What’s next for Sustainable Business? Are you ready to win?

Taking corporate sustainability past eco-efficiency is like passing through a backcountry gate on a powder day – its all new terrain.

Many companies are adopting sustainable business programs which are helping them move to better performance.  They are reducing waste, improving energy and water efficiency and becoming more transparent about environmental and social consequences in their supply chains.  These efforts are making companies more eco-efficient and delivering bottom line returns. So what’s next?

For all the improvements being made, we still have a big challenge. Eco-efficiency is necessary but not sufficient to achieve a sustainable future, moreover – it is not delivering the full value that companies can achieve.  From the beginning, leading thinkers have seen this coming.  For example when Paul Hawken, Amory Lovins and Hunter Lovins wrote their landmark book Natural Capitalism they gave it the subtitle: Creating the next Industrial Revolution.   What does that mean?  To me it means that the next phase of change will see organizations using sustainable business thinking to drive innovation and fundamentally rethink the way they meet customer needs.

Successful companies will deliver products and services that fulfill customer needs while creating positive impacts and will outcompete and outperform conventional incumbents who’s operations cause negative side-effects.  In other words we’re moving from “doing less bad” to “doing more good”.

There are two strategic drivers behind this.  First, positive side effect solutions (some call them “restorative” solutions) will have lower costs and/or will deliver more value to customers.  And secondly, the incumbent solution will loose social license to operate because once an alternative is available, audiences will increasingly see the old way as exploitive behavior.

Here’s a simplified sketch of a real company to illustrate what this might look like (full disclosure, I’m an investor and have served on their board)

Farm Power NW builds, owns and operates dairy digesters which process cow manure, extract methane gas and burn it to make green electricity.  The “by-products” are eliminated GHG emissions, low cost fiber bedding for cows, organic compost and liquid fertilizer, all of which are revenue streams.  In addition the system reduces water pollution and odor (services which are not directly monetized but valued by the community).  Their competition in the electricity market is fossil fuel burning power plants (coal or natural gas).  Of course Farm Power’s environmental/social advantages are clearly superior to the air, water and land pollution caused by the fossil fuel industry.  But, even if the coal was free, Farm Power has a lower production cost structure.  Instead of paying for raw materials to burn, they get paid to take their inputs and they get paid for their other outputs.  This business is inherently advantaged because it solves environmental problems while meeting the customer need.   Granted, dairy digesters don’t have the scale to replace coal, but now that such a positive solution is viable, doesn’t the pollution associated with coal look even worse?  Which is how public sentiment will shift in ways that cause incumbents to loose social license to operate quickly.

Here are three things you can do to capture this value for your company.

1.     Use a holistic framework to help identify all the enviro and social impacts of your current way of doing things.  This becomes your opportunity guide.

2.     Implement actions to reducing impacts.  It will improve business performance, buy time and teach you the individual and organizational skills needed to go to the next step.  Use the time to gain a diverse view of your company, your customer and your eco-system; be observant – as William Gibson said, “the future is already here, it’s just not evenly distributed.”

3.     Embrace creative destruction.  If you don’t replace your business model, someone else will. 

There are many forces arrayed to defend and protect the status quo. To steal Hemmingway’s description of how he went bankrupt, sustainable business will create change in most industries “gradually and then suddenly”.  The shift to a sustainable business future will have winners and losers – the question is: are you ready to win?