BUS604: Innovation and Sustainability

Business leaders that choose to align their strategy with the Global Goals anticipate that, sooner or later, their business will start to incur costs that their competitors don't face. This is true across all industries. In commodity sectors, current low prices are aggravating cost pressures, making it hard for progressive businesses to "internalize" environmental or social costs that competitors are not willing to bear. Even in more differentiated sectors, such as consumer goods, cost pressures are intense, partly because of slow growth in middle-class purchasing power. 

Consumers in general rely on companies to meet basic environmental and social standards in their operations, allowing them to get on with hunting down the best value. They don't pay attention to how products are made every day: only on the whole, when they are alerted to a human tragedy such as the building collapse of a Bangladeshi garment factory. businesscommission.org. This makes it very difficult for an individual company to raise its standards on its own, even though many might want to be better employers and stewards of the environment. All the players have to agree to raise and maintain standards at the same time to keep the playing field level. Such collective approaches are essential to shifting a sector or value chain on to a sustainable growth path. The risks of delaying them are growing.

Finding new ways to work with peers. Recent years have seen a number of such collective approaches. They range from sector-specific schemes, like the International Council on Mining and Metals' transparency principles and the chemical industry's Responsible Care programme, to cross-industry forums, such as the World Business Council for Sustainable Development (WBCSD).

Many sectors are agreeing on "pre-competitive" standards of conduct that reduce the risk for individual players of making changes and investments that anticipate a sustainable world. For instance, in 2010 the Consumer Goods Forum engineered a commitment from sector players to work towards zero net deforestation by 2020, and to develop action plans for sustainable sourcing of commodities including palm oil, soya, beef, and pulp and paper. Similarly, the Global Agri-Business Alliance is developing a pre-competitive agreement across the agriculture sector to improve rural livelihoods (especially among smallholder farmers), mitigate climate change, manage natural capital sustainably, and contribute to global food security as well as contributing towards other Global Goals.

Not all such collaborative initiatives have been effective, and few so far have targeted Global Goals specifically. However, this is changing. For example, the GSMA, which represents mobile operators worldwide, has developed a comprehensive plan for the sector to maximize its contribution to the Global Goals. It identifies the four goals on which the mobile industry has most impact – Innovation and Infrastructure (Goal 9), No Poverty (Goal 1), Quality Education (Goal 4), and Climate Action (Goal 13) – and describes ways the mobile industry can change its participants' behaviors to accelerate progress against these goals. It also identifies the biggest challenges they may face and collective commitments that will help to unify action as much as possible. GSMA's plan is arguably a first-of-a-kind and one that other sectors can learn from.

In addition to agreements assuring collective high standards of sustainable conduct, players in all sectors will benefit from developing detailed "roadmaps" to guide their sector's shift to sustainable development in line with the Global Goals. They also need to assess the impact of that shift on progress towards the environmental and social Global Goals relevant to the sector. For example, if players in the agribusiness sector were initiating a sector shift to sustainable aquaculture, they would analyze both its environmental impact through its effect to reduce overfishing and its social impact through its net impact on job numbers. (See Box 5: Child labor in the cocoa sector in Ivory Coast: the case for a roadmap).

Box 5: Child labor in the cocoa sector in Ivory Coast: the case for a roadmap

Ivory Coast produces 35% of the world's cocoa. It also has 1.2 million child laborers in its workforce, almost all of them working in cocoa production. About 55 percent of children working in the country's agriculture are subject to forced labor and 65 percent have been trafficked: only five percent of all child workers are paid and less than half are enrolled in school.

Systemic features of the Ivory Coast cocoa market compound the problem. These include a fiercely competitive market structure, inadequate education, regional migration, lack of child registration, and a national budget for anti-trafficking police of only US$7,700. 

National and international measures to tackle the issue haven't worked so far. However, the necessary conditions are in place for an effective coalition to form between the many actors concerned about this issue. These include CocoaAction, an alliance of the world's leading cocoa and chocolate businesses with US$500 million in funding and the support of other key industry actors, active civil society groups that are willing to collaborate with businesses and farmers, and the country's first lady, a national figurehead. Mechanisms and technologies that can tackle market features encouraging child labor are emerging, among them mobile money, electronic child registration, CCTV, and other low cost, incorruptible monitoring systems. The next step is for all the parties involved to coordinate on drawing up a roadmap to a sustainable cocoa industry that neither exploits children nor leaves them unsupported. 

To create a Global Goal sector roadmap, key stakeholders, led by business, can work together to:

1. Develop a vision of what a sector would look like by 2030 if the Global Goals were treated as a strategic framework for better growth. While each sector will naturally focus on certain goals, the roadmaps will also need to address the crosscutting goals that relate to basic human rights.
2. Map out the biggest, most urgent areas of change needed to realize the vision: which specific markets and value chains need to grow two to three times faster than the current sector average? Which activities need to peak and shrink? What will drive the most efficient redeployment of resources and allow for a just transition?
3. Outline potential solutions to these urgent issues, the new technologies, and business models, new products and services that will meet consumer needs better while also solving societal problems. Stakeholders need to understand the tipping points in any specific market that must be reached to take any of these solutions to scale.
4. Describe potential barriers to solutions and analyze options for overcoming them that would be fair to all the sector players involved and to their workforces and people in their supply and distribution chains.

The Commission's work on the food and agriculture economic system illustrates how such a Global Goal roadmap could help transform markets. The sample roadmap below gives an idea of what the details of a future sustainable economic system compared to its current state might look like. 

Box 6: Example: What might a Global Goal roadmap for the food and agriculture system look like?

1. Vision

2. Change map

• Growing markets which serve low-income consumers, create sustainably sourced products and focus on new breeding techniques / microbial fertilizers; and
• Lowering the amount of food loss along the production and supply chain, and shrinking the market size of products that use a lot of water, energy, and land in their production.
  See Box 6: Roadmap to a sustainable food and agriculture system: the vision on the next page.

3. Solutions

4. Overcoming Barriers

The growing risks of delay. No group of sector peers has yet developed such a detailed roadmap and some may find it hard to imagine. But the risks to established businesses of not having one are growing. If industries don't take the lead, then it is much more likely that governments will take drastic action. 

As well as multiplying new opportunities, sector roadmaps will help incumbents manage the risks of a shift to sustainability in their sector. To illustrate, lacking a roadmap, companies in several areas of the power sector have been unprepared for the speed at which the shift towards renewable energy has disrupted their profitability. One casualty, German utility E.ON, had to write off €2.9 billion on the value of its power stations in August 2016 as a result.

Similarly, with a few notable exceptions, companies in the fossil fuels sector have struggled to develop a compelling, science-based description of the sector's long-term role in a world taking steps to limit global warming to well below two degrees. Today, the sector is waking up to the scale of stranded assets those steps imply and the risks these could pose to their owners and the financial system. According to data compiled by Bloomberg, already over half of all assets in the global coal industry are held by companies that are either in bankruptcy proceedings or don't earn enough money to pay their interest bills. A number of leading companies in the oil and gas industry are now developing a collective action plan to reduce fugitive methane emissions and make progress on carbon capture, use, and storage. The most far-sighted are publicly exploring scenarios envisaging peak oil demand within the next 5-15 years and peak coal demand before 2020. But many of the incumbents have yet to reinvent a profitable future for themselves in a zero-carbon world.

Without more radical purposeful change, more traditional energy companies could become casualties of the transition to a world in which sustainable development is as central to every business as digital technology is today. They may not be the only ones. Consider the food value chain. If 10 years from now the public health costs of obesity are still spiraling and the food industry has failed to lead on solutions, could it absorb the drastic measures that governments might take, such as strictly enforced sugar taxes? Or stringent penalties for wasting food, should the world experience more food price spikes like those of 2011?