Business and SustainabilityBusiness and Sustainability

Professor Craig DiamondProfessor Craig Diamond

BA 385BA 385

November 18, 2009November 18, 2009

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Presentation OverviewPresentation Overview

Global environmental problemsGlobal environmental problems

The sustainability business opportunityThe sustainability business opportunity

Business approaches to sustainabilityBusiness approaches to sustainability

Discussion of some current trendsDiscussion of some current trends

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History of the EarthHistory of the Earth

present4.5 billion

Earth formed

7 millionpresent

First humans

10,000 BC present

First agriculture

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History of the EarthHistory of the Earth – cont. – cont.

1750 ADIndustrial Rev begins

1776Wealth of Nations(Adam Smith)

1804World popreaches 1 B

1908FordModel T

1999World popreaches 6 B

2200World popReaches 10 B

5

Inputs, Outputs, and Waste

ResourcesFossil fuels

WaterMetals

MineralsWoodOther

Products

WastesGasesLiquidsSolids

Consumed

5%

95%

Annual waste in U.S.~15 B tons

Production Mostly a Linear Process

Note: numbers are approximate, U.S. data

6

Labor and Resource Productivity

• 1750: “unlimited” natural resources made labor much more expensive relative to resources

• Since Industrial Revolution: huge gains in labor productivity (e.g., farming, manufacturing)

• In future: huge gains in resource productivity will be required

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Global Environmental Challenges

• Global Climate Change

• Pollution and accumulation of toxics

• Destruction of forests

• Diminishing supplies of clean drinking water

• Declining fisheries

• Deterioration of soil quality in agriculture

• Accelerating growth of mega-cities

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Global Environmental Problems - Extraction and Accumulation

Build-up inEnvironment

Carbon Dioxide

combustion

com

bust

ion

Global Climate Change

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Global Climate Change

Carbon Cycle

Rapid rise ingreenhouse gas concentration inatmosphere causingtemperature to rise

Carbon dioxideis the primary“greenhouse gas”

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Environmental Economics

• “Tragedy of The Commons”

• Externalities

• Ecosystem Services

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Environmental Ethics

• What are the rights of nonhumans (plants, animals, ecosystems, etc.)?

• What are the rights of future generations?

• What is the right balance between economic growth and the resulting environmental consequences of growth?

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Global Social Problems

– Poverty: approximately 50% of the world’s population lives in poverty or near-poverty conditions

– Reliance on dirty fuels (e.g., manure) and unsafe drinking water

– Environmental conditions (air and water pollution in particular) worse in underdeveloped areas

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Growth of Wealth (Environmental Impact)GDP per capita (real$, in 1,000s)

0

10

20

30

40

50

60

70

80

1870 1970 2004 2034 est

India

China

U.S.

India China U.S.

1970 0.55 0.83 0.21

2004 1.10 1.32 0.30

2034* 1.49 1.44 0.37

Population(in billions)

*Est.

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Definition of Sustainability

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Brundtland Commission Report, 1987

Economy

EnvironmentEquity

“3-Legged Stool”or

“Triple Bottom Line”

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The Sustainability Dilemma

• Need to slow or stop growth in environmental burden, but…

• Need to increase wealth to address global poverty

EB = P x A x TEB = environmental burden

P = world population

A = affluence (consumption per capita)

T = technology (means of production)

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Sustainability: a Huge Business Opportunity

EB = P x A x TEB = environmental burden

P = world population

A = affluence (consumption per capita)

T = technology (means of production)

To slow or stop the growth environmental burden (EB), huge advances in technology (T) will be needed. This is the role of business.

From Stuart Hart, “Beyond Greening: Strategies for a Sustainable World,” 1997

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History of Environment and Business in the U.S.

• Early 1900s: laws to protect forests, natural areas

• 1950-1970: growing pollution concerns

• 1970: U.S. Environmental Protection Agency established

• 1970-1990: several environmental laws passed and implemented (compliance only mindset)

• 1990s-present: growing recognition in business and government of need to go “beyond compliance” (voluntary actions and partnerships)

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Types of Environmental Stakeholders

Stakeholder Type

Mixed Blessing

Strategy:Collaborate

Stakeholder Type

Mixed Blessing

Strategy:Collaborate

Stakeholder Type Nonsupportive

Strategy:Defend

Stakeholder Type Nonsupportive

Strategy:Defend

Stakeholder Type Supportive

Strategy:Involve

Stakeholder Type Supportive

Strategy:Involve

Stakeholder Type Marginal

Strategy:Monitor

Stakeholder Type Marginal

Strategy:Monitor

High

Low

Potential forCooperation

High LowPotential for Threat

?

Figure 3-9

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Progression of EnvironmentalManagement Approaches

DescriptionEnvironmental issues viewed as….

Role in Business

ComplianceComply with federal, state, local regulations

Cost center/risk Operational

Eco-Efficiency

Same products, minimize inputs (energy, materials) and waste

Cost center/risk, but with ability to cut costs

Operational

Product Design Change

Same/similar products with environmentally preferable design

Cost center/risk, but also source of competitive advantage

Strategic

New ProductsNew products to address sustainability marketplace needs

Source of competitive advantage

Strategic

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Progression of Environmental Management ApproachesExample: Agriculture

ComplianceComply with regulations inregard to pesticide useand clean water

Eco-EfficiencyEliminate unnecessary useof pesticides and otherchemicals, or use less toxicones

Product DesignOrganic farming, IntegratedPest Management

New ProductsGrow crops for use inenergy production(biofuels)

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Progression of Environmental Management ApproachesExample: Auto Manufacturing

Compliance (plant focus)Comply with regulations for air, water, solidwaste, hazardous waste; “CAFÉ” standards

Eco-Efficiency (plant focus)Reduce use of energy andmaterials, reduce solid andhazardous waste

Product Design (auto focus)Hybrid electric vehicles

New Products (auto focus)Cars for disassembly;FlexCar (car sharing)

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Progression of Environmental Management ApproachesExample: Electric Utility (fossil fuel)

ComplianceComply with regulations for air, water, solidwaste, hazardous waste

Eco-Efficiency Maintain efficient power plantto avoid wasting fuel inputs (coal, natural gas, oil); min. releases to air, water, land

Product Design Advanced coal plant with near-zero emissions;renewable sources

New Products Innovative waysto deliver electricity(“Smart Grid”)

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Natural Capitalism

• Foundational book on sustainability– by Paul Hawken and Amory Lovins

• Argues for a fundamental shift in our economic system

– Place same value on natural resources (“natural capital”) that we currently place on commodities, human capital, and other kinds of capital

– Huge shift toward resource productivity– Modeling our production on natural

processes (“biomimicry” and “industrial ecology”)

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Industrial Ecology

ResourcesFossil fuels

WaterMetals

MineralsWoodOther

Products

“Wastes”

Consumed

Nothing is wasted, as in natural ecological cycles

Minimized useover time

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The Natural Step

• A business framework, based on scientific principles, for understanding what sustainability means for an organization

• 4 System Conditions for sustainability: A society cannot systematically....

1) Build up concentrations of materials taken from the earth’s crust

2) Build up concentrations of materials produced by society

3) Degrade natural resources and ecosystems

4) Fail to meet human social/economic needs

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Environmental Management Systems (EMS)

• A systematic approach to managing environmental issues (based on quality mgmt)

• If include social issues, can be a “sustainability management system”

• Businesses can get certified to the ISO 14001 international EMS standard

• Can integrate with Natural Step and industrial ecology concepts

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Wal-Mart and Sustainability

• Sustainability programs

• News

• Videos