By Frederique Mestre, Senior Legal Officer, UNIDROIT
This blog is part of a special series exploring subjects at the core of the Human-Centred Business Model (HCBM). The HCMB seeks to develop an innovative – human-centred – business model
based on a common, holistic and integrated set of economic, social, environmental and ethical rights-based principles. Read more about the HCBM here, and check out an event about it here
The HCBM project originated in 2015 within the World Bank’s Global Forum on Law, Justice and Development and is now based at the OECD’s Development Centre
How can we ensure economic development while advancing social and environmental objectives? How can we promote sustainable growth – a concept that in today’s real world may sound like an oxymoron? These questions are at the core of governments’ concerns at a time when the planet and humanity are faced with greater and more pressing challenges than ever before.
The Sustainable Development Goals (SDGs) are a milestone amongst the many political and legal instruments forming global standards, policies and procedures adopted by the international community for a more sustainable planet. The SDGs call for action to respond to social and environmental challenges. They outline obligations for governments toward their citizens to promote political and social cohesion and a responsibility for them toward future generations to advance long-term sustainable ecosystems.1
In this context, governments should be responsive to virtuous stakeholder initiatives and support them with enabling policies and appropriate legal and regulatory frameworks. And one such stakeholder that can’t be overlooked is the private sector. Recognised as a major driver of productivity, inclusive economic growth and job creation, the private sector has an essential role to play in contributing to sustainable development.2
Filling the gap between entities with the traditional vocation of advancing solidarity objectives based on a non-profit principle and business actors with a risk-taking and innovative approach inherently seeking to produce financial returns is a generation of entities with an ethical entrepreneurial commitment. These new entities are reinventing how to produce, consume, work, care for the vulnerable.3
We call these ‘hybrid’ entities ‘social enterprises’, ‘social businesses’, ‘public benefit corporations’ or ‘benefit corporations’. They are often described as ’three bottom line’ or ’fourth sector’, covering very different realities and practices across countries, economic sectors, and individual experiences. And these multifaceted actors are attracting the growing attention of many segments of society. Impact investors and financiers, who have elaborated standards and assessment tools to measure compliance to stated social objectives and help the sector develop financially and credibly, find these hybrids of particular interest.4
Indeed, many countries have already adopted enhancing public policies and legal instruments to support sustainable enterprises. One form of government support is an institutional recognition of entities complying with defined governance features through a specific certification or label.5 Such certified entities benefit from supervision and enforcement functions from the public or publicly established authority certifying them and, thus, may qualify for public policy advantages, such as financial or fiscal benefits,6 or preferential treatment in public procurement, which generally is a corollary for a ceiling placed on the distribution of profits to owners. Another form of government support is to pass a law to create a specific legal structure with a protected designation. This provides certainty about the entity’s core identity and enforces compliance with its social mission. A specific law is necessary in certain countries to transcend the traditional closed definition of “companies” associated with profit-making, to protect the new entity’s identity and social purpose from any future shifts in shareholders’ decisions or to clarify directors’ duties.7 In this connection, the ongoing work on the Human-Centred Business Model will no doubt provide a useful reference not only for entrepreneurs but also for governments seeking to develop or improve the regulatory and legal framework for a vibrant sustainable business ecosystem.
1. See the growing wave of judicial actions moved by citizens to hold their governments accountable for contributing to dangerous climate change. The 2015 Urgenda Climate Case against the Dutch Government was the first in the world and inspired climate change cases in Belgium, New Zealand, Ireland, the UK, Switzerland and the US. In France, “l’Affaire du Siècle” , the legal action against the French State brought by four NGOs reached a historical two million supporters only one month after its launch in December 2018.
2. See Development Matters blog by Isabella D. Bunn: “Transforming the Businesses that are Transforming our World”
4. See Development Matters blog by Angela Sansonetti: “A perspective from the financial sector on sustainable business”
5. See for example in France, the Entreprise Solidaire d’Utilité Sociale or in the UK, the Community Interest Company characterizing – respectively with the certification “ESUS” or “CIC” – a type of entity (regardless of the legal form under which it is incorporated) with a social utility, a main social purpose reflected in the articles of association, and complying with a defined governance principles regarding in particular financial operating decisions, remuneration of managers and employees, and use of profits.
6. See Development Matters blog by Karen B. Brown: “The role of fiscal policies for sustainability” – and the Development Matters blog by Barbara De Donno, Livia Ventura, Andrea De Maio: “What does public procurement have to do with sustainability?”
7. See Development Matters blog by Andrea Zorzi: “Creating value and doing good: Governance solutions for sustainable enterprises”