What do you think of, when hearing that we need green/sustainable solutions and thus green/sustainable investments?
I bet that you are considering the need for reducing the CO2 emissions
– and you are right.
Through the long series of IPCC reports showing the impact of climate change, and the series of high level political (COP) meetings, many countries in the world have recognized, and agreed to, reducing greenhouse gas emissions.
However, green solutions are much more than that. Our human society rely heavily on natural resources and depend on well-functioning ecosystems. Thus, when deciding on environmental sustainable solutions, we need to consider a wider range of aspects in addition to CO2.
We have forgotten that sustainable and green is much more than CO2
Our way of life creates many challenges for the systems of our planet, at least if we want it to be habitable for centuries to come. Especially for the last 20 years, it has been recognized that the use of fossil fuels has several problems – it is a finite resource, and the usage creates waste products, one of which is CO2. Initially, ‘going green’ meant addressing a range of other problems using finite or limited resources (e.g. freshwater and rainforest timber) as well as pollution originating from human activities. The Brundtland report (Our Common Future) from 1987 truly got the global attention focused on’ sustainable development’. In the report it states that development, poverty and population growth “ … all place unprecedented pressures on the planet’s lands, waters, forests, and other natural resources”. The Commission focused on “… population, food security, the loss of species and genetic resources, energy, industry, and human settlements – realizing that all of these are connected and cannot be treated in isolation one from another”. As the quotes imply, this means that sustainable solutions require that we consider all the natural systems and resources.
This representation of the Sustainable Development Goals show that the economy and society is based on the foundation of the biosphere. Illustration: Azote for Stockholm Resilience Centre, Stockholm University
In this text I will not dwell in examples showing the degradation of the living systems on earth. If you watch Animal Planet, National Geographic, Discovery Channel or similar shows, you know well enough what I am talking about.
It is time to come return to the mindset: that we need sustainable and green solutions that consider a broad span of environmental impacts of human activities. Most natural resources and services are finite or in limited supply on our planet. The Planetary Boundaries paper (Rockström et al, 2009) highlighted some important supplies, and the economist Kate Raworth elaborated on this and developed the Doughnut economy concept introducing a ‘safe and just operating space’ of utilizing the resources for humanity while acknowledging the limited availability and ensuring availability for the needs of natural systems.
The problem of single factor optimisation in business
In the old days, developing a business was all about creating new products and services to serve an ever-increasing group of customers. Or strived towards optimising efficiency, productivity or performance of the business with a single end-goal in sight: profit.
However, such a narrow-sighted optimisation easily created adverse effect on other parts of a system. Optimising own production result in additional waste or pollution in other parts of the supply chain, society or nature. And these consequences were in the past not considered. Over time, this became apparent in relation to e.g. pollution and labour working conditions. Eventually, as pollution affected people and society, it was regulated. Nowadays, there is e.g. a focus on preventing hazardous substances in reaching our fresh water supplies.
The COP meetings have resulted in an agreement to minimize greenhouse gases and the ambition by EU to reach climate neutrality by 2050 is a clear goal. Businesses and other institutions are now taking up this challenge and preparing for a transition optimising on this parameter. However, it is extremely important that we as a society in this transition phase do not repeat old mistakes: Optimising on a single parameter!
Systems thinking is exactly that: to consider problem solving in the context of the overall system and not by fixing the immediate problem at hand with one of the components
The CO2 focus, and climate impact of products and services is all well and fine. However, only as one aspect out of many environmental issues to be considered when developing green businesses or investing green. That makes the task of evaluating potential impacts very complex to handle. Decision-making is much more difficult when you need to weigh different options and make trade-offs, as a solution cannot be optimal on all parameters. The essential point is that there are some things, that you cannot trade off. In the development of a new products using alternative resources it may be difficult to sense what the impact will be, and thus if using the alternatives is at all a better solution. Systems thinking is exactly that: to consider problem solving in the context of the overall system and not by fixing the immediate problem at hand with one of the components. To ensure unintended consequences, a holistic view, looking at the relationships among components and other systems is required.
The devious thing called sustainability
Sustainability in short is about planet, people and profit. Many businesses have adopted the CSR and triple bottom-line ideas, which is fine. In the recent years, the Sustainable Development Goals (SDGs) have gained momentum, and there is a broad recognition in businesses and society that we need to do something. Many of the SDGs are centered around developing societies to ensure human health and well-being, and though important, we need to acknowledge that our society is based on resources and ecosystem services that are provided to us by the planet. We can use these resources, but we cannot negotiate or off-set overuse. We can only stop using natural resources, try to protect or seek to restore the natural systems and the resources. Integrity of the natural systems are the fundament for many of our basic needs such as food, protection from landslides or coastal degradation. This means that usage of a wide range of natural resources needs to be considered in society and in production of products and services. The sustainability issues of people and profit are not on equal terms with those of the planet. This does not mean that people and economy are not important. They truly are. However, development of society and industries are the domain of people and we can discuss and debate, and through policies underpin the direction. Whereas certain activities impacting nature and the earth systems, are simply non-negotiable. Environmental sustainability is therefore essential and thus at the base of the SDGs in the depicted graphic from Stockholm Resilience Center.
So, what is environmental sustainable?
It is agreed that the consumption of fossil-fuel should be stopped and limit the usage of fossil resources to extremely low levels and only for necessary products or services. An airplane that is 10% better in fuel consumption is thus not ’sustainable’ though it might be better than its predecessor. Truly sustainable solutions would not have impact on natural systems, to an extend that is more than the systems can cope with and manage to regenerate to maintain the planetary homeostasis.
In the case of the fuel consumption of the airplane, we do in principle have enough renewable energy available for our societal needs, we just need to learn how to capture and control it (store and distribute it from production sites to where it is needed). So in the long run, we should be able to solve the energy needs by other means than fossil fuels.
A range of resources and ecosystem services are in limited availability or degrading through usage. It is difficult to get an overview of all the possible consequences that human activities cause on the natural systems. The planetary boundaries paper pointed at some of these suchs as freshwater use, land-system change, biochemical flows, ozone depletion, acidification. Many of which are incorporated in the life cycle assessment (LCA) framework where there are also more impact categories. They include eutrophication, ecotoxicity, non-living resource use (fossil and mineral), living resource use (e.g. fishing or wood logging), noise, and pathogens.
Life Cycle Analysis (LCA) is an ISO-standardised methodology for quantifying environmental impacts of products or services in a life cycle perspective, i.e. from extraction of the raw materials, to manufacturing and use, as well as recycling or final disposal. Over the past decades, LCA has been widely used for products to ensure as low environmental impacts as possible.
There is hardly any human activity not affecting the environment, and fortunately for us, the earth systems are resilient and can cope with some disturbance. Humanity may need to agree what the best usage is and make priorities that goes beyond enterprise level. But the discussion of potentially looking at ‘absolute sustainability’ is another story …
What to consider when evaluating new green solutions and business opportunities from an investor perspective?
As described previously green is much more than CO2 – it is all the environmental implications that business activities generate. It would be great to have a single tool to systematically consider other environmental sustainability criteria than the mitigation of climate change. In this, systems thinking is needed to ensure that solutions do not have unintended consequences for other parts of the earth systems. However, there are no recommended or established environmental sustainability methodologies though some concepts exists that can assist (e.g. life cycle thinking and the concept of ecosystem services) and by looking at progress towards the environmental parts of the Sustainable Developments Goals.
In general, a good business case will show how the initial costs will be recouped, and the business will grow. Ideally, the business will scale and obtain some economies of scale and perhaps expand to other countries. These characteristics may still be valid for new green business opportunities – but they may also contradict. The two major characteristics – scale and place – need also to be taken into account in terms of environmental sustainability.
the principle of defining the limits for possible locations for a green solution, is something that is too often forgotten
There are several factors to take into consideration when dealing with natural ecosystems. First of all, we need to be aware that all ecosystems are not alike, and thus no single solutions will work everywhere – the place that you decide to run your business matters.
E.g. if you want to produce tomatoes, you would prefer a sunny site with plenty of water. This will not solve the need for food in a desert area, and if you want energy from the sun, it would not work well in wintertime in polar regions… It sounds obvious, however, it puts limits to the growth potential of a tomato or sun-energy business, and the principle of defining the limits for possible locations for a green solution, is something that is too often forgotten.
The scale is another issue. Many new businesses aim to produce bio-based products. This is great. As long as there is enough biomass to begin with. Often the biomass is scattered over a larger area. This will require a lot of transportation to collect the material into the central processing plant – or – to develop a mobile plant or cheap smaller processing units that can be widely distributed.
If you miss out on these considerations it can have wide consequences. The resent Danish strategy to build large-scale facilities using biomass from trees for heat an electricity production, has shown to be a failure. Using trees to cover societal energy needs does not work on national scale. The increase of large facilities has led to an increased demand for wood that surpasses the possible supply from Danish forests. Thus, Denmark is increasingly dependent on import of wood pellets from other countries. As plants has also been built in other countries the inflated demand is now effecting the global supply of wood for other uses and encouraging a unsustainable level of logging in some countries.
While developing the use of biomass for energy production really makes sense in places where there is a surplus of otherwise unused biomass – e.g. producing biogas from seaweed collected along the shores in certain coastal areas. It will probably never go beyond being a sustainable solution in small scale and very specific locations.
So, what to do? – Analyse the environmental sustainability before investing
Before investing in a new green solution it is necessary to analyse the wider implications on the natural systems. At BioCircular we are focusing on this. We wish to develop the considerations above into a framework that allow for analysing the potential of new solutions – not the economic viability of the business plan, not the implications for society or worker health – but the environmental sustainability.
The advantages of doing such an analysis up front are many:
First of all, is the business solution truly green and environmental sustainable and not only fixing a single problem? This is key for the trustworthiness of the business and the accountability of investors. The risk of bad publicity is high, if detrimental environmental consequences have been overlooked.
Secondly, knowing the limits for scalability sets a cap for the investment – or allow for adaptation of the business model to overcome the limitations before proceeding too far into developing the business.
Third, a truly sustainable solution ensures the risk of future rules and regulations impacting the business is low and thus warrants a viable business in the long run (at least from an environmental perspective).
If you wish to start think about sustainability in your business model, and are familiar with the Business Model Canvas then I suggest to have a look at this blogpost describing a few of the available sustainability tools that adds onto the Business Model Canvas.