks into the concerns amongst three other groups of stakeholders. These are suppliers, NGO’s and governments.

4. Suppliers

Companies are increasingly demanding higher standards of environmental and social performance from their suppliers. This includes vigorous vetting on environmental social and governance issues. Similar to investors this is a stakeholder group where risk reduction is a primary concern.

Companies are carrying out this vetting for a number of reasons. They are doing this because of a threat to their own reputations. We are operating in a new paradigm. Before, companies were responsible for their own operations and their own workers. Now, with the proliferation of subcontracting and the rising in importance of environmental and social issues, companies are responsible for the activities of their suppliers.

Companies are also looking to work with suppliers who can help them improve their own performance. This has therefore placed an emphasis on opportunity maximisation amongst this stakeholder group. Lots of sectors are incredibly competitive and if you are not able to provide low carbon good and services, there is a good chance a competitor of yours is.

Methods such as pre-qualification questionnaires have become commonplace. This can include caveats that suppliers who reach a certain threshold of sales have accreditations such as the ISO 14001 standard for environmental management systems. Also, for industries with a history of scandals in the supply chain such as footwear and apparel, it may be required for suppliers to submit to random visits and periodic auditing to ensure compliance.

Overall, suppliers are a stakeholder group where sustainability is a primary concern and where environmental and social issues are rising in importance.

5. NGO’s

NGO’s are a stakeholder group whose importance continues to rise. There may be some hard-nosed business executives who would question whether NGO’s count as stakeholders at all. But if you adhere to the definition of a stakeholder as “a person with an interest or concern in something, especially a business.” Then NGO’s are not only a stakeholder, but a very important and influential grouping.

NGO’s who campaign on social and environmental issues perform an important watchdog function in society. Many of them possess an enormous amount of technical expertise which they can bring to bear on their particular areas of interest. They can act as a counterweight to politicians and government agencies which can fall foul to the influence of corporate lobbyists.

NGO’s can launch attacks against businesses through both the mainstream and social media. Mud sticks and it can take a great deal of time for businesses to repair their damaged reputation. NGO’s can also launch boycotts which can have a more direct impact on businesses bottom lines.

Some NGO’s take a more cooperative approach and work with businesses to help them set up roundtables to improve the social and environmental performance of particular sectors.

Overall, NGO’s are organisations that care deeply about their particular area of interest. Their concerns are primarily around avoiding greenwash and making sure that sustainability is implemented in practice and not just in rhetoric.

6. Governments

Some readers may dispute the way I have ranked governments as only the 6th most important stakeholder group. But there is a reason for this.

Governments are not monolithic. They react to the concerns of all of the stakeholder groups that I have previously mentioned.

They also wear many hats. On the one hand, governments are organisations that possess an enormous buying power and so they can influence businesses via that channel.

On the other hand, they rely on taxes which are raised from the private sector so they have an interest in ensuring a healthy and vibrant economy.

Governments are also made up of politicians who are accountable to their constituents and so they react to the concerns that emanate from the populace.

Governments also have to act upon international treaties that they are signed up to.

So, as we can see, governments are organisations with limited means but a seemingly unlimited list of parties seeking to influence their decision makers. As such they are interested in preventing businesses from inflicting social and environmental harm on society, but they also have an interest in fostering a hospitable environment for businesses to grow.

Governments can seek to influence the priorities of businesses with regard to social and environmental issues with regulations, taxation and the threat of such actions.

Overall, governments are a stakeholder group that has many contradictions with respect to sustainability and corporate responsibility.

What you need to know

This article was the second in a two-part series which looked into common concerns amongst stakeholders.

The first part looked into the concerns of customers, employees and shareholders.

This part looked into the concerns of suppliers, NGO’s and governments.

For suppliers, this is a group which is focussed on risk reduction as they need to minimise any risk that they may pass on to partners in the supply chain.

NGO’s are primarily concerned with results and preventing sustainability from being something that exists only on paper. NGO’s perform a function of holding businesses to account either cooperatively or uncooperatively.

Governments are a stakeholder group with a wide range of concerns with respect to sustainability and corporate responsibility. They are able to exact influence via a number of channels and can be a vehicle for enormous change.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below or reach out to me on social media. What do you think of the stakeholder concerns that I laid out in this article?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

 

WHAT ARE STAKEHOLDERS CONCERNED ABOUT?

This article looks into the common concerns of three different types of stakeholders. Listening to and addressing stakeholder concerns is the bedrock of corporate responsibility.

stake pic

Stakeholders are groups who have an interest in the company. I have always found it useful to differentiate between internal stakeholders and external stakeholders as shown in the diagram below.

stakeholder diagram

The sequencing of this article is no mistake and it is based on the vision of Jack Ma, the founder of Alibaba.

Jack Ma – Why Customer comes First

1. Customers

Customers have a range of valid concerns about the businesses that they buy goods from.

Chief among these is a lack of trust. It’s not just the major scandals such as Enron and the BP Deepwater Horizon blowout that have damaged customer’s trust in businesses. But excessive executive compensation for what in some cases is sub optimal performance has also damaged trust in businesses.

Taking a look at the 2018 Edelman Trust Barometer, we can pick out a number of interesting findings.

If we look at the figure below, the trust in business in the general population survey, the figure of just 52% of people trusting business is remarkably low, albeit higher than government and the media. It was interesting that the informed public figure was higher and that the number was down one percent year on year.

Trust Graphic

The figure below on the public’s expectations of CEO’s was the other statistic that really jumped out at me when I was reading this year’s Trust Barometer.

The fact that 64% of respondents said that they expect CEO’s to lead on issues and not wait to be regulated shows that we are operating in a new paradigm. The risky option is to do nothing. The safest option is to move forward with sustainability and corporate responsibility.

Business expected to lead graphic

Try and create a business that stands for and embodies noble values and live up to those values whenever and wherever your business operates. Social and environmental issues fit into this category.

With the advent of the internet and social media, customers are becoming increasingly sophisticated in their ability to access information about the social and environmental performance of businesses.

No one wants to shop at a company that they know is deliberately causing harm to the planet or its inhabitants. This sort of activity does not make your brand aspirational and can take a long time to rectify.

Customers are increasingly concerned about what went into your product to get it onto the shelf, how it uses resources whilst it functions and how easy the product and its packaging are to recycle after it is used.

Businesses should be ready to be challenged on these areas and should strive for excellence in the social and environmental performance of their offering.

2. Employees

Employees are the second most important stakeholder group and businesses should pay attention to what concerns them.

Employees are concerned about the things that they have always been interested in. This includes areas such as pay, job security, working conditions and job satisfaction. But the 21st century has seen the development of new concerns amongst employees that move beyond their historical areas of interest.

Employees are increasingly focused on the reputation of the company. This is an asset for companies such as Patagonia and Interface who draw top talent towards them. But this is a liability for companies with a bad record on social and environmental issues, who will find it hard to attract the best talent.

People also like to work for businesses who hold similar values to themselves. In many cases this will be responsible businesses who give back to communities and work to minimise their impact on the environment.

3. Shareholders

Investors are a stakeholder group with very specific concerns. Shareholders are often very concerned about how companies they have invested in operate their governance structures and they are increasingly interested in social and environmental aspects too.

Most institutional shareholders will be investors with long time horizons. They aim to commit capital with time preferences much longer than any individuals. As such, their primary concern is risk. This includes reputational risks, operational risks and social and environmental risks. These risks all have the ability to jeopardise investments and possibly lead to a loss of principal.

Other concerns include those held by practitioners of responsible investing. This small but growing area looks for a balance between financial return and social and environmental aspects. This can be in the form of screening out of negative investments or positive screening for sustainable investments.

Other investors may simply view sustainability and corporate responsibility as indicators of good governance. If businesses are willing to go far out of their way to cover matters that are not statutory, they are surely very unlikely to have any issues with legal compliance.

Overall, interest in sustainable investment and sustainable finance more broadly is an area which is not only growing but will become increasingly important going forward.

There was an article which I came across last week which impressed me and I felt really showed how important sustainable finance is. You can find a link to this below.

Did Project Drawdown miss a crucial climate solution?

I think it is empowering because we all make decisions of how to save for the future and plan for retirement. We need to see a mainstreaming of responsible investment and if that happens the impact would be enormous.

What you need to know  

This article looked into the common concerns of three different types of stakeholders.

We looked at customers, who have a very low level of trust in businesses. Sustainability and corporate responsibility can address this.

We looked at employees who are moving beyond their common concerns to evaluate whether they share common values with their employer or prospective employer.

We looked at shareholders and this is a subgroup which is characterised with an excessive concern with risk management.

Overall, these are three incredibly important stakeholder groups who responsible businesses would be engaging with and solving any problems that arise.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below or reach out to me on social media. What do you think of the stakeholder concerns that I laid out in this article?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

 

WHY COMMUNITY RELATIONS MATTER PART 2

This article looks into community relations. This is the second in a two-part series on community relations and why they matter to businesses.

high_street

The first part focused on the opportunities that good community relations present. You can find a link to this below.

WHY COMMUNITY RELATIONS MATTER

This part focuses on the risks that poor community relations pose to businesses.

1.    Expensive clashes

If your business drifts into an antagonistic relationship with your local community, this can cause real problems.

It may be the case that your customers are located far away and for them this is not an issue, but poor community relations like this can impose real costs.

There is the possibility of legal costs brought about by lawsuits that the local community may bring against you. There is also the potential reputational damage that can be done. Even if you are successful in winning these lawsuits, many people may go away thinking that where there is smoke, there is fire.

There is also the issue of time. Time is a precious commodity that is all too often forgotten in business circles. Team members may be diverted away from their primary business functions to deal with antagonism with the community and this imposes real costs.

Some companies may be able to pull labour towards them from great distances. But most companies will depend on local labour to fill some positions. This can become problematic if your business has poor relations with the local community. People want to work for companies that they are proud to tell their friends and family about. Poor community relations impose costs on businesses by making people hesitant to work for you.

Another cost that poor community relations inflicts on businesses is that of security. This only comes to bare in extreme cases but it is a cost nonetheless. Community relations may deteriorate to such an extent that you are forced to invest in security measures such as secure parking and gates, CCTV and access controls for your buildings.

As we can see, poor community relations can impose real and tangible costs to businesses. This can be avoided by community engagement and corporate responsibility.

2.  Risk of not being welcome

We touched on this briefly last time as good community relations certainly makes relocating easier. The opposite is also true for poor community relations. Poor community relations can make relocating difficult and, in some cases, impossible.

If your business has a reputation for poor community relations, you can expect to encounter a lot of resistance if you decide to relocate or move into a new area.

This could involve many of the costs talked about in point one, but it could also spill into the political realm. Local politicians who would normally welcome businesses into their community, may choose to take the side of the local protestors if they are numerous enough.

This is particularly an issue in countries that are known to have NIMBY (not in my back yard) syndrome. Your business may have enough money and all of the permits in the world. But passionate local people who do not want you in the community can outlast you and your resources. The best solution is to not let your corporate reputation get to this state and to develop a reputation for excellence in community relations instead.

3.  NGO / social media campaigns

The internet has made the world a much smaller place. Social media in particular has not only shrunk timescales but democratised the media in a way that few could have envisaged.

Now everyone with a smartphone and some social media accounts can post highly critical messages, pictures and even live stream videos about corporate malfeasance that they do not like. This power is simply incredible.

I would argue that no group of organisations has been shrewder with their use of social media than NGO’s (non-governmental organisations). Environmental NGO’s have been particularly astute with their use of social media.

These environmental NGO’s are always hunting for new instances of corporate irresponsibility. Don’t let your business get caught in their crosshairs.

These NGO’s can launch pointed and highly critical campaigns against businesses that they see as inflicting damage on society or the environment. This can spin off into more mainstream news channels and become a major source of embarrassment and a major distraction for businesses.

The best strategy is to be a business that gives back to the communities in which they operate and to engage with and solicit advice from NGO’s.

What you need to know

This article, which was the second in a two-part series on community relations looked into the risks which poor community relations pose to businesses.

We looked into the real costs which antagonistic local community relationships can impose on businesses.

We looked into the possibility that businesses with a poor track record on community relations can find it difficult and, in some cases, impossible to relocate.

We also looked into the new and emerging risk that NGO and social media campaigns pose to businesses with poor community relations.

Overall, community relations matter. There are real opportunities which can be seized by businesses who take the time to give back to their communities. Likewise, there are real costs which are imposed on businesses who take from their local communities.

Smart businesses move to corporate responsibility because of the risk and opportunity framework that I have laid out in these two articles. Others move towards corporate responsibility because of a sense of moral duty. It doesn’t matter what drives you, the important thing is that you try to give back.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below or reach out to me on social media. What do you think are the risks that poor community relations present to businesses?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

WHY COMMUNITY RELATIONS MATTER

This article looks into community relations and why they matter to businesses. Some people may subscribe to the notion put forward by Milton Friedman that “the business of business is business.” But things change and this is no longer the case. Good community relations can add real value to businesses and poor community relations can impose real costs to businesses.

uk-high-street

This article will focus on the opportunities that good community relations present

1. Build a well of good will

A big opportunity that comes with being a leader on corporate responsibility and from developing good community relations is that you can build up a well of good will. Businesses operate within society and within the environment. To be successful businesses depend on access to structures larger than themselves.

economy

By building strong relations with the community within which your business operates, you can solve issues before they become problems.

If people know that your business is approachable and they have seen you being active in the community, they will come to you. They will come to you when there is a minor problem and hopefully you can solve that problem together.

All good businesses will at some point need to expand. That could be expanding on the same site, at a different site in the local area or at a different site in a new area. If your business has developed a well of goodwill through strong management of its community relations, this process will be a lot easier.

Issues such as the planning process can be made far easier by being active in the community. If people know you as a business of high moral standards that looks after its people, the community and the planet, they are less likely to go to extreme lengths to frustrate any planning applications that you may submit.

 2. Build a reputation for excellence

By having a top quality corporate responsibility policy and strategy, your business can develop a reputation for excellence. All businesses want their product or service to be thought of as being of the highest calibre. But community relations matter and all businesses should strive for excellence in this realm too.

Your business should look to campaign on local issues and build local partnerships.

Perhaps there is a homeless charity in the vicinity. Make sure you are there for them when they need you.

Perhaps there is a foodbank in your local area. Be there for them when their supplies are running low.

By being in the right place at the right time and serving the community within which your business exists your business can create a reputation for excellence that is far bigger than the products or services it delivers.

This allows you to build a reputation for excellence. These reputational benefits are highly valuable. They allow you to become a trusted partner in your community and they force people to see you as a giver and not a taker.

3. Build a skilled local workforce

Great companies need great workers. It has been said that we are in a global war for talent. Whether this is true or not, what is clear is that businesses succeed by recruiting and retaining the best staff.

Businesses can gain a greater control over the local labour supply by investing in training local people. Once hired, these people are likely to show greater loyalty and stay for longer than a candidate that has come from afar.

Businesses can also help out by running local CV workshops, allowing their employees to volunteer in the community and by taking students on work experience placements.

All of these activities allow your business to be a key player in building a skilled local workforce. This makes smart business sense and is good for society which is what corporate responsibility is all about.

What you need to know

This article looked into community relations and why they matter to businesses.

Businesses can use strong community relations as a hedge to build up a well of goodwill should they need to take from or place a burden on the community at a later date.

Businesses can use an astute corporate responsibility programme to develop a reputation for excellence that transcends the products or services they deliver.

Businesses can be active in the community and solve problems such as skills shortages themselves.

Overall community relations matter to businesses. They should choose to be active in their communities out of enlightened self-interest because it makes smart business sense. But they should also choose to be active in their communities out of a sense of corporate moral responsibility.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below or reach out to me on social media. What do you think of the importance of community relations to businesses?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

THE ART OF PLAIN TALK – RUDOLF FLESCH

This book review looks into The Art of Plain Talk by Rudolf Flesch.  Sometimes books grab you. Sometimes you come across the right book at the right time and it moves you. My experience of reading this 1946 work by Rudolf Flesch was one of those moments.

cover

Introduction

Rudolf Flesch was born in Austria but moved to America and later became a citizen of that country. His life’s work revolved around being a readability expert, a writing consultant and an author. He was a vigorous proponent of plain English and this alongside his readability tests is what he is best known for.

As has happened on many occasions I believe I was directed to this book by a David Ogilvy memo. The ability to write clearly so that the masses understand is a skill that is needed by everyone, not just advertisers.

About the Book

The book begins in wonderfully simple language and continues from there.

This is a book on plain talk. It tells you how to speak and write so that people understand what you mean.”

The first section that grabbed me was the section on sentences. There was a particularly good line that I will copy in full below.

You may wonder why you find so many long sentences in books, magazines, and newspapers. The explanation, to the best of my knowledge, is simply that those sentences are written, not to make it easy for the reader, but to ensnare him like a fly on flypaper, or buttonhole him to attention.”

As someone who has always naturally gravitated towards short sentences this line pleased me. But I think is speaks to a broader importance to make sure that when you write, you write to educate and inspire people, not to confuse them.

Also, in the sentences section there was a breakdown of sentence length and how easy various sentence lengths are to read. It goes as follows.

  • Very easy 8 or less
  • Easy 11
  • Fairly Easy 14
  • Standard 17
  • Fairly Difficult 21
  • Difficult 25
  • Very Difficult 29 or more

This sort of information is really important, because it allows writers to pitch their work to the correct audience. There is nothing wrong with a sentence length of 25 or more. But it is important to realise that this will be more difficult to read because of this. It is also true to say that if you are pitching your work at a mass audience that a sentence length of 17 or less is advised.

The next section that really grabbed me was the section on short cuts. I had always preferred a short and concise style of writing myself, but I found this chapter particularly stirring.

Flesch had an excellent paragraph where he succinctly gets to the bottom of what plain talk is and how brevity helps to get there.

Plain and simple speech appeals to everyone because it indicates clear thought and honest motives. Here is the point: Anyone who is thinking clearly and honestly can express his thoughts in words which are understandable, and in very few of them. Let’s write for the reader and not for ourselves. Make the writing do what it is intended to do.

There was one line in particular which stood out to me and it was on why some writers would fail to heed this advice.

What is it that brings on this long-winded, heartbreaking wordiness? I have a hunch that a writer, feeling defeated in advance, gets lengthy and vague in self-defence. Then, if defeat comes, he can ascribe it to the ignorance of the people addressed.”

It is important not to give up before you have even begun. By writing in plain English you can reach more people and win more people over to your way of thinking.

Towards the end of the paragraph on short cuts Flesch makes one of his boldest statements that: “our present language must be rescued from the curse of confusion.”

What you need to know

This book review looked into The Art of Plain Talk by Rudolf Flesch. For me, this is one of the best books on writing that I have ever come across.

It includes many different ways writers can produce work in plain English. Mastering the art of plain talk necessitates doing more of some things and less of others. Short sentences and short words are the order of the day.

There is no shame in writing for mass audiences. If you are writing about something which you are passionate about you should want to reach and touch as many people as possible with your work.

I have never done this before, but it does seem fitting. My words per sentence for this article was 16.2 and my Flesch Kincaid Grade Level was 7.3.

It is easy to make things complicated, it takes greater skill to make things simple and easy to understand.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below or reach out to me on social media. What do you think of the importance of simple English?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

 

SOIL & SUSTAINABILITY

This article looks into soil from the perspective of sustainability. Soil is perhaps not the first thing that comes to mind when people think of sustainability. But, there is a chance that this vital but often overlooked and under loved matter could be influential in combating climate change.

global_soil_week

What brought my attention to soil and its role in combatting climate change, was a section that I read in Natural Capitalism by Paul Hawken, Amory Lovins and Hunter Lovins.

There are times when words simply jump out of the page and grab you. My reading of this section was one of those times.

“The world’s cultivated soils contain about twice as much carbon as the atmosphere, whose carbon content is rising by half a percent per year. The earth’s 5 billion acres of degraded soils are particularly low in carbon and in need of carbon absorbing vegetative cover. Increasing degraded soil’s carbon content at plausible rates could absorb about as much carbon as all human activity emits. This would also improve soil, water and air quality.”

I found the entire quotation to be striking. But the penultimate sentence stood out to me for why soil could be a game changer when it comes to climate change.

I was also unaware that 2015 was the International Year of Soils. I was made aware of this by the very useful UNFAO video which I have posted below.

Soils: Our ally against climate change

The key element to focus on is soil health as this is what predicts whether the soil will act like a sink or a source of carbon emissions.

Part of me is still completely amazed by the fact that there is more organic carbon in the soil than in ground vegetation and the atmosphere combined.

What is needed is soil with high levels of organic content as these are the soils that can sequester the most carbon.

What is not needed is excessive levels of deforestation which exposes bare soil to the air, compaction through heavy industrialised agriculture and of course developments which completely cover areas of soil with concrete and structures. These activities have a negative effect on soil’s ability to act as a sink of carbon and cause soils to become a source for greenhouse gasses.

I also thought it would be instructive to look back at Drawdown, which was a book edited by Paul Hawken that looked into the 100 most effective ways to reverse global warming. This was one of the most impressive books that I came across in 2017 and you can find a link to my review below.

Drawdown edited by Paul Hawken

With regards to soil the extract on pages 70-71 which was an extract from The Hidden Half of Nature by Montgomery and Bikle was very interesting. The following quotation stood out in particular.

“By the mid to late twentieth century, chemical-based agricultural practices were causing steady losses of soil carbon, topsoil, and humus, and creating water pollution, crops that were more susceptible to pests, greenhouse gases (nitrous oxide and carbon dioxide), and oceanic dead zones.”

They paint a bleak picture which emphasises the need for change.

The section on page 200-201 on microbial farming was also very relevant to soil and sustainability. I was amazed to find out that “in one gram of soil there can be up to 10 billion denizens, and between 50,000 and 83,000 different species of bacteria and fungi.

On the more technical side I also found the following quotation interesting.

“A healthy soil biome is rich in carbon because soil microbes feed on sugar-rich exudates from the roots of plants; in turn, the bacteria dissolve the rock and minerals and make those nutrients available to plants.”

I am constantly amazed by the processes of the natural world and how it functions.

The section in Drawdown which was most relevant to soil and sustainability was the section on regenerative agriculture. Incredibly, this came in as their 11th most powerful solution for combatting climate change. This section contained the following powerful insight.

“The world cannot be fed unless the soil is fed. Feeding the soil reduces carbon in the atmosphere. Soil erosion and water depletion cost $37 billion in the United States annually and $400 billion globally. Ninety-six percent of that comes from food production.”

What you need to know

This article looked into soil from the perspective of sustainability.

We looked into a quote from Natural Capitalism which showed that soils are a massive store of carbon. It also showed that if managed properly, the soils could become an even larger store of atmospheric carbon and a significant bulwark against climate change.

We also looked into a very instructive video by the UNFAO. This showed both how and why the soil can act as a source or a sink for carbon emissions.

Lastly, we looked at Drawdown for information on the role of soil in reversing climate change. This confirmed that soil has a vital role to play.

Overall, we have to hope that soil is not overlooked in favour of other higher tech and more glamorous solutions to climate change. We also have to hope that many of the impacts that accelerate soil’s transition from a sink to a source of carbon emissions are controlled.

What is clear, is that soil has a fundamental role to play in sustainability.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below, or reach out to me on social media. What do you think of soil’s role in sustainability?

Let’s stay connected

I can be reached on LinkedIn and on Twitter @FollowBarnaby

THE DECEPTION OF ECONOMIC GROWTH

This article looks into economic growth. It looks into GDP, the main measure of economic progress and the assumptions that underpin this indicator.

gold

Gross domestic product or as it is most commonly referred to GDP, measures the size of a country’s economy over a period of time.

The relevant national statistics authority collects data from thousands of companies. This is used as the basis for the GDP calculations.

The most frequently used method for calculating GDP is to base it on the total amount of spending in the country.

The GDP is then calculated by taking household spending, adding investment, adding government spending and then adding net exports.

As we can see, GDP is an accurate way to measure the health of an economy, but sustainability requires that we think about society and the environment as well. As it is currently calculated, GDP is unable to provide information on these important areas.

The way GDP is calculated includes all expenditures, regardless of whether society or the environment benefit from these transactions.

GDP therefore includes many things which most people would consider to be bad for society or which do not improve the general welfare of a country. It includes money spent to clean up after environmental disasters, money spent on lawyers during divorces, money spent on unnecessary military programs and on prisons. Overall, GDP includes many things, some of which detract from the general welfare of a society.

What is remarkable is how such an indicator, barring a few exceptions such as Bhutan has become the dominant marker of progress and the data point which all countries aspire to increase.

What is clear, is that GDP is simply a gross measure of activity within an economy. It does not make any distinction between spending which is desirable and that which is undesirable. It makes no distinction between spending which places a burden on a country and spending which benefits a country.

Another huge blind spot of GDP is that it is based solely on monetary transactions. Time spent caring for an elderly or disabled relative would not count towards GDP, even though it brings many benefits to that country. Time spent volunteering or helping a neighbour would not count towards GDP even though it helps to improve that society.

GDP then is a highly deceptive measure of national progress. It includes things which are bad and fails to include things which are good. What is more, with the way it is currently calculated and celebrated, it is entirely possible for an increase in things which are bad for a country to be portrayed as a gain.

There are other measures of national progress which diverge widely from GDP’s focus on economics. But perhaps a good start would simply be a more accurate version of GDP.

A more accurate version of GDP would subtract spending on things that harm society and the environment from the GDP figure to arrive at an improved picture. This would leave a more accurate indicator of whether the country is heading in the right direction or not.

What you need to know

This article looked into economic growth. It looked into GDP, which is the main measure of economic progress and the assumptions that underpin this indicator.

We looked into how GDP is calculated by national statistics authorities. We looked into how GDP is a gross figure and so includes undesirable spending which may be harmful to society and the environment.

I know that my prognosis and the prognosis of others is that the undesirable spending should be subtracted to arrive at the net positive figure. That would be a more reliable indicator. It would be interesting to see what the counter arguments to this proposal would be.

Taking into account everything that we have looked at in this short article, what is clear to me, is that there just isn’t the level of debate or criticism necessary in order to move to a more sensible indicator of national progress.

It seems that GDP has assumed an almost mythical status as the indicator of choice for national progress. More needs to be done to call out what is wrong with this indicator and to propose workable indicators that can guide decision makers in business and in government.

Even the staunchest defenders of GDP would have to admit that the indicator does not provide information on social or environmental progress in a country. It stands to reason therefore that people are being deceived by their GDP figures. They are being told that a rising number is always good and that a falling number is always bad. As with all indicators, it is important to look at the assumptions that underpin it and how that figure was calculated.

I believe that this is an issue which is highly relevant to sustainability. When you have most of the countries in the world obsessively focussed on an indicator which deviates so far from reality. That creates a system with a slow drift towards unsustainability when we need the exact opposite to be happening.

Thank you for reading,

By Barnaby Nash

Please share your thoughts in the comments section below, or reach out to me on social media. What do you think of GDP as an indicator and do you have a better way forward?

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