In their book, Can Business Save the Earth? Innovating Our Way to Sustainability, Darden Professor Michael Lenox and Fuqua Professor Aaron Chatterji outline how multiple stakeholders can play roles in addressing the environmental crisis. The below excerpt addresses how several of those players — of many — can take action to be part of the solution.
Can business save the Earth? The answer depends on a broad system of forces. Forces that generate new inventions, that successfully commercialize new products out of these inventions, that provide capital to support commercialization and scaling, and that provide value to a wide number of customers. Each of these forces is driven by the idiosyncratic ingenuity and persistence of daring and creative individuals and depends on a robust institutional setting to create the conditions for these individuals to thrive. Meeting our sustainability challenge will require massive innovation across multiple industrial sectors.
Unlocking the Power of the Innovation System
So, what can we do to invigorate the innovation system and ensure the best chance to catalyze the search for and commercialization of disruptive sustainable technologies? We need the concerted effort of numerous stakeholders: innovators, managers, investors, consumers, federal policymakers, state and local officials, activists, the media, foundations, NGOs, universities and everyday citizens. We will need to harness the power of each of these players to have the best chance to save the Earth. Here are some thoughts on what each can do.
For those intrepid innovators among our readers, our advice is simple: Go do it! At its most basic level, innovation is a numbers game. Most new technologies and businesses are going to fail. That is the nature of innovation and entrepreneurship. The more people who experiment, the more likely that a disruptive sustainable technology will emerge. Even those who fail help push the innovation system forward — discovering potential paths forward and identifying paths that are unlikely to succeed and thus should be avoided. Of course, from both an individual and society perspective, we would like more success than failure, but that is where others can help.
Most big companies today are worried about disruption. This fact suggests more resources will be poured into being part of the cutting edge of technology compared to preserving old worlds. This is a good thing for our sustainability challenge. For large companies, this involves partnering with universities and research labs, and investing in, and in some cases purchasing, entrepreneurial ventures. Rather than using so much precious capital to lobby for regulations protecting the old industry, why not use more of it to invest in sustainability-oriented funds or issue green bonds? Challenge your employees to do more in their personal and professional lives to support sustainability. Ask your suppliers to pursue sustainable products and services. Last but not least, invest in the complementary products and resources that will allow disruptive innovations to flourish. Your firm may not invest the disruptive technology, but you can still capture value from it by possessing crucial complementary assets, such as manufacturing and distribution capability.
For private investors: You are the fuel for the innovator engine. Allocating capital to the best ideas is your number one task. Sustainable innovations come in very different shapes and sizes varying greatly in both their risk profile and potential payback time. Diversity in funding mechanisms is critical. Some ventures will lend themselves to traditional venture capital. Others will require more patient capital. Thus, we encourage investors to innovate novel funding mechanisms that address this diversity of needs. Crowdfunding, impact investing, green bonds and equity-based incubators are all relatively new and intriguing vehicles for advancing sustainable technologies. Let’s keep experimenting with alternative funding models.
Our advice for consumers is straightforward: Consume less, but when you need to make purchases, buy more sustainable goods. Of course, this is not as simple as it sounds. How does one know if a given product or service is “sustainable”? This conundrum gets to our second bit of advice: Demand transparency. Require producers to explain the environmental impact of their goods. This ask may require some coordination, lobbying for the government or third parties to create labeling programs or certification schemes. But if you can make it work, you can change the marketplace such that what works for the environment wins. That could be the single greatest contribution any individual could make toward our sustainability challenge.
Government is the enemy of innovation, right? Not necessarily. Smart federal policy can be an incredible catalyst for innovation. Basic R & D is a public good that is not easily financed in the private sector. Federal funding of research toward sustainable technologies is critical. Extended patent protection for sustainable technologies and creating innovation prizes are two other ways to turbocharge innovation efforts. Policy should also encourage more competition and entrepreneurial entry. For example, reduce regulatory and paperwork burdens for entrepreneurs getting started and create rules that encourage crowdfunding and other creative ways to finance startups. In addition, push for strong antitrust enforcement that prevents concentration of market power that may thwart innovation.
On the consumer side, federal policymakers should put a price on carbon. We know this seems politically impossible today. This reality does not absolve them from responsibility. In the meantime, federal policymakers should consider other levers. For example, they should create more product labels and certifications that help consumers make informed decisions and use the vast purchasing power of government to drive the diffusion of these certifications. Lastly, the federal government should make a major push for infrastructure investment, such as a smart electrical grid, that could catalyze entrepreneurial efforts in clean technologies.
Not Just an Environmental Issue
We are optimistic in the capacity of individuals to push the innovation system forward. We need to recognize that our sustainability challenge is not just an “environmental issue,” but an economic issue, a social issue, a question of our national competitiveness and a question of our general well-being. The evolution of markets and technology will play themselves out over decades. Actions to influence this trajectory may take years to have a meaningful impact. Thus, we need to consider the levers — all the levers — that can help lead the system to generate more disruptive sustainable technologies and pull those levers when opportune or politically palpable.
Michael Lenox and Aaron Chatterji are authors of the newly released book Can Business Save the Earth? Innovating Our Way to Sustainability.