There is a growing perception in the markets of developed nations that our current economic model is no longer fit for purpose. For a number of reasons related to economic performance, social and political divisions have grown wider than ever and large swathes of the population feel excluded from mainstream society. Meanwhile, the global climate crisis is worsening faster than solutions are being deployed, and environmental damage continues. Sixteen of the 17 hottest years on record have occurred since 2001. Extreme weather events are now discussed as “the new normal”, though they may be but a preview of what scientists tell us is worse to come.
It does not have to be this way. In fact, as Generation Investment Management’s (GIM) recent – and first annual – “Sustainability Trends Report” shows, the world is at the beginning of a seismic shift. More firms are employing a sustainable approach to business, as it can benefit the planet and society as much as their bottom line. Based on our analysis, there are clear indicators we are in the early stages of a global “Sustainability Revolution” that has the magnitude of the Industrial Revolution and the speed of the Digital Revolution. Empowered by new digital tools, including the internet of things and machine learning, this Sustainability Revolution is giving many businesses the ability to manipulate electrons, atoms and molecules with the same precision used by computer and networking firms to manipulate bits of information.
In the report, we identify three trends: first, companies are embracing technology in order to produce the same – or better – end products and services more sustainably. People are familiar with the cost efficiency gains caused by the use of renewable energy, such as wind and solar power. Renewables enjoyed record levels of installations in 2016, according to the International Energy Agency.
Other industries have made large strides. Electric vehicles are greener than those running on gas; now with longer ranges, they are just as practical. There is similar progress in the food industry. Companies are producing high-quality plant-based “milk” products – cutting out cows results in lower emissions.
The second takeaway shows that firms are encouraging consumers to use products in a more sustainable way. Many – especially in the Millennial generation – have little interest in owning assets outright, preferring to rent them for short intervals, or share them with others. A decade ago, fewer than half a million people were members of car-sharing schemes. Now there are six milion. Bike-sharing schemes are also climbing. The sharing economy does not just mean that resources get used more efficiently: it has improved access to products and services for people who in the past have found them too expensive to use at all.
The third and final trend is the growing investment by businesses in entirely new types of products. For example, for the first time ever consumers are being given tools to monitor their own health with the use of new technology. In September 2017, a government-run pilot launched in America, enlisting the help of nine tech companies to introduce more innovative health features on smart devices. As this phenomenon takes off, it should reduce acute pressure on health-care systems.
Meanwhile, with an explosion in the number of micro-satellites, sensors and drones, companies are increasingly able to monitor and react to real-time data on the environment. This is of particular benefit to the agricultural sector, whose businesses can apply water and treatment to crops more sustainably.
These are not isolated trends. Both public and private companies are committing resources to sustainability: the number of “Certified-B Corporations”, which accept a duty to have a positive impact on society and the environment while they pursue profit, has grown to over 2,000 in the past decade. Similarly, the number of firms using an internal price on carbon as a tool to reduce emissions has risen eightfold since 2014, according to CDP, a non-profit.
There is plenty to be optimistic about, but a lot of work still to do. The Sustainability Revolution is, after all, at an early stage. Much greater levels of investment are required, and many products and services still need to be redesigned in a more sustainable way. Change will require not just business leadership, but the involvement of other parts of society too.
Nonetheless, there is great momentum behind sustainability. A new generation of consumers is demanding greener and more ethical products. Businesses and investors alert to this shift will reap the benefits, and will be engines of change.