Published on: Jun 20, 2012
Two Tomorrows' Dave Knight on the Green Economy and what it means for business
Twenty years after the Earth Summit, Rio is once again the hub of activity, attracting world leaders from governments, the private sector and NGOs to tackle the big issues in sustainable development.
Stepping back to the first Earth Summit in Rio, the main outcome was the development of Agenda 21. Here we are in the 21st century and the Green Economy is high on the agenda. But what is the Green Economy and what does this mean for business?
According to Achim Steiner, the UN Under-Secretary General and Executive Director at the United Nations Environment Programme, a Green Economy is one in which economic growth, social equity and human development go hand-in-hand with environmental security – in other words a sustainable economy.
The implications of a Green Economy on business are profound. It is great that governments and supra-national institutions like the UN introduce policies and blueprints paving the way to a sustainable future. But it is business that holds the key to implementation; business has the potential to move further and faster than governments. It is well placed to innovate and transform, which is what a transition to a Green Economy requires.
And by business, I don’t just mean large corporations and international conglomerates. Small and medium-sized organisations are central to our economies. Increasingly, large organisations are looking to collaborate with their value chains to meet targets one everything from emissions reductions to labour conditions.
The prevailing attitude has been to focus on the financial short-term – the quarterly and annual results. This has all too often led to the sidestepping of sustainability, backed up with the rather weak justification that long-term actions in this sphere make little financial sense.
On the contrary, recent research conducted by UNEP, which evaluated most significant work on the business case for sustainability of the last five years or so, found a compelling business case now. Scientific and financial data shows a clear win-win situation for companies making the switch to Green Economy, both in terms of fiscal outcomes and the value-added benefits that a resource-efficient, socially aware business model can bring to a company and wider society.
Having recently drafted a summary of the business case for the Green Economy* for UNEP, which was launched at Rio 20+ on Saturday, allow me to elaborate . . .
The Green Business Case Model introduced in the publication demonstrates how actions taken by companies to improve their sustainability performance result in improvements to leading indicators of financial success, which in turn result in improvements to six key financial metrics:
- Sales growth
- Duration of sales
- Capital expenditure
- Profit margin
- Tax rates
- Cost of capital
For example, as market and regulatory demand for sustainability increases, flexible businesses with the foresight to shape their products and services in line with this trend will find themselves at a distinct advantage, being able to attract customers, improve brand value and reputation and ultimately sales growth and increased duration of sales.
Businesses which take the lead and embrace the transition are already reaping many rewards. The report is supported by many case studies from around the world. For example, the Egyptian company SEKEM-LIBRA launched a commercial compost project in 2007, transforming waste products from SEKEM’s agricultural activities into compost, a high-value and sustainable good. This stimulates employment and land reclamation opportunities while saving emissions and generating income. Sales have increased over 13 times and the company generates additional income through the sale of certified emissions reductions certificates.
At a larger scale, Unilever Sustainable Living Plan sets about 60 time-bound, publicly reported targets designed to reduce costs, support customers and grow its brands, opening up new markets in a sustainable way. Socio-economic benefits include engaging at least 500,000 smallholders and 75,000 small-scale distributors in Unilever’s supply network by 2020. Unilever has already saved €10m per year in its European factories and believes it will ultimately reduce its operational expenditure through effective management of supply-side risks and efficient use of resources.
A myriad of benefits come from making the leap to resource efficiency and sustainable products and services: supply chain resilience; reduced dependency on natural resources; new investment opportunities; the ability to secure capital at a lower cost by developing a better risk profile; and mitigation against the negative financial risk from environmental impacts, to name but a few.
The transition to a Green Economy will not be easy; there are significant challenges to be overcome in addition to financial short-termism. Informed by surveys of opinion formers and experts, these include the need to move away from regulations that encourage unsustainable practices, increase leadership knowledge of the business imperative and improve international standards.
The report offers a nine-point action plan to help catalyse the sustainable return on investment. Some companies, and perhaps whole industries, will not survive the transition. Success over the long-term will require new skills, diverse collaborations, continuous innovation, investments with uncertain returns, and increased scope of market valuation. For those companies who rise to the challenge the rewards are there for the taking.
* Report drafted by Dave Knight, sustainability services director, and Louise Ayling, consultant, at Two Tomorrows – A DNV company.