How doughnut economics can transform the deep design of business

September 22, 2023|Written by
Two women sat at a bench in a factory, handling Soda Stream components
Workers at a factory in Israel. Central banks have a role to play in making industry more sustainable and socially equitable. © Remy Gieling

To meet the needs of all people within the means of the living planet, we will need a business world designed to pursue social and ecological goals. For central banks and financial regulators, this requires a new era of policy-making based on broader policies and imagination around the kind of businesses that will come to occupy our economies. This is part of a broader ambition to ensure we can meet the needs of all people within the means of the living planet.

At the Doughnut Economics Action Lab, we have been working with businesses, policymakers and advocates to identify the key ideas and opportunities to transform economies so humans and the living planet can thrive – bringing Doughnut Economics into action.

Introducing the doughnut, and regenerative and distributive dynamics

There is growing recognition that the current global economic system is driving ecological crises and extremes of social deprivation and inequity. Doughnut economics provides one possible compass for turning this situation around.

The doughnut consists of two concentric rings: one represents a social foundation, to ensure no one is left falling short on life’s essentials; the other shows an ecological ceiling, to ensure that humanity does not overshoot the planetary boundaries protecting Earth’s life-supporting systems.

Between these two boundaries lies a doughnut-shaped space that is both ecologically safe and socially just: a space in which humanity can thrive.

Getting into the doughnut calls for nothing less than a transformation in the dynamics of the global economy. Today’s degenerative industrial systems – inherited from the last century – are still using up and running down the living world, and must rapidly be turned into regenerative industries that work with Earth’s cycles and within Earth’s means.

At the same time, today’s divisive context – thanks to the concentration of ownership and power in far too few hands – must be turned into distributive outcomes, through an economy that shares value and opportunity far more equitably with all who co-create it.

What does doughnut economics mean for business?

Doughnut economics calls on businesses to demonstrate how they will transform so they can belong in this future. For many companies, moving towards such a transformation typically begins with reducing carbon emissions or innovations in product design, such as eliminating single-use plastics and built-in obsolescence, while committing to paying living wages for the supply-chain workers making the products.

A diagram showing the doughnut economics model of planetary and social boundaries
The doughnut model depicting planetary and social boundaries. © Doughnut Economics Action Lab

Such actions are an important start, but they are far from sufficient if business is to become regenerative and distributive by design. This requires transforming not only the design of products, but the deep design of business itself.

New and necessary design innovations are now being created and explored; already the scope of what may be possible is emerging and examples abound. US outdoor clothing company Patagonia has made Earth its only shareholder, UK-based shampoo company Faith In Nature has appointed nature to its board and Willicroft, a Dutch plant-based cheese company, has shaped the chief executive role to ensure nature is the priority. Meanwhile, employee-ownership has spread rapidly through examples like Richer Sounds and Eileen Fisher, and over 1,900 renewable energy enterprises across Europe have become community-owned.

Design innovations like these can fundamentally affect the likelihood of a business taking transformative, ecologically regenerative and socially distributive action, for instance by giving the green light to a regenerative agriculture proposal, making significant investments in carbon-positive construction or sharing profits with workers and paying above a living wage for supply-chain workers.

The role of central banks and financial regulators

Policy shapes the kinds of businesses populating our economies. The ability of regenerative and distributive companies to grow and thrive is hampered by a regulatory system that was not designed to work for them.

There is a great need to now focus on transforming the financial sector which, together with government policy, creates the framework within which they operate. While there are businesses around the world embracing regenerative and distributive goals, they are often doing this despite the financial systems surrounding them.

The world of investment has largely stuck to the outdated paradigm of 20th century economics – channeling finance to businesses that focus on maximum growth, margins and dividends. In the process, this fosters businesses with a design that often holds back the strategies and investments needed to create a thriving economy which meets the needs of all people within the means of the living planet.

At the fiscal and governmental level, new thinking in a range of areas – tax, public procurement, legal reforms, access to finance, start-up support, industry policy and broader business regulations – are demonstrating the possibilities of using policy levers to transform ownership, governance and other aspects of the deep design of businesses.

For central banks and financial regulators, there is an opportunity to pioneer approaches that will reshape financial systems so they can foster businesses that are regenerative and distributive by design.

One approach can be through the use of differential interest rates. These measures can be used to support not only projects to drive the needed transition to renewable energy, but also businesses embodying regenerative and distributive designs, which can stimulate a broader range of action by businesses.

Regulators could also require financial institutions to produce mandatory transition plans, and to require them from the companies they provide financial services to, to show how they mitigate risks arising from the net-zero transition. The EU is already considering legislating for this. Other policymakers could go further and require that transition plans apply to all businesses, and cover the broader design transformations needed to enable these.

Financial regulators could also make transition plans a requirement, which would ensure action is catalysed across the economy and remove any perceived or actual disadvantage for first movers.

Another approach is to focus policy on the disclosure and consideration of risks. For instance, central banks and financial regulators can build on the EU’s corporate sustainability due diligence directive, which “requires companies to conduct due diligence on the potential and actual impacts across emissions in scopes 1, 2 and 3. In addition, companies must adopt and implement climate transition plans.”

A circular diagram showing how the planetary and social boundaries of the doughnut economics model are being overshot
Planetary boundaries are being overshot along with shortfalls on the social foundations. © Doughnut Economics Action Lab

Central banks and financial regulators can build on these ideas by requiring disclosure of the transformations needed in products, services, supply chains and other operations to reduce these impacts. In relation to defining risk and materiality, they could also go far beyond the limiting scope of single materiality and embrace double materiality, to identify risks emerging from economic operations that impact the planet and society, whether or not it has a direct impact on the company’s bottom line.

Lastly, those who are most impacted by social and ecological risks are rarely included in attempts by businesses and financial institutions to identify key risks. Central banks and financial regulators could bring in broader representation from a range of groups who can represent the interests of communities and the living world to identify and prioritise such risks. In doing so, they could pioneer innovative models of governance across business, finance and policy-making.

Inspiration can be drawn from the governance models of businesses like coffee brand Cafédirect, which gives farmers a seat on its board, or hydrogen car maker Riversimple, which has workers and communities represented on their board.

More broadly, central banks and financial regulators can have important agenda setting impacts. They need to impress upon all economic actors the need for ambitious and urgent transformation in how business is done, and in the design of businesses, which can be pivotal to enabling or holding back such transformations. Critically, this will require reforming financial markets to best serve regenerative and distributive businesses.

Central banks and financial regulators play a pivotal role in setting norms and lending legitimacy to new ideas. Their policy making can embrace new and bolder innovations in the way we design finance and business to help create a business world that does much of the heavy lifting for a thriving economy and society that helps humanity into the doughnut.

Around the world, leading policymakers are already transforming cities and countries by unlocking the potential of businesses putting communities and the living world at the heart of their deep design. Central banks and financial regulators have abundant examples to build on to generate their own approaches to reshaping the world of business and finance.

This page was last updated July 4, 2024

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