Will the race for green business be won? Michèle Francony, ESSEC MiM student, sums up the dilemma of our times and proposes a blueprint for responsible innovation to overcome the challenges it faces.
Innovation Is Infinite, Resources Are Not by Michèle Francony.
“We did not inherit the Earth from our ancestors, we borrow it from our children”. This African proverb quoted in “Terre des Hommes” (Wind, Sand and Stars, 1939), written by Antoine de Saint-Exupéry, comes to mind when talking about environmental impact. Although philosophical, this quote invites us to rebalance the books. Given that no human action is neutral, there is always a price to pay. Which means that pollution, burning fossil fuels and deforestation for example shouldn’t be left out of the equation. Environmental impact, defined as the direct effect of socio-economic activities and natural events on the components of the environment, must be part of our reflection on the debt we have all contracted. Because at the time of doing the math, it seems that we are all about to pay interest on the debt.
Man vs Resources
Our societies are based on our sense of organization. Humans live in a community, an inclusive polis, whose functioning is based on the division of labor. This means that everyone has to make a contribution. Humans, as citizens, humans as part of a group, firms, NGOs, governments; they all have a role to play in the organization of our societies. They all contribute to the creation of a society in their own image. It is in this light that our world in 2022 is at a dead-end. We want to maintain our standards of living, our level of profit while using up all the resources that keep our societies alive. To keep up with our needs, from the most basic to the most extravagant, we have spent and spent. But when it comes to balancing the books, it appears clearly that we are in the red. We can no longer afford to finance our societal model; we are running out of resources. Yet, we have pushed back the boundaries of innovation to improve our societies. It’s a fact. We have created a world we would not have believed possible. But at the same time, it seems that we have built new barriers that prevent us from creating a sustainable future.
Let us not be surprised, many authors hit the nail on the head well before us. Malthus was already warning us in 1798 that the differential evolution of the resources and demography would be an issue in the long term. And indeed, to date, the world economy relies on exhaustible resources. And as long as we continue to put aside the environmental impact of our societies, there is no future for our innovations. Although our innovation capabilities seem infinite, its impact is limited because of its lack of resilience. It means that there is no point in innovating in the 21st century if we do not take into account the effects of our acts.
Obstacle course: On your marks, set, and wait!
We have the ability to create, to innovate, to improve everything we do. And since societies’ development is based on a system of innovation, this same innovation could make it possible to cross the environmental frontier. Then why are not we all trying to innovate to reduce our environmental impact on Earth? What we have here is a paradoxical behavior. We know what the problem is, we can foresee what must be done, and yet we act in an I’m-alright-Jack way. The truth is that we are reluctant to change, we do not want to bear the cost of lifestyle changes. Yet, we are at a crossroads where the sum of individual interests should converge on common interests.
When we refer to innovations, we usually use Schumpeter’s definition that is to say, “doing things differently in the realm of economic life”. According to him there are 5 types of innovation. First, the creation of new goods or services, then the opening of new markets or of new sources of supply. It should not be forgotten that innovation can also be the introduction of a new method of organization, or a new method of production. This shows that innovations come in many shapes and forms. Therefore, organizations’ innovative capabilities could first rely on this theory in order to reduce their environmental impact. Nonetheless, our innovative capabilities do not end there. Innovation starts with what we have at our disposal. Before “thinking out of the box” let’s see what is in the box. Organizations have financial capital, human capital, structural capital, intellectual capital. These resources are essential, and they constitute a large part of our innovative capabilities.
Then why do organizations struggle with the leverage of their innovative capabilities? First, organizations do not pay enough attention to their externalities, whether they are positive or negative. This could be explained by the difficulty of measuring them. Even assessing carbon emissions remains difficult. In fact, there are several methods of calculating the carbon footprint. Nonetheless, for all these approaches, international standards have emerged. It means that we have guidelines concerning footprint assessment. Yet, there is no consensus concerning which method to choose. This blur could lead our organizations to either minimize their environmental footprint or to a misunderstanding of their externalities. Let’s take an example. According to the Bankrolling Extinction report, in 2019 the world’s 50 biggest banks provided $2,6tn in credit to sectors that have great environmental impact. These investments involve sectors such as food, forestry, mining, fossil fuels, tourism… It means that banks invest everywhere, support innovation, but in the end, they remain the architects of environmental destruction. In their defense, shedding light on these issues is no easy task. In fact, we have the same problem as consumer organizations. What is a responsible purchase after all?
We might think that buying organic products reduce our environmental impact. Unfortunately, the answer is more complicated than that. On paper, buying organic is a way to support production methods that exclude fertilizers, pesticides, fungicides and to protect yourself and the soil from the negative effects of phytosanitary products. In reality, organic doesn’t mean pesticide-free – pesticides may be used but in limited quantities. But it is important to bear in mind that organic does not mean buying local products either. The organic certification does not take into account the environmental cost associated with the transport of the product. Is an organic avocado from Guatemala really a responsible purchase?
Moreover, let us not forget that there is a cost associated with any environmentally meaningful change. Making our societies, our models, sustainable involves some fairly major changes. The present cost of using our innovative capabilities in order to reduce our environmental impact may be too high for certain organizations. For the individual there is a psychological cost, for the private and public sector, there is a financial and strategic cost. Innovation never comes freely as there is always a price to pay. The question is, how far are we willing to go in the pursuit of reducing our environmental impact? In any case what is sure is that the more companies delay the inclusion of the concept of environmental impact in their innovative strategies, the more it will cost to make up for lost time.
If firms try to invest in the sustainable innovation market, not every individual is ready to do the same. Choosing public transit over cars, taking shorter showers, making your own laundry soap, buying in bulk, adopting slow fashion, eating meat-free meal: it costs us to change our habits. These daily-life innovations depend simply on our readiness to effect change. This one giant leap for man, although ordinary in its appearance, is one little but necessary step for mankind.
There is one last brake on responsible innovation. And to break the impasse, we will have to roll our sleeves up. Too often, unfortunately, our organizations are not conducive to innovation. It’s the very structure of our societies that defeats the purpose of stimulating creativity. Organizations’ hierarchies present themselves as vertical – there is a supervisor and supervisees with clearly defined roles and responsibilities. This structure is a pledge of productivity in some organizations, but it can hamper creativity. Indeed, this way of functioning does not promote transforming standard practices in order to innovate.
That is why collaborative efforts to leverage our innovative capabilities remain challenging. Our organizations seem to lack of any space for discussion, exchange of ideas, brainstorming – a space that would counteract the adverse effects of our very well-structured organizations. The old saying has never been more true, alone I go faster, together we go further. Thus, there is a real issue in trying to distort the structure of our organizations.
Rerouting innovation through coordination
Admittedly there is cause for concern. But rest assured, everything is in our hands to act. In fact, we can discern three ways to leverage our innovative capabilities to reduce the cost of negative externalities.
First, we can proceed from the common denominator of our organizations: mankind. Our best asset to break with the traditional codes of innovation remains our brain. Imagination is a pillar on which we have to base our thoughts. And we are all able to come up with a few ideas of innovation that can reduce our environmental impact. It is in this light that “adhocratization” of organization structure could help us increase our innovative capabilities according to Toffler. This neologism suggests instigating collaboration and commitment to break the limits of single tasking. The objective would be to create ad hoc entities employing a wide variety of personal profiles providing therefore a flexible and temporary structure with a specific purpose.
The last decades have seen the emergence of cross-disciplinary partnerships to leverage our innovative capabilities as a response to climate change and depletion of resources. The best example of this theory is so far the creation of Grameen Danone Foods Ltd (GDFL), in Dhaka. This program aims to fight poverty and malnutrition in Bangladesh and create positive social impact while being financially viable. This way to transcend the hierarchy can be a real game changer for organizations.
One thing’s for sure, the ecological transition cannot take place without a framework. We all live in an imperfect market that does not take into account externalities. And that is exactly why we need to set reference points. Since 2007, L’Oréal has committed to stop using any PVC-based material in its production. You may ask why. Polyvinyl chloride (PVC) films and PVC packaging that are to come into contact with food are not banned in the European Union. However, those films and packaging must comply with the EU’s Framework Regulation. This regulation is essential because it helps companies to focus their innovative capabilities on specific issues. And it permits them to reduce, little by little, their impact on the environment. In the case of PVC, the recycling process is extremely complicated and generates harmful toxins. Thus, this willingness to innovate in order to change the composition of products represents an additional cost for L’Oréal. But it also constitutes an investment in the future of the company.
According to the 2019 Carbon Disclosure Project Climate Change report, on average, the potential value of climate-related opportunities is nearly seven times their cost to realize. It is in this light that organizations cannot afford a race to the bottom. They must shift to a logic of continual improvement. This means that there should be a synergy between the public and the private sector. On the one hand the public sector should provide a framework and guidelines in order to reduce our impact on the environment. On the other hand, the private sector, should play along and consider these objectives as a stepping stone to a sustainable model. Regulations should not be an end in themselves.
Last but not least, if the stated objective is to build on all our innovative capabilities it is abundantly clear that there is a growing urgency to change our models. Of course, taking action for sustainable development is a first step, but to rethink our models is the next one. Ikea has taken the gamble to change its own. This organization has grown its reflection up to promoting “the future of furniture is circular”. It means that their ambition is to be 100% circular by 2030. With this production model nothing is lost, nothing is created, everything is transformed. By committing to this challenge, the firm fully displays its innovative capabilities in order to drastically reduce its impact on the environment. This project puts the environmental externalities at the heart of the production. This way of thinking might inspire others so that they can up their game.
All lights are green
The green race was launched years ago, and yet we are so far from the finish line. This must not be discouraging. We are trying to reconcile the irreconcilable; we are fighting against the consequences of the past. History is telling us that it is possible if we put all our innovative capabilities in the service of a sustainable future. All is not lost, even if we cannot afford to put off this issue for another decade. We have everything in our hands to innovate responsibly. So now it is our choice to innovate in order to reduce our environmental impact. Because it is certain that if we do not invest here and now in our planet, innovations to flee our planet will increase. If our survival depends on these innovations, it would mean that we have failed in protecting what we borrowed from our children. But more importantly, it would mean that we have led our planet to bankruptcy.
- Glossary of Environment Statistics, Studies in Methods, Series F, No. 67, United Nations, New York, (1997)
- Schumpeter, 1939
- Malthus (1798) Essay on the principle of population
- Christensen (1997) The innovator’s dilemma
- L’Oréal, 2019 Progress report, https://www.loreal-finance.com/system/files/2020-06/EN_2019%20L%27Oreal%20Progress%20Report.pdf
- Chris Ernst (2011) Finding innovation in the flattened organization, https://hbr.org/2011/01/finding-innovation-in-the-flat
- Link up with Michèle Francony on LinkedIn
- Read a related article: For a thoughtful and responsible innovation
- Discover and apply for the top-ranking ESSEC Master in Management (MiM)
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The Council on Business & Society (The CoBS), visionary in its conception and purpose, was created in 2011, and is dedicated to promoting responsible leadership and tackling issues at the crossroads of business and society including sustainability, diversity, ethical leadership and the place responsible business has to play in contributing to the common good.
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- Trinity Business School, Trinity College Dublin, Ireland
- Warwick Business School, United Kingdom.