Carbon Trust

How businesses are sleepwalking into a resource crunch

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Courtesy of Carbon Trust

Now's the time to start evaluating how resource scarcity will impact your business - viewpoint from Tom Delay, CEO of the Carbon Trust.

Earlier this year, The Living Report found that as a whole, humanity extracted resources more than 52 percent faster than they could be regenerated. And demand for these resources is expanding too.  According to the US National Intelligence Council's Global Trends 2030 report, demand for food, water, and energy will grow by approximately 35, 40 and 50% respectively by 2030, owing to an increase in the global population and changing consumption patterns.  The impact of this crunch, is potentially huge for businesses, dramatically influencing the products and services they provide, and the prices of the products they sell.

We recently commissioned a study[1], which questioned C-Level execs in Brazil, China, Korea, UK and USA about their companies' approach to sustainability.  When resource shortages do become a reality, 60% of organisations think the cost of their products and services will need to increase, 55% that they will need to engage in fewer markets and 43% that they will deliver a less varied service or product offering.

And yet most major enterprises are a long way from addressing the resource crunch.  The majority of the C-Level execs we spoke to do not believe they will need to make significant changes in their business operations to combat resource scarcity until 2018.  Forty-three percent do not monitor the risks to their business of environmentally-related shocks such as energy price rises and environmental disasters - and over 50% have not developed goals to reduce their company's consumption of water, waste production or carbon emissions.

One reason that companies are stalling on taking action on resource and sustainability appears to be that they still see this as an obligation and a cost.  Nearly a half (47%) of executives we surveyed believe that acting on sustainability issues decreases profits.  However, we know from our extensive work on carbon that good management of resources can lead to new commercial opportunities and thriving businesses.

You only need to look to the high profile examples of pioneers in sustainability such as B&Q, M&S and Puma to see just how effective a transparent and proactive approach to sustainability can be in distinguishing brands, building reputations and enhancing consumer loyalty. This is particularly true today, with social media amplifying customers' thoughts and opinions to a wider audience than was previously possible. 

As companies begin to look for alternatives to the resources they are consuming, they can even uncover more innovative products, processes and business models. A fast-moving consumer goods (FMCG) company, for example, may improve its manufacturing processes, minimise (or share) logistics, outsource the provision of physical assets used in manufacturing, reduce packaging, or educate consumers in minimising the in-use phase (e.g. use of energy or water) and encourage consumers to recycle.

With this in mind, optimising the use of raw materials should be on the agenda for all senior executives. While understanding how to adapt to the looming challenges can be daunting, there are a range of ways to begin tackling this, including:

  1. Identifying those resources which would expose you to the greatest risk if their availability was to rapidly diminish and/or their price was to increase
  2. Setting policies which take steps to reduce the use of these natural resources and incentivising partners to do the same
  3. Providing best practice advice to help suppliers
  4. Setting targets and reporting results at board level to ensure they are seen as of strategic importance to the business. According to our research, the sustainability buck stops with the board in only 4% of organisations.  
  5. Financially incentivising staff to meet targets on sustainability. Currently, only 13% of board directors are remunerated for achieving sustainability objectives.
  6. Ensuring the company has a dedicated individual whose role includes overseeing resource usage. A quarter (25%) of the businesses we analysed state that no one is responsible or accountable for sustainability within the company.

One sign of progress is that the UK is better placed to deal with a resource constrained world than the other countries polled and is setting an example here. UK businesses spend the most on sustainability and are the most likely to have a programme with targets and reporting practices in place. They are also the most confident that there is a business case for managing and reducing carbon emissions, water and waste.

Currently, many organisations seem to accept that they will have to make significant changes to their business because of resource scarcity, and that these changes could impact their profits.  But few are taking action to avoid this.  Now is the time to start evaluating how resource scarcity will impact your business - and avoid sleepwalking into a resource crunch.

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