Green Business Model, From Social to Circular
Critically, the SDGs, with their 2030 milestone, requires a new mindset. An exponential mindset and, in turn, a retooling or abandonment of many current business models. Critically, the SDGs, with their 2030 milestone, requires a new mindset. An exponential mindset and, in turn, a retooling or abandonment of many current business models.
Back in the 1980s, the late futurist Alvin Toffler saw three great waves of innovation: the Agricultural Age, the Industrial Age, and now the Information Age. More recently, Klaus Schwab of the World Economic Forum talked of three waves to date-with a fourth now building. His 2016 book the Fourth Industrial Revolution is short, clear, and required reading. His perspective runs as follows:
We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. We do not yet know just how it will unfold, but one thing is clear: the response to it must be integrated and comprehensive, involving all stakeholders of the global polity, from the public and private sectors to academia and civil society.
The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.
To help the business succeed in the new order, mindsets, technologies and business models all need to embrace exponential dynamics. This imperative is now being signaled both by the direction being taken by the disruptive businesses emerging from places like Silicon Valley and by the level of ambition evidenced in the SDGs and COP21 climate agreement. If we are to have any chance of achieving the SDGs on schedule, business models must be designed from the outset to deliver positive social and environmental outcomes at an increasing scale and accelerating pace.
There are four breakthrough exponentials.
Tomorrow’s business models must deliver financial and extra-financial value by generating positive social impact. In the process, business leaders must ensure they do not undermine other key societal priorities. Most businesses are social to a degree already, in that they employ and serve people. Indeed, this has been a pivotal argument for one-dimensional capitalism apologists, who see financial value creation as enough in and of itself. But for the SDGs to be achieved, businesses must recognize, operate and thrive in a world well beyond their four walls, and this means contributing to a healthier, safer and better-educated populace as a direct result of their business models.
In business, the word “lean” links to several concepts — including the lean start-up movement, lean manufacturing, lean services, frugal innovation and more. Tomorrow’s business models must build on this momentum, using resources eﬀectively, creating no waste and maximizing value across entire value networks. They must optimize value creation across all forms of capital, from conventional forms like physical and financial capital, through newly understood forms like human and intellectual capital, to tomorrow’s understanding of social, cultural and natural capital. They will need to generate market-relevant value without depleting extra-financial capital.
Businesses that integrate into their models an understanding of the needs of present and future generations, for multiple capitals and across entire value networks, must become the norm. This entails measuring and managing the financial and extra-financial impacts of a company’s value creation processes — aka its business models. This, in turn, will involve re-examining externalities — positive and negative, tangible and intangible — and internalizing them in many cases. Integration, here, means that by succeeding as a business, a company creates restorative value for society and the environment, while seeking to eliminate any activities that undermine our ability to thrive both today and into the future. It also means an active consideration of how system-level operating conditions can be changed for the better.
All businesses must strive to become completely circular, their operations designed to sustain products, components, and material inputs and outputs at their highest utility and value at key points in the cycle. Crucially, the circular economy concept distinguishes between technical and biological cycles. In both domains, the emerging discipline of biomimicry will be increasingly vital, ensuring business neither creates waste, nor undermines essential material and nutrient cycles, or wider ecological and social systems.
As the opportunities spotlighted in the SDGs and elsewhere become clearer, the ﬂow of capital towards this space will build. The pace of mergers and acquisitions will accelerate. And the need to balance sometimes competing financial and extra-financial priorities will not go away. There is a huge opportunity to use the milestone year of 2017 to co-evolve a new vision and clearer market roadmap for the period to 2030 and beyond.