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September 27, 2012
The New Economy is an emerging business climate in which environmental and social constraints are presenting companies with new risks and opportunities.
Sustainability is reshaping the competitive landscape in every industry. Companies able to anticipate changes and innovate early are reaping the benefits of improved operating efficiency, new growth and a stronger license to operate.
The facts speak for themselves. With a projected 8 billion global population by 2025 and the growing demands of global consumption, environmental resources such as water and carbon will increasingly become constrained over the next 10 to 15 years. Different regions of the world are already experiencing serious resource depletion. The challenge for business is to become more resource efficient and play a part in protecting and recycling scarce resources.
Businesses face the following pressure points:
• Carbon. Governments are starting to impose a cost on companies that emit greenhouse gases into the environment. In some industries, the cost of carbon is fundamentally altering the structure of business supply chains.
• Water. Approximately 44 percent of the world’s population lives in areas of high water stress. Many companies have already experienced significant production downtime due to water shortages.
• Biodiversity decline. According to the International Union for Conservation of Nature, half of the planet’s mammal species are in decline, while 21 percent may be at risk of extinction. Local communities in fragile areas where industry seeks to expand operations are placing significant demands on corporations to act in a responsible manner and do no harm.
All of the above pressure points can impact access to good-quality air, water, soil, food and raw materials, and can lead to socio-political instabilities and businesses having to run their operations at suboptimal levels as well as delaying or even cancelling planned development.
So what are solutions for business?
There are three key ways for businesses to harness the challenges and generate real business value in the New Economy:
1. Cost reduction through resource efficiency
Companies can become more resource efficient and add business value by adopting an integrated approach that combines process improvements with lasting behavior change in relevant parts of the business. For example, a North American food and beverage company achieved more than $1 million a year in cost reductions through waste reduction and other resource efficiency measures.
In another example, a European automotive manufacturer implemented a resource efficiency program to achieve carbon and energy reduction savings of $10 million with an estimated payback period of two to four years.
2. Integrating sustainability into products and relationships
Consumer surveys in Europe and the U.S. suggest that up to 25 percent of consumers regularly buy “green products” while another 30 percent track these products. While sustainable consumption is still an emerging trend, B2B green markets are starting to grow robustly as more companies develop and deliver their low targets for carbon, water and waste.
Some companies have perceived the emerging trends and are already successful in increasing profits from them. For example:
• Philips generated 31 percent of total sales from green products in 2009, reaching its target three years ahead of schedule.
• The GE ecomagination portfolio has grown from 17 products to more than 80 products; and 2008 revenues reached $17 billion, an increase of 21 percent over the previous year.
• In 2009, Siemens increased its revenue from environmental portfolio products by 11 percent to $28 billion.
When applied rigorously, techniques such as life-cycle analysis and carbon footprinting are proving to be a catalyst for innovation in a wide range of sectors. For example, a leading European food retailer is carbon footprinting an expanding basket of its own brand products as part of the company’s planned transition to become a less carbon intensive business.
In another example, a Seattle company benchmarked the sustainability of its operations against its peers and will use this to develop a sustainability strategy to better position it with its customers.
By accumulating knowledge about product impacts and wider sustainability characteristics, companies have the ammunition to drive change and improve long-term competitiveness, whether they are selling orange juice or supporting oil and gas exploration.
3. Engaging effectively with stakeholders
More effective stakeholder engagement is another aspect of doing business in the New Economy. Social media has made this easier than ever.
Increasingly, companies are looking at what kind of value can be gained or lost through the way they engage with stakeholders. In the case of a major oil and gas company operating in some of the most challenging parts of the world, it was estimated that $3 billion of value was being eroded annually as a result of poor sustainability performance in its exploration business. Company officials estimated that 30 percent of those losses could be avoided through more effective engagement, both internally and externally.
A Northwest utility developed a five-year strategic plan that actively engages its employees and contractors to improve its health and safety programs, enabling it to more efficiently manage its projects.
Early engagement with regulators, customers, community groups and between different parts of a disparate project team is a key component of a company’s license to operate.
In summary, there are three key steps a business can follow to compete in the New Economy:
• Recognize and value the implications of resource constraints across your value chain.
• Innovate and deploy bolder business-led sustainability initiatives in relation to your products and customer relationships.
• Engage early, effectively and consistently as part of your license to operate.
John Kinsella is a senior partner and commercial director with Environmental Resources Management, a global environmental, health safety and sustainability consultancy with 4,000 staff in 40 countries. ERM has 56 staff in Washington and Oregon.