Sustainable Business Models for a Better Future

1. Alternative Business ModelsEarth has become a single spaceship, without unlimited reservoirs of anything, either for extraction or for pollution, and in which, therefore, man must find his place in a cyclical ecological system which is capable of continuous reproduction of materials.Boulding (1966) Jordan Peel and Mike Bull

2. Assignment 2 • 5. Conclusion & recommendations. (550 words - 20%) • Synthesise your findings & evaluations in order to conclude on how responsible enterprise plays out in practice. Then set out the following recommendations: • (a) ONE “theoretical” recommendation setting out an action that organisations in your chosen market should undertake to contribute to a more sustainable future. Your recommendation must draw on one of the alternative business models identified in the lecture AND • Relevant lectures: Assignment Q&A; Alternative business models (you will also need to refer back to other relevant lecture slides depending on what recommendations you make)

3. Outline • Context • Ladder of Sustainable Development • Green Economics • Alternative Business Models • Natural Capitalism (US Mid 1990s) • Industrial Ecology • The Natural Step (European 1990s) • Cradle-to-Cradle • Social Enterprise

4. Dangerously narrow focus • Our industries look only at the exploitable resources of the earth’s eco-systems – it’s oceans, forests and plains – and not at the larger services that those systems provide for free • Bottom line accounting • Forests and trees are not just a resource waiting to be chopped down to make goods – they are habitat for creatures, water storage, they regulate the atmosphere and climate. Lovins et al (1999:146)

5. Business response • “Reducing the wasteful and destructive flow of resources represents a major business opportunity.” • Lovins et al (1999:146)

6. Context • DesJardins (2007) suggests it is a forward thinking and hopeful framework • Business still has time to change • But the gap is narrowing • Barring a catastrophe, there will come a time when all businesses (voluntarily or other) be transformed into sustainable enterprises.

7. Source: (Nattrass & Altomare, 1999)

8. Ladder of Sustainable Development • Varieties of approaches to sustainable development are an indication of differing beliefs about the natural world. • At opposite ends you have anthropocentric and ecocentric. • Ecocentric objective it to maintain social and community wellbeing, not just harmony with nature. • Anthropocentric focuses on manipulating nature for economic benefit, extreme cases include lobbying against the need to consider environment to maximise economic growth.

9. Viewing it as a Continuum • Main motivation behind theory for sustainable development is human interest in human welfare. (Brundtland example) so making sharp distinction not wise. • Benefit sought in identifying a range of attitudes from anthropocentric – ecocentric. Sustainable Development Continuum Planning and management Human use Regulation Interference. Adapted from Baker (2006)

10. Ladder of Sustainable Development Public, Private, Third Sector, Delivery, Structures, Processes, Strategies and Capacity building. Industry, Agriculture, Trade and Waste. Production Source: Konstantinos Tzoulas adapted from (Baker, 2006)

11. Context • 1960s – 1980s, environmental concerns have been issue driven: • energy efficiency • waste minimisation • CFCs etc • ie. Low hanging fruit on the environment tree • Late 1980s to present day, greater emphasis on the roots, trunk and branches of the environmental tree, • ie. taking a more holistic approach – changing the mindset – tackling the roots and core, growing sustainably

12. Context • Traditional views of sustainability in business viewed as a constraint • Profitability compromised to comply • Early environmental legislation - regulation and compliance • However, frameworks/models to support economical and ecological sustainable businesses exist • Proactive strategies – the future?

13. Green Economics

14. Green Economics (Scott-Cato 2009) • Green economics is distinct from the dominant economic paradigm as practised by politicians and taught in the universities in three main ways: • 1. It is inherently concerned with social justice. For mainstream economics ‘welfare economics’ is an add-on. For a green economist equality and justice are at the heart of what they do. • 2. Green economics has emerged from environmental campaigners and green politicians because of their need for it. It has grown from the bottom up and from those who are building a sustainable economy in practice rather than from abstract theories. • 3 Green economics is not, as yet, an academic discipline with a major place in universities.

15. Green Economics (Scott-Cato 2009) • From economic growth to a balanced economy & quality of life? • The major objective of the economy is to grow, and the more it grows, the happier the politicians are. • In the capitalist ideology it does not matter that economic growth is destructive and does not increase human well-being; it only matters that there is more money changing hands in the global market. • There is too much emphasis on standard of living, usually measured in purely material terms, and not enough on quality of life. • For green economists growth is the major problem, not only because it is usually bought at the expense of the planet, but also because it is actually reducing our quality of life. • The lifestyles we expect in the 21st century have caused the extinction of species on a massive scale, and by causing climate change are actually threatening our future as a species.

16. Natural Capitalism

17. Natural Capitalism (Hawken et al 1999) • The philosophy…. • Current economics values money above all • However, we need to value aspects of life without the need to monetise. • Therefore appreciating natural capital (nature, oceans, trees, etc) and human capital (individuals, communities, cultures) • Respecting all four capitals (financial, manufactured, human and natural) could reverse the destruction of our environment… creating a business model for social and ecological restoration and economic prosperity.

18. Natural Capitalism (Hawken et al 1999) • A conceptual model for sustainable business practice • 4 guiding principles • 1. Eco-efficiency - we need to do more with what we have. More work out of less stuff. • Reduce the extractive flow needed to maintain products and services at appropriate levels • Dematerialisation – products made of less natural materials • Efficiency savings – products made with less impact • Products built to last – sweating the assets – making the most of it

19. Natural Capitalism (Hawken et al 1999) • A conceptual model for sustainable business practice • 4 guiding principles • 2. Biomimetic Production – turns waste into value. • Biomimicry - emulating nature (airplane/car – aerodynamics) • Closes the loop from extraction and manufacturing – • Dematerialisation – products made of less natural materials • Efficiency savings – products made with less impact • Products built to last – sweating the assets – making the most of it • Designs out toxicity • Considers those materials used in production but not in the products are returned to nature unchanged

20. Natural Capitalism (Hawken et al 1999) • A conceptual model for sustainable business practice • 4 guiding principles • 3. Solutions Economy – businesses respond to natural capitalism with fixes, innovations and new logics. • Products become less ‘capital’ heavy • Mechanisms of provider/user might change • Rethinking relationships between businesses • Products leased (cars, computers, carpets) • Products returned to manufacturer after use • The case of Gold ‘n’ Plump and Mississippi Topsoils (Desjardins 2007)

21. Natural Capitalism (Hawken et al 1999) • A conceptual model for sustainable business practice • 4 guiding principles • 4. Reinvestment – restoration. • To put back • To protect and foster the eco-systems of life • To design in environmentally neutral food, fibre and fuel for humanity • We are at a point in time where businesses are looking at their costs and analysing what resources (labour, technology, financial aspects) are limiting factors in economic productivity • The use of natural resources are suggested by Desjardins (2007:96) as the factor with the highest associated costs • Prudent managers must respond to this

22. Industrial Ecology

23. Industrial Ecology (Laasch & Conaway 2015) • The philosophy…. • Studies material and energy flows in industrial systems and compares them to ecological systems (Laasch and Conaway 2015:319). • Reversing the take-make-dispose model of economics • In nature, materials are recycled, with one organisms waste becoming food for another. • Shifting Industrial process from linear systems to closed loop

24. Industrial Ecology (Ridley-Duff and Bull 2015) • Biogas Production in Lidköping, Sweden • In 1990, a project to create an energy revolution started in Sweden with the creation of Lidköping Biogas which produces compressed and liquid biogas. • The project is exemplary for the co-operation between municipalities in several nations (Denmark, Finland, and Sweden), private companies, local farmers, transport organisations, farmers’ associations, vehicle suppliers and food companies to produce renewable fuels and low carbon energy products, as well as fertilisers for organic farming. • The biogas manufacturing process starts with the collection of ‘substrates’ - waste from food production and grain farming. • The Lidköping plant takes food industry waste and creates methane through an anaerobic digestion chamber. The methane is refined into biogas while the residue is used to create biofertilisers. • Biofertilisers become part of the sustainable organic food industry, and are purchased by farmers. • The biogas is partly distributed to local filling stations for cars and buses. • Volvo already sells biogas cars, and is now pioneering HGVs that power diesel engines with liquid methane. To provide incentives and create demand, biogas vehicles pay no car tax, do not pay road tolls and get free parking in all municipal car parks.

25. Industrial Ecology (Ridley-Duff and Bull 2015) • Biogas Production in Linköping, Sweden • The potential of biogas production has been exploited by the town of Linköping (Mayer, 2012). • Linköping is a city of 100,000 people that sought to reduce pollution from the overuse of diesel. • Since 1995, local waste from diary production (manure) has been combined with crop waste, slaughter-house waste and industrial food waste to provide the raw materials for production. • It has created its own local plant, deploying technologies similar to those at Lidköping, and now recycles 100,000 tonnes of organic waste in a continuous production process that takes one month to complete. • Linköping residents can purchase biogas cars, and the city’s fleet of 70 buses all run on biogas. When biogas fuels are used, carbon dioxide emissions are reduced by 90%. • Taxis in the city have been installed with a dual-fuel system (biogas and petrol), and the local rail network has the world’s first biogas train (range 360 miles before refuelling). • The biofertiliser produced is bought by 35 local farms including those that provided the raw materials.

26. The Natural Step

27. The Natural Step (thenaturalstep.org) • The philosophy…. • Swedish physician Karl-Henrik Robert, started in 1980s • To develop strategies for the transformation to sustainability • They encourage firms to vision what their firm would be like if it were sustainable and then backcast (instead of forecast) to get there.

28. The Natural Step (thenaturalstep.org) • Four fundamental principles • In order for society to be sustainable, function and preserve diversity the world can no longer be: • 1. Subject to increasing concentrations of substancesextracted from the earth’s crust • 2. Subject to increasing concentrations of substancesproduced by society; or • 3. Impoverished by over-harvesting or other forms of ecosystem manipulations • 4. subject to unfair inefficiencies and imbalance where meeting basic human needs are disproportionate worldwide

29. The Natural Step (thenaturalstep.org) • The first two principles address the rates at which humans extract raw and then deposit waste • The second two principles relate to preservation and acknowledging the connections between ecology and social equity.

30. The Natural Step – Case Study

31. Case study - IKEA • Swedish home furnishings • World’s largest • Company owned by non-profit foundation • 140 million visitors • 140 stores • 29 countries • 80 million IKEA catalogues. • IKEA designs all 11,000 items in the product line. • Product manufacturing occurs at both IKEA production facilities and at approximately 2400 suppliers in 65 countries. • Employees number 36,400 • Sales for FY 1997 were $5.86 Billion (US dollars). Source: http://www.naturalstep.org/en/usa/ikea

32. Case study - IKEA • An Environmental ChallengeIn the mid-1980s, IKEA ran into an environmental problem that had significant implications on the firm's furniture line. • Tests on some IKEA particle-board furniture products showed that formaldehyde emissions exceeded the standard specified by Danish environmental law (Reichert, 1996). • Obviously this situation created a huge problem for IKEA, given the extensive use of particle board in IKEA furniture products.

33. Case study - IKEA • An Environmental ChallengeNegative publicity required a quick response. • While IKEA was searching for solutions, new German environmental law was announced that required formaldehyde emissions from particle board to not exceed .01 parts per million (the German E-1 standard). • IKEA elected to apply the E-1 standard, the strictest in the world, to all markets by requiring that all of its particle-board suppliers meet that standard.

34. Case study - IKEA • An Environmental ChallengeIn the late 1980s, IKEA and other European retailers were receiving pressure, including calls for boycotts from environmental groups, to eliminate the use of tropical rain forest wood in furniture. • In 1990, IKEA adopted The Natural Step (TNS) • The structure for implementation of its environmental policy & plan.

35. Case study - IKEA • An Environmental ChallengeThe values of the company were a natural basis from which to accept the TNS system conditions and adapt business operations. • For example, the founder, Kamprad had viewed the minimal use of resources essential to keeping a "low-price picture." • Furthermore, he valued innovation in employees and encouraged responsibility and decision-making at all levels of the organization.

36. Case study - IKEA • An Environmental ChallengeTherefore, as the company began to develop an environmental program, it became a natural extension to the corporate culture. • In keeping with the IKEA vision, Anders Moberg, CEO wrote, "Once and for all, IKEA has decided to side with the majority of people: to create a better everyday life. Therefore, it is our responsibility to do what we can to contribute to a better environment. " (Moberg, 1993)

37. Case study - IKEA • The IKEA Environmental ProgramIn 1992, the environmental policy was transformed into an Environmental Action Plan describing concrete and practical measures for the mid-1990s. • As part of the Plan's development process, 25 top managers attended a two-day seminar with presentations given by Karl-Henrik Robèrt, the president for Swedish Greenpeace, an environmental legislative expert, and other environmental speakers.

38. Case study - IKEA • The IKEA Environmental ProgramSpecific implementation tasks fall into six categories: • Management and Personnel, • Products and Materials, • Customers, • Suppliers, • Buildings Equipment and Consumable Materials, • and Transport.

39. Cradle – to – Cradle

40. Cradle-to-Cradle (McDonough & Braungart 2009) • The philosophy… • Designed by Architect William McDonough and Chemist Michael Braungart • Cradle to Grave analogy = They frame the ecological failures of the old industrial revolution as sustainability design challenges (Wastes, pollution, inefficiencies, environmental destruction, toxic by-products). • Cradle to Cradle analogy = A well designed product or a well designed industry has no waste • Life-cycle analysis - Waste ‘residuals’ equals food • Turning one firms’ waste into another’s resource • Framework utilized by many, including;

42. Social Enterprise A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. • Social Enterprise can adopt one of three business models; • Co-operative and Mutual Enterprises(CMEs) which are defined by their commitment to (or innovative systems for advancing) democratic/inclusive ownership and governance. • Some examples: Co-Operative (UK). • Social and Responsible Businesses(SRBs) which are defined by their commitment to (or innovative technologies for) ethical trading and sustainable development. • Some examples: Toms Shoes (USA). • Charitable Trading Activities(CTAs) which are defined by their commitment to specified social purposes that positively impact on human or environmental well-being. • Some examples: Oxfam (International).

44. Responsible Enterprise? Conventional view? Natural Capitalism Industrial Ecology The Natural Step Cradle to Cradle

45. Responsible Enterprise? Alternative view? Maximising social value In Business for good Profit redistribution Curbing Wealth inequality

46. Responsible Enterprise? Broad view? Maximising social value In Business for good Profit redistribution Curbing Wealth inequality Natural Capitalism Industrial Ecology The Natural Step Cradle to Cradle

47. Conclusions • Mimicking biological processes is current in all 4 business models, innovations are key • Reduce, reuse and recycle fails to address the design issues and the causes of the problems of industry • Eco-efficiency is unaddressed if the production process is toxic • Alternative Business Models (ABSs) address the core – their philosophies are based on (i) sustainable extraction (ii) sustainable production (iii) sustainability strategies and (iv) re-dressing imbalances • However, is social enterprise a paradigm shift in ABSs?

48. References • Context • Baker, S (2006) Sustainable Development, Routledge introduction to environment series, Routledge. • Lovins, A., et al (1999) A Roadmap for Natural Capitalism. Harvard Business Review. May-June. • DesJardins, J R., (2007) ‘Business Ethics & the Environment’ Pearson Prentice Hall. • Nattrass, B & Altomare, M., (1999) The Natural Step for Business. New Society Publishers. • Green Economics • Boulding, K.E., (1966) ‘The economics of the coming spaceship Earth’, In Scott Cato, M. (2009) Green Economics. An Introduction to Theory, Policy and Practice. Earthscan. • Scott-Cato, M., (2009) Green Economics. An Introduction to Theory, Policy and Practice. Earthscan • Industrial Ecology • Laasch, O and Conaway, R (2015) Principles of Responsible Management. Cengage. • Ridley-Duff , R and Bull, M., (2015) Understanding Social Enterprise. Sage • The Natural Step • http://www.thenaturalstep.org/ • Cradle-to-Cradle • McDonough, W and Braungart, M., (2009) Cradle to Cradle (Remaking the way we make things). Vintage Books. • Natural Capitalism • Hawken P, et al (1999) ‘Natural Capitalism’ Earthscan. • Social Enterprise • Ridley-Duff, R and Bull, M (2016) Understanding Social Enterprise. Sage.

49. Tutorial Tasks…. • 1. Having divided the group into 4 small groups, and each having one of the four alternative business models to review • Prepare a poster presentation to the rest of the class, answering the following questions • How do the stages of the model work? • What does the model relate to; planet, people or both? • What real life examples are there? • What academic sources can you find to cite in your work? • 2. Review your chosen organisations sustainability strategies • Do they align with any of the 4 alternative business models? • Would adopting an alternative model change in your organisation(s) position (attitude/beliefs) on the ladder of sustainable development? • How does this new position compare to an ecocentric approach? 3. Class debate Anthropocentric/Weak Vs Strong/Ecocentric approach. • Split into two groups select one organisation and have a debate on the adoption of an alternative business model.

50. Alternative Business ModelsEarth has become a single spaceship, without unlimited reservoirs of anything, either for extraction or for pollution, and in which, therefore, man must find his place in a cyclical ecological system which is capable of continuous reproduction of materials.Boulding (1966) Tutorial