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Sustainability, the next business wave

Sustainability, the next business wave
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First Published: Sun, Sep 18 2011. 11 34 PM IST

Photo by Ian Waldie/Bloomberg.
Photo by Ian Waldie/Bloomberg.
Updated: Sun, Sep 18 2011. 11 34 PM IST
Ask many an Indian company about their stance on sustainability, and you’d get a polite acknowledgement that it’s a worthy endeavour—but a peripheral one.
Like sponsoring “Kids for Tigers” or some other such green-tinged philanthropy, it’s been filed firmly in the box labelled “nice to have—but non-essential”.
Any company still stuck in that mindset, though, is in danger of missing out on what former Wal-Mart CEO Lee Scott describes as “the biggest business opportunity of the 21st century”. And of being victim to one of its biggest threats.
Here’s why.
Photo by Ian Waldie/Bloomberg.
First, the days of cheap and easy access to finite resources—from energy to materials to water—which drove economic growth for many decades, are gone for good. Investment strategist Jeremy Grantham puts it starkly: “The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger surge than occurred during World War-II.” “Mrs Market”, he concludes, “is sending us the mother of all price signals.” Scarcity is the new normal.
Oil, of course, remains stubbornly high despite the global downturn, and shows no sign of slacking. And as climate change kicks in, disrupting food and water supplies, so burning fossil fuels will become politically unacceptable.
Some business leaders are starting to wake up to the new reality. In its report, Shaping the New Rules of Competition, McKinsey observes that leading CEOs “recognize the underlying tension between business models wedded to increasing patterns of consumption and the reality of limited natural resources”.
For some companies, says David Bent, deputy director of sustainability non-profit Forum for the Future, that tension could reach breaking point. Senior figures in one major clothing brand have told him confidentially that “our business model is broken”. Why? Because it was dependent on low labour, low materials and low energy costs, “and all those are gone.” The company won’t admit as much in public, he adds, “because the share price would go through the floor”. Small wonder that sustainability is now a topic of urgency in that particular boardroom.
Second, smart businesses are spotting an opportunity—sometimes surprising even themselves with the returns on offer. Take retailer Marks and Spencer. It drew up its “Plan A”—covering everything from energy efficiency to greening the supply chain—after former CEO Stuart Rose became convinced of the need to face up to environmental threats, famously remarking that “there is no Plan B”. M&S felt it was investing for the future, but that doing so would cost around £200 million over five years. It was proved wrong. Within a couple of years Plan A was breaking even, and by 2009-10 it had actually added £50 million worth of net benefit to the company. How? Because shining a laser light on environmental impacts revealed a host of efficiency savings, while the clear commitment to action inspired loyalty from suppliers and customers alike.
M&S isn’t alone. Other companies have been surprised to find that sustainability can make, rather than cost, money. These are big, sophisticated operators, who presumably got that way by being savvy number crunchers. So how come these savings aren’t being spotted? Bent says finance departments are often trapped in established techniques, which assume tomorrow will be “today plus”—i.e. broadly similar. As a result, “the tools they’re using may actually be blind to potential savings.” Sustainability strategists, by contrast, are experts in complexity, well placed to spot all the different factors—from government incentives to rising resource costs—which might affect the bottom line.
Leading companies are adapting fast. Unilever has committed to halving its environmental impact by 2020—while doubling sales. Wal-Mart plans to have 100% of its energy needs met from renewables, while GE has invested heavily in its “Ecomagination” division, which specializes in green innovations from smart grids to reverse osmosis, with the aim of doubling revenue to $20 billion by 2020.
India is well placed to catch the sustainability wave. Its vulnerability to climate shocks has raised awareness of the need to act, and it has huge quantities of the 21st century’s most promising energy source: solar power, the cost of which is fast approaching grid parity in some areas. While many of the country’s more established companies still look like laggards, younger guns have been quick to spot the opportunity, particularly in energy. They include Ahmedabad’s Abellon, specializing in turning crop waste into clean fuel, or Bangalore’s SELCO, which has brought solar electricity to thousands of villages. And it’s no coincidence that the world’s first mass market electric car was produced by an Indian company—REVA. Now the Frankfurt Motor Show is awash with electrics as the major manufacturers play catch-up.
Three years ago, says David Bent, “I asked the chief executive of a company with more than 20 million UK customers what excited him about sustainability. His answer: ‘We can make money. And we can help our customers. And we can build our brand. And we can inspire our employees. And we can beat our competitors.’”
It’s not sustainability, the CEO concluded. “It’s just smart business.”
Martin Wright, is editor-in-chief of Green Futures Magazine, a magazine on environmental solutions and sustainable futures.
Comments are welcome at theirview@livemint.com
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First Published: Sun, Sep 18 2011. 11 34 PM IST