Environmental Sustainability as Business Opportunity and Risk
Consumers and businesses are becoming concerned about the environmental impact of the products they buy and sell. This is a trend in cultural awareness of the reality of climate change, biodiversity loss, and the importance of the planet to human well-being. Of course, the definition of human well-being is changing in many parts of the world. In developing countries and places under attack like Ukraine, schools in Texas or supermarkets in Buffalo, the problem is survival. In those places, surviving and getting food, clothing, shelter and protection from evildoers are the top priorities of these places. But in most parts of the developed world, human well-being assumes freedom from want and fear for granted, and focuses on health and self-actualization. This has raised concerns about the impact of human activities on the environment. While this concern is in a sense a luxury, it is a necessity for the planet.
It is not easy for consumers to understand the environmental impact of a good or service. It’s also not easy to know how many consumers care or whether that concern will continue to grow. write this question, Wall Street Journal Journalist Ed Ballard observed:
“Climate change modeling comes mostly from the physical sciences. How hot will the world get as greenhouse gases enter the atmosphere, and what does that mean for heatwaves, floods and harvests? But for companies under stress, these hazards are only half the Assess their exposure to climate risks. The other half has to do with people. Will consumers switch to eco-friendly products? Will the government raise the carbon tax? How fast will this change happen? ”
A more important factor not addressed in this article is the impact of technology on the environmental impact of a product or service. Renewable energy, energy transmission and battery technology are all advancing, so our measurement and understanding of environmental impact must be revised rapidly. A sport utility vehicle (SUV) is a standard example of a consumer product that has a huge impact on the planet. But what if it’s an electric vehicle (EV) powered by your home solar array and made from recycled aluminum and other eco-friendly materials?
Aside from manufacturing, what about people who live in cities where the environment becomes more sustainable and might take that electric car and not own it, but instead take an Uber or rent a Zip Car to drive? About 80% of the U.S. GDP is in the service industry, and more and more consumption is light on material consumption and more on consumption of entertainment, ideas or sports activities. Software requires hardware to run, but software on a smartphone is more valuable than hardware. More and more of our time is spent communicating with each other or getting games, shows and information from our smartphones and computers. These consumption behaviors have little negative impact on the environment. As our energy sector moves away from fossil fuels, and as these electronic devices become less toxic and become more reliant on recycled materials, it’s easy to imagine a lower environmental impact.
What I’m making here is that in the long run a contaminated product will be more expensive than an uncontaminated product. I admit that is not always the case now. But as drivers see gas prices at $5 a gallon, EVs are becoming price-competitive. Generally speaking, environmental pollution is a form of production waste. Effluent discharge into waterways may have economic value if one considers how to use the substance in production. Companies that figure out how to use waste efficiently will be able to sell it instead of paying to dispose of it. Energy efficiency is a great example of saving money while protecting the planet. If I can produce the same product or service using less energy than my competitors, I can reduce costs and increase profits. Home appliances such as air conditioners and refrigerators continue to become more energy efficient. Engineers designing these products have made energy efficiency a design parameter. Due to government regulations, consumers who purchase these appliances receive information on the average annual operating cost of the appliance. Therefore, companies are encouraged to invest in energy efficiency and consumers are encouraged to purchase more energy-efficient appliances.
Electric vehicles and less-impact appliances are an opportunity for the companies that make them. If environmentally sensitive products are of higher quality and lower cost, there is no increased risk to the business. In other words, the risk posed by consumer behavior stems from the perception that environmental impact concerns increase costs and may reduce the quality of a product or service. But creative design and improved technology have opened up the opposite prospect.
So where are the risks? Risks are often caused by false information from those who have invested heavily in outdated technologies and the actual impact of environmental damage. Some companies are very good at marketing outdated and dangerous technologies. The tobacco industry is a typical example. Smoking kills more than 7 million people every year, and more than 1 billion people around the world still smoke. These companies know they are killing people and making them sick, but despite the dangers, they are very good at promoting their products. Likewise, the fossil fuel industry is doing all it can to combat its upcoming competitor: renewable energy.
Another source of risk is climate-accelerated extreme weather events, high temperatures and rising sea levels. Our food system is affected by a warming climate. Planting seasons are changing, and some crops are being grown in warm places that were once too cold for certain crops. Fish are migrating and the most vulnerable people in society are getting sick and dying from the heat. Supply chains already disrupted by COVID are also disrupted by storms, floods and fires.
We are transitioning to an environmentally sustainable economy, which is inevitable as human life depends on planetary systems for food, air and water. This shift is inevitable as physical factors that businesses may once have ignored are deteriorating. The value of protecting them has increased, as has the cost of ignoring them. Energy, water and waste are an increasing element of the cost structure of manufacturing and service companies. It costs more money each year to haul away the organization’s trash and keep the lights on. This means that recycling waste is gradually becoming more cost-competitive than dumping it: especially if an organization can make money by selling its waste stream. Organizations that ignore these issues will fail in competition with companies that learn to reduce consumption and recycle. This is an emerging business principle. In some cases, the fact that protecting the planet costs money doesn’t make this general principle less valid.
In New York City, back in the 20th century, we used to landfill all of our waste locally. Today, we have nowhere to go to landfill, so we take our waste out of the city and spend more than twice as much to dispose of it. In 2000, we spent $830 million; now we’re done $2 billion per year, of which about $600 million is real, uninflated spending growth. New York City is not alone. Water that used to be free now has to be filtered before it can be used. These costs are real, and they represent risks for cities and companies, but also opportunities. What if New York could pay for the minerals and nutrients in its waste stream? Some waste disposal costs can be offset by revenue.
Predicting the “green” behavior of businesses and consumers is difficult, as is predicting the speed at which technology develops and spreads. It is easy to predict that we are in a period of change. Consumers, businesses and governments are more environmentally conscious today than they were yesterday. They will also be more concerned about environmental sustainability tomorrow than they are today.
