The link between circular economy & sustainability- a case with H&M

This morning, I introduced the case we will be working on this autumn on my course at the Norwegian School of Economics (NHH): managing business towards a circular economy and sustainability. The case is in partnership with H&M who is also a partner of the Ellen MacArthur circular economy initiative.

As I’ve written about before, I was not an early adopter of the circular economy. I do, however, teach circular economy as a trend in the sustainability area both at Örebro University and NHH. The more I reflect on the concept, the more of a convert I’ve become. So I thought I’d share some of my aha-moments about the circular economy and sustainability with you here.

First of all, what do we mean with sustainability? The established definition is from the UN Brundtland report (1987):

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs

As Kuhlman & Farrington (2010) (one of our key references in the NHH course) writes, this sustainability definition addresses the tension between mankind’s aspiration towards a better life on the one hand and the limitations imposed by nature on the other hand. This tension between social welfare and natural resources is more often than not ignored in the business debate on sustainability. We often pretend it does not exist. And of course, there are many win-win situations where environmental or social measures also bring down costs and/or increase income.  There are definitely low hanging fruit, efforts that are win-win or at least come at no cost.

However, there are cases where tension between social well-fare and environmental sustainability undoubtedly exists. The pharmaceutical industry is a prime example. The industry argues that it provides tremendous social benefit by saving lives (or at least reducing suffering) but the environmental pollution, especially chemical and water pollution, is high, both at production  and consumption sites. Why do such tensions between social well-fare and natural resources occur?

Operating in a closed system

Some of you might have heard about the Planetary Boundaries. Professor Johan Rockström and co-authors defined nine environmental boundaries we should stay within to ensure a stable living environment (see picture, borrowed from the 2015 article). What this figure tells businesses is that we are operating in a closed system. If we mismanage certain environmental resources, such as biodiversity and chemical pollution, we cannot compensate for these in other ways. If we cross these, there is no functional living environment we can operate within.

 

Why a linear business model does not work in a closed system

Now the problem with a linear business model (which most businesses have and what we often teach students) is that it treats input to businesses (and its outputs) according to the value chain- the business uses certain input and through a number of processes produces some outputs. These inputs, resources, the business uses appear to just exist. The environment is there for us to use and not affected by our use. Likewise, outputs and externalities from our production  just go somewhere. However, as the 1990 chapter on circular economy by Pearce and Turner states, eventually the waste we produce will affect the availability of new resources. And the accumulated waste affects our well-being too. The fact that business operates in a closed system has to be taken into account. Certainly for global businesses.

Now from the planetary boundaries perspective, the best would of course be to minimize consumption and for us to produce less in order to spare the environment and stay within the boundaries. This is in line with the minimalism and anti-consumerism movement. If we consume less, we do not need to produce so much. We can share, mend and repurpose etc. This is admirable and has a place, especially in societies with overconsumption. It is my approach to my own wardrobe situation. However, at this point in the debate, someone will throw in the argument that we cannot deny developing countries the same social benefits we have allowed ourselves. If we have been flying for decades, why shouldn’t they be able to?

Kate Raworth, with a background at Oxfam, illustrated this pedagogically in her ‘Doughnut Economics‘. It is a fact that there are large groups of people that are not getting their basic needs met. And to achieve progress on this point will in many cases require use of natural resources. Here, the tension between the social development and the availability of natural resources the Brundtland report sought to address is very clear.

Consequently, Raworth put those basic social needs into Rockström’s figure, in the middle, to illustrate that we want to maximize the social well-fare of people while at the same time staying within the planetary boundaries. We want to operate, she argues, within the green ‘doughnut’ formation in the figure.

Sustainability is getting the maximum social value while staying within the planetary boundaries

Working along the lines of minimizing and restricting consumption can, at least in some cases, thus deny us social value. Similarly, what many sustainability-minded businesses do is to try to minimize the waste and externalities from production. To reduce the ‘shadow’ of business, make them ‘tread lightly’ on the environment. There are many impressive initiatives with zero waste factories and water reduction regimes. These are all good, no doubt about it. We need these kinds of initiatives. However, the circular economy further adds that ‘waste’ should not simply be removed but could also become a resource for us to use. It’s a fact that we need some amount of production and that it uses resources and that there will be some amount of waste. What can we do with the remaining waste? How can we turn it into resources?

As this post is long enough, I will simply have to write about the challenges with making waste into circular resources in a follow up post. Still, I hope you see, like I do, why there is a case for circular business in a sustainable society. And I’m so excited about our case with H&M and what the students will come up with.

Almedalen: sustainability, research and politics

Last week I attended Swedish politics week, Almedalen, for the very first time. The occasion was a seminar about sustainability professionals in companies, their work and competences that my employer, Örebro University School of Business, hosted. We are starting a new master profile in sustainable business this autumn and have thus thought a lot about what knowledge and competences sustainability professionals need. So I represented our school and shared our experiences. When developing this master profile, we have been supported by representatives from businesses and student organizations, some of which- Nordea, Grant Thornton, Spendrups,  SEK, Telenor, Young Sustainability Professionals and Sustainergies– joined us for the seminar in Almedalen (which was recorded and can be found here).

Already there, I had the opportunity to attend over 4000 seminars arranged during the week. There was no way to attend all of them, sadly since a large proportion dealt with sustainability issues. However, I managed to attend some seminars on sustainability and some others on research politics.

The panels discussing sustainability and consumption were very gloomy. ‘Consumption has to decrease’ and is ‘destroying our environment’ and ‘the politicians are not doing enough’ seemed to be the general message. I have some major issues with these kinds of statements. First, one has to define what is meant with consumption. Services such as child care and going to the hairdresser are also consumption. We can consume second hand items and probably should increase this type of consumption. Basically, we have to differentiate between different types of consumption and their effects on the environment. Instead KTH researchers from Mistra’s project on sustainable consumption painted with very large brushes and suggested we should both consume and work less. I don’t see how they arrived at this conclusion and am consequently not convinced. Neither are my consumption researcher colleagues when I’ve discussed the issue with them. Consumption per se is not evil, but certain types, such as flying or single use plastics, are bad for the environment.

One take away from Almedalen is thus that it was engineering researchers that discussed economics and business issues such as GDP, growth and consumption. One panel even stated that ‘it is probably just as good that there are no economists on the panel’. I, however, was missing the economics and business researchers and I believe that our presence on the panels would have improved the discussions. Instead, I was sitting in the audience wondering how they defined growth and how they could state that Sweden has substantial GDP growth (clearly they did not consider GDP per capita). Of course research is interdisciplinary, but when it comes to basic definitions in business and economics, researchers in these fields have an advantage: we have worked longer with these concepts.

Attending the social events, generally organized by companies, was a more encouraging experience. I ended up having drinks with the electric cars lobby (who knew they existed?) and attending Atea’s afternoon around the topic of sustainable supply chains in the IT sector and conflict minerals. It’s really encouraging that so much is happening on both these issues. Our partner for the master program, Spendrups, invited us to an entirely organic dinner celebrating that they are now the world’s largest producer of organic beer. My take away from the company discussions is that a lot can happen in a short period of time in the corporate world. And as soon as there is something that looks like a business case for addressing a sustainability issue, companies will race their competitors to get there.

The research politics seminars were also a positive surprise and dealt with topics such as research communication and open science. As for the latter, the panel agreed that professional research communicators are needed and that we today lack incentives for researchers to address the general public. If we want to communicate outside of academia, we have to do it in our spare time. As for the latter topic, it seems as if open science is coming our way and it’s just a matter of time and of exactly how the solutions will look like. The Swedish Research Council (‘Vetenskapsrådet’) is arranging a conference in November about open science which I will try to attend.

Overall, Almedalen was a highly inspiring week that was well worth attending even for a researcher (there were very few of us there) and I hope there will be opportunity to be back next year!

The alternative facts debate: In defense of questioning the facts

It’s challenging times to be in the knowledge business. Twitter followers question whether climate change is real and FB-followers question facts because they are published  in unknown media. And when you don’t agree with someone else’s statement you call it alternative facts. This is, I guess, a sign that parts of the public question some commonly held facts.

While some see this as a dangerous development, that people question commonly held facts and hold alternative views, it is also an opportunity to dive further into the questioned facts and learn something in the process. To proclaim that ‘this is a fact, deal with it’ is unlikely to convince anyone. We teachers know that when our statements are questioned it forces us to learn and ‘know’ the issue on a more detailed level. Having commonly held facts questioned is a challenge for sure, but if we can defend them it’s generally worth the effort.

Unfortunately, some argue that those questioning our facts are driven by emotions and thus that logical arguments do not work. This is not a helpful picture to paint. Of course all of us are motivated by emotions. But if we would apply this at universities, that emotion is the motivation for questioning our teachings and that logical arguments is not an appropriate response, it’s a dangerous path to follow. Nobody wants to be treated as an emotional creature that cannot be reasoned with. In contrast, I would argue that many of us are convinced by logical arguments and remain unconvinced when we are left with incoherent arguments and told to ‘trust the expert’. Instead, if our commonly held facts are questioned, let’s sharpen our arguments further.

Increasingly, researchers are called upon to tell us if a fact is true or not. Are researchers suitable in the role as ‘ fact experts’? Why should researchers, and not others, be able to do this? Researchers are not experts because they work at a prestigious institution, have the professor-title or speak in a charismatic way. They are not better equipped to judge value issues, such as if one political measure is more valuable to the population than another (although we often think so ourselves). However, in certain cases researchers can help us when it comes to facts. It is true that researchers are, generally, good at handling facts because:

  • We are up to date on facts within our own field of research. This field, however, is usually quite narrow!
  • We use facts to test theories and potential explanations and are thus used to questioning and interpreting facts.
  • Occasionally, we develop facts. If facts are necessary for our research but unavailable, we might create them in order to conduct our research. These facts, such as the amount of plastic in the ocean or amount of companies with a sustainability strategy, can be of interest to the general public too.

Instead of raging against those that do not share our facts, don’t agree there is climate change etc., and labelling them alternative facts or anti- this or that, why not look at the explanations we provide. How pedagogical are we? Where are the weak points in our explanations? Which parts of the argument do they question? Do they have reasons to question these points? Can we support our statements further? We might just learn something about the issue and communication in the process.

Sustainability & fish farming: working with a real case

Aquaculture, such as fish farming, is a key industry to ensure  sustainable food production in the future. Foods deriving from the seas face many challenges such overfishing and water pollution. At the same time, sea food has many benefits such as low climate impact and high nutritional value.

It is quite clear today that wild fish supply is not sufficient and that aquaculture is necessary in some form in order to supply current populations with sea food. However, fish farming has been criticized for unsustainable practices through the years and the industry still struggles with some of them like sea lice, escapes and sustainable feed sources.

In the course I teach at NHH ‘Measuring sustainability’ we each year work with  a real case on how to measure sustainability. Last autumn, we collaborated with Norwegian Responsible Investment association Norsif on how we can measure and evaluate the sustainability of aquaculture companies. One of the things I love about these cases is the creativity the students show when coming up with new ideas and solutions. I truly believe this kind of creativity, combined with academic thinking and facts, is one of the most important skills we can teach students.

One of the learning points from working with the aquaculture case is how important national regulation is for sustainable fish farming. One of the drastic differences is the use of antibiotics. Aquaculture uses significant amounts of antibiotics, which is a critical issue considering antibiotic resistance, but the industry also shows that it can do without it when it has to, such as in Norway.

Another difficult issue is that fish farming in Europe is mostly done with omnivorous fish such as salmon. It is less efficient to raise fish that partly eats other fish than fish that only feeds on algea. Instead of feeding the salmon other fish, we could eat this fish directly and thus skip the step of raising the salmon. The fish in the feed can also lead to further overfishing. Of course we can feed salmon a vegetarian diet but salmon that are fed on vegetable rather than animal proteins may be lacking in Omega-3, which is one of the main reasons salmon are so healthy for a human diet. A better solution would be to instead farm a fish that naturally feeds on for example algea.

Another key issue for sustainability, the students discovered, is future orientation of the companies and investment in research to find sustainable solutions to issues we have not yet solved. During the course, we we’re visited by the head of sustainability and risk at Cermaq, Wenche Gronbrekk, who explained how the company works to address sustainability issues. Wenche has answered a few of my questions below and also describes their investment in future solutions: iFarm.

Sabina: The Norwegian aquaculture industry has made quite some progress in terms of addressing its sustainability challenges. What are, in your opinion, some of the main achievements? 
Wenche: We have made great progress in lifting the industry standard the past years through collaboration –  through dialogue and knowledge sharing between government, research and industry. Also, in the Global Salmon Initiative (GSI), addressing key issues such as standardization, feed ingredients and biosecurity. Vaccine development has also been key to advancing sustainability to the level we see today.

Sabina: Still, as we have learnt when working with this case, challenges remain. What’s on top of your to-do-list in terms of sustainability?
Wenche: Sustainability requires continuous effort, and we work every day to be better than just complying with minimum standards. Developing new solutions that address key problems is also a priority – such as our iFarm concept. It may solve many of the key challenges today through individualized treatment of each fish, increasing animal health and welfare, optimizing feeding and any need for treatment, which may in turn reduce the environmental footprint of our activities.

Sabina: Sustainability is, according to its definition, about the long term perspective, future generations even. Still most organisations operate with a shorter time perspective in their day-to-day business. How are you able to take the long term perspective into account?
Wenche: Salmon farming is largely dependent on taking a long term view – we operate in the sea and biological risks do not respect financial quarters. To have a business over time, our operations need to be sustainable in all aspects: environmentally, socially and economically. 

Sabina: Many who work as sustainability officers or even head of sustainability find that change management is crucial in order to conduct their work. Is this your experience as well?
Wenche: As a sustainability officer you need to work across the organization, break silos and in many ways be a change agent. Integrating sustainability in business strategy also means that many companies need to innovate their business model – and it is my experience that sustainability professionals often play a central part in this transformation.

A big thank you to Wenche and Cermaq for sharing your experiences with us and also to Norsif and Norsif member Folketrygdfondet and Tine Fossland who attended the students presentations and provided feedback on their evaluation models. We could not have done this without you!

When stakeholders oppose the company’s plans: the case of Schiphol airport

A key part of companies’ sustainability work is to communicate with parties that are affected by the company’s operations. This is generally called ‘stakeholder dialogue’ (see Edward Freeman’s definition from 1984).

Engaging local communities, environmental groups, customers and investors early on may prevent critic, and even boycott, of the business later on, when it might be too late to turn back. It can also provide valuable input and reveal opportunities. However, these different groups can, and most likely will, also have conflicting ideas and needs. So what can the company do when the stakeholders’ demands conflict with the corporate plans as well as with other stakeholders’ needs?

A NHH and CEMS student of mine, Elizaveta Sokolova, wrote her master thesis on precisely this issue. She used the case of the Dutch airport Schiphol and their stakeholders (local residents, regional authorities, the Dutch state, airlines, Friends of the Earth and more) to investigate how the airport handles the conflicting demands. The conflicts concerned for example birds that get in harms way around the airport, access to the airport and noise from the airport. Elizaveta found that even when the stakeholders do not disagree on the final goal, they can disagree on how to achieve the goals.

In Schiphol’s case, the stakeholder dialogue revealed the complexity of the issues. It also created a feeling among stakeholders that the problem is shared and only coordinated efforts can bring a solution. However, when the conflicts were too divisive, the airport decided to end, or at least limit, the dialogue. To read the full thesis, you find it here.

I asked Elizaveta, who also participated in the ‘Measuring sustainability’ course I teach at NHH, a few questions for the purpose of this blog:

You seem to have a keen interest in business and sustainability. What interests you most in this area? 

On the first glance, it seems that sustainability stop business from faster expansion and revenue growth. However, being more conscious of the impact that a business creates on people and environment allows to make the growth more sustainable, less dependent on external factors such as new policies or fuel/electricity/commodity prices. Finding examples of how this idea works in real life is what attracts me the most.

What is the main point we as readers can learn from your thesis?

The Schiphol airport example that I describe in my thesis shows that changing business towards sustainability and including diverse stakeholders for consultations is never easy: opinions vary. However, this approach leads to well-rounded final decision.

Writing the thesis, what was the main learning point for you personally?

For me personally, it was difficult to understand how to find a common ground on an issue when stakeholders’ opinions are literally opposite. The answer is: willingness to compromise and understand the opponent’s concerns.

Now that you have finished your master here at NHH, what are your plans for the future?

Now, when I have finished NHH, I am implementing the knowledge I got about stakeholder engagement in practice: I work at The Global Fund and deal with sustainability and transition. It requires a lot of negotiations and communications with different stakeholders, so the communication experience and theoretical background I got while working on the thesis is very beneficial.

Thank you Elizaveta for sharing your insights and good luck with your new job!