5 strategies for capitalism to save the planet

Planet Earth is getting hotter, and human activity is the main cause. While this remains a controversial statement for some in American politics, it is surprisingly well understood by the CEOs and senior executives I work with. It may be true that capitalism has put us in this situation, but it is also true that there is a commitment to get us out of it.

When I visit the c-suites of companies in the US, Europe and Japan, as I have done over the past two or three years, there is a repeating mantra about the importance of leadership in making economic activities sustainable for the planet. The question we all struggle with is how to do that and how to make it work within the reality of the market system. It’s a big challenge.

That’s why my colleague Dan Kolodziej will focus on this topic during the next of his series of roundtable discussions with Imperial College Business School London and its Wicked Lab Accelerator. The roundtable brings together companies from different sectors to discuss practical strategies for sustainability innovation.

There are actually five strategies that companies can follow. They are all useful for the goal of saving the planet, but not to the same extent.

1. Achieve a high ESG rating to highlight your brand

My use of the word “polishing” has given the game away here. Environmental, social and governance assessments started as one thing but became something else. ESG ratings emerged about a decade ago as a way to compare investments against commitments to achieving the UN Sustainable Development Goals. It was a risk management framework to assess whether ESG could impact a company’s value. It has become a way to appear to act in terms of sustainability.

The promise of these scores is that they would transform an abstract concept into something that the financial markets could understand. The result was a flood of investment funds that promised to invest their clients’ money only in companies with a good ESG rating. It was agreed that tobacco, oil and gas companies and companies related to military activities would be excluded from the funds. Good idea. I must admit that I have invested heavily in such funds and I am doing very well because technology companies simply align very well with this mission!

The problem is that these ESG scores are largely meaningless. A client project brought this house to me several years ago. The company’s CEO is a passionate environmentalist and was surprised to discover that his company’s ESG scores lagged behind those of its closest competitors. He asked us to investigate and find out the reason. We found that the company’s low scores had nothing to do with their practices and everything to do with the way they filled out the forms from the agencies that publish ESG indexes. An easy victory for my client, but a hollow victory because it was clear that improving these scores will not save the world.

2. Take action to reduce environmental damage in the supply chain

This is a big problem. The EU directive on ‘scope 3 emissions’ is already encouraging action in many sectors, as companies will be held responsible for the indirect impact they have on the environment through their supply chains.

There are already some leaders in this field. Swedish construction equipment company Sandvik has designed its entire business strategy around the promise of a ‘circular economy’. This means they reuse and recycle the raw materials needed to make their products, leading to a massive reduction in net carbon emissions.

I have recently been involved in projects to eliminate harmful chemicals used in the production of everything from semiconductors to textiles. Again, an essential set of actions that can have a huge impact on the environment. However, I feel like this is harm reduction, and not really the same as reversing the steady decline of the planet’s natural ecosystems.

3. Make sustainability an integral part of business design

This is getting closer to the theme of innovation. There is consensus that product developers need to add a fourth criterion to evaluating their pipelines – desirability, feasibility and viability are still important, but we also need sustainability to be equally important.

My friend and colleague Lorenzo Massa is the co-author of a brilliant book published last year on this subject. Lorenzo’s book, titled Sustainable Business Model Design, describes 45 business model patterns that take into account the importance of environmental and social factors.

Lorenzo and his co-authors encourage us to think of sustainability as a trade-off between how much value you can create on three dimensions:

– Economic – delivering a commercially attractive business model

– Environment – ​​managing the impact on the environment

– Social – making a positive contribution to society

Designing a product with high economic value can have more environmental consequences. For example, vape manufacturers make more money on disposable vapes, but they are an environmental disaster for the planet. If we accept this premise, we must find ways to innovate the model to balance the economic impact with the other factors.

The brilliance of Lorenzo’s book is its practicality. The 45 patterns are patterns that any company can recognize and apply when designing their own products. Lorenzo will be a guest at Dan’s roundtable discussion mentioned above.

4. Innovate for better sustainability results

Companies that are taking the game to the next level are trying to develop solutions to social and environmental problems and actually give us a chance to save the planet. My favorite is ENEL, the Italian power generation and distribution company with operations throughout Europe and South America. In 2010, the CEO took the environmental crisis seriously and over the next decade he transformed the company from a major consumer of carbon-based fuels to the world’s largest producer of renewable energy. They did this by using a range of innovations, some technical and some financial. For example, faced with the problem of how to finance their renewable energy plans, they designed new financial instruments to finance investments in wind farms. In return for the investment, ENEL could offer a guaranteed return by buying back electricity from the new sources. An elegant answer to a difficult problem.

We can’t stop there. We need to move innovation for sustainability out of the extractive and energy industries so that it becomes a broad-based concern that dominates the innovation agendas of companies across all sectors.

This is the new frontier for exploratory innovation. We know there is a demand for sustainable solutions for carbon reduction and climate change mitigation. This need will only increase as sea levels rise and human civilization is forced to adapt to the new reality of a warmer world. There are plenty of opportunities to devise, incubate and scale up solutions in these areas.

5. Adopt ecosystem solutions

A recurring theme in sustainability is that action is often not in the interest of any one player. It takes action from an ecosystem to make a difference. For example, Colgate has pioneered the introduction of recyclable toothpaste tubes, eliminating the use of single-use plastics. Although Colgate represents almost 50% of the world toothpaste market, it is still unable to secure the global availability of recycling facilities. It will take the entire industry to act, as well as recyclers and consumers. It is a complex problem of collaboration, incentives and consumer behavior.

5 strategies to save the planet. Let me know what I missed, or examples of what companies did to implement them successfully. I look forward to writing a follow-up article on the results of Dan’s roundtable discussion.