Frugal value designing business for a crowded planet
Frugal Value Designing Business for a Crowded Planet
‘Millstone silences the happy talk about business sustainability and brings the sustainability concept down to earth, literally. Brilliantly, she shows what sustainability truly requires for both individual businesses and for the economic system as a whole. Persuasively argued and well written, Frugal Value is a path-breaking synthesis that deserves an audience far beyond the business community.’ James Gustave Speth, former Dean, Yale School of Forestry and Environmental Studies, and author of America the Possible: Manifesto for a New Economy ‘Ambitious, serious, and inspiring. At last someone’s asking the right question. What will it really take to get business on a sustainable path? Millstone’s unsparing critique of what passes today for “sustainable business” will provoke furious debate; her alternative lays out an agenda for business to become a real force for good. Required reading.’ Paul Gilding, Former Executive Director of Greenpeace International ‘Corporate sustainability has made some progress over the last two decades, but nothing
like enough. Carina Millstone’s insightful book calls time on the “business case rationale” for companies trying to do the right thing, and urges instead a more radical “moral case”, based on new design and operational principles.’ Jonathon Porritt, Founder Director, Forum for the Future ‘A well-informed and forthright challenge to conventional wisdom. Love it or hate it, just read it! This is the spirited debate we need today.’ Ken Webster, Head of Innovation at the Ellen MacArthur Foundation ‘A book that is unique and much needed … The title will present a new concept, but it is an important one, which I hope will be accepted into common parlance.’ Professor Neva Goodwin, Co-Director of the Global Development and Environment Institute, Tufts University ‘Frugal Value reminds us that sustainability – despite its widespread abuse as a concept over the past 30 years – remains non-negotiable. The Planet cannot be “traded off” for profit any more than oxygen can traded off for food. Frugal Value is a wake-up call to business leaders and sustainability practitioners alike: neither the “business case for sus tainability” nor current “sustainable consumption and production” practices will get us anywhere near to the biodiverse and ecologically secure future we need to survive and thrive. Millstone calls attention to the elephant in the room – the current failure of so-called sustainable practices – and with skilful analysis, sketches out a more ambitious, transformational path: the imperative of redesigning our economic system and business models to achieve frugal value.’ Professor Wayne Visser, Cambridge Institute for Sustainability Leadership, and author of Sustainable Frontiers ‘This tough-minded book isn’t afraid to cast aside the cherished shibboleths of sustainable business. It asks the hard questions, and points the way forward with challenging answers.’ Professor Jem Bendell, Institute For Leadership And Sustainability (IFLAS), University of Cumbria ‘Far from frugal, this book’s recipe for achieving customer satisfaction is through massive reduction in resource use and wide social benefit rather than by sidestepping these issues. I can’t recommend more that you read it.’ Sara Parkin, Founder Director of Forum for the Future and author of The Positive Deviant
This book would not have been written without Irene Krarup, Neva Goodwin and the trustees of the V. Kann Rasmussen Foundation, who all understood from the very beginning what I sought to get at with this project. For their enthusiasm, confidence and generous support I am deeply grateful. Many academics, activists and students have provided feedback on this work at different stages of its elaboration. I would particularly like to thank André Reichel; John Blewitt; Sophie Dunkerley; Halina Brown and her students at Clark University; Ben Cattaneo; the teams at the New Economy Coalition and at the Institute for Policy Studies in Boston; the private sector team at Oxfam UK; the team at the International Institute for Environment and Development; the team and fellows of the Global Development and Environment Institute at Tufts University; Ian Roderick and the fellows of the Schumacher Institute; and the students of Forum for the Future. For enlightening conversations I would like to thank Tim Cooper, Howard Brown, Donnie Maclurcan, Gus Speth, Gar Alperovitz, Leslie Harroun, Katherine Trebeck and Emily Benson; and, for research, design and support in other ways, Kasia Hart, Sandra Moore, Allison Meierding, Claire Maxey and Daniel Millstone. Thank you to the team at Greenleaf Publishing, especially Rebecca Macklin and Victoria Halliday, for their guidance and patience. And, finally, thank you to Noah Millstone, for unwavering support and encouragement, fierce criticism and endless hours of lone parenting.
Introduction: the failure of sustainable business
This book is a challenge: a challenge to entrepreneurs, to business leaders, and to those who believe in sustainable business. For while there are already many books advocating “sustainable” business methods, the companies they describe cannot really be called sustainable. Frugal Value sets the record straight; it gets rid of the tinkering, the tokenism and the greenwash; and tries to re-imagine from the bottom up how companies could address the socio-environmental challenges of our time. What does business as a force for good look like in our age? Businesses help deliver a high quality of life by providing many of us with goods and services at work and home. But business also comes at a high price. Many companies have inadvertently exacerbated or created some of the greatest challenges that we face today. All business activity requires resource use, and creates pollution and waste. Private-sector firms have helped bring the Planet to its knees, pushing us to the verge of environmental catastrophe, with staggering implications for human wellbeing, security and health. Recognising these dramatic, often accidental, effects, many companies have sought to become “responsible”, better corporate “citizens”, by adopting “sustainable” business practices. But good intentions have failed to stem the tide of pollution and waste. In this introduction, I identify three key reasons for this failure: first, a failure to understand sustainability itself; second, a misguided over-reliance on creating business cases for sustainability; and, third, an overly narrow focus on technical interventions.
2 Frugal Value There is a great deal of confusion about what the terms “sustainable” and “sustainability” actually mean. They have somehow become words that are OK to abuse and misuse, and which “mean different things to different people”; nowadays, people often throw around the language of sustainability to describe anything from cosmetics to oil rigs. In fact, a commonly accepted definition of the term was coined almost 30 years ago by the United Nations (UN). The famous Brundtland Report of 1987 defined “sustainable” development as development that “seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future” (WCED, 1987: 39). By extension, the noun sustainability describes conditions or a state in which meeting present needs does not compromise meeting future needs. As detailed throughout the report, the meeting of need, today and in the future, rests on a sound ecological basis. The safeguarding of our planetary ecosystem is at the heart of sustainability. This was true 30 years ago, and remains true today. What has changed is the urgency of sustainability. When the report was written, the environmental crisis was just around the corner; today, we have turned that corner. The most obvious manifestation of this challenge is climate change; but human activities have also led to resource depletion, biodiversity loss, mass species extinctions, ocean acidification and freshwater scarcity. This new context has only intensified the need to protect the claims of future generations. And if the fractious UN managed to agree nearly 30 years ago on what sustainability was all about, we have no cause for confusion. Any claim to “sustainability” must be scrutinised carefully in light of these definitions. If a “sustainable” product is not helping meet needs now, nor safeguarding our ability to meet future needs, “sustainability” is simply a PR stunt, or a lie. By remembering the meaning of sustainability, we can easily see how far this term is misused. Sometimes it means nothing: business-asusual. Sometimes it refers to efforts to reduce the environmental and social impact of company activities. Good “corporate citizens” consider pollution prevention and abatement, health & safety measures, decent wages, and engagement with local communities as requirements, and not simply niceto-haves. But, while these are steps in the right direction, they are not the same as safeguarding future ability to meet human need. The real question facing businesses that want to be sustainable is not “how do we reduce our environmental impact?” but “how do we ensure our products and processes do not affect the ability of future generations to meet their needs?” Asking this question yields answers that go beyond pollution minimisation. For example, rather than pursuing energy efficiency, thinking seriously about
Introduction: the failure of sustainable business 3
sustainability should lead companies towards shifting as far as possible toward renewable alternatives. And it should raise questions about what the business actually does: if it is using non-renewable resources for its value creation, how should it consider the opportunity cost of using these resources now, rather than leaving them for the use of future generations? In other words, how should it integrate the time dimension of sustainability, rather than simply considering environmental impact today? The time dimension of sustainability has been forgotten by many a sustainable business advocate (Bansal and DesJardine, 2014). In the worst cases, “sustainable” business has come to mean the longevity of the firm itself, rather than the company’s contribution to creating the conditions that would enable longevity in the meeting of need. But endurance is no indicator of contribution to sustainability. In fact, the opposite is likely to be true. There are plenty of long-lived firms out there, enduring corporate “persons”, slowly making the Planet inhospitable for everyone else, including their executives and employees. Oil and gas companies are a case in point here: ExxonMobil, for example, has existed in one form or another for nearly 150 years, making an enormous contribution to planetary destruction.1 Creative, erroneous or self-serving interpretations of sustainability cloud what is at stake when we talk of “sustainable” business—and the stakes couldn’t be higher. Companies must first understand what sustainability really means before they can clarify their potential contribution to it. This requires understanding the ecological context in which the firm’s activities—and all economic activity—takes place. I describe this context and the challenges it poses in Part 1 of this book. Even when sustainability has been more fully understood, it has often failed to reorient firms toward a less environmentally destructive path. Why? Paradoxically, advocates for sustainable business have often been part of the problem. Many well-meaning “sustainability practitioners” try very hard to speak the “language of business”, which they think is essential in order to reach executives. Sustainability is then “sold” to business on the basis of a “business case”; companies, they argue, should embrace a sustainable agenda for the sake of “reputational risk management”, or securing a “social licence to operate” or even for “brand positioning”.2 These arguments aim 1One study suggests that Exxon Mobil is responsible for more than 3% of all historic global warming gas emissions; see Clark, 2013. 2See, for example, Weybrecht, 2013 for some “business case” arguments in favour of corporate action for sustainability.
4 Frugal Value to demonstrate that environmental inaction could be costly, while positive steps could be lucrative. Alas, this is simply not the case. Crucially, the socalled “business case for sustainability” is the exception rather than the rule. Often, today, it makes more financial sense to conduct business “unsustainably”—barely scraping by on legal environmental compliance while avoiding changes to practice that often result in “unacceptable” cost increases. In fact, a survey conducted by the Massachusetts Institute of Technology (MIT) found that only one-third of companies that have developed a business case for sustainability reap any financial rewards for their efforts. In other words, for the remaining two-thirds of companies, a business case did not exist after all—even when they tried to formulate one (Kiron et al., 2013). And these are companies that sought to develop a case; many more do not have such enthusiastic leadership. The absence of a business case raises some problematic questions. What now? What should a firm do when sustainability does not pay—that is, in the majority of cases, most of the time? (Incidentally, the fact that sustainability does not pay should be amply apparent from current private-sector practices: if it did, we would no doubt be living in a much different world, and not facing our difficult ecological predicament.) Usually, sustainability initiatives that go beyond environmental compliance are simply shelved, and companies either aim for regulatory compliance or for getting away with non-compliance, depending on where they are, the likelihood of getting policed, and whichever is cheapest. The “business case” approach is problematic because it implies that sustainability makes sense, because, and when, it makes commercial sense. This leads to all sorts of methodologies, frameworks and “cost–benefit” analyses, all supposedly seeking to “balance” environment, society and financial returns. Sustainability is approached as a negotiation, a balancing act, and trade-off between different courses of action, each with their own economic, social and environmental benefits and disbenefits, and each with their own price tag. But “balancing the needs” of different “stakeholders” and managing trade-offs can never really happen when financial returns are prized above all other considerations. Very few projects are abandoned on environmental grounds if fortunes can be made.3 More importantly, outside the office, there are no separate social, environmental and economic spheres. You can’t really pick between the environment, society and the economy:
3In my experience working as a corporate sustainability consultant for five years, no projects were abandoned on environmental grounds alone, regardless of the findings of the environmental impact assessment.
Introduction: the failure of sustainable business 5
the socio-economic sphere is a sub-set of the environmental sphere. Sustainability must be about preserving the functioning and integrity of our ecological system all the time, and not only when this does not affect the “bottom line”, or when the “numbers” tell us we can afford to keep a biodiversity habitat, but just this once. Sustainability cannot rest on a business case. It needs to rest on something else: a moral case.4 Those who consider themselves to be astute, effective businessmen may recoil from any talk of morality (“it’s a dog-eat-dog world out there”, they may respond), but it is nonetheless necessary. This is because sustainability itself is normative, based on the concepts of interand intra- generational equity. It rests on the ethical notion that we have a responsibility to others and the meeting of their needs, both those living today and those living in the future. This book therefore does not assume and does not pretend that there is necessarily a business case to make as to why companies may wish to adopt sustainable practices. It is simply not how I try to pique the interest of business practitioners. Whether a business case for sustainability exists or can be constructed depends on what a company actually does. When it exists, and sustainability pays, great. When it doesn’t, the challenge is to find ways to change a company so that a case could be made. When that is not possible, only hard choices are left. But the inability to conjure up a business case for sustainability does not change the fact that designing businesses to contribute to sustainability is the right thing to do. The final failure of “sustainable business” thinking comes from the widespread assumption that sustainability can be achieved simply by new production techniques, which would lead to “better”, “eco” products and services. This process is known as “sustainable consumption and production” (SCP), defined, again, and not succinctly, by the UN, as “the use of services and related products, which respond to basic needs and bring a better quality of life while minimising the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardise the needs of future generations” (UNEP, 2010). Sustainability is thought to rest on developing products and services that have certain characteristics: minimal resource use, minimal toxic material conditions, minimal waste production. These characteristics, it is assumed, can be built through technical interventions in the
4Thank you to Jonathon Porritt who first raised with me the moral case for sustainability during my studies at Forum for the Future.
6 Frugal Value production process, exclusively. Businesses, as the main provider of goods and services, therefore need to make technical improvements to the goods and services they offer, and all will be solved. And, while these technological improvements are necessary, and sustainable production and consumption as described by the UN is necessary for sustainability, technological interventions do not go far enough. What we also need to consider is how genuinely sustainable products and services might require considerable changes in the structure of business itself. For example, profit-seeking is likely to encourage a search for a manufacturing process with the lowest possible cost, not one that minimises wastes and pollution. In other words, what changes need to happen to business structure to make it an effective contributor to the transition to sustainability? And what should we do if there is something about the business form itself when it is ill suited to make this contribution? These questions, uncomfortable and thorny, are ignored by the “sustainable business” literature, despite warranting very close examination—since their answers risk challenging the discipline altogether. Given these failures, can “sustainable business” be rescued from itself? While sustainability requires action by citizens and communities, governments, policymakers and civil society, it nonetheless remains of special concern and interest to business. It is the distinctive role that the private sector could play in sustainability that I explore in this book. Frugal Value is therefore addressed to those who are interested in shaping sustainable businesses; those who understand that business is at the core of our current crisis of unsustainability; and who believe that transforming business is a critical step in addressing our society’s challenge. This book will interest business owners, executives and entrepreneurs that seek to make their company a force for good. Sustainability professionals within larger companies will hopefully find questions to reflect on. It is also addressed to the next generation of entrepreneurs and business leaders, especially those enrolled on business, social enterprise, sustainability or environmental management courses, and to their teachers. The general reader and environmentalist, curious about how goods and services could be provided without finishing off the Planet completely, may find some answers and further questions. Frugal Value is specifically addressed to those working or studying in richer countries, in the Global North: those countries consuming a large share of world resources, and where there is no chronic, abject poverty. (Numerous books have been written about business in the Global South. Challenges and priorities are different from those of richer countries, and beyond the scope of this book.)
Introduction: the failure of sustainable business 7
Part 2 of this book is concerned with the products and services offered by businesses, while Part 3 describes the business activities and models that support their diffusion. Part 4 examines the operations and supply chains required to serve these models. Part 5 is concerned with the role of ownership, financing and legal form in creating companies with the products, activities and operations dealt with in earlier parts. Finally, Part 6 examines business itself—and the extent to which the business form, in its purpose and scope, can usefully contribute to the shift to sustainability. Two final points. In writing this book, I realised that the challenges presented by sustainability are rarely about generalities, and much more often about specific situations. For each issue considered in the different parts of this book, there is often a menu of possible interventions from which a business striving for sustainability could choose. I am therefore not trying to define new “models”, “paradigms” or “toolkits” that would be applicable to all firms. This book is better understood as highlighting problems to consider, rather than providing set answers. The answer to any general question about sustainable business is often “it depends”—on context, on the nature of the value proposition, on local need. While general principles and approaches will be useful in the transition to sustainability, and these are outlined in the book, specific actions need to be formulated on a case-by-case basis. Finally, as suggested in this book’s subtitle, Designing Business for a Crowded Planet, what follows is about design. Our economic activity has hitherto taken shape around the availability of resources, the existence of markets and technological discoveries. Businesses have taken the shapes they have because they could. But design implies purpose, and purpose is what is required here: there are no reasons why resource availability, technological discoveries and market arrangements should automatically be aligned with the requirements of sustainability. As we’ll see in Part 1, we do not have the same challenges today as we did in the early days of international trade and industrialisation. Companies need to be designed specifically to address the challenges of our time. Such companies I call pioneering, and this book is about them.
The Crowded Planet
Books on sustainable business usually start in the same way. “All is not well on Planet Earth”, they explain; we are in a deep and dangerous ecological mess. These opening chapters invariably feature football pitches or Olympic-sized swimming pools to help readers grapple with the scale of the environmental challenges, supported by pronouncements from prominent business leaders, politicians and celebrities. Part 1 is my version of “All is not well on Planet Earth”. But, rather than repeating crisis talk readily available elsewhere, this part instead addresses what I see as the main shortcoming of this chapter archetype: the failure to get to why pollution and wastes are created in the first place, and why they become such a problem. We explore this question in Chapter 1: What is it about the conditions we live in, what is it about the Planet, which means our activities have created such an ecological mess? Once we have identified the characteristics of our Planet and human activities on it, we can go about answering a further important question, far more accurately now that we have got to the root causes of unsustainability: what needs to happen to get out of this ecological mess? This is the question we explore in Chapter 2. Part 1, then, is about the (very) big-picture context—the planetary scale— in which the global economy, and business activities of every single business that exists takes place. If we want to understand how individual companies
10 Frugal Value are affected by, and affect, this bigger-picture context, we first need an accurate understanding of the conditions for sustainability, the current context of unsustainability, and what is required to get from the second to the first. So let’s take a step back and have a closer look at Earth and its 7 billion Earthlings—a Crowded Planet.
1 The economy-in-Planet A first, unsurprising fact: All economic activity takes place on Planet Earth. And yet most of us are pretty ignorant about our planetary host. This chapter goes back to basics. It is first about the Planet, and how it creates opportunities for, and constraints on, economic activity. It also defines the characteristics of a new, sustainable economy, congruent with its planetary host: the “economy-in-Planet”.
The economic system is supported and constrained by its host planetary system First and foremost, Planet Earth is a system. What is a system? Systemsthinking pioneer Donella H. Meadows defined a system as an “interconnected set of elements that is coherently organised in a way that achieves something” (Meadows, 2008). Like other systems, Planet Earth clearly has different elements: a biosphere, a lithosphere (or crust), an atmosphere, a hydrosphere. These elements are interconnected, for example through water cycles, the greenhouse effects and volcanic activity. Like other systems, the Planet can be understood as having stocks, flows and feedback loops. Its stocks are what we sometimes call resources: ores, metals, biomass (we return to these later); solar energy flows into the system from outside; and feedback loops that sometimes allow the system to achieve a certain stability (as with climate regulation) and sometimes create the potential for
12 Frugal Value fundamental transformation (such as possible runaway climate change).1 Over the past 10,000 years, these elements—stocks, flows and feedback loops—have together created stable, self-regulating, conditions perfect for the flourishing of human life.2 In addition, the Planet is a closed system; in other words, it exchanges energy with its surroundings, but not matter. The Planet receives solar energy, and releases heat into the surrounding atmosphere; but that’s it. No significant materials are exchanged with space (other than a few rockets and stray asteroids). As a closed system, Earth is subject to the Second Law of Thermodynamics, also known as the entropy law, which states that available energy that we can use is continuously transformed into dissipated energy that we cannot use (Atkins, 2010). In better news, the inflow of solar energy the Planet receives from space can be used as energy before it dissipates back into space. One final but crucial point about the planetary system: it’s not getting any bigger. We cannot hope for an increase in the quantity of available materials and resources; the Planet, at its permanent, stable size, is all we’ve got. These planetary characteristics are not quirky facts, but rather are crucial for understanding our economy. The Planet is after all where we conduct our business activity—as well as being where you and I, and everyone else, lives. The economy, then, is a sub-system of the planetary system: it takes place within it. And it relies entirely on its host system, the Planet, for its material basis, in a deep, irrevocable interrelationship.
1According to Meadows, “stocks are the elements [. . .] you can see, feel, count or measure at any given time” (Meadows, 2008: 17). Stocks rise and fall, depending on flows into them: if inflows exceed outflows, stocks will rise, and vice versa. Stocks, therefore, are “the memory of the history of changing flows within the system” (Meadows, 2008: 17). Feedback loops are “a closed chain of causal connections from a stock, through a set of decisions or rules or physical laws or actions that are dependent on the level of the stock, and back again through a flow to change the stock” (Meadows, 2008: 187). Balancing (or negative) feedback loops are equilibrating, while reinforcing (or positive) feedback loops are selfenhancing, leading to exponential growth over time. 2For some, a purposefully self-regulating Planet denotes something spiritual. But for us, for now, removing any notion of intent from the purpose, we can consider that it’s been our good fortune that the “purpose” of the Planet’s self-regulation has to date been to keep the Planet propitious for human life. It is the Planet’s self-regulation that created the Holocene, the period of some 10,000 years during which civilisation flourished. Self-regulation is at the heart of James Lovelock’s Gaia theory. See Lovelock, 2000.
1. The economy-in-Planet 13
Unlike the Planet, the economic system is open—that is to say, it exchanges both energy and matter with its host. Materials and energy flow from the natural world enter the socio-economic sub-system, are used, and are then ejected as waste and dissipated energy back into the planetary system. All our resources come from the Planet, and all our wastes go back into it as well. Moreover, the economic system is subject to the same laws and behaviour patterns of its host system. For example, the economic exploitation of planetary resources is fundamentally entropic: transforming valuable, lowentropy materials and energy into unusable, high-entropy materials and energy. This process is linear, and largely irreversible (although it can be delayed through recycling)—this is why we can’t reuse oil again and again (Georgescu-Roegen,1975).3 And, lastly, there are final limits to the material growth of the economic system, since the Planet itself isn’t growing: our supplies of freshwater, minerals, timber and fossil fuels are ultimately finite. As Donella H. Meadows observed, “No physical system can grow forever in a finite environment” (Meadows, 2008: 59). If we conceptualise our society and economy accurately within its environment, our Planet, it might look something a bit like Figure 1.1. Yes, this is all a bit complex and confusing, but it nonetheless gets at something important. Part of the difficulty with this representation is that it differs so much from how we usually understand our relationship with the environment, which instead looks a bit like Figure 1.2. This schema imagines our economy as separate from the environment. Sure, somewhere out there, there is something called the environment, which conveniently provides us with resources and an outlet for our pollution. But Nature is there for the picking, and the economy can grow in line with our desires. This view has prevailed since the Industrial Revolution, and it gives us an instrumental, anthropocentric view of the natural world, where nature is of interest principally as a resource. It is the view that has created the economy of the industrial era, the unsustainable economy that we have inherited, and continue to live with, today—what I call the legacy economy. There are obvious limitations to this view, but, for now, let’s keep our anthropocentric hat on and try to answer the following question: what has the Planet ever done for us?
3Georgescu-Roegen also makes the interesting point that entropy is an anthropocentric measure, measuring energy availability to humans.
14 Frugal Value Figure 1.1 The economic and planetary systems (Bits and pieces of space junk)
(Stray asteroids) AVAILABLE SOLAR ENERGY
(not getting any bigger)
ECONOMIC SYSTEM Production and consumption STOCKS AVAILABLE ENERGY AND MATERIALS include fossil-fuel carriers; minerals and metals; biomass
WASTE MATERIALS Waste, pollution
Feedback loop: stock use further degrades stock Decreasing availability of energy and materials over time, other than flow of solar energy
Figure 1.2 Common misconception of the relationship between the economy and the environment HERE
THERE: THE ENVIRONMENT All the useful resources that we need (and things we take for granted, such as a stable climate)
The growing economy The giant rubbish bin for our wastes This diagram is inspired by Figure 1 in Rees, 2011.