A new ‘Zeitgeist’ is increasingly taking hold in growing pockets of society, politics and the business world. All indications point to one direction – towards the concept of ‘sustainability’ dominating human behavior and thinking in the twenty-first century. As the urbanization wave around the globe rolls on, megacities are increasingly becoming the epicenter of human life and economic activity for billions of people. Inevitably, this trend will bring about new challenges and exacerbate looming, well-known challenges such as climate change. As the World Economic Forum notes in a newly-released report on “The Competitiveness of Cities”:
“Cities are especially intensive users of energy, food and water, given their concentrations of people and economic activity, and are responsible for over half of global greenhouse gas emissions. Their challenge, particularly in the developing world, is to fuse technology and markets to become much more efficient in using available resources.”
Climate Actions and Economic Significance of Cities:
Global needs for clean water, sanitation and food as well as demand for energy, mobility (transportation) and for an improved standard of living will increase and put tremendous strain on existing natural resources. The growing awareness of environmental problems – especially that without a timely, coordinated, and ‘corrective’ intervention by governments the problem of climate change will eventually become irreversible – in addition to the perception of natural resources’ finite supply brings any debate back to the fundamental question of how to sustain life on earth.
What is Sustainable Development about?
The first association that comes to mind has to do with energy needs in general – and the finite fossil fuel supply amid projected future demand growth – and carbon-emissions-free energy in particular. Renewable energy sources (solar, wind, hydro) have the potential to pick up the slack and supply a larger percentage of projected future energy demand globally. In this context, technological innovation represents one suitable solution to problems related to sustainability. However, a different angle to tackle these problems is a change in human behavior based on better information and awareness leading to energy savings by implementing simple energy efficiency measures. This point emphasizes the importance of public awareness and/or education, which can serve as a catalyst for action – i.e. a change of course.
Apart from concerns about energy, the concept of sustainability includes all aspects of political, economic, and social life in so far as present actions may constrict future actions. The so-called UN ‘Brundtland Report’ from 1987 is very instructive on this topic and defines sustainable development as follows:
“Humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs. The concept of sustainable development does imply limits – not absolute limits but limitations imposed by the present state of technology and social organization on environmental resources and by the ability of the biosphere to absorb the effects of human activities. But technology and social organization can be both managed and improved to make way for a new era of economic growth. A world in which poverty is endemic will always be prone to ecological and other catastrophes.”
This paragraph also hints at perhaps one of the most heated debates revolving around sustainability – whether it entails negative consequences for economic growth and prosperity in countries that adopt sustainable policies. This debate ties in with the ‘old’ paradigm that sustainable, ‘green’ products are not competitive on a global scale given higher ‘green’ input costs vis-à-vis products manufactured in developing countries. As a consequence, the concept of sustainability used to be buried in companies’ corporate social responsibility (CSR) reports, removed from driving business objectives or revenues.
The following graphic gives an exemplary overview of the concept of sustainability and its manifold important aspects on an abstract policy level. The UK Government launched its so-called “Securing the Future – UK Government Sustainable Development Strategy” in 2005. It identifies sustainable development as having five key guiding principles that are very much in line with the instructive definition above.
UK Strategy for Sustainable Development
The German Government, in turn, describes its sustainability strategy by bringing it down to the individual level, broadening it and embedding it in economic activity:
“Sustainability means: Only using what we produce and not living of the substance. In terms of our society, this means that every generation must solve its own problems and may not leave them for future generations. [What] is needed are innovation, creativity and technical know-how, in order to drive an environmentally friendly and resource conservative production and consumer pattern. In this endeavour, everyone must join in shaping structural change. Accordingly, the strategy is extensive in its content, and not set in stone. It is the foundation for political reform, as well as for altered behavioural patterns of companies and consumers.”
This brings us back to the significance of cities within the concept of sustainability. They are the engines of productivity and growth as well as home to the global rising middle class full of aspirational first time consumers. The World Economic Forum identifies six global ‘megatrends’ that are expected to condition the operating environment for cities and, for that matter, their resident businesses:
“(1) urbanization, demographics and the emerging middle class; (2) rising inequality; (3) sustainability; (4) technological change; (5) industrial clusters and global value chains; and (6) governance. It is up to cities to take advantage of these megatrends, as well as to mitigate negative forces such as rising inequality, pressure on natural resources and the environment, and a diminution of trust in public authorities.”
Turning away from traditional business models with their implicit assumption “that natural and social capital are in virtually limitless supply,” the impetus for change is manifold, ranging from meeting customer demands for socially responsible goods and services – i.e. within planetary limits – pursuing set corporate values, addressing external pressure from investors – i.e. ‘stranded assets’ – to strategically dealing with a resource-constrained environment. In general, value from sustainability is created via cost cuts across the supply chain, system-wide risk reduction, and the generation of additional revenue streams.
A report titled “Model Behavior – 20 Business Model Innovations for Sustainability” and released by SustainAbility offers interesting insights into sustainability-related business model innovation – giving examples of how to embed sustainability into the underlying business structure while producing more sustainable outcomes with increased value for both society and business operations.
Innovation Framework for Value Creation from Sustainability:
The report’s research shows that continuous long-term economic development is dependent on improvements in environmental stewardship – i.e. the preservation of the natural habitat – and the prudent use of natural resources:
“To truly create a more sustainable world that can thrive over time, we need business models that operate within planetary limits and are sensitive to their roles as economic, environmental and social linchpins. To date, many companies have realized the merits of modifying their products and processes to become more sustainable. But, these [incremental] innovations will only get us so far. What we need are not just better products and processes, but fundamentally different business models. We need companies and industries whose underlying structures are, at worst, zero negative impact, and at best, contributing to the regeneration and restoration of natural, human and social capital.”
One example of this methodology to sustainable development is the US utility industry, which will have no other choice than to take steps along a path towards more value creation from sustainability in order to remain a viable business model for future generations.