The 3 Laws of Business: A Crucial Enabler for Doughnut Economics

By defining what is in-bounds vs out-of-bounds, the 3 Laws enable the Doughnut to come into existence.

In an era of escalating environmental crises and deepening social inequalities, the Doughnut Economics model (The Doughnut), pioneered by economist Kate Raworth, offers a transformative framework for rethinking economic systems. The model envisions an economy that operates within our planet’s ecological limits while simultaneously providing a social foundation that ensures human dignity and equity for all. While the vision is clear, the challenge, like with so many other sustainability efforts, lies in the implementation. What mechanisms can be used to guide business, governments and communities towards this vision?  

This is where the 3 Laws of Business can play a supporting role. By offering a framework that can clearly define “in-bounds” vs. “out-of-bounds” behavior, business can be seamlessly guided towards “sustainable profits” instead of the current “profits-at-all-costs” mentality that is leading us towards planetary insolvency. By embedding these laws into the fabric of corporate operations and decision-making, we can accelerate the transition to a Doughnut economy that respects both planetary boundaries and human rights.

Understanding the 3 Laws of Business

The 3 Laws of Business are simple yet powerful principles designed to guide corporate behavior in a world facing unprecedented ecological and social challenges:

Law #1:

A corporation may not engage in activities that exceed their entity-specific allocations of vital capitals*.​ (This means companies are required to operate within their allocations to prevent breaching either minimum or maximum capital thresholds, ensuring the sustainability of all forms of capital upon which they and other stakeholders depend.)

Law #2:

A company may pursue profits to ensure its continued existence so long as such pursuit does not conflict with law #1.

Law #3:

To ensure "strong sustainability", a corporation may only exceed its allocated share of capital* IF such excess can be offset by capital reserves or a compensatory arrangement within the same capital class (i.e. no cross-capital trading!), ensuring cumulative effects remain within capital threshold limits.

* 7 forms of capital are referenced here: natural, cultural, human, social, political, financial, and built/manufactured.

These laws provide a clear framework for businesses, prioritizing sustainability and social responsibility without shutting down the economic incentives that often stifle innovation and creativity. When integrated with the Doughnut Economics model, the 3 Laws could significantly enhance its implementation, ensuring that businesses contribute positively to both ecological and social outcomes.

Setting the Standard for Accountability (The 1st Law)

While Doughnut Economics focuses heavily on policy guidance, community engagement, and multi-stakeholder collaboration, businesses need to be held accountable for their environmental and social impacts far beyond what is currently required. They often lack sufficiently detailed mechanisms to enforce corporate accountability at the operational level. The 3 Laws address this gap by establishing clear boundaries within which businesses must operate.

The 1st law aligns perfectly with the Doughnut’s ecological ceiling and social foundation, explicitly prohibiting corporate actions that degrade ecosystems or harm human well-being. This would prevent businesses from externalizing environmental or social costs, a practice that has historically contributed to both ecological destruction and social inequality. This is a highly complex issue and is exactly what the Scorpion’s Tail Club will delve into in the Shifting Corporate Metrics working group, 1 of 4 working groups (with the other 3 addressing innovation, finance, and governance).

Staying Flexible and Profitable (The 2nd Law) 

The Doughnut Economics model encourages businesses to innovate and operate within the safe and just space between the ecological ceiling and social foundation. However, the transition to sustainable business practices is often fraught with challenges, including the perceived trade-off between profitability and sustainability.

The 2nd law provides businesses with the flexibility they need to develop new business models and technologies that are both profitable and aligned with the Doughnut’s goals, going beyond welcome but insufficient attempts at change such as increasing renewable energy adoption and sustainable supply chain management. The idea is not to try to “plan” how the economy operates or cap earnings or growth, but rather, to refine and provide guidance for the way that we achieve growth. 

By embedding these principles into their operations and clearly understanding the difference between in-bounds vs. out-of-bounds behaviors, businesses can drive the innovation needed to achieve the Doughnut’s vision of a thriving economy while staying within planetary boundaries. This can even be done using existing mechanisms.

Navigating Trade-Offs (The 3rd Law)

In the era of climate change, businesses often face difficult trade-offs between economic, social, and environmental goals. Existing Doughnut Economics frameworks promote systemic thinking and holistic decision-making, but they may not always provide clear guidance for businesses navigating these trade-offs.

The 3rd law introduces a structured approach to allow for situations requiring exceptions to the first law - but only when the business can prove that the harm done is outweighed by the benefits to humanity and the environment. This aligns with the Doughnut model’s emphasis on balancing ecological and social priorities, ensuring that any trade-offs are made in the best interest of both people and the planet. 

A New Corporate Governance

While Doughnut Economics provides a macro-level vision for a sustainable and just economy, its principles need to be embedded into the day-to-day operations of businesses to be truly effective. By adopting the 3 Laws, businesses can align their governance structures with the Doughnut model, ensuring that sustainability and social responsibility are at the core of their operations. This could lead to more consistent and enforceable approaches to achieving the Doughnut goals, with businesses regularly assessing their impact on both the ecological ceiling and the social foundation. This can even be done using existing mechanisms. Much in the same way that there are examples of both legally-binding international climate legislation alongside country-level oversight that fit into existing mechanisms, the implementation of the 3 Laws are also not dependent on any additional government oversight. Fleshing out the details of how this is done will be one of the goals of the same Shifting Corporate Metrics working group referenced earlier. 

The 3 Laws as a Critical Enabler

Doughnut Economics has inspired numerous practical guidelines and tools for implementation, including the Doughnut Unrolled for businesses, City Portraits for urban planning, and DEAL's (Doughnut Economics Action Lab) resources designed to help governments and organizations apply Doughnut principles in real-world contexts.

The 3 Laws act as a policy framework that aligns business operations with the ecological and social boundaries of the Doughnut Unrolled tool, streamlining decision-making and reducing the need for external oversight. In City Portraits, the 3 Laws ensure that urban development prioritizes sustainability and equity, simplifying regulatory processes. When integrated with DEAL resources, they provide a foundational policy guideline that makes the adoption of Doughnut Economics more intuitive, accessible, and less dependent on technical expertise - broadening its appeal across sectors.

Coupled with the Doughnut’s vision, the 3 Laws of Business can serve as a critical enabler, offering a unique contribution that complements and enhances the model's implementation. 

Conclusion: A Synergistic Approach

The 3 Laws of Business offer a unique and powerful complement to Doughnut Economics.  Once enhanced by detailed policies and legislation, the 3 Laws not only provide a comprehensive set of operational guidelines that keep businesses operating within the desired social and environmental boundaries of the Doughnut, but they also greatly diminish the need for extensive monitoring, reporting, and external enforcement. 

The adoption of these laws would not only strengthen the implementation of Doughnut Economics but also ensure that businesses are active contributors to a thriving world within planetary boundaries. As we face the growing challenges of climate change and social inequality, integrating the 3 Laws into corporate governance could be a key step toward a better future for all.

To learn more about how the 3 Laws for Business can transform BAU and how you can have a seat at the table as we re-shape the future of business, contact us for a discreet 1:1 discussion here.  

Thanks for reading!

Brad Zarnett and Ian Kaplan
Co-Founders, Climobilize Scorpion’s Tail Club

---

A simple way to support the efforts of Climobilize’s Scorpion’s Tail Club is to subscribe to this page or it would be much appreciate if you could share with your network.