Sustainability isn’t holding back innovation, it’s accelerating it

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Joni Rautavuori, Chief Executive Officer, Tharsus Group

• For the most part, industries have struggled to respond to expectations to adjust business models to reduce the harm being done to the planet.
• Businesses are changing reviewing how tech can help reduce their impact on the planet without compromising on quality or flexibility of services.
• The businesses that adapt most appropriately to the multi-layered challenges we face, will be the ones that will earn the right to survive.

Faced with the most severe supply chain crisis in decades, compounding factors such as inflation and the energy crisis are putting businesses at existential risk. Simultaneously, the drive toward greater productivity from policy and boardroom level – ongoing from the first industrial revolution – is now intersecting with demand for increased flexibility from employees and customers. Habits formed during the COVID-19 pandemic mean customers now expect the same level of flexibility from manufacturers as they do from shopping online.

Balancing flexibility with productivity is a delicate pursuit that many have tried and failed at. Place too great an emphasis on productivity and you risk losing out to innovative thinking. If you over-index on flexibility, you risk failing to provide proficient profits.

The rare act of managing to juggle these competing demands has been a fruitful source of competitive advantage for some of today’s most successful companies. Amazon Web Services and Tesla have gained significant value over the last few years, helping their businesses to take off in a very literal sense.

But, as if striking this balance was not hard enough, a new factor has now been thrown in: sustainability. Prompted by the undeniable urgency of climate change and unprecedented pressure from consumers, there is now an expectation for companies to adjust business models to reduce the harm being done to the planet.

For the most part, industries have struggled to respond. According to PwC, just 22% of business leaders have made net zero commitments. But all that is starting to change as organisations begin to realise that sustainability and competitive advantage are not mutually exclusive.

Innovation as catalyst for change

We can draw clear lines between the current challenges that businesses face and the disruption to the supply of the finite, unsustainable resources they depend on. The natural inclination for businesses might be to prioritise alleviating immediate economic pressures, rather than action to become more sustainable. But businesses are increasingly changing their mindset and reviewing how technology can help to meet their challenges; trying to reduce their impact on the planet without compromising on the quality or flexibility of their services.

In some cases, short-term challenges – such as major disruptions to supply chains and inflation – are actually proving to be the catalyst for change, despite the threat they pose to financial stability. The business need to source new materials due to the war in Ukraine, for example, created an opportunity to develop shorter supply chains, with stronger climate credentials.

Another example is reshoring. A recent study by the Chartered Institute of Procurement & Supply (CIPS) showed 40% of organisations in the UK switched at least one international supplier to a domestic alternative in the last year. Reducing the distance raw materials and key components need to travel can cut emissions, while providing greater visibility into supply chain practices.

For the first time, the unique circumstances facing industries today are forcing businesses to view the pursuit of net zero in tandem with productivity and flexibility demands. As such, sustainability is increasingly being viewed as much about efficiency as it is climate change.

Viewed through a green lens

Part of this is an acknowledgment that old operating models and global supply chains are unworkable in a competitive landscape where consumers are calling for greater sustainability. Just as health concerns gripped consumers in the 1970s and ’80s, sustainability is a driving force behind today’s consumer choices. The businesses that fail to demonstrate these credentials are likely to become unpalatable to customers and will suffer financially as a result.

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What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

Sustainability is also changing buying attitudes in the B2B space. Whether it is choosing a renewable energy provider, migrating to EV vehicles or even changing the coffee order, every business decision is being viewed through a green lens. This view needs to encompass every area of operations, not just direct emissions from production facilities but also logistics, partner networks and the IT estate, whether cloud based or otherwise.

System-level change is needed to create the necessary impact the world needs, which also requires a major shift in mindset. Rather than viewing automation in terms of fixed, isolated processes we need to see the whole structure and pull together flexible automation and data from multiple processes. When used correctly, data and technology can create transformational impact for the entire value chain, balancing the three key areas of sustainability, productivity and flexibility, and delivering competitive advantage. Informed use of technology and data will be important for companies responding to new challenges in real time, helping them make better, faster decisions on how to manage and utilise their resources.

One of the starkest illustrations of unsustainable activity is Earth Overshoot Day, which marks the date when humanity has exhausted nature’s resources that can be sustainably delivered for the year. After this point, the world is in deficit – using more resources than can be replaced and creating more emissions than can be trapped or expelled from the atmosphere. Since 1971, this day has arrived earlier and earlier, and in 2022 it fell on July 28. Businesses need to similarly understand the impact of their processes to create equilibrium between commercial and environmental drivers so that their own “Overshoot Days” fall as late as possible.

The businesses that adapt most appropriately to the multi-layered challenges we face, will be the ones that will earn the right to survive and create long-term, transformative change. Much as it did for 19th century hand-loom weavers facing a wave of industrialisation, today’s businesses risk being made redundant if they fail to adapt to changing times. Balance across sustainability, flexibility and productivity will be crucial, addressing one alone cannot deliver success.