Recently in Voice of the Planet Category
How do profit-seeking companies listen to the Voice of the Planet? As my colleague, Sanjay Sharma and I suggest, start by drawing a clear distinction between "core" stakeholders--those visible and readily identifiable parties (like current customers and suppliers) with a stake in the firm's existing operations--and "fringe," or peripheral stakeholders. Core stakeholders encourage us only to continuously improve what we already do. Yet, answering the question of our time calls for disruptive, leapfrog innovation, which requires divergent thinking. This means reversing the traditional stakeholder management model by learning to actively engage previously excluded voices from the fringe-- the rural poor, urban slum dwellers, and advocates for nature's rights, just to name a few.
Twenty years ago, in 1992, the first Rio Earth Summit took place in Brazil. While it was convened amid great fanfare and high expectation, the only really lasting legacy was the creation of the World Business Council of Sustainable Development (WBCSD) and the christening of "eco-efficiency"--doing more with less--as a key private-sector based strategy for sustainable development. The governmental negotiations produced a massive volume--"Agenda 21" but little concrete action.
Next week, the Rio + 20 Summit will convene, again in Brazil. The past twenty years has produced some good news and some bad news. First the good news: Eco-efficiency has become standard practice in large corporations everywhere and is now spreading to the world's small and medium sized enterprises as well. This is a major accomplishment and has significantly reduced the impact per unit of output in economic activity.
Now for the bad news: we have not yet begun to actually slow or reverse the level of human impact on the planet. Indeed, over the past twenty years, we have tripled the size of the global economy, added nearly two billion people to the world's population, and further intensified our ecological footprint on the planet. Growth swamped eco-efficiency. Today, the science is clear: we have overshot the carrying capacity of the planet and serious repercussions are now inevitable.
In 1997, I wrote an article that appeared in the Harvard Business Review entitled Beyond Greening: Strategies for a Sustainable World. The piece won the McKinsey Award in 1997 as the best article in HBR. The article stressed that corporate eco-efficiency (greening) strategies aimed at incrementally reducing negative social and environmental impacts, while important, would not be nearly adequate to the challenge of global sustainability in the decades ahead. Even then, it was clear that "beyond greening" strategies--leapfrog clean technologies, and business models that included and lifted the four plus billion poor in the developing world--would be essential if we were to fundamentally change the course of the global economy, and set it on a course to sustainability.
In the 1990s, people spoke in terms of the need for fundamental change over the next decade or two. Indeed, the title of the WBCSD's inaugural book was "Changing Course." Unfortunately, all we got was continuous improvement through eco-efficiency.
As I prepare to leave for Rio next week, my hope is that this Summit can plant a new stake in the ground--the Beyond Greening Stake. I will do everything I can to drive this agenda.
We are running out of time.
The time has come to end the ideology wars.
For too long, discussion about environmental and social challenges has been divided into two camps: The Neo-Malthusians (here and here) and the Cornucopians (here and here).
The former forsee gloom and doom--an imminent global train wreck driven by climate change, resource depletion, ecosystem destruction, and a combination of growing population and inequality. The latter forsee an unprecedented boom driven by the creativity and innovation of an increasingly sophisticated and interconnected global economy with millions of new, well-educated people from the emerging markets of the world.
The Neo-Malthusians are the ultimate pessimists ("limits to growth"); the Cornucopians are unabashed optimists ("growth of limits"). The Neo-Malthusians project current trends into the future and see disaster. The Cornucopians assume that technology will always produce the necessary substitutes and solutions when we need them (because scarcity means higher prices and higher prices signal opportunity for innovators).
It turns out both are probably right: We face unprecedented environmental and social challenges. Markets get distorted by perverse subsidies and incumbent resistance so that the price signals that should drive innovation are delayed or deferred. Humans have difficulty perceiving gradual, slow-developing changes and tend to wait for crises before acting (the "boiled frog" syndrome). So there probably will be major disruptions and unpleasant surprises in the years ahead.
That said, humans are also infinitely adaptable, resilient, and able to mobilize rapidly when a real crisis is finally perceived. The level of creativity and inventiveness is astonishing, and we are adding millions of creative people to the stock of potential problem solvers every year. The internet enables connectivity and exchange on a scale that we could not have previously imagined. The engine of entrepreneurial capitalism is powerful and should not be underestimated. So, there is every reason to believe that amazing things will happen that totally change the landscape for the better in the coming decade or two.
Just like the Democrats and Republicans in the United States need to set aside their petty ideological differences for the good of the country (and the world), it is also time for reconciliation and synthesis between the Neo-Malthusians and the Cornucopians.
Such reconciliation means that we need to learn how to become "skeptical optimists"--optimists because of the potential for new, sustainable technologies to grow exponentially in the coming years (see, for example, Singularity University); skeptical because of the scale and scope of the challenges we face. Skeptical optimism gives us the perspective we need to solve the world's social and environmental problems through a new form of sustainable entrepreneurship and enterprise. And the time is now.
We accept it almost without question—prognostications about the future which begin with the phrae: “if present trends continue…” Extrapolating present trends into the future has become a stock technique for both those on the political left (e.g. “if present trends continue, the gap between rich and poor will continue to widen”) and on the right (e.g. if present trends continue, GDP will double again within the decade”).
Consider the following trend: China consumed more energy in the past ten years than it did in its entire history, spanning thousands of years. The vast majority of this energy was in the form of fossil fuels. If this trend in energy consumption continues, then by 2020, China would consume virtually all of the oil currently produced for export in the world today. And, by 2030, China’s oil consumption would exceed today’s total global production of petroleum. What is the likelihood that this trend continues?
Even if we set aside the obvious implications of this trend for climate change and assume that the world embarks on the all-out development of unconventional oil reserves (in the form of shale oil and tight oil), to compensate for the now declining world production of conventional oil, it is not clear that production could be ramped up at a sufficient pace to meet this exponentially rising demand.
It is important to note that similar projections of current trends into the future are commonplace in virtually every domain, including the production of food, consumption of water, and emission of greenhouse gases into the atmosphere. The reality, however, is this: it is highly unlikely that any of the current trends in the world can or will continue into the future for very long.
Nor should we expect them to. History is filled with game-changing discoveries and events that fundamentally alter the trajectory of society and civilization. Consider for a moment how future projections for energy and food production appeared in the 1890s, just prior to the explosive growth of the oil industry, automobile industry, and the rise of mechanized agriculture. No one could have anticipated how radically the world would change in a relatively short period of time.
So expect a very bumpy and exciting ride over the next decade or two. Nothing will stay the same. We are approaching a time of unprecedented turbulence, change…and opportunity.
Schumpetarian creative destruction will reign supreme. Many incumbents will fall, and entirely new industries will be born. An age of entrepreneurship on a scale that we cannot yet imagine is about to be unleased.
There is only one trend that we can really count on: Present trends will not continue.
- new urbanism
- mass transit
- sustainable agriculture
- distributed generation
- renewable energy
- bottom-up entrepreneurship
- IT-enabled development
- inclusive wealth creation
As we all know, the transformation to sustainability is the biggest business challenge--and opportunity--in the history of capitalism.
As we enter the second decade of the new century, however, the "dark satanic mills" of the Industrial Revolution are giving way to a new generation of technologies that promise to change dramatically the societal, economic, and environmental landscape. The information economy powered by the microchip has already begun to revolutionize society by democratizing access to information and empowering the repressed. Indeed, You-Tube, Twitter, and the rapid emergence of the "blogosphere" have spawned a bottom-up revolution in user-generated content.
Increasingly, the technologies of tomorrow will be decentralized, distributed in character and disruptive to incumbent firms and institutions. It is much cheaper and more energy efficient, for example, to treat drinking water at the point of use, rather than transporting massive quantities of clean water through pipes from treatment plants only to have much of it leak out or be re-contaminated before it reaches its final destination.
Indeed, we are witnessing a dramatic reversal of the logic of scale--the new diseconomies of scale.
Think about it: Over the past decade or so, we have witnessed the rise of: distributed generation of energy, point of use water treatment, community supported agriculture, microbreweries, point of care healthcare, microfinance, and sustainable construction, to name just a few. Indeed, the term "nano" has become de rigeur.
Because existing players in the utility, energy, transport, food, water, and material sectors have so much to lose, however, it is enormously difficult for the entrepreneurs developing such distributed solutions to gain traction in established markets. Yet given their small scale and distributed nature, such clean technologies hold the potential to creatively destroy existing hierarchies, bypass corrupt governments and regimes, and usher in an entirely new age of capitalism that brings widely distributed benefits to the entire human community.
And rather than depending on national governments or paternalistic social engineers to design the future for the aspiring masses, these disruptive new technologies may be best brought forward through the power of capitalism--not the capitalism of the Industrial Revolution, which enriched a few at the expense of many, but rather a new, more dynamic form of global capitalism that will uproot established elites and unseat incumbents by creating opportunity at the base of the economic pyramid on a previously unimagined scale.
This metric made sense in the 19th century, when coal (and other raw materials) were plentiful and people were relatively scarce. Now, however, exactly the reverse logic applies--fossil fuels and other raw materials are increasingly scarce and people are relatively plentiful. We now live with the paradox that increasing business productivity means fewer jobs (especially when economic growth slows), precisely at the time that we need productive employment the most.
Occupy Wall Street, the Arab Spring, the corruption crisis in India, the rural revolt in China--all of these growing social protest movements originate from the same source--a growing "opportunity crisis" driven by unemployment, underemployment, alienation, and humiliation. The time has come, therefore, to overthrow the tyranny of labor productivity and graduate to a new definition for what it means to be "productive" in business.
In the emerging economies of the world, this revolution has already begun. ITC in India, for example, prides itself on creating livelihoods for the poor in the rural areas as part of its strategy for wasteland reforestation and agricultural productivity improvement. Indeed, as commodity costs rise, it may make sense to redefine productivity--from capital intensity and labor efficiency to labor intensity and capital efficiency. In the 21st century, "sustainable" enterprise must define success by the extent to which they create productive and fulfilling employment for the people of the world.
Is business up the challenge?
But wait--there were unexpected side effects: The roofs on peoples' houses began to cave in. It seems that the DDT was killing the parasitic wasp that previously controlled the thatch-eating caterpillars. Even worse, these DDT-poisoned insects were eaten by geckoes, which were then eaten by cats. The cats died, allowing the rat population to explode, exposing the local people to even more vicious outbreaks of plague and typhus. To cope with these new problems, which were the result of the original solution, the WHO was obliged to parachute 14,000 live cats into Borneo...
This parable illustrates one of the most difficult challenges facing the initiators of any purposeful human action: That any new solution or innovation will always create new problems. Sociologist Robert K. Merton identified this phenomenon in the 1930s as the "Law of Unintended Consequences." While unintended consequences can be positive (e.g. taking aspirin for pain also appears to reduce the risk of heart attack), it is the negative ones that necessarily concern us the most--precisely because they are unforeseen!
Thus, a key criterion for determining if a given human endeavor is "sustainable" (or not) is whether or not the problems it solves are more significant than the new problems it creates. Tragically, many of our most notable technological and industrial innovations of the past century do not appear to have passed this test.
Take, for example, Fritz Haber's invention of synthetic nitrogen in 1909. Until Haber figured out how to "fix" nitrogen from the atmosphere into a form useful to living things (i.e. plants), all the useable nitrogen on earth was fixed by soil bacteria living on the roots of leguminous plants. Before Haber's invention of synthetic fertilizer, the amount of life earth could support--crops and humans, for example--was limited by the amount of nitrogen fixed by natural processes.
Today, it takes more than a calorie of fossil fuel energy to produce a calorie of food.
In fact, industrial agriculture accounts for nearly one-quarter of all greenhouse gas emissions to the atmosphere. In addition, most of the synthetic fertilizer applied to crops is wasted--it either evaporates into the atmosphere (acidifying the rain, and further contributing to climate change), or it runs off into streams, ultimately ending up in estuaries like the Gulf of Mexico, where it stimulates wild growth of algae that then dies and smothers marine life, creating "dead zones," and adversely impacting coral reefs and other fragile life forms critical to marine fisheries and ecosystems.
Haber's process for manufacturing synthetic nitrogen is also what enabled less humanitarian industrialists to create the industrial munitions for modern warfare and terrorism--high explosives, defoliants, and poison gases. Might it be that the new problems created turn out to be bigger than the problems solved?
Or take the case of nuclear power. In the years following the Second World War (which was ended with the use of nuclear weapons), nuclear power was hailed as the solution to our future energy problems. "Electricity too cheap to meter" was the slogan in those days. Throughout the 1960s and 70s, the world pursued nuclear power with great vigor. Until the accidents at Three Mile Island and Chernobyl put the brakes on.
But these accidents only exposed part of the "new" problem--the potentially devastating consequences of a nuclear meltdown. With the increased scrutiny these accidents brought, it also became clear that there really was no long-term, permanent, or safe way to manage the waste from spent fuel rods. So, today we continue to store the material above ground in growing numbers of radioactive pools, which are potentially vulnerable to terrorist attack. Even worse, the failure to secure all existing nuclear weapons presents the real danger that "loose nukes" will fall into the wrong hands, with potentially horrific consequences.
In recent years, the growing specter of climate change has brought nuclear power back to the forefront, since it produces no greenhouse gas emissions. And then came the earthquake and tsunami in Japan and the Fukushima disaster. In June, at the Tokyo Power Board Meeting, livid shareholders told the executives at the utility to "jump into the reactor and die."
Might it be that the new problems created turn out to be bigger than the problems solved?
In the years ahead, we will face unprecedented challenges to design and develop "sustainable" solutions to our growing food, energy, water, and other problems. Of necessity, we will be forced to take action before we completely understand all of the unintended consequences. The "precautionary principal" dictates that we pursue only those solutions that minimize the potential for massive negative unanticipated consequences.
Experience over the past century teaches us that large-scale, centralized solutions typically fail the test for unanticipated consequences--most end up creating bigger problems than they solve. Better instead to pursue the emerging wave of small-scale, distributed, point-of-use solutions such as distributed generation of renewable energy, point-of-use water treatment, and multi-crop agriculture. Such solutions can "fail small and learn big," enabling technologists and entrepreneurs to fine-tune and perfect the model on a small scale before seeking wider application. In so doing, we can finally begin to create smaller problems...and begin the transformation to a sustainable world.