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Tomorrow’s Company Briefing on… The Age of Sustainability

Tomorrow’s Company Briefing on… The Age of Sustainability February 2011 We are now entering a new “long term wave of economic development” - which we call the Age of Sustainability - where the financial drag previously experienced becomes the source of innovation. Talent is scarce and natural resources are abundant might have been a statement that held true in the past but now the situation has flipped. Tomorrow’s Company argues that talent is abundant and this will allow for the required innovation to deal with the scarcity of resources that we face. This innovation is pushing us towards the Age of Sustainability and moving us away from a high waste society. Value creation is changing, for good.  Being a forceforgood is about unlocking the potential of creating value and achieving business success through sustainability.  This briefing paper presents examples of what this means in practice and analyses what this means in the context of its effect on the global economy; and the economic, social and environmental sub-systems which shape all our lives. Creative Destruction and Waves of Economic Development Joseph Schumpeter argued that innovative entry by entrepreneurs is the force that sustains long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power.  He used and popularised the notion of creative destructionfound in the writings of Mikhail Bakunin,<1> Friedrich Nietzsche and in Werner Sombart's Krieg und Kapitalismus (War and Capitalism) (1913, p. 207), where he wrote: "again out of destruction a new spirit of creativity arises". Different eras are characterised by different waves of creative destruction, driven by different technological breakthroughs and imperatives.  Many would agree that we are coming to the end of the fifth ‘Kondratiev wave’:

  1. The Industrial Revolution --1771

  2. The Age of Steam and Railways --1829

  3. The Age of Steel, Electricity and Heavy Engineering --1875

  4. The Age of Oil, the Automobile and Mass Production --1908

  5. The Age of Information and Telecommunications --1971 (Some scholars, particularly Immanuel Wallerstein, argue that cycles of global war are tied to Capitalist Long Waves. Major, highly-destructive wars tend to begin just prior to an output upswing.  Is this what we might see as nation states reassert their importance in claiming resources based on current methods of economic organisation?) The Knowledge Economy That the global economy is becoming a "knowledge economy" is another way of thinking about key changes in the economic system – in which knowledge resources such as know-how, expertise, and intellectual property are more critical than other economic resources such as land, natural resources, or even manpower.  (The term owes much to Peter Drucker writing in the The Age of Discontinuity<1>. At least three interlocking driving forces are changing the rules of business and national competitiveness: GlobalizationInformation/Knowledge Intensity, Computer networkingand Connectivity – developments such as the Internet bring the "global village" ever nearer.   The implications are clearly profound.  The economics is not of scarcity, but rather of abundance. Unlike most resources that deplete when used, information and knowledge can be shared, and actually grow through application.   The effect of location is either diminished in our new ‘flatworld’ (by the creation of virtual marketplaces and virtual organizations) or reinforced (by the creation of business clusters around centres of knowledge).   Taken to its conclusion, ideas will be recognised and even identified as a commodity. Re-balancing the economic, social and environmental sub-systems “The survival and success of tomorrow’s global company is bound up with the health of a complex global system made up of three interdependent sub-systems - the natural environment, the social and political system and the global economy. Global companies play a role in all and they need all three to flourish” -          Tomorrow’s Global Company The importance of the argument that value creation is changing for good, is that business needs to be a forceforgood so that it can play its own distinctive and critical role in the realignment of the three sub-systems, to bring the system as a whole into balance, so that 9 billion people can live on our one planet, in balance with other species and the environment. Business as a ‘forceforgood’ We believe that business is, should and must be a force for good Is – the global inquiry provides plenty of examples that business is already often a force for good Should - we want to change the world, we want a future that enables us all to live on our one planet, achieve our potential as human beings, respect other species and the environment, and we believe that business has a powerful and distinctive role to play Must - but more than 'is and should', we believe that there is a powerful argument to be made that the fundamentals of business success are changing.  And that it is now in the self interest of business to to be a force for good. A force for good company brings business success and sustainability together, creating a new model for business success, creating value through sustainability, fit for purpose for the twenty-first century. So what is the basis of this argument? It begins by recognising that business plays an essential and positive role in society - too much of western discourse casts business in the role of being little more than a 'necessary evil'.  Sometimes this is implicit, often explicit.  It is a perspective which we believe to be fundamentally misjudged. It is much more fully developed in 'Tomorrow's Global Company: challenges and choices' - the report of the inquiry team which revisits the question originally asked by Charles Handy 15 years ago, when he asked 'what is a company for?, at a lecture at the RSA This led to the formation of our first inquiry team and resulted in both the report on 'Tomorrow's Company' and our establishment as the 'think and do tank', Tomorrows Company. The argument is that to achieve business success you increasingly need to contribute to sustainability outcomes.  And that to achieve sustainability requires a new model of business success Why then do we believe that business success and sustainability must increasingly go hand in hand. Because issues such as climate change; access to water, food and other basic resources; human rights; community cohesion; security; the environment - issues which we once would have written off as externalities which others would pick up and for which others would pay the price - are:- firstly, now critical to even being able to do business in the first place secondly, increasingly impact on the nature of the products and services, the ability to manage and motivate people, which will shape what business does and how it does it thirdly, represent huge and compelling  opportunities in terms of how we eat, live, travel, enjoy leisure, meet energy needs fourthly, can only be tackled if we harness the distinctive and dynamic capacity of business to bring together people and finance in a way which fully harnesses our skills and the potential for innovation It is the combination of all these factors which means that this agenda will become even more important in the face of any economic downturn - which means that business as usual will be a recipe for decline, that cost cutting will only stave off the inevitable, that the basis for what we call corporate social responsibility is being fundamentally recast. So we believe it is in the self-interest of business to be a force for good - but let us not back off from the moral case as well, that given the profound challenges we face as people and as a planet, there is an obligation on those with power and influence to do all that they can to meet those challenges. The human and moral dimension of business and business leaders is all too often ignored, which ignores the values and the sense of social justice that drives so many of the people in business and commerce that we are proud to know and work with. Information and knowledge bounded by sustainability The profound impact of information and knowledge freely available is here to stay, and won’t go away – much of this article uses wiki and other sources, as one minor indicator. But the abundance of knowledge presupposed an abundance of material goods – that we can all have everything we want, produced in the way that we have become used to.  The simple conclusion that current patterns of economic development mean that we need four planets given current patterns of production and consumption – and I’m told perhaps as many as 14 if the Millenium Development Goals are achieved – means that the abundance of knowledge cannot be equated with the abundance of the material. Sustainability requires that how we live and work is bound, even if how we think and what we know is not.  We are living in a material world, and cannot forget the limits that go with it. One of the most powerful statements of this new and emerging vision of 21st century value creation that I have heard came from Rajeev Dubey of Mahindra & Mahindra Ltd at our recent event with the Centre for Social Markets at the House of Commons:- As aspiring GREEN WARRIORS we dare to dream of continually expanding our eco-friendly footprint in the fight against global warming and the creation of a sustainable world. This is based on our belief that: (1) concern for sustainability is good for business, & a lack of it will ultimately destroy us (2) business has to define its mission in a new way: not just as a vehicle to generate maximum profit & wealth but rather as a provider of profitable and affordable improvements in the quality of life (3) other stakeholders – government, civil society & academia, to name some – have to join hands with business to make sustainability affordable & profitable

"Truly global companies will need to develop a compelling vision which enables sustainable, profitable development of their business whilst benefitting the society at large. Those of us involved in creating the Tomorrow's Global Company report are determined to create a business community that will be a source of economic, social and environmental progress." Nandan Nilekani, Co-Chairman of InfosysExamples of business as a forceforgood As the inquiry report argues: “Global companies can be a force for good and are uniquely placed to deliver the practical solutions that are urgently required to address these issues.”  The inquiry report also gives us a number of examples of businesses as a forceforgood, examples we have built on along the years. This leaves us with two paradoxical impressions – how impressive many of these are, and that there are not nearly enough.  One could say that is why we need, and it is, but the more basic truth is not just that we need more examples: more practice, more understanding and greater leadership that will generate these examples is required. Some examples: *       BT’s investment of £250m in wind farms, providing a quarter of their electricity requirement by 2016, equivalent to 250 MW (or 122,000 homes, the size of Coventry), preventing the release of 500,000 tonnes of Co2; *       ABB’s variable speed drive motors, which have achieved an energy saving equivalent to 14 nuclear reactors, equivalent to powering 5m homes, saving 100m tones of Co2; *       DuPont, reducing greenhouse gas emissions by 65% in relation to 1990 levels; and Bayer, by 50% - for a comprehensive summary of emission reductions by major companies click on the following link; *       Mahindra’s pioneering work in alternate fuel and propulsion technologies program, under its Sustainable Mobility Solutions Program– this includes:- *       (i) Vehicles using 20% & 100% bio-diesel, the first in Asia in their class, are currently undergoing rigorous field trials *       (ii) The hydrogen-powered three wheeler, the first of its kind in the world, which runs on compressed hydrogen gas with near zero emission and is currently under testing; *        (iii) The hydrogen- powered internal combustion engine vehicle, as part of our vision of making hydrogen the fuel of tomorrow, through collaboration with Global and Indian partners. *       (iv) Their first electric three-wheeler was commercially launched in 1999 and these zero emission electric battery-powered vehicles have been running on Indian roads since then. *       (v) The hybrid electrical vehicles (HEV), a near-term solution to reducing pollution and fuel consumption, embracing several platforms, recyclable materials and reusable technologies. *       (vi) Leveraging its technical expertise with Compressed Natural Gas (CNG), which is in relatively plentiful supply in India and is a green substitute for fossil fuel, Mahindras are working with the Government of India to convert vehicles from the CNG to the Hydrogen CNG mode. *       Corus (part of Tata Steel Group) – improving current processes to increase energy efficiency, investing in breakthrough technologies and developing new products and services: *       (i) current processes: targeting a reduction of CO2 emissions per tonne of steel by at least 20% by 2020 compared to 1990  Investing around £60m in a project at their Port Talbot plant in South Wales to recover steelmaking gas for use on site to replace imported natural gas.  The overall CO2 emissions reduction from this project alone will be approximately 300,000 tonnes per year. *       (ii) breakthrough technologies: such as ULCOS (ultra-low CO2 steelmaking), a £44m part EU funded multi-partner R&D project which has a target of a 50% reduction in emissions per tonne of steel by 2050.  Now moving into the demonstration phase, the investment required will be significantly higher, and will link to the various carbon capture & storage initiatives being explored across Europe. *       (iii) developing new products and services, to reduce environmental impact over the product lifecycle and value chain: e.g. advanced high strength steels to reduce the weight of vehicles to reduce fuel consumption and photovoltaic applications for carbon neutral housing. *       Unilever, *       (i) reducing CO2 from energy use in manufacturing per tonne of manufacturing by 43% from 1995 to 2012 *       (ii) ‘Surf Excel Quick Wash’ – launched in India in 2004, a low lather formulation, saving an estimated 14 billion litres of water to date; *       (iii) the Pureit Water Purifier – uses zero energy and costs less than boiled water, protecting 5million Indians so far; *       (iv) Dry Soap Making Technology - reducing water and energy required to make soap, being used for 6 soap making facilities in India *       (v) HUL ACC Co-Processing Initiative – cement manufacturing process, environmentally friendly process to dispose of solid waste There is also a useful summary of case studies provided by the International Institute for Sustainable Development link. The 21st Century Value Matrix As detailed in the examples above, one can begin to see the patterns of this breaking wave of value creation – and above all to think about how these first waves could be sustained and grow in power, achieving a systemic tipping point.  In so doing, the idea of the 21st Century Value Matrix grew. It provides a way of organising the examples listed, seeing the patterns and thinking about how to scale up and perhaps reach a tipping point – and of the critical importance of creating frameworks. The matrix develops a 3 x 3 breakdown: On the horizontal axis, a business life cycle model, recognising the pilot phase, when things are scaled for market and the vital role of fit for purpose frameworks to achieve full scale; On the vertical axis, I am making the distinction between new processes which fundamentally drive down costs and reduce carbon footprint on the one hand; and new products and services which help us change how we live and work, and thereby our carbon and biodiversity impacts. The matrix also makes use of a further set of examples: those which are not driven or positioned around sustainability, or have not been to date, but which have huge sustainability outcomes – think about the savings in production and distribution made possible by the iPod and Sky+ (TV hard drives), or the opportunity cost in terms of environmental impact enabled by the Eurostar train which connects London and Paris/Brussels, which would only have been possible by the framework created by European governments. 21st Century Value  Matrix  Small Scale/Pilot Scaled for Market Framework required  Cost Reduction (Supply chain, Waste management) BT in USA – intelligent drinks cabinets tell van drivers if delivery needed Corus pilot Supply chain management with real time energy management impact options Examples such as  Bayer and Dupont Biodiversity Credits Carbon pricing and trading schemes Cross company and cross sector collaboration ‘Green in practice’ iPod Sky + EurostarSustainable mobility as a test case of the value matrix Pressure is mounting on cities to create transport ecosystems. Steering the change are automakers, led by the world’s third-largest car company” writes Naren Karunakaran. With thanks to Jay Shah of Mahindra for forwarding this article. Here are a few excerpts: Bill Ford bared his mind to a select group at the University of Michigan in the US recently. "Don’t assume we are always going to be in the cars business," he said. Ford believes the automobile industry is on the very "edge of a revolution", and he wants to be the one driving it. A crack team fleshing out Ford’s ‘blue ocean strategy’ describes the business that will take Ford to the next level as ‘New Mobility’. It is grounded in the tenets of sustainable mobility, where the accent is on access, equity, affordability, and the avoidance of disruptions in societal, environmental and economic well-being. New mobility rests on the edifice of public transportation or mass transit. The Ford gameplan is to mutate into an ‘integrator’ of mobility hub networks; from being a product-centric to a service-oriented company; from being a purveyor of vehicles to a provider of mobility solutions to expanding cities across the world. The ‘networks’ that Bill Ford is banking on comprise numerous hubs, with each being a transfer point where multiple mobility options and services come together. It deploys technology to link diverse transportation systems—rail, bus, metro, feeder systems, car sharing, bike sharing—into an organic whole, and extends flexible, seamless, door-to-door trips, for the rich and the poor. (Read Stepping on the pedal) New Mobility is all about taking public and even non-motorised transportation (cycling, cycle rickshaws and walking) centre-stage. And Ford wants to make a successful business of it. The goal of New Mobility is to embody some of the desired characteristics of the personal vehicle—comfort, status, its aspirational qualities—and eventually "displace its use". New Mobility is, therefore, Ford’s attempt to extricate itself from the "red ocean" it is mired in today; a steep decline in margins, and a dog-eat-dog struggle for survival and market share in personal vehicles. The importance of ‘frameworks’:
"Mobility goes beyond vehicles. It’s about development, urban design and planning" Anand MahindraAbout Tomorrow’s Company Briefing Documents This document was written in February 2011, by Tony Manwaring and Luisa Bramao Ramos This series of briefing documents are intended to provide the reader with a comprehensive introduction to a particular topic. They are intended for anyone who is curious about the given topic, but has a limited base level of knowledge.

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