This conversation between Ralph Thurm, MD of r3.0, and Emanuele di Francesco from Circular Conversations, was posted originally on the Circular Conversations website in September 2020, and is now posted here with permission.
Says Emanuele: ‘Ralph’s Circular Conversation was the most read piece on our platform, with over 10,000 reads so far — many thanks for all the ideas and insights that you shared with us! I really enjoy our “circular” cooperation.’
Ralph Thurm is one of the leading international experts for sustainable innovation & strategy, and sustainability and integrated reporting. He is Co-founder and Managing Director of r3.0 and Oncommons gGmbH. He worked as Director of Engagement for GISR and co-founder of the ThriveAbility Foundation between 2014 and 2018. Previously, Ralph held positions as Head of the Sustainability Strategy Council at Siemens, COO of the Global Reporting Initiative and Director of Sustainability & Innovation at Deloitte.
Hi Ralph, it’s a pleasure to host you for a conversation a few days before the r3.0 2020 Conference. As an introduction, could you provide us with an overview of the journey of r3.0 since its birth as Reporting 3.0?
As you said, what started as Reporting 3.0 is now called r3.0 to represent the broader scope that has developed over the years and which now stands for redesign for resilience and regeneration. The roots go back to early 2013, as an outcome of the 2012 Rio+ Summit. We were looking at the outcome document of that summit, titled “The future we want”, and some of us who’ve been in the sustainability field for quite a while and always on the forefront of developments, were looking at each other, and we thought: ‘well, that’s going to take forever!’ There’s not a future we want, and then we wait until it’s there — it’s the future we design.
There’s not a future we want, and then we wait until it’s there — it’s the future we design
At that time, our assessment was simply that all of the existing tools were not fit for purpose to get us to a regenerative and distributive economy, as we call it. They call it ‘green, inclusive and open’ — we call it regenerative and distributive. We wanted to find out if there is enough appetite by others to work on the necessarily leapfrog towards that ideal. And, first of all, define what the ideal is. That is one of the first things that we did on our soul searching expedition — find out what is it that we’re going to make better. The ‘green, inclusive and open’ or ‘regenerative and distributive’ economy were not defined as such.
In the run up to the Rio+ 20 conference, there were about 800 different reports from all sorts of organisations from all over the world — from standard setters, multilateral organisations, NGOs, and even from some governments. And none of them was complete, in the sense of a systemic and holistic perspective. So, the first thing we wanted to do was to find out the ideal that we wanted to work towards and achieve together. The second step was to back-cast from that ideal towards the different areas that needed to leapfrog.
What did this lead to?
To what are now called the Blueprints — the idea that certain areas need to be looked at. Back-cast from the ideal, we look at what the status quo is at this moment, and then develop recommendations to get us there. We asked ourselves: what is the minimum grid of blueprints that we need to look at, so that the systemic and holistic perspective of moving towards that is still secured?
And what was the answer?
We started with a set of four blueprints. The first one was on reporting, of course. At that moment, we were still called Reporting 3.0. How would reporting look like if we truly wanted to serve a regenerative and distributive economy? A second one was on accounting. How would accounting need to change to help reporting serve the regenerative and distributive economy? In the third blueprint, we looked at data. What’s the consequence for data architecture? What sort of data do we need? We realised that there were so many different ideas about data architectures, but none of them spoke to each other. And we knew that we had to collect data on the micro level — the organisational level — on a meso level — which for us is either an industry or a habitat or a portfolio, depending on from which perspective you look at it — and on the macro level — really the system’s level. Until now, we don’t have a good idea how to measure success on the SDGs, for example, because there is no fluidity between the data architectures.
The fourth thing that we wanted to look at was: if reporting, accounting, and data were in a condition to support, how would the design of business models change? So, we wrote a fourth blueprint on new business models, and revealed quite drastically that all of the literature around so-called ‘new business models’, was still in the here and now, and most of the academic papers have the burden that they need to prove what they say. That keeps you in a constant treadmill of defining archetypes, and it’s based on what’s already here. Not how would a business model need to be designed if it were to serve this ideal of a regenerative and distributive economy.
With these four blueprints, we set up the minimum frame — we call it ‘work ecosystem’. Then we got the question: how would you implement that in an organisation? That’s of course a fair question, because all of the other Blueprints are about 100 pages long and don’t have a step-by-step process — they describe what needs to happen. So that gave birth to the idea of what we call the ‘Transformational Journey Blueprint’ — a concise summary of the first four blueprints, putting them into a step-by step-process for any organisation that wants to try to implement these ideas. That was really the first generation of our blueprints.
Has there been more work done after the first generation of blueprints?
After that, we looked at areas that needed more depth. And some of them are the Blueprint projects that we are dealing with now and that we’re going to release at our conference in September (2020). Two very important ones — they’re sort of twins to each other. One is on Sustainable Finance, which looks at that whole area of capitalism and the role of financial markets. It really reveals that sustainable finance at this moment does not yet exist. It’s a term which is always used, misused, abused for something which is not more than just ESG progress. From our perspective that is very clearly not sustainability — it’s a specific efficiency measurement in areas that are connected with the idea of sustainability.
Sustainable finance at this moment does not yet exist
All of the data that we read in sustainability reports nowadays are just ESG numerator data. They look at the performance of an organisation, and because they don’t know what they have to measure that against, they just compare it to last year’s performance, or the performance of the last three years. Even the co-founder of the GRI, Allen White, was saying this doesn’t carry any sustainability gene. So, I’m saying loud and clear: I have not yet seen a sustainability report! Although there are 50,000/60,000 around the world that carry that title, they are nothing more than ESG progress reports with no clue on how sustainable an organisation really is. That means, in prolongation, that all of the ratings, rankings, indices, green bonds, and whatever financial products you have, don’t have a clue either. At this moment, the only thing that they can do is to define who is best in class among those that say they became less bad. This point needed clarification, and that’s what the Sustainable Finance Blueprint does. It also presents recommendations for the finance industry on how to get there.
And what about the other ‘twin blueprint’?
The second was developed in parallel — that’s why I said they are sort of twins. We call it the ‘Value Cycles Blueprint’. It tries to bring together two different perspectives. One is the question of value and values, and what is of value in a regenerative and distributive economy. And it’s not just financial value, of course. We develop a view where we can call it sustainable performance only if it adds System Value. So you need to define what system value is — and it’s more than just impact measurement or impact valuation.
The other part that we wanted to clarify in that Blueprint is that idea of circularity. In the Netherlands — where I live — the Dutch government says The Netherlands has to be the first fully circular economy by 2050. I would pose the question ‘well, fine, but is that sustainable?’ They look at me and have no clue what I mean with that, because they think that circular is sustainable. But you don’t know as long as you don’t look into something that we call a ‘fractal economy’. Nature shows that some things need to be linear, some things can be cyclical, others need to be more spiral-based. Just look at the development of a tree — that’s linar, circular, cyclical and spiral. And then there’s obviously also the idea of decline or degrowth.
We exist because we work against that sort of comic version of sustainability as it is implemented and understood right now, which looks at people, planet and profit where it was people, planet and prosperity right at the start, where intra- and inter-generational equity were a basic precondition of sustainability. Ask any company today, what do you do for intergenerational equity? They don’t even know what you’re talking about. And these are the basics of sustainability. We see ourselves very much in the history of ‘The Limits to Growth’ report and the ‘Brundtland Report’ — our set of Blueprints are just trying to make clear what’s at stake. With the ones coming out in September (2020), I think we really add an important clarification.
We exist because we work against that sort of comic version of sustainability as it is implemented and understood right now
Any more blueprints you’ll be working on or do you now consider the job done?
There are two more Blueprints which we will work on in the future. One is on what we call Educational Transformation. This cognitive dissonance I’ve been talking about points to the fact that something might be wrong with the way sustainability is taught and implemented. Maybe it has something to do with the overall setup of our educational systems — it starts very early being wrong and just continues to go wrong. The level of silos of our educational system is one of the explanations for that. We now have the second generation of sustainability experts who don’t even know what the Brundtland Report is. And they call themselves sustainability experts!
And — last but not least — we will also look in another Blueprint called Systemic Governance and Funding, because we have a lot to do with governments, foundations and multilateral organisations. When we present them our systemic view, the answer that we normally get is ‘Oh, that’s very broad!’ And we say, ‘well, you call it broad, we call it systemic and maybe your view is a bit too narrow!’ Sometimes the discussion ends there because they just can’t get out of that cognitive dissonance. They all have their programmes, and within them they define what they call “success” — anything that goes beyond that they cannot measure and cannot understand.
Does that mean that most of sustainability initiatives, reports, rankings and what we regard as ‘good news’ (i.e. improvements in certain areas) are misleading, as they are measuring the wrong things?
One of the things that’s really holy for us is the idea of what do you measure anything against, in order to be able to say it is sustainable? There are two technical terms which are important here: thresholds and allocations. This was mentioned first in the GRI guidelines, already since 2002 — it’s called the sustainability context principle. And the fact that I haven’t seen a sustainability report yet is due to the fact that this principle is constantly ignored. They’re all busy with their idea of materiality. If you ask them ‘why do you think it’s material?’, they’ll say ‘because we think it’s important and our stakeholders think it’s important’. Well, but both parties don’t have the context!
What do you measure anything against, in order to be able to say it is sustainable?
Without thresholds and allocations, all of this other stuff is a blind flight. It’s as if you sit in the cockpit of an aeroplane and you fly your aeroplane into the mountain, and you tell the crew and the passengers that the cabin temperature is great. That’s what we do at this moment — that’s how we deal with sustainability. Thresholds and allocations are absolutely missing. That’s your altitude, where you measure your performance against the allocation, which is your allowance to use a certain resource. That’s absolutely necessary. And it comes back in all of our Blueprints. As long as we haven’t done our homework on this, all of these things continue to be a blind flight. This is really the most important and necessary task to do.
Staying with the airplane example, the idea of a carrying capacity is a threshold. Everybody shouts Kate Raworth, doughnut economics, carrying capacity — wonderful. But, what is it? It is, first of all, a threshold on all of these different areas mentioned in the doughnut. It’s either reducing an overshoot, or increasing — on the social side — an undershoot. That’s what you need thresholds for — in order to know if you overshoot or undershoot.
The other very important issue, which is not touched by really anybody, is the idea that once I know the threshold, what’s my fair share of that? In some countries, you have your permits or allowances, but in most parts of the world it’s a power game — somebody just takes it. Allocations happen every day, everywhere around the world, but on what basis? Those who are stronger just take it, the others who are weaker don’t get anything. That’s not the idea of a fair share. You need thresholds and allocations in order to measure any performance against and to call it sustainable. If you take water or emissions, biodiversity loss, anti corruption, human rights, labour rights, it’s always a question of overshooting and under supply.
Allocations happen every day, everywhere around the world, but on what basis?
To act on this often unasked question, you’ve put forward the idea of a Global Thresholds and Allocations Council (GTAC). What is about and what progress have you made so far?
We think the GTAC is an idea whose time has come. But we also see the immense amount of working against it as a governance authority that would help us to define what the thresholds and allocations are. We’ve seen a patchwork of that partially — for example, through the Science-Based Targets Initiative, which defines thresholds. But we have questions around the governance of that organisation. My colleague Bill Baue, who is on their Advisory Council, has voiced that many times without getting a sufficient answer so far. We need a neutral body that validates and calibrates thresholds and allocations and is open to any sort of idea because it doesn’t have its own stake in this. One of the burdens of the Science-based Targets Initiative is that they have their own interests. It has been set up by 3–5 major environmental NGOs, and they have their biases around the use of certain methodologies. We need a neutral third party to validate that.
And that’s what the GTAC would be?
The question is: does it have to be a top-down approach as a council, or should it be something more of a bottom-up development as a network? The GTAC would be the top-down approach and the GTAN would be the bottom-up idea of coming to the same result in the end. We’re experimenting with both at this moment because, from our perspective, the GTAC should be a no brainer, but there’s immense resistance against the idea. Mainly because of existing power games in some of the sustainability constituencies like NGOs. There’s a similar approach which is also trying to develop something like an Earth Council, which would be partially similar to what the GTAC would actually do, but it wouldn’t have the social and economic side added to it. There are thresholds and allocations also on the social and economic side of things, so they would complement each other. But we know there needs to be some overarching agreement about thresholds and allocations — we’ll see how much longer will it take. It’s a very hard thing to get good progress on.
Let’s come to the r3.0 2020 Conference, which it’s at its 7th international edition this year. Organising a conference is a hell of a lot of work, especially with the amount of speakers and topics that you have in program. Simply put, why do you do it? What value do you wish to create with it?
Yes, it is an awful lot of work, really, but there’s also a lot to gain. We always find that the yearly conference is a sort of culmination point — a milestone — where you also look at what has been achieved since the last conference. Of course, without the first couple of conferences, r3.0 wouldn’t exist, because that was really bringing a community together. People needed to get to know each other for embarking on this joint soul searching expedition on what this strange animal r3.0 should actually do and deliver. That was necessary in the first years.
We have now come to the point where we think the work ecosystem of our r3.0 is getting sort of complete, with all the present blueprints and the two that are still coming. So, we thought it might make sense to find a structure for the conference that we can keep for multiple years. That is what brought up the structure that we’ll have this year and that we want to keep in the next couple of years. It looks at eight different focus areas, which we identified as necessary to systemically and holistically approach any problem.
What are these eight focus areas?
There’s science of course, and there’s the question around behavioural change. There’s the question around finance; the attitude towards what sort of growth we need; the question around what is of value; around circularity, education, and governance. These are the eight focus areas. All of those problems — like climate change — have to be looked at from these eight different perspectives, in order to get out of a rather dualistic perspective of ‘this is right and this is wrong’, ‘this is black and this is white’, ‘this is yes and this is no’. Those dualistic discussions get us nowhere. What we represent as an organisation is the idea of finding a third way out of that dualistic discussion. Greta Thunberg can shout out ‘how dare you?’ And the governments will say ‘well, thank you Greta, but this is something for the experts’. That’s a typical dualistic discussion that gets us nowhere. So, what is the third way? We say it’s looking at climate change from those eight different perspectives, and then develop a way out of that in a synchronised leapfrog.
Going a bit more into details, what kind of questions can we expect for each of the eight focus areas?
We need to clarify what’s the role of science and very clearly listen to what science says. We need to look at behavioural change — what are we actually requiring from people? It’s not just, ‘maybe you could do this, or maybe you could do that’. Some will, the majority won’t. We are at a point where we have to require certain behaviour. Then comes the question — how do you finance that? Well, not by issuing green bonds that don’t know how green they are. That’s what the sustainable finance blueprint helps you with. Also clearly defining what sort of growth do you define for this? I like the growth of intellectual, social and human capital. I don’t like the growth of financial capital if it’s just for financial capital. So, what sort of growth is necessary? What do we need to achieve together? And how would the world economy react to that challenge?
We are at a point where we have to require certain behaviour!
Then there are the questions: how do we value and define success? What could be the contribution of circular economies to that? How would we educate people to follow that behavioural route that we’re demanding? And, finally, what is the necessary governance of that? You need to ask these questions and put them on top of all these single issues, whether it’s climate change, poverty, healthcare, or anything else. Take any of the 17 SDGs — you need to actually approach each of them with these eight fundamental topic areas. Only then you have an opportunity to define a third way. That’s why we came up with that structure — we think it’s the only one that makes sense to get away out of these dualistic ‘yes or no’ ,’right and wrong’ discussions, which cost us way too much energy.
Based on this structure, we’ll also come up with what we call the r3.0 World Progress Report — something greater than a normal conference report, at some moment. We want to use this cluster of eight topic areas and define what’s the state of the world when it comes to each of them: what’s wrong? What needs to improve? And how can we do that in a way that we can also measure through thresholds and allocations what progress we’ve made? We’re just constantly lying to each other about progress — we don’t even know what progress really is. Because we don’t know the system value of it. We know there are lots of initiatives that throw around words like ‘impact’ or ‘impact valuation’, but when is an impact a systemic one?
We are just constantly lying to each other about progress — we don’t even know what progress really is
We’re just living in a gigantic lie — some consciously, some others unconsciously…
That’s what the Educational Transformation Blueprint should achieve — clarify that it’s not your fault, you’ve just been educated in the wrong way. And, unfortunately, there are a lot of consultancies out there in the sustainability field who don’t have an interest in transformation either, because that’s radical. What consultancies love is incremental, year-to-year progress because it ensures their business and budgets.
As last words before the conference, I won’t ask you the canonical question of why people should join. Rather, what’s the biggest transformation people can expect by joining such a conference?
I would say it’s the personal transformation. We have had people in our conferences who went away and said that was life changing for them. Very often you see people who are deeply touched and still unable to change, because they are so much engrained in the handcuffs of the existing system. This is one of the most important conferences where there is really progress to show — it’s not that sort of shoulder-clapping of what is existing. We always have that look towards the end goal: the regenerative and distributive economy.
As participant, you can actually position your own activities of what we call the “maturation matrix”, where everybody can say ‘this is how far I got, and this is how far I’m away from serving the end goal’. And then you just get immensely interesting speakers — something that you won’t get elsewhere. We have a very in-depth preparation with the speakers — we don’t simply confirm speakers and tell them be there when the time is there. We have a preparation towards an outcome that we want to achieve together — they will know each other beforehand, and see what the others will be saying and showing.
That’s wonderful. Any final message?
I am very often starting or ending a conversation by saying that there is no sustainable business in an unsustainable world. And the world is unsustainable. So, whoever claims they are a sustainable business, think again.
And, possibly, come to the conference to understand why…we’re looking forward to it!