28/04/2011

By Thomas A. Stewart, Chief Marketing and Knowledge Officer of Booz & Company

The World Economic Forum released a report, Repowering Transport. It describes what it will take to break the transport system's dependence on liquid fossil fuels. (My colleague at Booz & Company Nick Pennell led the team that wrote it.) In today's society, liquid fossil fuels provide 96% of the energy for ships, trucks, busses, trains, planes, and automobiles. Under a business-as-usual scenario, the sector's energy needs will increase 40% by 2030. You don't have to be afraid of greenhouse gasses (though you should be) to realize that considerations of supply, security, pollution, and price make that untenable.

The remarkable fact is that it’s possible to accommodate the growth without any more oil just using readily available technologies; with aggressive investment in advanced biofuels, batteries, and the like, liquid fossil fuel use could actually decline, even with the 40% demand increase.

Trouble is, the best case requires solving a series of Rubik’s Cubes to align technology, policy, and financing across several industries and multiple political and economic stakeholders. Other sectors—construction and housing, agriculture, manufacturing, IT, you name it—face equally daunting sustainability puzzles.

The same situation obtains for companies. It’s perfectly obvious that something’s gotta give. But it’s not clear when and how change will come, who wins and loses, or what to do meantime. The strongest incentive is to procrastinate. Strategy + Business states that consumers are unlikely to force the issue by changing buying habits, (Timothy Devinney, Paul Auger, and Giana M. Eckhardt) show in a recent study.

Walmart got customers to buy fluorescent lightbulbs not by hawking virtue but by dropping the price (read more: Wal-Mart Surpasses Goal To sell 100 million compact fluorescent light bulbs Three Months Early). Sure, in Germany Green Party politicians are embarrassed to be caught flying (see: It’s Tracking Your Every Move and You May Not Even Know when they could take a train, but it’ll be a long time before air travel becomes “as socially unacceptable as smoking,” as a London carbon-credits financier prophesied to me a few years ago. As for policy-makers, they’re playing Alphonse-Gaston with industry, each graciously determined to let the other go first. (The major exception is China. The likely result: Chinese companies will dominate advanced energy technologies and Western politicians act to protect their dirty-sunset industries.)

Nevertheless, the most unsustainable sustainability strategy is to kick the can down the road. When change comes, it will appear to arrive overnight. That’s what happens when systems reach a tipping point.

Given the fact that the (immediate) business case is weak, what does a smart low-carbon strategy look like? If you’ve been reading me regularly, you know that I believe strategy derives from and expresses itself in capabilities rather than in some staked-out position in the marketplace. Sustainability’s no exception: it’s got to be grounded in those things you do better than anyone else. You’re looking for a set of green capabilities that mesh with and add to whatever else makes you distinctive.

Looking where? There are two kinds of capabilities everyone has to have:

Cost and footprint management: Every business can be helped by shrewd carbon footbinding. Worried about the cost and reliability of energy supplies? The cheapest, most secure fuel is the energy you don’t use-negawatts, as Amory Lovins calls it. Supply-chain a key part of your strategy? It can be engineered to deliver whatever capability is critical -price or flexibility or speed– (read the whitepaper: The Capable Supply Chain: Linked with Strategy for Superior Performance for more info) in a greener way. More than three-score years after Deming started preaching the quality gospel in Japan, it’s astounding that anyone thinks waste is ever inevitable.

Business model enhancement: Walmart’s “packaging scorecard” and other efforts to get suppliers to take weight and bulk out of shipments aren’t just good stewardship: They make Walmart better at what Walmart already does better than anyone–they’re a direct extension of the company’s everyday-low-prices business model. Late to the green game, Apple (read more on The story behind Apple's environment footprint) relentlessly focused on customer experience says “the most important thing we can do to reduce our impact on the environment is to improve our products,” which is also the most important thing they can do to improve the business. Coincidence? Of course not. (Read more: Apple’s Secret Sauce: The Real Ingredients

Beyond these, some companies should build low-carbon capabilities into their innovation or growth plans; others will need to be savants about carbon finance, regulation navigation, industry standard-setting, and similar business-rules topics. The essential point is simple. If you think that there is a contradiction between sustainability and business-as-usual, then sustainability won’t happen. A low-carbon future will come about only if and when it becomes as much a part of your strategic capability set as anything else.

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