A growing number of investors and economists are joining environmentalists in arguing that resource scarcity is going to disrupt the economic landscape. After over 100 years of declining commodity prices, oil prices started rising in the 1970’s and most commodities have been rising since 2002(1). Most attribute this to a combination of population growth, climate change and accelerated by a growing regulatory structure.
Recent Green Mondays have looked at the strategies of Nissan, GE and Siemens in the context of rising commodity and energy prices, but in October we will ask ourselves whether it amounts to what Jeremy Grantham describes as the “rarest of rare birds; a new paradigm” .
To guide us in the debate we have;
Tim Lenton, Professor of Earth System Sciences at The University of Exeter, will look at our relationship with the environment from the perspective of Earth Systems Science, and how we are necessarily entering an era of recycling and efficiency over exploitation. The Malthusian perspective.
Simon Ellis, Managing Director at Legal and General Investments, who will look at how this “global megatrend” is impacting the investment landscape. Specifically he will look at the impact for companies exposed to low carbon energy, resource efficiency or waste and water management.
Andy Wales, Group Head of Sustainable Business at SAB Miller, will share SAB’s vision for the future in terms of resource prices, and what SAB Miller is doing to manage the impacts of rising resource prices on its margins.
Brendan O'Neill, Editor of Spiked, will lock horns with Professor Lenton from a Cornucopian perspective. Brendan will argue that the Earth’s resources are infinite which coupled with man’s ingenuity means the demands of the growing world can easily be met.
What is the main exposure of the built environment to resource scarcity?
Our group had a wide ranging discussion about scarcity as well as the key inputs into the built environment.
We then attempted to determine if these resources were in fact scarce and their potential impacts.
Water: there was general consensus that globally, water is seen as a scarce resource; however some felt that the UK would not suffer from water scarcity in the built environment, citing recent government risk reports, water shortage was not seen as a priority. The IPCC however point out that by 2100 we may see between a 1-2 metre increase in sea level, which would indicate that fresh water will become an increasingly important issue that will impact the built environment.
Available Land: as the global population increases, so available land for building decreases. We talked about urbanisation and how high rise could help. Land will increasingly be required for agriculture to provide food. Taking a UK centric view, it was agreed that land would become increasingly scarce.
Energy: 2 factors to consider – in the future demand for energy in the UK could outstrip supply and secondly is there sufficient low or zero carbon energy? We talked about how energy storage (batteries) could be solution but then again batteries require a number of minerals including Lithium, which is becoming scarcer.
Wood: we discussed whether sustainable wood could be an answer to some of our problems however wood has certain limitations in terms of tensile strength – one cant build skyscrapers made from wood. Additionally forests will compete with agriculture, thus wood will clearly not be in abundance going forward.
Our group did not arrive at any clear conclusions, however we concurred that there were a number of factors to consider. What became apparent was that scarce resources are a complex area for the build environment and one needs deeper investigate behind each resource, to determine when it will become truly scarce and the risk associated with that shortage. China is seen as the main ‘consumers’ of resources, for example, China is currently consuming most of the worlds cement supply, which will impact the West in a variety of ways.
Resource Efficiency in the supply chain – Finding examples and inspiration
The group considered the resource related challenges and constraints in their diverse supply chains and the extent to which they had found specific examples of practical solutions and inspiration to take action.
The group framed the issue terms of resource constraints including:
a. Local availability of resources e.g. of water
b. Scarcity relative to growth ambitions and threats to security of supply
c. Political constraints – such as conflict minerals in the DRC
d. cultural constraints – e.g. not charging for water in certain geographies
e. Consumer preferences for one product type over another (regardless of impacts)
f. financing options for efficiency investments especially for smaller suppliers beyond low hanging fruit
g. articulating benefits to investors beyond obvious commodity categories with price saving like carbon
Many inspiring examples of responses were identified:
1. Best practices e.g. road distribution and smart logistics see for example: and also shift from air to sea
2. Increase in recycling on projects e.g. Olympics reaching 93% recycling of demolished materials
3. Local in situ delivery of re-use services replacing global manufacturing supply chains
4. Business model innovation e.g. move towards provision of rented services over owned products
5. Technology innovation and adoption
6. Reducing impacts at the design stage: for example PUMA’s clever little bag:
Many of the examples shared echoed some of the themes covered in DEFRA’s resource efficiency paper which identified a potential 23bn in immediate savings from resource efficiency and a further 33bn in <1 year payback.The interconnectedness of water, carbon and food was recognised and the advent of new standards for product and supply chain carbon impacts was recognised as significant for three reasons: i. The importance of measurement as a pre-cursor to management ii. The introduction of life cycle thinking to the corporate field iii. GHG emissions as a good proxy for overall impacts. The perennial issue of supplier engagement was touched on and the recognition that playing a role as a change agent can sometimes mean acting collaboratively where direct influence of spend over suppliers is low.
Using carbon management as a tool to improve resource efficiency
Corporations manage their carbon for multiple reasons, but resource efficiency is rarely highlighted. The plenary highlighted reasons why companies may focus on resource efficiency. The pre-discussion plan therefore was to evaluate whether carbon management is fit for purpose as a resource efficiency tool, and hear about delegates’ experiences.
* Improved resource efficiency is often a tangible result from carbon management strategies. Carbon management can help reduce monetary costs, not just physical resource limitations
* One example of carbon management-related efficiency was a resultant drop in staff air travel. The most important saving was a reduction in number of jet-lagged staff and increased productivity
* The cost of carbon can be brought into the sensitivity analysis for projects and improve the returns on energy efficiency investments
* However, carbon may not be a good proxy for resource consumption in every industry, and some carbon reduction measures have a relatively poor payback
* Other rationales for carbon management are often more important for organisations:
- Increasingly being mandated by clients and major customers
- Valuable as a communications tool; gives a language for wider conversations within the organisation and with external stakeholders
- Contributes to a global pool of knowledge of emerging best practice, especially when using the same standards and calculating footprints on the same basis
- Useful for engaging politicians and investors on sustainability issues because there are clear metrics
* Carbon management can be a useful tool improving resource efficiency, so long as care is taken to ensure that carbon is a useful proxy for resource use within the company
* Resource efficiency has not to-date been the primary reasons companies engage in carbon management strategies. Customer pressure and stakeholder engagement are often more important
Is a shareholder "green premium" emerging for companies who manage their resources more efficiently?
Do your customers need to know about how efficient your business is with resources?
* While you can make a consumer proposition out of sustainability/efficient use of resources, this needs to be part of the branding; it’s not enough just to be ‘point of purchase’ information.
* Greener business is still associated with higher costs, but evidence is building that the opposite is true. However, conveying this message and changing the preconceptions will be a challenge.
Consumer research shows
* environment is not top of mind; the economy is the chief concern. When buying, environmental concerns now less influential than previously - 25% now say it’s important for their purchasing decision versus 40% previously.
* when prompted, consumers expect a lot of companies in terms of sustainability performance
* communication with the average consumer on these issues is very challenging and, while they may be interested in recycling, they’re not thinking about resource scarcity
In the B2B world companies are increasingly being asked by their customers about sustainability, and to provide information and satisfy requirements in order to become suppliers. Currently the focus areas are energy and water use.
Companies that have previously taken a purely a risk-based approach to sustainability are now having to consider these aspects as part of their marketing and securing contracts
The UK government is trying to drive sustainability into buying standards through its entire procurement programme (£230bn per year), and the expectation is that this will then influence companies themselves to set their own standards for suppliers
There’s still a question about what a resource is – ie. how far does this go? For example, in thinking of a rail network and its sustainability, is it just about energy use and those standard aspects, or does it also mean management of railway embankments and the infrastructure such as railway arches? Clearly, how these are managed will also have an impact.
* The brands that have the highest profile on sustainability are then those that get most exposure and challenge and, potentially, criticism even though they are doing more than other companies
* It’s important to think beyond the ‘business’ efficiency and consider the ‘product’ efficiency. So the more pertinent question may be about how efficient the product is with resource use rather than the business. This would then also take account of costs of use and disposal which can have greater impacts than those of producing the product itself
* There will always be an advantage for large organisations which can benefit from economies of scale; it’s much tougher for SMEs to show that ‘going green’ is economically viable.
Some argue that rising resource prices will be offset by new technologies - what are these technologies, and how should companies use them?
The table discussions were mainly interested in the identifying the right frameworks for the development of new technologies that will help address rising resource prices. An emphasis was put on the role of governments and policies to incentivize the R&D of immature technologies and create demand for new markets.
* There is no single right or wrong mix of technologies that will help address resource scarcity, rather the need is to diversify and test which technologies can make it to the commercialisation stage.
* The most relevant technologies identified include renewable energy (large scale and on-site), recycling and close loop technologies, biofuels (second and third generation), biomass, and genetic engineering.
* There was consensus on the fact that government policy was needed to stimulate new markets and low carbon technology innovations to a level that can be commercialized.
* The example of the aviation industry’s struggles to change its dependency on fuel was discussed: to drop fuel an alternative biofuel needs to be a) usable and b) at an affordable price – as aviation is a lean industry. Industry collaboration is tricky because of competition but need to create great enough demand for the new products.
* There were mixed feelings amongst private and public organizations around the table about carbon tax and cap-and-trade programmes as a tool for incentivisation.
* Regulatory certainty is needed for investor to help launch new low carbon technologies after the pilot stage.
Strong policy frameworks are needed to drive the development of the technologies that will help address resource scarcity. In the meantime industry and cross-industry collaborations help incentivise R&D and create new markets.
For further discussions:
* How to get an injection of finance to drive R&D at all stages of the innovation cycle (from laboratory and design to full scale deployment)?
What energy prices should be used in business cases? Is it better to be conservative to avoid credibility risk?
What information does your management need to make good decisions around its resource inputs?
Resource scarity is already a factor for leading drinks companies. Water stress and water scarcity are incorporated into strategic planning activities. They also affect their community engagement programmes around shared use of vulnerable resources.
Many issues cannot be managed uniquely by companies - even large companies. There needs to be clear market signals or regulation otherwise only the most urgent resource scarce issues, where there is an immediate impact on business, will be addressed.
Many companies are unaware of the impact that resource scarcity will have on future costs or even future viability of supply chains because of their complexity and lack of transparency. A good example of this was highlighted in the article by Grantham on commodity risk nd particularly Potassium - a key ingredient in fertiliser. Potassium is becoming increasingly scarce and its market price has increased almost ten fold. This will have a direct impact on fertiliser costs. The companies that had agriculture supply chains around the table were unaware of this.
Companies need to make more effort to understand their risk exposures and interdependencies to resource scarcity, particularly through supply chains. This will enable companies to allocate costs and risk weightings to a wider range of strategic sustainability factors and so influence strategic business decisions.
Does the prediction of the energy policy environment become more difficult with energy price volatility?
This roundtable considered whether energy price movements impact on policy decisions and/or the response of companies to those policies. We discussed the different goals of UK energy policy – from carbon reduction to affordability and security of supply – and the impact of energy price changes on the policies that result. The plenary discussed how commodity prices are increasingly driven by resource scarcity; this roundtable considered whether price volatility or price rises drive energy policy.
On the one hand, rising energy prices can help policy makers deliver energy policies if they encourage business to reduce their energy consumption; on the other, low energy prices can result in energy falling down a board’s agenda. The extent of this impact can depend on whether energy costs are passed on to the customer or not.
However, any movement in energy prices creates uncertainty, which can have a considerable impact on investor confidence, particularly where the investment is capital intensive and asset lifetimes are long e.g. electricity generation. Changes to energy policy can compound this uncertainty, but can happen nevertheless, including for political reasons.
Where investments are mobile, location decisions can be affected by the impact of UK energy policy on business compared to that overseas. Even when energy price movements are felt internationally, differing policy responses can affect the relative costs of energy in different countries. A single international carbon price could help smooth the differences out.
The shape of policies aimed at the domestic sector may be affected by the greater transparency of prices that smart meters could bring, particularly if combined with smart appliances. However, exposure to price volatility in order to promote energy savings may need balancing against a need for price certainty to ensure affordability – is the role of fixed price energy contracts or policy makers?
On the one hand, yes it does, because energy price volatility creates uncertainty. This affects policy makers’ decisions and the way that stakeholders, including investors, respond i.e. price volatility makes it harder to predict the policies that Government will implement and the nature of the problems that policy will need to solve.
On the other hand, no it doesn’t have a direct impact. Rather than price volatility, it’s rising prices that are the key driver of political statements and so the policy that results i.e. policies remain largely unaffected by short-term price fluctuations.
On this table we will discuss global fashion supply chains, from high street to luxury. We’ll consider resources such as water, fossil fuels and cotton and think through the risks and opportunities you need to be anticipating and how you can build them into your strategies.
What resource scarcity means for the fashion industry now and in the future:
We discussed a number of alternative business models to the current fashion model of long, risky, resource intensive and complex supply chains with hidden environmental and social impacts. The alternatives are what Forum call ‘Weak Signals’ of the future; niche initiatives that indicate what we might see going mainstream in 5/10/20 years’ time. Participants from across the fashion industry identified the impacts we’d see if the initiatives went mainstream, the barriers to enabling them to & some solutions.
IMPACTS, BARRIERS & SOLUTIONS
1. RECYCLE + UPCYCLE - Considering Uniqlo’s recycling initiative & From Somewhere, the upcycling brand
* Uniqlo M&S/Oxfam recycling model: could bring brand loyalty into stores as asking ppl to come back (close the loop)
* Uniqlo M&S/Oxfam recycling model: is this good as it’s educational? getting consumers aware of the possibility of recycling textiles and not sending them to landfill?
* Upcycling: this needs substantial volume to make it work, could it work for a luxury brand?
* Upcycling: imagine if a luxury brand designer did upcycling, they wld make it beautiful and desirable – big opportunity, but would there be enough material to reach globally? Can this model be scaled-up? doubtful..
* Need to make this work for the consumer: what’s in it for them? Initiatives like Recylebank reward customers for recycling with discounts
2. RESALE + DURABILITY – Considering Ebay/Patagonia partnership, NUDI jeans brand & Uniform Project
* interesting model (EBay/Patagonia), similar to ASOS marketplace. interesting also that women shop vintage more than men
* the ‘don’t wash your jeans for 6 months’ message is made cool by the NUDI brand – proof that even seemingly bizarre messages can work if positioned well and communicated effectively to the target audience
* it’s all about making the durable/sustainable/alternative option cool/desirable
* focus on what your customers come to you for. Is it comfort? Luxury? Cutting edge design? Sustainability needs to fit with that – it’s all about design.
* current theme of high st ‘throwaway fashion’ discussed – but does that only appeal to the young? a throwaway wardrobe is not a functional wardrobe
* opportunity to help ppl buy the right clothes to being with that they love and want to keep for a long time and use a lot
* dubiousness about how t-shirts can sell for £4 on the UK high st without someone, somewhere losing out (environment and/or people)
3. TECH + DIY – Considering nanofibres and their ability to generate power when worn & 3d printing of shoes
* productive clothing is a huge trend, can definitely see it becoming mainstream
* you can 3D print cars, bikinis, shoes and apparently Boeing 747’s to scale…
* clear benefits in using only what you need, no waste
* surely we are moving ever more into an integration of technology set of products? eg iphone merging ipod/camera/tv/laptop into one
* imagine the new biz model for 3D printing at home – big brands would sell the patterns and the raw materials but not the products anymore
* could 3D printing use only recycled content as a raw material?
* “I’m going to go and save the fashion industry”
* “I’m going to go and buy something from the Patagonia ebay website, and see if the brand I work for could do something like this…”
* Continue to monitor “weak signals” as inspiration for new, sustainable business models that might work for your brand
* solutions as above.
More on Forum for the Future's Fashion Futures work here: http://www.forumforthefuture.org/project/fashion-futures-2025/overview
Does resource scarcity have more impact on executives than climate change?
The table discussion focused on Defra’s development of a Resource Security Action Plan, for publication Feb 2012. In particular, these points relate to development of some form of ‘dashboard’ to draw information on resource security together in one place, to build better businesses for risk planning purposes.
* There is some value in pulling together information on critical materials and resource security in one place (as proposed by Govt). This will never be entirely up-to-date (the large Corporates will want to preserve their information for competitive advantage), but such information would help raise awareness amongst the ‘know-nots’ and any information on future trends/scenarios would help companies plan their strategies for investment/research.
* It will be difficult engaging SMEs on this agenda – data will need to be accessible. SMEs are ‘risk averse’ – they need to see this agenda as an opportunity. Making too much of the risks won’t help, Government should advocate the opportunities instead.
* Any information portal needs to have authenticated data for companies to trust it (a Defra ‘stamp of authority’ for example). This is not the natural role of Government, but it was agreed the data should be clearly attributed.
* Opportunities for substitution of materials should be flagged.
* Corporates have the information they need. Keep to themselves for competitive advantage. The scarcer a resource becomes, the more they will guard the information and the more valuable it is.
* Vertical integration – buying up the supply chain – will drive change.
* To work together need a critical mass – a big enough problem.
* Reporting has to be global or worthless.
* Most SMEs won’t be interested in this information operationally. But CEOs may be interested strategically e.g. new business ideas / when to sell etc.
* Some merit in working with big corporates first and encouraging supply chain roll out.
* Information must be: sector specific, cover 5 years into the future, given in context, accompanied by info on how to use it – what you want people to do, in a format it can be downloaded and interrogated = data transfer
* Target procurement professionals with messages about using data to negotiate better deals on resources now. Government stamped data has a value and is ‘official’ so not vulnerable to material sellers who may scaremonger.
* At a strategic level, link to risk and risk management – already people and systems for this.
* Useful for Defra to use this information to identify where need to focus resource / WRAP on recycling / efficiency etc.
* Big corporates can pay for this data.
* Trials and tracking useful, but data commercially sensitive
* Need SMEs to incubate new products / services / business models – encourage this somehow. Big corporates will then buy them out and take on their ideas once proven.
* How often will data be updated?
* Remember – people use data to support their chosen position. Rarely change their position because of data alone.
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