Will_Sustainability_Reshape_the_Corporate_Environment_

Globalisation and technology have reshaped the corporate environment over the past decades. Will sustainability have a similar effect and what implications does this have for business' In this essay argues that technological development, globalisation and sustainability are integral parts of the life cycle of technological change. However we have in the recent past witnessed n environmental sustainability issue of significance never previously witnessed. This is the problem of climate change. This essay claims that climate change is therefore likely to reshape the corporate agenda significantly and to a much greater extend than previous environmental and social problems have. The effects of this will be a gradual phase out of less sustainable businesses and a growth of businesses which serve the needs of people and planet simultaneously. Over the past decades globalisation and technology have had a huge impact on the corporate environment and have fuelled the growth of ever larger global corporations and the use of technology to produce goods in a more cost effective and less labour intensive fashion. Whilst globalisation and technology development have brought with them many positive aspects, the one most quoted being economic wealth, there are a number of negative implications upon people and the planet. Negative implications include environmental problems for example climate change, and social problems, such as inequality, exploitation or lack of empowerment. Sustainability is already and has always shaped the corporate agenda. Examples of this in the past are the introduction of employment laws and a health care system, as well as pollution limits for rivers etc. Such systems started to be introduced during the industrial revolution. As such sustainability can be seen as an integral step of the lifecycle of change through technological breakthrough/development and globalisation, as displayed in Figure 1 below: Technological innovation or globalisation fuel corporate opportunities. Policies and regulation to mitigate problems Corporate incentive to mitigate problem to meet consumer expectations, and attract and retain staff. Progress: Efficiencies, wealth creation, economic growth Problems: Social- e.g.health, equity, inequality Environmental – e.g.pollution of rivers& air, climate change, resource depletion Economic- e.g. monopolies Public awareness of the problems leading to public pressure And behavioural shift. Figure 1 Life cycle of technology innovation and globalisation Figure 1 illustrates that technological change and globalisation on the one hand lead to progress, including increased efficiencies per man hour, wealth creation and economic growth, but on the other had can have various unsustainable environmental, social and economic consequences. Once the public becomes aware of these problems, public pressure leads to regulations and policies which aim to mitigate the problems. In addition to the policy incentives, behavioural change such as purchasing behaviour or employee behaviour (wanting to work for an ethical company) further provide incentives for business to develop more sustainable business practices. New breakthroughs may bring with them new (not currently understood) environmental, social or economic problems and so the cycle continues. Therefore I would argue that sustainability has always shaped the corporate agenda. However, the past two decades are characterised by an environmental problems of a new dimension never previously witnessed: climate change. Climate change is a problem of that cannot be locally confined, and is also of a scale that exceeds all previous environmental problems. Therefore international action, policy and regulation is required, which is arguable much harder to achieve, as more people are involved in the decision making process. There are two main outcomes to the problem of climate change for business: 1. International, national and local policies are put in place to avoid dangerous climate change This would mean reducing emission to the required levels and is likely to have a substantial cost to the world economy and the achievement of the emission reduction targets would significantly reduce the sum of all corporate profits in the near term. In the long term however, if Stern and the Hadley Centre researchers are to be believed, achieving the target would lead to sustained growth in the long term. 2. not meeting the challenge This is likely to lead to faster economic growth in the short term, and could have serious long term consequences for the corporate agenda, as far as leading to total economic collapse (Stern, 2006). For the purpose of this essay it is assumed that the challenge will be met. Therefore, due to climate change, sustainability may have a much greater implications for the corporate agenda than previously witnessed, with the following implications: 1. business can play a role in raising awareness on climate change, influencing the public and taking part in policy and regulation formulation to mitigate the problem whilst minimizing harm to business. 2. New opportunities for sustainable and low carbon businesses arise, whilst unsustainable businesses will gradually be phased out. 3. Businesses can choose to follow the sustainable path, or milk unsustainable propositions for as long as possible. Some of those companies who choose to continue with unsustainable business for as long as possible may choose to actively lobby the public to undermine their awareness of the issues (as for example tobacco companies and some oil companies have done in the past). In conclusion, I believe that sustainability will in the next decade reshape the corporate environment drastically, and more so than in the past. The main likely results are: • A growth of businesses which meet the current sustainability challenges, climate change being the major one. • Gradual decrease of business opportunities in less sustainable businesses. • Reduced economic growth in the short term. • An opportunity for business to work with policy maker to find sustainable solutions which also promote growth. There will always be unsustainable business practices, but as people become more aware of their harm, policies are put in place to limit their activities. This is especially the case where the harm is so big that it could threaten our livelihoods, or even human survival, as in the case of climate change. The recent technological development and globalisation, whilst creating a lot of progress, have disturbed the balance of the earth system. The next step change required is to set the right legal framework for globalisation and technology development to go hand in hand with progress on the triple bottom line: for the economy, society and the environment. Are commodity prices inevitably going to rise as a consequence of sustainability issues' This essay discusses how sustainability issues and commodity prices are interconnected. It focuses onto the long-term development of commodity prices, and discusses the past development of commodity prices and from this baseline extrapolates into the future, taking account major issues and sustainability parameters which may change in the future. The essay concludes to say that commodity prices are not an inevitable consequence of sustainability issues, however an intelligent global response to these issues is likely to also have a positive impact upon commodity prices leading to a long term reduction. In order to discuss whether commodity prices will rise as a consequence of sustainability issues we need to distinguish between short term fluctuations in commodity prices and long-term trends. This essay deals primarily with the long term effect of sustainability issues upon commodity prices. However it should be noted that sustainability issues can also have an effect upon commodity prices in the sort term. An example of this could be where a short term rise in a commodity becomes accelerated due to a common belief that this commodity or the use of this commodity will become restraint as a result of resource availability or sustainability laws. This may have been the case for example in the recent oil price rise which may have been accelerated by the peak oil debate. The current long term drivers for change of commodity prices can be divided into two categories: A) those which reduce commodity prices and B) those which increase commodity prices. The answer to the question: “are commodity price inevitably going to rise as a consequence of sustainability issues”, is related to A and B above. If A (the reduction is commodity prices) is greater than B, then sustainability issues will not lead to an overall rise of sustainability issues. If however the opposite it true, then the answer to the above question is yes. In order to investigate where the balance lies we need to have a closer look at some of the current drivers which reduce and increase commodity prices. These are displayed in Table 1 below: Long term drivers which increase commodity prices • Resources such as oil are becoming increasingly scarce, as demand rises • Climate change could lead to an overall loss of agricultural productivity. Long term drivers which reduce commodity prices • Agricultural commodities fall relative to manufactured goods. This is because as income rises agricultural expenditure does not increase to the same proportion as expenditure for manufactured goods. • Increases in food productivity through technology are much greater than population increases • Some climate change may lead to a world increase in food productivity. Table 1 above shows that there are both drivers for increase of commodity prices and drivers for decrease. This essay aims to discuss where the overall balance lies. In order to do so, we will first look at commodity price development in the past and then extrapolate into the future taking into account the foreseeable and likely changes and challenges that the future presents. The focus is on agricultural and fossil fuel commodities which are most likely to be effected by future change. So far commodity prices are characterised by downwards real declines and substantial volatility. This is firstly because productivity increases have generally been faster than demand increases, and secondly because as income rises expenditure for manufactured goods increase relative to agricultural goods. Looking into the future there are two major implications for commodity prices. One is climate change which will mostly affect agricultural commodities as a result of changing rainfall, droughts and other climatic patters. The second major issue effecting commodity prices in the future could be a resource shortage. The major resource here currently penetrating most parts of western life is the burning of fossil fuels, and the scarcest fossil fuel used on a large scale is oil. These two issues will be analysed in more detail in the following two paragraphs. In terms of climate change and agricultural commodity prices, the jury is still out, and research done so far seems insufficient to get an accurate picture (IPPC, 2007). However according to o IPCC (2007) it is likely that below 3 C warming world agricultural produce will increase (though o locally change) and above 3 C it will decline. To put this into context, Stern’s challenging climate change stabilisation target of 55oppm CO2e by 2050 would have a 60% change of raising o global temperature beyond 3 C (Stern, 2006). Based on this I conclude that it is likely that climate change will lead to an increase of agricultural commodity prices. However, this may be compensated or outweighed by an increase in technology and efficiency development. Many GM solution are currently being developed which in themselves could be seen as sustainable propositions (although opinions differ and are very much dependant on the definition of sustainability). These include drought resistant plants, plants that need less pesticides and fertilizers, plants with greater productivity. The scarcity of oil and other fossil fuels has been discussed in the context of peak oil. Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. In terms of looking at commodity prices of oil it is interesting to study it not in the context of when oil runs out, but rather in the context of peak oil, as after peak oil is reached a period of oil price increased is forecasted by the peak oil theorist: Hubbert. Without going into detail on what this price rise may be, it can be said here that it will never be greater than any technological substitute that can offer the same. Therefore whether commodity prices for fossil fuels will rise in the future will strongly depend on the development of their substitutes. Many renewable energy solutions have been and are being developed and commodity prices and an economically and environmentally sustainable future will strongly hinge on their development in the future. Indeed achieving the climate stabilisation target that Stern proposes fossil fuel scarcity may no longer be an issue as a choice would be made to cut down on their use below their availability in order to protect the global climate. In conclusion, future changes will indicate whether or not sustainability and other factor will increase or decrease commodity prices. Major changes identified here are the degree to which we meet the challenge of climate change, and the speed of technological development for agriculture and renewable energy generation. Commodity price rise is not an inevitable consequence of sustainability issues. Taking up opportunities to meet the challenges that sustainability issues present are likely to lead to a long term reduction of commodity prices. An example for such opportunities are: global investment into R&D of renewable energy solutions and sustainable ways to increase agricultural productivity and adapt to a changing climate. References Stern (2006) “The Economics of Climate Change, The Stern Review. IPCC (2007) “Climate Change 2007", the Fourth IPCC Assessment Report.