Business, Society and the Environment

Session1

Introduction

No one would run a business without accounting for its capital outlay.

Yet most companies overlook one major capital component – the value of the earth’s ecosystem services.

Because of narrow focus, our industries look only at the exploitable resources of the earth’s ecosystems - its oceans, forests and plains – and not at the larger services these systems provide for free.

Resources and ecosystems both come from the earth - even from the same biological systems – but they’re two different things.

Forests, for instance, not only produce the resource of wood fibre but also ecosystems services as water storage, habitat and regulation of the climate and atmosphere.

Yet companies that earn income from harvesting wood often do so in ways that damage the forests ability to carry out its other vital tasks.

Unfortunately the cost of destroying ecosystem services become apparent only when the services start to break down.

1998 - China’s Yangtze basin: deforestation triggered flooding that killed 3,700 people, dislocated 223 million and inundated 60 million acres of cropland. A $30 billion disaster and a $12 billion crash programme of reforestation.

Overlooking the value of the world’s ecosystem is a staggering omission - and not accounting for these costs has led to waste on a grand scale.

But now some companies are finding business opportunities in conserving resources on a similarly grand scale.

They are embarking on a journey toward “natural capitalism”, (Lovins, Hunter Lovins and Hawken ,1999)

…a journey that comprises 4 major shifts in business practices.

The first stage involves dramatically increasing the productivity of natural resources, stretching them as much as 100 times further than today.

Interface Corporation – leading maker of materials

for commercial interiors. Engineers realised that two embarrassingly simple design changes would cut power requirements by 92%.

In the second stage, companies adopt closed-loop production systems that yield no waste or toxicity.

In this way, every output is returned harmlessly to the ecosystem as a nutrient, like compost, or becomes an input for manufacturing another product.

Xerox, whose bottom line has swelled $700 million from remanufacturing, expects to save another $1 billion by remanufacturing its new, entirely reusable or recyclable lone of “green” photocopiers.

German Law makes many manufacturers responsible for their products forever, and Japan is following suit.

The third stage requires a fundamental change of business model –from one of selling products to one of delivering services.

For example, Elevator giant Schindler prefers leasing vertical transportation services to selling elevators because leasing lets it capture the savings from its elevators’ lower energy and maintenance costs.

The last stage involves reinvesting in natural capital to restore, sustain and expand the planet’s ecosystem.

Many companies are discovering that public perceptions of environmental responsibility or its lack thereof, affect sales.

Natural capitalism addresses problems by reintegrating ecological goals with economic goals.

Natural capitalism is both necessary and profitable – and it may subsume traditional; industrialism. And the companies furthest down the road will have the competitive edge.

Some very simple changes to the way we run our businesses can yield startling benefits for today’s shareholders and for future generations.

In an experiment at its Swiss headquarters, Dow Europe cut office paper flow by about 30% in six weeks simply by discouraging unneeded information.

"Responsive and entrepreneurial businesses

…are required as the driving force for sustainable economic development and for providing the managerial, technical and financial resources to contribute to the resolution of environmental challenges…"

Since the UN Conference on Environment and Development held in Rio de Janeiro in 1992,

…business and industry have already broadly improved environmental performance, while simultaneously creating jobs and improving living standards.

Eco-efficiency - a management approach - is a practical example of how business has responded to the imperatives of responsible entrepreneurship.

In addition, a number of specific initiatives have been adopted: among them, the chemical industry’s Responsible Care initiative.

The formal definition of eco-efficiency is:

"Eco-efficiency is reached by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life while progressively reducing ecological impacts and resource intensity throughout the life cycle, to a level in line with the earth’s estimated carrying capacity".

The concept makes seven main demands on companies:

reduce the material intensity of goods and servicesreduce the energy intensity of goods and servicesreduce toxic dispersionenhance material recyclabilitymaximize sustainable use of renewable resourcesextend product durabilityincrease the service intensity of goods and services

Eco-efficiency is designed to help companies support sustainable development, and encourages businesses to adapt to new ways of working without immediately abandoning their traditional practices.

Furthermore, the philosophy links the business concept of value creation to environmental concerns. The goal is to create value for society and the company, by doing more with less over a product or service life cycle.

There are many contributions to improved environmental performance and quality which business is uniquely placed to make

…but it must fit into a framework of science-based, non-discriminatory environmental regulations relevant to the country or region concerned.

Due to very different social, economic and environmental conditions around the world,

… responsible entrepreneurship cannot be comprised in a "one-size-fits-all" definition.

Indeed with conditions so very different around the world, and with nations at different development stages, it is hard to make a "one-size-fits-all" list of policies to help business better support sustainable development.

But it is clear that such policies must be based on an integrated view of the economy, society, and the environment.

Every government’s responsibility is - working with business and citizen’s groups - to devise the policy framework that will allow consistent and realistic goals to be developed and met.

Such a framework should be target-oriented and cost-effective in implementation.

Governments should use market mechanisms to encourage actions that work towards the goal of sustainable development. For example favourable treatment of investments in clean technologies, within a revenue-neutral tax shift, could speed their introduction.

Such instruments will encourage, rather than force, industry to improve and reward companies which pursue good environmental management in keeping with sustainable development, often inducing improvements that go beyond minimum standards.

A truly integrated approach to sustainable development calls for a range of measures, including market-based approaches, economic incentives and voluntary approaches.

In particular, voluntary approaches provide flexibility, allowing business to achieve the desired goals in the most cost-effective manner possible.

To be successful, responsible entrepreneurship needs to combine regulatory instruments with voluntary approaches and market-based initiatives, in a truly flexible and integrated manner.

The goal is to create value for society and the companies, by doing more with less over a product or service life cycle.

Key aspects of voluntary initiatives are;

1. coordination among companies,

2. dialogue and openness and recognition of

stakeholders' concerns,

3. partnership with operators along the chain.

Voluntary policies come in many forms, ranging from binding agreements to voluntary initiatives and benefits the entire economy of the nation.

For example, in negotiated agreements between government and industry, certain industrial sectors agree to take specific actions without the need for legislation.

The negotiations allow industry to influence the targets and objectives and to set a suitable time scale.

Industry is left largely free to determine the means by which targets and objectives will be met. The Dutch have pioneered these agreements, and other countries, such as Portugal, Australia and the US, are experimenting with them.

Initiatives taken voluntarily by industry, independent of government, such as those on energy efficiency by the European chemicals industry and those by Japanese industry, may not have legal status but nonetheless can achieve specific goals.

The new "hybrid" voluntary environmental management system processes such as the EMAS Regulation and the ISO 14001 standard look to entrepreneurial solutions to environmental problems.

Their value and benefit alongside, or in place of, the regulatory requirements for inspection and reporting is already being usefully explored in a number of countries.

“The companies that make the changes described will have a competitive edge,

Those that don’t make that effort won’t be a problem, because ultimately they won’t be around.”

(Lovins, Hunter Lovins and Hawken,

HBR 1999)