“I’m a business person, why should I bother about sustainability?”
It’s a common question. In our personal lives many of us recognise the need to “go green”, happily filling the recycling bins at home and demanding non-plastic straws in the coffee shop. However, as business leaders we have a responsibility to look after the needs of the business first. Why should a business person make sustainability a priority?
In this article I set out 3 powerful reasons for businesses to embrace sustainability now:
- Better control of resources and input costs
- Increased customer loyalty and passion for your brand
- The opportunity to become the market leader of the future
Our current economic model assumes that there is a limitless supply of resources that just need to be extracted, processed and delivered to us. We make these into things and sell them to consumers who use them, throw them away and buy more things. This is often known as the Make-Use-Dispose model or as the “Linear Economy”. To date, this has been the most cost-effective way to run a business and structure the economy.
The problem with this approach is that resources of all kinds; physical, intellectual and human are becoming scarcer and more expensive. This is becoming increasingly evident in many ways, from rising oil prices and rising sea levels, through big business paying over the odds for tech start-ups, to the difficulty of recruiting the right people.
These statistics from the McKinsey Resource Revolution report (2011) highlight the increasing pressures:
- Since the turn of the 21st century, real commodity prices increased by 147%.
- An additional $1 trillion annual investment needed to meet future resource demands.
- There will be 3 billion more middle-class consumers by 2030.
When demand for a commodity exceeds supply, prices rise. This has been happening across the board since the turn of the 21st century.
Here are some examples:
The Fuel Price Index not only affects the price of fuel but almost all goods, through increasing transport and manufacturing overheads. Oil is also the basis for most plastic manufacture.
Food security has become an important strategic issue impacting on internal stability and security. That’s why China imported $2.9b of agricultural goods from Africa in 2014.
Almost all the commodity price indices show the same pattern. If we look at the combined price index for all industrial inputs, we can see that it has been hugely volatile and even now, in a relative downturn, prices are twice the level they were in 2002.
All these price increases in level and volatility are related to the increasing scarcity of resources. And the predictions are for this to only get worse over the next 15 years.
The pressures are not limited to commodities:
- By 2030 the demand for water is forecast to be 50% higher than today. Even if we reproduce historical improvements in water productivity there is still a projected gap in the supply of water of 60% by 2030, that’s nearly 1.7 billion m3 (2009, Water Resources Group)
- Recycling rates around the world have improved immensely in the last few years but still only 8 of the 34 OECD (Organisation Economic Co-operation and Development) countries recycled 50% or more of their waste in 2013.
- Electronics goods contain a great deal of raw materials that were relatively scarce in the earth to start with, yet we are still sending most of them to landfill, robbing ourselves of vital resources and generating more demand for mining and extraction. In 2014 the recycling rates (2014, GOOD) for 3 common electronics products were:
- Televisions: 25%
- Computer products: 21%
- Mobile phones: 9%
So, we are faced with the very real situation that over the next 15-30 years; commodity prices will continue to rise and (which is perhaps worse for businesses) become more volatile; water demand will likely outstrip supply; and we will have thrown away a huge proportion of the very resources that are becoming scarcer and more expensive to extract. The impact of this on business should be obvious and this provides a very real financial imperative for businesses to find a new way of operating.
So, we need a new economic model to address this problem. One in which all our resources will be renewed, reused or recycled, with nothing going to waste.
This is not a new idea, it’s known as the Circular Economy, or Make-Use-Return model. Many elements of the infrastructure required to do this are already being put in place and the businesses that embrace it now have the opportunity to become the market leaders of the future.
It’s important to realise that customer demand is very often ahead of business strategy here. An international study of 20,000 consumers by Unilever (Brand Purpose: Fad or Future?, Europanel, 2016) found that:
- A third of consumers (33%) are now choosing to buy from brands they believe are doing social or environmental good.
- An estimated €966 billion opportunity exists for brands that make their sustainability credentials clear.
- Of Unilever’s hundreds of brands those, such as Dove, Hellmann’s and Ben & Jerry’s, that have integrated sustainability into both their purpose and products delivered nearly half the company’s global growth in 2015. Collectively, they are also growing 30% faster than the rest of the business.
It’s not just consumers, sustainability is increasingly important in Business-to-Business (B2B).
- Over three quarters (77%) of business decision makers state that a supplier’s environmental performance or sustainability record is an important factor in product selection, with 57% including sustainability-related questions in their purchasing Requests For Proposal (B2B Pulse, Shelton, 2016).
- In the world of construction 90% of firms worked on green projects in 2018, with the proportion of these expected to grow. The most important trigger for green building activity is “Client Demand” (World Green Building Trends, Dodge Data & Analytics, 2018).
In business, there is no more powerful reason to do something than that your customer wants it!
Sustainability and social purpose are becoming equally important in recruitment. A study of 2126 individuals across the UK (The Values Revolution, Global Tolerance, 2015) found that:
- Almost half the UK workforce (42%) now want to work for an organisation that has a positive impact on the world, rising to 62% for the “millennials” generation, those born between 1981 and 1996.
- Meaningful work that benefitted others was more important than a high salary for 44%, rising to 50% for millennials.
Where do I sign?
So, here are 3 very powerful reasons for businesses to embrace sustainability and the circular economy now:
- Resources are becoming scarcer leading to rising and more volatile prices. Taking more control over the recovery and re-use of those resources will give businesses a significant advantage over their competitors in the coming years.
- Consumers and B2B customers are increasingly demanding that the products and brands they buy into operate more sustainably and are becoming increasingly more savvy about making sure that this is not just a token gesture. The businesses that really embrace sustainability will build greater loyalty and passion for their brands and products, driving greater market share and repeat purchases.
- Over the next 30-50 years all businesses will need to operate sustainably. The businesses that embrace it now have the opportunity to become the market leaders of the future.
Add to that the motivational benefits that a deep sense of fulfilment and pride about “doing the right thing” brings to both business leaders and employees and the business case for sustainability becomes irresistible.