VOLUME 7, NUMBER 3

Reflections
The SoL Journal

on Knowledge, Learning, and Change

FEATURE ARTICLES

Systems CitizenshipPeter Senge

The Natural Step

Karl-Henrick Robèrt
Manfred Mack

Gross National Happiness:
Measuring What Matters
Frank Dixon

Commentary
John Ehrenfeld

Seventh Generation:
Education for the Consumer
Products Business
Jeffrey Hollender

Cloudy SkiesJohn D. Sterman
Linda Booth Sweeney

Commentary
Tom Fiddaman

EMERGING KNOWLEDGE

Building a Sustainability
Institute in Russia
Jeff Lindstrom

BOOK EXCERPTProfit for Life

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Published by The Society for Organizational Learningreflections.solonline.org
ISSN 1524-1734

Joseph H. Bragdon

PUBLISHER’S NOTE 7.3

Sustainability is one of many focused areas of interest
within the SoL community, and the theme of this issue of Reflections. Manyof our corporate members became interested in the subject of sustainability
when they recognized that they needed to lessen or neutralize the environmental
impact of their processes, services, and products. Their need and desire coalescedinterest, and SoL has been home to the SoL Sustainability Consortium since1999. The Consortium supports its members’ intention to create value andchange by combining the analytical rigor of systems thinking with insight into
C. Sherry Immediato
how social networks improve the triple bottom line (people, planet, and profit).
SoL has also spawned a number of related initiatives in which SoL members participate, including The
European Sustainability Group, Project ELIAS, and the Sustainable Food Lab. In addition, SoL’s newest
publication, Profit for Life by Jay Bragdon, represents a commitment to promote research and dialogue
on the relationship between corporate practices, social and environmental impact, and business results.
  In the opening feature of this issue, Peter Senge offers his view on “Systems Citizenship: The Leadership Mandate for This Millennium.” When asked if the basic fundamentals for sound leadership remain
the same in a changing world, Senge responds “yes.” He offers a range of examples which highlight thefundamentals as he sees them: a deep capacity for systems intelligence, and building partnerships withthe “other” in a context of openness of mind, heart, and will. These ancient and currently underdeveloped capacities are essential for helping us see the world we now inhabit, and to guide us in acting as
good systems citizens.
   Karl-Henrik Robèrt was recently interviewed by Manfred Mack for Les Cahiers de SoL – SoL
France’s version of Reflections. “The Natural Step: A Vision for Sustainable Societies” offers an overview of a systemic effort to affect the systems intelligence to which Senge refers. Many readers will
already be familiar with the start of The Natural Step, a grassroots initiative in Sweden which resulted
in widespread awareness of four principles of sustainable societies. Robèrt describes their work withcompanies to adopt and integrate these principles into practice.
  Of course we all know that we tend to focus on and value what we measure. Inspired by the nationof Bhutan’s measure of “Gross National Happiness,” investment analyst Frank Dixon explores how
we can measure real social wellbeing. In this article, based on an address to senior leaders in Bhutan,
he summarizes the implications for an economy where social wellbeing is a critical indicator of success.
Recognizing that significant social wellbeing requires collaborative effort between corporations, government and civil society, he offers “total corporate responsibility” as the way companies can and should
work toward system level change in their role as system citizens. SoL research and Sustainability
Consortium member John Ehrenfeld comments.
  In a recent conversation hosted by the Sustainability Consortium, CEO Jeffrey Hollender discussed
his company’s founding and evolving purpose. The article developed from that conversation, “Seventh
Generation: Education for the Consumer Products Business,” provides a good example of a practical

ii Reflections ■ Volume 7, Number 3

PUBLISHER’S NOTE continued

approach to total corporate responsibility. He discusses the company’s quest to continue to improve
product design, product delivery and customer education. This ongoing process of reflection, conversation, experimentation, and correction is one they see as strengthening relationships within the company,
and with customers and other stakeholders. Readers can download the audio from the original conversation on the Reflections website, and view the full list of conversations at the Sustainability Consortium website.
   While a clear corporate purpose can inspire innovations in management, we also need to consider
how management education should change. In a contribution to Reflections’ Emerging Knowledge
Forum, Jeff Lindstrom, a SoL Connections member, shares the story of the birth of the Institute for
Sustainable Development in eastern Russia. This new graduate program is a great example of thinking
globally and acting locally, with a goal of establishing an international perspective while focusing on
regional and national development.
   However we accomplish it, new forms of education remain an important leverage point for systems
citizenship. John Sterman and Linda Booth Sweeney began research many years ago to investigate how
well-educated people make sense of data that requires an underlying appreciation of basic systems principles. In “Cloudy Skies: Assessing Public Understanding of Global Warming,” they document the resultsof their research, showing the reasoning and faulty logic that cause many to support “wait and see”
attitudes toward climate change at the personal, corporate, and national levels.
  If indeed we decide that now is the time to act on climate change, and are persuaded that our action
must be at a system level, what type of policy change should we pursue? Tom Fiddaman, this year’s winner of the System Dynamics Society’s Jay Forrester Award offers a commentary. In “Changing the Landscape for Profitable Control of Greenhouse Gases,” he discusses the intended impact and unintended
consequences of a variety of policy initiatives and their implications for management.
  Finally, we’re delighted that there is good evidence to support what we’ve all believed to be true –that a commitment to life-sustaining business practices is actually good business. This issue’s book excerptfeatures the introduction to Jay Bragdon’s new book, Profit for Life: How Capitalism Excels. While weall recognize that there are many aspects of our economic system that do not encourage us to be goodsystems citizens, he reports on a group of firms – some of which will surprise you – that have been able
to adhere to their values and produce the kind of financial results revered by conventional investors.
  One of SoL’s guiding principles is titled “Aligning with Nature.” This guiding idea speaks to how welearn not only from each other, but from the living world around us: “It is essential that organizations
evolve to be in greater harmony with human nature and with the natural world.” We hope the range ofarticles in this issue will help you both harmonize and influence the systems of which you are a part.

C. Sherry Immediato
Managing Director, SoL

reflections.solonline.org

Write iii
n Immediato
Publisher’s NoteReaders

FEATURE 7.3

Systems Citizenship:

The Leadership Mandate for this MillenniumPeter Senge

F

Peter Sengeor all of human history, societies that endured appreciated that their economies could
be no healthier than the larger natural and societal systems upon which they depended.
Historian Jared Diamond, in Collapse: How Societies Choose to Fail or Succeed, has
shown how many one-time flourishing cultures that forgot this truism passed into oblivion,
often with surprising speed. But there is one big difference today. The society whose future isin question is increasingly a global society. Speaking at the fiftieth anniversary of Japan’s
entry into the post–World War II “Bretton Woods” monetary accords, World Bank Vice
President for South East Asia Mieko Nishimizu pointed out just how unprecedented ourinterdependence has become:The future appears alien to us. It differs from the past most notably in that the
Earth itself is the relevant unit with which to frame and measure that future.
Discriminating issues that shape the future are all fundamentally global. We belong
to one inescapable network of mutuality: mutuality of ecosystems; mutuality offreer movement of information, ideas, people, capital, goods and services; andmutuality of peace and security. We are tied, indeed, in a single fabric of destiny on
Planet Earth.
Policies and actions that attempt to tear a nation from this cloth will inevitably fail.

As individuals and organizations, we have never had to be concerned about how our dayto-day decisions, like the products we make and buy and the energy we use, affect people andlarger living systems thousands of miles away, even on the other side of the planet. This is thereal message of “globalization,” and it is, indeed, an alien one for all of us. We’ve never been
here before.

Societies Waking Up
Societies and their governments around the world are waking up to the fact that industrial
growth as we have known it is now encountering severe social and environmental limits,
whose costs are getting harder and harder to ignore.
For example, CO2 in the atmosphere is 30 percent higher than at any time in the past
400,000 years, and the rate of CO2 emissions, which itself is rapidly rising, is approximately
four or five times the rate at which CO2 is being removed from the atmosphere through carbon sequestration, according to the September 2005 Scientific American. This means thatstabilizing CO2 in the atmosphere will require cuts in emissions of 75 percent or more, far
beyond what the Kyoto protocols or any other current plan call for. While environmentalists
have been warning about possible CO2 effects on global climate for a long time, the humanreflections.solonline.org

Feature n Senge and economic costs are starting to become hard to ignore for governments and insurancecompanies faced with the consequences of weather instability and spreading tropical diseases.
Or consider the simple fact that, to support the average American’s lifestyle, we cause over
one ton of waste to be generated, per person per day. Closely related to the volume of waste
is the chemical footprint of manufacturing industries and the related toxicity of everyday
products and the processes that produce them. Like the C02 effects, these costs are also starting to show up, in terms of waste disposal, cancers in middle-aged people that were unheardof two decades ago, and overall public health.
As these costs become recognized and their sources understood, they are starting to beallocated back to the businesses and industries where they originate. For example, theEuropean Union (EU) recently began to require that makers of automobiles take them backfor recycle or remanufacture at the end of their lifetime. Similar EU regulations are now in
effect for many consumer electronics products. The EU has also begun a systematic phasingout of diverse sources of toxicity in products, starting with heavy metals like mercury, cadmium, and hexavalent chromium. These regulations are part of historic steps in the directionof making “extended producer responsibility” the norm for industry. Similarly, President Huof China speaks frequently about an idea that takes extended producer responsibility to its
logical conclusion: the “circular economy,” an economy that works like natural systems,
where there is no “waste” and all materials move in continuing cycles of reuse.
In short, whether it’s weather instability, waste disposal, health effects of rising toxicity
levels, or depletion of aquifers, fisheries, and agricultural topsoil, formerly “externalized”
costs for businesses are starting to show up on the profit statements of insurers, health careproviders, and producers of diverse products and services. The era of privatizing profit andsocializing many social and environmental costs is passing. These costs are growing and they
can no longer be regarded as somebody else’s problems at some indefinite time in future. For
more and more, the future is now.
The future appears alien to us.

Insurers, Consumers, and Investors Taking a Stand
Ironically, the business stakeholders leading the charge in coping with privatized environmental costs are traditionally conservative insurers – because increasingly they are paying the bill.
Writing in Fortune in January 2006, Eugene Linden says that “Corporate leaders could soon
feel the heat too” regarding climate change. In 2004, Swiss Reinsurance, a $29 billion financial giant, sent a questionnaire to companies that had purchased its directors-and-officers
coverage, inquiring about their corporate strategies for dealing with climate change. D&O
insurance protects executives and board members from the costs of lawsuits resulting fromtheir companies’ actions. If Swiss Re judges that a company is exposing itself imprudently to
climate-related lawsuits, it may in effect say, in the words of Christopher Walker (who heads
Swiss Re’s Greenhouse Gas Risk Solutions unit), “Since you don’t think climate change is aproblem, and you’re betting your stockholders’ assets on that, we’re sure you won’t mind if
we exclude climate-related lawsuits and penalties from your D&O insurance.”
Social and environmental imbalances are also becoming salient to more and more consumers. For example, growing numbers of consumers are realizing that the terms of global tradeoften unfairly favor the rich. For example, Oxfam’s report on global trade’s “rigged rules anddouble standards” has catalyzed a growing “make trade fair” consumer movement in Europe, Reflections ■ Volume 7, Number 3

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which more and more businesses are watching closely as an indicator of shifting consumer
values. Today, “Fair trade” coffee, once assumed to be a small niche product for well-off
consumers, is the fastest-growing segment of the coffee business in the United
The terms
States and Europe.
Even the presumed last bastion of business-as-usual growth at any cost, inves- of global tradetors, are seeing the risks in present strategies and starting to be a force for change.
often unfairly
Today, over 10 percent of equity capital in the United States goes through a social
or environmental “screen,” a number that has grown from virtually zero a decadefavor the rich.
ago. A small but increasingly influential group of investors are making sustainability the cornerstone of their thinking. I learned this firsthand from the president of one of
the world’s largest pension funds four years ago when, in a private meeting, he shared his 10
criteria for managing his investment portfolio: each an aspect of social and environmental
responsibility that he regarded as the best indicators of “good management and long-term
financial return. The current corporate social responsibility (CSR) movement seems to be justa first step in major shifts ahead, driven by one simple fact: As Frank Dixon, former research
director of a major investment advisory firm, notes, “The current economic and politicalsystems essentially force firms to be irresponsible and unsustainable by not holding them fully
accountable for negative impacts on society.”reflections.solonline.org

Feature n Senge Businesses Discovering They Cannot Go It Alone
A small but growing group of global firms are seeing these historic changes in their environment as being truly strategic. In the fall of 2005, Wal-Mart CEO Lee Scott committed thecompany to long-term goals of zero waste, 100 percent renewable energy, and selling sustainable products. Six months earlier, GE’s CEO declared the firm’s intent to invest in a broad
range of more sustainable products. By these actions, GE and Wal-Mart joined a small groupof industry leaders who have been pursuing strategic opportunities relating to sustainability
for many years. For almost a decade, Unilever, one of the largest consumer goods companies
in the world, has had three strategic imperatives: sustainable agriculture, sustainable fishing,
and water. In the late 1990s the company began working toward a global certification process
for sustainable fisheries, now established as the independent Marine StewardshipCouncil. BP and its CEO John Browne have spurred the oil industry to take
The global
global climate change seriously, starting with Browne’s historic speech at Stanford
food system
in 1997, the first ever by an oil company CEO on the subject.
is the world’s
But what even the most powerful firms cannot achieve in isolation is limited.
The goals of these companies, in Dixon’s words, “cannot be achieved without
greatest
large-scale change in areas including supply chain, regulatory and consumer
generator
awareness.” All businesses sit within much larger commercial systems, and it isthese systems that must change, not just individual company policies and pracof poverty.
tices. In a real way, the most important role of leading organizations like GE,
Wal-Mart, Unilever, and BP is to catalyze development of larger learning communities andto, as Dixon says, “proactively work with others to achieve system changes.” And the partners in these larger communities will be not only other companies but NGOs and governmental organizations as well. There is very little historical precedent for such learning
partnerships. But then, there is very little precedent for learning challenges of the scope we
now face.
For example, in 2002, Unilever, Oxfam, and the Kellogg Foundation began conversations
about the challenges of shifting global agriculture systems. Despite little public recognition inrich northern countries, the global food system is arguably the greatest generator of poverty,
and consequently social and political instability, in the world today. Prices for agriculturalcommodities have fallen 30 percent to 90 percent over the past 50 years, making cheap foodreadily accessible for the rich northern societies and simultaneously making living incomesincreasingly inaccessible in poorer food-producing countries. For example, a 2002 Oxfam
report showed how falling prices for coffee have created a “crisis for 25 million coffee producers
around the world,” many of whom “now sell their coffee beans for much less than they cost to
produce.” Rich northern countries spend $500 billion dollars a year in subsidies to protect their
farmers against falling prices, something that is not possible for poorer southern countries.
Only by getting enough of the key players in this system working together is there any
chance of reversing the tragic “race to the bottom.” Today, the “Sustainable Food Lab”
involves more than 50 major businesses, NGOs, and governmental organizations working
together to “bring sustainable food practices into the economic mainstream.” While there isa long way to go, an extraordinary and diverse network of committed actors has developed
and a host of initiatives demonstrating alternatives have been launched. For example, a “business coalition for sustainable agriculture” that includes many of the largest food businesses
wants to establish clear and agreed-upon standards for sustainability that could guide all.
Others are working to make the total distribution of profits in food supply chains visible to Reflections ■ Volume 7, Number 3

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all key actors – including consumers. Imagine
going to the grocery store and seeing two
bins of green beans: one 30 percent more
expensive than the other. Atop each is a picture showing where the money goes in eachsupply chain, along with an assessment(verified by an independent body) of theextent to which each provides a living income
to all the players, including the farmers.
Which would you purchase?

What Does All This Meanfor Leadership?
A simple, penetrating question led me towrite this article: “Are the basic fundamentals for sound leadership the same and weare just responding to a different world, orare the fundamentals shifting?” After somethought, my response is an unequivocal,“yes.”For me the fundamentals start with a setof deep capacities with which few in leadership positions today could claim to havedeveloped: systems intelligence, building
partnership across boundaries, and opennessof mind, heart, and will. To develop suchcapacities requires a lifelong commitment togrow as a human being in ways not wellunderstood in contemporary culture. Yet, inother ways, these are the foundations for leadership that have been understood for a very
long time. Unfortunately, this ancient knowledge has been largely lost in the modern era.

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Systems Intelligence
Problems like those created by our global food systems are largely invisible because people
do not know how to see such systems. “The inability of leaders to see the systems and patterns of interdependency within and surrounding our organizations threatens our future,”says Ford’s former CIO and head of strategy, Marv Adams. “Many big problems that could
be solved are sitting there unsolved because of this failure.”
Two particular systems thinking skills are vital: seeing patterns of interdependency andseeing into the future. It is one thing to say “we are interdependent,” and it is another toactually understand what this means specifically, especially for problems created by the present systems that no one knows how so solve. Before the members of the Food Lab could work
together effectively, they needed to share understanding of the systemic forces driving the“race to the bottom” and how they were all part of creating these forces: as companies pursuing business-as-usual business models with little regard for the effects on farming families
and communities or on environmental systems, as farmers unable to moderate pressures forreflections.solonline.org

Feature n Senge continual production growth, and all of us as consumers whenever we buy food at the cheapest
price with little thought as to where the food comes from.
Once people start to see systemic patterns and understand the forces driving a system, theyalso start to see where the system is headed if nothing changes. The power of the “race to thebottom” metaphor for the Food Lab participants is that it helps everyone think about what“the bottom” means to them and their organizations, and to realize why this is not a future inwhich they want to live.
Once people start to see“Seeing into the future” is not a prediction in the statistical sense;
it is simply seeing how a system is functioning and where it is headed.
systemic patterns andToday, the world is in desperate need of seeing into the future regardunderstand the forcesing problems like CO2 emissions and climate change, the globalizationof food and other industries, and the spread of poverty. The inability
driving a system, theyor unwillingness to see where we are headed is a massive failure ofalso start to see whereleadership foresight.

the system is headed if
nothing changes.

Building Partnerships with “The Other”

In some ways the most challenging aspect of the Food Lab has been
simply getting such diverse actors to be willing to work together. “Doing something aboutsustainable agriculture will require bringing parties together that normally do not cooperate,”says Andre van Heemstra, recently retired member of the Unilever management board. This not
only means diverse businesses collaborating across complex supply chains, it means leadersfrom NGOs and government who would never normally work with business counterparts.
Transforming larger systems will not arise from the traditional transactional relationshipsthat characterize interactions among business, government, and NGOs. “The relationships
among leaders across normal boundaries might be the most crucial ingredient to major change,”says Hal Hamilton, director of the Sustainable Food Lab. Building genuine partnerships takes
time and real commitment. it is not just that those who might form potential partnerships havenever worked together; they have mostly fought each other, often seeing one another as theprimary obstacle to progress as they defined it. When they have interacted, it has been almost
entirely to pressure one another to achieve their individual aims. It took many months of close
work in a process that fostered deep reflection and candor before participants in the Food Lab
found themselves developing real connections, trust, and respect for each other, gradually recognizing that their strength as a team came from their differences.
This same challenge of working with those who are very different from us arises withinorganizations as well. “Organizations are coercive systems,” as Edgar Schein says. They tend
to enforce a party line, either overtly or subtly. Listening to the periphery, those who do notshare the views of the management mainstream, is a skill that more and more leaders will needbecause, more and more, the management mainstream will have only limited understanding atbest of the forces shaping change.

Openness
Leaders who can build partnerships for seeing larger systems must also be open to not having
all the answers. There is no “right model” for a complex system. To all intents and purposes,
the global food or energy systems are infinitely complex. Good system models like those usedin the Food Lab are by their nature incomplete and flawed. The criterion by which they mustbe judged is usefulness, not absolute accuracy.

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This means that effective leaders must cultivate open-mindedness in order to challenge
continually their own favored views and to learn how to embrace multiple points of view inthe service of building shared understanding and commitment. This is easy to say but
extraordinarily difficult to do. The Sustainable Food Lab was designed so that its To become
members have to continually face their very different ways of seeing. For example,
a leader, firstafter a visit with a small farmers cooperative, a list of observations from the teamincluded the following items: “hard working, very political, not sustainable, very become asustainable, needs to be modernized, needs time to mature, an excellent model.” One
human being.
lab team member commented, “I am so amazed that this number of people can lookat the same thing and see something so different. . . . There is so much I don’t understandabout others’ perspectives.”
But open minds ultimately also require open hearts, becoming vulnerable to see how weare all part of the problem. If people do not see how they are part of the problem, they willremain in blaming mode and never tap the deeper forces for partnership and change. Their
attitude will always be that “they need to change,” an especially disempowering signal whenit comes from leaders at the top of an organization.
The third opening, of the will, involves discovering that our deepest commitments arise
almost despite ourselves. It involves letting go of the last remnants of what Otto Sharmer inthe book Presence calls “our small ‘s’ self” and letting come “the future that comes into being
through us and with what we are here to do.” This opening has been described by countlesspoets and mystics—indeed it is one of the oldest and most universal aspects of diverse spiritual traditions. It is what George Bernard Shaw called, “The true joy in life, the being used
for a purpose you regard as a mighty one.” Or, as one of the Food Lab team members said,“We had come to a profound place of connection, with one another and with what we arehere to do.”reflections.solonline.org

Feature n Senge Speaking in ways like this may seem romantic for today’s times, but the subtle developmental processes behind these three openings have been understood for a very long while—and the loss of them may be a major reason we now struggle. In the famous “The Great
Learning,” Confucius described “seven meditative spaces” through which those seeking tobecome leaders must pass in letting go of old ideas and identities and coming to a place ofstillness and peace where the mind no longer imposes itself on reality. He summarized bysaying that to become a leader, “One must first become a human being.” The meaning of thissimple assertion remains hidden so long as we think we understand humanness. On the other
hand, if we regard the human as a great mystery, if we understand humanness as being connected to the universe in ways that we can barely imagine, if we believe that the journey todiscover and actualize who we actually are is the journey of our lifetimes, then there may besome chance that the leadership required for this new millennium will come forward.

A b o ut the A uth o rPeter Senge is a senior lecturer at the MIT Sloan School of Management,
and the founding chair of SoL. A renowned pioneer in management innovation, he is the author of the widely acclaimed The Fifth Discipline: The Art andPractice of the Learning Organization (Doubleday/Currency 1990).
reflections@solonline.org

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FEATURE 7.3

The Natural Step:

A Vision for Sustainable Societies
A conversation with Karl-Henrik Robèrt and Manfred Mack

S

Karl-Henrick Robèrt

Manfred MackoL France wanted to discuss the idea of shared vision with Karl-Henrik Robèrt
because the originality and power of his undertaking have made him a striking innovator and inspirator in the sustainability arena. Trained as a medical doctor, Robèrt
was a cancer scientist at the University Hospital of Huddinge in 1989 when he launched an
initiative aimed at making his country, Sweden, a model of sustainable development. He
began by pulling together scientists who, through an innovative consensus-building approach,collaborated in crafting a description of the basic scientific principles underlying sustainability in language which the general public could easily comprehend. The approach lent theeffort enormous credibility and engendered strong support. The text the scientists createdbecame the basis for a booklet and audio-cassette which were sent to every household andschool in Sweden. The project was financed by a network of major Swedish companies towhich Robèrt had “sold” the idea. Later, the work of the scientists enabled the developmentof a strategic methodology designed to help companies and local communities identify andimplement measures to prevent environmental degradation. Today, The Natural Step Instituteis established in a dozen countries, and helps many large enterprises and municipalities
develop strategies to preserve the health of our societies and the planet. We know of few
examples for which a shared vision approach has produced such a powerful impact.
— Manfred Mack
SoL: Could you give us an overview of the main aspects of your work and of the approaches

you have conceived?
Karl-Henrik Robèrt: It is a long story, but it boils down to the idea that leaders today, to bequalified as competent, need to integrate new understandings focused on systems thinking.
They must acquire shared representations regarding the notion of sustainable development.
What does sustainable mean? The term was invented because our societies develop in waysthat intrinsically include design errors that, despite all of our progress, lead to an increasingly negative impact of human activity on our habitat, the Earth; therefore, we need torethink these approaches to insure the durability of our societies. If the current erosion continues, it will, as a consequence, lead to a major collapse of the system, including the global
human society.
We came to visualize this trend toward erosion as a funnel. We say that each company,
each community, is somewhere in this funnel, the walls of which are leaning more and more
inward. This metaphor expresses the general decrease in manoeuvering space. At TNS, we
recommend a reflection process that helps decision-making and behavior so that these organizations and our societies move through the funnel toward its exit.

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Feature n Robèrt, Mack What are the main reasons for the funnel’s walls leaning inward, for the loss of manoeuvering space?
There are several explanations. The first is reductionism, which is the tendency to
try to reduce a complex problem to its individual elements and to deal with each one
The future
by one. Thus, there are efforts to deal with deforestation, with overexploitation of fishmust be
ing zones, with water pollution, etc., without trying to understand the deep causes
invented;
which are the source of these multiple problems. What we need is a common perspective, a global vision.
it is not an
A second explanation for the coming closer of the walls has to do with our dominant
extension of work methods, which are forecasting and problem solving. We start with the present
to anticipate the future (forecasting); we look at present problems and seek solutions
the past.
to these problems for the future. We thus manage to build the future as an extension of
the past. In a world that is changing and, worse, one that is deteriorating, such approaches
are erroneous.
We need to find a way to act in the present, from the perspective of a desired future, ashared vision. We call this approach backcasting.

A Future Described in the Form of Basic Principles
SoL: In the TNS approach, how does one go about describing, inventing, imagining such a“desired future”?
KHR: Here is where we, at TNS, have made a real breakthrough. The planet is an extraordinarily complex system. Each expert has his or her own opinion on how it works, but each isbased on a viewpoint which has to do with his or her domain of expertise. How can one, insuch a situation, describe a desired future on which all can agree? Again, we have proposed
a way to visualize our approach: the image of a tree. It is an illusion to try and imagine afuture at the level of details, symbolized by the leaves. It is possible to arrive at a more plausible description of the future by adressing the level of the trunk, in other words, the basic
principles which are at the source of everything else.
This is where the work I did with our network of scientists really proved to be useful. By
going through a process, which I will describe later, we defined four basic principles (see box
below) for sustainable societies. We believe that these principles are necessary for sustainability, general so that they can be understood by experts and enterprises from different fields,
concrete so that they really guide planning and actions, and distinct to allow comprehension
and make it possible to monitor the transition towards sustainability. If these principles are
not followed, human activity will continue to have negative consequences regarding the environment and society, thus further reducing our manoeuvering space.
SoL: When I look at these four principles, two questions and a remark come to mind. First,

how did you arrive at these definitions of the four principles? And, second, how do you workwith companies in applying these principles? Listening to you, one becomes conscious of the
difficulty that one is likely to encounter in establishing a link between individuals and theinteractive processes with our planet, which are part of the way we live and over which we
feel that we have little influence.

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The Four Basic Principles (“System Conditions”)
for Sustainable Societies
In the sustainable society:
1. Nature is not subject to systematically increasing concentrations of substances extracted
from the Earth’s crust. Concentration tends to increase because such substances are dispersed outside
the Earth’s crust faster than the pace at which they would naturally return to it (through burying or throughabsorption as part of slow processes after fossilization), thus causing a dangerous increase in concentration of elements in the biosphere.
2. Nature is not subject to systematically increasing concentrations of substances produced
by society. Concentrations tend to increase because the substances are spread faster than the paceat which they can be broken down and transformed into new resources for nature.
3. Nature is not subject to systematically increasing degradation by physical means (including
disproportionate extractions and manipulation of ecosystems). Examples of disproportionate extractions include clearcutting of forests over excessive areas and over-fishing in seas and lakes. Examplesof manipulation of ecosystems include, modification of groundwater levels, soil erosion by poor management of forests or cultures, and risks from the utilization of GMOs (genetically modified organisms).
4. Human beings are not subject to conditions that systematically diminish their capacity formeeting their needs. It is necessary, while following the preceding three principles, not to allow theabuse of economic and political power to erode the capacity of people to meet human needs world-wide:
subsistence, protection, participation, leisure, affection, understanding, creation, identity, and freedom.
(Needs as defined by Manfred Max-Neef, Chilian economist).
— Adapted by Manfred Mack

KHR: You are right, and it is precisely the need to build such a link that has made it so impor-tant to have our network of scientists play their role. In our work with them in producing the
big mailing to all Swedish households, we did not arrive at the formulation of the four principles. We started by writing a text that gave an overall description of the system, withemphasis on the cycles of nature and the self-benefit that would follow from becoming partof the solution rather than the problem. I wrote the first draft myself and then handed it out,
progressively, to about fifty scientists who were among the most reputable in Sweden. In
sending out this document, I was inviting them to a dialogue. They were asked to commenton, or modify, the draft and return it to me.
After 23 successive versions, we finalized the document in December 1988. We now hada solid platform on which to build the next part of our approach. And at the same time, I
had invented a consensus-building process that we later refined. It was, one could say, another way of creating a shared vision. Since they had participated in the writing of a foundation
document, my scientific partners of course agreed to its content!
I used the same approach, starting in 1992, to produce a first version of the four principles
for sustainable societies. These principles evolved through the consensus-building process toarrive at the version presented above, unchanged since 2002. It is important, however, toemphasize that this does not mean that these principles will stay unchanged forever. The
Natural Step approach is open and the principles will evolve if it is shown to be necessary. It
is on the basis of this second platform, written in more concrete terms than the first, that wedeveloped our strategic methodology we call backcasting and the other tools that companies
use to begin acting.

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Tools to Translate the Principles into Concrete Action
SoL: Could you describe the methodology and the corresponding tools used and, if possible,

illustrate the way they are applied in companies?
KHR: The basic set of tools is derived from the elements and the “pictures” that I alreadytalked about: the funnel, the tree, knowing that for the latter, the focus will be on the trunk
and the backcasting process.
We start by organizing a seminar for the top executives. We present to the management
team what we call the TNS Framework, which includes our approach, the basic principles
and going through the funnel metaphor. We also discuss how to develop strategies that areapproaching the company’s visions, informed by the sustainability constraints and will systematically decrease the company’s financial risks and foster redesign and innovation toward
new markets. We invite members of the management team to imagine that their company hascome out of the far end of the funnel. The objective is, based on such a desired future, toassess the present situation (backcasting) in order to move strategically toward the exit of thefunnel, guided by the “compass” represented by the four principles.
The approach then proceeds through 4 steps:
1. Make sure the methodology and the corresponding rules of the game have been assimilated. Be certain that the participants have a shared understanding.
2. Assess the present situation of the company in relation to the desired future. Practices
that are critical with regard to the four basic principles for sustainability are listed, as areassets and conditions that will be favorable in solving the problems.
3. Imagine solutions which will need to be implemented by the company in the future sothat the basic principles are followed, without, for the time being, worrying about necessarymeans (financial, technical, organizational).
4. Select, from the solutions suggested in step 3, the initial actions to be launched now(backcasting) in such a manner that they will (1) take the company in the right direction, (2)act as “flexible platforms” which make other improvements possible (to avoid costly deadends later on), and (3) enable money-making in the short and medium term so that a virtuous
cycle is set in motion.
The management team is encouraged to become actively involved in the process startingon day one of the seminar. It is important for the participants to become aware of the factthat it is possible to trace a strategic path, which, in the future, will enable the company tooperate while being fully in agreement with the four basic principles and also be able to generate financial profits.

Create the Conditions for Wide Participation
Normally, following this seminar, management decides to extend the approach to the whole
company organization. To do so, we train most of the managers and the employees in theapplication of the framework, the final objective being that all salaried personnel play anactive role in the general transformation of the organization. The Scandic Hotel Group is agood example. All 5,000 workers were trained in applying the TNS approach and they generated some 2,000 ideas for action, of which 1,500 were implemented in the first year.

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PHOTOS.COM

SoL: Could you explain what you meant by “flexible platforms,” mentioned in your descrip-tion of step 4 of the approach?
KHR: These are, in most cases, actions which are good solutions to a problem that needs tobe dealt with immediately and which, at the same time, can accomodate an array of different
subsequent solutions which brings the company closer to its “desired future.” An example
would be a measure to save energy, and thereby fossil fuels, in order to be able to afford atransition to renewable energy later on. If such savings are made in a way that “marries” thecompany to fossil fuels for the future, it is a mistake. And vice versa, it is important to notunnecessarily “lock on the target” too early in a process, but to launch moves that can befurthered along optional development paths.

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SoL: Which companies have successfully implemented the TNS approach?
KHR: Quite a large number. Among these we can speak of IKEA, Electrolux, Scandic (Hotels),

McDonalds (Sweden), Carillon (UK), Banco Real (Brazil), Interface (U.S.), and Matsushita(Japan). The approach has also been applied by several local communities, including themunicipality of Whistler in Canada which will host the next Winter Olympic Games. The
TNS approach made it possible for policy makers, businesses and a large part of the local
population to define and implement a regional development plan that took into accountactions both global (climate changes which, longer term, could affect the whole economy of
the community) and local (ensuring that persons hired to do local jobs could be housed near
their place of work despite high real estate prices). The way Whistler applied the TNS framework to lay out this plan is documented in their “2020 vision” statement. For this undertaking, Whistler was awarded first place in the “Planning for the Future” category of a United
Nations sponsored, international competition called the “LivCom” Awards.
SoL: What impressive results! And what about TNS’s future projects?
KHR: So far, in the twelve countries in which we operate, we have worked with one organiza-tion at a time. We believe that in order to have a more significant impact, it is necessary to
get several sectors of activity to work together. We are therefore going to launch programs
that go in the direction of multidisciplinary and multi-sectoral cooperations.
							ABOUT THE AUTHOR

Manfred Mack is a Swiss-American residing in Paris, holding a Columbia
University Business School MBA. He is a strategy and organizational transformation consultant and has authored three books on evolving leadership and value
development capabilities. A founding member of SoL France, he is responsible
for the editorial team of “Les Cahiers de SoL France.”

More information about The Natural Step can be found at http://www.naturalstep.
org/com/nyStart/ . Other articles by SoL members about The Natural Step canbe found online in the SoL Library.
This interview first appeared in Cahiers, the SoL France journal.

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FEATURE 7.3

Gross National Happiness:
Measuring What Matters
Frank Dixon
This article is adapted from a paper presented at the Gross National Happiness conference in Thimphu,
the capital city of Bhutan, in February, 2004. Frank Dixon was invited to speak about GNH from a business and economic perspective. The conference was sponsored by UNDP and organized by the Center
for Bhutan Studies, a Bhutanese policy group. Attendees included members of the Royal Family, thePrime Minister, senior Bhutanese government officials and Western experts in various fields. The GNH
program was established by the King of Bhutan in 1972. The four pillars of GNH are: sustainable andequitable socio-economic development, good governance, preservation and promotion of cultural heritage, and environmental preservation. The original paper, and additional articles by Dixon, can beFrank Dixon

accessed online through the SoL Library.

Bhutan’s interest in developing a Gross National Happiness index (GNH) reflects great
wisdom. GNH is intended to be a more accurate measure of social well-being thanGross National Product (GNP), the primary indicator of social well-being in Western
nations. GNP is a crude measure that counts many social negatives as positive (ie: incarceration, illness). It fails to count services that enhance social well-being (ie: parenting, volunteering), degradation of critical assets (ie: forests, water, air), and intangible factors, such as
happiness (the ultimate goal of many people). It probably is no coincidence that Western
economies are rapidly degrading environmental life support systems and making many people
unhappy (as indicated by factors including growing obesity and anti-depressant drug use).
What doesn’t get measured doesn’t get managed.

Systems Perspective
Western economic systems have produced great improvements in many areas including technology, medicine, and the provision of essential and non-essential goods and services.
However, as industrial economies continue to grow in a finite world, the overall impact ofthese systems is increasingly negative. Inefficient use of resources, high levels of pollution andnumerous social disruptions resulting from industrialization have caused human society to be
grossly unsustainable.
Unsustainability is driven largely by the failure to adopt and act from a systems perspective. A cell cannot survive apart from the body. So the relevant perspective for human healthis at the total body level. In the same way, a human cannot survive apart from the Earth. So
the relevant perspective for human survival and prosperity is global. Every person, plant,
animal and thing on this planet is part of one interconnected system. This total system is toocomplex for any one person to understand. As a result, systems are broken into parts (reductionism) and studied in isolation rather than in relation to each other.

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Modern economic and business theories were developed from this limited perspective.
Firms are seen as being separate from each other and the rest of society. It is believed thatthey must compete with each other for scarce resources. Modern economic theory also says
profits must grow indefinitely: Failure to grow equals death. However, in the real world,
failure to restrain growth equals death.
Encouraging subcomponents of a system to compete with each other andgrow indefinitely is analogous to cancer in the human body. Ultimately, thecancer kills the host, then dies itself.
Despite the best of intentions, this isexactly what modern economic systems© BABASTEVE

are doing to the Earth.
This shortsighted action on the partof humans is completely understandable. Nearly all academic knowledge
has been developed from the perspective of the individual human mind
(since that is the mechanism doing thecontemplating). However, as noted above, this is not the relevant perspective for humansurvival and prosperity.
The wisdom of Buddhism is in seeing beyond the illusion that the individual is separate
from the rest of the world (fostered by the five senses) to the reality that everything is interconnected (a reality being shown by quantum physics and other branches of science).
Through the experience of millions, Buddhism and other traditional religions have shownthat expanding one’s perspective from being an isolated individual to being part of one interconnected system leads to a more fulfilling, sustainable and effective existence.
This wiser, larger perspective is as relevant for business and other human organizations as
it is for the individual. Businesses actually are part of one interconnected system (whether
they realize it or not). Raising business consciousness means helping firms understand and act
upon this knowledge of interconnectedness. From this perspective, firms maximize their own
well-being by working to maximize the well-being of the overall system.

Gross National ProductIn all fairness, GNP was never intended to be a measure of overall social well-being. Instead,
it was intended to be a measure of economic growth. Western economic theory makes theassumption that economic growth will enhance social well-being. In some ways this is true,for example when basic human needs are better met. However, GNP is an incomplete measure. It does not account for the environmental and social degradations that often accompany economic development.
Social well-being is a complex measure consisting of many tangible and intangible factors.
The measure cannot be reduced to one quantitative, monetized number. GNP is a misleading
indicator of social well-being because it counts growth of many social negatives as positive,
such as incarceration, medical costs, anti-depressant use, environmental damage, and related

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Western System Flaws
Many things that appear to be logical from the individual person, company, and country perspective are not logical froma system perspective. For example, time-value-of-money, a foundational economic concept, makes sense to the individual
because it’s better to have resources, such as food, today rather than in the future. But this concept also says that people
and resources beyond 50 to 100 years are worthless, therefore, protecting them would be a foolish economic decision.
Additional system flaws include things like limited liability structures, which provide unlimited upside potential to investors,
but cap the downside by transferring risk mostly to low- and middle-income taxpayers. This is a major factor driving thewidening gap between rich and poor. The failure to incorporate externalities into prices causes nearly all prices in our market
system to have very large distortions, which drives waste and inefficiency. The demand for ongoing economic growth in thefinite Earth system makes it difficult for human society to voluntarily achieve stability and balance. And by giving priority to
only one aspect of society’s success (economic growth – GNP), other aspects are not adequately addressed. This causes
the overall well-being of society to decline.
In the political area, the ability of regulated entities to influence regulators through campaign finance, lobbying, and otherprocesses makes it effectively impossible for government to hold firms fully responsible for negative impacts on society.
Failure to hold firms fully responsible in a competitive market means firms must negatively impact society to remain in
business. Companies attempting to fully mitigate negative impacts would put themselves out of business because costs
would become too high relative to firms that were not fully mitigating.

remediation. The measure also does not value many of the services which contribute to social
well-being, such as parenting, mentoring, and volunteer work.
GNP also fails as a measure of social well-being since it does not account for assets.
Businesses gauge financial condition and performance by using a balance sheet and income
statement. Using GNP to measure social well-being (or even economic performance) would
be like a firm using only an income statement to measure financial condition. A more accurate indicator of social well-being would decline when assets, such as forests, clean air, andclean water, were consumed. Finally GNP fails as an indicator of social well-being because it
does not measure intangibles, such as inner peace and happiness (factors that many consider
to be the ultimate goal of life).
It is critical that an alternative to GNP be developed in large part because society tends tomanage what is measured. If humanity does not measure the state of its life support systems
or the happiness of people, these issues will continue to be low priority. Failing to measureenvironmental and social conditions will drive further declines and cause human society to
become even more unsustainable.

Developing and Implementing Gross National HappinessIn most important areas, Bhutan appears to be ahead of many Western nations. The country
is one of the few regions where humans live at or near a sustainable level. In addition, thecountry seems to have higher levels of happiness as measured by family stability, lack of violence, and other metrics. However, life is hard for many Bhutanese. Western technology,
products and know-how could help improve living conditions and better meet basic needs inmany cases. The difficulty will be gaining these benefits while avoiding the environmental andsocial degradations that nearly always accompany Western-style development.
Development is a misleading word since it implies improvement. Countries often wind up

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Total Corporate Responsibility
In the corporate responsibility (CR) and sustainability movements, nearly all efforts to lower environmental and social impacts
have focused on corporate-level issues. But most impacts are systemically driven, and therefore cannot be mitigated without
system change. Total Corporate Responsibility (TCR) integrates corporate-level CR efforts with mid-level and high-level systemchange efforts. Mid-level efforts focus on lowering sector-specific environmental and social impacts. This involves working with
suppliers, regulators and other stakeholders as well as raising public awareness. High-level efforts involve addressing broad
economic, political and social system flaws.
Wal-Mart is one company that illustrates the successful integration of mid-level system change efforts. The company isimplementing an aggressive CR strategy, working with suppliers and other partners to improve environmental performance in
specific sectors, functional areas, and geographic regions. Gazeley Ltd, a wholly owned but independently operated Wal-Mart
subsidiary based in the UK, is going even further by implementing TCR and integrating high-level system change efforts. A
global real estate developer of distribution warehouses, Gazeley provides Wal-Mart and many other clients with environmentally-superior facilities that lower energy use and carbon emissions by as much as seventy percent. To drive mid-level systemchange, the company is working with suppliers, contractors and other partners to improve environmental and social performance. To address high-level issues, the company is implementing a collaborative system change effort, called theSustainable Systems Initiative (SSI).
Through SSI, Gazeley is working with business, government, academic, NGO and civil society leaders to articulate a visionof a sustainable world, identify systemic barriers to sustainability, and develop practical means of addressing them. Whiledialogue is a key aspect of collaborative efforts, the strong focus of SSI is on generating quick wins that build enthusiasm
and support for addressing longer-term, more complex issues.
More on TCR can be found at www.globalsystemchange.com.

worse off in many ways from their exposure to Western ideas, marketing, technology andbusiness practices. For example, Western business models force companies to focus primarilyon growth. To increase sales, advertising is used to get people to buy products, often by making them feel inadequate without the advertised product.
In many cases, this type of advertising causes young people in developing countries to lose
interest in their parents’ values – values that have sustained these cultures for many years. As
a result, young people often move from villages to cities where they frequently cannot findwork. Through this process, advertising and Western media can cause social degradation by
divorcing a country from its traditional values.
Economic development is often prompted by Western corporations seeking new markets
and new sources of raw materials. Financial institutions, such as the World Bank, provide
funding for infrastructure construction, which in turn provides revenues to Western firms. To
pay off debt, developing countries are often compelled to adopt an export-oriented economy,
which is usually built upon export of their natural resources.
Through corruption, weak legal systems and intense economic pressure, countries often
wind up selling their resources for much less than market value. This infrastructure-debtexport cycle can cause living conditions to worsen as economies shift from meeting internal
needs to generating foreign exchange through exports. In addition, this process frequently
results in severe environmental degradation and disruption of indigenous cultures.
GNH can be the measurement component of an overall plan to maximize social wellbeing. The first step in developing GNH would be to identify a preferred society in the greatest detail possible. This information would be used to identify the relevant components andmetrics of GNH. Finally, a practical plan for achieving GNH goals would be developed andimplemented.

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Establishing Goals
With input from all stakeholder groups in Bhutan, the components and goals of a preferredsociety should be identified. Social goals and priorities are implicitly known and conveyed
through cultural processes in Bhutan. However, it will be important to make these goals more
specific as Bhutan considers Western-style development. Having more specific social goals
and priorities will help Bhutan determine whichdevelopment actions would enhance social well-being
and which would degrade it.
Social goals should be established in great detail.
The process would comprehensively look at all tangible and intangible aspects of society. Goals would
be established in areas including education, healthcare, housing, clothing, food and nutrition, shelter,
environmental and habitat protection, parents spending time with and raising children, arts, businesspractices, infrastructure, legal and regulatory issues,
and reported levels of happiness.
This process could be achieved through various
mechanisms. For example, an interdisciplinary groupof experts might develop a report that addresses all these issues and makes proposals over the
short, mid and long-term. This would serve as a starting point for dialogue among Bhutanesestakeholder groups. Over time, a consensus document could be produced that would guidedevelopment of GNH.

© BABASTEVE

Developing GNH Metrics
Using the ideal state defined above, specific metrics can be identified to measure performanceon every tangible and intangible aspect of social well-being. For each metric, current performance would be quantified and short, mid and long-term goals would be established. This
process may be highly complex as many intangible factors will be difficult to quantify. As aresult, proxies will be needed to track performance for some intangible factors.
Complexity will be further increased by the likely need to develop alternative means ofmeasuring success. Literacy and education provide good examples of this. Illiteracy is high in
Bhutan. This would be seen as bad from a Western perspective. However, Bhutanese children
may be far better educated on the most important aspects of life than American children.
Bhutanese children spend much more time with their parents. In doing so, they learn cultural values, social skills, and the agricultural and other skills needed to sustain them overtheir lives.
In the U.S. education system, children must learn the same set of knowledge (math,science, English, etc.). A competitive grading system teaches children to see peers as obstacles
to their success (which weakens social skills). It also makes children feel inadequate if they
are not good at a subject in which they may have no interest. This system encourages conformity, rather than encouraging children to find their own unique passions and interests tobuild their lives upon.
In addition, children are made to sit for up to seven hours per day, five days per week andlisten to an adult talk to them, something few adults would want to do. Children are meantreflections.solonline.org

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to be moving around and learning by doing. To an increasing degree, when children won’t sit
still in class (ie: when they act naturally), they are given powerful drugs that numb theirminds into obedience and passivity.
Add to this obesity, drug use, teenage pregnancy, depression, suicide and weak academic
performance relative to other nations and it appears Bhutanese children are
In the U.S.,
far better educated than American children. This illustrates why it is critical
to identify the preferred state of society and use this to guide selection ofchildren see an
performance metrics. Simply accepting Western social performance stanaverage of overdards might be a mistake.
Once metrics and performance standards have been established, they can
100,00 commercials
be assembled into an overall GNH measure. Rather than attempting to renand advertisements der the state of society down to one number like GNP, GNH would provide
a suite of performance indicators. The performance of society is highly comby the time theyplex and needs to be expressed on many dimensions. By following thisgraduate fromapproach, GNH would provide a far more accurate measure of social wellhigh school.
being than GNP.

Developing a Strategy to Achieve GNH Goals
The above process of identifying ideal and actual social performance will reveal performancegaps. Through a stakeholder dialogue process, these gaps can be prioritized. This process
could be expedited if the expert report noted above contained suggestions for prioritizing
areas needing improvement. Again, this report could serve as a basis for initiating stakeholder dialogue.
A specific action plan for maximizing GNH cannot be developed until social performancegaps are identified and prioritized. Once these are established, the following guidelines may
be useful in developing a successful plan.

Minimize the Need for Foreign Exchange
As noted above, less developed countries often pay a high environmental and social price forincurring debt and developing an export-oriented economy. This is why it is important tounderstand the trade offs that would occur from importing Western products and technology.
Development strategies should be focused on getting the benefits of Western technology andproducts without having to pay high social costs. For example, rather than importing products, Bhutan may be able to work with other parties to build low cost factories that produce
the desired products in Bhutan. This would create jobs and minimize import costs, thus
reducing the need for foreign exchange.
Because Bhutan would be developing a more effective and sustainable economic systemthat could be used as a model by other nations, it is likely that several parties would help inthis process. For example, foundations, non-governmental organizations, high net worth
individuals, national governments and other organizations probably would provide somefunding for such projects. These organizations could also help in developing creative strategies for minimizing the cost of factory construction and sourcing raw materials.
An emphasis should be placed on importing or building only products and technologies
that are environmentally and socially responsible. Priority probably should also be given toessential goods and services, rather than non-essential items. Areas to consider might include

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renewable energy, housing, organic agriculture and foods, clothing and medical care.

Develop More Effective and Sustainable Business Models
In the West, especially the U.S., the means have become the end. Society appears to be focusedon helping business prosper (as indicated by the short-term focus of government, the corruption of social values through advertising and many other factors). However, business is meant
to serve society rather than dominate it.
Guiding principles, laws and regulations should be established to ensure that businessalways serves rather than dominates Bhutan. These principles should ensure that business isalways held fully responsible for negative environmental and social impacts. If quantificationof impacts is difficult (as it might be with intangible social impacts), a panel of unbiased
experts would estimate the cost and include this in prices. In this way, being fully responsible
would be the profit-maximizing path. As noted above, not holding firms responsible forcesthem to be irresponsible.
Another key guiding principle is that there should be no pressure for businesses to grow.
Instead, firms should be incentivized to seek optimal size and become more efficient overtime. This process could be modeled after the infinitely more sophisticated natural systems ofwhich humanity is a part. In nature, systems grow then level off, achieving
Emphasis should
an optimal balance with other systems. Of course, it is much simpler tosay firms should always grow. But this simplicity is destructive. The more
be placed on importing
difficult and sophisticated approach is to take a systems view and deteror building only products
mine firms’ optimal roles and sizes in the region(s) they serve.
In addition, as firms become more efficient, they should be delivering and technologies that
more value at a lower cost. This implies the ideal state for a businessare environmentally andwhose size has stabilized would be to have revenues declining. This raises
concerns about the ability to attract investment. However, these and othersocially responsible.
problems can be solved if solving them becomes a priority for society.
Nature is amazingly sophisticated and complex. Being part of nature, humans have the ability to replace their overly simplistic and destructive economic and business systems with ones
that are more sophisticated and sustainable.

Prohibit Western-Style Advertising
The primary goal of Western nations is economic growth (as indicated by the focus of government and business and by the method used to measure success, the GNP). To achieve economic growth, businesses must continually sell more goods and services. Failing to do thisoften means organizational death in Western economic systems.
To continually increase sales, businesses use advertising to compel consumption. This isoften done by taking advantage of human needs for love, self-esteem and acceptance by peers.
Cultural messages define what it means to be successful and how one can be accepted bypeers. Traditionally these messages were communicated by parents and the larger community.
Traditional cultural messages taught and encouraged young people to be honest, kind, andrespectful to elderly people.
Advertising takes advantage of the strong influence cultural messages have over the way
people live their lives. It often seeks to redefine social standards for the purpose of selling
products. Rather than encouraging young people to be fair, honest and respectful (something
firms make no money on), advertising usually implies that the way to be successful andreflections.solonline.org

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admired by peers is to buy and consume certain products. Ads often show attractive people
having a good time by owning or consuming the advertised product.
In the U.S., children see an average of over 100,000 commercials and advertisements by
the time they graduate from high school. Each of these is a mini-sermon on the religion ofmaterialism. They tell young people that the way to be accepted is to be attractive and to buy
certain products. This drives an obsession with appearance, especially among young girls.
This in turn drives depression, eating disorders, obesity, drug use and other compulsive behaviors. As a result, advertising is one of the most destructive influences in Western society.
It is highly likely that Western advertising would be very destructive to the Bhutanese culture. Values are not fully formed until people mature. Therefore, young people are vulnerable
to commercial messages that define success by appearance and material prosperity. The
capacity for discernment and wisdom generally is acquired as one matures and goes throughlife experiences. As a result, it is often difficult for young people to see the emptiness that lies
behind a life based only on material prosperity. Because of this, every society should keeptight control over the cultural messages communicated to young people. Bhutan should guard
against having their young peoples’ values corrupted by commercial messages – messages
designed to make them feel empty so they will buy something to fill the void.
If business has no artificially induced need to grow, then advertising is not needed to compel purchases. There are other ways to let people know that products and services are available. For example, public service announcements could be used, or honest advertising withno implicit or explicit suggestion that purchasing the product would enhance one’s status insociety.
Jealousy and competitiveness are characteristics of the immature, unwise, ego-based
human mind. These characteristics would exist regardless of the presence of advertising.
However, Western-style advertising greatly increases these traits in society, and greatly lowers
social well-being. As a result, Western-style advertising should be prohibited in Bhutan.

Infrastructure, Jobs, Barter
Other guidelines for development in Bhutan relate to infrastructure, jobs, and barter. The
Western development model often includes infrastructure development projects such as roads
and railways. While these obviously provide benefits to society, there are also costs. For
example, industrial nations often promote transportation enhancements in developing countries to facilitate resource extraction. This frequently leads to enviWisdom mustronment degradation. In addition, building roads can increase pressure to switch to an unsustainable fossil fuel-based economy.
increase if humanity
This is not to suggest that Bhutan should not increase the comfort
is to becomeand convenience of its people. But only that it should carefully consider the costs and benefits of doing so. For example, it may decidesustainable.
that priority should be given to strong families, community-based
living and inner prosperity. If this is the case, then it may be better to pursue a slower infrastructure development path, rather than the aggressive path usually sought by Western nations.
To provide jobs, especially for young people, Bhutan might consider developing a conservation corps and other groups like those developed in the U.S. during the New Deal. These
would provide adventure and experience to young people. Projects might include environmental restoration and protection, some infrastructure development, sustainable agriculture,and housing.

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Much good work also has been done around the world in developing sustainable businessand economic models, such as those based on greater use of bartering. Bhutan should consider sustainable economic systems that have worked in other regions.

Conclusion
Western economic systems are unsustainable because they were developed from a reductionistic perspective that does not take the whole system into account. From a broader perspective, one sees that the economy and business are not separate from any other part of societyor the total Earth system. From this perspective, it is understood that all
impacts must be considered and factored into prices. The system now oper- By developing
ating in the West is a destructive form of capitalism that sends grossly disGNH, Bhutan will
torted price signals, makes illogical growth assumptions, under-values
show other nations
future generations, and compels irresponsible behavior by not holding firms
fully responsible.
that it is possible to
Bhutan could greatly benefit other nations by demonstrating that it ispossible to develop an economy based on a total system perspective. Wis- organize society in adom must increase if humanity is to become sustainable. Wisdom involves sustainable manner,recognizing that all things are interconnected and acting from this perspecone that reflects
tive. Bhutan can help Western nations recognize this by showing how amore effective and sustainable economy can be developed.
great wisdom.
Western economies have demonstrated great creativity and progress intechnology, medicine, business and other areas. In addition, Western nations have sacrificed
greatly to support democracy, human rights and freedom from oppression and tyrannyaround the world. In the U.S., business and political leaders appear to be strongly committed
to doing what is best for society. However, economic and political systems often force wellintentioned leaders to do the wrong thing for children, the environment, and society overall.
Western economies are so large and entrenched that it will be difficult to improve theirdestructive, unsustainable systems. However, these systems can only negatively impact theenvironmental and social realms for so long before there is a price to pay. There is no freelunch. Sooner or later system change will be forced upon Western nations if they cannot
develop the wisdom to act first.
Change is difficult. People often defend a destructive system because uncertainty is frightening to the human ego. If feels safer to stick with a destructive, familiar system rather thanto deal with the uncertainty involved in trying to improve it. Frequently people will irrationally defend a destructive system by pointing out its benefits. It is as if they are saying
Western economic systems should be allowed to continue degrading life support systems andmaking people unhappy because they provide benefits.
There appears to be a profound lack of leadership wisdom, especially in the U.S. (driven
by the subjugation of leadership free will to the omnipresent need to maximize earnings andeconomic growth). Given the young and immature nature of the U.S., this is perhaps understandable as wisdom is acquired through age and maturity. It should be made clear howeverthat there is great wisdom in the American people, as there was in the work of its Founders.
Many U.S. citizens strongly disagree with the policies of their government. Unfortunately, atthe highest levels of government and business, a simplistic corporate structure forces leadersreflections.solonline.org

Feature n Dixon 23

to place short-term profits above all else and often not act on their best intentions. Wisdom
is lacking in the U.S. system, not in its people.
Bhutan also has problems. However, Bhutan appears to be more advanced in key areas
than many Western nations – it is sustainable (or nearly so) and its people appear to be happier. GNH can help Bhutan address internal issues and further enhance social well-being.
And, by developing GNH, Bhutan will show other nations that it is possible to organize
society in a sustainable manner, one that reflects great wisdom.

ABOUT THE AUTHOR

Frank Dixon is an author and consultant specializing in sustainability and systemchange. As the head of research for Innovest, he oversaw the sustainability analysis
of more than 2,000 firms. He is currently advising Wal-Mart and other firms onsustainability and has an MBA from the Harvard Business School.
fdixon@globalsystemchange.com

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commentar y

Commentary
By John Ehrenfeld
Frank Dixon’s speech to the Bhutanese

can describe, often in analytical terms. And,is most appropriate in this special issue on

unlike Humpty Dumpty’s case, we believe wesustainability and points out a compelling

can put them all back together such that wealternative to our Western ways. The idea of

can know and control the system at hand.

an index of happiness is a welcome change
to our customary use of GDP, which is, atbest, only loosely connected to real humanJohn Ehrenfeld

satisfaction. Although it is not possible tomeasure happiness any more than to quantify
beauty, it has great metaphorical and visionary
power. But this fundamental property of happiness makes prescriptive approaches
problematic.

But complexity is more like Lewis Carroll’s
original verse. We cannot put all the piecesof complex systems back together again. In
most cases, the interesting properties of such
systems are exactly those that emerge andmake themselves known to us as observers.
As many of those who will read this are members of a strongly normatively-driven learning
community, it follows that we want to learn

I define sustainability in similar terms as the

how to push the world towards our vision.

possibility that human and other life will flourish

Unfortunately, learning about complexity is

on Earth forever. Flourishing is, like happiness,

idiosyncratic. It is difficult and maybe mislead-an emergent property of the whole system.

ing to attempt to generalize. Using knowledge

Further, the system in this case is complex,

gleaned by experience in our Western, modern

meaning that such properties cannot be

culture to govern other societies is at best notconnected to the parts by mechanical laws.

likely to be effective, and worse may be coun-

They will show up only if all the relationships

terproductive. Some of Dixon’s prescriptions

among the parts of the system are functioningreflect this, as they are warnings to keep our

properly. It is the relationships that count.

hands off the Bhutanese economy. However,On the other hand, it is possible to identify
and frequently to quantify properties that point
to dysfunction and negative outcomes. Dixon
indicates such items as obesity, drug use, andcrime. The implication of this discussion ofindices is that if these are reduced, then happiness or sustainability will increase in someit will take more than a ban on Western-styleadvertising. In a world highly connected bytravel, commerce, and the communication
media, the importation of Western culturalvalues and norms is going to happen withor without advertising. It is our values andnorms that are the problem.

sort of positive proportion. This is a common

But to raise these questions about the solu-

mistake that arises from the failure to accept

tions that Dixon discussed is by no means tothat complexity is truly disconnected from ourdiminish the importance of his basic message.

everyday understanding of the complicatedSomething is dreadfully wrong with our Western,world. Our culture approaches complicatedmodern ways and our prescriptions for lesssystems by reducing them to pieces that we

economically developed societies. One onlyreflections.solonline.org

Commentary n Ehrenfeld 25

has to look at another Himalayan enclave,

Like Dixon, she points to ways to reduce

Ladakh, a semi-autonomous region in thethe negative impacts of development, but her

Jammu-Kashmir province of India. Helena

primary stress at the end of book is aimed not

Norberg-Hodge has poignantly chronicled theat Ladakh but at us. It is our culture and soci-sad story of Ladakh in her book, Ancient

ety that lacks happiness. In her words, “Per-

Futures. Norberg-Hodge first went to Ladakh,

haps the most important lesson of Ladakh

became of the few Westerners to learn Ladakhi,

has to do with happiness. It was a lesson thatand subsequently established a foundation to

I was slow to learn. Only after many years ofhelp the Ladakhis recover from a neat-fatal

peeling away layers of preconceptions did I

dose of Western-style development. To me

begin to see the joy and laughter of the Ladakhis

the most disturbing part of her story is thefor what it really was: a genuine and unhinderedtransformation of a culture of happy people

appreciation of life itself . . . . I have learned

to one of social and economic dysfunction.

another way is possible.”

It was not the case that life in Ladakh was

It may be too late for us to learn from theever idyllic or utopian. The region lacked what

Ladakhis how happiness emerges from thewe call basic comforts; illiteracy was high; andwhole society. Perhaps Bhutan has resisted thelife expectancy lower than norms for modern

forces that buffeted their Himalayan neighbors

societies. The solution imposed by the Indianand can still serve as a living laboratory. Bring-

government and others was to introduce ouring sustainability forth as happiness or flour-

concept of “economic growth.” But this cureishing needs much more than indices. It needs

has been worse that the “disease.” Slums andthe kind of learning that can come only fromunemployment have appeared. The peacefulpractice, from living there, from bringing backrelationships between Buddhists and Muslims

the lessons. As Candide said, “. . . let us

who shared the region in peace for at least

cultivate our garden.”

500 years dissolved. The air and water havebecome polluted.

John Enrenfeld
john.ehrenfeld@alum.mit.edu

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FEATURE 7.3

Seventh Generation:

Education for the Consumer Products Business
Jeffrey HollenderThis article was adapted from a conversation between Jeffrey Hollender, the CEO of the highly successful
Seventh Generation, and Peter Senge, founding chair of SoL. It is one of several conversations with sustainability leaders convened by the SoL Sustainability Consortium. You can listen to an excerpt of theaudio portion of this conversation on the Reflections website at http://www.solonline.org/repository/
file?item_id=9001446

Jeffrey HollenderAbout 18 years ago when I started Seventh Generation, I was attracted to the idea thatthe more products we sold, the more positive an impact we would have on theplanet. But in truth, it’s more like our products simply have a less adverse impact than
traditional products. Our products range from paper and cleaning products, to baby diapers
and, most recently, feminine care products. We sell in natural food stores, grocery stores,
some mass merchants, as well as through the Internet.
When we started the company, we knew education was going to be a fundamental part ofour business. Back then many people had very little understanding of some of the issues thatconcerned us. People understood the importance of using recycled paper, but they didn’t
understand why how paper was bleached made such a big difference. They understood theneed to keep water clean, but they didn’t understand that the air in their homes was probably
more polluted than the air outside of their homes.
In a sense, the products become a vehicle for ongoing education. Right on the wrapper ofevery product, we try to tell a story, and to quantify the impact that the use of this producthas on the planet. It includes an environmental saving statement that calculates things likehow much water, energy, and trees will be saved. We see our products as an opportunity togive people hope, and to define for them how their actions, as small as it might seem tochoose which roll of bathroom tissue to buy, actually make a difference.
Business has become a dominant force in our societies, and people are beginning to saythat some responsibility should go along with having that power. If you are in the position ofdetermining the fate of our environment, you need to take some responsibility for the impactthat you’re having. That’s something that business is just beginning to adjust to. Business is
not well-schooled in thinking about its responsibility for things like human rights, its impact
on the environment, even its responsibility to be educators of the society that they operate in.
One of the underlying challenges is that businesses haven’t learned to think systemically,so that they often don’t even fully understand the impacts that they have. But even if you’rejust manufacturing in the United States, it is highly likely that pollution and other externalized costs from your business end up all over the planet. This really requires new thinking.

reflections.solonline.org

n Hollendern Dixon 27
FeatureFeatureWe struggle with learning how to break out of the patterns that got us to where we are sothat we can see outside of them to come up with solutions.
The best companies know they have to begin to move in this direction if they’re going tosurvive. Systems thinking and corporate responsibility (CR) are best practices, not just nicethings to do. They are critical from a strategic perspective if business is going to succeed overthe long run. Unfortunately, there’s no way you can realize the potential of systems thinking
or CR if you consider them as add-ons to what you’re already doing. You have to integrate
thinking systemically into the way your business operates. You have to think about how you
educate your own staff. You have to think about your supply chain. You have to think about
everything you do in a different way.
There are lots of examples of businesses doing that, even if no one is doing it perfectly.
Nike has made great strides over the past decade. British Petroleum has said, “We’re goingto stand for Beyond Petroleum.” They can see that even though 95 percent of their revenue
comes from selling petroleum, petroleum is a limited resource and they need to move into an
entirely different business. Starbucks is thinking about fair trade coffee and the supply chain
in a whole new way. You can argue that businesses are not doing enough, but you can alsocelebrate what they are doing. Starbucks actually spends more money on healthcare than they
do on coffee. They’re recognizing a whole new paradigm in the way they need to take careof their labor force for the organization’s long-term health.

Investing in Education
We’ve spent a lot of time trying to understand our corporate assets – the heart and soul of
our company – and our global imperatives – what we want to achieve in the world over the
next 50 to 100 years. Knowing that part of our essence is about transparency, social justice,and equity helps us recognize when these systems are colliding, and we need to do something
different. For instance, about a year ago we were looking at the promotions that we run andrealized, “Hey, we’re just giving away stuff.” Now, maybe it’s good stuff – Prius cars andhigh-efficiency washing machines – but the giving away of stuff doesn’t create any real systemic change. Problems won’t be fundamentally changed because we give away a couple ofcars.
When we asked, “What could we do that would be more in keeping with who we are andthe change that we want to see in the world?” we went back to the notion of education.
Helping other people to be educators who could have an impact on all the people that theyinteract with for the rest of their lives seemed like a better thing to do.
On Earth Day this year, instead of giving away washing machines, we entered into a partnership with Greenpeace to train high school and college-age children how to be effective
social and environmental change advocates. We are sending 100 kids to a ten-day training
program in Washington, where they are committed to learning how to have an effective,
positive impact on the world. We still have promotions for washing machines, but in this one,which we called “Change It,” we encouraged people to search out the students with the most
passion for these issues, and get them involved. The students downloaded a form from our
website, and wrote an essay to submit. More retailers wanted to participate in this program
than when we were giving away washing machines.
It’s hard to say at the moment how much better that approach is than what we were doing
before, but that is part of this process. We’re learning and educating ourselves too. I’m not

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sure that we’ll ever know what the exact
right thing to do is. But because we’re
clear about who we are and what wewant to accomplish, we can keep reflecting on our actions to measure how aligned
they are with that vision. In the beginning this reflection process was scary,
because as we awakened to a clearer senseof who we are, we began to notice all
the things that were out of alignment. We
had a series of pretty intense conversations throughout the company. The process only worked because at some level
people here do connect the essence andthe purpose of the company to their own
aspirations. It becomes an incredibly
powerful and exciting thing that theywant to be part of.
I was talking with someone who works
in accounts payable, and she said, “I don’t
really get how this is going to relate to me.
I’ve got a pile of invoices, and I just write
checks.” As we talked, it dawned on herthat she had the authority and the power
to pay certain bills before other bills. She
didn’t have to pay them in alphabeticalorder. She realized that she could pay an
independent contractor – for whom getting the check a couple of days early
would make a huge difference – before
one of our billion-dollar company partners who wouldn’t notice whether the check came Monday or Wednesday. In this self-education process, lots of different people made all kinds of discoveries and connections.

photos.com

Measuring What Matters
People are incentivized by what they do over the course of a year, not over the course of fiveor ten years. Most people don’t want to hear where a business is going to be in ten or twenty years, because they don’t think that far out themselves. It’s a broken system that we needto fix. At a very fundamental level, we do a lousy job of measuring things. We measure thewrong things, so people’s attention is focused on the wrong things. We don’t measure theimpact that things are going to have in the future. Everybody knows what the prime rate is,but very few people could tell you how much CO2 we’re emitting into the atmosphere. And
that’s a huge predictor of what will happen in the future.
We went through a process of measuring some of our impacts a couple of years ago, andwe were amazed at how little we understood. We knew that things like transportation andreflections.solonline.org

Feature29
n Senge 29
Featuren Hollendermanufacturing generate a lot of CO2, and we thought we had a pretty good understandingof what our impact was. It turned out we had to look beyond what we make and what wedo, and include the impact that consumers have when they use our products. We discoveredthat the single greatest impact we had was the result of formulating laundry products thatwere designed to be used in hot or warm water. Theenergy consumed to warm all of that water was byfar our biggest single negative impact. We usedthose measurements to create priorities for our
product innovation process, and reformulating ourlaundry product so that it would work in cold
water went to the top of the list. If the measurement isn’t connected to your core business strategy,
then what’s the point of taking the measurement?
Knowing without a commitment to doing something with what you know doesn’t generate a lot ofchange.

Building Relationships
Another driver to changing our promotion approach
was the notion that we want to have a relationshipwith the people we sell stuff to. When we discountthe product, incentivizing people to buy more, we’re not building a relationship. We believethat change isn’t going to happen if you’re not in a relationship and in dialogue with people.
We wanted to move beyond a transactional mode, in which our products are just commodities that people buy. It’s a two-way street. We’re not only telling them what we know andwhat we’ve learned, but we also constantly learn from them.
One of the reasons this makes so much sense to us is that we hope and believe that bytaking the responsibility and doing the thinking that we’re doing, we can generate a level oftrust and commitment and loyalty amongst our stakeholders and customers that transcends
the usual transactional relationship. If we can incorporate that social value – feeling goodand being part of a community – into buying a product that’s good for the environment, andsupporting a company that’s making the world a better place, we open up some powerful
possibilities. From a competitive perspective, it’s a way that we can transform our products
from commodities into things that generate more value for the people who buy them.
Bill McKibben, who wrote The End of Nature, the first book on global warming, gave
a talk recently. After talking about oil, and CO2, he cited some amazing statistics about
the positive impact of relationship and community. To me, business has the opportunity to
begin to be a partner in solving the challenges that face the world. That opens up the possibility of creating very powerful relationships with other people. Business can transform itself
and must transform itself to be the leading edge of this new relationship-building process.
There are many companies, like Cliff Bar out in San Francisco and Eileen Fisher in New York,
that are built around mission and values, and are also having tremendous success in themarketplace.
As part of that relationship-building process, we are mindful that we want to make products locally and sell them to people who live near where they’re made. We know that in the

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world of food production, for example, food travels thousands of miles before it’s consumed,
losing nutrition and creating environmental havoc in the process. We have tried to keep allof our manufacturing close to where products are sold. So far that’s been primarily in the
United States, but America is such a big country that we’re still just scratching the surface ofwhat is possible here.
Ninety-nine percent of our sales today are through retail outlets like grocery stores andnatural food stores, but we’re increasingly turning our attention to the institutional market.
There is very little control over the types of chemicals that are used in many products. The
people who get the worst exposure are those who are doing this professionally. We’re concerned about that, and that concern is aligned with our values. We know that many people
in institutional settings – municipalities, universities, hotels – would like to use our products.
We’re now designing a new business that will focus on that market. The task is to redesign
the products to work in those institutional settings. For instance, most cleaning products are
made up of water. In an institutional setting, they don’t want to pay to move the wateraround. They buy products in a concentrated mode and then dilute them onsite. The laundry
detergent in a large hotel is actually injected into the washing machine in a very concentrated
form. Many years ago, all our products were more concentrated than they are today, but wecouldn’t communicate that effectively to consumers. People would see a small bottle of ourlaundry detergent next to a big bottle and think, “Why are we paying so much for so little?”
Recently, we decided that our past inability to communicate effectively with the consumer
is not an acceptable reason not to try again. From a sustainability perspective, it’s very hard
to rationalize selling a window cleaner that is 98% water. We are committed to figuring out
how we can effectively educate the people we’re selling to. We’re selling and helping people
evolve their preferences simultaneously. It’s a real challenge to know when to do the rightthing regardless of what anybody else says, and when you have to balance that with what theconsumer will accept. You have to be very thoughtful about where you make those compromises. It’s not about getting it right, it’s about keeping the conversations going. We’re sustaining a process of continual learning. I always have to remember that I’m in a process. And theprocess of continual reflection, conversation, experimentation, making mistakes, and correction is actually what builds relationships among people in an organization. Those relationships are the foundation of your relationships with your customers. And that’s where our
products will finally make a real difference in the world.

ABOUT THE AUTHOR

Jeffrey Hollender, President and Chief Inspired Protagonist for Seventh Generation, is awell-respected leader in the socially and environmentally responsible communities. Jeffrey
has led Seventh Generation from its humble beginnings to its current position as thenation’s leading and fastest growing brand of natural home and personal care products.
jeff@seventhgeneration.com

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n Hollendern Dixon 31
FeatureFeature31

emerging knowledge forum

Building a Sustainability Institutein Russia
Jeff Lindstrom
In the farthest recesses of
Russia, beyond the spans ofSiberia, on the “krai” (edge)of the Asian continent, a
few miles from the borderof China and North Korea
lies an area infamous for its
exploitation by criminals,
speculators, and outcasts
Jeff Lindstromseeking untapped riches.
Today, the remote Russian Far East (RFE) remains
inhospitable, wealthy in resources, and populated by
the descendants of internally displaced persons,political prisoners, and forced labor. But it is herethat a new generation of young leaders has emerged,
seeking long-term opportunity for themselves andgenerations to come.
In the early months of 2003, a small group of
students and I met in the port city of Vladivostok to
discuss the immediate future. As a former U.S. Peace
Corps volunteer, I had created and built a Model
United Nations debate program focused on leadership development that had attracted these students
from various cities into one locale. We had debatedseveral times over the course of three years the phenomenon of “brain drain” that we felt was in part a
result of the rather dismal state of higher educationin Russia. The students were as talented as any I had
encountered as a college instructor in the U.S., butvery few of them believed they would enjoy the benefits of quality higher education in their home intheir lifetime. Unlike many imminent graduates concerned with prospects for employment, hopes forstarting a family, or dreams of going abroad, thisgroup was aware of their chance to do something
different. “I had plenty of opportunities at home and

32 Reflections ■ Volume 7, Number 3

abroad,” said Slava, one of the students, recently,“but I thought if we could build something at home
there would be more opportunity. We needed ahands-on approach, mixing theory and practice, todevelop something new for our region.” But for
Slava and the rest of us it was easier to say than do.
Although Russia has benefited from a high literacy rate (98%), and a majority of high school students attend institutions of higher learning, thecombination of egregiously low salaries for overworked professors, unfavorable conditions for schoolloans (interest rates of 20% and higher), and scantresources for research has provided little motivation
for universities to make graduate programs a priority. The students I met with hoped to fill a need andprovide an educational environment conducive forchange by attracting excellent scholars, providing
affordable tuition, and developing incentives to conduct research. Located in one of the world’s mostresource rich, yet economically impoverished regions,
it made sense to focus our thinking on the challengeof how to redistribute the surfeit wealth gained fromabundant natural resources to fill local needs. If
graduate education was to become a priority, thensustainable development was a discipline that could
provide a sense of urgency to do so. Thus the idea
for the Institute for Sustainable Development (ISD)
was born.
Building an entirely new graduate program fromscratch was a challenge. Improving entrance requirements, enhancing curriculum, and reforming pedagogy, albeit necessary objectives, were not the mostimmediate concerns. “Someday, when we are oldalums, the students will forget that we actually had
to create everything before we could even be students – course outlines, descriptions, the Institute’s

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Institute for Sustainable Development Mission Statement:
to provide an academic institution of higher learning, focusing on the regional,
national, and international development challenges of sustainability by attracting
scholars, experts, and students who have vision and boundless determination topositively affect the long-term development of Russia, for Russians, in Russia.

iSTOCKPHOTO

logo, a motto, vision and mission statements,” says
Evgennia, a member of ISD’s first graduating class.
“We even had to create our own grading system,
because our host university had never had full-time
graduate students actually sitting in classes.” Thefirst ground-breaking group of graduate students
even determined what constituted academic probation for failing to live up to the standards they weresetting for themselves. “Before we even sat down in
our first course the first year, we had already learned
the equivalent of degrees in business and education
administration.”
The progress of ISD was threatened from its very
inception by the tension of trying to replace the oldhabits of a deteriorating educational system – manifested in the bureaucratic lethargy and anachronistic
requirements of the State – with new personal standards of excellence. Since the study of sustainable
development was a novel idea unrecognized as formal science in Russia, attempting to build a credible
graduate program required reform the State wasreflections.solonline.org

unwilling to undertake. Integrating lessons in adaptive strategy for systems change, dialogue, the metaphysics of indeterminacy, and the management tools
needed during periods of great socio-economicchange into standard project management curriculum, for example, was viewed as radical and taboo.
So, if a course was too “unorthodox,” an administrator of the host university would peremptorily
forge the signatures of ISD professors, claiming thecourse strictly followed the requirements of theState. Administrators outside the Institute weren’tinterested in building a program that would foster
generative institutional change as much as they wereinterested in accumulating new tuitions to sustain
the status quo, and their actions bore this out.
The initial challenge in setting up the institute wasa simple one. If a group of extraordinarily gifted andvoracious post-graduate students could be gathered
in one location, then could a group of pedagogicallytalented, eager professors be gathered to supportthem? “When I was first approached about teaching

EKF ■ Lindstrom 33

at ISD I was naturally concerned about two things– time and money,” remembers marketing professor
Yelena Yaskevich. “But when I was told I would beguaranteed that my class would be full of committed, talented students, I agreed immediately. The
market always has time and money for somethingvaluable.” When the doors were opened on the firstday, ISD had assembled a part-time faculty comprised of professors from three different universities
along with several former professors now working inindustry as leaders of companies. Despite the legionsof naysayers and doubters, a host of eager students
and professors had joined forces to lead the change
necessary to improve higher education.
Yet creative change alone was not enough.
Eighteen months after the program had started, thehost university had still failed to process the necessary documents to accept tuitions and accredit
courses. With less than six months to go before thefirst class’s graduation, students had no guaranteethat a diploma would be waiting for them. And bythen the first group of ISD graduate students had
recruited a second group, putting into practice theirideal of an evolving leadership process of development. The power of this ideal outweighed the pragmatics of the situation at hand. Born from this tense
struggle was the Institute’s motto – abeunt en studia
mores (practices zealously pursued become habits)– an audacious belief in the power of emergence andpresencing.
The faculty and first class of students’ resilienceand determination to succeed despite short-term hindrances was also a test of principles and ethics. At
the first state exam the graduating Class of 2005 wasincensed by the fact that they were to be tested byprofessors from the outside, who had no interest or
experience with sustainable development theory. “It
was typical Russia, which was disappointing,”
Masha reported. “I was being harangued by one
professor, who couldn’t understand my research on
systems of sustainable growth because, for one, heread my work a few minutes before my defense. And
two, he was framing questions as though we werestill in the Soviet Union when growth had to be per-

34 Reflections ■ Volume 7, Number 3

fectly planned.” All during the exam one examiner’s
seat remained unoccupied. Just before the end of theexam, the missing professor appeared. Balancing
himself precariously in the doorway, he beseeched
the Chairman to excuse him from the proceedings
due to the fact that he was “presently completely
inebriated.” Without hesitation the professor was
granted his reprieve, but not before he sloppily
signed each and every official paper, noting his
appearance and approval of all degrees. “I had tolaugh,” recalled Andre (Class of ’05), “because todwell upon it would have been impossible. I was
there to celebrate my education, not prove to him or
anyone else I was educated.” Accreditation, at thispoint, seemed trite.
Yet along this precarious path, our adaptive strategies generated large rewards. Within a year of ISD’s
opening, businesses curious about the idea of sustainable development approached the students forsmall consulting and project management contracts,
immediately enhancing the practical side of theireducation. Visiting scholars and business leaders
arrived from American and Russian universities andcompanies, legitimizing and adding excitement to
the effort. Incrementally, this attracted more local
scholars and regional recognition. “After we had our
first seminar for the public, several businessmen
approached us to better understand who we were,”
explained Pavel (Class of ’05). “I sensed that the realquestion behind their curiosity was, Why are you
doing all of this? I felt excited by their interest andsad that they had to ask.” In the first year graduate
students and faculty teamed up to generate over
$15,000 in consulting fees – an amount equal to theentire income generated by tuition. More importantly, graduate students were in the field as much as
in the classroom. “My first meeting was with a millionaire who owned a major holding company.”
Andre said. “I knew I could help him, but I didn’tknow if I was going to be able to bridge the gap
between the assumptions and perceptions of his generation and mine. That’s when I realized sustainable
development had everything to do with dialogue.”By far the most significant project created by thereflections.solonline.org

graduate students was developing a metric system
and accompanying award for a “sustainable development company of the month,” which encouraged
local business owners to develop in a more sustainable way. “We recognized that local leaders of companies who were doing a good job at building
sustainable businesses for our community often
didn’t know they were doing a good job,” explained
Svetlana (Class of ’06), who built her dissertation
theme upon the results of this project. “At minimum,
it was good marketing for us and them, but it turned
out to be so much more. We gave them recognition
for a job well done and hope for the next generation.
They gave us moral and financial support. It was thefirst time I saw the business and academic communities energized to work together.” For a year companies
vied for the prestige of being honored by the Institute, changing internal policies and reforming strategies in order to live up to the standards set by thegraduate student committee. After the first year of
the project, ten local companies were recognized and
one was selected as the “company of the year” at theClass of 2006 graduation ceremonies. “My shock
and delight in winning this award,” shouted the exuberant CEO at the award ceremony, “is only outweighed by my amazement and gratitude that thesestudents of our community created such an idea!”
With strong relationships in the community fromconsulting and the company of the month award
process, ISD now boasts a prestigious Board ofTrustees comprised of local business leaders andscholars who serve as role models for the graduate
students and faculty. In a society not known for phi-lanthropy, a half-dozen business people have joined
the Board, donating time and money toward creating a scholarship fund that distributes monies basedon academic merit and innovative research.
In the past six months, ISD has formed institutional ties with universities and non-profits on in the
U.S. In addition, for the past two years ISD graduates have been awarded prestigious fellowships by
the U.S. government to continue advanced studies in
American universities so that they may return withbroad outlooks and international experience for
their endeavors in Russia. Beginning its fourth year,
ISD has plans to conduct field research in the uniqueregions of the RFE – Lake Baikhal, Sakhalin Island,
and Kamchatcka Pennisula. And, with project management skills increasing in demand, ISD is continuing to develop radical multi-disciplinary courses inorder to afford its graduates the most viable opportunities to affect change in the region.
Despite our successes, numerous roadblocks
remain. At present the Ministry of Education in
Moscow has shown no interest in granting ISD an
educational license due to their small size and parttime faculty. Local universities remain fearful of collaborating with the Institute and losing graduate
students and faculty. It is too early to conclude that
our efforts will eventually result in positive institutional change, but the experience of trying to build a
progressive graduate program in an environment still
mired in the past has been invaluable in developing
our leadership capacity. The path to sustainable
development will doubtless be as exciting and challenging.

ABOUT THE AUTHOR

Jeffrey S. Lindstrom is the founder of Model United Nations of the Russian Far East, Leadership Development International, and the Institute for Sustainable Development, all based in the Russian Far East.
After serving as an adjunct history instructor and assistant football coach at Modesto J.C. in California, hevolunteered for the U.S. Peace Corps in the Russian Far East. A graduate of Whittier College with degrees in
Political Science and History, his research focuses on the process of human and organization development
during periods of great change. He is currently seeking admission to the Doctoral program of the MIT Sloan
School of Management.
isdrussia@hotmail.com

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EKF ■ Lindstrom 35

FEATURE 7.3

Cloudy Skies:

Assessing Public Understandingof Global Warming
John D. Sterman & Linda Booth Sweeney

This article is adapted from the original paper of the same title that appeared in System Dynamics Review,Vol. 18 No. 2. SoL members can access the full article, as well as other articles by the authors, throughthe SoL Library at www.solonline.org/library. An online climate change simulator, where you can try yourhand at creating climate stabilization scenarios, is available at web.mit.edu/jsterman/www/GHG.html.

John D. Sterman

Linda Booth SweeneyClimate change presents a classic systems problem. The spatial scale is global; the timescale dwarfs normal human concerns. The dynamics of the climate are exquisitely
complex and imperfectly understood. “Climate” is an aggregate average of varied
local weather over long time frames and broad geographical extent and can only be perceived with a long delay; many effects of climate change will be hard to attribute properly.
As a global resource shared by all, the climate is vulnerable to the “tragedy of the commons”1
dynamic since individuals, firms, and nations benefit in the short-run from high greenhousegas (GHG) emissions, while the costs are borne by all. Worse, the costs and benefits are distributed inequitably, both between rich and poor and between future generations and ourselves. Small wonder that the challenge of implementing policies to reduce the impact ofwarming remains unanswered.
While surveys show the vast majority of Americans believe global warming is real, themajority also believe, as a recent survey found, that “its effects will be gradual, so we candeal with the problem gradually” or that “until we are sure that global warming is really aproblem, we should not take any steps that would have economic costs.”2 The lack of government support for the Kyoto Protocol, carbon taxes, and other policies designed to reduce
GHG emissions can be traced to public indifference. Many people believe that there is plentyof time to act. Why take costly action today for uncertain benefits tomorrow? Instead, theysay, it is better to wait and see – if warming turns out to be greater and more harmful than
expected, policies to mitigate it can then be implemented.
Wait and see policies, however, often don’t work in systems with long time delays, significant accumulations, multiple feedback processes, nonlinearities, and other elements ofdynamic complexity (Sterman 1994). When there are long time delays between actions andtheir effects, as in the climate system, wait and see can be disastrous. Actions to halt warming
must be taken decades before we can know what the consequences of warming will be, andbefore scientific certainty about the dynamics of the global climate can be gained.
Much of the complacency about climate change arises from inadequate systems thinking
skills. If people don’t recognize the existence of important feedbacks, time delays, and stock

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Figure 1. Simplified representation of the carbon cycle and global temperature

Formation of
Fossil Fuels

FossilCarbonFossil Fuel
Consumption

Insolation

Carbon in
Atmosphere,
Biosphere,& Ocean+++

CO2 inAtmosphere-

Net
Radiative
Forcing
B

Heat Stored in
Atmosphere& Upper Ocean+

Atmosphere& Upper Ocean
Temperatureand flow structures in the climate system, or if they are unable to relate these structures tothe dynamics of the climate, they are likely to draw erroneous inferences about the responseof the climate to human activity. Without such understanding people are likely to rely on theintuitive “wait and see” strategy that works well in a range of everyday tasks.

Structure and Dynamics of the Climate
Despite the complexity of the climate, the essentials are simple and can be easily understoodwith basic knowledge of stocks and flows. The temperature at the earth’s surface – the land,
lower atmosphere, and surface layer of the ocean (the top 50 to 100 meters, where most sea
life exists) – is determined primarily by the balance of the incoming solar radiation (insolation) and the energy the earth radiates back to space. The earth is a warm mass surroundedby the cold of space and like all such masses emits black body radiation whose frequency
distribution and intensity depends on its surface temperature. The warmer the earth, thegreater the flow of energy radiated back into space. The result is a negative feedback process:
Incoming solar energy heats the earth until it is just warm enough for the energy radiatedback to space to balance the solar energy input.
The amount of energy radiated back into space depends on the composition of the atmosphere. Greenhouse gases such as carbon dioxide (CO2) absorb some of the energy radiatedby the earth, instead of allowing it to escape into space. Thus an increase in GHGs causes theearth to warm. The earth heats up until the energy escaping through the atmosphere rises
enough to again balance the incoming solar energy. Naturally occurring greenhouse gases –including water vapor – reduce the emissivity of the atmosphere enough to warm the surfaceof the earth (including the oceans) to a life-sustaining average of about 15°C (59°F). Without
GHGs in the atmosphere, the mean global temperature would be about -17°C (0°F) and ablanket of ice would perpetually cover the earth.
Natural biogeochemical processes have caused the concentration of carbon dioxide in theatmosphere to fluctuate over geological time, and surface temperatures have fluctuated withreflections.solonline.org

Feature n Sterman, Sweeney 37

it. Human activity has now reached a scale where it affects these processes significantly:
GHG emissions have been growing exponentially since the beginning of the industrial age.
Consequently, atmospheric concentrations of CO2 and other GHGs have been growing exponentially. The preindustrial atmospheric CO2 concentration was about 280 ppm; today it isnearly 380 ppm and rising. Atmospheric CO2 concentration is now higher than any time inthe last 420,000 years, and growing faster than any time in the past 20,000 years. The highconcentration of CO2 and other greenhouse gases (GHGs) generates significant radiative
forcing that contributes to warming. To reduce radiative forcing and the human contribution
to warming, GHG concentrations must fall. To reduce GHG concentrations, emissions must
fall below the rate at which GHGs are removed from the atmosphere.
When the data for
Anthropogenic CO2 emissions are now roughly double the removal rate.
this article was first Emissions must therefore fall by half even to stabilize CO2 at present record
levels. During the period when emissions drop towards removal, atmogathered in 2000,
spheric CO2 would continue to rise.

the atmospheric CO2
concentration was
Two Challenges
370 ppm. Today, six We wanted to assess people’s understanding of global warming and of thestructure and dynamics of the global climate. To do so, we created two chalyears later, it haslenges: the Zero Emissions (ZE) challenge and the Stable CO2 Concentration
increased to nearly(SC) challenge. (See following sidebars) Each consists of a short descriptionof the climate system, graphs showing the history of human CO2 emissions,
380 ppm.

the concentration of CO2 in the atmosphere, and global mean temperature.
We asked the participants, highly educated graduate students at MIT and the University of
Chicago,3 to identify the likely response of the system to various scenarios for CO2 emissions
or concentrations. Both challenges can be done without use of mathematics beyond simple
arithmetic. As will be evident, performance was weak. The challenges, and the results can beseen in the following sidebars.
The University of Chicago MBA students did about the same on the Zero Emissions task.
About 64% of those in the CO2 graph condition drew incorrect trajectories (compared to
78% of the MIT students, but the difference is not significant). About 80% of the Chicago
students receiving the CO2 graph condition drew erroneous trajectories for temperature,compared to 64% of the MIT students; again the difference is not significant. In the No CO2
condition, 79% of the Chicago students drew erroneous temperature trajectories, comparedto 46% of the MIT students, a significant difference (p = 0.004). There were no significant
differences in temperature patterns between the CO2 and No CO2 treatments among the
Chicago MBAs. Like the MIT group, about three-quarters of the Chicago MBAs drew temperature trajectories correlated with their CO2 trajectories – if they showed CO2 peaking andthen falling, they were also likely to show temperature peaking and falling – providing moreevidence that people believe temperature and CO2 concentrations should follow the same
pattern.

Discussion
The people we tested were highly educated, yet their ability to understand the most basic
stock and flow structures governing the climate was low. They did quite poorly, and their

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Figure 2. The Zero Emisions Challenge

Anthropogenic CO2 Emissions(Billion metric tons/year)

Anthropogenic CO2 emissions
8
6
4
2
0
1950

1975

2000

2025

2050

Carbon dioxide in the atmospheredata on average global temperatures since1950, along with a trend line.

Atmospheric CO2(billion metric tons)

900
850
800
750
700

Data

650
1950

Model
1975

2000

2025

2050

Global Mean Surface
Temperature Anomaly(˚C above background)Angell
Data

0.8
0.6

Model

0.4
0.2

JWW
Data
0
1950

reflections.solonline.org

1975

2000

2025

In 1995, a UN scientific panel concluded
that these emissions were contributing to
global warming, stating that “The balanceof evidence suggests a discernible human
influence on climate.” In 1997 the industrialized nations agreed to stabilize their
CO2 emissions near mid 1990 rates. Implementation, however, remains elusive.
Now let’s do a mental exercise we call an
extreme conditions test. What do you thinkwould happen to the average global temperature if anthropogenic CO2 emissions suddenly
stopped completely, so that annual emissions
were zero? This imaginary scenario is shownin the top image. In the year 2000 anthropogenic CO2 emissions drop instantaneously
to zero and remain there forever.

Global mean surface temperature
1

Consider the problem of global warming.
Carbon dioxide (CO2) is a greenhouse gasthat traps heat and contributes to warming.
CO2 emissions from combustion of fossil
fuels like oil, gas, and coal have been
increasing since the start of the industrial
revolution. The curve labelled “Anthropogenic
CO2 Emissions” in the first image (left) shows
the worldwide emission rate of CO2 from fossil
fuel combustion since 1950. The second
image (center) shows the stock of carbon
dioxide in the atmosphere, along with a trendline trend line generated by a global climate
simulation model. The third (bottom) shows

2050

Assume anthropogenic CO2 emissions
follow this scenario. Sketch the likely path(the continuation of the simulation) for
atmospheric CO2 for the next 50 years using
the space provided in the right half of thesecond image. Then sketch the likely path(the continuation of the simulation) for the
average global temperature for the next 		
50 years using the space provided in 		
the right half of the bottom graph.

Feature n Sterman, Sweeney 39

Table 1. Performance of MIT Students on the Zero Emissions Task

CO2 Trajectory
1

Correct:

22%

CO2 peaks at or very shortly after the year 2000, then declines at adiminishing rate.
Incorrect:

78%

2

CO2 stabilizes in or after 2000 and never drops

31%

3

CO2 keeps rising forever

8%4

CO2 immediately drops and continues to go down (shows a sudden,
discontinuous jump down at or very shortly after 2000)

4%

5

CO2 stabilizes, then decreases

7%

6

CO2 increases, then decreases

16%

7

The CO2 trajectory is discontinuous (has a sudden jump up or down at someother time than at or very shortly after 2000).

1%

8The CO2 trajectory follows some other path.

10%

N=

1

97

Global Mean Temperature Trajectory

Total

CO2
Graph

No CO2
Graph

Correct:

36%

28%

46%

64%

72%

54%

Temperature continuing to rise for about 20–30
years, then falls (slowly).
Incorrect:2

Immediate peak and drop in temperature in orvery shortly after the year 2000

22%

23%

20%

3

Temperature rising forever

11%

13%

9%

4

Temperature stabilizing in or after 2000 and neverdeclining

18%

25%

9%

5

A fluctuation in temperature

1%

0%

3%

6

A discontinuous path (temperature has a sudden
jump up or down)

3%

4%

1%

7

Temperature stabilizing then decreasing

2%

3%

0%

8

Temperature decreasing, then increasing.

2%

2%

3%

9

Some other path for temperature

6%

3%

10%

N=

186

106

80

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responses exhibited systematic errors. The concentration of CO2 in the atmosphere must
continue to rise as long as emissions exceed uptake; surface temperature must continue to riseas long as incoming solar energy exceeds outgoing radiation and heat transfer to the deep
ocean. Participants, however, regularly violated these basic physics. They consistently underestimated the delay in the response of temperature to changes in CO2 concentration, selecting
trajectories in which temperature responds far too much and too fast. The vast majority
believed that temperature should follow the same pattern as CO2 concentration, rising when
CO2 is rising and falling when CO2 is falling. In fact, temperature can rise even as CO2 drops.
Similarly, most believe that stabilizing CO2 concentrations can be accomplished by stabilizing
emissions near current rates, when emissions must fall significantly, to the removal rate, forconcentrations to stabilize.
Before discussing the implications we consider alternative explanations for the results. One
possibility is that the participants did not apply much effort because there was insufficientincentive. It is also possible that the participants were given insufficient time. Both questions
will be left for future research. It may also be argued that performance would improve if
participants were given more extensive data and background on climate dynamics. We did
not examine variations in information provided. We note, however, that the stabilization
challenge includes explicit information on the rate at which natural processes remove CO2from the atmosphere. Participants’ written explanations show that a number used this information, some effectively. Yet many others explicitly point to the past correlations amongemissions, concentration, and temperature as evidence justifying pattern matching, ignoring
the cues in the challenge description increasing the salience of the stock and flow structure.
Many more use the information incorrectly, violating conservation laws and reaching erroneous conclusions. Most discussions of warming in the media do not present information on
the removal rate by natural processes, and do not draw attention to the stock-flow structure
as in our challenges. We hypothesize that performance without this information would besubstantially worse than observed here. We also note that in our prior work (Booth Sweeney
and Sterman 2000) similar participants did poorly and exhibited the same systematic violations of conservation laws in much simpler tasks such as filling a bathtub.
An evolutionary perspective suggests the errors people exhibit in our challenges should be
expected. It is not necessary to understand the relationship between flows and stocks to fill abathtub – nature accumulates the water “automatically.” It is far more efficient to simply
monitor the level of water in a tub and shut off the tap when the water reaches the desired
level – a simple, effectively first-order negative feedback process, which, experiments such as
Diehl and Sterman (1995) show, people can do well. As Laplace remarked, “Nature laughs
at the difficulties of integration.”4 That is, stocks in nature always properly accumulate theirflows even when mathematicians cannot solve the equations of motion for the system. Thus
for a wide range of everyday tasks it is better to simply wait and see how the state of thesystem changes, and then take corrective action: decision makers have no need to infer how
the flows relate to the stocks – when you are hungry, search for food; when the fire dies
down, put more wood on it. In such settings intuitive understanding of stocks and flows
offers no survival value and is unlikely to evolve.
Unfortunately, the wait-and-see strategy can fail spectacularly in systems with long timedelays, multiple feedback processes, and other elements of dynamic complexity (Diehl andSterman 1995, Sterman 1989a, 1989b). More and more of the pressing problems facing us
as managers and citizens alike involve long delays. The long time scale means there is little

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Feature n Sterman, Sweeney 41

Figure 3. The CO2 Stabilization Challenge (Part 1: Description)

Consider the issue of global warming.
In 2001, the Intergovernmental Panel on
Climate Change (IPCC), a scientific panelorganized by the United Nations, concluded
that carbon dioxide (CO2) and othergreenhouse gas emissions were contributing to global warming. The panel statedthat “most of the warming observed overthe last 50 years is attributable to humanactivities.”

Anthropogenic CO2 Emissions(GtC/year)

Figure 1. Global CO2 emissions resulting
from human activity (billion tons of carbon per year)
6

4

2

0
1850

1900

1950

2000

1950

2000

Figure 2. Atmospheric CO2
concentrations, parts per million.
Atmospheric CO2 (ppmv)

380
360
340
320
300
280
1850

1900

Figure 3. Average global surface
temperatures, °C. The zero line is set
to the average for the period 1961–1990.
Temperature Change, ˚C(1961–1990 Average=0)

0.8
0.6

The amount of CO2 in the atmosphereis affected by natural processes andby human activity. Anthropogenic CO2
emissions (emissions resulting from humanactivity, including combustion of fossil fuels
and changes in land use, especiallydeforestation), have been growing since
the start of the industrial revolution (Figure1). Natural processes gradually remove
CO2 from the atmosphere (for example, as
it is used by plant life and dissolves in theocean). Currently, the net removal of
atmospheric CO2 by natural processes isabout half of the anthropogenic CO2
emissions. As a result, concentrations of
CO2 in the atmosphere have increased,from preindustrial levels of about 280 parts
per million (ppm) to about 370 ppm today(Figure 2). Increases in the concentrationsof greenhouse gases reduce the efficiency
with which the Earth’s surface radiates
energy to space. This results in a positive
radiative forcing that tends to warm thelower atmosphere and surface. As shownin Figure 3, global average surface
temperatures have increased since thestart of the industrial revolution.

0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
1850

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1900

1950

2000

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Figure 3. The CO2 Stabilization Challenge (Part 2: Response)
Now consider a scenario in which the concentration of CO2 in the atmosphere gradually rises [falls] to 400 ppm[340 ppm], about 8% higher [lower] than the level today, then stabilizes by the year 2100, as shown here:

Atmospheric CO2 (ppmv)

440
420
400
380
360
340
320
300
280
1900

1950

2000

2050

2100

1950

2000

2050

2100

Atmospheric CO2 (ppmv)

440
420
400
380
360
340
320
300
280
1900

1. For this to occur, CO2 emissions resulting from human activity would have to:❑ Continue to rise through the year 2100.
❑ Gradually rise about 8% and then stabilize by the year 2100.
❑ Gradually rise less than 8% and then stabilize by the year 2100.
❑ Stabilize now at current rates.
❑ Gradually fall about 8% and then stabilize by the year 2100.
❑ Gradually fall more than 8% and then stabilize by the year 2100.
❑ Immediately drop more than 8% and then stabilize by the year 2100.
2. Assuming CO2 concentrations follow the scenario above, the average global temperature would most likely:❑ Continue to rise through the year 2100.
❑ Continue to rise, then stabilize by the year 2100.
❑ Rise for a few more years, then peak, gradually fall and stabilize above current levels.
❑ Stabilize now at current levels.
❑ Rise for a few more years, then peak, gradually fall and stabilize below current levels.
❑ Rise for a few more years, then peak and continue to fall through the year 2100.
❑ Immediately drop, then stabilize by the year 2100 below current levels.
3. Why? Explain your choices (briefly):reflections.solonline.org

Feature n Sterman, Sweeney 43

opportunity for learning through outcome feedback. Instead, we must rely on models of
various types to help us project the likely dynamics of the system. These models typicallypresent information in the form of spreadsheets, graphs, or text – the same type of data presentation in our experiments. Managers are called on to evaluate spreadsheets and graphs
projecting revenue and expenditure, bookings and shipments, hiring and attrition. These
modes of data presentation are not unique to business. Epidemiologists must understand therelationship between the incidence and prevalence of disease, urban planners need to know
how migration and population are related, and everyone, not only climatologists, needs tounderstand how emissions of greenhouse gases alter global temperatures. For global warming, and many of the most pressing issues in business and public policy, the mode of data
presentation in our tasks is the naturalistic context.5
The results suggest that highly educated people have extremely poor understanding of
global warming. There are several lessons. Most people drew trajectories in which CO2 andtemperature followed the same pattern – they intuitively feel CO2 and temperature should becorrelated. But the human contribution to global warming cannot be proven or disproven bysimply correlating emissions and temperature: The stock/flow structure means climate
dynamics are fundamentally incompatible with such naive “common sense” approaches. For
example, the full impact of past emissions has not yet been observed. Since the industrial
revolution the oceans and terrestrial carbon stocks have been absorbing carbon out of theatmosphere at higher rates, suppressing the rise in atmospheric CO2 concentrations. As thesestocks increase, their absorption capacity diminishes. The impact of future emissions on
atmospheric CO2 is likely to be larger than that observed in the past.6 The inertia of the system means further warming and climate change are already underway. Actions to halt warming must be taken decades before we can know what the consequences of warming will be,
and before scientific certainty about the dynamics of the global climate can be gained. Yet
many people drew trajectories in which global temperature responds immediately to changes
in emissions of greenhouse gases, significantly underestimating the time delays and inertia of
the system.
The IPCC considered 40 scenarios for future GHG emissions (IPCC 2001b, 62). In manyof these, greenhouse gas emissions eventually stabilize or even fall. Yet in every scenario, CO2concentrations continue to rise through 2100, to levels ranging from 540 to 970 ppm. In
every scenario, net radiative forcing increases. In every scenario temperatures continue toclimb, with warming over the next century of between 1.4 and 5.8 °C (2.5 to 10.4 °F). For
comparison, the mean global temperature during the last ice age, when sheets of ice thousands of feet thick covered much of the northern hemisphere, was only about 5 °C colder
than today.
At the 1997 Kyoto conference, 38 industrialized nations agreed to reduce emissions toabout 95% of 1990 rates by 2012. While the agreement is better than business as usual, theUnited States, the world’s largest emitter, and rapidly developing nations like China are notsignatories. Their emissions continue to grow. The policy debate has become a fight overwhether to stabilize the emission rate, not the stocks of greenhouse gases that drive the climate. Even if Kyoto were fully implemented, emissions would continue to exceed removal
and GHG concentrations would continue to rise. The fight over implementation of the Kyoto
Protocol, therefore, has become a debate about how much more GHG concentrations in theatmosphere will rise, and how much faster the global climate will warm. Halting warming,much less reversing it, is not even on the table.

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Table 2. Performance of MIT Students on the Stable CO2 Concentration Task

CO2 Emissions would have to…

CO2 Scenario:
400
340

1

Continue to rise through the year 2100

6%

1%

2

Gradually rise about 8% and then stabilize by the year 2100

21%

0%

3

Gradually rise less than 8% and then stabilize by the year
2100

20%

2%

4

Stabilize now at current rates

14%

7%

5

Gradually fall about 8% and then stabilize by the year 2100

7%

23%

6

Gradually fall more than 8% and then stabilize by the year
2100

18%

22%

7

Immediately drop more than 8% and then stabilize by the year
2100

14%

44%

N

85

86

Temperature would most likely…

CO2 Secnario:
400
340

1

Continue to rise through the year 2100

31%

16%

2

Continue to rise, then stabilize by the year 2100

38%

7%

3

Rise for a few more years, then peak, gradually falland stabilize above current levels

26%

15%

4

Stabilize now at current levels

1%

0%

5

Rise for a few more years, then peak, gradually fall andstabilize below current levels

2%

41%

6

Rise for a few more years, then peak and continue to fall
through the year 2100

1%

9%

7

Immediately drop, then stabilize by the year 2100 below
current levels

0%

11%

N

84

85

Emissions Trajectory

Temperature Trajectory

Scenario

400 ppm

340 ppm

400 ppm

340 ppm

Correct Response

Item 6Item 7

Items 1 or 2

Items 1 or 2

Fraction Correct

18%

44%

69%

23%

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Feature n Sterman, Sweeney 45

The situation is, in fact, even worse. The G. W. Bush administration formally repudiatedthe Kyoto treaty in 2001. Instead, the administration explicitly adopted the wait-and-see
approach. In February 2002, President Bush proposed the so-called “Clear Skies
Initiative,”stating
My administration is committed to cutting our nation’s greenhouse gas intensity– how much we emit per unit of economic activity – by 18 percent over the next
10 years. This will set America on a path to slow the growth of our greenhouse gas
emissions and, as science justifies, to stop and then reverse the growth of emissions.
This is the common sense way to measure progress. . . . If, however, by 2012, ourprogress is not sufficient and sound science justifies further action, the United States
will respond with additional measures.... 7

Even if achieved, the nonbinding target would not “stop or reverse” warming. It would
not lower GHG concentrations. It would not even reduce emissions. It proposes only to slow
the growth of emissions. Emissions will continue to grow. Greenhouse gas concentrations will
therefore continue to rise, and warming will accelerate. The language used to describe Clear
Skies plays upon the public’s inadequate understanding of stocks and flows. By focusing on
the GHG intensity of economic output, the proposal can be presented with words like “cutting” and “reduction.” In fact, at the rate of real economic growth assumed in the administration’s 2002 budget, emissions in 2012 would rise by 17%.8 The target 18% cut inemissions intensity over 10 years is designed to sound like a large amount, but it is about thesame as the 17.4% drop in emissions intensity that occurred from 1990 to 2000 with nopolicy intervention. Clear Skies is the continuation of business as usual. A more accurate
statement of the policy would be “My administration is committed to further growth in our
nation’s greenhouse gas emissions, ensuring higher greenhouse gas concentrations and continued global warming. If it turns out that sound science justifies further action, it will be toolate.”
Here lies both a challenge and an opportunity. The challenge: The majority of Americans
believe warming is real and should be addressed. But, as we have seen, people’s intuitive
understanding of even the simplest dynamic systems is weak. As long as people’s common
sense tells them that stabilizing emissions is sufficient there can be little political will or public pressure for policies that could stabilize climate and prevent further warming. As long as
people believe the delays in the response of the system are short, they will conclude it is best
to “wait and see” if warming will occur and how much more harmful it will be before taking
action. Such heuristics often work well in everyday tasks with low dynamic complexity,
where delays are short, outcome feedback is unambiguous and timely, the opportunities forcorrective action frequent, and the costs of error are small. But none of these conditions holdin systems with high dynamic complexity, where delays between actions and impacts are long,outcome feedback is ambiguous and delayed, many actions have irreversible consequences,and the costs of error are often immense. The same decision making heuristics that serve us
well in simple systems may lead to disaster in complex dynamic systems such as the climate.
Initiatives like Clear Skies present two possibilities: Perhaps cynical policymakers andspecial interests are taking advantage of the public’s poor understanding of stocks and flows
to make do-nothing policies sound like major initiatives. Alternatively, policymakers themselves may not fully appreciate the dynamics of the climate and sincerely believe a wait-and-46 Reflections ■ Volume 7, Number 3

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see policy is prudent. In free societies, themedia are supposed to act as a check onsuch misinformation. Yet, judging by thepoor performance of the highly educatedparticipants in our experiments, many honest policymakers, members of the media andcitizens do not understand the most fundamental principles of dynamics, much lessthe immensely complicated models developed by climate scientists. People judge theplausibility of model-based projections suchas those of the IPCC by whether the projections “make sense” relative to their intuitive
understanding of the system, and theirintuitive ability to relate flows and stocks,
understand time delays, and account for
simple feedbacks. The results of such models are presented, even in nontechnicalreports such as those of the IPCC (2001a),in the form of text, charts and graphs – thesame mode of data presentation used in ourchallenges. Supposedly nontechnical reports
such as the IPCC’s (2001a) Summary for
Policymakers are far too technical for the
average person – and elected official – tounderstand. Such presentations are unlikely
to overcome the power of “common sense”
and “wait and see.” In such an environment, the corrective feedback of a free press may beineffective.
The opportunity: Dana Meadows (1989), explaining why she wrote a weekly newspaper
column to communicate systems concepts to the public, noted that “Even the simplest systems concepts help. The level of public discussion is so simpleminded that it doesn’t takemuch to raise its quality. The most fundamental tenets of system dynamics can clear up significant muddles in public thinking.” While the complexities of the global climate are daunting, the essence of the problem is as simple as filling a bathtub. Learning about stocks andflows may go a long way in overcoming people’s poor intuitive understanding of dynamics.
To illustrate, consider the following letter to the editor of The Chemical Engineer, by A.
Lodge (1999), in response to an article about the complexities of global climate policy:

photos.com

The article. . . gives a fascinating insight into the way international politics struggles
with complex technical issues. I was inspired to set up an experiment to test some of
the ideas, and hit upon the analogy of using my bath instead of the Earth and taking
the water as carbon dioxide. I jammed the plug firmly, and turned one tap to full.
I observed that the bath was filling with water. I turned the flow down to 80% – amassive 20% reduction – only to discover that it was still filling but slightly more
slowly. At this point I was joined by my neighbour, an American. He pointed outthat reducing the flow by 20% was out of the question; we haggled for a bit before

reflections.solonline.org

Feature n Sterman, Sweeney 47

agreeing on a reduction to 94.8%. We thought the 5.2% reduction had a nice ringto it. Oddly, the bath was still filling up with water at almost the same rate that it
had been initially. My friend then gave me a five pound note to turn the tap down byanother 20%. I did so. He then turned on the other tap to exactly counter the 20%
saving. I complained, only to be told that he had “bought my credits,” whatever thatmeans. He then rushed out, returning with a bucket which he put under the second
tap. I was so impressed that I did not notice for a moment that the bath was still filling up and that the bucket would soon overflow. We decided we had experimented
enough for one day and went off to the pub. We were on our third pint when weremembered that the experiment was still running.

The letter is a fine example of the power of basic stock and flow logic. The higher theconcentration of greenhouse gases in the atmosphere, the higher the global temperature will
eventually become. The stock and flow structure of the global climate means stabilizing emissions near current rates will not stabilize the climate, but ensures continued growth in GHG
concentrations, and continued warming. The climate is complex and our ignorance great. Yetat another level it is as simple as filling a tub: Humanity is injecting CO2 into the atmosphereat about twice the rate it is drained out. Stabilizing the concentration of CO2 requires substantial cuts in emissions. Kyoto, while better than business as usual, will not stabilize GHG
concentrations at even the record levels they have now attained, much less end the inadvertent experiment in global climate change humanity is now conducting. The sooner people
understand these dynamics the sooner they will call for leaders who reject do-nothing waitand-see policies and turn down the tap – before the tub overflows.
Endnotes
1 “The Tragedy of the Commons,” Garrett Hardin, Science, 162(1968): 1243-1248.
2 A Center on Policy Attitudes poll in November 2000 showed that while most Americans believe global warming is real, Only 39% agreed that “global warming is a serious and pressing problem [and] weshould begin taking steps now even if this involves significant costs.” 19% agreed that “Until we aresure that global warming is really a problem, we should not take any steps that would have economic costs” while another 39% agreed that “the problem of global warming should be addressed, but its
effects will be gradual, so we can deal with the problem gradually by taking steps that are low in cost.”(www.pipa.org/OnlineReports/GlobalWarming/buenos_aires.html). A Harris poll conducted in August
2001 (www.harrisinteractive.com/harris_poll/index.asp?PID=256) found that 88% of Americans haveheard about global warming and most (75%) believe it is real (compared to 19% who don’t). Most
who have heard about the Kyoto and Bonn accords approve (by 70% to 22%), but Republicans muchless likely to believe warming is real or support Kyoto than Democrats. See also Immerwahr (1999).
3

The challenge tasks were given to students from MIT and Harvard enrolled in the introductory system
dynamics course at the MIT Sloan School of Management, and to students at the Graduate Schoolof Business at the University of Chicago. A full description of participants can be found in the original
paper in SoL’s library.

4 Quoted in J. W. Krutch, (1959) “The Colloid and the Crystal,” in I. Gordon and S. Sorkin (eds.) The
Armchair Science Reader, New York: Simon and Schuster, p. 510.
5 Advocates of the naturalistic decision making movement argue that many of the apparent errors documented in decision making research arise not because people have poor reasoning skills but as artifacts of unfamiliar and unrealistic laboratory tasks. While emphasizing the bounded rationality ofhuman decision making, they argue that people can often perform well in complex decision making

48 Reflections ■ Volume 7, Number 3

reflections.solonline.org

settings because we have evolved “fast and frugal” heuristics that “are successful to the degree they
are ecologically rational, that is, adapted to the structure of the information in the environment inwhich they are used…” (Gigerenzer et al. 1999, vii).
6	 The IPCC (2001b, 51) concludes “The fraction of emitted CO2 that can be taken up by the oceans
and land is expected to decline with increasing CO2 concentrations…. [Despite uncertainties] current
models consistently indicate that when the effects of climate change are considered, CO2 uptake byoceans and land becomes smaller.” The limits on sinks include a decline in the uptake of CO2 by forests, including North America, where a great deal of land cleared for farming through the mid-19th
century has been abandoned and allowed to return to forest over the past century; that process issaturating and may reverse due to development.
7 See www.whitehouse.gov/news/releases/2002/02/20020214-5.html.
8	 The administration’s proposed 2002 budget projects real GDP will grow from an estimated $9,382
billion in 2002 to $12,973 billion in 2012, a 38.3% increase (a compound rate of 3.24%/year); seew3.access.gpo.gov/usbudget/. US GHG Emissions would therefore grow to 1.383/1.18 = 1.17 times
the projected 2002 rate.
References
Booth Sweeney, L. and J. D. Sterman (2000). Bathtub Dynamics: Initial Results of a Systems Thinking
Inventory. System Dynamics Review 16(4): 249-294.
Diehl, E. and J. Sterman (1995) Effects of feedback complexity on dynamic decision making,
Organizational Behavior and Human Decision Processes 62(2), 198-215.
Lodge, A. (1999) Letter to the editor, The Chemical Engineer. 25 November, 25.
Meadows, D. H. (1989). System Dynamics Meets the Press, System Dynamics Review 5(1): 68-80.
Sterman, J. (1989a) Misperceptions of feedback in dynamic decision making. Organizational Behavior
and Human Decision Processes 43(3), 301-335.
Sterman, J. (1989b) Modeling managerial behavior: Misperceptions of feedback in a dynamic decision
making experiment, Management Science 35(3), 321-339.
Sterman, J. (1994) Learning In and About Complex Systems, System Dynamics Review 10(2-3), 291-330.

A b o ut the A uth o rs

John D. Sterman is the Jay W. Forrester Professor of Management and Director of the System
Dynamics Group at the MIT Sloan School of Management.
jsterman@mit.edu
Linda Booth Sweeney has worked with SoL during the past twelve years as a project leader. She has
published several books desgined to simplify understanding of systems frameworks, concepts and tools
and to provide visual and experiential examples of systems-in-action. Linda received her doctorate ineducation from Harvard University and is currently the director of SoL’s Education Partnership.
Linda_Booth_Sweeney@post.harvard.edu
A new article on this theme by the authors entitled “Understanding Public Complacency About Climate
Change: Adults’ Mental Models of Climate Change Violate Conservation of Matter’ is forthcoming from
Climatic Change and can be accessed at http://web.mit.edu/jsterman/www/Understanding_public.html.
Reprinted with permission of System Dynamics Review, John Wiley and Sons, Limited

reflections.solonline.org

Feature n Sterman, Sweeney 49

commentar y

Commentary
Changing the Landscape for Profitable Control of Greenhouse Gases

By Tom Fiddaman
John Sterman and Linda Booth Sweeney show

public relations, and hedging against futurethat even highly educated people have a low

contingencies (e.g. high oil prices or carbon

level of understanding of the bathtub dynamics

taxes).

of greenhouse gases and temperature. As aresult, they favor “wait and see” policies that
perform poorly given the long delays between
emissions and perceptible climate damage.
Tom Fiddaman

Ironically, the most common policy for emissions control, tradable permits, also promotes
a “wait and see” approach because volatile
short-term dynamics overwhelm long-term
considerations. Carbon taxes provide a stable
alternative that aligns economic incentives
with environmental goals, making it easierto act now in spite of uncertainty.

Eventually, though, these “no regrets” actions
will be fully exploited, and further reductions inemissions will be costly. It is clear that sometechnologies – e.g. geologic carbon sequestration – will never be adopted without regulatory
mandates or a price on carbon, because theyentail fundamental efficiency and cost penalties. Firms may continue to pursue reductions
altruistically, but in doing so will place themselves at competitive risk. To make further
progress, some kind of measures will be needed to change the competitive landscape so

The U.S. is primarily investing in research andthat the profit incentive supports action in thedevelopment, which creates options for future

benefit of society. Business can have a sub-reductions of greenhouse gases, but also

stantial influence on the kinds of policies thattriggers rebound effects that offset reductions

are adopted – but what to ask for?

by making driving, lighting, and other energy
services cheaper to use. European countries
are pursuing a wider range of measures,
including carbon taxes and tradable emissions
permits, with varying success. Market designis proving time consuming and controversial.

So far emissions trading schemes have attracted
the most attention. They fit conceptually with
the Kyoto Protocol, which consists of a setof commitments by developed countries toemissions reductions with respect to 1990
rates and a set of side agreements that facil-

Many companies, however, are not waiting foritates trading. Cap and trade schemes set hardpolicy to catch up, and are pursing initiatives

limits on emissions, allocate them as property

that reduce greenhouse gas emissions profit-

rights, and permit firms to trade those rights

ably. Because little attention has been focusedso that there is flexibility to make emissions

on emissions in the past, there are many

reductions where they are cheapest to achieve.

opportunities for such reductions. The payoff

The principal attractions of cap and trade

is not only short-term operational savings,

schemes are that they use market mecha-

but also long-term benefits from moving down

nisms, they are compatible with international

learning curves, promoting turnover of capital,

trading, and (if some permits are given away)

50 Reflections ■ Volume 7, Number 3

reflections.solonline.org

they buy participation by compensating

short run because energy demand is associatedcarbon-intensive firms for stranded assets.

with long-lived capital equipment. To reconcile
fluctuating demand with constant permits, busi-

However, as the recent volatility of European

nesses have to maintain an inventory of per-carbon markets shows, there are also serious

mits as a buffer, with all of the problems thatproblems with the cap & trade approach.

entails. Commodity and derivative markets will

Emissions markets differ from most commodity

help to fill the gap, but with high transaction

markets because governments determine thecosts and volatility, as seen in Europe. Electric

supply of permits, and only the demand side

utilities, which already have trading departments

adjusts in the short run. This immediately

for other commodities, can handle this. But

creates tensions about the allocation of per-imagine the challenges for individuals who have

mits: auction them, or give them away to past

to balance their carbon account along with

polluters? Should the electric power sector or

their checkbook, and wonder whether it will be

the transport sector bear the greater burden?

cheaper to visit grandma this month or next.

How can real emissions reductions be distinguished from actions that would have happen-

The potential for drastic short term volatility

ed anyway, or reflect corruption rather thanin emissions markets gives risk-averse leaders

honest effort?

strong incentives to set modest goals (highemissions cap levels) in order to avoid trigger-

Permit markets are difficult to manage because

ing damaging high price episodes. Uncertainty

emissions are subject to seasonal and business

about the costs that will result from a given

cycle fluctuations, but difficult to change in thecommitment level grows as one looks further

The goal of emissions controls is to reduce-

the greenhouse gas intensity of the long-lived+

capital in the economy (loop B1). With a

Atmospheric
CO2

PermitQuantity
B3

permit system, long term reductions are-conditioned on expectations of permit prices,

ExcessEmissions+which are driven by short term costs ofPermit Pricechanges in utilization of capital needed toControlled
Emissionsfrom the business cycle and other sources
triggers volatility in prices. Price spikes put

Noisepressure on politicians to increase permitted
term need to meet atmospheric constraints(loop B4) gets lost in the short-term shuffle.

reflections.solonline.org+

B2

meet emissions constraints (loop B2). Noiseemissions to ease the situation. The long-

+

B4

-

Emissions Embodied
in Capital-

Utilization ofEmitting Capital+

B1■ Fiddaman
Feature n Robèrt,
Mack 51
Commentary

into
the future, because it is hard to reconcile
Sustainability

variable quantities. Better still is to switch to aa fixed emissions trajectory with unknown beE. Phase 4 (six months): Some of the experihavior of population and economic growth.

scheme in which governments set prices andChoosing an appropriate cap is doubly hard

to avoid. Ordinarily this means carbon taxes –because the dynamics of the climate system

which have the added benefit of generating

and the value of avoided climate damage

revenue that can be used to reduce distortion-

are also uncertain.

ary taxes on goods like labor and profit. Theremarkets determine the quantity of emissions

may be other, more creative means of achiev-

Since climate damages are the real risk we

ing the same goal, which have not yet beenshould be worried about, we should seek

explored.

policies free of short-term dislocations andfocus on the long term challenge. Fortunately,With carbon taxes, the discussion starts withthe global carbon cycle does not much carethe prospective benefits of reducing emissions,

whether emissions occur next Friday or next

to establish a dollar value for carbon (unlike

year. The stock of carbon in the atmosphere,

permits, easily harmonized with the value

biosphere, and oceans is a large buffer. There-

placed on other greenhouse gases like meth-fore we have no reason to worry about day-to-ane). The resulting price of carbon can be

day fluctuations in emissions or the choice ofrelatively stable, so that firms and individualsa particular path to a stable atmosphere; wehave concrete long-term expectations and canjust need to put emissions on a generally

make investments with confidence. Better still,

downward trend.

a tax can be adapted easily in response to environmental conditions, so that for example it

Several options exist. Permits can be given

increases as the concentration of CO2 in thesafety valve price limits, beyond which an

atmosphere rises.

unlimited quantity is available, or auctioned in

Atmospheric
CO2+

A carbon tax has the same effect as apermit price on short-term utilization of+capital and thus equivalent cost for a given

Carbon Tax

price. However, the tax is not volatile because

B2

it only needs to respond to long-term changes
in the atmosphere (and perhaps other slowmoving inputs), and noise is filtered out by
Noiselarge stocks (loop B2). With a stable tax,
there is less incentive to discount or playgames and investors have clear targets,
so loop B1 is more effective as well.

52 Reflections ■ Volume 7, Number 3-

Controlled
EmissionsUtilization ofEmitting Capital+-

Emissions Embodied
in Capital

B1

reflections.solonline.org

1,000Permits achievea stable emissions
trajectory throughvolatile and highly
uncertain futurecarbon prices, making
emissions reductions
unnecessarily costly.

40 B

750

30 B

500

20 B

250

10 B

0
1960

2000 2040
Time (year)

2080

Carbon Tax ($/TonC)

500
An adaptive tax tradessome uncertainty inthe emissions path
for a stable emissions
trajectory, and achieves
better climate outcomes at lower cost.

Permit Price (%/TonC)

0
1960

40 B

375

30 B

250

20 B

125

10 B

0

1960

2000 2040
Time (year)

2080

Energy Carbon Emissions(TonC/year)

2000
2040
Time (year)

2080

Energy Carbon Emissions(TonC/year)

0
1960

2000
2040
Time (year)

2080

With any kind of emissions control, some firms

as many economic models now do). What’s(energy-intensive industries, for example) willneeded is a graceful transition to a set ofwind up as losers, because their sector shrinks.

commitments and instruments that make

Permits are not the only way to compensate forit easy to focus on the long term without

this; it is straightforward to divert a small amountconfounding short-term dynamics. Imagineof the revenue stream from emissions taxes by

the benefits of redirecting the effort currently

creating exemptions for a portion of emissions

dissipated negotiating market design and(declining over time) or lowering taxes on profits.

the distribution of permits could be directed

Sadly, to date attention has focused almost ex-

instead at finding ways to make money

clusively on compensating shareholders, thoughthrough real emissions reductions. Technol-

they are accustomed to and diversified against

ogies we want will flourish as the economic

volatility. Much more attention must be devoted

playing field is leveled to reflect their true

to mitigating impacts on workers in affectedvalue to society. The scope for firms to profit

sectors.

from emissions reductions will grow. The world

Even with its current implementation problems,
the Kyoto Protocol has substantial net benefits
for society (unless you discount the welfareof future generations and poorer nations,reflections.solonline.org
reflections.solonline.org

will be the better not only for reducing climate
damage in the long run, but also for improving a host of short term problems: traffic,
noise, air quality, and energy security.

EKF ■ Fiddaman
Feature n Robèrt,
Mack 5353

Sustainability Reading
Recommended

From Donella Meadows’ Global Citizen column

This
article4is(sixadaptedfromSome
the author’s
E. Phasemonths):of the experiacceptance speech for the 2006 Forrester

Polar Bears and Three-Year-Olds on Thin Ice,

Prize, awarded for the paper, “Exploring policy
options with a behavioral climate-economy
model,” which appeared in System Dynamics
Review, Vol. 18, No. 2 (Summer 2002).
A copy is available at www.sd3.info.

at www.pcdf.org/meadowsFebruary 1, 2001
Mother Gaia Reflects on the Global Climate
Conference, December 4, 1997
Tom Fiddaman
Ventana Systems
tom@ventanasystems.com

54
54 Reflections
Reflections ■■ Volume
Volume 7,
7, Number
Number 33

reflections.solonline.org

B ook E xcerpt

Profit for Life:
How Capitalism Excels

Profit for Life:
How Capitalism Excels

Joseph H. Bragdon
SoL, 2006

Profit for Life: How Capitalism Excels was published by SoL in
October, 2006. The book’s premise – that aligning with nature isgood business – is based on author Jay Bragdon’s nearly forty
years of research on the empirical connection between stewardship and profitability. Drawing on a “learning laboratory” of 60
companies whose average credit ratings, longevity, and growth
rates far exceed those of their peers, Bragdon makes the casethat those companies that affirm life in their mission, vision, valJoseph H. Bragdon

ues, and management practices attract the most loyal employees,

strategic partners, customers, and investors – and produce exceptional financial results.

“The new theory sees the fundamental mission of a business not as profit,
but as value creation. It sees profit as a vital consequence of value creation –a means rather than an end, a result as opposed to a purpose . . . . The newtheory also makes loyalty a truer litmus test of corporate performance than profits ever were or could be.” 1“[L]oyalty-based management is about people . . . . It is about motivation and behavior, not marketing or
finance or product development . . . . It is about humanistic values and principles of the kind people devotetheir lives to . . . . People have always been far more motivated to devote energy to organizations with aservice goal than to organizations that exist simply to make a buck.” 2— Frederick F. Reichheld, Director Emeritus, Bain & Company, The Loyalty EffectIntroductionW

hy is it that mature,
cyclical firms such as
the steel manufacturer
Nucor, Southwest Airlines, andToyota, have returned from 4 to100+ times the Standard & Poor’s
500 Index during the 31 years from1974 to 2005 — a period during
which many of their once-giant competitors died or neared bankruptcy?
How did Nokia emerge from its
identity as a forest products firm in
the nineteenth century to become agiant in radio and electronics formost of the twentieth century, andfinally, a global power in wireless communications in the past decade?

reflections.solonline.org

What is it about Stora Enso’s
culture that has enabled it to survive for seven centuries when mostpublicly traded corporations today
live for fewer than 50 years?
How did Canon, Intel, HP, and
3M become the hotbeds of learningand innovation that they are today?
All of these companies have long
had stewardship cultures rooted insystemic caring. They think and act
like living communities that are
integral to the larger living systems
in which they exist – society, markets, and the biosphere. This conceptual framework is very different
from the more traditional, mechanistic view that corporations aremoneymaking machines that exist
separate from society and the biosphere, both of which conventional
economics views as “external” to thelegitimate concerns of business.
During the past half-century, as
world population and GDP (grossdomestic product) have soared, andthe Earth’s biospheric carrying
capacity has declined, these stewardship cultures have become moreclearly articulated.3 Their thought
leaders now look more deeply into
the connections between the firm,
its individual employees, the communities it serves, and Nature.
Their quest has been to discover
more harmonic and sustainable

Book Excerpt ■ Bragdon 55

ways of operating, and more effective ways to leverage one of our few

unlimited resources – the humanimagination.
Although still outside the corporate mainstream, the stewardshipideas and practices I will describe
have made impressive inroads into

every major industry and sector.
Companies that have pioneered in
the evolution of these practices
have rolled up huge market shareagainst their traditionally managed
competitors.
Interestingly, the shift in management thinking I have observed
parallels similar shifts in scientificthinking – away from deterministic theories, such as Newton’s lawsof physics, and toward theories
based on complexity and the interrelatedness of all things, such as
those in the newer sciences ofquantum mechanics and ecology.
We find a similar shift in medicine
and psychology as practitioners explore mind-body connections thatmanifest in consciousness, freewill, empathy, spirit, and ethics.
My goal in this volume is todistill the trends I have followed inmanagement practices and otherfields into a coherent and unified
theory. This effort has been a personal quest that began in the late1960s when I first saw a connection between corporate ethics andprofitability.4 The depth of thatconnection largely eluded me solong as I approached the matter ina traditional, linear (Newtonian)manner. However, it became a gooddeal clearer in the mid-1990s
when I began thinking in a more
holistic, systemic framework premised on the new sciences.

56 Reflections ■ Volume 7, Number 3

Living Assets
The most important feature ofthis new theory is the distinction
between living assets (people andNature) and nonliving assets (capital). I believe that, contrary to themores of traditional capitalism,
living assets are more importantto the productivity and longevityof companies than nonliving, capital assets. Though this may seema small matter of emphasis, its
policy implications are enormous.
Why are living assets more important? In a word, they are thesource of nonliving capital assets.
Capital assets could not exist absent the knowledge and productivity of people and Nature. Our
most intelligent capital assets,
including supercomputers, cannot
function without human guidance
and natural resources.
I link people and Nature together in my definition of living
assets because they are so tightly
coupled in the web of life. According to biologist Edward O.
Wilson, people have an instinctive
reverence for life and Nature,
which he calls “biophilia.”5 Thisinstinct became wired into ourgenes through thousands of generations because people who respected life and Nature were more
likely to survive and reproduce
than those who did not, and were
therefore better able to pass ontheir DNA to future generations.
If you accept the distinction
between living and nonliving assets,then the logic of Living Asset Stewardship (LAS) makes sense. We
take care of the things we mostvalue. It’s as simple as that. LAS,

I believe, is the core of an emergent new theory of management.

Caring for the Things
We Most ValueI define Living Asset Stewardshipas “caring about people and thethings people care about.” In thecontext of Wilson’s biophilia thesis, we can further condense thedefinition to “respect for life.”“Caring,” as used in this sense,is not the soft, sentimental variety,but a more-disciplined, systemiccaring that looks to the general
health of the larger world (society,markets, and the biosphere) inwhich we operate.
Deep caring exists when we
look beyond the end results of ouractions to the processes we use todeliver those results. Traditional
companies – those that rigorously
manage by objectives – generally
receive poor LAS ratings, even if
their objectives are praiseworthy,
because their linear-thinking,mechanistic behaviors inevitably
clash with our human sense ofindividual value and the ways inwhich we most effectively learn
and innovate. Doing “whatever ittakes” to produce a number or
result is risky because the linear
thinker often cannot see beyond
the objective to possible unintended consequences.
Alternatively, the best living
asset stewards look to the integrity of their management processes
by deeply caring for their employees’ health and welfare, respecting
their values, and serving the growthof their professional competence– trusting that when these things

reflections.solonline.org

The Global LAMP
Index™

are done, the firm’s goals will be
met. This has been aptly dubbed“management by means.”6
According to physicist andmanagement consultant Danah
Zohar, when companies operate
in such ways (i.e., when their processes reflect our biophilic respect
for life), they engage our higher
thinking capacities. In such environments, people are more apt totranscend their logical, linear-thinking minds and enter their moreintuitive and insightful “quantum”
minds. We call this inspiration.
It is no accident that corporate
LAS leaders attract and hold thebest employees, customers, strategic partners, and investors. Their
Living Asset Stewardship inspires
us to affiliate with them. Whatever
the costs of deep caring may be,they are returned many times overin sales and profit.

To test the economic potential of
LAS, I constructed a “learning
laboratory” of 60 global LAS
leaders, collectively called the
Global Living Asset Management
Performance (LAMP) Index.™7
Each company in the index was
selected for the consistency of its
commitment to LAS relative tothat of industry peers. To facilitatecomparisons, the industry/sector
balance of the Global LAMP
Index™ closely approximates thatof the Standard & Poor’s 500
Index (S&P 500) and the Morgan
Stanley Capital International (MSCI)World Index. A comparison of theinvestment performance of these
indices yields useful feedback on
the market’s assessment of LAS.
As one might expect, all 60
companies in our LAS learning
laboratory are also prominent on

Table 1: LAMP Investment Performance
Returns for both LAMP benchmarks* – the 16-company Focus Group and thelarger Global LAMP Index™ – were consistently superior to the most commonlyused benchmarks of global and domestic equity performance.
Annualized Total Returns (as %) at Year-end 2005
Index

1 Year

3 Years

5 Years

Focus Group	9.53
Global LAMP Index™
11.63

17.90
4.98	
22.62	8.26	

S&P 500
4.91
MSCI World	9.49	

14.38	
18.69

10 Years
14.93
17.37

0.54	9.07
2.19	
7.04

* LAMP returns are based on an equal-weighted back-cast with dividends not
reinvested. The S&P 500 and the MSCI World indices are weighted by market
capitalization with dividends reinvested. Unlike the benchmark indices, which
regularly drop laggard companies and add faster growers, there were nochanges in the Global LAMP Index™ for the indicated period.

reflections.solonline.org

global ethics and sustainability
indices. But here the similarity tothose indices ends. Our system forselecting LAMP companies looks
beyond objectives and outcomes(the triple bottom line) to theadditional dimensions of meansand process. (See Chapter 1 formore on the triple top and bottomlines.) This deeper, more demanding approach to stewardship ismore congruent with the ways inwhich living systems operate. Its
authenticity resonates with stakeholders and makes a huge difference in financial returns.
To explore the inner workingsof LAS, I have extracted from thelearning laboratory 16 companies
whose stories we will follow
throughout this volume. Notably,
these companies, collectively
called the Focus Group, are overrepresented in mature, cyclicalindustries that typically operate in
traditional, mechanistic ways –theairline, auto, chemicals, forest
products, primary metals, andsteel industries. The risk in using
this configuration was a weakening of the argument for LAS byskewing the Focus Group towardslow-growth industries. However,the benefit is in highlighting thehuge gains LAS leaders haveearned at the expense of traditionally managed firms in these industries, as illustrated in appendices
2 and 5.
Chapter 5 will discuss in greater detail the selection processes I
have used. Table 1 shows how the
Global LAMP Index™ and the
Focus Group have performed; theresults are stunning.

Book Excerpt ■ Bragdon 57

The Global LAMP Index™
returns of the past decade (1996–2005) were more than double
those of its closest proxy (theMSCI World Index) on an annualized basis, and beat the S&P
500 by a large margin, as well.
The consistency of the LAMP’s
performance lead over both benchmarks – in both up and down markets – is extraordinary and can beseen in greater detail in Table 5-1
and Appendix 2. During that 10year period, the performance ofthe more cyclical Focus Group
was also exceptional, although it
lagged behind the larger LAMP
index because of its greater exposure to mature, slow-growth industries.
These results defy the conventional Wall Street wisdom thatrisk and reward are closely linked.
By such logic, stocks that outperform in rising markets should
underperform in declining markets. Though I do not argue withsuch reasoning as a general rule ofthumb, I think it can be trumped
when, as we are now witnessing,a superior strategic model begins
to overtake an inferior one.
The results shown in Table 1
are based on back-tests rather
than on actual returns. This isappropriate for a learning laboratory, in which our objective is to
discover the effects of stewardship best practices. For the sake ofconsistency, results of the two
LAMP averages are based on thesame companies – equally weighted at the start of each year – forthe entire 10-year test period. We
assume no trades that might haveheightened performance.

58 Reflections ■ Volume 7, Number 3

Shared Principles
of LAS Leaders
All of the companies in the Global
LAMP Index™ share core philosophical and organizational principles. These are consistent with
the idea that firms are living communities whose primary assets areliving assets, and whose existenceutterly depends on the health oflarger living systems.8 Because alllife and living systems are inherently organized as networks, thismental model sees the optimal
corporation as a living networkthat is closely integrated into the
web of living networks in which it
exists, where everything is related
to everything else.
Although this mindset, or “theory of system,” is rarely explicitin the policies of corporate LAS
leaders, it is certainly implicit andincreasingly expressed in corporate communications.9 We typicallyfind among LAMP companies:• corporate mission, vision,and value statements that reflect
life-affirming, sustainable ideals;• operating principles that
respect the environment andconserve resources;• organizations that aredecentralized and networked,
with localized decision-making
authority;• workplaces where employees are trusted, empowered, andheld accountable;• leaders who mentor andserve the professional growth of
employees;• cultures that support
continuous learning, collaboration, and idea sharing;• fiscal policy designed tosustain the firm for generations
and create a legacy for stakeholders; and• management systems thatregard profit primarily as ameans to higher-quality service,rather than as an end in itself.
These principles and policies
are consistently applied, and arecongruent with a theory of systemcentered on the tight coupling ofpeople and Nature in the web oflife. In global LAMP companies
we find that theory expressed incultures that manage primarily bymeans (symbiosis) rather than byobjectives. We also find it expressed in the fast-growing field of“industrial ecology.”10

Shared Practicesof LAS Leaders
Global LAMP companies’ management practices are integral totheir theories of system, ensuringthat LAS principles are implemented at every level. Such consistency and congruency build commitment, trust, and loyalty fromwithin – the foundations of strong
relationships throughout the enterprise. Strong “relational equity” isthe surest way to build financial
equity.
Although the practices of LAMP
companies may differ in emphasisor degree, they typically exhibit
the following characteristics:• CEOs and senior leaders
continually support LAS in wordand deed;• management and employees
are evaluated on their understanding of LAS principles and advancement of stewardship practices;reflections.solonline.org• sustainability and respect
for life are embedded in all
strategic thinking and planning;• IT infrastructure supports
ubiquitous networking between
employees, customers, suppliers,and other important stakeholders;• reporting systems are open
and transparent, and include
robust, balanced scorecard
metrics;• results are continuallyaudited and evaluated to advancelearning;• investments look to longterm synergies rather than quick
returns; and• borrowing is limited and wellwithin the firm’s means – even in
the worst of circumstances.
In the opening quote of thisIntroduction we find strong affirmation of the foregoing principles
and practices. Bain & Company has
built a dynamic franchise on its“loyalty practice.” Frederick Reichheld, who led this practice, puts ahigh premium on “mutual caring,
respect, responsibility, accountability . . . and trust” as ways to build
loyalty.11 This is not to say that
Bain and Reichheld endorse Living
Asset Stewardship, but they doaffirm qualities that are deeply
embedded in LAS cultures.

Leverage
The operating leverage in corporations comes from synergies, notfrom financial (i.e., mechanistic)gearing. Synergies arise when
individual transactions benefit
not only the transactors, but also
the larger living systems in which
they exist. When this happens, thereflections.solonline.org

whole becomes more than thesum of its parts. Gearing works
differently. It involves a linear andfinite transfer of energy rather thana continuous and cumulative cyclingof energy. It also invites risks.
Obviously, companies that borrow extensively to leverage theiroperations must repay the money
they borrow.
LAMP companies’ aversion to
debt is evident in the strength oftheir balance sheets. More than58 percent of LAMP companies
have Moody’s credit ratings of A1 or higher. (See Appendix 3 forcredit ratings for the Global
LAMP Index™ companies.) As

seen in Table 3-1, this is morethan double the ratio for the
global corporate average. Also
important, all LAMP companies
are rated as investment grade,
whereas nearly one-third of thecompanies comprising the global
corporate average are rated below
investment grade – a gap that has
widened during the past decade.
This is not random happenstance,
but an integral function of theway the firms operate.
LAMP leaders seek leveragethrough inspiring employees andnurturing their professional
growth. This creates huge synergies, as will be discussed in chap-

Table 5-1: Performance Comparisons (1996–2005)
Global LAMP Index™ vs. MSCI World and S&P 500 IndicesTotal Returns: Principal + Dividends (as %)LAMP Excess (% pts.) vs.
Year

LAMP

MSCI

S&P 500

MSCI

S&P 500

1996

27.72

13.47

22.94

14.25

4.78

1997

33.91

15.76

33.35

18.15

0.56

1998

29.23

24.31

28.57

4.92

0.66

1999

47.66

24.94

21.04

22.72

26.62

2000

2.02

(13.19)(9.10)

15.21

11.12

2001

(6.02)(16.80)(11.88)

10.78

5.86

2002

(13.80)(19.88)(22.09)

6.08

8.29

2003

40.61

33.10

28.67

7.51

11.94

2004

16.78

14.72

10.88

2.06

5.90

2005

11.63

9.49

4.91

2.14

6.72

394.42

97.37

138.31

Totals as %:Cumulative:

Returns for the Global LAMP Index™ are back casts based on equally weighting each LAMP company at the start of each year. The foregoing LAMP results
assume dividends are taken rather than reinvested. Returns for the S&P 500
and the MSCI World indices are weighted by market capitalization and assume
reinvestment of dividends as earned. There can be no assurance that any of theperformances or performance patterns indicated in this chart will continue into
the future. Source of MCSI data: Morningstar.

Book Excerpt ■ Bragdon 59

ters 1 through 4. These leaders
also understand that the carrying
costs of debt can overwhelm companies during economic hard times,
causing unplanned asset disposals, service interruptions, layoffs,
and even bankruptcy. This reality
is nowhere more evident than in
the auto, steel, and airline industries – a fact that only underscores
the outstanding performance of
LAS leaders Toyota, Nucor, andSouthwest Airlines. All three havebeen consistent profit and quality
leaders in these very industries formore than three decades, with nolayoffs. Not surprisingly, they are
renowned for the spirit and professionalism of their employees,
as well as for their humanistic andcaring cultures.

Durability
LAS cultures are more durable
than traditional ones because networks are more adaptable thanmanagement hierarchies. By engaging all their human resources,
rather than just a select few at thetop, LAMP companies develop
quicker reflexes and deeper insight, which generally feed backto generate superior innovation.
The longevity of our learning
laboratory supports this observation. The average and medianages of companies in the Global
LAMP Index™ exceed 100 years,
as shown in Appendix 4. According to a famous study by RoyalDutch/Shell, this is more thandouble the average life expectancy
of exchange-listed corporations,which is in the vicinity of 40 to 50
years.

60 Reflections ■ Volume 7, Number 3

Successful networking isn’t related to company size, as somemight imagine, with advantages
accruing mainly to smaller, community-based companies. Some of
the world’s largest companies –Alcoa, Canon, Hewlett-Packard,
HSBC Group, Intel, Johnson &Johnson, Royal Dutch/Shell, 3M,
and Toyota – are radically decentralized and networked, with authority pushed as far out to the
local level as possible. Within each
operating unit these companies
foster cultures of community, mutual caring, and shared responsibility.
The role of leaders in such organizations is to serve the professional growth of people working
within the network – the means of
the network’s productive capacity– rather than to manage them by“command and control.” Robert
Greenleaf has called this approach“servant leadership.” In his words,“The first order of business is tobuild a group of people who,
under the influence of the institution, grow taller and become healthier, stronger and more autonomous.”12
The durability of global LAMP
companies is further enhanced byan ethic of freely sharing importantbusiness information. Employees
are closely linked through corporate intranets so people in diverse
business units can readily draw
on each other’s knowledge andexperience. They regularly rotate
through different business units
and functions as a way of building relationships and exchanging
skills within the firm. Employees
are encouraged to form commu-

nities of practice wherein people
with similar interests congregate
to exchange ideas – both virtuallyand face-to-face. Those who makesignificant contributions are quickly recognized and rewarded without regard to their professional
status. When business is good,
LAMP companies are quick to share
their prosperity with employees.
When it is bad, they find creative
ways to avoid layoffs or to help
displaced employees retrain andfind new work.13

Institutional Investors
Institutional investors today control most of the world’s publicly
traded shares. As public fiduciaries, they must act prudently andin their customers’ best interests.
If LAS produces better value andinvestment returns than traditional business practices do, theseinvestors must favor the winningmodel. As the relative growth of
the Global LAMP Index™ attests,
they have, indeed, done so.
The more institutional investors come to understand how the
dynamics of LAS contribute toprofitability, the more active they
are likely to become in encouraging better stewardship in portfolio
companies. This is already happening on an ad hoc basis among
members of the Council of Institutional Investors (CII), a consortium of more than 140 pension
funds with approximately $3 trillion under management.14
Looking to the future, I believethat institutional investors wholearn the ways of LAS and promote it in the marketplace willreflections.solonline.org

gain market share. Those whotake the opposite course and holdto traditional methods will be left
behind. Such incentives will further accelerate the demand forcorporations to implement LAS
practices.

Ideas That Change
the World
A simple shift in thinking – thatthe world is round instead of flat
– gave rise to the sixteenth-century Age of Exploration. The simple
act of placing living assets aheadof capital assets on a company’svalue scale offers analogous opportunities for advancement.
Such ideas usually arise for compelling reasons. The round-world
theory emerged at a time when
Europeans felt constrained andwere looking to find new resources, markets, and trade routes fortheir expanding commerce. The
practice of Living Asset Stew-ardship arises from a similar sense of
constraint. World civilizations today feel hemmed in by the explosive growth of populations and by
the decline of Earth’s carrying capacity. Commercial thought leadersknow we must find ways of producing and trading that are moreresource-efficient and harmonious
than those now in mainstream use.
Humanity abhors constraint.
We want to explore, experiment,
learn, and find new ways of livingthat expand frontiers for generations to come. In today’s world oflimited physical resources, weknow that ideas are our only
source of unlimited potential. Increasingly, we recognize that theway forward must be about the
primacy of the great web of life.
Networked organizations that
respect life, that care about people
and the things that people careabout, inspire us to think and create. Their deep stewardship engages our higher thinking capacities in ways that mechanistic,
command-and-control hierarchies
could never do.
These realities are so compelling that, once companies get on
the LAS path, there is usually nogoing back. People become wedded to it, will fight fiercely toprotect it, and, if they believe they
can’t protect it, will leave. Thiskind of passion, as much as the market’s validation of LAMP companies, is why Living Asset Stewardship is here to stay.

Endnotes
1

Frederick F. Reichheld, The Loyalty Effect (Boston:5

University Press, 1984).

Harvard Business School Press, 1996), 5.
2
3

Ibid., 28.

6	

The term “management by means,” or MBM, was intro-

Edward O. Wilson, The Future of Life (New York: Alfred

duced by H. Thomas Johnson and Anders Broms in their

A. Knopf, 2002), 42. Biologist Edward O. Wilson puts

classic, Profit Beyond Measure, (New York: The Free

our economic dilemma bluntly: “The wealth of thePress, 2000). I have adopted the term because it neat-world, if measured by domestic product and per-capi-

ly frames my theories of system and Living Assetta income, is rising. But if calculated from the condi-

Stewardship.

tion of the biosphere, it is falling.” The book goes on

7tion of the index was set in 2002.

stewardship.
In 1972 I co-authored, with John T. Marlin, an article

I formally began the process of assembling the Global
LAMP Index in 1997; the final, 60-company composi-

to explain why this is so and to make a case for better
4

Edward O. Wilson, Biophilia (Cambridge: Harvard

8	

Arie de Geus, The Living Company (Boston: Harvard

titled “Is Pollution Profitable?” in Risk Management

Business School Press, 1997). The author, former

19 (4) (April 1972): 9–18. According to professors

director of Global Planning at Royal Dutch/Shell, con-

Joshua D. Margolis and James P. Walsh, this was “thevincingly argues for the proposition that corporations are

first empirical study” linking stewardship behaviors toliving communities rather than profit-making machines.

the bottom line. See J. Margolis and J. Walsh, People

9	Many LAMP companies metaphorically describe them-and Profits? (Mahwah, NJ: Lawrence Erlbaum

selves and/or their markets as “ecosystems.” Toyota’s

Associates, 2001), 1.

widely imitated production system is explicitly based on
cybernetic principles found in Nature.

reflections.solonline.org

Book Excerpt ■ Bragdon 61

10 Industrial ecology looks to create companies that

14 The Council of Institutional Investors uses shareholder

mimic Nature by aiming for “closed loop” manufactur-

proposals to effect change in corporate governance. In

ing processes in which the wastes of one become the2005 more than 80 majority-voting shareowner pro-food for another. The Journal of Industrial Ecology, pub-posals were submitted for inclusion in company proxylished by MIT Press, is an excellent resource on thismaterials. Supporting votes on these proposals aver-subject (www.mitpress.mit.edu/JIE).

aged approximately 45 percent – a large increase from

11 Reichheld, The Loyalty Effect, 15.

the 2004 average of 12 percent. Most institutional

12 Robert K. Greenleaf, “The Servant as Leader,” essay

shareholder initiatives never get to the proxy stage

first published in 1979 by the Paulist Press (repr.,

because they are settled by negotiation. The trend of

Indianapolis, IN: The Robert K. Greenleaf Center,institutional shareholder activism is rising as investors

1991), 30.

see the benefits to shareholder return.

13 The financial stability of LAMP companies, reflected intheir low debt ratios, is their first line of defense against
layoffs. To protect employees’ jobs, some firms, suchas Nucor, will ask everyone to take a percentage pay
cut, with executives taking the deepest cuts. At others,
such as Toyota, employees are reassigned to new work.
If layoffs cannot be avoided, LAMP companies generally give generous severance packages as well as job
training and help in finding new work.

A b o ut the A uth o rJoseph H. (Jay) Bragdon is a money manager for high-net-worth families,
and a pioneer in the field of corporate stewardship. As a result of his early workin the field, Jay cochaired the first national Conference on Corporate Responsibility in Investments at the Harvard Business School. A member of SoL, heis currently a director of the Sustainability Institute in Hartland, Vermont.
JHBragdon@aol.com

62 Reflections ■ Volume 7, Number 3

reflections.solonline.org

			

R ecommended R eadin g / resources

Recommended Reading / Resources
If this issue leaves you with questions about what you can do, the Sustainability Consortium
maintains a list of resources at http://www.solsustainability.org/toolkit.htm. The Consortium also
periodically hosts audio conferences and forums on Business Innovation for Sustainability which
are open to the public. Consult their website for more details: http://www.solsustainability.org/.
In addition, two recent publications may be of interest.
Our friends at Pegasus Communications recommend:• The Low Carbon Diet – A 30-Day Program to Lose 5000 Pounds
by David Gershon
The typical American household generates approximately 55,000 pounds of carbon dioxideannually (compared to Sweden’s 15,000 pounds per household). We know we have an“overheating” problem; but what can we do about it? This entertaining workbook helps you
make the cool choice to quantify and reduce the impact you are having on the planet. Go
on this low carbon diet with family, friends, co-workers, and neighbors, and learn as much		
about each other as you do about climate change.
Peter Senge recommends:• Child Honoring: How to Turn This World Aroundby Raffi Cavoukian and Sharna Olfman (Eds)“At this critical point in the history of humankind, the irreducible needs of all children can 		offer a unifying ethic by which the cultures of our interdependent world might reorder theirpriorities. Child Honoring is a vision, an organizing principle, and a way of life – a revolution
in values that calls for a profound redesign of every sphere of society. – Raffi
Joanna Macy calls the concept of child honoring one that “brings us back to life.”
This anthology includes contributions from Penelope Leach, Lloyd Axworthy, Riane Eisler,
Barbara Kingsolver, ecological economist Ron Colman, indigenous educator Lorna Williams,
Matthew Fox, author Joel Bakan, and physicist Fritjof Capra.
As a small taste, the book includes “A Covenant For Honoring Children”:“We find these joys to be self-evident:
That all children are created whole, endowed with innate intelligence, with dignity
and wonder, worthy of respect.
The embodiment of life, liberty and happiness, children are original blessings,
here to learn their own song.

reflections.solonline.org

Recommended Reading n Resources 63			Every girl and boy is entitled to love, to dream, and to belong to a loving ‘village.’
And to pursue a life of purpose.
We affirm our duty to nourish and nurture the young, to honor their caring ideals as
the heart of being human.
To recognize the early years as the foundation of life, and to cherish the contributionof young children to human evolution.
We commit ourselves to peaceful ways and vow to keep from harm or neglect these,
our most vulnerable citizens.
As guardians of their prosperity we honor the bountiful Earth whose diversity sustains us.
Thus we pledge our love for generations to come.”
As a subscriber, you have access to back issues of Reflections that feature thefollowing articles on sustainability:• “Metanoic Organizations in the Transition to a Sustainable Society”
by Charles F. Kiefer and Peter M. Senge• “Climbing Mount Sustainability” by Ray Anderson• “On the Plural Attentions Necessary for Catalyzing and Implementing Sustainable Development”
by Hilary Bradbury• “The LAKES Story’ by Marlow Hotchkiss, Colleen Kelley, Robert Ott, and John F. Elter• “Colorless Green Ideas Sleep Furiously: Is the Emergence of “Sustainable” Practices
Meaningful?” by John R. Ehrenfeld• “Rethinking Corporate Responsibility” by Sir John Browne• “Becoming a Sustainable Species” by Pille Bunnell and Nicholas Sonntag• “How Many Experts Do We Need Before We Heed Earth’s Warnings?” by Donella H. Meadows• “Conversation with Paul Hawken” by Nick Robins• “Living-Asset Stewardship: How Organizational Learning Leads to Exceptional Market Returns”
by Jay Bragdon and Richard Karash• “Confronting the Tyranny of Management by Numbers: How Business Can Deliver
the Results We Care About Most” by H. Thomas Johnson• “Searching for Sustainability: No Quick Fix” by John R. Ehrenfeld
This collection of articles, compiled under the title Reflections Sustainability Collection,is also available for purchase in the SoL online store.

64 Reflections ■ Volume 7, Number 3

reflections.solonline.org

Reflections
The SoL Journal

on Knowledge, Learning, and Change
Volume 7, Number 3

Editorial Team
Editors-in-Chief
Karen Ayas and Peter Senge
Managing Editor
Nina Kruschwitz
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C. Sherry Immediato
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