Business Issues and Trends 306
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Week11-NaturalCapitalism.pptxBUS306: Contemporary Business Issues and Trends
Lecture Week 10:
Natural Capitalism
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Recognition of Traditional owners and Indigenous cultures
Charles Darwin University acknowledges the traditional custodians of the land on which we’re meeting and pays respect to Elders both past and present and extends that respect to all Aboriginal and Torres Strait Islander people.
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Learning objectives
Upon completion of this week’s topic, students should be able to:
Understand natural capitalism as a business trend, and its basic principles.
Examine the business case for natural capitalism and why companies must pay attention to it.
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Learning objectives (cont’d)
Upon completion of this week’s topic, students should be able to:
Learn about the key challenges that undermine activities and practices towards a natural capitalism goal.
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PART 1: Natural Capitalism
Natural Capitalism
Background
Two-hundred and fifty years ago the first Industrial Revolution emerged, driven by a shortage of human labour. At the time, the relative scarcity of people was limiting progress and exploiting seemingly boundless nature.
Today, the world is constrained increasingly not by a shortage of boats and nets, but of fish; not of ploughs, but of fertile land; not of chainsaws, but of forests.
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Natural Capitalism
Background
The next industrial revolution that has characterized many business trends today is that we have abundant people but scarce nature (energy, water, fibre, minerals, topsoil).
Our economic and accounting systems are flawed because they fail to take into account the resources and services we get "free" from nature – It is time for natural capitalism approach.
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Natural Capitalism
Definition
Natural capitalism is a system of four interlinking principles, where business and environmental interests overlap, and in which businesses can better satisfy their customers' needs, increase profits and help solve environmental problems all at the same time (Lovins et al., 1999).
Amory Lovins describes how through Natural Capitalism business can be more efficient and productive, and solve environmental problems as profits soar.
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Source: https://www.environmentandsociety.org/mml/natural-capitalism-creating-next-industrial-revolution
Principles of Natural Capitalism
Natural capitalism entails a change in the form of business transactions from occasionally making and selling things, to providing a continuous flow of value and service.
The journey to natural capitalism involves four major shifts in business practices, all vitally interlinked:
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Principles of Natural Capitalism
Principle 1: Dramatically increase the productivity of natural resources
Through fundamental changes in both production design and technology, farsighted companies are developing ways to make natural resources - energy, minerals, water, forests - stretch 5, 10, even 100 times further than they do today. These major resource savings often yield higher profits than small resource savings do.
Implement resource savings design systems
Adopt innovative technologies
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Principles of Natural Capitalism
Examples – P1:
LEAN Manufacturing
Six Sigma - process improvement
Muda - elimination of waste
Kaizen – continuous improvement
Interface Corporation (carpet tiles)
Redesigning factory pump system
Bigger pipes (less friction)
Smaller pumps (reduce pumping costs)
Smarter pumping loop design & factory layout (increase efficiency)
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Principles of Natural Capitalism
Principle 2: Shift to biologically inspired production models
In closed-loop production systems, modeled on nature's designs, every output either is returned harmlessly to the ecosystem as a nutrient, like compost, or becomes an input for manufacturing another product.
Create new products and processes to prevent, or reduce waste.
Eliminate any materials that incur disposal costs, especially toxic ones
Such systems can often be designed to eliminate the use of toxic materials, which can hamper nature's ability to reprocess materials.
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Principles of Natural Capitalism
2. Shift to biologically inspired production models
Biomimicry has emerged as a common strategy in natural capitalism. Biomimicry recognises the success of the natural world in developing the most efficient, closed-loop systems and refined designs for a wide range of natural applications that may be relevant to human needs:
The most efficient and effective designs have been honed over millions of years of evolution
Nothing is waste in the natural environment – one system’s waste is consumed as another system’s food
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Principles of Natural Capitalism
Example – P2:
Architects of this building in Zimbabwe have modelled its ventilation systems on termite mounds. Throughout the day and night, termites open and close a system of vents and ducts to maintain a constant internal temperature of exactly 30.5 ºC.
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Source: https://www.abc.net.au/science/slab/natcap/
Principles of Natural Capitalism
Principle 3: Move to a solutions-based business model
In the new model, value is instead delivered as a flow of services -- providing illumination, for example, rather than selling lightbulbs. This model entails a new perception of value, a move from the acquisition of goods as a measure of affluence to a service based performance.
A solutions economy changes the business model so that the provider of a service and the customer both get rewarded for the same thing:
Resource productivity
Closed-loop manufacturing
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Principles of Natural Capitalism
Example – P3:
Schindler would rather not sell you any of its excellent lifts. Schindler believes that its lifts use less energy and less maintenance than many competing ones. So Schindler continues to own the lift, pay its operating costs which are lower, and then lease you a vertical transportation service, because all you wanted was the service of moving up and down. You both make more money because the system’s more efficient.
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Principles of Natural Capitalism
Example – P3:
Interface moves from making and selling carpets to making and leasing floor covering services. Through Evergreen Lease Interface leases floor covering services for a monthly fee – with Interface maintaining (cleaning, replacing, recycling) floor covering during term of lease.
Benefits?
Tax advantage for customers – capital expenditure now a tax deductible expense
Interface have responsibility for process (tiles, recycling, rotate position) less cost to produce, less waste.
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Principles of Natural Capitalism
Principle 4: Reinvest in natural capital
Business must restore, sustain, and expand the planet's ecosystems so that they can produce their vital services and biological resources even more abundantly.
Pressures to do so are mounting due to the following reasons:
Human needs expand
Costs engendered by deteriorating ecosystems rise
Environmental awareness of consumers increases. :
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Principles of Natural Capitalism
Example – P4:
For Coca-Cola, the issue was to ensure ongoing access to water — both liquid flows and social support on license to operate — which has led to investments outside of its corporate facility fence-lines to improve upstream watershed structure and function.
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Principles of Natural Capitalism
Example – P4:
For Apple, the focus is on an innovative and aspirational approach with which to address corporate paper and cardboard uses and associated forestland impacts. Reliance has led to investment.
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Principles of Natural Capitalism
Example – P4:
For TD Bank, the issue was to align values with the business and differentiate. Therefore, the bank also has made investments in protection of nearly 3,000 hectares of North American forest through the TD Forests program, bringing the total to nearly 13,000 hectares since 2012.
Other prominent companies — including Unilever, SwissRe, Royal Dutch Shell, along with the NGO The Nature Conservancy — that assert investing in green infrastructure and hybrid green/gray infrastructure i
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PART 2: Business Case for Natural Capitalism
Business case for Natural Capitalism
Unified metric
Monetization allows to compare different environmental impacts such as "hectares of land use” or "tons of nitrogen emissions” as they are translated into one unit. Therefore, integration in corporate decision-making tools such as cost-benefit-analysis is possible.
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Source: https://events.sustainablebrands.com/sb17cph/updates/creating-value-for-society-and-the-environment
Business case for Natural Capitalism
2. Identification of hotspots in business process
Identification of hotspots in the supply chain and risk management. Potential disruptions, due to environmental damages or resource-scarcities can therefore be avoided and sustainability initiatives can be targeted more efficiently to where they have the biggest impact.
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Source: https://events.sustainablebrands.com/sb17cph/updates/creating-value-for-society-and-the-environment
Business case for Natural Capitalism
3. Reputation and consumers
In times of increasing awareness for sustainability and environmental issues, environmental damages are a reputational risk. Natural capital valuation permits to compare the sustainability performance of two products or companies. With this increased transparency sustainability can become a competitive advantage.
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Source: https://events.sustainablebrands.com/sb17cph/updates/creating-value-for-society-and-the-environment
Business case for Natural Capitalism
4. Value for society
Many companies, especially industries with a major direct impact on nature, such as extractives, use natural capital valuation to highlight the benefit they are creating for society due to rehabilitation of the sites. The valuation is thus a tool to strengthen the "social license to operate”.
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Source: https://events.sustainablebrands.com/sb17cph/updates/creating-value-for-society-and-the-environment
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PART 3: Challenges of pursuing Natural Capitalism
Challenges of pursuing Natural Capitalism
Active or passive resistance by incumbents
Here the key problem is that "most organisations have an energy using and generating asset based on fossil fuels." From the organisation's viewpoint, moving away from fossil fuels looks both "risky and costly." The shift to new forms of capitalism dedicated to building multiple forms of capital looks even riskier.
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Source: https://energyathaas.wordpress.com/2020/01/06/fossil-fuels-are-dead-long-live-fossil-fuels/
Challenges of pursuing Natural Capitalism
2. Ignorance, fundamental beliefs, and denial
Most people, from the general public to elected and corporate decision-makers, understand neither the nature of the problem nor the crucial role of natural capital stocks. Others who do understand are in denial, or are unwilling to take any necessary action.
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Challenges of pursuing Natural Capitalism
3. Economic abstraction, deviant operating models and knowledge
Some are confident that human ingenuity and technological progress will be able to substitute for ecological losses. Evidence shows that some of our socioeconomic abstractions are barriers to investment in natural capital.
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Source: https://www.shutterstock.com/search/economy+cartoon
Challenges of pursuing Natural Capitalism
4. Policy and regulatory structures
Amory and his team note that, "some existing policies and regulatory structures impede energy transformation, so they must be changed or replaced to enable and accelerate it." System change is easy to talk about and harder to effect than most of its champions imagine.
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Source: https://www.mbie.govt.nz/cross-government-functions/regulatory-stewardship/
Challenges of pursuing Natural Capitalism
5. Lack of long-term leadership
It is an increasingly inconvenient truth that changing the energy strategy of a company, state, or nation requires planning and stewardship over decades – a far long time period then profit or election horizons. Sustainable leadership brings opportunities to the organizations in the shape of innovation, continuous improvement, sustained competitive advantage, and long-term success.
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Challenges of pursuing Natural Capitalism
6. Dilemma between economic expansion and ecological integrity
The physical separation between consumption and production, further reliance on electronic media rather than direct experience, the fast-paced integration of the global economy, energy intensive settlements infrastructure and the loss of local political autonomy amplify the dilemma between economic expansion and ecological integrity.
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Source: https://naturalscience.tcd.ie/natureplus/
Relevant reading List
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1. Hawken, Paul, Hunter Lovins and Amory Lovins (1999). Natural Capitalism: Creating the Next Industrial Revolution. New York: Little, Brown & Company. Available here: http://www.reconomy.org/wp-content/uploads/2011/11/1.8-natural-capital-hbr-roadmap.pdf
2. Hawken, P., Lovins, A. B., & Lovins, L. H. (2013). Natural capitalism: The next industrial revolution. Routledge. Availa ble here: https://www.taylorfrancis.com/books/mono/10.4324/9781315065755/natural-capitalism-paul-hawken-amory-lovins-hunter-lovins
3. Lovins, A. B., Lovins, L. H., & Hawken, P. (2007). A road map for natural capitalism. Understanding Business: Environments, 250-63. Available here: https://aisel.aisnet.org/misqe/vol19/iss3/7/
4. Feola, G. (2020). Capitalism in sustainability transitions research: Time for a critical turn?. Environmental Innovation and Societal Transitions, 35, 241-250. Available here: https://www.sciencedirect.com/science/article/pii/S2210422418301576
5. Unruh, G. (2018). Circular economy, 3D printing, and the biosphere rules. California Management Review, 60(3), 95-111. Available here: https://journals.sagepub.com/doi/full/10.1177/0008125618759684
Relevant reading List
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6. Blok, V., & Gremmen, B. (2016). Ecological innovation: Biomimicry as a new way of thinking and acting ecologically. Journal of Agricultural and Environmental Ethics, 29(2), 203-217. Available here: https://link.springer.com/content/pdf/10.1007/s10806-015-9596-1.pdf
7. Geisendorf, S., & Pietrulla, F. (2018). The circular economy and circular economic concepts—a literature analysis and redefinition. Thunderbird International Business Review, 60(5), 771-782. Available here: https://onlinelibrary.wiley.com/doi/full/10.1002/tie.21924
8. Harman, J. (2013). The shark's paintbrush: Biomimicry and how nature is inspiring innovation. Hachette UK. Available here: https://play.google.com/books/reader?id=UQp9DAAAQBAJ&pg=GBS.PA1&hl=en
9. ABC Radio National (2000). Natural capitalism – Late Night Live with Amory Lovins. Available here: https://www.abc.net.au/science/slab/natcap/
Thank you!!!
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