What global environmental risks mean to 10 sectors
What global environmental risks mean to 10 sectors
“The current economic system, built on the idea of perpetual growth, sits uneasily within an ecological system that is bound by biophysical limits.” So states the fifth Global Environment Outlook, published by the United Nations Environment Program in 2012.
Renowned economist Kenneth Boulding reflected the same sentiment more pointedly many years ago when he said, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”
Infinite growth is the operating principle, reinforced by our current economic and political systems, on which many of the world’s business leaders, policy makers and investors make decisions every day. As a result, the gap between our current burn rate and what the planet’s environmental systems can support on a sustained basis continues to grow. This gap represents a significant risk – and an opportunity – for the business community.
This is the context of a collaboration between UNEP and SustainAbility, along with Green Light Group: a just-released report titled GEO-5 for Business. It uses GEO-5, a 500+ page compilation of environmental data, policy options and scenarios as its foundation. GEO-5 for Business serves as a translation and primer written specifically for business leaders. While much analysis has been conducted on the impacts of business on the environment, this report looks in the other direction – at the impacts of environmental trends on business.
GEO-5 for Business provides a clear picture of trends and impacts that should compel business leaders to take action. It synthesizes a large amount of research (with 389 citations in the 41-page report) and provides a comprehensive view of what individual and collective environmental trends mean to 10 specific business sectors.
The sectors assessed are: Building/Construction, Chemicals, Electric Power, Extractives, Finance, Food/Beverage, Healthcare, Information/Communication Technology, Tourism and Transportation. The report identifies impacts across the value chain, from raw material procurement to product end-of-life, and assesses reputation and public policy implications as well.
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GEO-5 for Business draws the conclusion that environmental pressures will increase throughout the foreseeable future, causing major changes not only in physical landscapes, but in social, political and business landscapes as well. More specifically, the report finds that:
Substantial risks and abundant opportunities exist in all of the business sectors that we assessed. They result not only from climate change, but also from water pollution, water scarcity, land conversion, biodiversity loss, chemical proliferation, waste and other environmental trends.
Changes in the environment will affect operations and supply chains in numerous ways, negatively and positively, depending on a company’s specific circumstances. For example, in building and construction, rising concern for biodiversity and habitat loss may result in constrained availability and higher prices for timber, a key commodity for the sector. This is exactly what happened in China from 1999 to 2004 – after the government imposed restrictions on logging, the price of timber in the Beijing wood market increased 20 to 30 percent. On the other hand, in the extractives sector, warming temperatures in the Arctic and decreasing sea ice cover will open previously inaccessible or uneconomical areas to exploration and production. The food and beverage sector may be most impacted by environmental trends, as climate change and water scarcity shift what is grown where.
Markets for many products will shift significantly. Some products with large environmental impacts will lose market share to those that are more resource-efficient and lower impact, and markets for products that help customers reduce their environmental impacts will grow. For example, in the Chemical sector, markets are growing for chemical products that support the provision of clean water through sterilization, purification and desalination. The Information/Communication Technology sector likely will see an increased demand for tools to help customers understand, anticipate, evaluate, integrate and adapt to environmental changes.
Public policy related to the environment is expected to generally tighten in both developed and developing countries, as the costs, consequences and concern for environmental risks grow. In the Electric Power sector, record levels of air pollution in China in early 2013 spurred the Ministry of Environmental Protection to impose stringent new emission limits on coal-fired power plants. In the Transportation sector, vehicle fuel economy standards continue to tighten around the world, increasing costs, shifting consumer demand and influencing product design.
Company reputations increasingly will be linked to environmental factors. Tourism companies that are seen as environmentally responsible in their operations are seeing reputational and marketing benefits. For example, adventure tour operator Exodus has seen increased bookings, positive publicity in the media and greater industry recognition since adopting a Responsible Tourism Policy. On the other hand, companies in the Finance sector that invest in or lend to companies that inflict damage on ecosystems may be seen as enabling such damage and will take a hit to their reputation. Some commercial banks already have experienced this from financing palm oil expansion among other high-impact activities.
GEO-5 for Business is not a roadmap of environmental risks and opportunities for companies to apply directly. In fact, the report recommends that business leaders conduct a deeper, company-specific analysis using the report as a framework and guide. In the face of worsening environmental conditions, it is all the more important to understand deeply how your company will be affected.
The report also recommends that company leaders:
1. Continue to mitigate their impacts on the environment, while also adapting to environmental changes. As environmental pressures increase, the importance of mitigation – in the eyes of both external stakeholders and corporate executives – also will increase. Leading companies are not just reducing incrementally, but are getting to zero (Microsoft, Interface and others have plans to get to carbon neutral, and many manufacturing plants currently send zero waste to landfill), or even to positive impact (e.g. Pepsico’s Positive Water Impact). In fact, sustainability guru John Elkington coined a new term and wrote a book on the Zeronauts.
2. Think strategically about how the business must change to be well-positioned for the environmental changes that lie ahead. Those companies that adapt their core business to changing conditions will come out ahead. Unilever’s much-heralded Sustainable Living Plan is building its business around a resource-scarce future. BT’s Net Good program commits them to help their customers reduce greenhouse gas emissions equal to three times their own operational footprint.
3. Be transparent, reporting regularly to internal and external stakeholders (including shareholders), not just about operational performance, but also about the risks and opportunities posed by environmental trends and how you plan to address them. Puma pioneered the Environmental Profit & Loss statement, putting a financial value on its environmental impacts, and by one count at least 11 other major companies are following suit. Transparency drives improvement as well as trust.
4. Influence policy to enable and reward progressive strategies and strong environmental performance. Sound public policy will make it easier for companies to prosper despite declining environmental conditions, and business remains a powerful voice in influencing public policy. Organizations such as BICEP in the US are pooling their influence to push for action on climate change, as one example.
5. Collaborate with others that have a shared interest in addressing the challenges resulting from environmental changes, to drive more effective solutions. The ZDHC, Plant PET Technology Collaborative and the Sustainability Consortium are examples of the myriad collaborations achieving more together than they ever could separately.
The impacts of environmental trends on business are no longer future concerns. They are affecting companies today, both positively and negatively. Those businesses that understand environmental trends and consider them in their business strategies will be better positioned for a prosperous future.
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