“Sustainability and Innovation”
Open Lecture by Professor Peter David Pedersen
Today’s crisis is humanity’s chance to change its attitudes and practices which are leading all of us to the verge of ecological catastrophe. Will we overcome this crisis to accelerate the sustainable development of society or will we get back to BAU “business as usual”?
In his recent webinar on sustainability and innovation at Shizenkan University, Professor Peter David Pedersen discussed why BAU is a dead end and how companies can innovate and re-imagine themselves now, while the role of corporation in society is being questioned.
Historically, the modern corporation has gone through several stages, starting with the East India Company in 1600. For the next 200 years – the era of mercantilism – their role was trade, exploration and exploitation. Then came the stage of industrial capitalism that is in a way still going on, with the expansion of production and the creation of the consumer society. However, today’s world requires new social purpose for business and a new social contract. The consumer society and business that supports it are running into severe constraints: we need to use energy and other resources in a cyclical way.
There appeared new societal drivers, the so-called “voices of society” that are now also key drivers of innovation for business, which include:
- New values of next generation customers who are ready to pay more for sustainable products; and also new criteria for doing business in B2B and B2G markets;
- Decarbonization driven by the Paris Climate Agreement;
- ESG (Environmental Social Governance) Investment as a driver on the financial side; investors now are screening companies against these three criteria (environmental, social, governance);
- And a final major driver of change are the SDGs (Sustainable Development Goals) launched by the United Nations in 2015.
Clever businesses take these not as a burden they need to avoid, but as drivers for innovation in their business.
So why is BAU a dead end?
Below are some examples of “trade-offs” from conventional economic development that Professor Pedersen mentioned in his presentation.
• 60% decrease in vertebrate animals in just 44 years (1970-2014) WWF
• Risk of zero commercial fishing in Asia-Pacific by 2048. UN
• By 2050, weight of plastic may exceed weight of fish in the oceans WEF
• By 2050, 52% of world population may face water stress. MIT
• Hunger population rose to 820 million in 2018. UN
• Refugee numbers hit all time high of 70.8 million in 2019. UN
• Child labor still at 152 million people. ILO
• 33% of all food is wasted worldwide. UN
The question is what can be done and what is the new approach to business.
To answer these questions, let’s look at the four fundamental things that are changing and bringing to life this new approach to business.
First of all, the meaning of contributing to society through business is changing. It is not enough to just solve the issues of convenience, creating a prosperous society; today, it is absolutely imperative to take into account future societal and environmental issues.
Another thing that is changing is the approach to strategy for business. Modern business has to find the strategy that will avoid the “trade-offs” of traditional economic development that diminish social and environmental value, but instead find a strategy that creates corporate value and social value at the same time.
This changing approach to strategy takes us to a next issue that is changing, and that is “What is innovation?” As Prof. Pedersen puts it: “You can have no innovation that is not sustainable innovation.” Innovation is about creating new value, therefore, if you create new value in financial terms but undermine our ability to survive on this planet by destroying nature, then you have created net zero value. Too many businesses do not think deeply about this; however, the foundation for innovation in today’s business is that they should not disregard the four societal drivers: they must incorporate the new values of their customers, they must decarbonize, work on SDGs and also attract decent money and decent investors.
When we talk about the new approach to business, we should mention that an approach to branding is also changing. Conventional brands focused only on performance excellence that includes functionality, quality and design will be just a mediocre brand in the future; what we need now is “integrated branding”, that besides performance excellence includes sustainable development built into the brand, the so-called “social excellence.”
With all this in mind you must be wondering if there is a true transformation in sight. Prof. Pedersen brought some recent examples of big companies who are transforming themselves according to the ideas of sustainability.
These examples include Amazon’s investment into Rivian Electric Trucks, being an interesting approach to fulfilling their pledge to go carbon neutral by 2040: instead of just pouring money into it, they made a business proposition.
Another one is the creative partnership of KLM and Microsoft: Microsoft will purchase an amount of Sustainable Aviation Fuel (SAF) equivalent to all flights taken by Microsoft employees between the USA and Netherlands (and vice versa) on KLM. Such a co-creative program allows Microsoft employees to fly carbon neutral and KLM to develop their biofuel program.
An example of a complete shift in business portfolios is a Danish energy company whose business was almost 100% in oil and natural gas (DONG); they gradually started shifting about 30 years ago and recently changed their company name to Oersted because they decided to move out of oil and gas completely and become an entirely green company. Interestingly, their profit ratio was 40% last year, more profitable than many companies in the fossil fuel business.
All these examples show that business is transforming, that the sustainability initiatives come from major players and there is hope that smaller companies will follow.
***Peter David Pedersen is a professor of Shizenkan University and Director of CSI (Center for Sustainability and Innovation).
Born in 1967 in Denmark, he has been living in Japan for the last 28 years, closely working with Japanese and global corporations on their environmental and sustainability management. He introduced LOHAS (Lifestyles of Health and Sustainability) concept to Japan in 2002 and conducted Japan’s first LOHAS marketing research.
He now works as the representative of a networking platform for next generation social innovators all over the globe, NELIS (Next Leaders’ Initiative for Sustainability), to encourage activities that accomplish a sustainable future for the world.