Former UK Prime Minister Margaret Thatcher, who had a chemistry degree, was the first major world leader to speak out – in 1988 – on the need for the world to take action on global warming and resultant climate change. "No generation has a freehold on this Earth," she said. "All we have is a life tenancy with a full repairing lease."
Fine words, but the truth is that nature and natural services are economically invisible in our dominant economic model – and that is simultaneously a symptom and a cause of our developing the problems.
How we value nature
Where is nature in our GDP, or in the balance sheets of big companies? It's not there. It is unaccounted for.
This economic invisibility of nature is one of the key drivers of its destruction as we convert natural areas to land uses that do have visible economic values, such as human habitation or agriculture. Our current way of accounting for our economic activity does not value trees, only dead trees as timber.
Without recognising the values of biodiversity and ecosystem services and representing them in decision making, we cannot comprehend the full magnitude of the trade-off being made:
- between different ecosystem services (food provision or carbon storage)
- between different beneficiaries (private gain by some, public loss by many)
- at different scales (local costs, global benefits, the scale impact of higher populations) and
- across different time horizons.
The issue of time horizons is becoming ever more pressing. It is easy to make the logical deduction that infinite growth of an economy based on using physical resources is impossible on a physically limited planet. But in reality there is no landlord insisting that we make the necessary repairs, and the political process for agreeing who will do what and who will pay has been torturously slow.
As a result, serious environmental damage continues and the window of opportunity for taking action to avoid the threat of catastrophic climate change becomes ever narrower. The question remains: Will we put our house in order before the ecological debt falls due?
The development of climate change knowledge
The science on climate change is quite straightforward and has been around a long time. The "greenhouse effect" was recognised as far back as 1824. Further discoveries followed in the 19th century, and the first prediction of humanity's role in climate change was made in 1896. The 1930s saw the first claim that global warming was under way, and regular measurements of the level of concentration of carbon dioxide in the atmosphere began in the 1950s.
For more information on the development of knowledge on climate change, including the findings of the Intergovernmental Panel on Climate Change (IPCC), see the TCii White Paper The journey towards sustainability, available on our website www.tcii.co.uk.
The IPCC's 2007 report warned that serious effects of warming were now evident and that the cost of reducing carbon emissions would be far less than the damage they would cause. If we continue on our current course, half of the world's arable land could be lost to rising sea levels by 2050.
The world of politics is still bogged down on the relative responsibilities for carbon reduction of different economies that are at different stages of development.
In the business world, however, a growing number of enlightened organisations are recognising that customers will increasingly prefer to buy from companies that are working to reduce their environmental impact. They are therefore examining the sustainability of their business model.
Before we look at how you develop sustainability into your strategy, it is worth considering the challenges that you may face from the environment and how to prepare for them.
It is predicted that climate change will increase the frequency and violence of extreme weather events. For instance, our White Paper The journey towards sustainability describes the enormous economic impact of the January 2011 floods in Queensland, Australia. The businesses that will be able to clean up and recover from such disasters will be those that have effective contingency plans in place.
For a comprehensive insight into what you need to do, see our three White Papers on contingency planning, all available at www.tcii.co.uk:
- Developing a disaster recovery plan
- Writing a disaster recovery plan
- Collecting data for a disaster recovery plan.
Achieving a sustainable business model
Transitioning to a sustainable business model requires the wholesale transformation of how a business does business. A sustainable business model is not creeping incrementalism – tweaks here and a spot of product innovation there – but a full-blooded reappraisal of how the business functions.
Here are the basics of how to achieve it.
- Show commitment
Sustainable business models can exist in an unsustainable world. It is the model for the business, not the overall economy. However, they are not created overnight. It is therefore critical that the decision to develop a sustainable business model is taken and supported by the leadership team. Senior management must be committed to the process of embedding sustainability.
In particular, the CEO needs to show urgency in both action and message. When the enthusiasm and motivation to achieve sustainability comes from the top, it quickly becomes an essential and unquestioned part of an organisation's procedures. Otherwise it is just another thing on the "to do" list.
- Understand the key elements of sustainability for the
Few organisations have unlimited resources to dedicate to addressing sustainability issues. But the resource made available for the exercise needs to be proportionate.
The first step is to determine which sustainability areas are the most important for you, and to understand how sustainability in these areas affects the company's reputation, its brands, and its relationships with key stakeholders – in other words, its effectiveness, long-term profitability and survival.
It is important to quantify the sustainability analysis because if you cannot establish the starting point, measuring progress will be impossible.
You may also want to consider some of the many relevant frameworks and standards that exist to address a broad range of sustainability issues, including the environment, human rights and business ethics. None of them is "right" and none is "wrong". Remember that this is new journey for the world economy, and what works best for you may not for another business.
Be aware, though, of existing and coming UK and European standards and legislation, particularly on energy and waste management.
Signing up to an international or national framework or standard can add credibility to the organisation's sustainability programme and may also give access to valuable guidance, data sources, best practice research, contacts and reviews.
- Play the long game
This applies to both manufacturing and service companies.
In terms of manufacturing, it is increasingly recognised that we need to move from the "take-make-waste" system on which our industrial system currently operates, and which dumps huge amounts of often toxic waste back into our resource base, to a "borrow-use-replenish" economic model.
The latter mimics the "closed-loop" systems of nature, where the waste from one process (or animal) is food for another. Thus the by-products of our extraction and use of raw materials would be returned – either to the economy for future use, or to nature as nutrients.
Your sustainability plan will need to contain a route map for achieving this model of operation. To read how a US carpet company is doing it, see our case study Carpet company undertakes mission to become a restorative enterprise, available at www.tcii.co.uk.
If your business is a service company, your brand is a precious asset. In a complex world consumers look for simplification, and brands are generally the chosen route. Brand reputations take a long time to build but can be damaged very quickly in today's social-media-driven world.
It is likely that more and more consumers will demand to know the environmental footprint – a holistic, lifecycle picture of the climate and environmental impacts of your brand and services. This means you need to have intimate knowledge of the practices and impacts of your suppliers as well as those of your own business.
Don't let your hard-earned reputation be destroyed because the paper in the office printers is causing the loss of tropical rainforest.
- Ensure that sustainability is the responsibility of
everyone in the organisation
If the sustainability plan is isolated in the organisation, it is unlikely to make much impact. The best sustainability plans are integrated into the DNA of the business.
Approaches such as incorporating sustainability performance into cash bonus schemes or embarking on full-blown change management programmes will bring sustainability into the heart of the business. This, coupled with the leadership stance outlined in point 1, will cement the perception that sustainability is an important issue for the company.
Such integration means redefining your organisation's view of what internal success looks like. Reward and recognise your staff for making sustainability a success.
- Set sustainability targets and break them
You need to have in place effective mechanisms for translating strategy and top-level enthusiasm into day-to-day operations. A forward-thinking sustainability strategy that is not translated into everyday decision making is a wasted opportunity.
So, break down sustainability targets and objectives for the organisation as a whole into meaningful "chunks", and set short-term and long-term targets.
- Develop processes that enable sustainability to be
taken into account clearly and consistently in day-to-day decision
Middle managers and others will not take sustainability factors into account unless they are given the authority, processes and information that will enable them to do so.
For example, if you set a target for the reduction of greenhouse gas emissions during the production and use of a particular product, you need to make clear how the balance of the cost and time to reduce emissions with other factors such as pricing, quality and availability of raw material supply is to be handled.
There is also much confusion about the pros and cons of various sustainability approaches, even in relatively simple areas. For instance, do you save more energy by providing paper towels or by installing electric hand driers? By flying in fruit from southern countries or by growing it in the UK in heated greenhouses?
It is easy for "process saboteurs" to bog the initiative down in endless argument about the "best" action. If you have understood your sustainability drivers correctly (see point 2) and set a decision-making process, these issues should be easier to resolve.
- Look for "quick wins"
Energy prices have soared over the past few years, and the costs of energy and other raw materials are likely to continue to rise over the next few. Despite this, efficiency levels in almost all businesses are surprisingly low, whether it is through:
- careless use of resource
- lack of information about where savings could be made, or
- the overall system inefficiency masking the potential for improvement.
In one transport company, fuel consumption wasn't even on the management radar until recently – despite the fact that it accounted for 5% to 7% of costs. Driving styles can impact fuel consumption by as much as 20%, so getting all drivers to coax the same mileage as the best practice could produce an amazing cost reduction of 1.0 to 1.4 percentage points.
This money could either go to the bottom line for improved profitability, or be reinvested in other energy-saving programmes.
- Use extensive and effective sustainability
Creating a culture of sustainability begins with ensuring that staff throughout the organisation understand not only what sustainability means generally, but what it means and why it is important in their specific context. Training is key to this, and is particularly important and relevant in this developing area.
Cynicism about the sustainability agenda can be an issue, with sustainability often seen as adding expense and therefore conflicting with the principle of value for money. Remember that "value" is a perception, and that the principal thrust of sustainability models is to value a clean environment for the continued enjoyment of future generations.
It will take time to raise awareness and engage with every person within the organisation so that they know what the sustainability strategy means for them.
- Nominate champions to promote sustainability and
If you are to embed sustainability successfully you need to have, at every level, people who understand the issues and have the capacity for change. In other words, you need to identify champions whom you can encourage and rely upon to use their passion and commitment to embed the strategy. It should become a reinforcing model.
From the board of directors down to the lowest levels within the organisation, there should be active involvement with sustainability issues to influence thinking and behaviour throughout the organisation.
Celebrating success and showcasing good practice can also encourage further innovation and provide case studies from which others can learn.
- Innovate, innovate, innovate
You may not even know today what it is you will need to grow your business in the future, so be prepared to innovate: everywhere. In everything from product design to service delivery, from internal and external communication to business strategy planning, innovation is the key to achieving a sustainable business model.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.