Here for good: How can companies stay relevant in a post-GDP era?

In the EU, for instance, the Corporate Sustainability Reporting Directive (CSRD) requires companies to report on ‘double materiality’ – a dual approach to disclosure that considers opportunities and risks to the business from both a financial and non-financial perspective.  It requires companies to disclose not only how sustainability issues affect them, but also how their operations and activities affect the planet and society at large. It aims to provide a comprehensive picture of a company's sustainability performance and its role in addressing global challenges such as climate change and social inequality. 

Double-materiality accounting could reveal the true cost of companies’ externalities as they enter the net-zero era. Will they be able to adjust course to survive, or do they need to revamp their business models? Which avenues are they exploring for a sustainable future? 

The ‘degrowth’ movement calls for developed countries to downscale their production and consumption in order to achieve environmental and social sustainability – and therefore greater worldwide wellbeing. In our 2024 global study, which surveyed business leaders from a range of sectors, a surprising number ​​(51%) say that degrowth in developed markets is the only way to achieve a sustainable economy on a global level.   

In a degrowth setting, companies would first need to significantly adapt their strategies to survive. They would have to adopt lean business models and responsible innovation policies that focus on quality over quantity. And they would need to update their marketing strategies and educate their stakeholders.  

Patagonia Provisions, a California-based company producing regenerative food staples, and its parent company, outdoor clothing retailer Patagonia, are firm supporters of the degrowth movement. “Within Patagonia, pursuing growth isn’t a legitimate business strategy,” explains Paul Lightfoot, Patagonia Provisions’ general manager.  

This is possible because of the company’s financial independence and careful business planning. “Patagonia is 52 years old and has never raised outside capital, so we have a pretty unique perspective on that,” says Lightfoot. “Now, we have to be profitable: we're in business planning, which means we're in business. So we need to have revenues higher than our costs, but ​​chasing growth isn’t a factor in any business decision.

The absence of outside investors looking to increase their ROI - an exception rather than the norm for a majority of companies - has clearly helped make Patagonia’s support for degrowth possible. 

But degrowth needs system-wide change – change that goes beyond the corporate world. For starters, we would need to overhaul our own consumption patterns and become more frugal. “I think degrowth as a society goal is probably necessary,” says Lightfoot. “Humans need more durable, higher-quality things that last 10 years or longer, rather than more things made out of plastic that are used once.” 

Secondly, governments, policymakers and economists would need to move away from GDP growth as the main indicator of economic health. According to 49% of the business leaders we surveyed, alternative frameworks could replace GDP as the new measure of a country’s wellbeing – the UN's Human Development Index, for instance, or the OECD's Better Life Index, or Gross National Happiness USA's Genuine Progress Indicator. But shifting to alternative wellbeing indicators would mean a fundamental change in how governments, societies and companies understand and pursue development. This could come with challenges and costs, and require strong political commitment, international cooperation and a gradual implementation. 

A majority of companies ​​(61%) in our survey say they have integrated green growth principles into their business models. In a green growth approach, companies aim to make a profit while protecting people and the environment. They seek to decouple economic growth from environmental harm by creating sustainable supply chains, improving their energy efficiency, innovating their products and services, reducing their carbon emissions, managing their waste and engaging employees and the community. 

But the path to green growth is open to interpretation, and implementing it isn’t easy. The high upfront capital needed to implement greener strategies can be a burden for both businesses and governments. Countries that adopt stringent green policies can face competitive disadvantages globally, and consumers might not want to switch to greener products and services if they’re more expensive or less convenient. And social and economic inequalities could get worse if the benefits of green growth are not distributed evenly. Research also shows that green growth efforts may be falling short. For example, one study calculates that decoupling rates would need to increase by a factor of ten, on average, by 2025 for developed countries to meet their Paris Agreement-compliant 1,5°C target. 

But for Posti, the Finnish state-owned postal group, adopting green principles such as low-carbon fleet vehicles is non-negotiable, according to Timo Nurmi, the company's head of communications, strategy and sustainability. “Our clients – such as large global retailers – will say that a certain proportion of the fleet used for their parcels needs to be electric, and it’s a dealbreaker if it isn’t,” he says. ​

So for us sustainability isn’t just about being a good corporate citizen. It’s also about us being in business or not being in business.

For Posti, degrowth and a complete rethink of their business model wasn’t an option, Nurmi explains. Instead, it saw an opportunity in encouraging second-hand clothing purchases to create a more circular economy, in partnership with well-known Finnish retail brands. “We established an internal venture that’s encouraging and helping our big customers to sell more second-hand items as part of their product selection,” says Nurmi. “Our goal is to make buying second hand as easy, flexible, and socially acceptable as buying new. And whether the product is new or used, it still means business for us because we’re a logistics network.” 

To pursue green growth, a company needs to make its short-term decision-making consistent with its long-term goals for resilience and sustainability. In the short term, the cost of sustainability initiatives could affect margins – at least temporarily – and it might be difficult to scale up new sustainable products and services.  

One company that’s investing for the long term is Notpla, a startup developing an alternative product to plastic packaging. “Our edible range of packaging is made out of seaweed, which doesn't require any land use, any fertiliser or fresh water – it’s a perfect example of an input material that’s regenerative and sustainable,” explains Hoa Doan, Notpla’s head of impact and sustainability. But because plastic is produced cheaply and used abundantly, Notpla needs to educate consumers to generate demand for its product and make it profitable. ​

One of the big challenges we face is thinking about how we can provide a solution at scale, in order to bring it into the hands of every consumer. 

A significant number of the business leaders in our research are aware of the short-term trade-off, and are ready to act anyway: ​​45% say their company is ready to forgo some of their profit to achieve their sustainability goals. Their expectation is that in the longer term their new products and services will have a positive impact on both the bottom line and the planet. But to see these benefits they will need to get their financial backers, including banks and shareholders, to understand and support their long-term thinking. 

The post-Covid economic slowdown and widespread commitments to the Paris Agreement are pushing governments to recognise the limitations of GDP growth. Their focus is now gradually turning to addressing the broader impacts of economic activity on society and the environment. For businesses to survive in a post-GDP era, this means being both profitable and sustainable. The commitment of companies to forgo short-term profits for long-term sustainability is a promising trend towards a more equitable economic model. But investors may well be the elephant in the sustainability room: can the prevalent short-term minded investors adapt to this new way of thinking? In the meantime, whether they chose to pursue degrowth or green growth, companies that effectively implement both value-creation and societal wellbeing will be best placed to attract like-minded investors and the 'patient capital' needed to support their long-term sustainability goals. 

The views and opinions expressed in this article are those of the participants of the survey or interviewee and do not necessarily reflect the views or opinions of ING 

Society is transitioning to a low-carbon economy. So are our clients, and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on ing.com/climate.