The trends spawning the next wave of sustainable business models
Yarra Valley Water had a problem: the water and sanitation company in Melbourne, Australia, couldn’t easily see what was going on with its operations. It was hard to determine if any of its $2bn US in assets – including almost 12,000 miles of water and sewer pipes, nine treatment plants, two water recycling facilities, and dozens of pump stations – had leaks, needed maintenance or were strained to their limits. And this confusion prevented the company from efficiently serving its customer base of 1.7 million people and 50,000 businesses.
The company’s management systems lay at the heart of the problem. To oversee its confusing mass of infrastructure, Yarra Valley relied on a collection of different, aging computer systems that made it difficult to gain a comprehensive view of its operations. It’s a common issue around the globe: many water utilities lack insight into their aging, leaking, inefficient infrastructure, and are employing unimaginative stopgaps or privatizing their operations.
It’s one of many examples of sustainable innovation happening in cities. According to MIT researcher Wei Pan, there is a connection between population density and innovation that she calls “social-tie density”: the denser a city is, the more interactions people will have, and the more innovative the city will be (and the more patents it will produce).
Cities have the unique ability to foster the rapid development and dispersion of the kinds of new ideas, technologies, behaviors and business models that will be fundamental to long term sustainable development. At the same time, they provide gateways to finance, markets and other stimuli to economic growth.
But urban density is just one of several trends that are driving new, more sustainable business models. Here are four more:
The next level of the sharing economy
Seoul, one of the world’s most densely populated cities, is having an innovative moment of its own. In September 2012, South Korea’s Innovation Bureau launched a new project called Sharing City. This project, one of the first of its kind, invests in infrastructure that will make it easier for Seoul’s 10 million citizens to share resources, incubate and promote sharing economy business models, and better utilize public resources.
It isn’t hard to see why Seoul has taken this step: like many cities, it is struggling with overpopulation, pollution, resource constraints, insufficient transportation and housing shortages. In pursuing sharing-oriented infrastructure, it is working to harness the dynamic undercurrent of the rising sharing economy to address some of the resource constraints that are affecting its growth and development.
Learning and working from afar
Digital technology and smartphones have provided education, financial access and job opportunities to millions of new users who were formerly excluded from the economy.
One company, Andela, last year began offering remote training in basic coding to Nigerian students. Its students gain skills that are enable them to enter the global economy. At the same time, the influx of software developers is helping address shortages at large IT companies like Microsoft and Segovia.
Circular economy expands to food
Although the circular economy concept has been around for more than 30 years, it continues to gain ever wider acceptance and adoption with creative business models emerging worldwide.
In Chicago, the Plant, a five-year-old 93,000-square-foot food incubator, uses waste from one food business to power others. The facility is home to several vegetable and fish farms, with the fish waste used as a fertilizer for greens like arugula, kale and chard.
On the other side of the world, four-year-old Waste Ventures India is using circular economy principles to try to upend India’s current trash incentive system. Rather than reward private trash collectors based on the volume of waste that they send to landfill – as the existing system does – Waste Ventures reduces waste to landfill by separating the collected trash. It sells the organic refuse to farmers as a soil nutrient and the dry waste to processors. Investors receive carbon credits.
In the last two decades, a small cadre of conscious capitalists has begun to integrate sustainability as a guiding principle in the way their businesses are developed and run. From early pioneers like the late Ray Anderson of Interface to more recent sustainability leaders like Paul Polman of Unilever and outspoken thinkers like Whole Foods’ John Mackey or Starbucks’ Howard Shultz, these CEOs are not afraid to use their leadership mantle to promote the idea that companies can think beyond shareholder gain to influence larger conversations about value, purpose, class, race and education.
New business models are often enabled by, or arise organically from, changes in the global landscape. These trends are likely to bring about new business models, offering opportunities for companies that are willing to align themselves to a sustainable future.