By Marc J. Lane

Corporate sustainability is key to successfully tackling the human, social, economic and environmental challenges of our times. Yet, short-sighted business models, misaligned incentives and anachronistic legal structures continue to place an outsized and unjustified priority on profits.

Take, for example, the market-based solutions often encouraged to address the existential threat of climate change. They’re grounded on the assumption that market failures are leading to the extinction of life in all its forms. With targeted financial incentives, it’s argued, capital will inevitably flow to the regeneration of nature and save us from ourselves.

The truth is that the financial system can be a powerful engine in catalyzing the deployment of our finite resources into the protection of the environment. But nature-based securities such as carbon credits and offsets, bonds and ecosystem services simply won’t do the job without the right value systems underpinning them. The encroachment of financial markets into nature without carefully constructed tools that protect people, place and community will only exacerbate extraction, inequality and volatility.

Socially responsible entrepreneurs are starting to see those disruptive tools emerge.

Consider Yvon Chouinard’s innovative business design. The press has widely reported that the 83-year-old visionary entrepreneur and nature lover has given all the voting shares in Patagonia, his $3 billion company, to the for-profit Patagonia Purpose Trust he created to protect the company’s values; and all the company’s nonvoting shares to the Holdfast Collective, a nonprofit advocacy organization dedicated to fighting the environmental crisis and defending nature. About $100 million in profits each year is expected to be deployed for environmental advocacy.

Chouinard could have sold Patagonia and donated the proceeds to charity. But he couldn’t be sure a new owner would maintain the company’s values or keep its team of people around the world employed.

Chouinard could have taken the company public. But, in his view, even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility.

Or he could have followed the lead of Newman’s Own, the company Paul Newman founded, and donated all of Patagonia’s shares to his own foundation. But then the foundation would need to make substantial grants to charities which are prohibited by law to act as advocacy organizations.

So, Patagonia will continue to be a for-profit business, a certified B Corp and a California benefit corporation, making its products and honoring its obligation to preserve the financial health of the company while always considering the impact its business has on employees, customers and communities as well as the natural world. In Chouinard’s words: “We will keep doing all the great things that built Patagonia, and the company will keep doing its best to be a great employer.”

But Patagonia’s “Perpetual Purpose Trust” and others like it merely suggest the variety and impact of a host of emerging “virtuous trust” strategies, these among them:

• The Employee Ownership Trust, tested in the United Kingdom and gaining traction in the United States, is a collective vehicle which acquires a controlling interest in a company and then holds that interest for the long-term benefit of the company’s employees. Studies have consistently shown that employee-owned businesses perform better and demonstrate greater resilience, innovation and profitability. Not only do employees show heightened commitment to a business when they have a stake in it; their beneficial ownership also helps bridge the stubborn gap in income and wealth that plagues socially stratified societies.
  
  
• The Community Investment Trust invites individuals living within certain, underinvested zip codes to buy shares in the CIT for a modest monthly investment, after they complete a course which educated residents about budgeting, financial goals, and the basics of investment. The CIT owns a commercial property such as a shopping plaza which can be developed using debt-financing. The tenants of the plaza pay rent which is used to pay the expenses of the plaza, with any remaining profits distributed to the investors. Moreover, as the debt is paid off, the ownership stake of the property increases, resulting in the increased value of the investors’ shares in the property. Both the investors and their communities benefit.
  
  
• The Community Land Trust is a community-led, 501(c)(3) nonprofit organization that acquires ownership of land and stewards that land on behalf of the community by retaining permanent ownership of it. Community Land Trusts can be utilized for a variety of purposes but are most commonly implemented as platforms for affordable housing. Unlike government programs that subsidize the building and private ownership of affordable housing or that provide needy individuals with financial assistance to rent or purchase suitable housing, Community Land Trusts stabilize communities as a whole through unique structures of governance and land ownership.

By vesting decision-making authority in those who are accountable not only to a business’s owners, but also to its employees, its customers, the communities in which it operates and the environment, virtuous trusts ensure that, above all else, profits serve purpose. They thereby become accountable to all of us.

If you’re interested in exploring how a virtuous trust can drive your business’s mission, feel free to reach out Marc Lane, in confidence, at MLane@MarcJLane.com or 312/800-372-1040.