There is a tendency among many people to see sustainability as a moral crusade; the right way to run your business and lead your life. Others put it together with Corporate Social Responsibility (CSR) as about being a good neighbor, and maintaining your license to operate. Still others see it as something to do with market positioning. Something that is nice to have to keep customers happy, but ‘when push comes to shove’ something that can be sacrificed for the more important issues of price and performance.
It may be all of those things, but it is also something much more important; it is the future of your business.
Facing the business challenge of sustainability
It is the future of your business because in big parts of the economy business as usual is no longer an option. What John Beddington called the ‘Perfect Storm’ of climate change, population growth and resource crunches is already changing the business environment. We are committed by the Paris Agreement and the Climate Change Act to dramatically reducing carbon emissions. Population growth, demographics and migration will change the products and services required in the future. Access to freshwater is a limiting factor for human activity in many parts of the world, and many of the materials we build our world out of are ‘at risk’; limited in availability or with increasingly insecure supplies.
How much of the economy will change?
The total Gross Value Added of the UK economy in 2015 was about £1.7tn. Just under a third of that was in sectors that will be fundamentally transformed by sustainability issues. Including:
- manufacturing
- energy
- construction
- agriculture and food
- healthcare
- transport
That is a substantial part of the UK economy, and the global economy, that will be delivered in a completely different way in the future. We don’t know how it will be delivered, only that it will be different. These are sectors in which new products, processes and business models will be required. They cannot continue to use the existing resources with the same intensity, it is not possible.
Sectors are facing major change. Dominant incumbent players must find new solutions, and they may not have the right capabilities. This sort of disruption opens the door to innovative challenger companies, because the strengths of the incumbent may no longer be relevant.
The economic importance of sustainability is being recognized by two key groups; insurers and investors. Insurers driven by the threat to capital assets and liability issues, and investors by the risk to future profits of unsustainable business models. Both are driving innovation and change by altering the cost of doing business, and what counts as economically viable.
Innovators are comfortable with uncertainty about the future
So sustainability issues will drive big changes in business, but how can an individual company understand the implications for their business? How can they map this very uncertain future? Managing risk and uncertainty is at the heart of being an innovator or entrepreneur, so we need to take this capability and use it to think about the impact of sustainability issues.
If I ask an innovator or an entrepreneur what they think their customers will want in the future, they will tell me. They are probably wrong, and they know they are probably wrong, but they will have an opinion.
If I ask them about the technological changes that are likely to sweep through their sector, or regulatory shifts that are about to happen, they will have an opinion.
This type of forecasting is at the heart of evaluating the future market and looking for the opportunities and threats that the changes offer. They have no certainty about any of this future, but they are comfortable with the uncertainty. That’s what entrepreneurs and innovators do.
But if I ask about the opportunities and threats from sustainability issues, I often get blank looks. It is not something that they are incorporating into their models of future market needs, and yet sustainability challenges will be a critical determinant of the shape of future markets.
How can they integrate sustainability issues into market forecasts?
Business needs to be thinking about sustainability issues when imagining its future, but the challenge is how to do it?
A lot of companies don’t yet have the expertise to explore the sustainability issues with the biggest potential impact on their business; whether a threat or an opportunity.
They need a way to ask themselves the right questions to get sustainability thinking on the same footing as thinking about consumer needs and technology options.
To provide a practical answer, Innovate UK worked with Forum for the Future and Aviva Investors to develop a model of a sustainable future economy based on the best available research and thinking. Delivered in a way designed to help business to ask themselves the right questions about the future market. Called the Horizons tool, it is freely available on-line.
Horizons tool: helping you think about the future operating environment for your business
Horizons is designed to help you think about the future operating environment for your business. It looks at:
- the environmental boundaries that are essential to keep the planet in good health
- the social and political foundations that enable society to flourish
- the essential needs that must be met for humans to survive and thrive.
Each factor is backed up with the evidence, and how you might as a business react to the challenge.
There are plenty of case studies to show how successful businesses are using sustainability thinking to drive their market analysis, business strategy and innovation.
It is linked to the best thinking in the world, but is firmly focused on helping you to integrate sustainability into your business strategy and tactics.
Don’t ignore sustainability; change IS coming
But it doesn’t matter whether you click with the Horizons tool, or find another way of thinking about the impact and opportunities raised by sustainability issues. The important thing is not to ignore them because you don’t know how to deal with them.
Change is coming and it is not negotiable.
It is not about tree-hugging; it is about the future of your business
So act. This is not about tree-hugging or environmentalism. This is hard-nosed thinking about the future of your business. Sustainability needs to be a fully integrated part of how we think about future markets; not a project, or an initiative, or a theme, but right at the heart of strategic thinking.