Wednesday, February 13, 2013

2013 State of Green Business Report - "Profound Changes"

On Tuesday, GreenBiz.com released its sixth annual State of Green Business report. Unlike previous years, GreenBiz partnered with Trucost this year in composing this report. Trucost is a research firm focused on natural capital and sustainability metrics; together, they released the State of Green Business report with revamped indicators by which industry sustainable progress was assessed. GreenBiz claims that their new metrics are more comprehensive and are global in scope; and in its vigor, GreenBiz and Trucost considered companies’ natural capital costs, supply-chain impacts, and various measures of transparency and disclosure amongst other things.

In its release, the report noted a significant shift in the state of business in terms of sustainability. In a world of increased natural disasters, the report noted this year that business as usual simply isn’t sustainable anymore: floods in Thailand can cut off global supplies of computer disk drives for the good part of the year; record-low water level on the Mississippi can choke flow of commerce; and who can forget that a super storm can shut off the world’s financial center for weeks. In fairness, the report asks rhetorically:

“In that context, how should a company view climate change, renewable energy and resource efficiency? How should its shareholders view risk and resilience as it relates to the surety of their investments? And how should communities assess the responsibility of companies within their regions, in terms of the fair appropriation of local resources when they become scarce?”

The report notes that “sustainability” in light of our newly confronted challenges, takes on a new, poignant meaning: that it is now perhaps pressingly about aligning economics, environmental and social interests; and even more importantly is about taking on a strategic importance, linked to reducing supply-chain risk, thus ensuring business continuity during disruptions, continuing to operate in resource-stressed areas, maintaining reliable and cost-efficient energy supplies, and ensuring brand value and reputation continue in an ever more unpredictable and demanding global economy.

In this new sink-or-swim “sustainability” environment, businesses have to go well beyond the glamorous notion of “corporate responsibility” and “eco-efficiency.” In this new climate of business sustainability, companies have to view incrementalism as insufficient, ignorance as unacceptable, and unpredictability as the new norm. Under these circumstances, the report notes, our “old” rationale of corporate sustainable developments hasn’t gone away—“companies are still harnessing sustainability to cut costs, improve quality, engage employees, and all the rest—but the world of sustainable business made some slight but profound shifts in 2012.”

“As the global economy sputtered back to life, companies began to link their sustainability strategy to critical business activities. Today’s rationale might sound something like this: We do these things to insulate ourselves from turbulent times, adhere to customer requirements, ensure that communities where we operate will welcome us, and protect our reputation. They help us be resilient and ensure our survival amid disruptions.”

The report notes these profound shifts in ten important trends:

1. Natural Capital

With the Rio+20’s focus on natural capital, culminating with the signing of a Natural Capital Declaration by 39 global financial institutions — primarily from Europe and South America, but no major U.S. banks, we note that integrating natural capital isn’t just about buzz word campaigns. Rather, the underlying principles of natural capital include the idea that one species’ waste is another species’ food; that materials cycle endlessly through the web of life; that species live off current solar “income”; that resilience comes from diversity; and that everything is interconnected. Each of these can be translated into everyday business practices, as well as overall strategy—more than just a mere goodwill PR initiative.

2. Risk and Resilience

Given the recent super storms and natural disasters, risk and resilience are increasingly being added to companies’ sustainability vocabulary. And it’s not just the weather that is pressing this issue. Risk and resilience issues also surface from investor communities, from socially responsible investors to mainstream pension funds and university endowments, Wall Street stock analysts, and the regulatory agencies that oversee publicly traded companies. Increasingly, everyone is asking tough questions about resource constraints related to the availability of energy, water, and other resources; where the toxicity of products or manufacturing processes present perils all the way up the supply chain; and where climate shifts can disrupt the availability of raw materials and threaten the well-being of employees and customers.

3. Integrated Corporate Reporting

While freestanding sustainability reports have the preferred outreach by companies in the past, most of these reports haven’t been all that helpful. They contain too much information that is feel-good, extraneous to evaluating a company’s sustainability impacts and risks. Forward looking companies will see integrated reporting as an opportunity to communicate on and implement sustainable strategies and create value for shareholders over the long term while contributing to a sustainable society.

4. The Sharing Economy

In recent years, we saw an increase in popularity the sharing-economy business model based on providing access to goods and services rather than their outright ownership. This is done often through peer-to-peer networks. Think Zipcar and the likes, these companies are enabled by technology trends as well as some societal ones. Some incumbents are putting up fights, though, as they see potential loss of business. For example, taxi regulators in some U.S. cities want to shut down Uber, a mobile car-service start-up that enables people to find a black limo car ride simply by pressing a button on a mobile app. GPS-equipped drivers enable riders to see which car will pick them up and see exactly where that car is. While the incumbents may win in courts in the short run, but with increasing popularity and other market forces, it may be time for them to face the music.

5. Relocated Commerce

Dystopian of urbanization is becoming more apparent as we find big-box stores and fast-food chains practically wherever we travel around the planet. The consumers are pushing back. A confluence of forces is reversing these industrial trends. We find more often people are willing to revitalize local commerce and communities. There are growing networks to support local sustainability-minded businesses whose principal goal is to promote locally owned commerce. This transition is not just about building some sort of utopia; it’s more pragmatic, linked to risk and resilience in an age of uncertain climate and economic trends. Relocalization is seen as a strategy to build societies based on the local production of food, energy and goods, and the local development of currency, governance and culture. The main goals are to increase community energy security, to strengthen local economies, and to improve environmental conditions and social equity.

6. Machine 2 Machines Communication

We are seeing a rapid growth in machine to machine (M2M) communication technology. The report estimates 10 billion connected devices worldwide, while there are only 2.5 billion web-connected PC and phones. M2M is a key technology in managing consumption of electricity in response to supply conditions and demand response systems are critical to smart grids. M2M in effect improves efficiency, reliability, and economics of energy use. M2M can also help improve efficiency in everything from agriculture to health care to supply chains to traffic flow.

7. Sustainability and App Craziness

The has been a bloom of apps mirroring other technology trends: the sharing economy, the smart grid, machine-to-machine communications. The culmination is about data, Big Data: informing our decisions about how to achieve the most with the least while addressing everyone’s needs. But this isn’t just about automation or data collection, it’s also about innovation and collaboration. We are seeing a growing number of “hackathons” — where computer programmers, graphic designers, user-interface experts and others collaborate on software projects. Hackathons are being sponsored by cities, nonprofits and for-profits, and tend to have a specific focus. Some have sustainability as a key driver.

8. Materiality

There is growing trend that sustainability is being viewed by businesses, industries, and the legal community as material. Greenhouse gas emissions, toxic ingredients in products, and reliable access to water, energy, and raw materials are increasingly seen as material risk factors that warrant scrutiny by regulators. In 2010, the SEC issued guidance regarding companies’ responsibility to disclose material risks related to climate change. This placed sustainability directly into the realm of financial risk management, expanding the CFO’s role in ways that would have been hard to imagine even a few years ago.

9. Looking Pass the Goal

The report also noted a steady stream of companies trumpeting their over-achievements in recent years. While some companies set bold, audacious goals, when they have no clue as to how to achieve them; other companies are working with tenable objectives and methodologies and are achieving and accelerating. There seem to be something in the midst

10. Corporate Progress

And as sustainability becomes increasingly integrated into the corporate operations, companies are using designated sustainability officers less. Rather, sustainability has increasingly become the responsibility of all level of corporate stakeholders, from workers to managers to stockholders. On some level, this is cause to celebrate as sustainability is becoming the norm rather than the exception.

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