Why business innovation will help build a new climate economy
Polly Courtice, Director, Cambridge Institute for Sustainability Leadership
17 November 2015
Leaders from around the world met in September at the United Nations headquarters in New York for the launch of the Sustainable Development Goals – or Global Goals – that will shape the world's response to major problems such as hunger, poverty and threats to the environment. In a couple of weeks, international climate talks in Paris will send a clear signal that political decision-makers globally have recognised the truth; to avoid dangerous climate change, we need to transition to a low carbon economy and that the sooner we get on with it the better.
Once these global ambitions have been agreed upon, governments and NGOs will do what they can to align their development strategies and models for delivering aid to achieve these goals. But what does this mean for the private sector? How will business leaders and entrepreneurs translate these global goals and policy frameworks into action in their organisations, and in partnership with their peers?
Let's focus on the response to climate change. Current country pledges show that we are not yet on the path to achieving the all-important goal of limiting global temperature increase to 3.6 degrees Fahrenheit (2 degrees Celsius). In this context, the private sector has a crucial role to play in raising the level of ambition, tackling the global goals and implementing an active transition to a low carbon economy. Of course, many companies will look to the goals for inspiration for their corporate social responsibility (CSR) projects. But working toward this target is not just about philanthropy, or even increasing efficiencies and competitiveness. The big prize is to align mainstream business models with a sense of purpose. Companies need a social or environmental ambition to help solve the world’s problems by finding a convergence between profitability and sustainability.
These global agreements have the potential to reshape many markets – from transport to energy production and agriculture – and create opportunities and challenges for big businesses and entrepreneurs alike. For example, a global agreement on climate will see governments using policy levers and subsidies to favour low carbon growth and low carbon businesses. Those who grasp the challenge, rather than take defensive action, have the most to gain.
Given the scale and pace of innovation required to construct a new climate economy, many incumbent companies will struggle to adapt their business models and practices in the short term. They risk missing opportunities for value creation, and jeopardising their existing markets and reputations if they fail to keep up with consumer expectations. For example, rapid urbanisation in low and middle-income countries has already increased the number of highly vulnerable urban communities living in informal settlements, many of which are at high risk from extreme weather events. As the world's population is projected to almost double by 2050, the number of people and assets exposed to climate change risks will increase, creating opportunities across the water, food, energy and transport sectors.
Entrepreneurs and nimble startups have the potential, in many cases, to disrupt existing markets and seize these opportunities. They need to be mindful of the advantages possessed by larger businesses and be open to collaborative action. The challenge, and opportunity, for entrepreneurs, is to find ways to capitalise on their nimbleness. They should stay open to testing and establishing game-changing business models, which tap into the mega trend of climate change and influence policy responses. Although these new businesses may currently lack the capital, momentum, and loyal customer base enjoyed by their established counterparts, they have the freedom to test new business models without confusing customers, cannibalising existing product revenues, or stretching a brand too far.
At the Cambridge Institute for Sustainability Leadership, we work with the leaders of the biggest global businesses because they have the power to change the way things are; but we are realistic in our expectations. These supertankers will take time to turn – but when they do, the impact can be extraordinary. However, big companies can find it hard to change for many reasons. This includes both tangible and intangible factors; fixed assets, infrastructure, machinery, the expectations of customers, staff and shareholders
For these reasons, entrepreneurs and incumbents have much to gain from looking for ways to collaborate, either to drive innovation or to tap into new markets that they can neither reach nor service alone. Of course, this is not always easy, but the prize is big for those that make it work. There are great synergies to be found when big meets small. The world's largest companies could learn a lot from startups with big ideas and innovations. Startups have the potential to achieve breakthroughs in delivering economic prosperity in ways that also deliver social and environmental outcomes. For example, The Unilever Young Entrepreneurs Awards are a powerful way to tap into the energy and enthusiasm of young people who are leading the charge with new business models and innovative solutions. Most importantly, it builds on the resources and reach of established global businesses.
Right now, my glass is half full. I look to the future with optimism because I think we are witnessing the emergence of an unstoppable force. There is a gathering chorus from all walks of life – civil society, business leaders, academia and young people – demanding with increasing intensity that our leaders take action to deal with the forces that are destroying our natural world.
That leadership will come from many directions – not least from big business, but also from entrepreneurs and disruptors competing and collaborating like never before for this new and exciting ground.
A version of this article appeared in Forbes