The world is on a track to quadruple world GDP by 2050, creating opportunities for business, but also to triple consumption of natural resources, posing significant risks to the environment. Without a change to current business models in which growth is predicated on selling more goods to more people, environmental stresses will pose increasing business risks and human costs. A new working paper from World Resources Institute on the dangers of unchecked consumption calls on business leaders to address this ‘elephant in the boardroom’ and embrace radically different production and consumption models.
WRI’s new paper, The Elephant in the Boardroom: Why Unchecked Consumption is Not an Option in Tomorrow’s Markets, says future business success demands that we decouple economic growth from resource use and environmental impacts. Current business practices and efficiency improvements are not enough; in order to thrive in the resource-strapped world of 2050, companies will need to innovate new business models that deliver shareholder value and meet consumers’ needs in different ways.
“The hard truth is consumption is a critical issue for companies to be sustainable in the long term,” said Kevin Moss, Global Director, Business Center, WRI. “Business models that rely on unchecked consumption and unlimited resources cannot last – they will be replaced by better models that deliver more value with the resources available. Right now, this issue is so uncomfortable that it often goes unmentioned in C-suites and Board rooms, because it requires a radically different approach.”
Tomorrow’s markets will be shaped by a much larger human population, fewer people in poverty and unprecedented growth of consumer markets. Due to rising incomes and a rapidly growing human population, 3 billion people are projected to join the global middle class in the next 15 years, particularly in emerging and developing markets. For example, the Indian middle class is projected to quadruple in a decade, from 50 million people in 2010 to 200 million by 2020. This demographic shift represents a human development achievement and a business opportunity, but without significant changes, is at odds with environmental security.
It is in businesses’ self-interest to address long-term social and environmental risks, according to Kathleen McLaughlin, Chief Sustainability Officer for Walmart and the President of the Walmart Foundation. “Walmart has committed to bold sustainability goals, including a science-based emissions target, because it’s the right thing to do for our business and our stakeholders. We’re working to lead and scale solutions to major issues like climate change and livelihoods, while at the same time improving efficiency and strengthening our company.”
“Business leaders are responding to the challenge of the Sustainable Development Goals,” said Lise Kingo, CEO & Executive Director of the UN Global Compact. “The goals not only identify where we have to be in 2030 to create a sustainable world for all, they also outline new markets and opportunities for companies. At the UN Global Compact, we encourage companies to seize this opportunity and develop new, breakthrough innovations and business models that ensure sustainable consumption and production patterns which focus on delivering the goals and creating the world we want.”
Despite recent progress on sustainability, most companies are not yet discussing how to meet the needs of this rapidly expanding consumer base within the planet’s limits on water, forests and other resources. A recent study reviewed 40,000 corporate sustainability reports between 2000 and 2014 and found that only about 5 percent of companies mention some type of ecological limits. Of those, most do not provide detail on current or planned changes to address planetary boundaries.
WRI says the answer is to decouple business growth from environmental impacts. Efficiency improvements and recycling are not enough to compensate for market growth. Companies need also to address the challenge of unchecked consumption, and can explore solutions such as sharing economy and a focus on longevity. The new report examines consumption challenges and opportunities in three key markets: automobiles, beef and apparel.
WRI recommends three steps forward for companies to embrace radical changes to their business models and the value propositions they offer customers:
1. Do the math by looking openly and honestly at dependency on natural resources and the associated limits on business growth.
2. Take a leadership role and change the conversation with customers, investors, policymakers and peers.
3. Transform your business to one that will thrive in a resource-constrained environment. Align corporate strategy with tomorrow’s markets within the constraints of the planet’s resources.
“This is a critical moment for businesses wanting to succeed in tomorrow’s markets,” says John Elkington, Chairman & Chief Pollinator at Volans, a London-based consultancy. “The key question: Do they embrace breakthrough business models that are fit for a resource-constrained future, or do they duck the need for transformational change and then watch new competitors disrupt their markets?”