Sustainable State of the Union

On 4 September 2018 Volkert Engelsman, CEO and founder of Eosta / Nature & More, held the "Sustainable State of the Union" in the Dutch House of Parliament. In this yearly tradition, the person who leads the Sustainable Top-100 List of the Netherlands addresses policy makers, politicians and other VIP's on the theme of sustainability, at the start of the parliamentary season. Below you can read the full speech, in which Engelsman talks about the necessity to start calculating profit honestly with True Cost Accounting, but also about karma as a businessmodel, the impact of organic farming and the necessity to go against the flow. A short version of the speech was printed in Dutch daily Trouw.

Sustainable State of the Union, 4 September 2018

My fellow fighters of fate,
What a splendid idea from Marjan Minnesma, my predecessor, to start the Sustainable State of the Union with … ‘My fellow fighters of fate’! This could come across as heavy, in the sense that we are all struggling under the immense ecological and social pressures that threaten to crush us, wondering what one person alone could possibly do about this. But this is not how the term ‘‘fate” is to be understood. We are not passively led by fate; fate calls on us to lead. And leadership starts with self-leadership. It starts with the initiative to take your fate into your own hands rather than simply letting things happen. Let’s consider all those ecological issues as a mirror that reflects back on us. A wake-up call, inviting us to fundamentally reconsider the motives of our economy. Let’s find fellow companions, as present here, to make the difference together. Each of us in our own unique manner, so we can become who we really are. In South Africa this is referred to as Ubuntu: I am because we are. And indeed, change never originates in a majority that follows, but instead in a goal-oriented and trendsetting minority. This also involves a certain degree of rebellion which I would like to incite here. After all, only dead fish go with the flow.
Old profit definition
This is an era of immense and potentially disruptive change. After all, as regards the climate, biodiversity, water and soil, we are reaching limits we can no longer ignore. The same goes for the substantial social tension that has resulted and will continue to result from this. All of this is stirring a worldwide intention to change that cannot be halted, not even by Trump or other populist and generally fear-driven ‘our-interests-first’ powers. Some things do work out for everyone’s benefit. Johan Rockström of the Stockholm Resilience Centre argued in a recently published article in Nature that sustainability in agriculture has reached a critical momentum as a result of which real change has become irrevocable. We have the insight, policy measures are under way, but one obstacle remains intractable: our self-obsessed economy. The self-obsession of a cost and profit definition that does not take societal costs into account.
In her book entitled Doughnut Economics, Kate Raworth describes our economic system as a young cuckoo that has taken over the nest in society and is sponging off humanity and the planet. She advocates an economy that remains within the limits of planetary overshoot and social shortfall.
Karma as a business model
I was travelling in Bhutan recently, a small and isolated kingdom at the foot of the Himalayas that takes a unique view of economics. The concept of karma is central to their way of thinking, and they consider rocks, plants, animals and humans as one whole, as indivisibly linked entities. According to this vision, everything you do has consequences for the whole. People build up karma during their lives which establishes what their next life will look like, so everything we do to a fellow-human or our planet will come back to haunt us. For those of you who are starting to panic: this is merely a working hypothesis, albeit a fascinating one. And let’s be fair: we will not solve any problems by thinking about what caused them (Einstein), so some new thinking won’t do us any harm. What you do to someone else, you do to yourself. This provides an entirely new perspective on our economy: profit at the expense of something or someone else is not efficient because misery will come right back at you. Screwing other people over equals screwing yourself over. Karma as a business model—it’s just a thought.
Happiness Index as an inspiration
In 2012, I chaired a workshop at the United Nations Rio+20 forum about sustainable development on behalf of IFOAM, the worldwide umbrella organisation for organic agriculture. This is where I met the Prime Minister of Bhutan, Jigmi Thinley. As you undoubtedly know, in Bhutan, wealth is measured by a Gross National Happiness Index. Here we would refer to this as a Sustainability or Integral Wealth Index. In addition to economic wealth, ecological, social and cultural wealth are also mapped.
When Monsanto wanted to enter the Bhutanese market, the Bhutanese reacted as follows: ‘Namasté. Let’s just run this through our checklist. Genetic engineering, pesticides, monocultures, cross-pollination risks, expensive seeds, Third World farmers becoming even more dependent on First World patent holders... Nope, we’re sorry, doesn’t add up, but don’t hesitate to come back when you have something that scores better on our index. Have a nice day!’
As I experienced the stunning Bhutanese countryside and culture, I wondered what the correlation would be between this Happiness Index and our Western discussions about broader wealth definitions and True Cost Accounting. I had a discussion with a young waiter in a restaurant in Thimphu and asked him what he thought exactly about this Happiness Index. Well, he did not know much about it, but his younger sister – who had just graduated from an Indian university in Actuarial Science – did.
This is how we met Tutu, a cheerful and very smart young woman with an incredible head for mathematics that equalled her ideals. She was looking for ways to convert this happiness indicator – which is considered rather utopian or other-worldly – into money, because unfortunately this is the only way the old economy is able to deal with it. I had a question and I met Tutu; this is how these things go. She now spends every weekend with me and my family, studies at Tilburg University, is doing a traineeship at EY and studies the correlation between the Bhutanese Happiness Index, the Sustainable Development Goals and the various Western True Cost Accounting models. Econometric hard ball views from Rotterdam in Rotterdam pale in comparison with the view of this young woman from Bhutan.
Bhutan is not the only country that focusses on a broader concept of wealth. In May 2018, the CBS published the first Monitor Verbrede Welvaart (the Broader Wealth Monitor), in which, for the first time, more was considered than just Gross National Product. According to the CBS, broader wealth is doing fine, with some exceptions. I wonder. It might just be that we need to learn some lessons from this Happiness Index.
A bankrupt model
Meanwhile, we are hurtling through the limits of Kate Raworth’s planetary boundaries and social shortfalls, thus undermining our capacity to be able to produce in the future. Penny wise, pound foolish. In our addiction to short-term profit, we all resemble a junkie destroying his own vitality for a profit high.
It’s odd nonetheless… Nobody wakes up in the morning thinking ‘Let’s destroy the climate or get some toddlers in Asia to work’. Yet this is exactly what is going on each and every day. A system error they call it. Apparently we are now ready to integrate a few fundamental values in our market system which, as humankind, we need. People? Planet? Ubuntu? Karma?
The profit model as we know it is bankrupt. We agreed it should be about people, planet, profit, but in the end profit wins every time. We continue pumping, says Ben van Beurden of Shell. But for sake of the annual report, we will also put some effort in for the planet and people, and even throw in double-sided printing. Some entrepreneurs such as Paul Polman of Unilever are making a genuine attempt to increase sustainability, but their efforts are seriously obstructed by their shareholders, which include pension funds and insurance companies. This concerns us because these are our pensions.
Sustainability penetrates the financial sector
There is one important difference, though, compared to a few years ago. Something is fundamentally different today, and that is that the financial world is now fully involved in sustainability, in reviewing the profit definition and in re-evaluating financial risk analyses. Take Blackrock, the largest investment company in the world. They now include social and planetary sustainability criteria in their investment appraisals. If you fail to devote any attention to people and planet, you risk the ability to make a profit in the future. The Natural and Social Capital Coalition has been developing protocols for new balance sheets and profit-and-loss accounts that account for the use of natural and social capital. The Standard & Poor’s credit rating agency, involved in assessing the creditworthiness of large multinationals and countries, has recently taken over Trucost, a company that specialises in the monetisation of societal costs. The Financial Stability Board – the financial market’s supervisory organ – has founded the Task Force for Climate-Related Financial Disclosures which, similar to the Nederlandse Bank, implements climate stress tests to map climate-related investment risks. Sustainability is starting to penetrate the RAROC (risk-adjusted return on capital) ratios of the financial sector.
The fossil reserves on the oil and gas industry’s balance sheets represent a potential of 2,500 gigatons of greenhouse gas emissions. A maximum of 500 gigatons can be emitted to keep the planet from warming up more than two degrees: one fifth. The other four fifths cannot be sold. In economic terms this is referred to as stranded assets. Bye-bye AAA rating.
Meanwhile, according to the magazine Follow the Money, the Dutch state makes its citizens pay up to twenty-five times as much energy tax for fossil fuels as major consumers do. In other words, citizens get to pay for Shell’s climate damage, in addition to those €2 billion in dividends for foreign shareholders, of course (The Dutch government has recently proposed to cut dividend taxes). Shell is unable to do this on their own, because soon they will no longer be able to raise any money on the capital markets.
So far, this seems to be mainly about the climate, but what follows logically is that the financial sector will also be weighing the risks of soil degradation, water pollution, loss of biodiversity, detrimental effects on health and other societal risks in their risk analyses. These risks are all connected and sustainability is no longer the exclusive domain of the green sector. Sustainability has broken through the green bubble and is finally starting to become current in the economy’s DNA.
Agriculture, climate and water
Then there is another thing about agriculture and food, the world I once accidentally rolled into. A few facts: 33% percent of all greenhouse gas emissions are caused by agriculture, food and forestry. We lose thirty football pitches of fertile agricultural land every minute as a result of intensive farming. According to the French government, an amount of €54 billion a year is required to make up for the pollution of French groundwater with pesticides and fertilisers.
The FAO estimates the total hidden costs of food production at US$2.1 billion for environmental costs and US$2.7 billion for societal costs. This is a total amount of US$4.8 billion a year, which almost equals the total income from food production worldwide. Food should thus be twice as expensive to make up for the actual costs.
Earlier this year, I was in South Africa to visit one of our organic grape growers Eddie Redelinghuys, who is based near Cape Town. There was some kind of emergency situation at the Cape at the time: Day Zero – the imminent spectre – was nearing, the day that the taps would no longer provide water.
I was therefore somewhat surprised to see Eddie at his farm, surrounded by emerald green vines and full bunches of grapes. Somewhat, because I am aware that land that is farmed organically is more drought-resistant than conventionally farmed land, but this exceeded my expectations. Eddie told me he provided his conventional farming neighbour with water on a daily basis, because that neighbour had exhausted his entire irrigation quota.
The difference is in the organic matter content and soil structure. Eddie does not use any fertiliser, but instead ground cover and compost. His refined cultivation ensures soil life and organic matter content increases, improving the soil’s sponge function. He thus saves up to 60% of his water consumption on the sandy African soil.
These kinds of observations should serve as a strong wake-up call to our policymakers, because with more sustainable agriculture that is proven to be water-smart, we could save billions on water consumption and water purification.
Organic agriculture is probably not just water-smart but also soil-smart, climate-smart, biodiversity-smart and health-smart. It would be good if we could measure, manage and market this sustainability impact – something we have been doing for years with our own Nature & More traceability brand – as well as monetise it.
True Cost Accounting in food and farming
This led us to set up a pilot project with the name ‘True Cost Accounting in Food, Farming and Finance’ in conjunction with our subsidiary company Soil & More Impacts, the FAO, EY, the Natural Capital Coalition, IFOAM, TEEB and Triodos Bank. We wanted to map the societal costs using one single sustainability dashboard, and per hectare for the farmer, per kilo of product for the consumer and per profit-and-loss account for our enterprise and its stakeholders. In order to keep things pragmatic and easy to scale up, we used the 20/80 rule: we selected 20% of all relevant sustainability indicators that account for 80% of the impact.
In 2017, we presented the results of this report in Wales to Prince Charles and in Stockholm to Peter Bakker, Managing Director of the World Business Council for Sustainable Development. Reactions were so overwhelming that it seemed as if we had hit a nerve in the spirit of the times.
The calculations, based on the WHO’s calculation models, demonstrated that organic apples are 19 cents per kilo healthier than conventional apples, solely because of the difference in pesticide residue. But we also observed differences between organic and conventional related to soil, water, climate and other indicators, some smaller and others more significant. However, one thing was certain: the externalised costs of organic products we studied were substantially and structurally lower.
Organic is not too expensive; conventional is too cheap
With the slogan, ‘Organic is not too expensive; conventional is too cheap’ we continued to set up a Europe-wide communication campaign with various supermarket chains. A reliable True Cost Accounting report is naturally of importance for entrepreneurs and policymakers, but it would be even better if this information were to be brought all the way to the shop shelf. The consumer, the ‘sleeping giant’, has a right to this kind of information and to freedom of choice. If they are not provided with the option, it is only logical that they will go along in the famous race to the bottom, looking for the lowest price at the expense of people and planet.
There cannot be sustainability without transparency, and no additional societal value without economic consideration. Or, as a farmer put it during a meeting in De Rode Hoed: How can I become green if I’m in the red.
Food and agriculture in 2040
Expressing my thanks to the Food Transition Coalition, I would like to conclude with the following wish:
In 2040, every person in the Netherlands will eat healthy, tasty and sustainably produced food. By then, all relations and transactions in agriculture and horticulture will take place based on complete transparency, true value and fair market practices.
Based on these principles, the Netherlands will lead the transition in the international market. The credo that the Netherlands is one of the largest exporters of food will then be completely replaced by the Netherlands is the global example of sustainability, transparency and health.
- The humus content of our soils will be back to the proper level;
- Groundwater will no longer be polluted by fertilisers, agrochemicals or pharmaceutical residues;
- Biodiversity will have been restored and will be cherished as the main indicator of resilience in agriculture;
- Agriculture and food-related greenhouse gas emissions will have been reduced to zero and our soils will again act as a carbon sink;
- All external societal costs and profits of food production will be completely visible, monetised and compensated in the cost price, naturally supported by fiscal incentives and legislation;
- Physicians start by providing patients with thorough nutritional advice before prescribing medication;
- Lifestyle coaching will be an important part of the standard package in health care;
- Supermarkets will have developed into local health care centres that will no longer sell rubbish;
- Knowledge of natural, social and spiritual capital will be a basic part of each business school’s curriculum, as will be the accompanying monetisation models.
Let’s concentrate on that point in the distance, work together and go full throttle. Dream, Dance, Deliver is how we refer to it. Where there’s a will, there’s a roundabout way.
Dear fellow fighters of fate, I thank you for your attention.
Volkert Engelsman