After attending the Digital Technology for Sustainable Buildings symposium, sponsored by the Fifth Estate, and reading the State of Green Business in 2015 produced by Greenbiz.com, I learned about some of the current and emerging trends in the world of sustainable and green business. I found several of the concepts to be relevant to any business wishing to prosper in this modern world, and chose a few to share that are being well implemented already in the Green industry.
Natural Capital Accounting
The tragedy of the commons is upon us. Many existing business models are predicated on the assumption that vital, non-financial resources are in virtually limitless supply. In many cases however, business and market activities place an added burden on shared environments – such as pollution, depletion of resources or ill health effects – but are not reflected in the actual market price of the particular product. While this is not necessarily a new phenomenon, our growing global economy is approaching some limits that our ‘common’ environments cannot support. Natural Capital refers to the stock of resources and ecosystem services on which all companies depend for their success. It is often inaccurately valued and thus natural capital is often used unsustainably.
Prudent businesses should consider integrating detailed Natural Capital Accounting (NCA) into their balance sheets to help them face future challenges of resource scarcity and the management of environmental risks. While obvious raw materials will be closely monitored already, unaccounted ancillary stocks of natural capital should also be considered in the event that the associated ‘true costs’ become a future liability (think atmospheric carbon storage).
Water tops the list for many companies exposure to natural capital scarcity risk. Often this risk occurs outside the company’s immediate operations in the supply chain, and overall, awareness of this risk is typically low. By identifying specific water usage requirements and constraints in their supply chains, and then conducting detailed NCA, companies can better understand and potentially mitigate these risks.
While natural capital accounting and reporting is still primarily a voluntary activity for businesses, there is a movement to incorporate it into measures of Gross Domestic Product backed by the World Bank and the United Nations, which may lead to outside pressure to implement NCA across industries.
Transparent Supply Chains
The business accountability of companies continues to expand well beyond the scope of their front end specific activities. From a sustainability standpoint, product traceability can be a highly impactful tool for advancing an organization’s objectives, and providing accountability for their supply chain has been a basis for many sustainable business models in the industry. Increasingly, even general consumers are demanding more information about the origin of the products they purchase, and business must therefore respond.
Technology is enabling great improvements in this area – such as sensors, data management and the ‘internet of things’ – and it facilitates traceability and lower costs for businesses. The end result is that companies are approaching the ability to achieve 100% traceability even on complex supply chains. This transparency can lend a great deal of credibility to a firm, and the increased speed, analytics and volume of data can help find solutions for efficiency, value creation and sustainability.
Third party organizations are creating a market in this space by providing stewardship services as products make their way through a supply chain. As an example, The Forrest Stewardship Council has a chain of custody system that tracks timber products as they travel from the forest to the consumer, and allows companies all along the supply chain to promote their sustainably managed products.
A word of caution regarding the difficulty currently still inherent in the process, as even leaders in this area are not always able to manage every element of their supply. An audit of Patagonia – a champion of fair labour practice – recently turned up instances of continuing exploitation in their supply chain, despite the company’s immense efforts to tightly monitor every link along the way.
Distributed and Open Innovation
The solar movement has long been a proponent of the concept of ‘distributed power’ in which the energy model is transformed from large centralized power plants to a network of small scale installations generating power for the grid. Similarly, the idea of open innovation shifts the flow of knowledge to a wider platform, away from a ‘closed’ and centralized base. The sustainability sector has adopted this mindset as a central tenant to its culture.
By looking externally for solutions and sources of creativity, and then combining them with internal R&D activity, firms can maximize innovation efforts and thus deliver and thrive in the modern marketplace. The culture of collaboration inherent to sustainable businesses automatically positions them well in this respect.
This is the future of business. The tech industry has incorporated open innovation from its early days, and the progress of software development was virtually built on the idea. More and more open innovation is making its way into the mainstream. Large corporations such as GE and Unilever have specific programs established to take advantage of this powerful tool, and hot new disruptors such as Airbnb and Tesla have built their business models around it.
Additionally, companies are finding that their own employees are in fact key drivers for advancing sustainability initiatives. By increasing information and education around sustainability, employee engagement is raised and collaborative innovation occurs within the company. Could this model be translated into wider business practice?
Indeed, open innovation is business best practice as it allows firms to remain nimble in diverse environments, access wide audiences and take advantage of cutting edge technology platforms.