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Sustainable development is development that meets the needs of the present without compromising the ability of the future generations to meet their own needs world economic forum (2009). The industrial revolution in the 19th century has had a profound impact on the global economy and the way in which business is conducted. Through innovation, technology and entrepreneurship, we have seen the rise of industries such as transport, retail, waste management etc, which have all developed complex relationship with the environment. The environment has provided such industries with natural resources enabling them to develop strategic competency and competitive advantage. This has lead to unprecedented levels of profit being realised. The oil and gas industry can be exemplified in this instance. British gas saw their profits going up by 58% in 2009 Guardian Unlimited (2010). due to the scarcity of crude oil which has enabled British Gas to charge a premium price. The world population is the highest it has ever been, standing at 6.8 billion people to date. By the year 2030 the population will be above 8 billion St. Louis post dispatch (2010). If this fact holds true it can be argued that it is inevitable that consumption will rise and the resources of the planet stretched thin in coping with this increase. Sustainability has not been a major issue in the past with organisations and individuals thinking little or not at all about how much they consume and what happens to all the waste they produce but in recent years mindsets have changed and people are thinking more about the environment and the future if all the resources are depleted how will future generations survive, will a lack of natural resources compromise their way of life. The world council for sustainable development was set up in 1992 the group comprises of 160 international companies 35 national and regional business councils and partner organisations WBCSD (2002). This organization was set up to be a catalyst for change towards sustainability. The council promotes eco- efficiency, innovation and corporate social responsibility. It is because of the work that organisations such as the world council, United Nations, green peace and many other do that consumers are now more informed about the damage they do to the environment and ways in which they can reduce their carbon footprint. Accepted definitions of sustainability suggest three principal goals or cornerstones: environmental stewardship, social responsibility and economic prosperity M. Placet et al (2005). These key points will also be the basis of this report and help to answer the question what considerations should consumer industries explore to develop a sustainable business strategy? Other points that will also be considered are what is the business case for sustainability? What implications does sustainability have for current business models? Do companies need to develop a sustainable strategy in order to guarantee long term survival and profitability? And what are the potential impacts on the consumer resulting from companies adopting sustainable strategies?
What is the business case for sustainability?
There are several different cases that can be made for sustainability such as religion, ethical, or moral issues. However for consumer industries the business case for sustainability pertains more to the bottom line by reducing cost and becoming more efficient companies can reduce their overheads and increase profits. Commodity and energy prices are volatile because of the current economic climate and the increased consumption patterns of emerging countries. A more efficient approach to business is needed to save financial capital and resources. Crude oil is the most actively used commodity in the world when refined it can be used as petrol and heating oil. A variety of industries are dependent on oil, when there is a high demand but limited supplies of any item the value of the item will continue to rise. In the recent pass we have seen oil prices go up and the negative effects that it can have on the economy and industries such as the protest carried out by lorry drivers in may of 2008. The lorry drivers were finding it very difficult in coping with the increase fuel prices due to the fact that they paid for their own fuel and there would be no pay rise in their immediate future compensate. This meant that the majority of their pay would be used to cover their overheads reducing the profit they made per trip. The lorry drivers decided to block the M4 motorway in protest to ask the government for help whether it be in the form of subsidies or a change in regulations to help them and their industry survive. 2008 also saw small businesses struggling to remain open due to the fact that the rise in petrol prices was passed on to them suppliers increased their prices and the small businesses had no choice but to pass this on to the end consumer. The telegraph and several other newspapers have reported that by the summer of 2010 petrol prices are set to reach a new high of £1.20 a litre -£5.41a gallon. The important role that oil plays in industries and in economies cannot be over looked should oil prices rise transport, food , energy prices etc will also rise accordingly. In the United Kingdom Six business leaders including Sir Richard Branson have formed a coalition called the UK industry taskforce on peak oil and energy security S. Musafer (2010) the aim of the group is to ultimately wean the UK off using oil. They're prediction is that there will be an oil crunch similar to the credit crunch and that government an industries should work together in the hopes of being prepared for the worst. Crude oil is a finite resource which will eventually be depleted, more efficient environmentally friendly sources of energy need to be explored. Peak oil is an undesirable state in which the planet has reached the maximum production of oil possible after which there is a steady decline until there is no more Experts such as John Oliver, president of Maple Leaf Bio-Concepts and Lojon Associates International say this will happen within the next four years.
Crude oil is also a necessary commodity in the car industry however leading car manufacturers such as Toyota and Nissan have been making incremental improvements over the years in the production of their vehicles to make them more fuel efficient and to run not only on petrol but also on electric/battery power as well, the end result for Toyota was the prius. The Toyota prius has sold extremely well across the world giving Toyota the competitive advantage for being the first movers in undertaking a green sustainable strategy. Other car manufacturers have seen the benefits of developing a sustainable strategy and have followed suit Nissan is set to release a fully electric zero emissions vehicle called the leaf later this year. Due to the important role that oil plays in our society and the uncertainty of the future I have developed four scenarios showing the extremes of what the world and civilization could be like if a sustainable new resource is not found view Appendix 1. In Scenario one Armageddon we have passed the point of peak oil and all the oil has been depleted without the government and industry coming up with any new forms of sustainable resource. Scenario two business as usual working together government and industries were able to innovate and new sustainable business models and resource are found. In scenario three the grass is greener new resources are found however they have a very negative effect on the environment and the quality of life for everyone is affected. Scenario four second wind suggest that we do eventually find more oil however due to the scarcity of the commodity wars break out between nations to gain control over it. The price of doing business and the cost of food sky rockets. While there is a lot of uncertainty about the future and what forms of energy we will be using the most desirable of the four scenarios would have to be business as usual which sees groups such as the UK industry task force and the government working together and being more transparent in their strategy. there may be a hope that we can find new renewable clean resources.
Water is the most wasted natural resource on the planet, yet it is the foundation of all life and a basic human need. In different regions of the earth there is a lack of fresh drinking water. In Syria 30 percent of the country's labour force works in agriculture and the land irrigation done inadequately leaving water to run pass the plants they are meant to be watering Dr P Sullivan (2010). this waste causes the water to be over used more water is needed to water a single field. In developing countries agriculture plays a large role in aiding economic growth because the crops can be exported to other countries around the world. The important role that water plays in consumer industries is not reflective in its price. In parts of the world water is a severely under priced commodity as a result of this it is wasted and overused. Water is more than a commodity in different regions of the planet it is a human right. according to the organisation for economic co-operation and development stated by the world economic forum 2.8 billion people live in areas of high water stress... if trends continue one- third of the world population will be affected by water scarcity by 2025.
Corporate social responsibility
The WBCSD (2002) defines Corporate Social Responsibility (CSR) as the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.
There have been many changes in today's consumer industries, competition is fierce, there are threats of substitute products and information about a company and their products are available to the consumer and stake holders via the media or internet. As a result there has been public and investor scrutiny of the traditional supply chain and the damage that is done to the environment. In recent years there have been numerous campaigns about carbon emissions and a growing concern for the environment. Businesses that emulate this growing concern for the environment will get rewarded with repeat patronage. Therefore it is important that companies hoping for long term success share the believes and values as the people they serve. Companies that do not reflect their people's best vision and values in their actions will wither in the marketplace in the long-term WBCSD (2002). If this statement holds true Businesses seen to be taking the initiative in changing their strategy and process to be more environmentally friendly and transparent in their strategy, will gain competitive advantage through production differentiation, internal cost reductions and redefining markets. Companies should strive to create value with less environmental impact as a part of their corporate social responsibility going green is simply good business. Companies that do nothing risk losing everything. Inefficiencies in the manufacturing of goods and the day to day processes carried out by an organisation can potentially cost a lot of financial capital in resources and energy used, while upgrading your strategy and the way in which process are carried out within the organisation. Though the cost can be high in the short term the return on the investment will be worth it in the long term by making process more efficient businesses can improve their bottom line. In the magazine "new scientist" IBM reports that due to inefficiencies the world creation and distribution of electric power is now wasteful... enough electricity is lost annually to power India, Germany and Canada for an entire year... Billions of pounds are wasted on energy that doesn't reach a single light bulb. The article goes on to say that with investment the system can be made efficient and sustainable for the future New scientist (2009).
What implications does sustainability have for current business models?
Until the current global economic crisis, the world economy has grown for twenty years at a pace unprecedented in economic history World economic forum (2009). This rapid growth of the world economy can be attributed to the help of emerging economies such as China and the sharing of knowledge between developed and developing countries. For consumer industries, globalisation has created global job opportunities and a new consumer base. With the rise of the emerging economies, the world economic forum suggests that more people will be lifted out of poverty and a new global middle class will be created. If this should occur then consumption will rise due to the disposable income available to these new consumers. The benefit of the current economic environment is that companies that were not thinking sustainably have gone into administration, the remaining companies can reflect on the mistakes of the pass to ensure a sustainable future. Consumer industries should view sustainability as an opportunity for innovation and growth because new business opportunities can be found. Sustainability will have a profound impact on current business models, in that companies will be made to think more holistically in their vision of the future. Thinking of the industry as a whole rather than reducing their own cost to improve their bottom line. Collaboration and a shared vision can help to build momentum and place organisation on a sustainable path. Research and development will need to be done in the hopes of finding recyclable materials which can be standardised for an entire industry.
Climate change is also a major issue that will affect current business models. Global business executives increasingly identify the environment including climate change as a top concern. When it comes to purchasing... the importance placed on climate change is not put into action C. Brickman (2008). This statement also suggest that the majority of a company's carbon footprint lies outside the company's direct control upstream in the in the value chain from raw materials to transport and packaging. Waste also occurs downstream with the end user of a product in the maintenance and disposal. However the consumption of resources by consumer industries in the manufacturing process of their products is also high and the waste they produce i.e. carbon emissions contributes to the rise in green house gasses which in turn affects the climate. An informed and motivated consumer will shift their brand loyalty to a green alternative product. As awareness grows among consumers, sustainability may become a key factor in choosing brands. Consumer industry companies have the opportunity to redefine their product and manufacturing processes with sustainable considerations in mind and align supply chain to support them. The product life cycle assessment can be used to discover the areas that are in need of improvement. In the past we have seen business models change to accommodate globalisation and consumer industries reaped the benefited from the increased consumer base. Innovation is now needed again to change business models for companies to reap the rewards of sustainability.
Repeat patronage is essential to any successfully company. To attract and keep the consumer there are many different approaches businesses can utilize however there are societal expectations from the consumer. Tesco is one of the UK's leading retailer and they have started on the path to sustainability. Tesco has built a new environmental store which has a 70% smaller carbon footprint than equivalent store built in 2006. Tesco is also the largest recycler of cardboard in the UK they have a closed loop system which means that the recycled material is turned into new boxes within 14 days Tesco corporate responsibility report (2009).
Do companies need to develop a sustainable strategy in order to guarantee long term survival and profitability?
Developing a sustainable strategy is necessary for long term survival of companies. With the planets population and consumption set to go up by the year 2030 companies will have to be more efficient in their use of resources. Companies that are already on the track of sustainable development will gain the competitive advantage and as industries mature new standards would be set. Companies wanting to compete successfully will have to follow suit or lose their consumers to competitors. In a resource constraint environment the real value of natural resources will be seen as prices go up companies without a sustainable business strategy and low profit margins will ultimately fail. Extractive industries such as oil and gas can pass on the extra cost to the consumer however consumer industries would find this more difficult as they would be faced by opposition from consumers and regulators.