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Tuesday, September 29, 2015

The Sufficiency Solution?

There are many obstacles in the quest to achieve true sustainability in our industrialized society which has for centuries been accustomed to a take-make-waste model of consumption. Radical changes are needed in our economic paradigms in order to ensure that we, as a global society, can continue to increase global economic prosperity while at the same time conserve our ecosystems, and help to establish social justice and equity. The challenge of sustainability is to simultaneously create economic, social and environmental benefits, and has been famously defined as the ability to “meet the needs of the present without compromising the ability of future generations to meet their needs” (WCED, 1987).

Corporations are probably the largest, most powerful and influential player in terms of setting direction for society, and they must take the lead in adopting sustainable practices. In order to do this, many new ways of thinking will need to be employed and many new strategies and innovations will need to be developed. One of the biggest obstacles in this regard is that often managers fail to see either the necessity or the potential benefit—or simply see sustainability efforts as an impediment to growth. These assumptions remain despite much research that has shown strong business cases can be made for adopting sustainability as a corporate objective. Hart and Milstein (2003), for example, show how the multiple dimensions of sustainability can be connected to the multiple dimensions of shareholder value and thus demonstrate that sustainable strategies can be implemented that are not only good for society and the planet, but can represent increases in real shareholder value.

Generally, however, as the understanding of the necessity and opportunity associated with corporate sustainability permeates through the world of management, more and more businesses are taking their role as sustainability leaders seriously, and many are taking steps towards decreasing the negative impacts they have on the environment and society. While some more radical sustainability advocates insist (perhaps rightly) that these incremental changes are not enough, in reality economic systems cannot change overnight and it is important that corporations start somewhere. Many innovative business thinkers have developed strategies and programs that have at least set them on the path towards corporate sustainability, not only decreasing negative impacts but in some cases learning to exploit new markets and previously undiscovered opportunities.

One potential avenue for pursuing sustainability that is often overlooked by business—perhaps because it is not so clear how it can be turned into shareholder  value for a firm—is the idea of sufficiency, sometimes called eco-sufficiency. In plain language this term could be simply called frugality, modest living or sober living; it carries the implications of voluntarily choosing to live with fewer material possessions, consuming less, saving more, and thereby making less of an impact on the environment.  This lifestyle is becoming somewhat of a trend in some (primarily affluent) areas, and advocates often believe that living in such a way can increase personal happiness while helping to ensure the preservation of the earth for future generations. Other popular terms for this lifestyle choice include slow-living, simple living or minimalism. It is feasible that corporations can make use of this growing trend—even encourage it—to further their sustainability goals and even create new business opportunities.

Within corporate sustainability programs and initiatives there is much focus on the supply side of the firm, namely towards creating efficiency or decreasing the negative impact relative to the production of product or service provided. While this approach can help to save costs for the firm and reduce waste, it has also been shown that this approach can have a rebound effect (e.g. Dyllick & Hockerts, 2002). As production costs (and therefore prices) for products with negative impacts are reduced it can lead to an increase in overall production/consumption and therefore an increase in absolute negative impact. While each product may be less polluting (for example), the increase in total products sold due to lower costs has a net effect of increasing the total pollution. The problem here is that as production costs are reduced and prices go down, consumer demand tends to increase. While the company can boast a more efficient use of resources and a relative decrease in negative impact, the overall problem actually worsens.

Therefore, a logical alternative (or perhaps a supplement) to efficiency is to focus on the consumption side by reducing the demand for products or services that cause environmental or social harm.  In terms of the well-known equation I = PAT, while efficiency is geared towards reducing impact by lowering the technology factor, sufficiency takes another approach by effectively decreasing the affluence factor (Alcott, 2008). Corporations can only do so much in making their products sustainable when there remains a demand for unsustainable products. As long as a strong and stable demand for certain products exist, there will be companies striving to meet that demand by manufacturing the sought-after goods. And so it is important to realize that consumers have a role to play in corporate sustainability as well. By reducing demand for products which are unsustainable, consumers have the power to reduce negative impacts on the environment and on society. According to the Royal Society (2012), possibly the best way to decrease the negative human impact on the planet is to decrease the resource consumption of those sections of society which currently consume the most.

The idea of product stewardship postulates that corporations should take responsibility not only for the processes in their firms which are directly under their control, but all the effects of a product from resource extraction to disposal. One could argue that this then includes a responsibility to manage the demand side of business as well as the supply. By working to reduce the demand for unsustainable products, such products can be phased out and substituted for more sustainable ones. While some may argue that consumer demand is not within the scope of management’s control—after all, consumers want what they want and manufacturers respond to those wants—it is widely known that marketing plays a large role in directing consumer preference. If companies are willing to accept responsibility for the impacts of their products in the larger economic, social and ecological environment, ought they not also take responsibility by doing all they can in order to redirect consumer preference to products with a lower negative impact?

The difficulty is that many corporations have large investments and interests in consumer demand for unsustainable products. Many businesses thrive off continuing to sell products like SUV’s which are far less fuel-efficient than more compact cars. A shifting of consumer preference towards sufficiency would then been seen by such companies as a development detrimental to business. But companies producing SUV’s are not the only ones who might worry over such a trend.  A general decrease in consumer wants could mean less economic activity in general, and that is hard to stomach for an economy that is obsessed with constant growth. While environmental and social improvements might be realized from such a trend, is it possible for economic prosperity to continue to grow under such circumstances? Some research indicates that sufficiency-driven business models can indeed open the door for new and profitable opportunities.

Bocken & Short (2015) provide economic rationale for sufficiency by conceiving of it as “an effective core strategy for sustainable business model innovation, initiated and driven by companies themselves, rather than merely a reactive strategy to an external influencing factor on business.” They demonstrate through case studies that innovative business models can exist that work to curb consumption by moderating demand. If implemented carefully, things like avoiding built-in obsolescence, making products last longer, education and awareness, and conscious changes in marketing techniques in combination with new innovative revenue schemes can help promote sufficiency and ultimately lead to more sustainable business and value creation.

Other literature, however, shows some problems with the model of sufficiency. Alcott (2008) argues that just like resource-efficiency, sufficiency is subject to a negative rebound effect. He argues that as initial demand for products goes down, prices are reduced which, in turn, increases demand by others. It seems, therefore, that in order for sufficiency to be effective as a strategy for corporations to become more sustainable, a certain critical threshold would need to be reached so as to largely eliminate the rebound effect. If a large enough number of consumers in affluent nations would begin to show interest in such a lifestyle, business would adapt to cater towards these new trends; they would be forced to innovate to meet the changing patterns of demand.

In conclusion, while corporations remain the largest and most important leaders in setting the direction for society, controlling the means by which sustainability can be achieved, it is certainly important to consider the role of the consumer in the process. Corporations are responsive to their customers and as trends in consumption change corporations will strive to meet those changing needs. As it becomes clearer to the general public that sustainability is a matter of global and human concern, it may be that paradigm shifts which lead to attitudes of sufficiency continue to grow. The companies that manage to innovate now and find new ways of capturing value in such a new economic environment by capitalizing on sufficiency lifestyles will secure a competitive advantage in the future. In this way corporations and consumers together can contribute to a more sustainable world. 

Alcott, B. (2008). The sufficiency strategy: Would rich-world frugality lower environmental impact? Ecological Economics, 64, 770-786

Bocken, N., Short, S. (2015). Towards a sufficiency-driven business model: Experiences and opportunities. Environmental Innovation and Societal Transitions (2015).

Dyllick, T., Hockerts, K. (2002). Beyond the Business Case for Corporate Sustainability. Business Strategy and the Environment, 11, 130-141

Hart, S., Milstein, M.,  Caggiano, J. (2003). Creating Sustainable Value.  The Academy of Management Executive, 17(2), 56-69.

The Royal Society, (2012). People and the Planet, Available at: http://royalsociety.org/policy/projects/people-planet/report/ (accessed 16.09.15).

World Commission on Environment and Development. (1987). Our Common Future. Oxford: Oxford University Press, p. 8.