Future business success depends on executives decoupling economic growth from resource use and environmental impacts, according to a World Resources Institute report released today.
The Elephant in the Boardroom: Why Unchecked Consumption is Not an Option in Tomorrow’s Markets, says current business practices and efficiency improvements are not enough. To thrive in the resource-strapped world of 2050, companies will need to innovate new business models that deliver shareholder value and meet consumers’ needs in different ways, WRI says.
Tomorrow’s markets will be shaped by a much larger human population, fewer people in poverty and unprecedented growth of consumer markets, the paper says. For example, the Indian middle class is projected to quadruple in a decade, from 50 million people in 2010 to 200 million by 2020. This demographic shift represents a business opportunity, but without significant changes, is at odds with environmental security, according to WRI.
It is in businesses’ self-interest to address long-term social and environmental risks, said Kathleen McLaughlin, chief sustainability officer for Walmart and the President of the Walmart Foundation.
“Walmart has committed to bold sustainability goals, including a science-based emissions target, because it’s the right thing to do for our business and our stakeholders,” McLaughlin said in a statement. “We’re working to lead and scale solutions to major issues like climate change and livelihoods, while at the same time improving efficiency and strengthening our company.”
The WRI report says while more companies are publishing sustainability reports, most are not yet discussing how to meet the needs of this rapidly expanding consumer base within the limits on water, forests and other resources. It cites a study published in the Journal of Cleaner Production that reviewed 40,000 corporate sustainability reports between 2000 and 2014 and found that only about 5 percent of companies mention some type of ecological limits. Of those, most do not provide detail on current or planned changes to address planetary boundaries.
WRI says the answer is to decouple business growth from environmental impacts. Efficiency improvements and recycling are not enough to compensate for market growth. Companies need also to address the challenge of unchecked consumption, and can explore solutions such as sharing economy and a focus on longevity.
WRI recommends three steps for companies to take:
- Do the math by looking openly and honestly at dependency on natural resources and the associated limits on business growth.
- Take a leadership role and change the conversation with customers, investors, policymakers and peers.
- Transform your business to one that will thrive in a resource-constrained environment. Align corporate strategy with tomorrow’s markets within the constraints of the planet’s resources.
The report comes as a growing number of businesses are employing sharing-economy business models — Uber, Lyft and AirBnB, for example — and other models that reduce resources and encourage circular economy approaches.
For example this summer Patagonia will launch an e-commerce Worn Wear platform where the company will sell used Patagonia clothing and gear online, sourced directly from its customers. The retailer launched Worn Wear in 2013 as a way to encourage consumers to take care of their gear, washing and repairing as needed, and eventually recycling once the garment can no longer be used.
Other leading businesses like Apple and Dell focus on recovering materials from products and their end of life and reusing them in new products. This not only reduced resources used, it also saves the companies money because they don’t have to buy virgin materials.
Apple, for example, is also saving on future mining efforts by reusing recovered gold and other metals in its products. Each iPhone contains about 25 milligrams of gold worth about $1, according to Forbes.
“This is a critical moment for businesses wanting to succeed in tomorrow’s markets,” says John Elkington, chairman at Volans, a London-based consultancy. “The key question: Do they embrace breakthrough business models that are fit for a resource-constrained future, or do they duck the need for transformational change and then watch new competitors disrupt their markets?”