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Trade-offs becoming a sustainability risk

People - Richard Walker

A couple of weeks ago The Economist’s 2019 Sustainability Summit at London’s County Hall brought together hundreds of leading thinkers and actors in sustainability to discuss how the world can move from good intentions to sustainability action. The debate laid bare the changing face of sustainability, the problem with trade-offs and the rise of the developing world at the table.

BY ROSS GRIFFITHS

Trade-offs

Trade-offs are not a new phenomenon in sustainability circles. Payback periods and return on investment (ROI) have been for many years the arch nemesis of sustainability professionals. But as economic models have evolved to incorporate climate and sustainability risk, now it is environmental trade-offs which are becoming a thorn in the side.  

Last year the managing director of Iceland Foods, Richard Walker, became the subject of much UK media attention when he announced his company would be banning the use of palm oil in all its own-brand products. The company’s advert about Rang Tan the displaced Orangutang – which was subsequently banned from television – became one of the country’s most-watched Christmas adverts of all time with 65m views.

At the summit, Walker offered some thought-provoking insights on how his decision to phase out palm oil from all its own-brand products impacted his company. Firstly, the move cost the company’s bottomline. Secondly, the decision was made easier by Iceland’s private ownership model. Thirdly, the world’s most watched online commercial generated no additional sales for the company. Finally Walker is far-from concerned from any of the above.

The last point is important because it suggests that the dreaded pay-back period was not a fundamental driver here: brand identity, duty of care and doing the right thing (seemingly) is. To Walker, how consumers perceive Iceland has become a business imperative. What is all the more intriguing is this not a premium-brand company which can recoup costs at point-of-sale: this is a budget price grocery store.

Walker’s decision suggests that companies are now thinking longer term, forced to respond to issues like climate change, ecological degradation and plastic pollution as their customers increasingly decry products found to be in breach of their duty of care. While the pay-back period is still there, the "payback" has become business continuity, rather than an immediate fiscal return.

But despite receiving a round of applause for his action on palm oil, one attendee – ironically a sustainability strategist from Sainsbury’s – wanted to point out the elephant in the room. One of the reasons palm oil has become so sought after by commercial food suppliers is because it uses much less land than traditional vegetable oils. A report by the IUCN found palm oil crops can use as much as nine times less land than vegetable oil crops. As such Iceland’s decision may imperil more habitat, than save it. An environmental trade-off.

These trade-offs dominated the day. During a debate about plastic pollution, chief executive of the Carbon Trust Tom Delay pointed out while single-use plastic bags have become a serious litter and marine pollution issue, the manufacturing of paper bags requires three times more carbon. And in a discussion about the future of public transport, CEO of Arriva Group Manfred Rudhart highlighted that one Euro VI diesel bus is more sustainable than 50 Tesla cars on the road.

James Atkins, chairman of Vertis Environmental Finance, reaffirmed the issue: "For every seemingly environmentally friendly action, we need to be aware that there may be a reaction."

Iceland’s Walker tempered these environmental trade-offs with his own personal view that an individual can only do what they think is right. And after looking at the trade-offs he concluded other oils would provide a more ecologically-friendly alternative to palm oil. Bold decision making remains highly subjective.

Sustainability adapts

Another key trend which came across from the day is how much the sustainability agenda has embraced the social and economic pillars; and how much it has left to do.

Initiatives have come and gone. The Millenium Development Goals became the Sustainable Development Goals; Corporate Social Responsibility has become Environmental Social Governance. And sustainability itself is being transformed.

A topic which had very little tangible interest within the business community 20 years ago - is now [at least superficially] a C-suite topic. Its percolation into economic thinking is leading to serious questions being asked about linear economics, supply and demand thinking, and even the long-term viability of capitalism.

Atkins argued that sustainable thinking is now forcing economists to consider how they might alter the holy grail of economics: the supply and demand curve. For many years the self-regulating system of supply and demand has dictated price points. But he believes the challenges faced by the human race need radical economic shifts led by education – not cash – to forcefully change the demand curve.

He summarised his thinking with this nice little anecdote: "It takes less time and money to raise and educate a child than it does to build a nuclear reactor," said Atkins. "Education can be crucial to solving the world’s problems."

Too many metrics?

The founder and director of the Cambridge Institute for Sustainability Leadership Polly Courtice praised the "breathtaking" speed with which the financial sector is adapting to new ways of measuring and accounting for sustainable value.

Benchmarking metrics available through the Principle for Responsible Investment (PRI), the Global Reporting Initiative (GRI) and the Forum for Sustainable and Responsible Investment (US SIF) have driven concerted efforts to embed sustainability within investment decisions: not to do so has become a serious financial risk that is simply not acceptable. Only this week the S&P Dow Jones launched an ESG version of S&P 500 Index.

"The CSR days are long gone, as people really question what it means to deliver economic, social and environmental value," Courtice said. "Business-as-usual is not an option any more, and most people know it."

Yet as the number of benchmarking metrics continue to rise, there is a risk that each new measure starts to water down the whole. In 2020 the world will have another benchmarking platform - the first results from the World Benchmarking Alliance, an independent project to rank company action against the 17 SDGs.

Vice president of group strategic planning at oil major BP Dominic Emery picked up on this: "While we do welcome the work being undertaken by the World Benchmarking Alliance, we are seeing unprecedented levels of data and interpretation. A company can look good on one set of ESG metrics, while another says it is lousy. There is a lack of clarity."

This point touches upon how sustainability professionals will need to adapt to navigate the world of data abundance. Failure to do so will lead to nothing but a stream of good intentions with little outcomes. Innovation, leadership and cooperation are key.  

Chief executive of the Global Environment Facility Naoko Ishii nicely summarised the issues preventing the sustainability agenda from reaching its full potential, stating: "The problem is that each individual has their own vision of what needs to be done, but in reality change needs to be collective. A leader for instance can be part of change and they are good in their own castle - but they have not been good at creating a platform for change."

Step forth the developing world

It was clear from the day that the ability of mankind to meet a range of sustainability milestones – from tackling the plastic soup choking our oceans to safeguarding global biodiversity and halting the march of runaway greenhouse gas emissions – is increasingly dependent upon the actions of those who can least afford to act. The developing world.  

Throughout the day we heard from environmental campaigners, sustainable business startups and public representatives from developing nations; historically, these countries have lacked the economic clout on the global stage to drive change, but that will need to change fast.

Patricia Scotland is the secretary general and public spokesperson for the 53 member states and 2.4bn people that make up the Commonwealth of Nations. She provided her perspective on how the countries she represents – 31 of which are the most at risk from global warming – have started to tackle climate change.

She set out how the Commonwealth is working with smaller countries to help them gain access to international development funding, as well as pooling financing facilities in one place - such as the integration of disaster risk reduction financing. Scotland pointed out that 71% of the Commonwealth’s actions on climate change are adaptation measures, rather than mitigation. For reference the World Bank is spending just 5% on adaptation, and 95% on mitigation.

"We want to demonstrate that if one third of humanity [the Commonwealth] can find a pathway towards sustainable action, then it may be a good pathway for the other two thirds of humanity," Scotland said.

This sentiment was echoed by the chief executive and co-founder of Costa Rica Limpia, Monica Araya. She has advised and led the creation of a number of initiatives in Latin America to drive the uptake of smart technology. She spoke with pride about how her home country had reached its target to generate all of its electricity from renewable sources. Now it has set its sights on a 100% renewable energy target.

"Maybe Costa Rica doesn’t matter by size, but we will matter because of our ideas," said Araya, who has also been working in Chile where around 40% of the country’s electricity is generated by coal-fired power stations. Last year the country announced the ban of all new coal-fired power plants built without CCUS and a phase-out of existing plants, instead moving to a country powered by 70% renewables by 2050. Chile will leverage its position as one of the largest extractors of lithium, to create a clean-tech manufacturing base to exploit its supply chain position.  

But to achieve these aims, Chile and many other developing nations need cash, and they need it quick. Both Scotland and Araya called upon international financing bodies, national governments, corporate businesses and philanthropists to reach out and find out how their investments can drive change.

Finally, It was clear throughout the event that speakers and delegates truly believe humanity can solve its greatest threats. But collaboration and innovation will be needed if we are to have any chance.

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