Consumption Dillema

7/29/2019 Consumption Dillema

1/56

Report prepared in collaboration

with Deloitte Touche Tohmatsu and the World Economic Forum

Updated April 2011

Leverage Points for Accelerating Sustainable Growth

The Consumption Dilemma


2/56

The views expressed in this publication do not necessarilyreflect the views of the World Economic Forum.

World Economic Forum

91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerland

Tel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744E-mail: [email protected]

2011 World Economic ForumAll rights reserved.

No part of this publication may be reproduced or transmitted

in any form or by any means, including photocopying and recording,or by any information storage and retrieval system.


3/56

The Consumption Dilemma | 3

Preface/Project Background 4

1 Executive Summary 5

2 Introduction 7

2.1 The Contextual Challenge 7

2.2 Rethinking Growth 7

2.3 Decoupling GDP Growth from Resource Use 9

2.4 From Incrementalism to Transformation: Speed and Scale 10

3 Consumers: Changing the Terms of Engagement 13

3.1 Why Engage Consumers? 13

3.2 Rethinking How to Engage 14

3.3 From Behaviours to Values 15

3.4 From Consumers to Citizens 15

3.5 A New World of Consumer Engagement 17

3.6 Engaging for Change 17

4 Mobilizing Business Opportunities: Life Cycle Thinking 23

4.1 From Compliance to Competitive Strategy 23

4.2 Current Drivers of Sustainability for Businesses 23

4.3 Leveraging Life Cycle Metrics 25

4.4 From Life Cycle Assessment to Life Cycle Collaboration 26

4.5 Accelerating Business Innovation through Collaboration 28

4.6 Exploiting Leverage, Enacting Change 295 Enabling Transformation: Innovation in Public Policy 33

5.1 Why Public Policy Innovation? 33

5.2 Areas for Innovation 33

5.3 The Shifting Geography of Innovation 35

5.4 Barriers to Public-Private Innovation 35

5.5 Collaborative Sharing of Leading Policies 36

5.6 Policy Innovation for Sustainable Consumption 36

6 Moving ahead 41

6.1 Areas for Action 41

6.2 Leverage Points Requiring Business Innovation 41

6.3 Leverage Points Requiring Policy Innovation 42

6.4 Proposed Policy Innovation Platform 43

7 Conclusion 45

8 Annex 46

A. Inventory of Life Cycle Tools 46

B. Authors and Acknowledgements 49

C. References and Endnotes 53

Contents


4/56

4 | The Consumption Dilemma

Working in collaboration with a coalition of interested governments and international organizations, including the UNSecretary Generals High-level Panel on Global Sustainability, a Policy Innovation Platform has been created to supplyreliable and unbiased guidance to advance public policies and bridge the existing trust gap between business innovationand policy-making. Effective policies will be those designed to effectively catalyse transformative business practices andcitizen behaviours aligned to sustainable consumption.

The discussion of the Policy Innovation Platform will focus on sharing the experience and benefits of specific and provensets of policies (policy ecologies) that have accelerated and scaled up sustainable consumption in certain geographiesor specific dimensions. To define and most effectively implement this new platform, a series of dialogues and workshopswill take place at World Economic Forum events in 2011. For each meeting of the platform, the goal will be to have apublic and private sector set of hosts to enable a shared ownership of the discussion and a truly global dimension tothis work.

The creation of this Policy Innovation Platform builds on the World Economic Forums groundbreaking work on

sustainable consumption, which has gained considerable momentum over the last three years. It also sets the stage forthe new public-private phase of the World Economic Forums work on sustainability.

This report identifies some of the leverage points that offer the greatest opportunities to tip the economy as a wholetowards sustainable consumption. It considers the levers available to businesses, governments and the wider globalcommunity. It also sets the stage for a new phase of the World Economic Forums work on sustainability: a platform forpolicy innovation.

Many companies have been closely involved in the World Economic Forums sustainability work. The project boardof Industry Partners contributing their expertise and support deserve special recognition: Aegis Media, Agility, Alcoa,Best Buy, Edelman, Kraft, Maersk, Marks and Spencer, Nestl, Nike, Novozymes, PepsiCo, Publicis, S.C. Johnson,SAB Miller, SAP, SAS Institute, Sealed Air, Unilever, Wal-Mart, Wipro and WPP. Collectively, their insights have beeninvaluable. Also this report has been produced with the support of Deloitte, project adviser for this initiative.

We hope that a shift in focus from defining the case for sustainable consumption to identifying and accelerating the sets

of policies needed to achieve it will drive the change that is required. This shift towards public-private innovation willcatalyse the transformation needed, with scale and at speed

Robert Greenhill Sarita Nayyar

Managing Director and Chief Business Officer Senior Director, Head of Consumer IndustriesWorld Economic Forum World Economic Forum USA

Randall Krantz

Director, Sustainability InitiativeWorld Economic Forum

Preface


5/56


1 Executive Summary

This report is the third to be published as part of theSustainability Initiative of the World Economic Forum. Itmoves beyond asking why sustainability is important, andtowards identifying leverage points that can tip the globaleconomy as a whole towards sustainable consumption.

There are plenty of examples of individual successstories on sustainability. These should be celebrated.But, in aggregate, these still do not add up to the changeneeded. Globally, the pace of change remains too slow tostep up the escalating use of natural resources and therising tide of environmental degradation the businesscommunity needs strategies that deliver transformativechange at the systemic level, with speed and at scale.

The report highlights the role of innovation and openinnovation at every level of this transformation incollaborative thinking, in business strategy and in publicpolicy.

What is the issue?

By almost any measure, human prosperity is greater nowthan at any previous time in world history. In the last 30years, absolute poverty has fallen at an unprecedentedrate even as the global population has increased from4 billion to nearly 7 billion. A transformation is takingplace, as hundreds of millions of people move from asubsistence existence to one based on their integration in

global webs of production and consumption.Sustaining and extending this prosperity, however,depends on decoupling global consumption from bothits use of natural resources and its broader environmentalimpacts.

Current trends are not promising. A combination ofincreasing scarcity of some natural resources, climatechange and growth in global population to 9 billion by2050 are creating the conditions for a perfect storm. Asit stands, humanitys ecological footprint is 50% greaterthan earths capacity to support it. Unchecked, humanitysecological footprint could rise by a further third by 2030.

How can sustainable consumption be achieved?

This report argues that current pathways to sustainabilitydo not offer the speed or scale required to meet thechallenge. Instead, a more transformational approachis necessary. There is a need to find leverage pointsthat allow the tipping of the global economy as a wholetowards sustainable consumption.

At the societal and government level, growth needsrethinking. There have been several initiatives in recentyears to dethrone GDP and material throughputs asthe sole measures of economic progress. Collectively,the meaning of consumption needs to change from

one based on acquisition of goods to one based onthe creation of value and well-being. In the developed

world, a new definition of development is needed; inthe developing world, a new trajectory for achieving it isessential.

At the business level, sustainability must be integratedinto business models and product design, creatingnew markets and finding new ways to engage withconsumers. For those businesses that innovate andadapt, there are huge opportunities, de-risking operationsand finding new models of value creation. But change isdisruptive there will be losers as well as winners.

Where are the points of leverage?

The report focuses on three key stakeholders, andidentifies key points of leverage for each:

Consumers are the key shapers of the globaleconomy through their product choices and theirengagement as members of social networks andcommunities, and as global citizens. Setting socialnorms for sustainability, and recognizing the influenceof context on decision-making, offers a new way ofunlocking transparent and open citizen engagement.

Businesses are the builders of a sustainableconsumption economy through investments andinnovation. Many businesses have used life cyclemetrics to make themselves more efficient in resource

use. But the report finds huge untapped potentialin the broader application of life cycle thinking.Co-innovation, meanwhile, far from compromisingcompetitiveness, offers businesses the opportunityto be more adaptable and responsive to a dynamicbusiness and social environment.

Governments are the enablers of scale and speed forsustainability where business leaves off. Innovativepublic policy can ensure that public and privateincentives for sustainability are better aligned.Governments can rally stakeholders and help createthe context for consumers decision-making. Publicprocurement policies can tip markets towards

sustainability, quickly and at scale.

Overall, the report finds that the leverage points with thegreatest potential for enabling a transformational shift tosustainability were those at the most systemic level: thevalues of citizens, the long-term strategies of businessand the integrated sets of policies of government.

Where does the private sector go from here?

The report identifies a number of specific strategiesfor individual businesses, industries, value chains andgovernments. These are explored in greater depth in thereport itself a summary of proposed actions is presented

here:


6/56


Within the company: Embed sustainability in the DNA of the company inthe way it organizes, behaves and communicates

Elevate life cycle thinking to the board of thecompany, and design incentive structures to match

Integrate sustainability criteria into sourcingdecisions

Simplify life cycle assessments to make them moreaccessible across the company

Use life cycle assessments more strategically,coupled with scenario analysis and strategic riskand opportunity assessment

Edit out least sustainable products from the productrange

Across an industry: Standardize sustainability scorecards to better

set the rules of the game and allow for cross-industry collaboration on sustainable supply chainmanagement

Cooperate on messaging, certification, environmentalperformance reporting and communicationstandards, led by industry associations and alliances

Create composite environmental or social assurancelabelling at the industry level, rather than presentingever more product data

Across the value chain:

Support consumer-led information communities (e.g.GoodGuide) that increase stakeholder value, improvebrand transparency and improve data sharing

Mainstream sustainability in financial indices, andimprove investor accountability to measures broaderthan pure financial shareholder return

Create a life cycle mark-up language to shareoutcomes of life cycle assessments and alloworganizations to publish their analyses in machine-readable format, creating system-to-systemcommunication

How does public policy fit in?

Innovation at the level of public policy is central toenabling, accelerating and globalizing the shift tosustainable consumption. The report identifies a numberof key actions for government:

Target green public procurement, creating new incen-tives for investment in the design and manufacture ofsustainable products, accelerating their uptake andguaranteeing rapid economies of scale

Engage in multistakeholder design and implemen-tation of policy in specific issue areas (e.g. throughpublic-private roundtables)

Provide leadership, particularly in emerging eco-nomies that have increasing and significant market

leverage, economic influence and responsibility Align global trade policy with the objectives of sustai-

nable consumption by establishing WTO-compliantinternational norms, creating an interlocking systemof subsidies and incentives, and preventing environ-mental regulations from becoming a cover for tradeprotection

Next step: a Policy Innovation Platform

In order to drive these agendas forward, the reportrecommends that the World Economic Forum and itspartners establish a Policy Innovation Platform.

The platform will focus on a small number of policyareas highlighted in this report. They might includecreating transparent brands through technology-enabled

networks, developing principles for smarter subsidyreform, enhancing green public procurement, or exami-ning how best to encourage and enable waste recyclingprogrammes.

Key to the success of such a proposal will be gettingthe right people involved, both in terms of position andpropensity. The World Economic Forum looks forwardto catalysing this challenge throughout 2011 with CEOsfrom a range of companies as well as heads of state andministers from progressive governments.


7/56


2 Introduction

Sustainable development was defined in 1987by the United Nations World Commission on theEnvironment the Brundtland Commission asdevelopment that meets the needs of the presentwithout compromising the ability of future generationsto meet their own needs. The Driving SustainableConsumption Initiative defines sustainableconsumption in these terms: as consumptionthat meets the needs of the present withoutcompromising the ability of future generations tomeet their own needs.

Two principles are the core of these concepts. First,development qualitative improvements in peopleslives is more important than narrow definitionsof growth quantitative increases in the size ofan economy or in the scale of its throughputs.Second, the economic imperative should be tomeet consumers needs rather than create wants.Sufficiency trumps efficiency. As an African elderat the Rio+10 Conference phrased it, sustainabledevelopment is enough, for all, for ever.

What is sustainable consumption?2.1 The Contextual ChallengeBy almost any measure, human prosperity is greater nowthan at any previous time in world history. In the last 30years, absolute poverty has fallen at an unprecedentedrate even as global population has increased from 4billion to nearly 7 billion. A transformation is taking placenow, as hundreds of millions of people move from asubsistence existence to one based on their integrationin global webs of production and consumption. Evenas economic disparities between countries and withincountries increase, and even as the bottom billion risksbeing left behind, globalization has created new marketsand new consumers.

Sustaining and extending this prosperity, however,depends on decoupling global consumption fromboth its use of natural resources and its broaderenvironmental impacts. Current trends are notpromising. A combination of increasing scarcity ofsome natural resources, climate change and growth inglobal population to 9 billion by 2050 are creating theconditions for a perfect storm.1 As it stands, humanitysecological footprint is 50% greater than earths capacityto support it. Unchecked, humanitys ecological footprintcould rise by a further third by 2030.2

Achieving sustainable consumption will be disruptive.It implies a transformation of the global economy asall-encompassing as the globalization of production andconsumption that has made it necessary. It will createwinners and it will create losers. Some companies willadapt better than others: discovering new opportunities,engaging new consumers, innovating new products andmaking new markets. Some countries will fare betterthan others: positioning their economies to be hubs ofsustainability and securing a new form of competitiveadvantage. Companies and countries that become partof the transformation of the global economy are far morelikely to prosper than those that do not.

Systemic change will not occur by itself either onthe scale necessary or in the time frame available.

This report, the third to be published as part of theSustainability Initiative of the World Economic Forum, isabout identifying leverage points in the global economythat can tip the system as a whole, and highlighting therole that innovation can play at all levels of the economy.4

2.2 Rethinking Growth

For several decades, growth in gross domestic product(GDP) has been the primary goal of economic anddevelopment policy. The appropriateness of risingGDP as a measure of success (a task for which itwas not designed5) is now seriously in question. Thesystemic transformation of the global economy implied

by sustainable consumption forces us to rethink what

Sustainable consumption is, therefore, imperative.It requires a fundamentally transformed system ofproduction and consumption. Even where immediate,partial solutions may be local in coping with waterscarcity, for example sustainable consumptionultimately cuts across the global economy as a whole.And while sustainable consumption starts with the

citizen as the central actor in the global economy, asconsumer, as investor, as voter and as employee itdoes not end there. Sustainable consumption is not onlyabouthow much is consumed, but also about whatisconsumed,howit is consumed and who consumes. Itis only achievable with the integration of sustainabilityinto business models, production and design. This isnot about incremental improvements in the efficient useof particular inputs conserving water, reducing carbonemissions or saving energy. It is about redefining value.

This is not about incremental improvements in theefficient use of particular inputs conserving water,reducing carbon emissions or saving energy. It is aboutredefining value.3


8/56


2 Introduction

Year2000

US

Dollars

GPI Per Capita

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

1950 1956 1962 1968 1974 1980 1986 1992 1998 2004

GDP Per Capita

we mean by growth. To decouple consumption fromnatural resource use and environmental degradation,narrow concepts of GDP growth must be purposefully

decoupled from broader qualitative objectives:prosperity and well-being. This is not to suggest thatthere necessarily are limits to growth in a pessimisticperspective, but there is a trend towards qualitativegrowth.6 The implications for capitalism are yet to beseen.

The main criticism of GDP, as a measure, is that itfocuses on throughput of materials, capital and labourrather than the outcome of improved lives. TargetingGDP growth tends to encourage greater resource use;but this use might not translate into improved well-being,particularly in the developed world.

Above a certain level, quantitative increases in GDP nolonger signify greater human prosperity. The returnsof GDP growth and its associated resource use towell-being may fall, or even become negative. As themap below shows, countries in the developed world areoften worse at delivering long, happy lives in terms ofthe planetary inputs that they use than some developingcountries.7

The Genuine Progress Indicator (GPI) is an alternativemetric to GDP, an attempt to measure whether acountrys growth, increased production of goodsand expanding services have actually resulted in theimprovement of the welfare of the people in the country.While GDP is a measure of current income, GPI isdesigned to measure the sustainability of that incomethrough economic, social and environmental indicators.GPI uses the same personal consumption data as GDP,but makes deductions to account for income inequalityand costs of crime, environmental degradation, loss ofleisure and additions to account for the services fromconsumer durables and public infrastructure, as well asthe benefits of volunteering and housework.

All 3 components good

2 components good, 1 middling

1 component good, 2 middling

3 components middling

Any with 1 component poor

2 components poor or blood red footprint

Key

This map shows the overallscores given to each countrybased on a traffic light score oneach of the three componentsof the Index (life expectancy,life satisfaction and ecologicalfootprint)


9/56


2 Introduction

In an attempt to define an indicator that measuresquality of life or social progress in more holistic andpsychological terms than GDP, the term GrossNational Happiness (GNH) was coined in 1972 byBhutans former King Jigme Singye Wangchuck, whoopened Bhutan to the age of modernization.

In 2008, a GNH Commission was founded at thesame time as Bhutan transformed itself from anabsolute monarchy to a multi-party democracy.Since then, the Centre for Bhutan Studies developeda sophisticated survey instrument to measure thepopulations general level of well-being.12 GNH,like the Genuine Progress Indicator, refers to theconcept of a quantitative measurement of well-beingand happiness. Based on solid empirical research,the survey uses 72 weighted indicators within ninedimensions, including time use, community vitalityand environmental diversity. Another version of thesurvey instrument, based on the same body of work,is being applied in Canada.

Gross National Happiness

Figure 3 shows that despite steady growth in GDP, theUS economy, measured by GPI, has actually stagnatedsince the late 1970s. Addressing both is difficult but notimpossible: shifting away from GDP growth and towardsa concept of dynamic equilibrium maximizing unitsof well-being delivered per unit planet input will makedecoupling prosperity from natural resource use easier.9

2.3 Decoupling GDP Growth fromResource Use

For a variety of reasons, GDP growth has impliedhigher levels of extraction, processing and use ofmaterials which, in turn, has led to increasing levels ofenvironment degradation. Reducing this negative impactrequires decoupling GDP growth and consumption fromthe cycle of resource extraction, use and disposal.

Historically, even as the material intensity of GDP hasfallen, the rate of increase in GDP has undermined anypotential aggregate reductions in material use. In somecases, increases in the efficiency of use of particularresources has not resulted in them being used less, butbeing used more (also known as Jevons paradox). Inshort, decoupling GDP growth from the rate of resourceextraction via efficiency gains has not worked to thedegree economists and environmentalists have beencounting on.

The need to move away from a narrow focus on GDP,to better price externalities and to shift developmentobjectives from quantitative growth to qualitativeimprovements in life outcomes has resulted in a numberof high-level initiatives in recent years.10 Recently, theuse of well-being and GPI as benchmarks of progresshas been supported by the OECD.11 Some G20governments have indicated their intention to broadenthe sets of data that guide policy. In the United Kingdom,the Office of National Statistics will start collecting dataon happiness in 2011. In the developed world, a newdefinition of development is needed; in the developingworld, a new trajectory for achieving it is essential.

Figure 4 illustrates this point. In 2007, 26% less naturalresources were necessary to produce one dollar ofeconomic output than in 1980. However, becausematerial intensity decreased to a lower extent thaneconomic growth, no absolute decoupling was achievedand resource extraction continues to grow in absoluteterms.

Between 1990 and 2007, global energy intensity perdollar of output fell by only 0.7% per annum.14 Undercurrent economic growth rates, global carbon intensity

(defined as unit of CO2 equivalent per unit of GDP)needs to fall by 11% per annum between now and 2050if the 450 ppm level of atmospheric carbon acceptedas the upper limit to keep global warming to 2C is tobe achieved. Recently, many scientists suggested thatatmospheric carbon should be lowered to 350 ppm toprevent climate spiralling out of control.15

The consequences of this are stark: a need to radicallyshift away from throughput-based measures of growth(which promote continued growth in consumptionwithout regard to well-being) and the need to changebusiness models at unprecedented speed and onunprecedented scale.


10/56


2 Introduction

Index

:1980

=1

00

GDP

225

200

175

150

125

100

75

50

1980 1985 1990 1995 2000 2005

Resource extraction

Population Material intensity SERI 2010

2.4 From Incrementalism toTransformation: Speed and Scale

Businesses are experimenting with new businessmodels; some governments have undertaken radicalpolicy measures. Both are being pulled and pushed

by a growing niche of consumers demanding moresustainable products. Technological improvementsare reducing the intensity of resource use. These areimportant steps in the right direction. Yet, they are nothappening with sufficient speed or at sufficient scale.They do not add up to the transformation that is needed.

7KHSRZHUWRWUDQVFHQGSDUDGLJPV

7KH$ELOLW\WR&KDQJH0LQGVHWV

7KHPLQGVHWRUSDUDGLJPRXWRIZKLFKWKHV\VWHPDULVHV7KHJRDOVRIWKHV\VWHP

8QGHUVWDQGLQJWKH*RDORIWKH6\VWHP

7KHSRZHUWRDGGFKDQJHHYROYHRUVHOIRUJDQL]HV\VWHPVWUXFWXUH

7KHUXOHVRIWKHV\VWHPVXFKDVLQFHQWLYHVSXQLVKPHQWVRUFRQVWUDLQWV

7KH5XOHVWKDW6HWXSWKH6\VWHP

7KHVWUXFWXUHRILQIRUPDWLRQIORZV

7KHJDLQDURXQGGULYLQJSRVLWLYHIHHGEDFNORRSV

7KHVWUHQJWKRIQHJDWLYHIHHGEDFNORRSV

7KHOHQJWKRIGHOD\VUHODWLYHWRWKHUDWHRIV\VWHPFKDQJH

'ULYHUVRIWKH6\VWHP

7KHVWUXFWXUHRIPDWHULDOVWRFNVDQGIORZVVXFKDVWUDQVSRUWQHWZRUNV7KHVL]HVRIEXIIHUVDQGRWKHUVWDELOL]LQJVWRFNVUHODWLYHWRWKHLUIORZV

&RQVWDQWVSDUDPHWHUVQXPEHUVVXFKDVVXEVLGLHVWD[HVVWDQGDUGV

3DUDPHWHUVRIWKH6\VWHP

(IIHFWLYHQHVV

/RZ/HYHUDJH

+LJK/HYHUDJH

Many barriers retard economic transformation orprevent it: perverse incentives, poor policies and pricingof natural resources without reference to externalizedcosts. Removing these barriers would help providingimmediate competitive advantages to those engagingin sustainable practices. But there are more positiveleverage points that can help tip the whole systemtowards sustainable consumption. In the view of theWorld Economic Forum Partners, identifying theseleverage points interventions where small changes canproduce broad, system-wide results is the only answerto the scale of the challenge, its systemic character andthe speed needed to address it.


11/56


2 Introduction

Consumption is a fundamental human culturalexpression, whether of hospitality, wealth, celebrationor success. Yet, if the trend of growing consumptioncontinues without any fundamental changes in theway we think and how we consume, we face a verychallenging future.

We have two choices reconsider what consumptionmeans in a proactive way and start designing atransition now, or wait until we are forced to react andadapt.

Changing the systems of stuff is a good place tostart designing for modularity or reuse, advocatinglife cycle ownership of products by manufacturers,creating policy that supports better material decisionsand closing recycling loops, prototyping newbusiness and accounting models, etc.

We may be missing a critical opportunity though.We intuitively know that, after a certain level ofneed is met, the acquisition of more stuff creates ahappiness that is very transactional. New researchdemonstrates that our desire for stuff actually makesus less satisfied and happy. But if we are consumingexperiences, we are happier material purchases

bring more concern and less happiness thanexperiential ones, according to a study from CornellUniversity, published in the Journal of Personality andSocial Psychology.

There are examples, of course services like Netflixor Pandora turned media into a use rather than anownership model. Car-sharing services eliminate thehassle of ownership. Software services in the cloudcan provide better performance while reducing thecarbon footprint of IT by up to 90%. Disruptions haveemerged when consumers can get better value fromthe service rather than ownership.

But how might we start with designing for experiencerather than transitioning as the value propositionappears? If we are to fundamentally alter how weconsume, let us begin with designing for experiencerather than acquisition.

Consumption in transition This report focuses on three sets of stakeholders, andthe leverage points pertaining to each separately andtogether:

Consumers are key shapers of the global economy,not only through their product choices, but alsothrough their engagement as members of socialnetworks and communities and as global citizens.

Businesses are the builders of a sustainableconsumption economy through their investmentsand innovation. The strategic use of life cycle thinkingoffers an opportunity to re-engineer business modelsand value chains.

Governments are the enablers of sustainability.Public policy innovation can drive markets andmobilize stakeholders, leading to actions andoutcomes at scale.

The report will explore the roles for each of thesestakeholders, and potential points of leverage for themto act now.


12/56

ConsumersChanging the Termsof Engagement


13/56


3 Consumers:Changing the Terms of Engagement

3.1 Why Engage Consumers?

Recently, leadership opinion has pointed to the needfor a new approach: a need to shift from an era ofsuper consumption in which consumption ofever-greater numbers of quickly obsolescent goods isviewed and marketed as an end in itself to a newnormal of consumption emphasizing value abovestuff17. Understanding how consumers choose is theprerequisite to harnessing their choices in transformativechange. Engaging consumers, and nudging theirchoices towards sustainable consumption, is essential tocreating a more sustainable global economy.18

Ultimately, consumer decision-making operates atthree levels:

Rational: Conscious decisions based oninformation about the price, attributes andperformance of products and services some ofwhich may relate to utility to an individual, someof which may be more social. Though price isthe single greatest factor in consumer decision-making, purely rational decisions are rare. Mostof the information presented to consumers isconfusing.

Emotional: Beliefs, emotions, brand image,established habits, social influences andheuristics mental short cuts all play a rolehere. A large part of consumer decision-makingdepends on emotion, intuition or habit. Some70% of items purchased every week arerepeat purchases, with little or no consciousconsideration of alternatives. Behaviour breakerstend to relate to price and promotions.

Contextual: Choice is also influenced bythe environment in which a consumer makesa decision, both the immediate physical

environment and the broader social and culturalcontext. Social norms matter, particularly whenthe choice of a particular product or service isvisible to others. Personal recommendations canbe highly influential.

How consumers choose

However as it stands, consumer engagement is notshifting the global economy towards sustainableconsumption with enough speed or at scale. A minorityof consumers are proactive in creating a sustainableeconomy fostering markets for sustainable productsand driving better consumer and corporate awareness.Their numbers are too small, however, to tip theeconomy as a whole towards sustainable consumption.Many consumers remain confused about claims tosustainability of particular products and services, anddoubtful as to their ability to affect the workings of theeconomy as a whole through their individual purchases.

The issue may be as much about where consumers areengaged ashowthey are engaged and who they are. Anunderstanding of how consumers choose and interacthas been growing with advances in technology and datacollection over the past 10 years, offering an opportunityfor businesses to engage more genuinely with theirconsumers. It also suggests that some of the mostpowerful leverage points for consumer engagementin sustainable consumption may not lie in traditionalmarketing, but in the broader social context. Thechallenge is that the sophistication of modern marketingneeds to be applied to new models of consumptionrather than promotion of super consumption.


14/56


15/56


3 Consumers: Changing the Terms of Engagement

3.3 From Behaviours to Values

Traditionally, the focus of efforts to change consumerbehaviour has been at the point of purchase andpre-purchase, with mixed results. A deeper upstreamshift in consumer values may be a more effectivelong-term approach24 and suggest a more authenticway of engaging with consumers, in a pre-competitiveenvironment.

Consumer behaviours in-store tend to be highlytransactional and heavily influenced by price. Butvalues, if sufficiently deeply embedded, can alter theconsumer calculus decisively (e.g. fair-trade bananas vs

cheap bananas). However, values are relatively hard tocreate or change: they are often instilled in childhood,through families and early education systems. Sowhile transforming consumer choice through changingconsumer values may offer the greatest long-termleverage, it implies a long-term shift involving media,businesses, public policy and education.25

3.4 From Consumers to Citizens

The shift from behaviours to values suggests a newway of engaging with consumers as citizens and asmembers of broader communities.

Companies and governments spend considerable sumsto influence consumers. But research indicates that thestrongest influence on consumer behaviour and valuescomes from the broader social community. Trust iscentral.27

The re-conceptualization of the consumer as citizen isnot radical in itself, but actually changing the interactionthat institutions have with the consumer is fundamentallymore challenging. The essence of marketing over severaldecades has been the disaggregation of individualconsumers from society as a whole, in a process ofcontinuous market segmentation.

Women are known to wield significant influencein consumer decision-making: In the US, studiesshow that women are responsible for buying 80%of household goods, and the Consumer ElectronicsAssociation (CEA) reports that women are the primaryconsumers when it comes to wireless gadgets andgizmos. According to CEA officials, women areoutspending men in electronics purchases US$55billion to US$41 billion. The trade organization alsoreports that women influence 90 percent of consumerelectronics purchases.

Among the poor, women are usually responsible forcollecting water, firewood and feeding their families.On the ground, they see the impacts of consumptionon rivers, forests and croplands. Grassroots activism,such as Wangari Maathais Green Belt Movement isempowering women to plant trees and take a standfor their local environment. Gender gaps in education,employment, health and political representation arenarrowing. At the same time, laws and social normsthat have discriminated against women are shifting insome countries.

Together, these factors are giving women greaterinfluence and decision-making power within

households and markets. Empowered women canbecome a secret weapon in a shift to sustainableconsumption.

There is some evidence from different fields(behavioural economics, finance, psychology) thatwomen are more risk-averse than men, displayweb-thinking rather than linear thinking, are morelikely to think of long-term interests rather than short-term compensation and tend to take more inclusivedecisions. These traits are precisely those whichsustainability leaders have argued for in businessand government planning for implications, systemsthinking, long termism, and informed decisionmaking

all of which are necessary for a shift to sustainableconsumption.

To capitalise on this potential will require movingbeyond focus groups to include women and genderin the design, marketing, advertising and delivery ofthe experiences of the future based on sustainable,healthy products and services. By leveragingwomen as citizens and ambassadors of the culturalimperative, the shift to sustainable consumption canbe accelerated and the long-desired consumer pullfor sustainability could see increased traction.

Women as ambassadors of the cultural imperative


16/56



Engaging consumers as citizens is the reverse. It willinvolve:

Recognizing the broad societal networks whichprovide meaning to and influence the values ofconsumers and citizens: families, friends, places ofworship and schools;

Capitalizing on renewed impetus of communitiesand networks virtual or otherwise, driven bycommunications technologies;

Understanding and acting upon a cultural shift fromme to we;

Engaging the consumer through sharedresponsibilities to society and the co-creation of

products and services.

One recent example is the 10:10 campaign that theBritish government initiated to reduce carbon emissionsby 10% by the end of 2010. The campaign has caughtthe publics imagination and engaged individuals andcommunities in hundreds of thousands of activities.

However, there remains a strong tension, almostschizophrenia, in the role of governments. Whilethere are many programmes run by departments ofenvironment promoting sustainable consumption,they are consistently out-resourced by the mandatefor growth and jobs. Until these perverse imbalances

are reconciled and governments make a transparentshift in their priorities, the mixed signals will continue toundermine trust by consumers and business.

Above all, change will involve recognizing that while theapplicability of specific leverage points may vary fromculture to culture, the greatest long-term leverage pointsfor consumer engagement are always likely to lie at thesocial and cultural level. The following graphic takes asnapshot of the emerging drivers that influence actionsand enact behaviour shifts.

A concrete example of active community building isthrough collaborative or collective consumption28.Through this collaborative consumption a communitygets together through organized sharing, swapping,bartering, etc. to get the same pleasure of ownershipwith reduced personal cost and burden, and lowerenvironmental impact. These exchanges happenmostly on a local or neighbourhood level.

Collaborative consumption is not a niche trend, andit is not a reactionary blip to the recession. It is asocio-economic groundswell that will transform the

way companies think about their value propositionsand the way people fulfil their needs. One examplein the form of fractional ownership is the renting ofcars being executed by Zipcar, which owns carsand allows individuals to rent them by the hour,and Whipcar, which is a platform which lowers thetransaction costs for individuals to rent out theirown cars to friends or neighbours. Both Hertz andMercedes are now exploring fractional ownershipmodels.

The collaborative consumer is also an engagedcitizen, one who both owns and spreads messagesand values. As the business models start to change,

so too must the mental models of how consumersand citizens are influenced. This will most clearly beseen through deeper two-way engagement and theemergence of a more active consumer.

Collaborative consumption


17/56



3.5 A New World of ConsumerEngagement

The real potential of consumer engagement to shiftbusiness models, to transform consumption and to offernew opportunities for businesses is only now beingrecognized. The scope for innovation is huge.

Unlocking consumer engagement offers opportunitiesfor new kinds of relationship and a different form ofcompetitive advantage. Trust, co-creation and authenticconsumer engagement will complement price andlogistics as the characteristics of successful businesses

in this new world of consumer engagement.One radical form of consumer engagement is co-creation of goods and services enabled by newcommunications technologies. For example Threadless,an online start-up, allows users to submit T-shirt designswhich are then voted on through the Internet, withwinning designs going into production. There are limitsto how widely this can be applied, depending on thetype of product and services and the availability of thesupply side of consumer innovation.

Even where co-creation is not possible, consumerengagement can become far more collaborative andmore socially driven, building far stronger brands in theprocess. The Pepsi Refresh project is shifting up to one-third of PepsiCos overall marketing budget to interactiveand social media.29

Sustainability has a strong role to play in the new worldof consumer engagement building social values ofsustainability and businesses trust with consumersaround those values.

Crowd sourcing initiatives may be a next step inengaging consumers who look to their values when

making purchasing decisions. New informationcommunities, such as GoodGuide.com, will play acrucial role by leveraging new data (such as life cyclemetrics and health hazard assessment) and newtechnologies (smart phones and social networks)to enact changes in consumer demands andawareness. Fellow citizens can find products thatmatch their values, share these products with theirsocial network, switch between products and sendsignals in the marketplace about what they want fromcompanies.

Case study: the power of networks (I)

3.6 Engaging for Change

Nike has conducted in-depth qualitative research onattitudes towards sustainability among young peopleaged between 17 and 25 in the United States, Brazil,the United Kingdom and China30. Five messagesemerge from this research:

1. Young people are acutely aware of global socialand environmental issues. An entire generationsenses itself to be living on orange alert witha constant feeling of uncertainty.

2. For many of them the word sustainability hasnegative connotations. More optimistic, positive,forward-looking language may be needed topromote engagement.

3. Changing young peoples behaviour is mostlikely if it can be connected to or inspired byparticular social leverage points: sport, music,art, film, fashion, etc.

4. While cynical about brands in some respects,young people recognize that governments donot have all the answers, and brands have a role

to play in changing the world.5. For young people, business transparency and

honesty is the prerequisite for trust.

Signals from the next generation

From the above, it is easy to conclude that engagingconsumers is unpredictable. However, this also providesan opportunity while consumers are currently lookingat new options and questioning their values. Engagingconsumers and citizens on sustainable choice throughthe social context of their decision-making will be agenerational investment. There are positive signs,however, that a broad generational shift in values is notonly possible, but that the foundations for it are alreadythere.

The implications are powerful: better sustainabilitynarratives, if backed by high levels of trust, can tip thenext generation of citizens towards a world where moresustainable models of consumption become acceptedas a global social norm.

Governments and businesses have key roles to play:

Governments through education, regulationof markets and other public policy measures can create an environment in which sustainablechoices are supported. They can be instrumental in

creating new social norms and values that influenceconsumer behaviour both long before purchase and


18/56



long after it. At the same time, active citizens providethe support that policy-makers need to commit tosustainable policies.

Companies can have an opportunity to lead ratherthan follow consumer awareness of sustainability:through upstream education programmesreflecting the social dimensions of consumption;through collaboration along value chains; and bycommunicating sustainable value propositions,products and services to their customers. Crucially,this depends on businesses doing what they dobest: creating and capturing value. Transparency inmarketing will be key to building trust, and standards

such as the International Chamber of Commerce(ICC) Framework for Responsible EnvironmentalMarketing Communications will provide much-needed guidelines accessible to all companies.31

Both governments and companies have a roleto play in choice-editing for consumers based onsustainability.32 This editing of consumer choicescan be actioned by manufacturers or retailersas an expression of their corporate values, i.e.by not offering certain products or ingredientsto consumers, such as blue fin tuna; or bygovernments, by regulating or phasing out certainproducts, such as incandescent light bulbs.

Transformational change cannot happen without broadcollaboration between stakeholders, a focus on the pre-competitive contextual level of consumer values ratherthan competitive in-store decision-making and openinnovation to create the learning systems that enable aseismic shift in values. This cannot happen without re-conceptualizing the consumer as citizen.

The leverage points for tipping the global economytowards sustainable consumption are increasingly clear.The challenge now is to activate them purposefully.Below is a summary of leverage points explored throughdiscussions over the past year.

The table below is intended to serve as a qualitativedashboard to highlight the points of highest leverage,based on the insights of this chapter. Some of these maychallenge conventional thinking, which was indeed thepurpose of the workshops and interviews through whichthey were collected.


19/56




20/56



PotentialImpact

Easeof

implementation

Replicability

Scalability

Leverage Points / What can be done

High

HighHigh

High

HighHigh

High

Med

High

MedMed

Med

High

HighHigh

Low

High

MedHigh

Low

Med

HighMed

Med

Med

HighHigh

Low

Med

MedMed

Low

Med

MedLow

Low

Low

MedHigh

Med

Transparency and authenticity of business values (Drivers of the System)Sustainability embedded in the core value proposition of a company needs not only to be reflected throughproducts but also through the way the company is organized, behaves, communicates, etc. Transparency andresulting consumer perception of the degree of sustainability of an organization will be key in engaging them onsustainability.

Consumer-led information communities (Rules that Set up the System)

New and strengthened interactions with consumer-based information communities (e.g. GoodGuide) will allownew collaborations to take place and evolve. Such interactions will allow for better brand management, increasedstakeholder value and the improvement of data in the sharing of collective resources.

Pricing signals (Subsidies/Taxation)Through use of fiscal incentives, governments can nudge citizens towards sustainable lifestyles by closing theprice gap for more sustainable products or engaging significant tax rebates for their use. Companies can alsowork on pricing to influence consumer behaviour by identifying loss leaders to precipitate a change in consumerpurchasing habits. These actions, however, only have an effect when the price change resulting from theirmeasure is sufficiently important.

Shifting mindset on what is socially acceptable (Ability to Change Mindsets)Social influencers can stigmatize products and services to make them socially unacceptable, often having fargreater impact than regulation or price signals. Stigmatization influences deeply embedded values. This shift isextremely difficult and often takes decades, but results in a deeper change that has impact on the longer termversus changes in behaviour which are often only transactional.

Influencing values through early education (Ability to Change Mindsets)The gain from the education of a child accrues not only to the child or to his/her parents but to other membersof the society. Governments have the ability to nudge the long-term values of a society by structuring educationaccordingly. Social influencers such as NGOs might act as a neutral party in evaluating education programmes forsustainable values

Choice-editing: making only sustainable choices available (Rules that set up the System)Choice-editing can be done by the industry (including retailers) by removing unsustainable or less sustainableproducts. Governments can introduce roadmaps for elimination of unsustainable products and can intervene andban certain less sustainable products from the market (e.g. China is phasing out incandescent light bulbs).

Business association collaboration on messaging (Rules that set up the System)Business associations have the power to act as a platform and to engage with their members and influencethem in taking specific actions when it comes to sustainability. This can happen through standardization ofmessaging, defining performance requirements, sustainability certification, environmental performance reportingand community engagement standards.

Labelling Accreditation and Certification (Drivers of the System)Instead of confusing the consumer with more data, it is often more effective to target the values of a consumerthrough a label of environmental or social assurance (e.g. P&G with their future friendly label, Body Shop andanimal testing, or the Fair-Trade label). Use of such labels can help to create a trust relationship between theconsumer and the company or sector.

Breaking habits through collaboration (Drivers of the System)Most purchases are done based on habits, which are rather difficult to influence or change. Past and firstexperiences are very powerful to start (or continue) engaging consumers on sustainability. Through industry-widecollaboration, the usage of widespread promotions of campaigns can encourage the consumer to test or buysustainable products for this crucial first experience.

Labelling Data and Information (Drivers of the System)There is so much noise in terms of labelling that such information flows might never be as strong as they could

be in terms of impact. Providing product information to influence purely rational drivers only motivates a smallpercentage of people, and impact on end consumers is often overestimated.33

I


'ULYHUVRIWKH6\VWHP

5XOHVWKDW6HWXSWKH6\VWHP


$ELOLW\WR&KDQJH0LQGVHWV+LJK/HYHUDJH

/RZ

/HYHUDJH

$ELOLW\WR&KDQJH0LQGVHWV






'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP


21/56



High Medium Low

Impact Can trigger a fundamentalshift in the way the systemoperates

Can reinforce positivebehaviours or can breakdown barriers for progress

Important steps to take butdoesnt enable a fundamentalchange in the system

Ease of

implementation

Change can happen fast withincremental costs and fewpolitical barriers

Change desired but onlyon a longer time horizondue to inherent political andeconomic barriers

Requires disruptive shifts inorganisational systems due todivisive or polarised mindsets

Replicability Easy to copy and non-exclusive. Can be emulated in

various geographies globally

Needs better regulatoryand business environment

to gain momentum acrossgeographies

Difficult to replicate orimplement beyond regional or

national context

Scalability Can be easily scaled betweenmunicipal, national, regionaland global levels

Accessible by large entitiesbut difficult to enact on aregional or global scale

Costly to scale requiring largeinvestments in order to growbeyond local pilot phase

This key explains the qualitative rating system used for leverage points on the table opposite and graph below:


22/56

Mobilizing BusinessOpportunitiesLife Cycle Thinking


23/56


24/56


4 Mobilizing Business Opportunities: Life Cycle Thinking

GoodGuide uses life cycle metrics to identify whatmatters most in a products supply chain essentiallythe scientific hot spots and what matters mostto consumers the hot button issues. GoodGuidedelivers information to consumers on the life cycleimpacts of products and supply chains, including

environmental, social and health impacts rightat the moment a consumer is making a decisionabout a product in a store or online. This informationcommunity enables positive feedback loops forsustainable products and services, and incentivizesmuch greater transparency from companies.

Case study: the power of networks (II)

a target that half of the public tendering processesmust be green by 2011. In the United Kingdomalone, this is estimated to have the potential tocreate an annual 110 billion market for sustainablegoods and services, through changes in GovernmentBuying Standards to come into effect in 2011. In theUnited States, both the federal government and stategovernments have adopted measures that use thepurchasing power of the state to create new marketincentives. A new Executive Order requires agenciesof the federal government to report their GHGemissions and to reduce them over time.38 Tippingthe government market towards green procurementwill help drive down the price of sustainable products

as their manufacture is scaled up.

Regulation: the trend to sustainable procurement iscomplemented by changes in regulation. In differentways, regulations such as the European UnionsWaste Electrical and Electronic Equipment (WEEE)directive and Registration, Evaluation, Authorizationand Restriction of Chemicals (REACH) are changingthe way in which companies design and manufacturetheir products and how they consider disposal,driving research and development budgets towardsmore sustainable alternatives. Extended producerresponsibility (EPR) or product stewardship encourages manufacturers to design environmentally

friendly products by holding them liable for costs atthe end of the products life.

Market leaders and market makers: somepurchasers of goods and services, particularly largeretailers, are using their scale in the marketplaceto influence practices within their supply chain andtriggering shifts in the economy as a whole. In somecases, purchasing scale is the key factor. Wal-Marthas been a market maker by engaging across thesupply chain to decrease the environmental impactof its products, reducing inputs and creating acascading incentive for suppliers to explore their ownenvironmental (and other) impacts. In others, the

power of example is enough. Marks and Spencerand Tesco have been market leaders through PlanA and carbon labelling, respectively. A combinationof GEs scale and innovation, coupled withgovernment regulation, has made a new market forLED lighting that barely existed a few years ago.

Sustainable investors: an increasing number ofinvestors integrate long-term environmental, socialand governance (ESG) criteria in their investmentand ownership decision-making processes withthe objective of generating superior risk-adjustedfinancial returns. These extra-financial criteria areused alongside traditional financial criteria such as

cash flow and price-to-earnings ratios. As large

institutional investors become more focused onsustainability issues from a risk-adjusted financialreturn perspective, this will further accelerate thetransition towards sustainable business practices.The trend towards sustainable investing is alsodriven by the increasing demand of asset owners(as universal owners) and international initiativessuch as the UN-backed Principles for ResponsibleInvestment.

Resource scarcity: increasing constraints on thesupply of natural resources relative to demand isdriving businesses to better manage their resourceinputs or even to exit resource-intensive sectors

where uncertainties about future availability aretoo high. Increasing resource scarcity implies thepotential for rising costs and dislocations. However,it can also be a driver of innovation and a driver offuture value and markets (e.g. from waste materials).Above all, it can help decouple global prosperity fromresource use.

Minimizing externality risks: sustainability mattersto business because it reduces exposure to the riskof increased scarcity of resources and to the risk thatthese (carbon, water, waste) are radically repricedin the future. Embracing models of sustainableconsumption across the value chain will provide

stronger resilience against external shocks.40

These drivers have been and will continue to be effectivein helping to build sustainability into the DNA of individualcompanies, markets and the economy as a whole.


25/56



The WWF World Wide Fund for Nature identified35 places on earth richest in biodiversity and mostimportant from an ecosystem perspective and thenhighlighted 15 commodities that posed the greatestthreat to these places. It turned out that 300-500companies controlled 70% of the trade in thesecommodities. Just 100 companies controlled one-quarter of trade in these commodities, a powerfulleverage point. Rapidly, WWFs focus was able tomove from an almost impossibly complex challenge global biodiversity to a more manageable issue how to persuade 100 companies to adopt moresustainable practices for 15 commodities. Thekey message is that large market players can betremendously important points of leverage in valuechains and in transforming the dynamics of globalmarkets..

Thinking strategically: identifying leverage forsourcing

4.3 Leveraging Life Cycle Metrics

Life cycle metrics have become an integral tool ofbusiness. In a Global Reporting Initiative survey, 86%of respondents rated the ability of businesses to traceproducts through their entire life cycle as important or

very important.41

Life cycle metrics can and will be used more.42 Moreextensive and more detailed data can be collected andcollated, and the data can be made more rigorous. ButLCMs can also be used differently with far greaterscope and at a far higher level in companies. LeveragingLCMs means moving from a purely technical analysisof past environmental impacts to making them usefulas a driver of strategic decision-making and innovation.It means moving the tool from the shop floor to theboardroom.

However, the full potential of LCMs to leverage changewill only be realized if the metrics are applied beyondthe corporate entity and across the value chain. Asthe Walkers case study demonstrates, exploring thevalue chain can reveal and release enormous businessvalue, as well as reducing resource use and aggregateenvironmental impacts. LCMs need to be easier touse in this way: more legible and more interoperable.Producing best practice scorecards against which tomeasure relative success and failure may be one way ofexploiting this potential.

A standardizedlife cycle mark-up language (LCML)could facilitate sharing among stakeholders along the

supply chain by making it easier for firms to collectand share data useful to all. Leveraging LCMs acrossthe value chain cannot only unlock further valueincrementally but also help transform product design,the structure of the value chain and the way in whichcompanies design and sell products and services.

With the help of the Carbon Trust, Walkers Crisps(a PepsiCo brand) set out to measure the carbonfootprint of a bag of crisps. The original intent of theexercise was for a product carbon label targeted atthe consumer; however it emerged that the benefits

went far deeper into the supply chain. The studyfound that the most energy-intensive part of theprocess of making crisps was involved in dryingraw potatoes which had been soaked with waterby farmers to increase their revenue due to a pricestructure based on weight of potatoes.

Both farmers and Walkers won by aligning incentivesin the form of a new price structure based on volume.Energy efficiency was improved. Energy use perkilogram (kg) of crisps produced has fallen almost33%, from 4.6 kWh/kg to 3.1 kWh/kg 2000-2007,achieved through improved shutdown and start-upprocesses, optimized lighting systems and a range

of investments in new technologies . PepsiCo UKreduced its overall carbon intensity (CO2e per kg ofproduction) by 5.9% during 2007.

Engagement between Walkers and its suppliers wasenhanced through better communication and byworking to find varieties of potatoes which requiredless water. By looking at the supply chain of allcommodities and unit processes, new business valuewas uncovered and aggregate resource inputs werereduced.

Case study: Walkers Crisps


26/56



6WUDWHJLF

9DOXH&UHDWLRQ

,QWHUQDO

3URFHVVHV

'DWD

&ROOHFWLRQ

([WHUQDO6WDNHKROGHU

(QJDJHPHQW

&ROODERUDWHDORQJ\RXUYDOXHFKDLQ

EXLOGVKDUHG

VWUDWHJLHVZLWK

FXVWRPHUVDQG

VXSSOLHUV

&RPSOLDQFH

(PEHGVXVWDLQDELOLW\LQWR\RXURUJDQL]DWLRQ

VWUDWHJ\

*DWKHUDSSURSULDWHOLIH

F\FOHGDWDDQG

SHUIRUPOLIHF\FOH

DVVHVVPHQW

(QJDJHZLWKFHUWLILFDWLRQ

SDUWQHU

5HSRUWDQGEHQFKPDUN

SHUIRUPDQFH

,62

LQYHVWRUV

,QIRUPWKHFRQVXPHU

4.4 From Life Cycle Assessment to LifeCycle Collaboration

Understanding the different ways in which LCMs cancreate value can be usefully represented along twoaxes. On one axis, the use of life cycle metrics canbe classified as passive or active, with active use ofLCMs implying their application to business models andstrategic value creation. On a second axis, the use of lifecycle metrics can be classified as principally for internaluse, or also for the purposes of external collaborationalong the value chain.

In the first quadrant life cycle assessment the core

challenge is to scale up data collection and to make itcheaper and more focused. In the second quadrant lifecycle information data is transformed into informationfor communication with consumers and stakeholders,meeting their demands for transparency, mitigatingreputational risk and creating new opportunities forengagement. In the third quadrant life cycle strategy LCM data becomes a tool for strategic decision-making,allowing sustainability to be a driver of innovation throughnew strategies, business models, products and services.In the final quadrant life cycle collaboration thosestrategic conversations are extended across the valuechain including, ideally, the involvement of value chains,consumers and competitors.

The practical measures below represent a pathway,with many intermediary steps, from individual company-level life cycle assessment to life cycle collaborationacross an industry or an entire product life cycle. Each

step represents part of the evolution laid out in thematrix above: 1) Simplified Life Cycle Assessments;2) Information to Communication; 3) Information toCorporate Strategy; 4) Corporate Strategy to ValueChain Collaboration.

Each measure, by itself, offers incremental improvementin the application of LCMs. Taken together, thesemeasures constitute a potentially transformative set oftools.

4.4.1 Simplified Life Cycle Assessments

Traditional life cycleassessments have tendedto be highly technicaland either designed forinternal use relating to asingle product or set ofproducts, or as a meansto complying with externalreporting requirements.

Some companies have outsourced LCMs others,such as Unilever and Nike have developed their owntechniques internally. Some standardization hasemerged with an ISO guideline emerging as a favouriteway forward for many but the processes tend toremain expensive and complex, limiting their applicability.

This could change. Simplified life cycle assessments such as those now being undertaken by Levis,Patagonia or Timberland create rules of thumb

6LPSOLILHG/LIH&\FOH

$VVHVVPHQWV


27/56



and aim to capture relative sustainability rather thancomprehensive impacts. The availability of clear, simpleinformation can help drive design within the business,as through Nikes Considered Index which highlightsenvironmentally preferred materials. At the same time,the availability of such information will enable morecompanies to take step changes in their processesinstead of individual products. While not a substitute forthe rigour of full LCA, they are complementary and couldbroaden the use of life cycle analysis within the companythrough the identification of hot spots across entireproduct ranges. Policy-makers can play a role in helpingto identify potential target areas.45

4.4.2 From Information to Communication

By itself LCM-basedassessments producesno direct change onbusiness models and littlechange of products orprocesses. The data mustbe communicated to andinterpreted into informationby consumers and otherstakeholders in a way that

can easily be understood and acted on. In order for datato be used to drive changes in behaviour, the information

and its implications need to be fed back to improveinformation flows.

Broader information communities and open sourcesystems, coupled with greater standardization in LCM-driven labelling will help by creating new informationflows for greater sustainability. The Ahold retail chainsPuur & Eerlijk products (Pure & Honest) were launchedin 2010. The clear labels across goods categorieshave made it easier for customers to choose productsproduced, grown and sourced sustainably.46

4.4.3 From Information to Corporate Strategy

Life cycle metrics havegenerally been used asmeasures of risk exposure,but they can also bea spur to innovatingproducts and businesspractices. If LCMs are asvisible as costs acrossan organization they

will change corporate culture, becoming integral tocore business models and signposts to new growthopportunities.

Upon recognizing that the greatest environmentalimpact of all product ranges is consumer use ofwashing powders at high temperatures, both Unilever

)URP

,QIRUPDWLRQWR

&RPPXQLFDWLRQ

)URP&RUSRUDWH

6WUDWHJ\WR9DOXH&KDLQ

&RPPXQLFDWLRQ

)URP&RUSRUDWH6WUDWHJ\WR9DOXH&KDLQ

&RPPXQLFDWLRQ

and Procter and Gamble have created new lines ofdetergent targeted to reduce life cycle impact throughcold water washing. This is also being encouraged on anational level in countries such as Denmark, which hasset up a knowledge centre to assist public and privatecompanies gain competitive advantage through betterunderstanding and integration of life cycle metrics.47Sustainability cannot only help lower costs, it can alsoincrease volumes of sales and increase margins basedon higher quality products. DSM, a Dutch chemicalscompany, contributes to solutions that help to improvefuel efficiency, such as low weight plastics to replaceheavier metallic components in a car, and secondgeneration biofuels based on cellulosic raw materials

that are not used for food or feed.48

Wal-Mart engaged suppliers of seven products ina project to identify, and capitalize on, sustainableinnovation opportunities across their products lifecycles. The suppliers, working with Wal-Mart and theEnvironmental Defense Fund (EDF), used the opensource Earthster tool (earthster.org) to generate agraphical and numeric portrait of the environmentaland social hot spots in product supply chains, usingbasic information from inputs to final production.They then identified opportunities for innovations thatwould reduce impacts as well as costs.

The assessments generated some surprising results.For example for canned tomato sauce, Earthster andits underlying life cycle inventory data showed steelcan be a source of greater environmental impactoverall than the tomato sauce itself. In short, thebiggest opportunities for Wal-Mart to change theenvironmental footprint of the product lay severalsteps back along the value chain. Earthster enablessuppliers across the supply chain to collaborate ingenerating and sharing information about innovationopportunities and to report on their success atcapitalizing on them.

Case study: Earthster

4.4.4 From Corporate Strategy to Value Chain

Collaboration

Life cycle metrics can alsohelp create change acrossthe broader value chain,where 80-90% of mostproducts environmentalimpacts occur. Extendingcollaboration across thevalue chain can be difficult,bringing into play concerns

about competition and disclosure. Traceability of somegoods can also be difficult. Small and medium-sized


28/56



enterprises (SMEs) may not have the financial capacityto undertake their own life cycle assessments. However,rewards and opportunities are potentially significant, asdemonstrated by the Carbon Trusts new certificationstandard for SMEs.49

Scorecards allowing retailers to monitor progress onenvironmental and social measures on behalf of theirsuppliers may be one tool to enhancing value chainvisibility and collaboration. Wal-Mart has surveyedsuppliers on environmental practices and performancesince 2009, with the use of a relatively simple setof questions relating to sustainability. It created theSustainability Consortium (TSC) to develop industry

standard metrics for conducting life cycle analysesof products and publicly announced it will create aSustainability Index.50 The retailer now also requires fullformulation disclosure for chemical-based products.

The starting point for open innovation is enhancedsharing of existing know-how and technologies,with mutual benefits and overall improvements insustainability. Organizations should make far greater useof external ideas and innovations in their own practices,while making their own unused and underused ideasand technologies more widely available. Individualorganizations are often wasteful of the knowledge theypossess. Barely one in 10 German patents is currentlyused by the patent holder, with the other 9 remainingunused.

Ultimately, however, the objective is to create a businessecosystem joined by a common understanding ofLCMs. Such an ecosystem would have far greaterawareness of both individual and aggregate impacts onboth the environment and social systems, but, crucially,would also possess the tools to share information andcollectively improve mechanisms that ensure suchimpacts are contributing to sustainable prosperity.Industrial symbiosis projects could be a model for entirevalue chains on a global scale. The challenge is that, to

be of most use to business, standardization should bedone once, done right and done globally.

4.5 Accelerating Business Innovationthrough Collaboration

Shifting life cycle metrics from operations to strategywithin the company, and then to collaboration along andacross value chains, involves harnessing breakthroughinnovation. It is not about greening existing businessmodels but accelerating the creation of entirely newmodels. The imperatives of scale and speed cannot bemet without disruption. Again, they demand a much

broader model of open innovation.

Beyond sharing existing knowledge, ideas andprocesses, open innovation implies the co-creationof new technologies along value chains, betweencompanies and consumers and, under certaincircumstances, even with competitors.

This is not about undercutting the principle of protection

for intellectual property (IP). It is about recognizing thatco-generation and systemic sharing will often createfar more value than individual programmes of research.This is particularly the case for sustainability, whereso much potential value is locked in the structure andprocesses of the value chain. Open innovation is notabout making oneself uncompetitive, it is about adaptingto a new knowledge environment to make oneself morecompetitive and responsive to change. In the end, it isabout making business smarter, as well as about makingbusiness more sustainable.

Valuable ideas do not have to come from internalresearch and development programmes they can also

come from outside. Open innovation places externalideas and pathways to market on the same level ofimportance as internal ideas and market pathways. Atthe same time, much know-how which companiesthemselves may not view as IP could be usefully madeavailable elsewhere, potentially creating new streamsof income and bringing collective benefits. Principles ofopen innovation allow ideas rather than structures topredominate.

In addition to traditional IP, there are increasing amountsof data becoming available that are often being thrownaway by companies. As technologies such as radio-frequency identification (RFID) evolve and become

ubiquitous, the capacity to collect data will continue togrow. That data is not intellectual property, and is notreally intellectual capital or know-how. It is also only


29/56



worth something if processed and analysed. While itis hard to see how a consumer products companymight sell such life cycle data, if it can be placed in thecommons, it will definitely be an asset to someone else.

To engage in the sharing part of open innovation,companies will need to analyse and understand theirIP better than many do today. They need to conduct aknowledge audit, placing potential IP into one of threecategories:

1. Intellectual property to be guarded closely as a corecompetitive advantage (currently the category inwhich most IP is implicitly placed).

2. To be shared or licensed on a case-by-case basis,perhaps in different industries or geographies whichdo not compete. In some cases, reducing licensefees for patents will unlock income streams whichmake licensing more cost effective than attemptingto prevent abuse.

3. In other cases, pre-competitive open innovationmay be necessary for an idea to reach the scalenecessary for it to be a marketable opportunity. Inthis case IP should be placed in the global commonsfor all to use, possibly to be leveraged to shift amarket towards a certain technology through whichall can benefit through scale or standardization or thecreation of a new market.

4.6 Exploiting Leverage, Enacting Change

Businesses are the builders of the sustainableconsumption economy. That economy is currently underconstruction, but there are powerful and potentiallytransformative leverage points, which could acceleratethe process emphasizing innovation, collaboration,scale and speed.

Systemic change requires more open innovation:allowing businesses to co-innovate new businessmodels, share expertise and ensure that innovativeideas and processes currently locked within a singleorganization and possibly unused by it becomeagents of transformation. Open Innovation shouldnot replace competition; it should complement it.

For example in 1998 Nike began researchingenvironmentally preferred rubber and developingformulations that could be applied to footwear.In FY2009, 76% of Nike shoes contained

environmentally preferred rubber, while incurringcost savings. While it makes perfect sense tokeep this intellectual property out of the hands ofcompetitors, many of the same rubber compoundsare used in the tire industry, an industry that uses75% of the rubber produced in the world . Usingthe platform of the GreenXchange, Nikes patent forRubber Compositions with Non-Petroleum Oilscan be licensed for other applications, reducingR&D for a licensee and generating licensing revenuefor Nike.

While new technologies have enabled acceleratedinformation exchange between consumers and

companies, many companies have not yet engagedin open innovation processes with other businessesacross the value chain, or fully explored thebenefits of co-generating business ideas with theirconsumers. The potential upside is underrated static cost-benefit analysis suggests companieshave more to lose than to gain. Too often, sharing isseen as uncompetitive.

Yet, successful knowledge cultures are frequentlythose that are most interactive. In an increasinglyfast-moving world where disruptive technologiesand trends are a part of the business and sociallandscape predicting future needs is highly

complex. The ability to learn in real time fromcustomers or business partners through openinnovation, often facilitated by social networkingcan confer a radical advantage and it canspeed up the systemic shift towards sustainableconsumption.

This requires shifts in two directions: first, from thegeneration of proprietary knowledge to shared andcollaborative knowledge and, eventually, open ormutual knowledge; second, a shift from mutualdependency between consumers and businessescentred on products to a more empoweringrelationship based on servicing human needs.

The Role of Open Innovation


30/56



PotentialImpact

Easeof

implementation

Replicability

Scalability

Leverage Points / What can be done

High

HighHigh

High

High

HighHigh

Med

High

HighHigh

Med

High

HighMed

Med

High

High

Med

Med

High

MedHigh

Med

High

LowMed

Med

High

MedHigh

Low

Med

MedMed

High

Med

MedHigh

Med

Med

MedHigh

Low

Low

MedHigh

Med

Life Cycle Thinking at the board level (Ability to change Mindsets)Incentive systems and performance evaluations need to be designed to reward life cycle thinking. These need togo right to the top the accountability of the board and CEOs needs to be broadened to incorporate sustainabilitymeasures with demonstrable linkage to the short- and long-term interests of the company.

Consumer-led information communities (Rules that Set up the System)

New and strengthened interactions with consumer-based information communities (e.g. GoodGuide) will allownew collaborations to take place and evolve. Such interactions will allow for better brand management, increasedstakeholder value and the improvement of data in the sharing of collective resources

Sustainability criteria integrated into sourcing decisions (Drivers of the System)The impact of sourcing and procurement criteria is multiplied downstream - retailers on manufacturing companiesand those manufacturers on their suppliers. Governments also play a leading role through their procurementpower up to 15% of GDP in some economies.

Targeted public procurement (Drivers of the System)Governments create market signals for suppliers by actively sourcing more sustainable and fairer products andservices through improved procurement policies. As business models evolve to cater to new criteria, the resultingripple effect will raise industry standards for adopting sustainable practices and life cycle metrics.

Simplified LCA methodologies (Rules that Set up the System)Simplified life cycle assessments (LCAs) and product category rules of thumb will enable more informed decisions.Coupled with scenario analysis and strategic risk / opportunity assessment, simplified LCAs will allow companiesto evolve their business models as they reorganize, especially in the design phase.

Innovative regulation: Materials recovery and life cycle responsibility (Rules that Set up the System)Product stewardship, Extended Producer Responsibility use financial incentives, such as unit pricing, to ultimatelyencourage manufacturers to design environmentally-friendly products by holding producers liable for the costs ofmanaging their products at end of life.

Standardization of sustainability scorecards (Rules that Set up of the System)There remains a need for an agreed set of standards for sustainability scorecards, as several retailers are pushingindependent sets of criteria up their respective supply chains. Ideally, collaboration would take place at an industrylevel to create a global set of criteria that would set the rules of the game.

Mainstreaming of sustainability in financial indexes (Parameters of the System)Investor and holding company accountability on measures broader than shareholder return is in its infancy. Withgreater transparency in sustainability performance and increases in popularity of the likes of the Dow JonesSustainability Index or FTSE4Good, will lead to a greater responsibility for companies to change.

Platforms for sharing innovations (Rules that Set up the System)Platforms to share and track sustainability impacts along value chains will enable the identification of hot spotswhere companies can compete to maximize efficiencies. Governments also have a role to play in promotingresearch and disclosing information to all interested parties.

Creation of a Life Cycle Mark-up Language (Drivers of the System)A life cycle markup language could be used to share outcomes of life cycle analyses along a value chain, andwould allow organizations to publish the life cycle analyses of their products in a machine-readable format, leadingto system-to-system communication.

Market-Maker demand (Drivers of the System)Market makers who use their scale to influence practices within their supply chain (i.e. through supplierscorecards) create positive feedback loops in industry behaviours. Critical to this is the position of market makersas supporters of independent organizations that advocate sustainable business models.

Labelling Data and information (Drivers of the System)There is so much noise in terms of labelling that such information flows might never be as strong as they couldbe in terms of impact. Providing product information to influence purely rational drivers only motivates a smallpercentage of people, and impact on end consumers is often overestimated.

I


'ULYHUVRIWKH6\VWHP



$ELOLW\WR&KDQJH0LQGVHWV+LJK/HYHUDJH

/RZ

/HYHUDJH







'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP

'ULYHUVRIWKH6\VWHP



31/56



High Medium Low

Impact Can trigger a fundamentalshift in the way the systemoperates

Can reinforce positivebehaviours or can breakdown barriers for progress

Important steps to take butdoesnt enable a fundamentalchange in the system

Ease of

implementation

Change can happen fast withincremental costs and fewpolitical barriers

Change desired but onlyon a longer time horizondue to inherent political andeconomic barriers

Requires disruptive shifts inorganisational systems due todivisive or polarised mindsets

Replicability Easy to copy and non-exclusive. Can be emulated in

various geographies globally

Needs better regulatoryand business environment

to gain momentum acrossgeographies

Difficult to replicate orimplement beyond regional or

national context

Scalability Can be easily scaled betweenmunicipal, national, regionaland global levels

Accessible by large entitiesbut difficult to enact on aregional or global scale

Costly to scale requiring largeinvestments in order to growbeyond local pilot phase

This key explains the qualitative rating system used for leverage points on the table opposite and graph below:


32/56


33/56


5 Enabling Transformation:Innovation in Public Policy

Policy innovations are those policy levers needed tocatalyse increased profitability of business throughsustainable consumption strategies and practices.

Understanding the potential for public innovation,barriers to realizing such potential and how best toovercome these barriers was a critical element of

the work of the initiative during 2010. Two specificquestions were addressed at this early stage:

What policy innovations would enablebusinesses to profitably advance closed looppractices?

How best might collaborative action advancesuch policy innovations?

Exploring Policy Innovation

5.1 Why Public Policy Innovation?As this report has made clear, getting public policyright is essential to building t

Consumption Dillema

Documents

Transcript of Consumption Dillema