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Harry Verhaar: We must adopt this new economic model

Date
25 July 2012
Harry Verhaar: We must adopt this new economic model

Harry Verhaar, Senior Director Energy and Climate Change, Philips Lighting, reflects on Rio+20 and the Road to Sustainable Development.

Fifty thousand people gathered in Rio last month to voice their commitment to sustainable development. Although probably none of them came to Rio to step on the brakes (on the contrary), it was most unfortunate that the latest Earth Summit revealed that heads of state are still struggling to commit to comprehensive, substantive agreements for common interest.

The 283-page document that resulted from the summit is full of good intentions, yet it demands no concrete action. Sub-national governments (cities, states, and regions), corporate leaders, and civil society organizations are therefore taking the initiative in developing programs and systems geared toward achieving tangible results.

For instance, The Climate Group and Philips agreed to collaborate on an LED street lighting standard that will help 'States and Regions' to not only save energy, but also provide social benefits such as safety and comfort to their citizens.

In addition, over 46 developing countries expressed their commitment in UNEP’s en.lighten PPP (that includes Philips as one of the partners) to phase out inefficient lighting.

The point of mentioning these examples, is that although ideally we would prefer complementary, explicit top-down agreements on policies, standards, and enforcement at the nation-state level, with bottom-up sub-national and corporate initiatives, the latter are not waiting around for heads of state to make those agreements.

Sub-national governments together with pro-active companies are leading the Clean Revolution.

Innovation 

This action and innovation is vital in confronting the significant challenges the world is facing: population growth and population aging, rising healthcare costs, unprecedented urbanization, the expanding middle class in emerging economies, and serious resource constraints. Addressing these challenges demands the pursuit and adoption of both social and ecological innovation as well as clean, smart, people-focused solutions.

Is this disguised socialism or new capitalism? Or is it a paradigm shift to a new economic model altogether, one that we may one day in general come to refer to as sustainalism?

On the social innovation side, there is a pressing need to reform our healthcare systems. Demographic shifts (aging societies), the rise of chronic and lifestyle-related diseases, and scarcity of medical personnel are putting healthcare systems worldwide under pressure. Innovation throughout the care cycle contributes to healthcare systems that are accessible, affordable and more sustainable.

On the ecological innovation side, it is necessary to address the resource constraints the world is facing. A shift from our current linear society, which is optimized toward lowest initial cost (progress measured ‘linearly’ by GDP), to a ‘circular society’ (progress measured by resource efficiency, value creation, and quality of life) is a key area of innovation. In a circular society, new business models are applied and the innovative (re-)use of resources becomes a company’s competitive edge.

Green budgeting

Transforming our business models will include altering the way we think about budgeting. The current quarterly and annual budgeting and reporting system rewards linear behavior and is based on short-term objectives. We need transparent budgeting procedures that account for long-term investment and returns in value creation. Capital expenditure may be higher in the short-term, but operating expenditure will be lower and the payoffs higher if we invest now in sustainable products, systems, energy and in our people.

For example, efficient lighting solutions will save €128 billion per year, with a return on investment period of four to five years. (A switch from incandescent bulbs results in a return on investment within a few months.) However, we need a way to account for long-term solutions that will be understood by investors, shareholders, and the public.

We can already see corporate commitment to these principles in Unilever’s Sustainable Living Plan and Philips’ EcoVision Program, for example.

Sustainable choices may indeed require greater initial effort, but these companies are showing that such solutions are not more expensive in the long-term. On the contrary. These investments are part of a transformation from a price -> value and from selling -> service mentality. For instance, Philips is moving away from the linear notion of the price of a light bulb to the circular vision of the value of lighting solutions (in schools, cities, etc.), and from selling lighting hardware to selling lighting as a performance-based service.

Conclusion

Rio+20 highlighted the commitment to sustainability by sub-national governments, pro-active corporate leaders, and civil society organizations. Consumers are already rewarding businesses for conscious, pro-active, ethical, and sustainable corporate behavior. Now governments worldwide need to take action by implementing policies – and enforcing those policies -- that demand and reward such behavior across the board.

We observed in Rio that innovative technology to respond to pressing global matters abounds; we now need bold, innovative government action.

We don’t have until Rio+40 to get the job done, nor do we need it.

The public is ready. The road to sustainable development is being paved, but we need everyone driving down the same path to reap all the benefits, based on this new circular value based economic model of sustainalism.

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