As populations grow and emerging markets industrialise, companies are facing a serious long-term challenge: how to meet surging consumer demand while minimising environmental damage and sustaining the planet’s natural resources.
If companies stick with current resource-hungry business models, this is an impossible task. But confronting the challenge of ever-increasing consumption is the elephant in the boardroom. It is uncomfortable and ignored because traditionally companies have focused on selling more stuff to more people.
So what will convince companies to move past business as usual? How can they embrace the unprecedented innovation required to meet customer needs in tomorrow’s markets without simply selling more stuff?
A first step toward solving the dilemma of unchecked consumption is to do the math. Even a simple back-of-the-envelope analysis can help determine the size of a company’s or sector’s unique challenge. Take these three steps to evaluate your business’s risks in tomorrow’s markets and discover opportunities for new business models.
Step 1: Complete a life cycle assessment
In recent years, companies have turned to life cycle assessments (LCAs) to identify where their products have the greatest environmental impacts. This helps companies focus on interventions that will have the largest benefits in the supply chain, whether it be material extraction, manufacturing, delivery, product use or disposal.
There are guidelines, software, a UN Environment-hosted advisory forum and LCA consultant services to help companies conduct these assessments. Increasingly, industries use LCAs not only to evaluate their environmental impact, but to reduce business costs, improve corporate image and shape product development.
Consider the challenge in the context of an automaker’s LCA. Car companies can identify and quantify factors that contribute to their product’s environmental impact, such as:
- Inputs at production phase. For example, raw materials, chemicals, electricity for manufacturing, and energy and emissions from oil extraction and refinement.
- Outputs from production and product use and disposal. For example: emissions from raw material/chemical extraction and transport; emissions from gasoline production and fuel combustion; and emissions from transport of vehicle materials to landfill or recycling facility.
Step 2: Multiply impact by projected growth in demand
How much does your company plan to sell and what will that mean for raw materials and the environment?
If current trends continue, an additional 45 million cars will be on the road globally in 2030. Car companies should ask: “If we maintain market share, how many cars will we sell in 2030? What does our total impact look like when we multiply those sales projections by our product’s impact? Can we still meet our sustainability goals at that volume?”
If your company does not normally make long-term projections of demand and environmental impact, now is a good time to start. The international community is calling on companies to be key players in meeting the Sustainable Development Goals for 2030, and the UN has recently stated that we are falling behind.
You have three options: ignore the impacts and risk becoming obsolete; improve your practices by investing in making existing products more efficient; or embrace this challenge and change the paradigm in your industry.
Step 3: Consider competitors, customers and communities
Whether your product will require an unsustainable quantity of natural resources in the decades to come will depend on the rest of your industry and the needs of customers and local communities. A population nearly 10 times the size of the United States will have entered the middle class between 2009 and 2030. In response, your company plans on growing and so do your competitors. How will you meet customers’ demands at that scale while also hitting your sustainability targets?
We recently made this point about electric cars like Tesla’s Model 3. It’s great that electric vehicles with smaller carbon footprints than traditional gasoline vehicles are beginning to penetrate the market. But they—by themselves—are not going to meet demand for sustainable mobility in 2030. The auto industry of the future won’t just be competing to sell more cars. Those companies will need to sell better mobility services and find ways to meet consumers needs with mass transit and without putting an excessive number of cars on the road.
Companies with science-based emissions targets are already taking this long view. Their targets are based on the requirements of their entire industry. WRI worked with Mars, Incorporated in 2016 to explore science-based targets for land and water, and is now working with the CEO of Water Mandate, an initiative that mobilises business leaders to advance water stewardship, on a methodology for setting context-based targets.
Next: Check your (and others’) work
You may—and several companies already have—find dramatic innovation is needed. You have three options: ignore the impacts and risk becoming obsolete; improve your practices by investing in making existing products more efficient; or embrace this challenge and change the paradigm in your industry.
We are looking for those willing to do the math and embrace new models for meeting customer needs. Anyone interested to show their work and results from the steps above is invited to do so on Twitter using #TomorrowsMarkets. We invite you to be in touch as you do your math and we will share compelling examples in a follow-up post.
Eliot Metzger is a Senior Associate in WRI’s Business Center, and Katie Pastor is Communications Intern for the Business Center at the World Resources Institute. This post is republished from the WRI blog.