The Earth is in trouble. The existential threat posed by a changing climate and environmental “unsustainability” is leading to dire predictions about the future of its land, its sea, and its people. The threat will likely unfold slowly, but once it gains momentum, it might be impossible to stop. The impact could be enormous, as significant as any war or plague; in fact, wars and plagues may be direct outcomes of climate change and environmental degradation.
So who will save the Earth? The usual suspects are missing in action. Government policy makers, particularly in the United States, cannot even agree on how serious the threat is and are hindered by seemingly intractable political differences. The US government has expressed its intent to exit the Paris Climate Agreement. International bodies lack the requisite authority to compel nations to act in the interests of the collective good. As individuals, our attempts at conservation, however well intentioned, will simply not be enough.
This ominous scenario has left many people looking for a savior armed with a silver bullet: a group of individuals and organizations with the scale, power, and resources, and ultimately the will, required to save the Earth. Enter the business community. We hear about the transformative power of business every day. The private sector, leveraging the power of markets and incentives, has created jobs, improved health, reduced poverty, and improved our general welfare. Perhaps our best hope for the Earth now rests on charismatic chief executive officers (CEOs), ingenious innovators, and miracle-working entrepreneurs who will deliver a sustainable future. We need to align the drive to create, to invent anew, with our generational challenge to save the Earth. Because, as the thinking goes, where there is a will (and a buck to be made), business will find a way.
Let’s stop and take a breath. The magic of markets and the promise of innovation are offered up as solutions to every contemporary social issue, from education to health care to the environment. Can it really be that simple? Can an unleashed private sector solve a problem that has vexed policy makers for years? Can the innovative spirit that underrides our most dynamic markets drive innovation in sustainable technologies? Can business be the savior of our imperiled planet?
For many observers, the whole idea is preposterous. The private sector, with its voracious appetite for resources and development, is responsible for much of the predicament we face, so this line of thinking goes. The problems facing the natural environment stem directly from business interests running roughshod over the public good. The Earth’s only savior will be an emboldened public sector, which will protect our planet from the negative effects of private-sector greed.
Who is right? Quite simply, neither. It is highly unlikely that business can or will save the Earth on its own. But governments cannot do it on their own either. Love them or hate them, business and markets are catalysts for innovation and change. Our environmental challenge is the wickedest kind of problem imaginable: complex, interconnected, and requiring massive collective action. A systematic challenge needs a systemic solution, the kind that is the hardest to build and sustain. We will need leading women and men, from all sectors and all corners of the Earth, to play a starring role.
This book is about unlocking the innovative potential of markets and the roles we all need to play, whether we run large companies, power the fountainhead of invention, finance impactful investments, or simply spend our hard-earned money at the grocery store every week. We will find important supporting roles for universities, all levels of governments, and nongovernmental organizations (NGOs). Together, a team like this, diverse and unwieldy as it might seem, could drive systemic change and actually save the Earth. The stakes could not be higher.
Business as Savior?
Many environmentalists have traditionally viewed the business community, particularly big business, as the primary source of—not the solution to—the critical environmental challenges that we face. There are some important facts on their side. Industrial pollution persists in the face of pressures on businesses to reduce costs and improve margins. Electric utilities pump out millions of tons of carbon dioxide each year, contributing to a rise in greenhouse gas concentrations in the atmosphere and increasing the potential for global climate change. Toxins accumulate in our bodies from chemicals embedded in the products we use. And our societal obsession with consumption is fueled by a half-trillion-dollar advertising industry geared at getting us to consume ever more.1
But there are also important reasons why business will have to be part of the solution if we are ever to make progress on our environmental challenges. Individual companies are some of the largest and most influential institutions in the world. If we compare the gross domestic product (GDP) of the largest countries to the revenues of the largest companies, forty-two of the world’s one hundred largest economic entities are corporations.2 Walmart, with $421 billion in revenue in 2010, ranks twenty-fifth, higher than the economies of Norway, Iran, and Austria. Shell, ExxonMobil, BP, and Toyota are among the largest fifty economies.3 Overall, the forty-two companies in the Top 100 list generated the equivalent of 11% of global GDP.4 The economic power of the leading global companies is too powerful to ignore. Businesses are arguably best positioned to generate and commercialize new sustainable technologies.
But will they take action? There are certainly opportunities for businesses to make a difference, whether greening their supply chains or providing the innovations that can accelerate a transformation to more sustainable technologies. But we have studied businesses long enough to know that they are complex organizations. They face multiple, sometimes conflicting, incentives. They operate in environments of high uncertainty and risk. Even the notion of a “sustainable” business or technology is hard to define. Sometimes the best of intentions causes more harm than good.
Consider the following example of a company that is a pioneer in its industry. A leading innovator. The first to break with orthodoxy and observe that global climate change is a real concern that needs to be addressed—a company that reenvisioned itself as “green.” This company put its money where its mouth was—pledging to reduce its carbon emissions by 10% from 1990 levels in ten years, arguably a 50% reduction, given the firm’s projected growth. It instituted an innovative internal cap-and-trade program to reduce those emissions, achieving these targets three years ahead of schedule and saving $650 million in the process. And the organization was an early investor and leader in clean technology, helping drive this new segment forward.
The CEO was widely hailed as a visionary and a leader in creating the socially responsible business of the future. He received a knighthood from Queen Elizabeth II. He received at least one prominent business school’s highest honor for his work. His company also received numerous accolades. Fortune named it the number-one most admired company in its sector. The Dow Jones Sustainability Index called the firm number one among its peers. The Accountability Rating placed the company number one in the world across sectors. The Community’s Corporate Responsibility Index ranked the firm number two in the world. The organization won the Dignity International Award for contributions to human dignity, won the Clarion Award for transparency in stakeholder relations, and was named a best place to work by Working Mother and Essence magazines.
The CEO: John Browne. The company: BP.
Missing from the description of accolades, of course, is that BP’s Deepwater Horizon accident was one of the most damaging spills in history. Or that it operates in a sector, oil and gas, that is a major contributor to global warming. BP illustrates the perils of pinning our hopes on any single company or CEO. BP did indeed take a principled stance on climate change and made significant investments in alternative energy. It was in the vanguard on cap and trade of greenhouse gases and had significantly reduced its own emissions. Despite its efforts to be a responsible steward, a string of accidents around North America has made BP a sustainability pariah.
Jim Rogers, formerly of Duke Energy, was another business leader trying to bring about a more sustainable future. He stood out from many CEOs, particularly in the energy sector, by supporting legislative efforts during the Obama administration to enact a comprehensive policy response to our sustainability challenges. Here was a business leader willing to accept, even requesting, regulations that might hinder his business in the short term because he believed that in the long term his company and the Earth would be better off. Ultimately, the pernicious politics of climate change killed the bill, and the world’s largest economy remains stuck in an untenable status quo. But Rogers’s example also demonstrates the potential for business leaders to become advocates for the kinds of public- and private-sector actions we will need to rise to this challenge. Business does indeed contribute to many of our sustainability challenges. But business also has tremendous potential to address them. Figuring out how to best harness the innovative power of companies is our task in the pages ahead.
Our Sustainability Challenge
To understand what business can and cannot do, it helps to understand the nature of the problem better. First, what do we mean “save the Earth”? Technically, Earth does not need saving. Our planet will be fine, thank you very much. It existed long before humans came about and will persist if humans disappeared from the planet. Not that it is likely that humans will go extinct. Fortunately, humans have proven to be an incredibly resilient species, able to adjust to and thrive in extreme environments across the globe. The real question is what will life on Earth be like for us if we fail to address the environmental challenges we face?
As John Ehrenfeld eloquently advocates in his book Sustainability by Design, our sustainability challenge is really a question of how we build a future where humankind can flourish. The common definition of “sustainable development” adopted by the Brundtland Commission is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”5 In other words, a sustainable system is one that can perpetuate itself into the future. However, the sustainability of the system tells us little about the quality of life of those immersed in the system. How does one define the “needs” of today, let alone the needs of tomorrow? Is simply meeting those needs a sufficient goal for humanity?
To Ehrenfeld, sustainability, recast as “flourishing,” suggests a system where individuals can achieve their full potential, living lives of fullness and meaning. Flourishing necessitates resilient natural systems that support not only our basic needs—food, water, shelter—but also provide sufficient resources and services to allow us to thrive, to achieve the potential of the human spirit. Ehrenfeld offers a beautiful vision for the future and one that accumulating evidence suggests is increasingly difficult to achieve. Many observers have expressed concern that our exponentially growing population is placing demands on natural resources and ecosystems that we cannot sustain and will likely hinder the flourishing of humankind. From the dawn of humans until the advent of the twentieth century, worldwide population grew to approximately 1.5 billion people. In the last century, that number doubled fourfold with six billion people welcoming in the new millennium. In the decade-plus since, we have seen well over another billion people added to the world and population growth continues unabated.
The need to feed this growing population places stress on existing farmland and requires the conversion of more and more land to agriculture, in some cases through deforestation or the irrigation of otherwise inhospitable land. The growing population creates greater stress on resources such as fresh water and increases demand for energy and other goods and services. The status quo is probably not sustainable. Natural systems rarely, if ever, can cope with exponential growth. Estimates for Earth’s maximum carrying capacity vary widely, depending largely on how available resources are spread across the planet. With the current world population at 7.3 billion people,6 some scientists believe that we have already exceeded the Earth’s carrying capacity.7
The stresses such growth have placed on the natural environment are manifest all around us. Scientists are in near-universal agreement that we are experiencing atmospheric concentrations of carbon dioxide and greenhouse gases that have never been observed in human experience.8 Most scientists agree that these concentrations are the result of anthropocentric activity, primarily the burning of fossil fuels to provide electricity and heat.9 Evidence accumulates that, left unaddressed, greenhouse gases will continue to collect, creating the conditions for global climate change. We will see increasing average global temperatures, melting glacial and polar ice resulting in rising sea levels, and increases in the likelihood of extreme weather events like droughts, hurricanes, and flooding.10
A useful shorthand for what it might mean to “save the Earth” is helpful here. The Intergovernmental Panel on Climate Change (IPCC) has calculated a carbon budget under which we must limit our emissions to avoid the most dire consequences of climate change. If we exceed this budget, we will not be able to avoid a rise in global temperature of two degrees Celsius above the level that existed before the Industrial Revolution.11 While two degrees may not sound like much, the impacts on global climate can be significant. While the economic impact of climate change is difficult to assess primarily due to the vast number of scenarios and variables, one team of researchers has developed a model that suggests a potential reduction of average global income of 23% by the year 2100.12 The IPCC devotes an entire section in its Climate Change 2014: Synthesis Report to explain the limits of economic assessment, providing an “incomplete” potential loss range of 0.2% to 2.0% of global income if the approximately 2.5 degrees Celsius warming, compared to preindustrial levels, occurs.13 Although they disagree on the absolute impact, they all seem to agree that with increased warming comes significant negative economic impacts and a decline in general welfare.
While global climate change attracts the most attention, and rightfully so, there are other stresses that are becoming increasingly evident. Fresh water is becoming ever more scarce in many parts of the world. By 2025, according to the United Nations, 1.8 billion people will live in countries or regions unable to provide access to water sufficient to support those populations, and two-thirds of the world could live under water stress conditions.14 Up until 2017, the state of California experienced a prolonged period of drought that, in combination with a growing population, increased development, and the demands of agriculture, is creating a slowly unfolding crisis. Drastic restrictions are being proposed, and a political fight is boiling between the water needs of farms and the water needs of urban communities. The US military is increasingly worried that water shortages in hot spots in the world such as the Middle East will increase the likelihood of civil strife and war, which tend to only exacerbate resource scarcity.
In general, the US military views environmental crises as a critical part of its scenario planning for the future. For this reason the military has been one of the strongest voices about the risks of climate change in the United States. In an influential report published in 2015, the US military identified climate change as an immediate threat to “human security” and “the ability for governments to meet the basic needs of their populations.” The report also lays out the most serious risks to each Combatant Command and estimates for the resources needed to respond to such threats.15 These dire warnings remind us that our current trajectory threatens sustainability from several different directions, including through economics and through conflict over scarce resources.
The problems continue to multiply. For example, the nitrogen cycle is not well understood or appreciated by the general public. Many scientists believe that we are on the cusp of a significant environmental crisis. Nitrogen is ubiquitous in the environment and is maintained in balance by a number of natural processes. Nitrogen in fertilizers for farming finds its way into streams, rivers, and ultimately oceans, throwing off this delicate balance. Since preindustrial times, the amount of fixed nitrogen in the environment has doubled because of human activity.16 The result is acidification and the destruction of ecosystems contributing to, among a number of problems, the loss of biodiversity.
The evidence suggests this is already occurring. According to the International Union for Conservation of Nature (IUCN), the current species extinction rate is estimated to be between one thousand and ten thousand times higher than what would occur naturally, with the total number of threatened species reaching 16,298.17 Coral reefs are particularly threatened. The World Resources Institute (WRI) estimates that 75% of coral reefs around the world are currently under stress by local and global human activities. Rising ocean temperatures and bleaching due to climate change have contributed greatly to the demise of coral reefs. These vibrant ecosystems support thousands of diverse species of aquatic life such as lionfish, clownfish, and trumpetfish and several varieties of sharks, rays, starfish, and sea urchins. If nothing is done to protect the reefs, 90% of these ecosystems could be threatened by 2030. According to WRI, coral reefs protect more than ninety-three thousand miles of shoreline with ninety-four countries’ economies benefiting from the tourism that coral reefs attract.18 Similarly, stresses are at work on other valuable ecosystems such as rain forests, grasslands, and the tundra.
Finally, localized pollution remains a persistent challenge in many parts of the world. Urban smog, acid rain, and river pollution remain facts of life for many of Earth’s residents. Beijing regularly experiences heavy smog resulting in an air-quality score that is two to three times higher than the level of particulate matter in the air deemed safe by the World Health Organization on any given day. Face masks have become ubiquitous on the streets of many cities in China.
Even in Western countries that have long regulated local pollutants, problems persist. In the United States, the Clean Air Act has helped to greatly reduce air pollution. Yet more than half of Americans, or 166 million people, live in areas that experience air-pollution levels that make the air dangerous to breathe.19 Pollution from nitrogen and phosphorus runoff is causing algae blooms and dead zones in waterways across the country. The Environmental Protection Agency (EPA) estimates that one hundred thousand miles of rivers and streams; 2.5 million acres of lakes, reservoirs, and ponds; and eight hundred square miles of bays and estuaries face water-quality issues because of nitrogen and phosphorus pollution.20 Some 48% of Ohio’s watersheds have been affected by nutrient pollution,21 and pollution in the Chesapeake Bay has earned it a spot on the EPA’s “dirty water” list. The biggest source of pollution in the bay watershed comes from agriculture, but the fastest-growing source is polluted runoff, which comes from urban and suburban areas.22
Our complex sustainability challenge is a result of interrelated factors and hard to address. It is often difficult to know where to start. But this much is clear. We need a huge change, not simply an incremental step, to save the Earth. The course we are on cannot be corrected without a major pivot. And even more daunting, this massive transformation must occur across multiple sectors at approximately the same time. These changes will upend entire industries, ranging from manufacturing to agriculture to transportation to energy. We are not simply one innovative battery away from achieving sustainability.
The Innovation Imperative
There are no easy fixes. Many scientists, policy makers, and business leaders argue that to address our sustainability challenges requires innovation on a massive scale. Simple calls to “cease and desist”—to stop engaging in activities that have negative environmental consequences—are neither realistic economically nor likely sufficient to drive us toward sustainability. Similarly, calls to simply reduce consumption, while sensible, are like the proverbial little Dutch boy holding back the floods by putting his finger in the dike. People will continue to demand products and services, and producers will provide them. Any reduction in per-person consumption needs to more than compensate for the increasing number of people in the world to reduce net impact. Absent wholesale changes in worldwide attitudes and consumption patterns, we need entirely new products, services, business models, and production processes that simultaneously create value to humans while minimizing, or even ameliorating, environmental impacts.
To illustrate this point, consider global climate change. An influential study by the Princeton Environmental Institute estimates that in order to keep carbon emissions flat over the next fifty years, we will need to trim our projected carbon output by roughly eight billion tons per year by 2060. The study’s authors identify fifteen strategies to achieve these reductions, from wind, solar, and nuclear energy to energy efficiency and carbon capture. Importantly, they observe that no one strategy is sufficient. The upshot is that we must simultaneously innovate across multiple technologies and adopt multiple approaches if we have any hope of meeting this goal.
Some argue that we already have the technology necessary to address our sustainable challenges. Renewable energy is gaining momentum and, as a result, is starting to compete with fossil fuels. According to the REN21 Global Status Report, renewable sources provided 19% of global energy output in 2014.23 Organic farming techniques demonstrate the viability of agriculture that does not overly rely on irrigation and fertilizers. Tesla and the introduction of electric vehicles by the likes of BMW and Nissan demonstrate that alternatives to gasoline-powered automobiles are viable. The technology exists, the argument goes; what we lack is the will to adopt.
We disagree. Technology cannot be considered in isolation from the broader socioeconomic system in which it is embedded. Innovation is not just invention—defined as the creation of something new. Innovation is the marriage of invention and commercialization. For an innovation to be viable, it must create value for individuals who are ultimately willing to subsidize the development, installation, and scaling of a new technology. Solar cells and wind turbines are wonderful technologies. Innovation has helped improve their efficiency and lower the cost of their manufacturing—as much as 200% in the case of solar cells from 2010 to 2015. This in turn has attracted investment and helped spread adoption. But it has not reached its potential or fully captured the hearts and minds of the public.
What future can we predict for renewable energy if significant innovation in the use of fossil fuels keeps pace with renewable technologies? Consider July 11, 2008. The price of oil hit $147 per barrel. As many worried about the impact of high oil prices on economic growth; others quietly celebrated the creation of an opportunity. Now was the time for renewables—solar, wind, biomass—to significantly shift our energy portfolio. Investment in green technology surged. Numerous renewable energy start-ups emerged, and, in the United States alone, investments in greentech start-ups reached a high of more than $7 billion in 2008.24
Fast-forward five years. The price of oil dropped to $50 per barrel. Innovation in the energy sector has flourished—just not in the way that technology optimists had predicted. Advances in hydraulic fracking and horizontal drilling had lowered the costs of extracting oil and gas from regions previously left fallow. In the United States, an energy renaissance was under way. It was looking like the country would achieve energy independence by 2017. By January 2015, the price of gasoline in the United States was under $2 per gallon. The price of natural gas had plummeted to $3 per million Btus (British thermal units). Despite gains in solar technology, energy produced by natural gas power plants continued to be more cost effective. Projections released in the 2015 US Energy Information Administration (EIA) Annual Energy Outlook show the cost of electricity produced at a conventional combined-cycle natural gas plant ($/MWh [megawatthour])—put into service by 2020—will be on average 35% lower than that produced at a utility-scale solar photovoltaic (PV) installation (65% without tax credits).25 Venture capital investment has consistently dropped since 2008, down to $2 billion in the United States by 2014.26
What went wrong (or right, depending on your perspective)? We argue that the success of an innovation is ultimately judged by the value it creates for some end user. Investment and adoption in renewable energy depend on a myriad of factors, including advancements in competing, mainstay technologies, specifically natural gas and oil. That brings us back to markets. Love them or hate them, markets are the way that most innovations express their value. As every entrepreneur knows, a new product or service is judged by the willingness of others to pay for her goods at a price that exceeds the entrepreneur’s cost to produce them. Thinking about it this way casts innovation in a different light. The innovation imperative is to drive up the efficiency and drive down the cost of renewable energy to compete with fossil fuels. This goal can be achieved by improving the underlying technology—such as PV cells—or by innovating around any number of complementary technologies such as energy storage solutions (batteries), electrical distribution (smart grid technology), or business models (financing for residential adopters of solar panels).
The same innovation imperative exists for numerous other “sustainable” technologies: energy-efficient computing and electronics, low- or no-emission vehicles, green buildings and supplies. We define sustainable technologies as those products, services, business models, and production processes that reduce the environmental impact of these goods relative to other existing technologies. A sustainable technology in and of itself does not guarantee sustainability; rather, it promises to reduce the unsustainability of existing technologies.27 By continuously innovating new sustainable technologies, however, we can reduce unsustainable practices such as natural resource depletion and environmental degradation and increase the prospects for future generations to flourish.
The Panacea Hypothesis
The innovation imperative is not without its critics. The prospect for innovators to save the day has led to what has been referred to as the “panacea hypothesis”—the belief that innovation is a cure-all to our sustainability challenge.28 This has given rise to a cottage industry in hype about the emerging green economy—that “green is gold” and that sustainability will be the new growth opportunity for business. All we need to do is unleash our innovation capacity on our sustainability challenge, and all will be right with the world.
If only it were so simple. History is littered with the unintended consequences of new technologies promising to better the world. The automobile was heralded as an environmental good during its introduction at the turn of the twentieth century. In many ways, it was—at least when compared to the dominant form of transport at the time—horse-drawn carriages. The collection and disposal of manure was a serious environmental and public health concern, especially in major cities such as New York. Just how serious was the manure problem? In 1898, there were two hundred thousand horses transporting people around New York City, amounting to nearly five million pounds of manure a day.29
Consider a more recent example. In the 1980s, hydrofluorocarbons (HFCs) were heralded as replacements for chlorofluorocarbons (CFCs) and the solution to an observed decrease in stratospheric ozone concentrations over Earth’s poles. CFCs (more commonly known by the DuPont brand “Freon”) were widely used as a coolant in refrigeration systems and as a cleaning agent in a number of industrial applications. Once evidence accumulated that CFCs were a primary contributor to a growing hole in the ozone layer above Antarctica, forty-six countries signed an international treaty, the Montreal Protocol, pledging to phase out the hazardous technology. HFCs, as a substitute, were supposed to accelerate the phaseout of CFCs and lead to a reversal of the ozone hole. Problem solved, except HFCs had other undesirable properties. In particular, they are a potent greenhouse gas, increasing the likelihood of global climate change. HFCs are now scheduled to be phased out in the United States by 2030.
These historic examples teach us that we need to influence both the rate and direction of innovative activity. Simply more innovation is insufficient. We need different kinds of innovation. Furthermore, we need innovation that minimizes the risk of unintended consequences. To what extent can we expect businesses to provide both the extent and type of innovation necessary? Why would a business invest time and effort in a green product rather than, say, a new software game for smartphones or a new drug for male-pattern baldness?
The Business Response to Date
In recent years, we have seen evidence that business has turned a corner and is stepping up to the sustainability challenge. We have seen a proliferation of corporate sustainability initiatives. Companies have adopted inspiring value statements with respect to innovation and the environment that seek to not only reduce the company’s environmental footprint but also provide a healthier planet for employees, investors, and the wider community. Microsoft, for example, states,
Microsoft is committed to leveraging technology to solve some of the world’s most urgent environmental issues, and focusing on key areas where we believe we can have the most positive impact. . . . We work to reduce our impact within our own operations, collaborate with our partners to take advantage of digital transformations that reduce their footprint, and support innovation, R&D, and policies that help create a more sustainable future.30
As another example, UPS states in its Committed to More program, “Our sustainability efforts are focused on doing more to protect the environment, more to enhance the economy, more to develop empowered people, and more to connect communities worldwide.”31
The position of chief sustainability officer reporting directly to senior leadership has been created at leading companies such as General Electric, DuPont, Nike, Google, AT&T, Walmart, and Coca-Cola. Numerous companies have adopted environmental codes of conduct, such as Responsible Care in the chemical industry, and are marketing and selling certified, environmentally friendly goods and services through programs such as the Leadership in Energy and Environmental and Design (LEED) Standard in the building industry and the US Food and Drug Administration (FDA) Organic Food Standard in the food industry.
Perhaps most important, businesses are measuring and reporting the environmental impact from their activities. In the last five years, we have seen a significant growth in the number of companies that publish annual sustainability reports detailing their emissions and impacts. In 2012, just under 20% of the S&P 500 Index companies published sustainability reports. By 2015, it had increased to 81%.32 According to a 2014 report released by the World Wildlife Fund in partnership with Ceres, 43% of Fortune 500 companies set targets for greenhouse gas reduction, renewable energy, energy efficiency, or a combination of these goals—60% of the Fortune 100 have set such targets.33 This is critical because, as the old business adage says, “what gets measured get managed.” Companies are becoming increasingly sophisticated in measuring their environmental footprint. Major consultancies and accounting firms all have sustainability practices to help managers on this front.
It is important that we recognize this as progress. Up until the early 1990s, to the extent that businesses thought about environmental issues at all, it was usually as a legal or regulatory issue to be addressed by corporate legal counsel. Compliance offices, typically referred to as Environment, Health, and Safety (EHS), were ubiquitous. In the United States, rising regulation of environmental issues starting with the formation of the US Environmental Protection Agency in 1971 and passing the Clean Air and Clean Water Acts through the creation of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) program; in the 1980s, the management of hazardous and toxic materials was met with resistance and outright hostility by many businesses. Environmental management and regulatory compliance were cost centers to be minimized and kept distant from the core activities of the business.
A few pioneering businesses began to question this mentality. 3M, maker of adhesives and other chemical-based products, launched its “Pollution Prevention Pays” program in 1975. The company observed that, by focusing on preventing waste and pollution before it was created rather than managing them after the fact, it could improve efficiency and avoid compliance costs and risks. By 2015, forty years after launching the program, 3M reports that the company’s actions prevented more than 2.1 million tons of pollutants from entering the environment and saved nearly $2 billion for the company. In addition, 3M reduced its energy and water use by 30% and 42%, respectively, compared to a 2005 baseline.34
Others such as IBM and Xerox began designing products with the environment in mind. Piggybacking on the quality renaissance of the late 1980s, Design for Environment (DfE) promised to deliver cost savings and superior products while minimizing the environmental impact of goods and services. While many firms wrestled with determining where and how to incorporate changes in their manufacturing processes, other companies realized the value of environmental stewardship, early compliance, and reduced waste streams, investing in corporate-wide DfE strategies. IBM was one of those companies, establishing a corporate-level environmentally conscious products (ECP) initiative in 1989 with a stated goal to “develop, manufacture, and market products that are safe for their intended use, efficient in their use of energy, protective of the environment, and that can be recycled or disposed of safely.” Technical support was provided by a new engineering center for environmentally conscious products (ECECP), and in the years following the launch, 75% of business units had successfully incorporated DfE practices into their design processes. By 1996, IBM formalized the ECP program, requiring business units to develop and report on DfE strategies.35
Other organizations began to cater to a growing community of environmentally conscious consumers. The Body Shop, a company from the United Kingdom, marketed environmentally friendly beauty and health-care products to an enthusiastic customer base. Toms of Maine, founded in 1970, started selling environmentally friendly toothpaste. Throughout the 1980s, Patagonia grew rapidly from its humble beginnings in California to be a force in environmentally conscious active wear. During the same time, Ben & Jerry’s grew to be a global brand selling ice cream with a strong environmental and social ethos.
By 2010, larger companies were starting to pay attention as well, investing more capital into green products and being rewarded for doing so. Research released by the Conference Board in 2015 shows that companies like GE, Philips, Siemens, Panasonic, and Toshiba saw green product aggregate revenues grow 98% between 2010 and 2013, while overall sales numbers show growth of only 15% during that same time period.36 One of those companies, Philips, reported that green products represented 54% of total sales by 2016.37
Over the past two decades, more and more companies have begun to capitalize on the growing interest in the environment and sustainability. Marketers positioned their products to appeal to the “green” consumer. Facilities managers who had adopted lean management practices made the logical connection that “lean is green” and started looking earnestly for ways to minimize waste and emissions.38 CEOs and boards of directors began to look at sustainability as a strategic issue, one that presented both risks and opportunities, and started to plan accordingly.
The Disruptive Potential of Business
Despite all this activity, the big question lingers: Are these corporate sustainability efforts significant enough to solve the problems facing our planet? Simply put, we believe the answer is no. The efforts by business are admirable yet wholly insufficient. Simply reducing waste and curtailing emissions in manufacturing will not get the job done. The innovation imperative suggests that what is needed are not incremental changes but disruptive innovations that upend the status quo. We need innovative new products, services, and business models that create value for consumers in new ways while substantially reducing environmental impacts. We also need more business leaders with an entrepreneurial mind-set. To quote the influential Austrian economist Joseph Schumpeter, we need to unleash the “gale of creative destruction” and transform the economy.39
Most industries at some time experience a major innovation-driven disruption. The gasoline-powered internal-combustion engine was a major disruption to the horse-drawn carriage market. Typewriters were replaced by personal computers. The wristwatch industry went through a major disruption in the 1970s as quartz technology supplanted the centuries-old technology of mechanized watches. A similar upheaval may be occurring again as smartwatches enter the market, transforming the watch from timekeeper to multifunctional digital-display device. Digital technology has been a particular potent catalyst for disruption. Amazon and its online strategy have disrupted numerous retail categories based on a traditional “bricks-and-mortar” strategy. Smartphones have revolutionized not only cellular communications but the camera market, the computing market, and the music industry, among others. The “cloud” is disrupting the software industry, creating challenges for companies that were disrupters themselves a mere ten to twenty years earlier.
Some of these disrupters are being hailed as “sustainability friendly.” Zipcar and Uber are transforming the way we consume automotive services. There is hope that these new business models will reduce the desire to own automobiles, decreasing manufacturing needs, increasing the utilization of existing cars, and creating opportunities to speed adoption of next-generation technologies, such as electric vehicles. Interface Carpets is a classic example of a company that redefined its market from selling something (carpets) into selling a service (carpeting services). In doing so, it created greater opportunities to design for the entire product life cycle, increasing the recyclability of its products and reducing the use of toxins and other harmful chemicals not only in carpets but in their installation as well.
Of course, disruption is not guaranteed. History is littered with innovative new technologies and businesses that never quite took hold. Hydrogen fuel cells have long been hailed as a zero-emission alternative that can meet our energy and transportation needs. While there still remains hope for a hydrogen future, the technology has advanced in fits and starts for nearly fifty years. Similarly, nuclear energy has been variously hailed as our energy savior and reviled for its radioactive byproducts and accident risks. While it has experienced significant adoption—for example, France produces 75% of its electricity using nuclear reactors40—further expansion remains a controversial topic around the world, especially in the wake of tragedies such as the release of radioactive material in Fukushima, Japan, after a tsunami in 2011. Even France has recently made plans to get out of the nuclear power business, passing legislation in 2015 that would reduce nuclear power to 50% of total energy produced by 2025, replaced largely by renewables and energy-efficiency measures.41 With disruption such an uncertain proposition, how can we deduce which technologies will likely help us save the Earth and which are simply fads?
Our Argument
Value-laden pleas about what businesses should or could do cannot help us understand what they will do. Similarly, blind faith that markets will “figure things out” ignores the broader institutional context and the imperfections of markets. Economists are often cited for their advocacy of free markets, but they have also long pointed out the potential for market failures. Pollution is a classic example of one such failure, what is referred to as a negative externality—where individual efforts create a negative by-product that causes many to suffer. Many of our environmental resources are common pool resources—goods for which one individual’s consumption reduces the availability to others, while the collective finds it difficult to exclude individuals from the pool or users or reduce consumption. Fisheries and shared rivers are common examples.
Ultimately, the extent to which businesses will innovate disruptive, sustainable technologies is determined by a complex interplay between markets and various institutional actors: innovators who champion new sustainable technologies, investors who see market opportunities in these sustainable technologies, executives who steer large organizations toward profitable and sustainable opportunities, customers who are willing to pay for these sustainable technologies, activists who pressure businesses to invest in green innovation, and governments who incentivize new sustainable technologies through regulation, taxes, and other policy levers. Each of these players influences the degree to which businesses invest in and develop sustainable technologies.
We propose a model of innovation as a system (see Figure 1). At the core is the process of innovation; the steps by which a concept is advanced into a viable product or service that disrupts existing markets or creates new markets. There are many ways of characterizing this process, but we suggest a simple four-step process from research to development to commercialization to scaling and diffusion. Each step is part of a critical path toward disruption. Not every concept will eventually scale and diffuse. In fact, most will not. The innovation process is as much a process by which concepts and technologies are winnowed with a few winners emerging in the end. Innovation is sometimes characterized as a funnel where thousands, if not millions, of ideas enter with only a handful exiting the funnel as disruptive technologies in the end.
Buffering the innovation process are two attractors: factors that help motivate action in the process. One attractor is the demand side of innovation. The demand side, or “demand pull,” refers to the market incentives to innovate created by the demand for goods and technology. In other words, demand pulls the technology through the innovation process. For example, consumers can create demand pull by desiring environmentally friendly products and services. Or government can create demand pull for sustainable goods through taxes or subsidies. Or other businesses can create demand pull by demanding improvements from their suppliers, perhaps to mitigate their own risks and to avoid the ire of environmental activists.
The second attractor is the supply side of innovation, or what is often referred to as “technology push.” Technology push refers to the support that is needed to drive innovation. What if innovation is not a simple Pavlovian response to a market stimulus but emerges from the genius of the innovator? This is the heart of the idea of technology push: scientists, engineers, and designers pushing the boundaries of technology and creating new goods and services that transform markets. Innovators require capital to invest in research and development and to help bring their products and services to market. Innovation arises out of a rich tapestry—what is often referred to as the innovation or entrepreneurial ecosystem. Technology push includes those resources that make up the innovation ecosystem that supports the innovation process.
Scholars have long debated the relative importance of technology push versus demand pull in driving innovation. Not surprisingly, the evidence suggests that both are critical. A broad blossoming of new technology incubators and venture funds directed to sustainable technologies will have limited impact if those technologies do not ultimately create value that is demanded in the marketplace. Similarly, the creation of market incentives—say, the creation of a carbon tax—will not lead to fundamental disruption unless there is an underlying support system to create the conditions under which innovation can flourish. Both technology push and demand pull are needed.
Surrounding our attractors are a broad set of public interveners and private intermediaries that impact the degree to which technology push and demand pull drive the innovation process. Markets are driven by a number of actors, including innovators, entrepreneurs, established businesses, suppliers, employees, investors, and consumers. Furthermore, markets do not operate in isolation. They are embedded in a broad sociopolitical system that enables and constrains their functioning. Thus, activists and NGOs, regulators and policy makers, lobbyists and legislators, global trade organizations and industry trade associations, universities and national laboratories all play a role. In concert, these market and non-market players create the conditions under which innovations either flourish or languish.
Making the Case
In organizing this book, we structure each chapter around a primary business stakeholder in the innovation process: innovators, managers, investors, and customers. In each chapter, we discuss the potential and limits of these actors to drive disruptive sustainable innovations. In doing so, we bring in other relevant stakeholders such as competitors, suppliers, policy makers, activists, and scientists. Our primary thesis is that innovation emerges out of the complex system of individuals and institutions that make up the competitive market and broader sociopolitical-economic system. For business to save the Earth, there must be systemic change that comes from these actors pushing in the right direction to create the conditions where disruptive sustainable innovations flourish.
We begin with the innovators—the creative geniuses that conceive and birth sustainable technologies. In Chapter 2, we examine the potential for innovators to push technology advancements into the marketplace. We discuss the emergence of technology and the technology s-curve and how they apply to sustainable technologies. We explore open innovation and innovation ecosystems and the role they play in driving innovators. We ask how we can broadly influence the rate and direction of innovation. Finally, we examine mechanisms such as university research and licensing, intellectual property protection, and patent policy as they apply to inventing disruptive sustainable innovations.
In Chapter 3, we turn to the manager. She is ultimately the one to bring a particular technology to market. What drives these business leaders to pioneer new sustainable technologies? We delve into the motivations of corporate executives, whether they are starting a new business or innovating within an existing business. We discuss the importance of the relationship between management and investors and the role that corporate governance plays in facilitating and constraining the pursuit of sustainable technology. We end with a discussion of the set of conditions under which there may be financial motivations for managers and their businesses to pursue sustainable technologies.
In Chapter 4, we explore whether investors, or providers of financial capital, will provide the capital to fund innovation. Innovators and managers need capital to generate and scale sustainable innovations. We examine a variety of different investor types from venture capitalists, to social impact investors, to debt providers and big banks, to the government and foundations. We examine the opportunities and limits for each investor type as they relate to sustainable innovation. We end with a discussion of how to best unlock capital to invest in disruptive sustainable technology.
In Chapter 5, we explore the demand side of innovation. In particular, the extent to which customers can drive demand for sustainable innovations. We explore the evidence that consumers are willing to pay a premium for sustainable technologies and examine the efficacy of government efforts to manipulate prices and regulate outcomes in the absence of demand. We examine a number of mechanisms that try to cultivate latent demand, including labeling schemes, product standards, and codes of conduct. Finally, we discuss the role of activists and nonprofit organizations in spurring demand.
In Chapter 6, we take a step back and look at the overall system for innovation. We return to how individual stakeholders can serve as catalysts—pushing the innovation system forward to generate the disruptive sustainable technologies that we need. We advance a comprehensive action plan for unlocking innovation for sustainability. We provide a set of specific actions that each stakeholder can take to have an impact on innovation outcomes. We end this chapter by returning to our initial question: Can business save the Earth? Synthesizing the evidence presented, we offer a realistic assessment of our prospects for innovating our way to sustainability and offer some practical guidance to improve our chances.
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