There is no question the current sustainability crisis — from climate change to resource depletion — requires that the world transition to a low-carbon, environmentally friendly economy. The question is how to do this quickly.
If you ask Darden Professor Michael J. Lenox, “We need substantial innovations across many sectors and technologies if we are to address our mounting environmental concerns. For the sake of their businesses and for the sake of humanity, business leaders have to play a central role in fostering these innovations.”
To explore the opportunities and limitations of innovating our way to sustainability, and to examine the role business plays as part of the solution, Lenox recently led a discussion at the fall 2016 Global Innovators’ Roundtable in Singapore. Hosted by Darden’s Batten Institute for Entrepreneurship and Innovation and Temasek Management Services’ TMS Academy, the roundtable brought together senior leaders from such innovative companies as Singapore Airlines, Temasek International, PSA International and MAS Holdings.
Lenox, an expert in business strategy, innovation and entrepreneurship, and corporate environmental sustainability, shared the following research findings with the roundtable participants:
We need green innovation on a massive scale.
Even though many companies have appointed chief sustainability officers and adopted progressive environmental policies to reduce their carbon footprint, experts believe that those efforts are a drop in the ocean.
Global climate change is a case in point. An influential study by the Princeton Environmental Institute estimated that in order to keep carbon emissions flat over the next 50 years, we need to trim our projected carbon output by roughly 8 billion tons per year by 2060. The study’s authors identified 15 strategies — from wind, solar and nuclear energy to energy efficiency and carbon capture — to achieve these reductions. They emphasized that no one strategy is sufficient if we are to succeed in lowering carbon emissions.
“We need green innovation on a massive scale,” said Lenox. “We need new products, services, business models and production processes that simultaneously create value for consumers while minimizing environmental impacts.”
Innovation has to be commercially viable.
As Lenox put it, “We can’t lose sight of the fact that green innovations have to work in the marketplace. For an innovation to be viable, it must create value for individuals who are willing to subsidize the development, installation and scaling of a new technology.”
Take solar cells. Innovation has helped improve their efficiency and lower the cost of manufacturing as much as 200 percent from 2010 to the 2015. This in turn attracted investment and helped spread adoption. But photovoltaic cell technology has not yet reached its potential or captured the hearts and minds of the public.
“To have more customers willing to pay for sustainable technologies,” said Lenox, “it’s necessary to drive up the efficiency and drive down the cost of renewable energy so that it can compete with fossil fuels.” As Lenox explained, this goal can be achieved by improving the underlying technology — such as photovoltaic cells — or by innovating around any number of complementary technologies such as energy storage (batteries) and electrical distribution (smart-grid technology).
Business is a critical player in advancing innovation.
Business has always played an important role in diffusing innovation in society. For example, the first gasoline-powered combustion-engine cars were invented in the 19th century, but what helped spread those inventions to the consuming public were firms such as the Ford Motor Company that found a way to mass produce them while making a profit.
Today, business plays a similar role in spreading green technologies. Green innovation tries to create both environmental and economic value, but it’s the companies and their entrepreneurial leaders who capture that value and turn it into profitable products and services without sacrificing performance and user satisfaction.
Electric car manufacturer Tesla Motors is a case in point. Tesla’s Model S and Model X sport-utility vehicles rival the best-performing internal-combustion cars. They reconcile comfort and power with environmental sustainability. To achieve its goal “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market,” Tesla is currently developing the more affordable Model 3.
Entrepreneurs are often the disruptors.
Entrepreneurs and entrepreneurial business leaders such as Henry Ford are ultimately the ones who advance new technology. As Lenox put it, “We need entrepreneurs to pioneer new sustainable technologies across critical sectors of the economy, such as energy, transportation and agriculture, and to disrupt the existing unsustainable technologies that put stress on the planet.”
One such entrepreneur is Tesla’s CEO Elon Musk. Musk views Tesla as not just an automaker but an “energy innovation company” that plays a significant role in the quest for zero-emission power generation. To this end, Musk recently unveiled solar roof tiles that convert sunlight into electricity; the new PowerWall battery system that stores that electricity; and a home charger for a Tesla car.
During his press conference at Universal Studios in Los Angeles, California, Musk said, “The goal is to make solar roofs that look better than a normal roof, generate electricity, last longer, have better insulation and have an installed cost that is less than a normal roof plus the cost of electricity. Why would you buy anything else?”
Experts predict that as Teslas and other electric cars integrated with rooftop energy-storage systems become widespread, they will disrupt Rust Belt car manufacturing and the fossil-fuel industry, while accruing environmental benefits.
Innovation emerges out of the broader socioeconomic system.
Lenox also emphasized that innovation involves a lot more players than “two guys in a garage coming up with a brilliant invention.” Said Lenox, “Innovation often arises out of the rich tapestry of various stakeholders — what is often referred to as the innovation or entrepreneurial ecosystem. Venture capital, university research and licensing, and patent policy are vital parts of that ecosystem.”
The United States is fortunate to have a vibrant entrepreneurial ecosystem. When Lenox and his colleagues at the Darden School of Business analyzed patent activity around the world to identify leaders in green technology, they found that the United States had the most greentech patents, followed by Japan and Germany.
Lenox noted that challenges such as global warming, localized air and water pollution, and resource depletion are best addressed by multiple stakeholders acting together: entrepreneurs and innovators who champion new sustainable technologies; investors who see market opportunities in these sustainable technologies; customers who are willing to pay for these sustainable technologies; activists who pressure businesses to invest in green innovation; and governments that incentivize new sustainable technologies through regulation, taxes and other policy levers. Each of these players influences the degree to which businesses invest in environmentally beneficial innovations.
Large, established companies that span the globe and entrepreneurs who bring new technologies to market are powerful sources of change. They are also essential institutional players capable of harnessing market forces and unifying diverse stakeholders to accelerate progress on widespread environmental challenges. Therefore, as Lenox put it, “Meeting our sustainability crisis requires the active attention and engagement of business.”
Will business leaders rise to the challenge before it’s too late?
Discussion highlights from the Global Innovators’ Roundtable in Singapore will be featured in an upcoming Batten Briefing.