HEC Paris Leaders of Tomorrow Series

Meeting the Challenge of Sustainability

As the world population grows by 80 million people a year and global development continues to drive demand for goods, the subsequent sustainability crisis means we need to radically rethink the economy.

“It is inevitable that the pressure on resources is going to explode,” states Andrea Masini, Associate Dean for the HEC Paris MBA program. Everything from the most basic needs of life to our most sophisticated technologies is at risk.

Water supplies are under increasing pressure. According to a recent NASA report, a third of global groundwater basins are being rapidly depleted by human consumption. Since 70% of water resources are being used in the agricultural sector, food industry giants such as Nestlé and Danone are now faced with the threat of commodity price fluctuations as water supplies dry up.

The extensive use of rare earth metals in the in high-tech and electronics industries is placing another resource under increasing pressure. Natural disasters or political tensions, in one of the few countries where they are mined, could lead to critical shortages worldwide.

“The supply chain is going to be more and more vulnerable to these disruptions and price fluctuations are going to impact business even more than is the case today,” says Professor Masini.

The answer for many companies is to replace the forward supply-chain of manufacture, consumption and disposal with a circular economy that conserves, reuses and recycles resources.

Besides producing environmental benefits, in some cases, closed loop supply chains can also generate economic returns. The automotive industry is a case in point. ATP Industries, for example, can supply OEM’s with remanufactured products that require 25% less energy, emit 30% less CO2 and are 20% to 40% cheaper to produce than new products. So improved sustainability goes hand-in-hand with cost savings and operational efficiency.

The business case for having a circular economy is all about resource optimization – doing more with less and increasing the resource intensity. “In most cases when you reduce the use of a resource, you save money. Companies that fall victim to inertia are unable to seize these opportunities,” explains Professor Masini.

“The main aim of the circular economy is to avoid the extraction of raw materials by reutilizing and retaining the value embedded in products you no longer need.” Professor Andrea Masini

LOW-CARBON ECONOMY

In 2014, an unprecedented revolution took place. For the first time in 40 years, global GDP grew without any corresponding rise in carbon emissions.

This is a crucial milestone if the world is to avoid the worst effects of climate change while continuing to alleviate poverty on a global scale. It also provides proof of concept that companies can pursue growth and reduce carbon emissions at the same time.

For some businesses, this is vital, as the impact of climate change could threaten their very existence. “The consequences of floods or extreme weather events – the costs of repairing the damages – are just huge,” says Professor Masini.

One technological approach to conserving energy resources and cutting carbon emissions also promises to drive sustainable innovation. The Third Industrial Revolution proposed by Jeremy Rifkin imagines a society powered by renewable, distributed energy with zero marginal costs.

Rather than depending on giant power plants, anyone can generate their own electricity with small-scale solar panels or other renewable energy sources. They can then instantly trade surplus energy using communications technology.

In some places, this kind of society is already a reality. One small German village has become a model for the world after creating its own wind-powered smart grid and cutting energy costs by 31%.

The implications go further: imagine using your electric car’s battery to store cheap electricity and release it to a local grid when demand peaks. “It works every time you have a fixed asset which is not used for its primary purpose 100% of the time,” explains Professor Masini.

“This revolution is fundamentally changing the competitive landscape for electric utilities and posing them a serious threat. But it is also creating a lot of business opportunities for new entrants, for service companies, for companies that can capitalize on assets by installing solar panels on them.”

Even more importantly, it points the way to a future in which economic growth and resource conservation reinforce each other.

“All the efforts to reduce carbon emissions over the last few years, on a global scale, now seem to be paying off.” Professor Andrea Masini

 

About the Author

HEC Paris specializes in education and research in management sciences. As a leading academic institution in Europe and worldwide, HEC Paris offers a complete and unique range of education programs for students and executive education programs for leaders.