New Metrics
Move Over Eco-Efficiency, Here Comes Eco-Immunity - Part One

Reducing the consumption of energy and materials in business, for example, is usually accompanied by reductions in costs and is referred to as eco-efficiency. While ostensibly driven by sustainability concerns, the truth is that consuming less water, producing less waste or emitting fewer greenhouse gases would rarely occur if not for the fact that costs go down and/or the law requires it. Increasing costs to voluntarily improving sustainability performance is the exception, not the rule.

In recent years, however, another reason has emerged to minimize a company’s use of (and dependency on) energy and natural resources (i.e., natural capital). In a word: risk. Risk from the growing scarcity of natural resources, or from legal liabilities associated with natural resource use and degradation. To pump millions of metric tonnes of greenhouse gases into the atmosphere every year, for example, is to overuse a scarce natural resource (i.e., the assimilative capacity of the environment) and put human well-being at risk. How long does any company think it can continue to do that without running out of capacity, or into a legal firestorm down the road? More to the point, why take the risk?

Listen to how Jeremy Grantham, co-founder and chief investment strategist of GMO, described our predicament in 2011:

• The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water. Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed — that there is in fact a paradigm shift — perhaps the most important economic event since the Industrial Revolution. From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
• The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
• We all need to develop serious resource plans, particularly energy policies. There is little time to waste.

How, then, are companies supposed to substitute qualitative growth for quantitative growth? Aren’t economic growth and prosperity fundamentally predicated on open-ended energy and natural resource consumption? Can there be prosperity without them?

Enter Eco-Immunity

Now comes a concept that goes well beyond eco-efficiency, and which is better described as eco-immunity. Rather than seek to lower the costs and improve the efficiency of natural resource use, an eco-immunity strategy would seek to minimize, if not virtually eliminate, the use of such resources from the start, so as to immunize a company as much as possible from the effects of natural resource declines and related liabilities. What could be more risk free than a company that has rid itself of its dependence on natural resources and the liabilities associated with their use and/or degradation?

Eco-immunity, then, is not about efficiency; it’s about independence and freedom from risk, and how a company can insulate itself from the vicissitudes of climate, weather and natural resource availability, and the effects these things have on business performance and profitability. In the lingua franca of sustainability, this is known as decoupling a company’s impacts (or dependence) on natural resources from its ability to grow or do well, even in cases where costs may go up, not down. If an idea has strategic value, it may very well come at a cost and we should not shy away from that. How much is it worth to survive?

Whether or not it is possible to completely decouple a company’s business or operations from natural resources is, of course, debatable — probably not completely possible at all. But that is not to say that the idea of doing so cannot serve as a strategically important regulative ideal: a target that we continually strive for as a basis for competitive advantage. In this regard, eco-immunity is like maximizing profits: both are regulative ideals or targets that we may never reach, but whose desirability as end-states pull us in particular directions over all others. As long as we’re consistently moving in the directions defined by our ideals, our needs will be served, or so we hope.

Here it should be clear that the role played by eco-efficiency in supporting the predominant regulative ideal in business today — maximizing profits — should be replaced by eco-immunity. After all, if the narrow pursuit of profits is only concerned with short-term prices and profitability (and the supporting doctrine of eco-efficiency), doesn’t that put the longer-term viability of a company at risk, insofar as natural resource shortages and legal liabilities are concerned? What we need and want are profitable companies that are immune to natural resource shortages and liabilities — not companies, no matter how profitable or eco-efficient they might be, that are increasingly exposed to them.

Read part two ...