What’s the role of the environment in business success?
This post first appeared on the CBI’s The Great Business Debate.
The environment has been the bank that keeps on giving for business: it is the source of materials, and the sink for waste products. The sheer size of our oceans and continents and the absorption capacity of the atmosphere has meant that this free business support service has been central to many companies’ success. But it has also come at a cost, both to our natural world, where demand for natural resources is contributing the ‘sixth great extinction’, and to the stability of the natural support systems on which business and its customers depend. The compound stresses on energy, water and food supplies means that we can no longer assume they will continue to be provided in the quality and quantity we have come to expect.
The best companies understand this: that the environment is both a business constraint and an opportunity. Limiting carbon pollution is bad news if your business is extracting high carbon coal, but very good if you provide low or no carbon energy. If such constraints are codified clearly and consistently in law, they drive innovation and investment, as we have seen in the British motor industry and the energy supply sector. These sectors would not have undergone their current modernisation without the low carbon fuel standards set by government.
Business has taken the lead on the circular economy
Business action has been critical to the delivery of the first phase of the low carbon transition, helping to bring down the cost of renewable energy, investing in new energy efficient goods and services, and bolstering confidence amongst policy makers who were nervous about whether it could be delivered. It is also striking that leading thinking and practice on the circular economy (which moves from a linear take-make-dispose model to ensuring materials have at least a second and third life) is emerging first from business. It is now common to hear companies express frustration at how passive government is in the face of natural resource risks.
Unfortunately policy making is becoming more reactive and less strategic, largely in response to the weakening public mandate of political parties, but also because of government’s self-denying ordinance on regulation.
The case for smart regulation
This is where business has a responsibility to help remove the ideological barrier to higher environmental standards, by making the case for smart regulation. Higher standards, through regulation, will be far more important than public spending in stimulating new private investment in sustainability outcomes; however, they are frequently blocked by politicians on the assumption they will be bad for business.
A recent example was the European Commission’s decision to drop the circular economy package developed after four years of consultation and aimed at raising the resource productivity of the European economy. Fortunately many NGOs and businesses objected and we will see a new package tabled later this year, but making sure it gives incentives for new business models in resource recovery and remanufacture will require clear business support for new regulation, which raises the bar for the worst performing and rewards the leaders.
The environment, which links us all together, is the agenda on which business and government can demonstrate a higher purpose to a sceptical public. We can use the ‘learning by doing’ of the past few decades to drive the next phase of the sustainability transition, and ensure the benefits are shared with citizens.
The environment can only keep underwriting business success if business can operate successfully within the boundaries it sets for life on earth. In the absence of divine guidance it is rules agreed by democratic government which are our best hope of staying within them.