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The Drivers For Sustainable Business Change in 2013

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It's been a mixed year for sustainable business. For every signal telling us to become more sustainable (resource crunch, extreme weather, social disquiet with business) a counter signal (austerity, shale gas discovery, political inertia) suggests that business as usual is the safest thing to do. So what I've tried to do in this blog is create a coherent narrative that cuts through the 'noise' to show there is a powerful underlying 'signal' for sustainable change.

Challenging economic climate - the global economy is weak, Eurozone troubles persist, there's a slowing US economy and even India and China show signs that their stellar growth may be slowing...

...but, environmentally at least, a 'slower' global economy is a relative term. The next 20 years will still see a growing global population and growing middle class consumption will increase significantly the amount of 'stuff' (clothes, food, phones etc) that will be consumed. Every year we become more resource efficient (the amount of raw material/energy consumed per item produced reduces) but it is likely that, despite this, more and more raw material will have to be extracted from the planet...

...which is starting to manifest itself in a cost challenge for business. Classically a downturn in the West would be mitigated to a degree by an associated reduction in the global cost of raw materials. Not this time. Western businesses have faced a 'double whammy' as revenues have declined but input costs have remained high. Growing BRIC demand for finite resources, accentuated by disruption from extreme weather events, has taken input costs to record highs (cotton, cocoa, oil, plastic etc)... resource scarcity will continue to hamper economic recovery but it's not all doom and gloom. In the short term resource efficiency can save significant costs today and 'green growth' is increasingly discussed as part of the solution. Jobs based on renewable energy generation, raw material recovery and reuse and electric car networks are all postulated as part of the solution. But, as yet, the decline in 'today's economy' is not being 'offset' by growth in the 'new economy'. In part this reflects the challenges of technologies that are not yet ready to scale and, in part, the risk adversity of investors. But probably the largest single cause of concern is the lack of regulatory/policy certainty. Without a coherent, long term national and international governmental framework against which investment decisions can be made, 'green growth' will not happen to the degree that it could and should...

...we were reminded of Government inertia at the recent Rio Plus 20 negotiations and the continued inability at Doha to build upon the limited, but still welcome, success of the Kyoto Protocol. A growing number of companies have become as proactive as NGOs in lobbying Government for change. In the past corporate lobbying of Government(s) to tackle sustainability issues was often driven by reputational issues now it is more proactively driven by a consideration of business risk and opportunity...

...and it's this word 'opportunity' that will continue to grow in the corporate psyche. A raft of new technologies (artificial intelligence, robotics, nanotechnology, remote sensors, 3D printing etc) are emerging that could help build a sustainable future. However, at the moment their potential is suppressed by investor caution and political incoherence...

...perhaps Government caution is based on an analysis of their electorate that says sustainability is not their current pre-occupation. Jobs, mortgages, the welfare state are surely the 'push button' issues of the moment, the issues on which elections are won and lost. But a new 'asymmetric' social debate is emerging that challenges this political caution. There remains considerable latent social anger towards the financial system. An ageing population in the West and a younger disenfranchised one in the developing world will only accentuate the pressure on the late 20th Century 'settlement' that citizens would leave the management of their lives to politicians provided that their material wealth was improving. New social movements will emerge that challenge the established political AND business order... will increasingly find itself having to explain, even 'justify' its actions. Since WWII there has been little threat to the 'way business does business' in the West, reflecting the perception that, whatever its faults, it's been able to contribute to improving material wealth. In many emerging markets the pursuit of material wealth is likely to leave the scrutiny of business low but in more established ones the concept of us living separate lives as (indifferent) consumers and (cowed) citizens will be subverted and the two worlds will be drawn together making us informed/ challenging citizen consumers. Business will increasingly find it difficult to defend itself in the face of the citizen consumer. Government and the rules, if they exist at all, will not be trusted. And social media will only accelerate and accentuate this sense that 'business is on its own'... media changes everything in the world of business. Not just in the functional way by which consumers find out about products; place an order for them; and then provide subsequent insight and recommendation on their use to other potential consumers but also in terms of society's basic interaction with business. People can see so much more into how companies behave and share their views, recommend and boycott so much more easily... plus, social media empowers a totally different way of thinking about ownership. People will increasingly share, swop, barter, rent and exchange both material things and services. Social media becomes the enabler for a radically new approach to ownership.

So 'join the dots'. Link a resource crunch, cost inflation, social disquiet about the future, social media 'lifting the lid' on business behaviour, a lack of a coherent Government policy framework to 'protect' business, an alternative sharing economy emerging it all says that the drivers for change whilst masked by short term noise are powerful.

Business needs to work harder to build capacity to respond to these drivers and this will be the subject of my next blog.

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