Circular economy concept and sustainability hardball
Radical Ideas on the Final Day of Davos 2014.
Here’s a report on radical ideas unleashed – once again – on the closing day of the 44th World Economic Forum.
I once worked with a guy who would drop priceless malapropisms. And to quote the man we fondly knew as The Captain, the final day at Davos 2014 was a case of “this déjà vu looks kind of familiar.”
But with Philips CEO Frans van Houten, Achim Steiner, executive director of UNEP, the UN’s environmental body, and Al Gore in the radical line-up – it was a good “kind of familiar.” And the business school guru who completes my déjà vu team, Andre Spicer, lives up to his name and doesn’t pull any punches either.
Let’s start with van Houten of Philips and the concept of the circular economy, which was discussed at a session on Saturday.
In a comment published by the Project Syndicate – an excellent outlet for high-quality corporate by-liners – he calls for nothing less than a change in “the prevailing economic model.” By 2030, van Houten writes, the global middle class will total nearly five billion people, expecting the comforts of wealthy populations have long enjoyed, putting a strain on the environment and depleting the world’s resources. “Just as ecosystems reuse everything in an efficient and purposeful cycle, a ‘circular’ economic system would ensure that products were designed to be part of a value network, within which the reuse and refurbishment of products, components, and materials would ensure the continual re-exploitation of resources,” he says.
A circular economy would change the concept of ownership – companies would sell the use and benefit of products rather than their ownership, which would in turn drive new business models, changes in laws and financing strategies.
“Beyond the moral imperative, there is a strong financial argument in favor of the transition to a circular economy – namely, the promise of over $1 trillion in business opportunities,” van Houten says.
In a comment for The Guardian headlined “Reflections Davos 2014: Avoid the Optimism Virus,” Steiner says: “After three days in Davos, solving the world’s problems in 90 minute sessions through facilitated discussions leading to the ‘one big idea’ begins to challenge common sense.”
Steiner lists some important, if as yet unofficial, agreements among business leaders, government officials and academics of the need to transform agriculture to lower strains on the environment.
“Next came ‘short-lived climate pollutants’ – part of this year’s Davos focus on climate change. After working in UNEP for five years to mature cutting edge science into options for action, one of those Davos moments happened,” he said.
“Major business leaders and public officials agreed to join hands in moving on HFCs, methane and black carbon, which drive global warming but also affect our health and economies. It is like teeth wheels clicking into place – you know you have changed gears.”
He talks about new opportunities in a greener economy.
“In all of this, it is always striking how much individual leadership can be key to making things happen. Oddly enough, in assembling corporate and political power, the World Economic Forum puts the spotlight on the ‘power of one’ to accept the responsibility to lead,” Steiner says.
But even though individuals lead the way, it is public sentiment that drives the agenda – and he winds up lauding activism as a catalyst.
“The collective impact of activism, be it trade unions or environmental and consumer groups or indigenous peoples and human rights activists, is registering on the Richter scale of political and corporate leaders. And that is good news – even if the annual gathering in Davos is but one moment in the long, too long, journey of changing course,” Steiner concludes.
Al Gore rode into Davos brandishing two ideas that bear repetition – in order to combat climate change, the world needs a price on carbon emissions, and renewable energy must be pushed further to create a virtuous circle.
“The solution is to put a price on carbon. It is important to change the light bulbs but more important to change the laws. We need to put a price on climate denial,” Gore told a session.
The second game-changer Gore highlighted is the reduction in costs of renewable energy. “We are seeing a repeat of the computer industry which didn’t fully appreciate the economic implications of a cost down curve that is durable.
“Within six years 80% of the world’s population will live in regions where photovoltaics will be equal or less than the price of the grid.”
Gore also built a bridge to Professor Spicer, in challenging financial market fundamentals.
He called for a shake-up in the financial markets, saying it was madness to expect pension funds to think long term when fund managers are incentivized for the short term.
“While they proclaim commitment to long term visions, they maximize their own profits.”
Professor Spicer, in a comment for The Guardian, said it was time to eradicate the idea that the “purpose of the corporation is to maximize shareholder value.” This is what his business school students will tell him, reflecting common beliefs in the market.
“But like any simple answer, it is not only wrong, it is also profoundly damaging. To paraphrase Jack Welch, the legendary ex-CEO of GE, the idea that purpose of the corporation is to maximize shareholder value is ‘the dumbest idea in the world,’” Spicer said.
“Corporations with a strict focus on maximizing shareholder value tend to employ a cadre of generalist managers who have relatively short-term commitment to the firm.
“Because their compensation and future prospects are directly tied to share price, executives spend much of their time courting financial analysts. CEOs will often go to any lengths to keep this relatively small audience happy,” Spicer said.
Nice, I think, to see the notion of a circular economy aired in some detail on the same day that environmental solutions, climate change policy and a new set of corporate ambitions are discussed.
The only problem is something that Steiner’s article mentions but doesn’t elaborate on – the phenomenon known as “Davos optimism.” In the rarified air of the WEF, dreaming is easy. It is what happens to those noble ambitions when participants come back off the Magic Mountain – as Davos is called in Thomas Mann’s classic novel – that will determine whether the global elite has spent their four days well.
And again, if you didn’t get an invite – there are other places to gather, some networking events that are even more exclusive, according to the FT weekend edition.