Sustainability is a field of costs and benefits, of winners and losers. After a hiatus of several weeks, the Business + Sustainability six part series resumes with a focus on the cost of ignoring ecological disruption and a few economic benefits of moving toward sustainability.
In the first two parts of the series, I described the Green Leaders and Industry Titans who blazed trails for sustainability in business and use it for strategic advantage. The previous article broadly explains several Ecological Challenges we face as a planet with a focus on climate change. This fourth article describes why sustainability matters to the economy and business.
The Economics of Ecology
Talking about the economy in terms of ecology is a bit like driving through California with a map of Texas. That’s where ecosystem services come in handy. Ecosystem services are the benefits provided by Earth’s ecosystems to humans such as food, fuel, fiber, water filtration, nutrient cycling, climate and disease regulation. They provide a map to align the demands of economy with the supply of ecology.
Rapid ecological change of the type we face today transfers many costs from nature to society. In a landmark study published in the journal Nature in 1997, Dr. Robert Costanza and a team of scientists found that the estimated value of all ecosystem services was at least $33 trillion. In other words, that is the cost to the economy if we had to provide those services ourselves. At the time of the study, $33 trillion was nearly twice global GDP.
Ecological Change: Threat or Opportunity?
The costs to the economy of disruption to ecosystems is climbing. An Erb Institute for Global Sustainable Enterprise and KPMG analysis of global trends such as resource scarcity and urbanization estimates that costs will double every 14 years. Last fall, McKinsey and Company showed that constrained natural resources are increasing commodity prices and volatility. Insurers Munich Re and Swiss Re report the cost of increasingly frequent and severe weather-related natural disasters, which cannot be directly linked with climate change though are consistent with anticipated impacts, is rising.
Addressing even one ecological change, climate change, is daunting by itself. In 2004, environmental economists Stephen Pacala and Robert Socolow proposed 15 “stabilization wedges” – activities using current technology that could reduce carbon emissions by 1 gigaton each. A gigaton reduction of CO2 emissions, a single wedge, would require adding 4 million 1 megawatt-peak windmills (100x current capacity) or doubling fuel efficiency of 2 billion cars from 30 to 60 mpg. All 15 are necessary to hit a goal of 450 parts per million (ppm) of CO2, which is still well above the 350 ppm that many advocates target.
While ecological change is likely to increase costs, it can also be a motivation for significant economic benefits. A McKinzie study produced a greenhouse gas cost abatement curve and found that the marginal cost of some measures such as building insulation and fuel efficiency cost -€150 (negative 150) per ton of carbon reduced, ie a net return. A recent report by Citi Investments and Ceres confirmed the McKinsey findings on fuel efficiency by showing that U.S. automakers can expect to earn an extra $2.4 billion with higher 2020 fuel standards.
Just Better Business
Whether it is cost or opportunity, winner or loser, depends on where you are in the economy but we can agree that most business as usual cannon continue. Our current model of raw material extraction, waste production, and fuel consumption puts us on a trajectory of ecosystem disruption beyond what we can likely adapt to.
The focus of the remaining two articles in this series will be on what traditional business is doing to use and restore ecosystems in a new way. Early adopters are finding that doing things more sustainably is just better business.
I’ve gone this far in the mini-series, Business + Sustainability 101, without explaining the ecological challenges, resource constraints, and pressing global changes that propel sustainability into the forefront of issues in our era. The series is a brief overview of the state of sustainability in business today, how it got there and why, and where it’s headed.
In part one, I described the Green Leaders like Patagonia who blazed the trail for integration of sustainability into business. In the second post I talked about several Industry Titans who make sustainability a strategic issue. This third blog attempts to outline the ecological challenge we face globally that make this relevant to business.
A first day of any class in my Natural Resources graduate program began with an inventory of environmental challenges that should be familiar to many. Climate change. Biodiversity loss. Pollution. Deforestation. Species extinction. Water scarcity. Disappearing wetlands. The litany of environmental problems is daunting and most sustainability professionals are unable to keep track of all of them.
The important point is that almost every ecological indicator we track shows a global natural system in decline. One of the largest attempts to measure the impact, the Millennium Ecosystem Assessment, was a four year undertaking that combined the contributions of more than 1,360 scientists from 95 countries. The research found that 60% of ecosystem services – benefits provided by nature such as pollination, climate regulation, and water filtration – that were studied were degraded or used at a non-renewable rate.
Another more recent approach examined control variables within seven global ecological subsystems and found that two were already outside of the Safe Operating Space for Humans while a third – climate change – was rapidly approaching a threshold. Finally, the World Wildlife Fund publishes a Living Planet Report every few years to measure humanity’s demand on natural resources, our “ecological footprint”. The 2010 study concludes that annual resource consumption exceeds the planet’s ability to regenerate by an estimated 50%.
Many impacts are dispersed by space and time or affect our economic and social systems only indirectly. Since the scale, complexity, and rate of ecological change of the planet can be overwhelming, it’s best to focus on one challenge: climate change.
The Only Metric that Matters
The only metric that matters is 350. Although it’s very difficult to determine the “correct” level we should set our global thermostat, many researchers say 350 parts per million (ppm) of carbon dioxide is the target for atmospheric concentration to maintain a tolerable climate system. Anything above could destabilize the global climate system and release from Pandora’s box the really bad stuff we don’t want to see by the end of the century. Oh, and we passed that level around 20 years ago.
The challenge of climate change goes like this: fossil fuel combustion emits carbon dioxide, which adds to atmospheric carbon dioxide concentration. Carbon dioxide in our atmosphere absorbs heat and increases temperatures. Global carbon dioxide concentrations further increase from activities such as loss of forests that would otherwise absorb carbon dioxide. Finally, ecosystems and weather systems respond to changes in temperature and are changing.
Carbon dioxide concentration is climbing. Temperatures are rising. Ecosystems change. Currently, atmospheric carbon dioxide concentration continues to rise at approximately 2ppm per year. Most importantly, many of the ecological consequences we would expect to see with these changes – increasing frequency and severity of storms, decreased precipitation in some regions with increased precipitation in others, regional weather and temperature extremes – are already occurring.
The loss of fuzzy animals that we all love aside, who really cares? Why should business care? These challenges are not about species loss alone, but the disruption of planetary subsystems like the carbon cycle, ecosystems, and weather. The economic and social consequences are becoming too large to ignore, even for business. The cost of action is great. But so is the opportunity, and the cost of inaction could be even greater.
Next Week: The Economic Reality