Corporate Citizenship’s Charlie Ashford discusses the environmental implications of economic growth, and asks what companies can do to ensure they grow sustainably.
Turn to the first page of any basic economics textbook, and you’ll probably find a big circular diagram representing the economy, showing abstract “value” flowing round in an endless loop.
When it comes to the physical world, though, the economy is not a circle but a straight line. Economic activity takes natural resources, transforms them into waste and then (apart from a limited amount of recycling) releases this back into the environment.
The economy as a straight line
Our planet provides us with abundant environmental sources and sinks, but they are not unlimited. For the past few hundred years, humans have been living on a dwindling supply of stored-up solar energy in the form of fossil fuels. Meanwhile, emissions of greenhouse gases are fast outstripping the planet’s ability to absorb them. Overall, the WWF estimates that it takes the Earth 1.5 years to regenerate the resources we consume, and absorb the CO2 we produce, in a single year. If current trends continue, by 2030 we will need two planets to support our environmental demands.
Seeing the economy as a subsystem of the overall ecosystem, it seems obvious that there are environmental restrictions on economic growth, which almost all economic models fail to take into account. In the past, the economy was small enough for them to be ignored. But as the economy has grown, environmental constraints have become more and more pressing.
The economy as a subsystem
The economy can grow in two different ways: increasing the flow of natural resources through the economy, or increasing productivity, so that more can be produced for a given amount of resources. The first type of growth is unsustainable in the long-run, but the second creates no additional environmental impacts. By consuming resources at a sustainable level, while improving resource productivity, we can therefore achieve a sustainable level of economic growth.
There are three main ways of increasing resource productivity. Firstly, improvements in efficiency, such as loft insulation or hybrid cars, allow resources to stretch further. Next, alternative energy sources such as wind, biofuels and (arguably) nuclear require fewer resource inputs and create less harmful outputs. Finally, recycling allows waste itself to be used as a resource.
Economic growth does not have to be the enemy. In fact, growth is a welcome side-effect of reducing our environmental impacts. In the UK, the green economy is about the only thing which is growing. A recent report by the Ellen MacArthur Foundation argues that shifting to a “circular economy” – designing products with reuse and recycling in mind – will result in billions of pounds-worth of savings and create jobs and growth.
For companies, reducing resource-use and creating sustainable growth also represents a huge opportunity. From Marks & Spencer’s “shwopping” concept to Patagonia’s “Buy Less” campaign, businesses are finding innovative ways to reduce consumer waste. Meanwhile, a growing number of companies are embedding sustainable growth into the heart of their business plans. Unilever aims to halve its environmental impact by 2020, while Kingfisher has set the long-term goal of having a “Net Positive” impact.
Key to these strategies is a move away from “short-termism”. With public mistrust of the financial sector, and business in general, on the rise, there has never been a better time for companies to reject some of the worst excesses of capitalism. Taking a longer-term view benefits everybody, including shareholders.
By focusing on sustainable, equitable growth, companies can deliver greater value to their shareholders, to the environment, and to society. And that’s something even economists should be able to get behind.
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