BUS604: Innovation and Sustainability

The opportunities identified in each system arise from tackling the biggest social and environmental challenges confronting the systems in line with the Global Goals. 

Food and agriculture. The global food system faces unprecedented challenges. There are 800 million undernourished people and 2 billion suffering from micronutrient deficiencies; crop yields are growing much more slowly than world population, which means that up to 220 million additional hectares of cropland could be needed by 2030 to meet expected demand for food, feed, and fuel; and major environmental stresses, including water scarcity, loss of biodiversity, unsustainable fertilizer use and climate-driven extreme weather, all threaten supply. 

The 14 largest opportunities in 2030 identified for companies that develop business models addressing these and further challenges facing food and agriculture have an estimated potential value of over US$2.3 trillion at current prices. These opportunities include:

• Reducing food waste in the value chain (worth US$155-405 billion a year by 2030). Today, 20-30 percent of food is wasted, much of it in post-harvest losses that are easy to prevent with technologies like small metal silos or plastic crates. In India and Rwanda, such technologies have reduced losses by over 60 percent – and increased smallholder farmers' incomes by more than 30 percent.
  

  

  
  
• Forest ecosystem services (US$140-365 billion a year by 2030). Deforestation and forest degradation accounts for 17 percent of global emissions, more than transport. Just four commodities – beef, soy, palm oil, and paper/pulp – are responsible for driving half of all deforestation. Assuming a carbon price of US$50 per tonne by 2030 (roughly consistent with the planning assumption many leading companies make today) opens up major new opportunities in sustainable forest services, such as climate change mitigation, watershed services, and biodiversity conservation, if mechanisms to pay for them develop too.
• Low-income food markets (US$155-265 billion). The world's-poorest people spend as much as 60 percent of their household income on food – yet undernutrition and malnutrition remain widespread. Business can address this challenge by investing in supply chains and food innovation to give those on very low incomes access to food products that are more nutritious. As poverty decreases in line with Global Goal 2, 800 million people now undernourished will have more to spend on food.

Cities. By 2030, 60 percent of the world's population will live in cities, up from about 50 percent today. But modern cities face a long list of problems. Up to 440 million urban households could be living in sub-standard housing by 2025. Already, over 5.5 million premature deaths a year are attributable to household and outdoor air pollution. Obesity is three to four times more common in cities than in rural areas in emerging markets. Congestion is a costly urban trial. In cities, 10-15 percent of building material is wasted during construction, and cities account for 70 percent of global energy use and energy-related GHG emissions. 

For businesses addressing these challenges, the 16 largest opportunities have a potential value of US$3.7 trillion. They include: 

• Affordable housing (US$650-1,080 billion). Replacing today's inadequate housing and building the additional units needed by 2025 would take US$9 trillion to US$11 trillion in construction spending alone. With land, the total cost could be US$16 trillion. But the gap between income available for housing and the annualized market price of a standard house is US$650 billion. Filling this gap requires innovations that will unlock new land and better use of space for development, for instance, through offering "density bonuses" to developers, as well as more efficient techniques and resource use.
• Energy efficiency – buildings (US$555-770 billion). The building sector accounts for around one-third of the total final energy consumption across the world and more than half of electricity demand. Its energy demand could be shrunk by, for instance, retrofitting existing buildings with more efficient heating and cooling technology and switching to efficient lighting and other electrical appliances. 
• Electric and hybrid vehicles (US$310-320 billion). Market research predicts annual sales of battery-powered electric vehicles and hybrids will grow from about 2.3 million units in 2014 to 11.5 million by 2022, or 11 percent of the global market. Assuming an average life of 15 years, the total global passenger vehicle fleet will turn over completely by 2030, presenting an opportunity for a huge increase in sales of electric vehicles and plug-in hybrid electric vehicles. Electric and hybrid vehicles could comprise an estimated 62 percent of new light-duty vehicle sales in 2030, as long as battery costs continue to fall and investments in charging infrastructure grow.

Energy and materials. Growth in demand for energy could slow to 2030 because of demographic changes and China's shift from investment-led growth towards greater consumption. That said, over 1.5 billion people are expected to join the higher energy-consuming income brackets by 2030. Meanwhile great inequality in energy consumption persists, with 1.2 billion people still lacking access to electricity. Moreover, risks concerning the location of new sources of supply, their environmental impact, water use, and technical complexity are likely to add to the supply costs of energy and materials. 

The 17 largest business opportunities arising from tackling these and further energy challenges have a potential value in 2030 of over US$4.3 trillion in current prices. They include: 

• Circular models – automotive (US$475-810 billion). Collection rates for vehicles at the end of their life are generally very high, over 70 percent in the EU for example. However, most collected vehicles are recycled into their base materials, which is energy intensive and results in loss of value. In fact, only a small number of "weakest-link" components are typically responsible for ending a vehicle's useful life, which can be significantly extended if these components are remanufactured and used to refurbish cars.
• Expansion of renewables (US$165-605 billion). There is a massive opportunity for renewable generators and equipment manufacturers. The International Renewable Energy Agency's (IRENA) REmap scenario forecasts that, including hydropower, renewables' share of generation worldwide could increase to 45 percent by 2030, from around 23 percent in 2014 Under this scenario, wind's share of global generation could more than quadruple from three percent in 2014 to 14 percent in 2030, and solar PV from less than one percent to seven percent. In Europe, renewables penetration is already growing quickly – in Denmark in 2015, wind supplied 42 percent of power consumption – while annual global investment in solar PV has already reached between US$100 billion and US$150 billion over the past five years.
• Circular models – appliances and machinery (US$305-525 billion). Many domestic appliances and much industrial machinery are well-suited to circular models but they are collected and reused much less than cars. A washing machine, for example, typically contains 30-40 kg of steel, so a refurbished machine could reduce material input costs by 60 percent. Businesses could shift from selling to leasing appliances or making performance-based arrangements with consumers, to make sure collection and refurbishment captures as much value as possible. This shift would also encourage manufacturers to design products with lower risks of obsolescence.
  Health and well-being. Despite growth in demand as more people live longer, this economic system faces critical challenges in coming years: the declining power of drugs to treat major communicable diseases – antibiotics are a particular worry, with only 40 contenders to replace them in the pipeline; demographic shifts that change the nature of demand placed on health systems – an "elderly bulge" in developed countries and a "youth bulge" in developing ones; as well as a geographic shift in disease patterns – about two-thirds of child mortality and deaths related to AIDS and TB now occur in middle-income rather than low-income countries. And the burden of non-communicable diseases continues to increase – for example, the prevalence of obesity has doubled since 1980 increasing the burden of diabetes and heart disease everywhere. Basic medical services and supplies are still missing in developing countries and there are looming skill gaps in the medical profession, particularly in aged care.
  The 13 largest opportunities for businesses addressing these challenges have a potential value in 2030 of US$1.8 trillion in current prices. They include: 
• Risk pooling (US$350-500 billion). Out-of-pocket healthcare payments push around five percent of households in low-income countries below the poverty line each year. Since the poor pay a disproportionate share of their income in unavoidable health costs, lack of affordable health insurance is also inequitable. Increasing penetration of private, public-private, and community insurance schemes can address this problem. As well as spreading health risks across communities, risk pooling often includes organized "contracting" functions that purchase health care on behalf of the individuals covered, which in turn encourages the development of higher-quality private sector providers.
• Remote patient monitoring (US$300-440 billion). Using sensors that read the vital signs of patients at home can alert nurses and doctors cost effectively to problems before they worsen. Emerging technologies include wearable patches that can diagnose heart conditions, sensors that monitor asthma medication intake and detect poor air quality, and glucose monitors that send diabetics' data straight to their smartphones. McKinsey Global Institute estimates that remote monitoring could reduce the cost of treating chronic diseases in health systems by 10 to 20 percent by 2025.
  

  
  
  

• Telehealth (US$130-320 billion). Basic mobile internet technologies are already extending access to consultation and diagnosis to remote patients around the world. In the United States, Mercy Health Systems in Missouri has built a Virtual Care Center, staffed by hundreds of health care providers, that provides telehealth services across four states. In remote Andhra Pradesh in India, Health Management and Research Institute, a non-profit organization, provides an internet-based video system that allows pregnant women to consult obstetricians and gynecologists in Hyderabad city. A community health worker joins the expectant mother for the call and helps the patient carry out the doctor's instructions. The system has helped raise the rate of safe hospital or clinic deliveries by 50 percent.