This year at the World Economic Forum (WEF) meeting in Davos, the concept of sustainable consumption took center stage. In partnership with Accenture, the WEF just released its report, “More With Less,” which accurately pinpoints the systemic triggers, barriers and urgent need for action inherent in this necessary transition.
At face value, sustainable consumption seems counterintuitive to growth, but the report identifies the extraordinary competitive and economic opportunities for businesses, whether catalyzed by resource scarcity, population growth, the burgeoning middle class, or changing consumer values. An area where there is still work to do, however, is the “how.” Namely, how to better define and ingrain the value proposition sustainable consumption brings to consumers, and spur broader systemic change and adoption.
The good news is that there are ripples of profound innovation coming from the private sector, as companies recognize sustainable consumption is not only necessary given the finite resources available on our planet. More importantly, it’s an opportunity for innovation and strategic growth. Companies are starting to figure out that the answer to “how” can also mean money.
Changing consumer behavior is one of the single, largest opportunities to answer the question of “how,” and to make a positive environmental (and economic) impact. The WEF report states, “When combined, the top 50 consumer goods and retail companies have a carbon footprint … equivalent to the combined footprint of Germany and France. If the industry was a country it would be ranked the sixth-largest emitter in the world.”
As companies become increasingly aware of the footprint derived from product use, they must work to shift consumer behavior towards sustainability, a movement that will involve incorporating a citizen-centric, well-being-focused set of values. Case in point: Unilever attributes two-thirds of its greenhouse gas emissions and about half of its water footprint to consumer use. To address this impact, the company developed its groundbreaking Sustainable Living Plan, which outlines 50 concrete commitments to improve the daily lives of customers, reduce the impact of its products on the environment, and promote business growth by 2020.
The market for these strategies is there. Early on in his tenure, GE CEO Jeff Immelt recognized the high-growth potential of the energy efficiency and energy alternatives markets, launching Ecomagination five years ago as a business strategy to “create new value for customers, investors, and society by solving energy, efficiency, and water challenges.” Although skeptics initially wrote off the initiative as a marketing campaign, it has had a significant cultural, environmental, and economic impact. In its 2010 annual report, GE reports Ecomagination helped generate a 22% reduction in greenhouse gas emissions, a 30% reduction in water use, and $130 million in energy efficiency savings.
Reducing environmental impact didn’t stifle GE’s business growth, as Ecomagination generated $18 billion in revenue in 2010. Over the next five years, GE predicts that the Ecomagination products’ revenue will grow at twice the rate of total company revenues. To put an exclamation on the point, Mark Vachon, vice president of GE Ecomagination, recently said, “There’s this theory that you have to pick one: economics or environmental performance. That’s nonsense. Innovation is the way you can have both.”
But though the business value proposition is clear, I would argue that one of our biggest hurdles in the transition to sustainable consumption is conveying the value proposition to consumers on a mass scale. Admittedly, consumers are increasingly conscious and vocal about the origins and fate of the products they buy. Just look at the food world, where people are beginning to evaluate the entire production and consumption cycle. The demand for responsibly sourced, organic products is reaching critical mass and, in doing so, is creating an enormous market opportunity. A primary catalyst for this transition is that consumers increasingly understand how pesticides, hormone-filled meats and dairy, and unethically sourced goods directly impact their personal health and the well-being of others. Although one can argue that, when it comes to food, we’re beginning to change the paradigm, we have yet to “convince” consumers that a broader set of environmental issues require similar lifestyle changes.
So that begs the question: What value proposition will most resonate with consumers to change the way they consume and dispose of the things in their lives? Given the current state of our economy, my answer is the same that drives any business: currency. When we are faced with issues on such a massive, global scale, our best bet in driving a massive shift in consumer behavior is to connect with individuals on a highly personal, or–as the WEF says–an emotional or value-based level. Positive (and negative in some instances) incentives have proven to be a highly effective motivator, whether they’re measured in financial, social, or informational currency.
Although still in its relative infancy, innovation abounds in this space. In terms of the financial incentive to save money, we are seeing more “mesh” companies emerge. The term, as coined by author Lisa Gansky, refers to companies that eliminate the burden and expense of ownership by offering goods and services to consumers when and how they need it. For example, faced with rising gas prices and finite fuel resources, the costs associated with daily car use and maintenance are shifting consumer preferences toward the idea of “sharing” rather than ownership. Zipcar, which just recently posted its first profitable quarter, seized that market opportunity with an innovative eco-efficient service.
Mesh company business models like Zipcar’s may seem obvious now, but they represent a significant departure from previous cultural and business model norms, and an incredible value for a large number of Americans who only require occasional access to a car. The entry of competitors like City Carshare further validated the mesh model, and now even automobile industry stalwarts like Ford and Hertz are following suit, further validating the directive from consumers. In this case Lisa Gansky is right, “Often, access trumps ownership.”
Opower is using social and informational currency to motivate people to make smarter energy choices. It works with utilities to generate reports accompanying customer bills that demonstrate historical energy use comparisons and individual household rankings within their neighborhoods. Program participants show an average reduction in energy use of around 2% compared to those not in the program. Used en masse, this has a material environmental and economic impact. From a consumer engagement and behavior change perspective, the key is showing the consumer their personal analytics, placing the individual’s measurable behavior within the context of their community.
Virtually every company has the potential to successfully incorporate complementary economic and environmental efficiencies into their business models, which could transform sustainable products and services from a niche market to the mass market. The challenge that remains is figuring out how to inspire this cultural shift. If we make a commitment to address every step in the consumption cycle, and consumers continue to reap the economic and social benefits, societal norms will adjust in concert. By viewing business through the lens of sustainable growth, we have the potential to pave the way for the radical, transformative shift needed to address the challenges of today at the speed and scale that their magnitude and complexity demand.