With roughly a third of climate change impact coming from industrial systems, rethinking the way we build the world – from factories and industrial processes to business models – could be an efficient way to create a more sustainable future.
Where do you think the world’s most efficient production car is likely to come from? A car that does approximately 100km to a litre of petrol. Germany? Japan? Silicon Valley? In fact, the answer is a start-up in Wales.
The car – which should be on the market in about 18 months – runs on hydrogen via a fuel cell and is a ground-up rethink of what constitutes a passenger road vehicle. Among other things, it has very few moving parts (the motors are in the wheels), is almost entirely recyclable, and is designed to last for close to 20 years. It emits only water and uses a fraction of the energy of a normal car.
It’s not just the car, though. The company that makes it, Riversimple, is no ordinary company. Indeed, part of the reason the car is so different is that it’s built around a completely different business model. For starters, you can’t buy one. Instead, you pay a monthly rental fee (this includes maintenance, depreciation, and fuel too) and give it back when you’re done. It is designed not only to be completely recoverable but also to retain considerable value at the end of its life. This is down to a very green idea that externalities (the costs a normal company pushes out into the wider world) such as air pollution should be internalised.
The company’s governance specifies six sets of stakeholders: investors, the environment, staff, customers, commercial partners, and the community. The idea comes from balancing the rights and responsibilities of running a company. “It’s the future of business,” says founder Hugo Spowers. And lest anyone think that Spowers is a naive green in the world of cars, his background is in motor-racing.
We need to see more businesses like Riversimple. These are not for-purpose companies that often exist to fund charities or accomplish social change. They are businesses that exist to turn a profit for their owners or investors. But, crucially, those behind them believe that the best way to turn a profit in the long run is to completely internalise what is often still thought of as CSR. And these companies may just save the world.
Once you start looking at business in this very holistic way, you realise that doing the right thing opens up all sorts of possibilities, says Steve Evans, Director of Research in Industrial Sustainability at Cambridge University’s Institute for Manufacturing.
Professor Evans recently worked with a jeans manufacturer in Vietnam; the company was using 800 litres of water to make one pair of jeans, while the industry leader would use about half this. One of the tasks was to get water usage down. They managed to get the figure down to one litre per pair – which is essentially from evaporation that takes place in the factory. This, Prof Evans says, gives companies much more flexibility and control over where they produce. “If you’re hardly using any water, you don’t have to locate your factory near a river and there is no longer an incentive for countries to compromise their environmental laws to attract business.”
We are always looking to improve labour productivity but not energy productivity.
Other enormous savings come from thinking holistically about everything you do. “If you take clothing manufacturing, the cost of shipping bras from China is about one cent per bra,” says Prof Evans. This, he explains, is negligible, and while it may not be desirable in environmental terms, economically it looks like a slam dunk. But then you think about it more carefully. Making clothes in China often means you have to order everything a year in advance. And this makes you very slow to react to fashion trends – and even though everyone loves blue T-shirts now, they might love yellow T-shirts in a year’s time. So you’ll have to sell all the blue T-shirts you ordered at a discount – and that loss of income, not the one cent per bra, is the true cost of manufacturing half a world away.
Companies, says Prof Evans, should be constantly thinking about the logic of value exchange, when people pay for services. “We often think in very narrow terms and choose from a known and small list of business models.” And yet we really should think outside the box. “Toyota’s factory in Derby happens to be one of the best in the world in terms of energy efficiency, yet this cost them almost nothing. They reduced energy use by 8 per cent a year over 14 years – which means a 77 per cent reduction.”
It was done mostly via natural system updates – small, continual improvements that cost them a few thousand pounds, plus careful choices when making major upgrades. “We are always looking to improve labour productivity but not energy productivity,” says Evans. “So getting 3 per cent more energy productivity is often very easy, while getting 3 per cent more labour productivity is very hard.”
Prof Evans believes clean green factories will mean other changes too – manufacturing facilities are likely to shrink in size and become hyperlocal. “There are considerable diseconomies of scale but at the moment we don’t calculate them.” Soon you might have a factory at the end of your street that makes goods highly personalised for your neighbourhood. This would mark a return to an almost Victorian model, where factories were built within walking distance of those who worked in them and bought their products. The difference here, though, is that the factory will be quiet and emit almost no pollutants at all. “The water coming out of the factory will be cleaner than the drinking quality water that goes in,” says Prof Evans.
This may seem utopian but it’s the start of rethinking the economy. For instance, if you were a CEO, would you double your profitability if it meant halving your revenues? There is, after all, a good reason for the enduring popularity of the old saying, “Turnover is vanity, profit is sanity, cash is king.” And if you are thinking this way, how do you design a business that is more profitable while delivering what society needs? When sourcing materials for Riversimple, Spowers said at one point, in all seriousness, he suggested to the owner of a mining business that rather than buy his platinum, he leased it.
The ultimate goal, says Prof Evans, must be “an industrial system that treads lightly on the earth”. How long would this take? “We could do it in 20 years.” But the worry is we’ll only do it when the cost of not doing it becomes too obvious and painful – by which time it may well be too late. “We need to do it within 30 years to save the planet.”
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The latest issue of Julius Baer’s ‘Vision’ magazine is dedicated to exploring the many interpretations of the word ‘Green’. From embracing more sustainable ways of living, how to build ‘greener’ economies, and the power of nature in urban environments, to how one billionaire is pursuing his ecological dream and how the gemstone industry is responding to shifting consumer attitudes.
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