Bo Anne-May de Boer, BBA student at IE Business School, and runner-up in the 2022 CoBS student CSR article competition, looks at the benefits companies will gain for going green and explores several ways in which they can capitalize on existing resources, nature itself, and innovations in their supply chains.
Sustainability: This Buzzword May Lead to Your Next Business Opportunity by Bo Anne-May de Boer.
Great, we have recognized the need for sustainability – now how can we make it a reality? Firms are facing increased pressure from law-makers and customers to engage in sustainable practices such as by decreasing their carbon emissions, reducing waste or recycling. Now corporations are left with little choice: they must act. The best way forward is to embrace sustainability and create value for the customers and the companies themselves. But how?
What the fuss is all about: The pressures that organizations are facing from a series of relevant stakeholders
Particularly since the introduction of the 2015 UN Paris Agreement many countries have placed more importance on decreasing their environmental impact (United Nations). Similarly, the European Union’s “Green Plan” highlights their aim to be the first climate-neutral continent. A big part of the UN and EU ambitions is formed by achieving zero net emission of greenhouse gases by 2050 (European Commission). As a result, corporations are experiencing increased urgency to engage in sustainable business practices.
As new laws that aim to regulate companies’ environmental impact are put in place, firms are forced to change their operations. Simultaneously, customers are more aware of their environmental footprints leading to changing customer demands. On an environmental front, these demands revolve around active involvement in the care for the environment by reducing greenhouse gas emissions – such as carbon dioxide and the offering of more environmental-friendly products.
While sustainable practices were not initially a great interest for many for-profit organizations, they are now forced to get involved in order to stay competitive and relevant. To make the most out of this pressure is to react innovatively and create new value streams for themselves and their stakeholders.
It’s getting hot in here: What is low carbon practice and why is it relevant?
Carbon on its own is a chemical element that is found in many compounds that are made up by the combination of elements (Britannica). It also forms a very common and harmful greenhouse gas: carbon dioxide (CO2). Carbon dioxide is the primary greenhouse gas (GHG) emitted through human activities, accounting for 80% of GHG emissions in the United States in 2019 (EPA). As mentioned, CO2 is greatly harmful to the environment as it is a major concern for global warming. For example, in the legally binding international treaty, the Paris Agreement, 193 parties agreed to reduce the GHG emissions to prevent the global temperature to increase by 1.5 degrees Celsius compared to pre-industrial levels. As the current global temperature is only 0.4 degrees Celsius away from this benchmark, there is an increased fear of global warming consequences (United Nations). Therefore, carbon dioxide emissions must be reduced – urgently.
Firms are able to support the mission of keeping the global temperature below the 1.5-degree Celsius benchmark by incorporating low carbon practices. Low carbon practices are characterized by the low levels of carbon released throughout the entire value chain of a company. Companies may do this in various ways: by adapting their supply chains, replacing materials or resources, reducing their output to decrease operations, or even through more innovative solutions.
The role of low carbon practices is relevant to reach net-zero goals, and is perhaps the most effective way of attaining the 2050 deadline. This is because firms came up with innovative ways to reach net zero goals without actually having much impact. How is that possible? Firstly, many firms, such as confectionery producer Zentis GmbH, offset their carbon emissions by planting trees around the world by financing third party tree-planting organizations (Zentis). This means, they are not adapting their actual practices, but rather offsetting the carbon they produced with temporary solutions. Secondly, solutions such as carbon offsetting are hard to track, meaning companies can greenwash easily. Contrarily, changes in business practices offer a more reliable, measurable and impactful way to determine a firm’ involvement in decreasing their carbon effects.
From boring to brilliant: Sustainability is not as uninteresting as it may seem
You may think that talks about carbon dioxide seem repetitive or boring. However, it is the key for driving positive change. Sustainability is not just a buzzword – it is a business opportunity. Some firms have discovered this for themselves by creating new value, not just for the customers, but also for their own benefit, while implementing more low carbon practices.
As previously learned, through the limitations posed by laws, regulations and pressures, companies are forced to adapt. To do so, some companies have been creative and innovative in order to establish competitive advantages, generate new revenue streams, increase their client base, or decrease their costs. So, how can decreased carbon dioxide emissions lead to increased company success?
The beauty of nature: Taking naturally replaceable resources to create value
One common way to reduce carbon emissions is by making use of ample, naturally occurring resources, such as sunlight, wind or water. These substitutes for energy generation in form of solar, wind and hydraulic power, make the need for high CO2 emitting alternatives, such as fossil fuels or coal, redundant. For firms, the implementation of natural substitutes creates value in the shape of decreased costs of production in the long-term as sun, wind, and water are free of cost and they omit new carbon taxes. It also supports firms’ long-term relevance, as transitioned companies can remain competitive in a carbon-neutral world, and will attract sustainability-driven customers from competitors to expand market-share.
An example of a firm that has embraced the switch to low carbon practices and are creating value is Apple. Already in 2016, Apple was running 93% of its overall global operations on renewable energy (The Climate Reality Project). This set an example for Apple’s competitors, giving them a first mover advantage.
Aside from energy efficiency, substituting the materials of a product with renewable and natural processes also helps reduce carbon dioxide emissions. For example, Pangea Organics has implemented the natural process of composting and plant growth in their packaging of body products. The firm created packaging for their products that contains seeds and is entirely biodegradable (Sweeney).
This means that the boxes can be planted in soil causing new plants will grow as a carbon offset, and the composability follows a natural process. This reduces the need for recycling, burning or waste, all leading to increased CO2 levels or environmental harm. Pangea Organics’ innovative take on low carbon practices gained them great media awareness. Their unique selling proposition through sustainable approaches to product design helped them with an increased customer base and established a competitive advantage.
Sustainability is like ‘two birds with one stone’: Twice the value in one process
Sustainable practices have helped firms search for creative solutions in how to continue their business offering, or how to improve it. One way in which firms tend to improve their business is by increasing their efficiency. This often means reducing lead times, increasing productivity and generating more output. While the increase of output may initially sound counter intuitive to what sustainability stands for, it can actually be a way to reduce carbon emissions and improve sustainable practices.
Firms can be more efficient by implementing the business model of co-product generation. The idea here is to get twice the number of sellable products in one process, reducing the carbon levels for each product. For example, in the process of creating sugar, British Sugar, also produces animal feed from the by-products of the sugar. This reduces waste, and provides them with two marketable products to sell and generate revenue. Both products will also have a lower carbon impact, as the carbon emissions produced are divided over them all.
One’s waste is another man’s treasure: How waste turns into a raw material
In a supply chain, carbon dioxide emissions are produced at all stages: including the supplier. In the initial raw material phase agricultural practices can be GHG emission intensive: from farming, to machinery for processing, to transportation and more. To reduce the carbon emissions at this stage, some companies use the waste of others. This also reduces the carbon emissions at the waste management stage at the end of a product lifecycle, where burning plays a great role in carbon emissions.
The name for the use of byproducts or waste of one firm as an essential product for another is called industrial symbiosis. This low carbon practice is embraced by Toast Ale, a beer producer. They take excess bread and the surplus of baked goods from bakeries, grocery stores and more as the main ingredient for their beer (Toast Ale). Their innovative idea of using bread as a substitute for barley has helped avoid 48 tons of GHG emissions and saved over 2.5 million slices of bread (Toast Ale).
A second life: Creating value while omitting carbon-intensive production processes
Another way to reduce the carbon emissions and create value for customers and the company is a concept known as “next life sales”. Next life sales are a creative solution to resell used products as certified second-hand goods. This means, that a company can enjoy the revenue of a product twice – once as a new good, and once as a certified resold good. This creates monetary value for the firm, while also creating value for a customer who can benefit from increased product accessibility.
For example, Lely, a Dutch agricultural machine manufacturer produces a robotic milking system for cows, called Astronaut (Lely). Sometimes, a machine is returned or machines are bought back by the company when a client wants a newer model or it is damaged. Lely has put in place a certification process where their second-hand Astronaut machines undergo tests and refurbishing (Lely). When ready for resale, they are labelled as being “Taurus certified” and are ready to be sold in a “next life sale.” By omitting the need for more production to earn revenue, Lely has managed to find a low carbon practice to create more revenue with minimal cost and effort.
Sustainability: From limitation to value creation
Companies are forced to become more engaged in sustainable operations by law-makers, customers, pressure groups and other stakeholders. In order to stay relevant in the market, to compete with competitors or to benefit from financial or marketing-related perks, firms are forced to act – and they are. Increasingly more firms are becoming involved in low carbon practices in creative and innovative ways. Some ways include embracing the resources provided, and processes crafted by nature, while others involve adaptations to the supply chain in order to create double the value in one process.
Firms are learning that by helping the earth, they are helping their business. They are learning to use sustainability as a vehicle to drive value for customers and themselves. However, what will happen when these innovative ideas become outdated? How might new value be created?
- Link up with Bo Anne-May de Boer on LinkedIn
- Read a related article: Corporate sustainability: Far from just plain green
- Discover and apply for the BBA program at IE Business School, IE University.
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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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