wef consumption dilemma sustainable growth report 2011

8/7/2019 WEF Consumption Dilemma Sustainable Growth Report 2011

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Report prepared in collaboration

with Deloitte Touche Tohmatsu and the World Economic Forum

January 2011

Leverage Points for Accelerating Sustainable Growth

The Consumption Dilemma


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The views expressed in this publication do not necessarily

refect the views o the World Economic Forum.

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2011 World Economic Forum

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The Consumption Dilemma | 3

Preface/Project Background 4

1 Introduction 5

1.1 The Contextual Challenge 5

1.2 Rethinking Growth 6

1.3 Decoupling GDP Growth from Resource Use 8

1.4 From Incrementalism to Transformation: Speed and Scale 9

2 Consumers: Changing the Terms of Engagement 13

2.1 Why Engage Consumers? 13

2.2 Rethinking How to Engage 15

2.3 From Behaviours to Values 17

2.4 From Consumers to Citizens 182.5 A New World of Consumer Engagement 19

2.6 Engaging for Change 21

3 Mobilizing Business Opportunities: Life Cycle Thinking 25

3.1 From Compliance to Competitive Strategy 25

3.2 Current Drivers of Sustainability for Businesses 26

3.3 Leveraging Life Cycle Metrics 28

3.4 From Life Cycle Assessment to Life Cycle Collaboration 29

3.5 Accelerating Business Innovation through Collaboration 32

3.6 Exploiting Leverage, Enacting Change 33

4 Enabling Transformation: Innovation in Public Policy 37

4.1 Why Public Policy Innovation? 37

4.2 Areas for Innovation 38

4.3 The Shifting Geography of Innovation 40

4.4 Barriers to Public-Private Innovation 41

4.5 Collaborative Sharing of Leading Policies 42

4.6 Policy Innovation for Sustainable Consumption 43

5 Moving ahead 47

5.1 Areas for Action 47

5.2 Leverage Points Requiring Business Innovation 47

5.3 Leverage Points Requiring Policy Innovation 50

5.4 Proposed Policy Innovation Platform 51

6 Conclusion 53

7 Annex 54

A. Inventory of Life Cycle Tools 54

B. Authors and Acknowledgements 58

C. References and Endnotes 62

Contents


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4 | The Consumption Dilemma

The World Economic Forums work on sustainable consumption has gained momentum over the last three years.The issue has moved up the agenda o governments and businesses while acceptance o the need or sustainableconsumption has become more widespread. Following a strong commitment to sustainable consumption rom CEOsat the World Economic Forum Annual Meeting 2010 in Davos-Klosters, this years work has moved beyond asking whatthe issue is and why it is important to exploring how it can be addressed.

There are plenty o examples o individual success stories on sustainability. These should be celebrated. But, inaggregate, these still do not add up to the change we need. Globally, the pace o change remains too slow to step upthe escalating use o natural resources and the rising tide o environmental degradation. In the uture, we need strategieswhich deliver transormative change at the systemic level, with speed and at scale.

This report identifes some o the leverage points which oer the greatest opportunities to tip the economy as a wholetowards sustainable consumption. It considers the levers available to businesses, governments and the wider globalcommunity. It also sets the stage or a new phase o the World Economic Forums work on sustainability: a platorm orpolicy innovation.

The World Economic Forums sustainability initiative has drawn on a wide network o partners and experts over thelast twelve months. Some 250 individuals have attended meetings both virtual and live workshops in Amsterdam,Brussels, London, Sydney, Tianjin, New York and Dubai to discuss the sustainability challenge, share ideas and buildpartnerships to meet the challenge. This report has been produced with the support o Deloitte, project advisers or thisinitiative.

The ollowing companies have been closely involved in the World Economic Forums sustainability work through itsproject board o Industry Partners, contributing their expertise and support: Aegis Media, Agility, Alcoa, Best Buy,Edelman, Krat, Maersk, Marks and Spencer, Nestle, Nike, Novozymes, PepsiCo, Publicis, S.C. Johnson, SAB Miller,SAP, SAS Institute, Sealed Air, Unilever, Wal-Mart, Wipro and WPP. We owe particular thanks to these companies whichhave supported our three working groups on sustainable consumption in 2010 and to the experts serving on the GlobalAgenda Council on Consumer Industries. Collectively, their insights have been invaluable.

Going orward, we hope that a shit in ocus rom defning the case or sustainable consumption to identiying the toolsand policies needed to achieve it will drive the change that is required. This shit towards public-private innovation willcatalyse the transormation needed, with scale and at speed.

Robert Greenhill Sarita Nayyar

Managing Director and Chie Business Ofcer Senior Director, Head o Consumer IndustriesWorld Economic Forum World Economic Forum USA

Randall Krantz

Director, Sustainability InitiativeWorld Economic Forum

Preface/Project Background


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1 Introduction

Sustainable development wasdefned in 1987 by the UnitedNations World Commissionon the Environment theBrundtland Commission asdevelopment that meets theneeds o the present withoutcompromising the ability o

uture generations to meettheir own needs. We defnesustainable consumption inthese terms: as consumptionwhich meets the needs o thepresent without compromisingthe ability o uture generationsto meet their own needs.

Two principles are the coreo these concepts. First,development qualitativeimprovements in peopleslives is more important than

narrow defnitions o growth quantitative increases in the sizeo an economy or in the scaleo its throughputs. Second, oureconomic imperative shouldbe to meet consumers needsrather than create wants.Sufciency trumps efciency.As an Arican elder at theRio+10 Conerence phrasedit, sustainable development isenough, or all, or ever.

What is sustainableconsumption?

1.1 The Contextual Challenge

By almost any measure, human prosperity is greater now than at anyprevious time in world history. In the last 30 years, absolute poverty has allenat an unprecedented rate even as global population has increased rom 4billion to nearly 7 billion. A transormation is taking place now, as hundredso millions o people move rom a subsistence existence to one based ontheir integration in global webs o production and consumption. Even aseconomic disparities between countries and within countries increase, andeven as the bottom billion risks being let behind, globalization has creatednew markets and new consumers.

Sustaining and extending this prosperity, however, depends on decouplingglobal consumption rom both its use o natural resources and its broader

environmental impacts. Current trends are not promising. A combination oincreasing scarcity o some natural resources, climate change and growthin global population to 9 billion by 2050 are creating the conditions ora perect storm.1 As it stands, humanitys ecological ootprint is 50%greater than earths capacity to support it. Unchecked, humanitys ecologicalootprint could rise by a urther third by 2030.2

Without more sustainable consumption, stresses on the natural environmentwill increase, the politics o equitable development will become acute and thedream o generalized global prosperity will become even more unattainable.Instead o the widening opportunity o the last 50 years, humanity will acemore unstable and uncertain prospects.

Sustainable consumption is, thereore, imperative. It requires a undamentallytransormed system o production and consumption. Even where immediate,

partial solutions may be local in coping with water scarcity or example sustainable consumption ultimately cuts across the global economy as awhole. And while sustainable consumption starts with the citizen as thecentral actor in the global economy, as consumer, as investor, as voter and asemployee it does not end there. Sustainable consumption is not only abouthow much we consume, but also about what we consume, how we consumeand who consumes. It is only achievable with the integration o sustainabilityinto business models, production and design. This is not about incrementalimprovements in the efcient use o particular inputs conserving water,reducing carbon emissions or saving energy. It is about redefning value.3

Achieving sustainable consumption will be disruptive. It implies atransormation o the global economy as all encompassing as theglobalization o production and consumption that has made it necessary.

It will create winners and it will create losers. Some companies will adaptbetter than others: discovering new opportunities, engaging new consumers,innovating new products and making new markets. Some countries will arebetter than others: positioning their economies to be hubs o sustainabilityand securing a new orm o competitive advantage. Companies andcountries that become part o the transormation o the global economy arear more likely to prosper than those who do not.

Systemic change will not occur by itsel either on the scale necessary orin the time rame available. This report, the third to be published as part othe Sustainability Initiative o the World Economic Forum, is about identiyingleverage points in the global economy which can tip the system as a whole,and highlighting the role that innovation can play at all levels o the economy.4


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Figure 1: Consumption needs to be decoupled from quantitative GDP growth as well as from

environmental degradation

The main criticism of GDP, as a measure, is that it focuses on throughputof materials, capital and labour rather than the outcome of improved lives.

Targeting GDP growth tends to encourage greater resource use; but thisuse may not translate into improved well-being, particularly in the developedworld.

Above a certain level, quantitative increases in GDP no longer signify greaterhuman prosperity. The returns of GDP growth and its associated resourceuse to well-being may fall, or even become negative. As the map belowshows, countries in the developed world are often worse at deliveringlong, happy lives in terms of the planetary inputs that they use than somedeveloping countries.7

1 Introduction

Figure 2: Map of the world according to the Happy Planet Index8

This map shows the overall scores givento each country based on a traffic lightscore on each of the three componentsof the Index (life expectancy, lifesatisfaction and ecological footprint)

Key

All 3 components good

2 components good, 1 middling

1 component good, 2 middling

3 components middling

Any with 1 component poor

2 components poor, or blood red footprint

1.2 Rethinking Growth

For several decades, growth in the Gross Domestic Product (GDP) has beenthe primary goal of economic and development policy. The appropriateness ofrising GDP as a measure of success (a task for which it was not designed5) isnow seriously in question. The systemic transformation of the global economyimplied by sustainable consumption forces us to rethink what we mean bygrowth. To decouple consumption from natural resource use and environmentaldegradation, we need to purposefully decouple narrow concepts of GDP growthfrom broader qualitative objectives: prosperity and well-being. This is not tosuggest that there necessarily are limits to growth in a pessimistic perspective,but there is a trend towards qualitative growth.6The implications for capitalismare yet to be seen.

The growth economy is

failing. In other words, the

quantitative expansion of

the economic subsystem

increases environmental

and social costs faster than

us poorer not richer.

Herman Daly, Senior

(1988-1994)


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1 Introduction

The Genuine Progress Indicator (GPI) is an alternative metric to GDP, anattempt to measure whether a countrys growth, increased production ofgoods and expanding services have actually resulted in the improvement ofthe welfare of the people in the country. While GDP is a measure of currentincome, GPI is designed to measure the sustainability of that income througheconomic, social and environmental indicators. GPI uses the same personalconsumption data as GDP but makes deductions to account for incomeinequality and costs of crime, environmental degradation, loss of leisure andadditions to account for the services from consumer durables and publicinfrastructure, as well as the benefits of volunteering and housework.

Year2000US

Dollars

GPI Per Capita

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

1950 1956 1962 1968 1974 1980 1986 1992 1998 2004

GDP Per Capita

Figure 3: Real GDP and GPI per capita in the US, 1950-20048

Figure 3 shows that despite steady growth in GDP, the US economy,measured by GPI, has actually stagnated since the late 1970s. Addressingboth is difficult but not impossible: shifting away from GDP growth andtowards a concept of dynamic equilibrium maximizing units of well-beingdelivered per unit planet input will make decoupling prosperity from naturalresource use easier9.

The need to move away from a narrow focus on GDP, price externalitiesmuch better and shift development objectives from quantitative growth toqualitative improvements in life outcomes has resulted in a number of high-level initiatives in recent years.10 Recently, the use of wellbeing and GPI asbenchmarks of progress have been supported by the OECD.11 Some G20governments have indicated their intention to broaden the sets of data thatguide policy. In the United Kingdom, the Office of National Statistics will startcollecting data on happiness in 2011. In the developed world, we needa new definition of development; in the developing world, we need a newtrajectory for achieving it.

In an attempt to define anindicator that measures qualityof life or social progress inmore holistic and psychologicalterms than GDP, the termGross National Happiness(GNH) was coined in 1972 byBhutans former King JigmeSingye Wangchuck, whoopened Bhutan to the age ofmodernization.

In 2008, a GNH Comissionwas founded at the same timeas Bhutan transformed itselffrom an absolute monarchyto a multi-party democracy.Since then, the Centre forBhutan Studies, developed asophisticated survey instrumentto measure the populationsgeneral level of well-being.12

GNH, like the Genuine ProgressIndicator, refers to the conceptof a quantitative measurementof well-being and happiness.

Based on solid empiricalresearch, the survey uses 72weighted indicators withinnine dimensions, includingtime use, community vitalityand environmental diversity.Another version of the surveyinstrument, based on the samebody of work, is being applied inCanada.

Gross National Happiness


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1 Introduction

1.3 Decoupling GDP Growth from Resource Use

For a variety of reasons, GDP growth has implied higher levels of extraction,processing and use of materials which, in turn, has led to increasing levels ofenvironment degradation. Reducing this negative impact requires decouplingGDP growth and consumption from the cycle of resource extraction, use anddisposal.

Historically, even as the material intensity of GDP has fallen, the rate ofincrease in GDP has undermined any potential aggregate reductions inmaterial use. In some cases, increases in the efficiency of use of particularresources has not resulted in them being used less, but being used more(also known as Jevons paradox). In short, decoupling GDP growth from therate of resource extraction via efficiency gains has not worked to the degree

economists and environmentalists have been counting on.

Figure 4 illustrates this point. In 2007, 26% less natural resources werenecessary to produce one dollar of economic output than in 1980. However,because material intensity decreased to a lower extent than economicgrowth, no absolute decoupling was achieved and resource extractioncontinues to grow in absolute terms.

Between 1990 and 2007 global energy intensity per dollar of output fell byonly 0.7% per annum.14 Under current economic growth rates, global carbonintensity (defined as unit of CO2 equivalent per unit of GDP) needs to fallby 11% per annum between now and 2050 if we are to achieve the 450ppm level of atmospheric carbon accepted as the upper limit to keep globalwarming to 2C. Recently, many scientists suggested that atmosphericcarbon should be lowered to 350 ppm to prevent climate spiralling out ofcontrol.15

The consequences of this are stark: a need to radically shift away fromthroughput-based measures of growth (which promote continued growth inconsumption without regard to well-being) and the need to change business

models at unprecedented speed and on unprecedented scale.

Index:1980=

100

GDP

225

200

175

150

125

100

75

50

1980 1985 1990 1995 2000 2005

Resource extraction

Population Material intensity SERI 2010

Figure 4: Trends in global resource extraction, population, GDP and material intensity13

As a CEO, if you want

to plan for success, you

need to decouple your

growth strategy from your

environmental impact.

Paul Polman, CEO,

Unilever


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1 Introduction

1.4 From Incrementalism to Transormation:Speed and Scale

Businesses are experimenting with new business models; somegovernments have undertaken radical policy measures. Both are beingpulled and pushed by a growing niche o consumers demanding moresustainable products. Technological improvements are reducing the intensityo resource use. These are important steps in the right direction. Yet, they arenot happening with sufcient speed or at sufcient scale. They do not add upto the transormation we need.

Consumption is a undamental human cultural expression, whether ohospitality, wealth, celebration or success. Yet, i the trend o growingconsumption continues without any undamental changes in the way wethink and how we consume, we ace a very challenging uture.

We have two choices reconsider what consumption means in aproactive way and start designing a transition now, or wait until we areorced to react and adapt.

Changing the systems o stu is a good place to start designingor modularity or reuse, advocating lie cycle ownership o products bymanuacturers, creating policy that supports better material decisionsand closing recycling loops, prototyping new business and accountingmodels, etc.

We may be missing a critical opportunity though. We intuitively know that,ater a certain level o need is met, the acquisition o more stu creates ahappiness that is very transactional. New research demonstrates that ourdesire or stu actually makes us less satisfed and happy. But i we areconsuming experiences, we are happier material purchases bring moreconcern and less happiness than experiential ones, according to a studyrom Cornell University, published in the Journal o Personality and SocialPsychology.

There are examples, o course services like Netix or Pandora turnedmedia into a use rather than an ownership model. Car-sharing serviceseliminate the hassle o ownership. Sotware services in the cloud canprovide better perormance while reducing the carbon ootprint o IT by upto 90%. Disruptions have emerged when consumers can get better valuerom the service rather than ownership.

But how might we start with designing or experience rather thantransitioning as the value proposition appears? I we are to undamentallyalter how we consume, let us begin with designing or experience ratherthan acquisition.

Consumption in transition

We must make the

aspirational attainable, the

attainable sustainable, and

the sustainable affordable.

Lars Olofsson, CEO,

Carrefour


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1 Introduction

Many barriers retard economic transformation or prevent it: perverseincentives, poor policies and pricing of natural resources without referenceto externalised costs. Removing these barriers would help providingimmediate competitive advantages to those engaging in sustainablepractices. But there are more positive leverage points that can help tip thewhole system towards sustainable consumption. In the view of the WorldEconomic Forum Partners, identifying these leverage points interventionswhere small changes can produce broad, system-wide results is the onlyanswer to the scale of the challenge, its systemic character and the speedneeded to address it.

This report focuses on three sets of stakeholders, and the leverage pointspertaining to each separately and together:

Consumers are key shapers of the global economy not only throughtheir product choices but also through their engagement as members oftheir social networks and communities, and as global citizens.

Businesses are the builders of a sustainable consumption economythrough their investments and innovation. The strategic use of life cycle

thinking offers an opportunity to re-engineering business models andvalue chains.

Governments are the enablers of sustainability. Public policy innovationcan drive markets and mobilize stakeholders leading to actions andoutcomes at scale.

The report will explore the roles for each of these stakeholders, and potentialpoints of leverage for them to act now.

The power to transcend paradigms

The Ability to Change Mindsets

The mindset or paradigm out of which the system arises

The goals of the system

Understanding the Goal and the Mindset of the System

The power to add, change, evolve, or selforganize system structure

The rules of the system (such as incentives, punishments or constraints)

The Rules that Set up the System

The structure of information flows

The gain around driving positive feedback l oops

The strength of negative feedback loops

The length of delays, relative to the rate of system change

The System Drivers

The structure of material stocks and flows (such as transport networks)

The sizes of buffers and other stabilizing stocks, relative to their flows

Constants, parameters, numbers (such as subsidies, taxes, standards)

Parts (Parameters) of the System

Effectiveness

Low Leverage

High Leverage

Figure 5: A hierarchy of the effectiveness of leverage points places to intervene in a system16


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ConsumersChanging the Termsof Engagement


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2 Consumers:Changing the Terms of Engagement

In the public mind,

marketing and

communications skills are

naturally most associated

with the encouragement of

consumer consumption. But

theyve also proved their

worth many times over in

the promotion of public

services: in Government

health campaigns,

recruitment and the raising

of money for charities, for

example. As the need for

our planet to graduate

from super consumption to

sustainable consumption

becomes ever more urgent,

marketing skills will be key

in persuading the world ofthe resulting beneits - to

both individuals and society

as a whole.

Sir Martin Sorrell, CEO,

WPP, United Kingdom

2.1 Why Engage Consumers?

Consumer choices are key determinants o what the global economyproduces, and how it does so. Fundamentally, while all consumer choicesare individual, their aggregate eect makes markets and drives businesses.Understanding how consumers choose is the prerequisite to harnessing theirchoices in transormative change.

Recently, leadership opinion has pointed to the need or a new approach: aneed to shit rom an era o super consumption in which consumption oever-greater numbers o quickly obsolescent goods is viewed and marketedas an end in itsel to a new normal o consumption emphasizing valueabove stu18. Engaging consumers, and nudging their choices towardssustainable consumption, is essential to creating a more sustainable global

economy.19

However as it stands, consumer engagement is not shiting the globaleconomy towards sustainable consumption with enough speed or at scale.A minority o consumers are proactive in creating a sustainable economy ostering markets or sustainable products and driving better consumerand corporate awareness. Their numbers are too small, however, to tip theeconomy as a whole towards sustainable consumption. Many consumersremain conused about claims to sustainability o particular productsand services, and doubtul as to their ability to aect the workings o theeconomy as a whole through their individual purchases.

The issue may be as much about where consumers are engaged as howthey are engaged and who they are. An understanding o how consumers

choose and interact has been growing with advances in technology and datacollection over the past 10 years, oering an opportunity or businesses toengage more genuinely with their consumers. It also suggests that some othe most powerul leverage points or consumer engagement in sustainableconsumption may not lie in traditional marketing, but in the broader socialcontext. The challenge is that the sophistication o modern marketing needsto be applied to new models o consumption rather than promotion o superconsumption.


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2 Consumers: Changing the Terms o Engagement

Consumer choices are shaped by a wide variety o actors, both beorepurchase and in-store. Which actors predominate in consumer choicesvary by product category, level o consumer awareness, the nature andextent o regulatory intervention as well as by geography, culture andincome level.

Choosing is a complex act, inuenced by social context, cultural attitudesand education as well as the availability o product inormation, the rangeo choice and how goods and services are marketed.

Ultimately, consumer decision-making operates at three levels:

Rational: conscious decisions based on inormation about the price,attributes and perormance o products and services some owhich may relate to utility to an individual, some o which may bemore social. Though price is the single greatest actor in consumerdecision-making, purely rational decisions are rare. Most o theinormation presented to consumers is conusing.

Emotional: belies, emotions, brand image, established habits,social inuences and heuristics mental short cuts all play arole here. A large part o consumer decision-making depends onemotion, intuition or habit. Some 70% o items purchased everyweek are repeat purchases, with little or no conscious considerationo alternatives. Behaviour breakers tend to relate to price andpromotions.

Contextual: choice is also inuenced by the environment in whicha consumer makes a decision, both the immediate physicalenvironment and the broader social and cultural context. Socialnorms matter, particularly when the choice o a particular product orservice is visible to others. Personal recommendations can be highlyinuential.

How consumers choose


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2.2 Rethinking How to Engage

Consumer engagement strategies need to reect the complexity o the waysin which consumers choose, spanning the three levels o consumer decision-making: rational, emotional and contextual. This, in turn, has implications onhow consumers are engaged in sustainability, and which leverage points mayproduce transormative change.

Price

Choice

Information

Contextual

Emotional

Rational

Soc

ialNo

rm

s

Situation

Emotions

Men

ta

l

Sh

ort

Cut

s

Brand

HabitO

therPeople

Pro

duct

Communication

Figure 6: Inluencers of consumer choice20

RecycleBank uses a carrot rather than a stick approach to motivateconsumers and communities to take positive environmental actionsthat lead to a more sustainable uture. Through its kerbside recyclingprogramme and digital platorm, RecycleBank incentivizes environmentallypreerable behaviours with points that can be redeemed or discounts andrewards rom participating local and national business partners.21

Case study: recycling incentives


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Below are a ew lessons that have come rom interviews conducted as parto the research or the Consumer Engagement workstream.

Lessons/Guidelines22 Implication

Choices are about identity:the purchase o a wide range oproducts is as much about identityand liestyle o the purchaser or theintended recipient, as about thequalities o the product.

Relating sustainability to a rangeo products and services, andto a broader liestyle or valueschoice may be an eective meanso eecting consumer behaviour.Providing the empowerment andtangible actions to support apurpose or value set will be vital.

Establishing social norms is key:

nearly all consumption choicesare subject to some kind osocial inuence either personalrecommendations, ideas o socialacceptability, awareness o otherspurchasing habits or visibility o onesown.

Dialogue and engagement onsustainability, social norm settingand leveraging o social networks oconsumer practice are likely to drivechanges in consumer behaviourin the long term. Key to this will bemessaging on what sustainabilitymeans and how it relates to theconsumers role in the wider world.

More inormation is not

necessarily good: consumersrarely balance the costs and beneftso each purchase. Habit, emotionand intuition are more important as

inormation increasing the value obrands and easily recognizable andtrusted labels.

More detailed and complexinormation will not necessarily leadto a change in consumer choices.Credible, simple and trustedinormation may be more eective.

Social labels, which describe theimpact o purchase on another set ostakeholders, may be key.

Consumers have short time

horizons: consumers tend to ocuson upront benefts o productsrather than long-term costs.Relative efciency o products rarelyoutweighs relative initial outlay inaecting decision-making.

Encouraging purchases o moresustainable goods may requirethat upront costs more adequatelyreect long-term costs, or thatlong-term costs are more explicitlydisplayed. Engagement strategiesthat pay back quickly such asRecycleBank (see box) are likely tobe more eective.

Greater choice tends to leadto quicker, less reective

decisions: consumers take lesstime considering their purchasewhen aced with an extensive rangeo choices than when aced with amore limited range.23

Choice-editing at the level o theretailer (or policy-maker) rather thanat the level o the consumer, maybe necessary to exclude someproducts. Research suggests thismay be expected or even welcomedby consumers.24 Unilateral retailerchoice-editing (such as Marks andSpencers Plan A) may help build anenvironmentally positive brand image.


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2.3 From Behaviours to Values

Traditionally, the ocus o eorts to change consumer behaviour hasbeen at the point o purchase and pre-purchase, with mixed results. Adeeper upstream shit in consumer values may be a more eective long-term approach25 and suggest a more authentic way o engaging withconsumers, in a pre-competitive environment.

Consumer behaviours in-store tend to be highly transactional and heavilyinuenced by price. But values, i sufciently deeply embedded, can alter theconsumer calculus decisively (e.g. air-trade bananas vs cheap bananas).However, values are relatively hard to create or change: they are oteninstilled in childhood, through amilies and early education systems. So whiletransorming consumer choice through changing consumer values may oer

the greatest long-term leverage, it implies a long-term shit involving media,businesses, public policy and education.26

Women are known to wield signifcant inuence in consumer decision-making: In the US, studies show that women are responsible or buying80% o household goods, and the Consumer Electronics Association(CEA) reports that women are the primary consumers when it comes towireless gadgets and gizmos. According to CEA ofcials, women areoutspending men in electronics purchases US$55 billion to US$41 billion.The trade organization also reports that women inuence 90 percent oconsumer electronics purchases.

Among the poor, women are usually responsible or collecting water,frewood and eeding their amilies. On the ground, they see the impactso consumption on rivers, orests and croplands. Grassroots activism,such as Wangari Maathais Green Belt Movement is empowering womento plant trees and take a stand or their local environment. Gender gaps ineducation, employment, health and political representation are narrowing.At the same time, laws and social norms that have discriminated againstwomen are shiting in some countries.

Together, these actors are giving women greater inuence and decision-making power within households and markets. Empowered women canbecome a secret weapon in a shit to sustainable consumption.

There is some evidence rom dierent felds (behavioural economics,fnance, psychology) that women are more risk-averse than men, displayweb-thinking rather than linear thinking, are more likely to think o long-term interests rather than short-term compensation and tend to take moreinclusive decisions. These traits are precisely those which sustainabilityleaders have argued or in business and government planning orimplications, systems thinking, long termism, and inormed decisionmaking all o which are necessary or a shit to sustainable consumption.

To capitalise on this potential will require moving beyond ocus groupsto include women and gender in the design, marketing, advertisingand delivery o the experiences o the uture based on sustainable,healthy products and services. By leveraging women as citizensand ambassadors o the cultural imperative, the shit to sustainableconsumption can be accelerated and the long-desired consumer pull orsustainability could see increased traction.

Women as ambassadors o the cultural imperative


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2.4 From Consumers to Citizens

The shit rom behaviours to values suggests a new way o engaging withconsumers as citizens and as members o broader communities.27

Companies and governments spend considerable sums to inuence consumers.But research indicates that the strongest inuence on consumer behaviour andvalues comes rom the broader social community. Trust is central.28

The re-conceptualization o the consumer as citizen is not radical in itsel,but actually changing the interaction that institutions have with the consumeris undamentally more challenging. The essence o marketing over severaldecades has been the disaggregation o individual consumers rom societyas a whole, in a process o continuous market segmentation.

Engaging consumers as citizens is the reverse. It will involve:

Recognizing the broad societal networks which provide meaning to andinuence the values o consumers and citizens: amilies, riends, placeso worship and schools;

Capitalising on renewed impetus o communities and networks virtualor otherwise, driven by communications technologies;

Understanding and acting upon a cultural shit rom me to we;

Engaging the consumer through shared responsibilities to society andthe co-creation o products and services.

One recent example is the 10:10 campaign that the British governmentinitiated to reduce carbon emissions by 10% by the end o 2010. Thecampaign has caught the publics imagination and engaged individuals andcommunities in hundreds o thousands o activities.

We are sensing a returnto citizen, rather than

consumer, values proof

positive that it is citizenship,

not consumerism, that is

the more enduring ethos.

In short, we are sensing a

citizen renaissance.

Robert Phillips, President

& CEO, Edelman, EMEA

A concrete example o active community building is through collaborativeor collective consumption29. Through this collaborative consumption acommunity gets together through organized sharing, swapping, bartering,etc. to get the same pleasure o ownership with reduced personal costand burden, and lower environmental impact. These exchanges happenmostly on a local or neighbourhood level.

Collaborative consumption is not a niche trend, and it is not a reactionaryblip to the recession. It is a socio-economic groundswell that willtransorm the way companies think about their value propositions andthe way people ulfl their needs. One example in the orm o ractionalownership, is the renting o cars being executed by Zipcar, which ownscars and allows individuals to rent them by the hour, and Whipcar, whichis a platorm which lowers the transaction costs or individuals to rent outtheir own cars to riends or neighbours. Both Hertz and Mercedes arenow exploring ractional ownership models.

The collaborative consumer is also an engaged citizen, one who bothowns and spreads messages and values. As the business models start tochange, so too must the mental models o how consumers and citizensare inuenced. This will most clearly be seen through deeper two-way

engagement and the emergence o a more active consumer.

Collaborative consumption


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However, there remains a strong tension, almost a schizophrenia, in therole o governments. While there are many programs run by departmentso environment promoting sustainable consumption, they are consistentlyout-resourced by the mandate or growth and jobs. Until these perverseimbalances are reconciled and governments make a transparent shit in theirpriorities, the mixed signals will continue to undermine trust by consumersand business.

Above all, change will involve recognizing that while the applicability ospecifc leverage points may vary rom culture to culture, the greatest long-term leverage points or consumer engagement are always likely to lie atthe social and cultural level. The ollowing graphic takes a snapshot o theemerging drivers that inuence actions and enact behaviour shits.

2.5 A New World o Consumer Engagement

The real potential o consumer engagement to shit business models, to

transorm consumption and to oer new opportunities or businesses isonly now being recognized. The scope or innovation is huge.

Unlocking consumer engagement oers opportunities or new kinds orelationship and a dierent orm o competitive advantage. Trust, co-creationand authentic consumer engagement will complement price and logistics asthe characteristics o successul businesses in this new world o consumerengagement.

One radical orm o consumer engagement is co-creation o goods andservices enabled by new communications technologies. For exampleThreadless, an online start-up, allows users to submit T-shirt designs whichare then voted on through the Internet, with winning designs going intoproduction. There are limits to how widely this can be applied, depending

on the type o product and services and the availability o the supply side oconsumer innovation.

Choice-editing

Investors

Leading companies

associations

Social/mainstream media

Labour unions

NGOs

OurWorld

Gouvernments

Education

Branding Pricing Promotions

Companies

Family Friends/Peers Culture/Values

SocialInfuencers

Choice-editing

Regulation

Taxation/subsides

Figure 7: Illustration of the interrelationships of different stakeholders

on citizen values and engagement


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Even where co-creation is not possible, consumer engagement can becomear more collaborative and more socially driven, building ar stronger brandsin the process. The Pepsi Reresh project is shiting up to one-third oPepsiCos overall marketing budget to interactive and social media.30

Sustainability has a strong role to play in the new world o consumerengagement building social values o sustainability and businesses trustwith consumers around those values.

Crowd sourcing initiatives maybe a next step in engagingconsumers who look totheir values when makingpurchasing decisions. Newinormation communities, suchas GoodGuide.com, will play acrucial role by leveraging newdata (such as lie cycle metricsand health hazard assessment)

and new technologies (smartphones and social networks)to enact changes in consumerdemands and awareness.Fellow citizens can fndproducts that match their values,share these products with theirsocial network, switch betweenproducts and send signals in themarketplace about what theywant rom companies.

Nike has conducted in-depth qualitative research on attitudes towardssustainability among young people aged between 17 and 25 in the UnitedStates, Brazil, the United Kingdom and China31. Five messages emerge

rom this research:

1. Young people are acutely aware o global social and environmentalissues. An entire generation senses itsel to be living on orange alert with a constant eeling o uncertainty.

2. For many o them the word sustainability has negativeconnotations. More optimistic, positive, orward-looking languagemay be needed to promote engagement.

3. Changing young peoples behaviour is most likely i it can beconnected to or inspired by particular social leverage points: sport,music, art, flm, ashion, etc.

4. While cynical about brands in some respects, young peoplerecognize that governments do not have all the answers, and brandshave a role to play in changing the world.

5. For young people, business transparency and honesty is theprerequisite or trust.

Case study: the power onetworks (I)

Signals rom the next generation


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2.6 Engaging or Change

From the above, it is easy to conclude that engaging consumers isunpredictable. However, this also provides an opportunity while consumersare currently looking at new options and questioning their values. Engagingconsumers and citizens on sustainable choice through the social context otheir decision-making will be a generational investment. There are positivesigns, however, that a broad generational shit in values is not only possible,but that the oundations or it are already there.

The implications are powerul: better sustainability narratives, i backed byhigh levels o trust, can tip the next generation o citizens towards a worldwhere more sustainable models o consumption become accepted as aglobal social norm.

Governments and businesses have key roles to play:

Governments through education, regulation o markets and otherpublic policy measures can create an environment in which sustainablechoices are supported. They can be instrumental in creating new socialnorms and values that inuence consumer behaviour both long beorepurchase and long ater it. At the same time, active citizens provide thesupport that policy-makers need to commit to sustainable policies.

Companies can have an opportunity to lead rather than ollowconsumer awareness o sustainability: through upstream educationprogrammes reecting the social dimensions o consumption; throughcollaboration along value chains; and by communicating sustainable

value propositions, products and services to their customers. Crucially,this depends on businesses doing what they do best: creating andcapturing value. Transparency in marketing will be key to building trust,and standards such as the International Chamber o Commerce (ICC)Framework or Responsible Environmental Marketing Communicationswill provide much-needed guidelines accessible to all companies.32

Both governments and companies have a role to play in choice-editingor consumers based on sustainability.33 This editing o consumer choicescan be actioned by manuacturers or retailers as an expression o theircorporate values, i.e. by not oering certain products or ingredients toconsumers, such as blue fn tuna; or by governments, by regulating orphasing out certain products, such as incandescent light bulbs.

Transormational change cannot happen without broad collaboration between

stakeholders, a ocus on the pre-competitive contextual level o consumervalues rather than competitive in-store decision-making and open innovationto create the learning systems that enable a seismic shit in values. This cannothappen without re-conceptualising the consumer as citizen.

The leverage points or tipping the global economy towards sustainableconsumption are increasingly clear. The challenge now is to activate thempurposeully. Below is a summary o leverage points explored throughdiscussions over the past year.

The ollowing table is intended to serve as a qualitative dashboard tohighlight the points o highest leverage, based on the insights o this chapter.Some o these may challenge conventional thinking, which was indeed thepurpose o the workshops and interviews through which they were collected.


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Shiting mindset on what is socially acceptable (Understanding the Goal of the System)

Social infuencers can stigmatize products and services to make them socially unacceptable, oten having argreater impact than regulation or price signals. Stigmatization infuences deeply embedded values. This shit isextremely dicult and oten takes decades, but results in a deeper change that has impact on the longer termversus changes in behaviour which are oten only transactional.

Transparency and authenticity o business values(Systems Driver: Information Flow)

Sustainability embedded in the core value proposition o a company needs not only to be refected throughproducts but also through the way the company is organized, behaves, communicates, etc. Transparencyand resulting consumer perception o the degree o sustainability o an organization will be key in engagingthem on sustainability.

Consumer-led inormation communities(The Power to Add, Evolve, Self-organise System Structure)New and strengthened interactions with consumer-based inormation communities (e.g.GoodGuide) will allownew collaborations to take place and evolve. Such interactions will allow or better brand management,increased stakeholder value and the improvement o data in the sharing o collective resources.

Breaking habits through collaboration (System Driver: Positive Feedback Loop)

Most purchases are done based on habit. It is important to understand what will enable an individual to trysomething new. Past and rst experiences are very powerul to start (or continue) engaging consumers onsustainability. Through industry-wide collaboration companies can encourage the consumer to test or buysustainable products and this rst experience is crucial.

Infuencing values through early education (Ability to Change Mindsets)The gain rom the education o a child accrues not only to the child or to his/her parents but to othermembers o the society. Governments have the ability to nudge the long-term values o a society bystructuring education accordingly. Social infuencers such as NGOs might act as a neutral party in evaluatingeducation programmes or sustainable values.

Choice-editing: making only sustainable choices available (The Rules of the System; Constraints)Choice-editing can be done by the industry (including retailers) by removing unsustainable or less sustainableproducts. Governments can introduce roadmaps or elimination o unsustainable products and can interveneand ban certain less sustainable products rom the market (e.g. China is phasing out incandescent light bulbs).

Business association collaboration on messaging (The Power to Add, Evolve, Self Organize System Structure)

Business associations have the power to act as a platorm and to engage with their members and infuencethem in taking specic actions when it comes to sustainability. This can happen through standardization omessaging, dening perormance requirements, sustainability certication, environmental perormancereporting and community engagement standards.

Labelling Accreditation and Certication (System Driver: Structure of Information Fows)Instead o conusing the consumer with more data, it is oten more eective to target the values o aconsumer through a label o environmental or social assurance (e.g. P&G with their uture riendly label, BodyShop and animal testing, or the Fair-trade label). Use o such labels can help to create a trust relationshipbetween the consumer and the company or sector.

Pricing signals (Subsidies /Taxation) (The Rules of the System; Incentives / Punishments)

Through use o scal incentives, governments can nudge citizens towards sustainable liestyles by closing theprice gap or more sustainable products or engaging signicant tax rebates or their use. Companies can alsowork on pricing to infuence consumer behaviour by identiying loss leaders to precipitate a change inconsumer purchasing habits. These actions, however, only have an eect when the price change resultingrom their measure is suciently important.

Labelling Data and Inormation (System Driver: The Structure of Information Flows)

There is so much noise in terms o labeling that such inormation fows might never be as strong as they couldbe in terms o impact. Providing product inormation to infuence purely rational drivers only motivates a small

percentage o people, and impact on end consumers is oten overestimated.34

PotentialImpact

Easeof

implementation

Replicability

Scalability

Leverage Points / What can be done

High

HighHigh

Med

High

HighHigh

Med

High

HighHigh

Med

High

MedLow

Low

High

MedLow

Low

Med

HighMed

Med

Med

HighHigh

Low

Med

MedMed

Low

Low

MedMed

Low

Low

MedHigh

Med


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Impact

Ease of implementation

High

Low

Low

High

Choiceediting

Transparency ofbusiness values

Breakinghabits

Valueseducation

Mindsets ofacceptability

Labeling Data

Collaboration onmessaging

Labeling Accreditation

Pricingsignals

Consumer-ledinformationcommunities

The icons from the 2010 Redesigning Business Value report, are used to classify the various types of leverage points found in the graph.

High Medium Low

Impact Can trigger a undamentalshit in the way the systemoperates

Can reinorce positivebehaviours or can breakdown barriers or progress

Important steps to take butdoesnt enable a undamentalchange in the system

Ease o

implementation

Change can happen ast withincremental costs and ewpolitical barriers

Change desired but onlyon a longer time horizondue to inherent political andeconomic barriers

Requires disruptive shits inorganisational systems due todivisive or polarised mindsets

Replicability Easy to copy and non-exclusive. Can be emulated in

various geographies globally

Needs better regulatoryand business environment

to gain momentum acrossgeographies

Dificult to replicate orimplement beyond regional or

national context

Scalability Can be easily scaled betweenmunicipal, national, regionaland global levels

Accessible by large entitiesbut dificult to enact on aregional or global scale

Costly to scale requiring largeinvestments in order to growbeyond local pilot phase


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Mobilizing BusinessOpportunitiesLife Cycle Thinking


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3 Mobilizing Business Opportunities:Life Cycle Thinking

3.1 From Compliance to Competitive Strategy

Until relatively recently, business attitudes towards sustainability tended tobe reactive and ocused on compliance. Companies principal ocus wason mitigating risk, addressing concerns raised by NGOs and attempting toavoid or inuence government regulation.

The context or business has begun to change. Awareness o environmentalsustainability issues has increased among consumers, governments andbusinesses, heralding an increased role or accurate data and inormation onenvironmental impacts. Consumer demands or transparent and sustainablesourcing have grown. Investors are increasingly holding companiesto account and looking to sustainability as a possible source o uturehigher shareholder return. Increasing resource scarcity and related costs

have increased the costs o raw materials and energy. Governments arebecoming aware o the need to move beyond GDP growth as the defnitiono economic development. Tighter regulatory rameworks have emerged,supporting incremental change but not yet enabling the transormative shitto sustainable consumption that we need.

As the context has changed, so have business attitudes. Chie executiveofcers are increasingly recognizing the importance o sustainability to theuture o their businesses. According to one report, over 90% o CEOs seesustainability as important or their companys uture success.35

Sustainability is also increasingly being elevated rom an issue o operationalmanagement to one that inuences product design and corporate strategy.For example the Sustainability Board o METRO Group, chaired by the CEO,

recommends binding targets, guidelines, standards and measures to themanagement board and, in this manner, continues to urther develop thecorporate sustainability strategy. 36

This section o the report argues that lie cycle thinking and the metricsthat inorm it may have a powerul role to play in accelerating this shit romcompliance to strategy and in opening possibilities or innovation withinbusinesses and across value chains.

Lie cycle metrics (LCMs) data which track resource use and environmentalimpacts o goods and services rom resource extraction and productionthrough to how goods are used and disposed o are already providingcompanies with a much better understanding o key resource inputs alongthe entire value chain. This can be a powerul tool, both at the operational

and the strategic level. Nestls Environmental Management System hasexplored indirect and direct water use along the value chain and has beenable to reduce the companys risks and input costs by doing so.37

But LCMs and associated lie cycle thinking have even greater potential as a leverage point or businesses, value chains, industries and theglobal economy as a whole. Scaling up sustainability with speed meanshelping more and more frms to raise lie cycle thinking rom the shop oorto the boardroom, using it to drive corporate research, development andinnovation, and in building broader sustainable business ecosystems.Fully exploited, lie cycle thinking has the ability to mobilize disruptive,transormative change with both speed and scale in the board room andalong the value chain.

To realise sustainable

consumption, it is crucial to

leverage lifecycle thinking

at a strategic level as a

driver of business and policy

innovation.

Steen Riisgaard, CEO,

Novozymes


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3 Mobilizing Business Opportunities: Lie Cycle Thinking

3.2 Current Drivers o Sustainability or Businesses

Corporate approaches to sustainability are being driven by a number oactors consumer behaviour, government procurement and regulation, anddecisions made by market leaders and market makers as well as investorbehaviour:

Consumer Engagement: increasing social awareness o sustainabilityissues, coupled with the growing importance o civil society andconsumer empowerment through technology has led to baselinedemands or transparency about the environmental and social impact ogoods and services. Companies unwilling or unable to provide this areat risk o losing brand equity and market share.

Employee Engagement: engaging employees in a companyssustainability journey is not only critical or the integration o new valuesinto the DNA o a company, but also or attracting and retaining talent inan increasingly competitive market. In addition, as part o the shit romconsumers to citizens, employees can serve as a testing ground or newproducts, services and strategies.

Government Procurement: a rising trend towards the introduction osustainability criteria in government procurement is driving companiesto consider their own processes rom a lie cycle perspective. TheEuropean Union has introduced a target that hal o the public tenderingprocesses must be green by 2011. In the United Kingdom alone,this is estimated to have the potential to create an annual 110billion market or sustainable goods and services, through changes in

Government Buying Standards to come into eect in 2011.38 In theUnited States, both the ederal government and state governmentshave adopted measures that use the purchasing power o the state tocreate new market incentives. A new Executive Order requires agencieso the ederal government to report their GHG emissions and to reducethem over time.39 Tipping the government market towards greenprocurement will help drive down the price o sustainable products astheir manuacture is scaled up.

Regulation: the trend to sustainable procurement is complementedby changes in regulation. In dierent ways, regulations such as theEuropean Unions Waste Electrical and Electronic Equipment (WEEE)directive and Registration, Evaluation, Authorization and Restriction oChemicals (REACH) are changing the way in which companies design

and manuacture their products and how they consider disposal,driving research and development budgets towards more sustainablealternatives. Extended producer responsibility (EPR) or productstewardship encourages manuacturers to design environmentallyriendly products by holding them liable or costs at the end o theproducts lie.

GoodGuide uses lie cyclemetrics to identiy what mattersmost in a products supply chain essentially the scientifc hotspots and what matters mostto consumers the hot buttonissues. GoodGuide deliversinormation to consumers on thelie cycle impacts o productsand supply chains, includingenvironmental, social and

health impacts right at themoment a consumer is makinga decision about a product in astore or online. This inormationcommunity enables positiveeedback loops or sustainableproducts and services, andincentivizes much greatertransparency rom companies.

Case study: the power onetworks (II)


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Market Leaders and Market Makers: some purchasers o goodsand services, particularly large retailers, are using their scale in themarketplace to inuence practices within their supply chain andtriggering shits in the economy as a whole. In some cases, purchasingscale is the key actor. Wal-Mart has been a market maker by engagingacross the supply chain to decrease the environmental impact oits products, reducing inputs and creating a cascading incentive orsuppliers to explore their own environmental (and other) impacts. Inothers, the power o example is enough. Marks and Spencer andTesco have been market leaders through Plan A and carbon labelling,respectively. A combination o GEs scale and innovation, coupled withgovernment regulation, has made a new market or LED lighting thatbarely existed a ew years ago.

Sustainable Investors: an increasing number o investors integratelong-term environmental, social and governance (ESG) criteria in theirinvestment and ownership decision-making processes with the objectiveo generating superior risk-adjusted fnancial returns. These extra-fnancial criteria are used alongside traditional fnancial criteria such ascash ow and price-to-earnings ratios. As large institutional investorsbecome more ocused on sustainability issues rom a risk-adjustedfnancial return perspective, this will urther accelerate the transitiontowards sustainable business practices. The trend towards sustainableinvesting is also driven by the increasing demand o asset owners (asuniversal owners) and international initiatives such as the UN-backedPrinciples or Responsible Investment.

Resource Scarcity: increasing constraints on the supply o natural

resources relative to demand is driving businesses to better managetheir resource inputs or even to exit resource-intensive sectors whereuncertainties about uture availability are too high. Increasing resourcescarcity implies the potential or rising costs and dislocations. However,it can also be a driver o innovation and a driver o uture value andmarkets (e.g. rom waste materials). Above all, it can help decoupleglobal prosperity rom resource use.40

Minimizing externality risks: sustainability matters to business becauseit reduces exposure to the risk o increased scarcity o resources andto the risk that these (carbon, water, waste) are radically repriced in theuture. Embracing models o sustainable consumption across the valuechain will provide stronger resilience against external shocks.41

These drivers have been and will continue to be eective in helping tobuild sustainability into the DNA o individual companies, markets and theeconomy as a whole.

The WWF World Wide Fundor Nature identifed 35 placeson earth richest in biodiversityand most important rom anecosystem perspective andthen highlighted 15 commoditiesthat posed the greatest threatto these places. It turnedout that 300-500 companiescontrolled 70% o the tradein these commodities. Just100 companies controlledone-quarter o trade in thesecommodities, a powerulleverage point. Rapidly, WWFsocus was able to move roman almost impossibly complexchallenge global biodiversity to a more manageableissue how to persuade 100companies to adopt moresustainable practices or 15commodities. The key message

is that large market players canbe tremendously importantpoints o leverage in valuechains and in transorming thedynamics o global markets.

Thinking strategically:identiying leverage orsourcing


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3.3 Leveraging Lie Cycle Metrics

The context and drivers described above have created powerul incentivesor businesses to gain a much better understanding o their own resource useand o resource use and environmental impacts along the value chain. Liecycle metrics have become an integral tool o business. In a Global ReportingInitiative survey, 86% o respondents rated the ability o businesses to traceproducts through their entire lie cycle as important or very important.42

Lie cycle metrics can and will be used more.43 More extensive and moredetailed data can be collected and collated, and the data can be made morerigorous. But LCMs can also be used dierently with ar greater scope andat a ar higher level in companies. Leveraging LCMs means moving roma purely technical analysis o past environmental impacts to making them

useul as a driver o strategic decision-making and innovation. It meansmoving the tool rom the shop oor to the boardroom.

However, the ull potential o LCMs to leverage change will only be realizedi the metrics are applied beyond the corporate entity and across the valuechain. As the Walkers case study demonstrates, exploring the value chaincan reveal and release enormous business value, as well as reducingresource use and aggregate environmental impacts. LCMs need to be easierto use in this way: more legible and more interoperable. Producing bestpractice scorecards against which to measure relative success and ailuremay be one way o exploiting this potential.

A standardised life cycle mark-up language (LCML) could acilitate sharingamong stakeholders along the supply chain by making it easier or frms

to collect and share data useul to all. Leveraging LCMs across the valuechain cannot only unlock urther value incrementally but also help transormproduct design, the structure o the value chain and the way in whichcompanies design and sell products and services.

With the help o the Carbon Trust, Walkers Crisps (a PepsiCo brand) setout to measure the carbon ootprint o a bag o crisps. The original intento the exercise was or a product carbon label targeted at the consumer;however it emerged that the benefts went ar deeper into the supplychain. The study ound that the most energy-intensive part o the processo making crisps was involved in drying raw potatoes which had beensoaked with water by armers to increase their revenue due to a price

structure based on weight o potatoes.

Both armers and Walkers won by aligning incentives in the orm o a newprice structure based on volume. Energy efciency was improved. Energyuse per kilogram (kg) o crisps produced has allen almost 33%, rom 4.6kWh/kg to 3.1 kWh/kg 2000-2007, achieved through improved shutdownand start-up processes, optimized lighting systems and a range oinvestments in new technologies44. PepsiCo UK reduced its overall carbonintensity (CO2e per kg o production) by 5.9% during 2007.

Engagement between Walkers and its suppliers was enhanced throughbetter communication and by working to fnd varieties o potatoes whichrequired less water. By looking at the supply chain o all commoditiesand unit processes, new business value was uncovered and aggregate

resource inputs were reduced.

Case study: Walkers Crisps


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3.4 From Lie Cycle Assessment to Lie CycleCollaboration

Understanding the dierent ways in which LCMs can create value can beuseully represented along two axes. On one axis, the use o lie cycle metricscan be classifed as passive or active, with active use o LCMs implying theirapplication to business models and strategic value creation. On a second axis,the use o lie cycle metrics can be classifed as principally or internal use, oralso or the purposes o external collaboration along the value chain.

Strategic

ValueCreatio

n

Internal

Processes

Data

Collection

External Stakeholder

Engagement

Collaborate alongyour value chain &

build shared

strategies with

customers and

suppliers

Compliance

Embed sustainabilityinto your organization

& strategy

Gatherappropriate life

cycle data and

perform life cycleassessment

Engage withcertification

partner

Report andbenchmark

performance

(internal, ISO

investors)

Inform theconsumer

Figure 8: Enabling life cycle thinking within organizations and along the value chain45

In the frst quadrant lie cycle assessment the core challenge is to scaleup data collection and to make it cheaper and more ocused. In the secondquadrant lie cycle inormation data is transormed into inormation orcommunication with consumers and stakeholders, meeting their demandsor transparency, mitigating reputational risk and creating new opportunitiesor engagement. In the third quadrant lie cycle strategy LCM data

becomes a tool or strategic decision-making, allowing sustainability to bea driver o innovation through new strategies, business models, productsand services. In the fnal quadrant lie cycle collaboration those strategicconversations are extended across the value chain including, ideally, theinvolvement o value chains, consumers and competitors.

The practical measures below represent a pathway, with many intermediarysteps, rom individual company-level lie cycle assessment to lie cyclecollaboration across an industry or an entire product lie cycle. Each steprepresents part o the evolution laid out in the matrix above: 1) SimplifedLie Cycle Assessments; 2) Inormation to Communication; 3) Inormation toCorporate Strategy; 4) Corporate Strategy to Lie Cycle Collaboration.

Each measure, by itsel, oers incremental improvement in the application o

LCMs. Taken together, these measures constitute a potentially transormativeset o tools.


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3 Mobilizing Business Opportunities: Life Cycle Thinking

Traditional life cycle assessments havetended to be highly technical andeither designed for internal use relatingto a single product or set of products,or as a means to complying withexternal reporting requirements. Somecompanies have outsourced LCMs others, such as Unilever and Nikehave developed their own techniquesinternally. Some standardization hasemerged with an ISO guideline

emerging as a favourite way forward for many but the processes tend toremain expensive and complex, limiting their applicability.

This could change. Simplified life cycle assessments such as those nowbeing undertaken by Levis, Patagonia or Timberland create rules ofthumb and aim to capture relative sustainability rather than comprehensiveimpacts. The availability of clear, simple information can help drive designwithin the business, as through Nikes Considered Index which highlightsenvironmentally preferred materials. At the same time, the availability ofsuch information will enable more companies to take step changes in theirprocesses instead of individual products.

While not a substitute for the rigour of full LCA, they are complementary andcould broaden the use of life cycle analysis within the company through theidentification of hot spots across entire product ranges. Policy-makers canplay a role in helping to identify potential target areas.46

By itself LCM-based assessmentsproduces no direct change onbusiness models and little change ofproducts or processes. The data mustbe communicated to and interpretedinto information by consumers andother stakeholders in a way that caneasily be understood and acted on.In order for data to be used to drive

changes in behaviour, the informationand its implications need to be fedback to improve information flows. Broader information communities andopen source systems, coupled with greater standardization in LCM-drivenlabelling will help by creating new information flows for greater sustainability.The Ahold retail chains Puur & Eerlijk products (Pure & Honest) werelaunched in 2010. The clear labels across goods categories have madeit easier for customers to choose products produced, grown and sourcedsustainably.47

SimplifiedLife-Cycle

Assessments

FromInformation to

Communication

3.4.1 Simplified Life Cycle Assessments

3.4.2 From Data to Information

Wal-Mart engaged suppliersof seven products in a projectto identify, and capitalizeon, sustainable innovationopportunities across theirproducts life cycles. Thesuppliers, working with Wal-Martand the Environmental DefenseFund (EDF), used the opensource Earthster tool (earthster.org) to generate a graphicaland numeric portrait of the

environmental and social hotspots in product supply chains,using basic information frominputs to final production. Theythen identified opportunities forinnovations that would reduceimpacts as well as costs.

The assessments generatedsome surprising results. Forexample for canned tomatosauce, Earthster and itsunderlying life cycle inventorydata showed steel can be a

source of greater environmentalimpact overall than the tomatosauce itself. In short, the biggestopportunities for Wal-Martto change the environmentalfootprint of the product layseveral steps back alongthe value chain. Earthsterenables suppliers across thesupply chain to collaboratein generating and sharinginformation about innovationopportunities and to report ontheir success at capitalizing onthem.

Case study: Earthster


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3 Mobilizing Business Opportunities: Life Cycle Thinking

Life cycle metrics have generally beenused as measures of risk exposure, butthey can also be a spur to innovatingproducts and business practices. IfLCMs are as visible as costs across anorganization they will change corporateculture, becoming integral to corebusiness models and signposts to newgrowth opportunities.

Upon recognizing that the greatestenvironmental impact of all product ranges is consumer use of washingpowders at high temperatures, both Unilever and Procter and Gamble havecreated new lines of detergent targeted to reduce life cycle impact through coldwater washing. This is also being encouraged on a national level in countriessuch as Denmark, which has set up a knowledge centre to assist public andprivate companies gain competitive advantage through better understandingand integration of life cycle metrics.48 Sustainability cannot only help lower costs,it can also increase volumes of sales and increase margins based on higherquality products. DSM, a Dutch chemicals company, contributes to solutionsthat help to improve fuel efficiency, such as low weight plastics to replaceheavier metallic components in a car, and second generation biofuels based oncellulosic raw materials that are not used for food or feed.49

Life cycle metrics can also helpcreate change across the broadervalue chain, where 80-90% of mostproducts environmental impactsoccur. Extending collaboration acrossthe value chain can be difficult,bringing into play concerns aboutcompetition and disclosure. Traceabilityof some goods can also be difficult.Small and medium size enterprises(SMEs) may not have the financial

capacity to undertake their own life cycle assessments. However, rewardsand opportunities are potentially significant, as demonstrated by the CarbonTrusts new certification standard for SMEs50. Scorecards allowing retailers

to monitor progress on environmental and social measures on behalf of theirsuppliers may be one tool to enhancing value chain visibility and collaboration.Wal-Mart has surveyed suppliers on environmental practices and performancesince 2009, with the use of a relatively simple set of questions relating tosustainability. It created the Sustainability Consortium (TSC) to develop industrystandard metrics for conducting life cycle analyses of products and publiclyannounced it will create a Sustainability Index.51 The retailer now also requiresfull formulation disclosure for chemical-based products.

Ultimately, however, the objective is to create a business ecosystem joined by acommon understanding of LCMs. Such an ecosystem would have far greaterawareness of both individual and aggregate impacts on both the environment andsocial systems, but, crucially, would also possess the tools to share informationand collectively improve mechanisms that ensure such impacts are contributing

to sustainable prosperity. Industrial symbiosis projects could be a model forentire value chains on a global scale. The challenge is that, to be of most use tobusiness, standardization should be done once, done right and done globally.

From

Information

to Corporate

Strategy

3.4.3 From Information to Corporate Strategy

3.4.4 From Corporate Strategy to Life Cycle Collaboration

From CorporateStrategy to Life

CycleCollaboration


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3.5 Accelerating Business Innovation throughCollaboration

Shiting lie cycle metrics rom operations to strategy within the company,and then to collaboration along and across value chains, involves harnessingbreakthrough innovation. It is not about greening existing business modelsbut accelerating the creation o entirely new models. The imperatives o scaleand speed cannot be met without disruption. Again, they demand a muchbroader model o open innovation.

The starting point or open innovation is enhanced sharing o existing know-how and technologies, with mutual benefts and overall improvements insustainability. Organizations should make ar greater use o external ideasand innovations in their own practices, while making their own unusedand underused ideas and technologies more widely available. Individualorganizations are oten wasteul o the knowledge they possess. Barely onein 10 German patents is currently used by the patent holder, with the other 9remaining unused.52

Beyond sharing existing knowledge, ideas and processes, open innovationimplies the co-creation o new technologies along value chains, betweencompanies and consumers and, under certain circumstances, even withcompetitors.

This is not about undercutting the principle o protection or intellectualproperty (IP). It is about recognizing that co-generation and systemic sharingwill oten create ar more value than individual programmes o research. Thisis particularly the case or sustainability, where so much potential value islocked in the structure and processes o the value chain. Open innovationis not about making onesel uncompetitive, it is about adapting to a newknowledge environment to make onesel more competitive and responsiveto change. In the end, it is about making business smarter, as well as aboutmaking business more sustainable.

Valuable ideas do not have to come rom internal research and developmentprogrammes they can also come rom outside. Open innovation placesexternal ideas and pathways to market on the same level o importance asinternal ideas and market pathways. At the same time, much know-how which companies themselves may not view as IP could be useully madeavailable elsewhere, potentially creating new streams o income and bringingcollective benefts. Principles o open innovation allow ideas rather thanstructures to predominate.


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3.6 Exploiting Leverage, Enacting Change

Businesses are the builders o the sustainable consumption economy.That economy is currently under construction, but there are powerul andpotentially transormative leverage points, which could accelerate the

process emphasizing innovation, collaboration, scale and speed.

In addition to traditional IP, there are increasing amounts o data becomingavailable that are oten being thrown away by companies. As technologies

such as radio-requency identifcation (RFID) evolve and become ubiquitous,the capacity to collect data will continue to grow. That data is not intellectualproperty, and is not really intellectual capital or know-how. It is also onlyworth something i processed and analysed. While it is hard to see howa consumer products company might sell such lie cycle data, i it can beplaced in the commons, it will defnitely be an asset to someone else.

To engage in the sharing part o open innovation, companies will needto analyse and understand their IP better than many do today. Theyneed to conduct a knowledge audit, placing potential IP into one othree categories:

1. Intellectual property to be guarded closely as a core competitiveadvantage (currently the category in which most IP is implicitlyplaced).

2. To be shared or licensed on a case-by-case basis, perhaps indierent industries or geographies which do not compete. In somecases, reducing license ees or patents will unlock income streams

which make licensing more cost eective than attempting toprevent abuse.

3. In other cases, pre-competitive open innovation may be necessaryor an idea to reach the scale necessary or it to be a marketableopportunity. In this case IP should be placed in the globalcommons or all to use, possibly to be leveraged to shit a markettowards a certain technology through which all can beneft throughscale or standardization or the creation o a new market.

Open innovation where do the ideas come rom?


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Lie Cycle Thinking at the board level (Rules of the System/Mindset)

Incentive systems and perormance evaluations need to be designed to reward lie cycle thinking. These needto go right to the top the accountability o the board and CEOs needs to be broadened to incorporatesustainability measures with demonstrable linkage to the short- and long-term interests o the company.

Simplifed LCA methodologies (The Power to Add, Evolve, Self-organise System Structure)

Simplifed Lie-Cycle Assessments (LCAs) and product category rules o thumb will enable more inormed

decisions. Coupled with scenario analysis and strategic risk / opportunity assessment, simplifed LCAs willallow companies to evolve their business models as they reorganize, especially in the design phase.

Consumer-led inormation communities (The Power to Add, Evolve, Self-Organise System Structure)

New and strengthened interactions with consumer-based inormation communities (e.g.GoodGuide) will allownew collaborations to take place and evolve. Such interactions will allow or better brand management,increased stakeholder value and the improvement o data in the sharing o collective resources.

Sustainability criteria integrated into sourcing decisions (Systems Driver: Positive Feedback Loop)

The impact o sourcing and procurement criteria is multiplied downstream - retailers on manuacturingcompanies and those manuacturers on their suppliers. Governments also play a leading role through theirprocurement power up to 15% o GDP in some economies.

Standardisation o sustainability scorecards (Rules of the System: Constraints)

There remains a need or an agreed set o standards or sustainability scorecards, as several retailers arepushing independent sets o criteria up their respective supply chains. Ideally, collaboration would take place

at an industry level to create a global set o criteria that would set the rules o the game.

Platorms or sharing innovations (The Power to Add, Evolve, Self-Organise System Structure)

Platorms to share and track sustainability impacts along value chains will enable the identifcation o hot spotswhere companies can compete to maximize efciencies. Governments also have a role to play in promotingresearch and disclosing inormation to all interested parties

Mainstreaming o sustainability in fnancial indexes (Rules of the System)

Investor and holding company accountability on measures broader than shareholder return is in its inancy.With greater transparency in sustainability perormance and increases in popularity o in the likes o the DowJones Sustainability Index or FTSE4Good, will lead to a greater responsibility or companies to change.

Innovative regulation: Materials recovery and lie-cycle responsibility (Rules of the System: Incentives)

Product stewardship, Extended Producer Responsibility use fnancial incentives, such as unit pricing, toultimately encourage manuacturers to design environmentally-riendly products by holding producers liableor the costs o managing their products at end o lie.

Creation o a 'Lie-Cycle Mark-up Language' (The Structure of Information Flows)A Liecycle Markup Language could be used to share outcomes o liecycle analyses along a value chain, andwould allow organizations to publish the liecycle analyses o their products in a machine-readable ormat,leading to system-to-system communication.

Targeted public procurement(Positive Feedback Loops)Governments create market signals or suppliers by actively sourcing more sustainable and airer productsand services through improved procurement policies. As business models evolve to cater to new criteria, theresulting ripple eect will raise industry standards or adopting sustainable practices and lie cycle metrics.

Market-Maker demand (Positive Feedback Loops)

Market makers who use their scale to inuence practices within their supply chain (i.e. through supplierscorecards) create positive eedback loops in industry behaviors. Critical to this is the position o marketmakers as supporters o independent organisations that advocate sustainable business models.

Labeling Data and inormation (The Structure of Information Fows)

There is so much noise in terms o labeling that such inormation ows might never be as strong as they couldbe in terms o impact. Providing product inormation to inuence purely rational drivers only motivates a smallpercentage o people, and impact on end consumers is oten overestimated

PotentialImpact

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Leverage Points / What can be don

wef consumption dilemma sustainable growth report 2011

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