By Professor Ian Thomson, Professor of Accounting and Sustainability, Lloyds Banking Group Centre for Responsible Business Centre Director
Department of Accounting, University of Birmingham
There is an implicit social contract between generations that requires businesses to consider justice across time.
Businesses enable time travel; distributing costs, benefits, risks, liabilities and possibilities backwards and forwards through time and space. At the expense of future generations and all other life forms, many businesses will inflict damage on the climate system and facilitate excessive current consumption and profit taking.
There is an implicit social contract between generations that requires businesses to consider justice across time. However, businesses are poorly designed for considering long-term consequences, with decision-making processes being biased towards the loudest voices in the here-and-now, prioritising the living over those yet to come. It is difficult to consider businesses that don’t take account of their long-term social, environmental and economic impacts as responsible.
Intergenerational equity implies that each generation should provide its citizens with fair rights to access the legacy of past generations and not unduly restrict their options to meet their own needs and values, withholding these rights from future generations. If a business were to invest in reforestation projects to correct their past biodiversity damage, financial resources would become unavailable for their current consumption, allowing future generations to benefit.
Concerns around intergenerational equity need to be voiced within business decision making. There are few strategic business decisions that don’t negatively affect intergenerational equity with no potential damage to the business in the future. Look at the damages awarded against tobacco companies to compensate for the past inequities of production and consumption. How many other businesses could be sleepwalking to similar future liabilities?
Management systems need to be developed to ensure that businesses don’t authorise employees to exploit resources to the detriment of future generations, but also to ensure that no unreasonable demands are imposed on present generations to cater for undetermined future needs. Businesses should not be expected to accurately predict future, however they should adopt a precautionary approach taking account of foreseeable situations. Responsible business leaders need to recognise that they are only temporary stewards of the business. Perhaps they could benefit from the wisdom of the Iroquois nation:
“to make every decision that we make relate to the welfare and well-being of the seventh generation to come. What about the seventh generation? Where are you taking them? What will they have?” – Oren Lyons, Chief of the Onondaga Nation
Collectively, the UN Sustainable Development Goals (SDGs) represent a starting point for intergenerational equity issues being taken into account during business decision-making processes. The intergenerational equity problem for businesses is future oriented, ethical, multi-dimensional, multi-disciplinary and largely unknowable in the conventional sense. Yet the need to account for intergenerational equity is critical to the achievement of responsible business.
It’s worth responsible businesses leaders reflecting on the following questions:
- Do you take into account the transfer of resources between living and future generations?
- Do you use discounting in investment appraisals, knowing that discounting has a calculative disregard for future generations?
- Do you use a blend of financial and non-financial outcomes that represent responsible business principles based on UN SDGs?
- What time horizons do you use?
- Do you consider the use of future scenario analysis?
- Do you use appropriate forecasting models to take into account foreseeable trends, with robustness testing and sensitivity analysis?
- Do you balance the needs and values of current and future generations?
Lloyds Banking Group Centre for Responsible Business at the University of Birmingham is currently researching better tools for intergenerational equity decision making and are happy to engage with businesses to evaluate their existing practices.