Five long-term megatrends that companies can’t forget to keep an eye on in 2015
One thing that doesn’t change in our rapidly transforming, globally interconnected world is the difference between the eternal optimists and the steadfast pessimists. No one taking a look at our current world civilization can deny that the next twenty years look substantially different than the last twenty. The difference between the optimists and the pessimists is the ability of the optimists to see the big shifts as opportunities rather than risks. Herewith are some of the places where big change is continuing to motivate the optimists and alarm the pessimists.
1) Sustainability comes back in style
A disheartening trend of the last few years, according to GreenBiz research, is the plateau many of the largest sustainability movers have reached in their corporate efforts. “It’s not surprising though, is it?” asked Arend de Jong, a sustainability advisor based in Boston who works with international corporations and government organizations, including in developing economies such as India. “At first companies get monetary savings from their efforts, and the PR bonus. And then the hiccup – companies hit a wall with their efforts because it gets very difficult.”
De Jong argues that the compliance movement in sustainability has not had the intended effect – at least not at the pace that many parts of society expected. Compliance, however, is getting new sources of energy and opportunity, through legislation such as India’s CSR law forcing big companies to put 2% of profits into sustainability efforts, as well as the big push of the Sustainability Accounting Standards Boards (SASB) to create industry-specific standards for disclosing material sustainability information to the U.S. Securities and Exchange Commission (SEC).
“SASB has the potential to be the most important tool and leverage point to accelerate the sustainability movement,” said SASB chief of market strategy Dan Geiger. Even if SASB, which plans to have reporting standards for more than 80 industries ready in 2015, isn’t adopted as widely as its proponents might envision, it does force the GRI and IIRC voluntary reporting standards into a more competitive and expansive mode.
Studies like the Accenture/United Nations Global Compact study from 2013 show us that a majority of large-company CEOs see sustainability as important to future business success. Combined with a millennial-dominant workforce pushing for sustainability from the bottom up, sustainability activity will be more widespread.
April Brown, a project manager for the Institute for the Built Environment in Fort Collins, Colorado, has helped design an online professional education programme for Colorado State University that brings sustainability skills to a wider group. “It is still the larger companies hiring sustainability teams and corporate sustainability officers,” Brown said, “yet there is definitely a knowledge gap in the number of professionals available to do what needs to be done. That’s why we saw a market for an online course. I see pressure from a lot of different trends continuing to grow the sustainability movement.”
Lastly, in the realm of ideas, sustainability may have gotten a slow start and hit road bumps, but the concept provides necessary hope. As Brazilian political presidential candidate Marina Silva recently put it to the Financial Times Magazine, “Sustainability is perhaps the one chance we have of starting a new cycle of prosperity for humanity.”
2) Focus on prosperity rather than growth
The mantra of unending growth is ubiquitous – it’s also the wrong conversation, says economist and futurist Chris Martenson. “A necessary first step,” he said, “is to move away from linear thinking. A truly sustainable paradigm is not the endless consumption economy with consumers, it’s a system where humans are stewards of the future, living, not apart from the natural world but enhancing and even speeding up its abundance.”
Lest Martenson sound utopian, he gives the example of California company Farmland LLC as one that has many elements of a ‘classically capitalist’ model yet abandons the quick growth paradigm. Farmland purchases worn-down agricultural tracts and patiently converts them to organic production and sustainable crop and livestock rotation, while delivering 6% returns to investors.
In the business world, Martenson sees resistance to discussing systemic changes, especially in financial models, that could help the world have prosperity-oriented rather than growth-oriented economies. Still, the trending concept of shared value is motivating many companies to push prosperity and social good out beyond their shareholders to communities at large. U.S. based Bank of America Corp., for example, has begun a programme called BetterMoneyHabits.com to freely teach financial solvency concepts.
The social benefit of providing banking knowledge to the underserved, ‘unbanked’ populations – over 800,000 adults in New York City alone – may bring new customers to BofA and provide the company with competitive advantage.
The shared value trend is not yet five years old and is predicted to accelerate, many speculate, because it dovetails businesses’ self-interest with society’s interests, and because a license to operate is something companies cannot afford to lose. At a December Responsible Business Forum firm BASF spoke of its shared value analysis that found 22% of its products improve users’ own sustainability. BASF sustainability director Dirk Voeste has said that its products that fail to meet sustainability criteria will either be improved upon, or ultimately, discontinued.
3) Embracing disruption?
While the business universe loves the idea of innovation and gives it positive connotations, disruption is a darker horse. Businesses are better at incrementalism – small changes to their practices. Yet disruption can be a force for bigger change, because as futurist Brian Solis states it, creative disruption “interrupts norms and changes behaviours.”
This is where startups AirBnb, Lyft, and Task Rabbit have all excelled, changing the experiences people have with lodging, mobility, and getting tasks done. It is difficult to expect existing business to make disruption a goal. Yet, rather than looking solely at products or services, businesses can embrace the idea they are providing their customers with experiences. This fits with the expanding sharing economy as well as the luxury goods economy, where upscale travel and hotel stays are growing faster than expensive purchases of watches or handbags. The implication for sustainability is positive if fewer goods are consumed and more sharing experiences develop.
Much of the disruption to be experienced in the coming years may be less positive, however. Resource scarcity is already with us, can happen with alarming rapidity, and disrupts business flow. “It’s a crazy time of geometric rapidity of change,” said Green Alpha Advisors portfolio manager Garvin Jabusch. When looking for companies for investment or stock purchases, Jabusch looks at their resilience.
“Is a company contributing more, on balance, to the major risks and disruptions our society faces, or is it contributing more, on balance, to mitigating those societal risks?” Jabusch sees a few promising companies: Canadian Solar, for example, and semiconductor manufacturer Applied Materials, an established company that shifted “from the floor up,” pursuing efficiency and becoming a major supplier to the solar industry. Single climate events and catastrophic climate change are two of the most serious disruptive forces faced by societies and businesses.
Of course, leading companies with strong internal sustainability focuses are reducing their carbon footprints, but incrementally. At Lima for the latest round of the IPCC COP talks, businesses such as industrial company Ingersoll Rand, positioned themselves as wanting a larger role in tackling climate change, yet still in incremental mode. PricewaterhouseCoopers (PwC) suggests businesses must lead in climate ‘control’ instead of waiting for policy change or climate disruption.
4) Social issues and inequality risks
While the population bomb that Paul Erlich dropped with his book of that name back in 1971 has seemed a dud idea for years, we have been adding a new billion people to our population every 12-15 years. That phenomenal growth rate is scheduled to slow down a bit; however, it will be just one more decade before the world hits an estimated 8 billion people in 2025. And new methods for estimating future populations find an 80 percent probability that our world population in 2100 could rise to up to 13 billion, according to University of Washington sociology and statistics researcher Adrian Raftery.
The earth’s carrying capacity, which is open to interpretation, is estimated at between 8 and 16 billion humans. Much of the population growth will happen on the continent of Africa, presenting unique opportunities and risks for corporations. Big companies such as Coca-Cola and SABMiller can simply partner to form new businesses that endeavour to sell more of their same basic product, as those two did with the recent Coca-Cola Beverages Africa deal. Or new companies such as Wecycle, which reduces uncollected municipal trash in Lagos, Nigeria, can balance social good with service delivery. Wecycle employees collect recyclables by bike from subscribers who receive SMS-delivered points for services and goods.
Social inequality may prove to be an issue whose risks catch companies and countries by surprise. Income inequality is rising in every OECD (Organization for Economic Cooperation and Development) country, and by most counts, also globally. In the OECD nations the richest 10% of people earn almost ten times the poorest tenth. Corporations working in their own interests have been successful in transferring tax burden to individuals from their entities.
The OECD concludes that this inequality hampers economic growth – in the UK alone, OECD researchers estimated nine percentage points of growth are ‘lost’ because poorer people cannot improve their income generation and accumulation. The OECD recommends that more taxation and wealth transfer will help longer-term economic prosperity if the policies are well designed and focus on families with children and youth.
If history is an indicator, social inequality eventually foments revolution. Don Reed, a Managing Director of PwC's U.S. Sustainable Business Solutions, said he thinks businesses feel slightly bewildered by the stagnating incomes and slow wage growth in the global economy. “Businesses don’t feel like they have a lot of levers to pull on public policy related to these particular economic issues,” he said. “They tend to operate in their own spheres of employees, suppliers and distributors, and struggle to understand how to make more of a contribution outside their spheres.”
5) Brave new worlds
This year China will replace the U.S. as the world’s largest economy in terms of purchasing power parity. In addition, in the next ten years it is expected that 40 of the world’s cities will grow to have populations of 10 million or more. Combining the megatrends of population growth, middle-class growth outside the developed world, and increased urbanization puts lots of pressure on the demands for water, energy, and food. It also creates opportunity to focus efforts on building and rebuilding smart, sustainable cities.
Architect Matthew Coates of Seattle, Washington based Coates Design, said with buildings accounting for up to 60% of our energy use and much of our collective carbon footprint, an era of regenerative design may be approaching. “Buildings should produce more energy than they use, filter the air and water and perhaps give back other useful byproducts as well as being healthy places to live and work,” Coates said.
Thinking about regenerative design along with some other trending sustainability ideas – biomimicry, permaculture, cradle-to-cradle products and remanufacturing – we can begin to truly envision circular economies. Disappointingly, the European Union in mid-December squashed a circular economy plan that had support from companies such as IKEA and Unilever. Smaller companies making strides in adopting circular production include France’s luxury goods maker Kering, Louis Vuitton Möet Hennessey (LVMH), and the American company Patagonia.
What may drive circular thinking to reach a positive tipping point is the influence of millennial employees, now 36% of the workforce and expected to be half of it by 2020. PNC, a financial services company based in Pittsburgh, realized that to hold millennials and talented workers they needed to rework the idea of a headquarters. In addition to building the greenest U.S. skyscraper (using 50% less energy and 79% less water than average buildings its size) PNC wanted a ‘double-skin’ façade that circulates fresh outside air through the building; ‘sky gardens’ for employees as well as work areas like a 2-story ‘hospitality coffee bar’ where people could come and go instead of being stuck in assigned cubicles.
Millennial workers want meaningful work at companies with sustainability goals, which makes the trend for public companies –Brazil’s cosmetics company Natura, and U.S.-based Green Mountain Energy - signing up to B-Corp sustainability certification a welcome development. The question remains whether positive trends in sustainability can counteract the scary and alarming signals our global ecosystem has been sending out for some time. Futurist Chris Martenson, who said he believes we are in a stocks and bonds ‘bubble’ that is likely to have a destructive pop, nevertheless sees a new, more sustainable world on the horizon.
“Talking to younger millennials now coming into the workforce I see them not wedded to this system we have now which is not very resilient,” Martenson said. “Just because your monetary system breaks doesn’t mean everything has to stop. I’m a realistic optimist and think entrepreneurial skills will helps us create a future connected to the natural world. Humans can do that.”Asia BASF India inequality natural resources permaculture PwC remanufacturing social issues trends