Chapter 1
Lies about Sustainability Courtesy of the Status Quo
The stone age didn’t end for lack of stones.
—Sheikh Zaki Yamani
In the late third century, the great Greek king Pyrrhus of Epirus, Italy (then part of Greece), defended a small town in southern Italy from an impending invasion by the Romans. Tarantum was small, but mighty, founded by the Spartans. During the period of Greek colonization, it flourished, becoming a cultural, economic, and military power. It was the birthplace of several important philosophers, statesmen, writers, and athletes of the time.
Meanwhile, Pyrrhus was known to be one of the most skilled generals of the time. Pyrrhus defended Tarantum well; however, the victory was accompanied by large military losses. It resulted in not only a significant depletion of Pyrrhus’s troops but also the loss of many of his skilled leaders. According to Greek philosopher and biographer Plutarch, Pyrrhus remarked, “If we are victorious in one more battle with the Romans, we shall be utterly ruined.” And so it came to pass.1
Tarantum rose victorious; however, the forge was so significantly depleted thereafter that the city was unable to withstand further assault from the Romans, and it fell a few years later. Since then, the expression a Pyrrhic victory has come to mean an accomplishment accompanied by such heavy losses that the value of the win is negated by the outcome of the victory itself. In other words, one has waged a duel against oneself.2 Sound familiar?
It’s easy enough to make the argument that the “advances” we have achieved in the last two hundred years represent a Pyrrhic victory for humankind. Our current-day economic activities are in direct conflict with human health and environmental viability. But is it true that technological and economic progress necessitates the destruction of our natural world? Or is that just one of the lies the status quo tells us to preserve itself?
The research certainly proves the status quo wrong.
According to the Yale Climate Connections Initiative, a 4.5-degree rise in global surface temperature (as opposed to a 2.1-degree rise that will be attained if the world meets net zero goals) will cost us $224 billion per year—three-quarters of which will be related to health impacts.3 More than a third of that $224 billion is attributed to an increase in heat-related deaths.4 Furthermore, an MIT study on infrastructural impacts of climate change found that “infrastructure expenditures may rise as much as 25 percent due to climate change alone” by 2090.5 What this tells us is that environmental considerations are truly not a barrier to economic progress—but ignoring them is.
Economists of the future will surely consider our focus on short-term gains at the expense of environmental and social factors and a lack of will to develop new and innovative sustainable solutions as a Pyrrhic victory. In the absence of bold solutions to create economic value along the triple bottom line (financial, environmental, and social), the losses incurred by organizations due to climate-related shocks will be so monumental that they will negate any value obtained from the victory itself.
There is a way of achieving the same high returns and scalability of our ventures without destroying our planet—the source of the resources on which our economic activities rely. We can achieve superior performance, convenience, efficiency, and profitability not in spite of a focus on sustainability but because of it. And if superior performance and profitability in sustainable products are possible, then perhaps the power to achieve global climate-change goals is also within our reach.
We fully believe that business leaders do not have to accept toxic consequences to our loved ones’ health as a by-product of their economic activities. In this chapter, we audit a mosaic of so-called successful firms, industry actions, and products, and suggest more sustainable alternatives in order to prove that green-based solutions can deliver higher performance than their traditional counterparts and perform better on financial metrics over the long term.
Let’s start with the environment’s number one offender: plastics.
Lie 1: We Use Cheap Toxic Materials over Expensive Harmless Ones
No industry sector or product is as polarizing as plastics. According to the Plastics Industry Association, US plastics accounted for an estimated $432 billion in shipments and over nine hundred thousand jobs in 2017.6 In 1996, plastics accounted for approximately $275 billion in shipments, which at the time was a 55 percent increase since 1991.7 The most valuable features of plastics are their versatility and durability. Furthermore, the relative inertness of plastics lends to their being ideal candidates for everything from packaging and containers to drug delivery mechanisms. From a healthcare perspective, it is literally a lifesaving material. Yet the long-term accumulation of plastic polymers in our groundwater and environment is toxic. And the energy-intensive manufacturing process does the earth no favors either.
The plastics manufacturing process requires prolonged heating and cooling phases: heating to create the polymerization, and cooling to maximize the yield. If only the manufacturing process could occur at room temperature and pressure, it would minimize both the use of a significant amount of fossil fuel and the resulting pollution. Another green hurdle is that batch plastics are often created “off-specification.” This results in large volumes of one-use products—and a lot of waste.
What is it really that’s stopping us from introducing “greener” pathways for plastic production without compromising profitability?
After all, catalysts already exist that can reduce the pollution associated with plastic production by speeding up chemical reactions and lowering energy demands. Using them would make the industry not only more environmentally sustainable but also more cost-efficient. Further, real-time monitoring technology is currently available to prevent the production of potentially unviable plastics—less waste meets sustainability and profitability goals! And to reduce the toxicity of plastics on degradation, scientists have already developed a method to produce plastics from sugar and carbon dioxide rather than the carcinogenic benzene and toluene feedstocks that are currently used. Unlike their non-biodegradable counterparts, sugar- and carbon-based plastics break down to their component parts when exposed to the enzymes present in soil and can be combined without the high heat and pressure of traditional
Less-toxic products: check.
Lower-cost production: check.
If the solutions to some of these issues exist, why haven’t they been implemented yet? There are a few reasons for this:
▪ Lack of awareness of what is possible. It is probable that you’ve never heard of green chemistry. Are we correct? While green chemistry solutions have created profitability and significant success stories for most of the world’s leading organizations, the lack of mainstream information on the subject is a likely barrier to systematic implementation. After all, you can’t implement what you don’t know exists . . .
▪ Capital investment strategies typically align with solutions that are based on application-driven digital platforms. While this is certainly an important trend for several reasons, most of the world’s production processes are dependent on material and energy loops. This lack of focus on infrastructure, hardware, and other material and energy-loop considerations has likely limited the mainstreaming of green chemistry and green engineering solutions.
▪ Allocation of research and development. Traditionally, we find that investment dollars are concentrated in a few sectors globally, such as healthcare and the life sciences. By contrast, infrastructure, commodities, and manufacturing in general typically lack sophisticated research and development funding and capabilities.
But what if the plastics breakthrough was just a fluke? Surely there must be more than one industry in which sustainable products and processes are cheaper, demonstrate more profitable margins, and are also better for the environment. There is: cement.
Lie 2: Green Products Cost More for a Poorer Experience
A hallmark of civilization is the durability and flawlessness of its buildings, roads, and walkways. For millennia, cement has literally been the foundation of civilization. In the past century, Portland cement has become the global standard in cement use. If you’ve ever driven on a highway, strolled on a sidewalk, or entered a tall building, you have been on Portland cement. Unfortunately, Portland cement is extremely harmful for the environment.
The cement industry, along with the oil and gas industry, has been identified as a “carbon major” industry, with seven entities producing 13.21 percent of the world’s global annual carbon dioxide-equivalent emissions between 1854 and 2010.8 Cement production alone contributes 8 percent to the total carbon dioxide emissions in the world.9 Yet the material is here to stay. Researchers say it’s the key ingredient for satisfying global housing and modern infrastructure needs.10 In a McKinsey and Company analysis of the cement industry’s impact on the global carbon footprint, the analysts found that “the cement industry alone is responsible for about a quarter of all industry CO2 emissions, and it also generates the most CO2 emissions per dollar of revenue.”11
Perhaps you are starting to see the pattern here, one that we hope to reverse with the Sustainability Scorecard. The world’s commitment to the status quo has allowed far too many unsustainable processes to remain undisrupted for literally centuries—for example, Portland cement; the Haber-Bosch process for the production of ammonia-based fertilizer, which we will discuss later; and the internal combustion engine used by Henry Ford that continues to demonstrate low fuel efficiency. Why? It certainly isn’t because of the unavailability of other, more sustainable options. Such as Ferrock™.
What if instead of emitting carbon dioxide, cement could absorb it? Ferrock, developed and patented by Dr. David Stone in 2014, does exactly this.
As a PhD student at the University of Arizona, Stone was working on an experiment to prevent iron from rusting when he serendipitously stumbled on the discovery of a material that seemed to bubble and froth. He thought the project was a waste, but when he returned the next day, he found that the material had turned into hard stone. He had developed a carbon-negative material that could substitute for Portland cement.
Ferrock presents several advantages over its predecessor. Steel dust (a nonrecyclable by-product of steel production) and silica, which can be collected from landfills, are part of the entirely “green” chemical process used in its production. The cement also has higher compressive strength than Portland cement, better crack resistance, higher tolerance to extreme heat (an important feature in a hotter world), and lower production costs at high scale. The secret of this material may be its proportions of calcium and silicate, which “enhance the strength of the material, reduce material volume and cut the emissions associated with concrete by more than half.”12
To test these claims, four graduate students at the University of Southern California conducted a life-cycle analysis of Ferrock. They concluded that the manufacturing process is much less energy intensive than for Portland cement because it does not require any heat to catalyze the curing process.13 (Conversely, the manufacturing process of Portland cement requires subjecting limestone to 2,800 degrees Fahrenheit.) The end result is a net-negative carbon output and a cement-like product that increases in hardness as it absorbs carbon.
Another material study compared the environmental impacts of ordinary Portland cement and Ferrock focusing especially on factors such as the products’ water use, energy consumption, and contribution to carbon pollution.14 By substituting ordinary Portland cement with Ferrock in varying proportions in concrete, scientists are trying to find the optimum ratio of replacement that yields desired results in terms of both strength (compressive, split tensile, and flexural tested) and sustainability. In all the test results, the addition of Ferrock not only produced a significant increase in strength but also outperformed on sustainability factors.
To test widespread integration of this product as a cement replacement, IronKast, David Stone’s firm, has received grants from the Environmental Protection Agency (EPA) to assist with the Tohono O’odham Community College’s (TOCC) Tribal Eco Ambassador Program.15 The Tohono O’odham nation is a Native American tribe in the Sonora desert in Arizona. The TOCC’s Tribal Eco Ambassador Program is a partnership between the EPA and the American Indian Higher Education Consortium, linking tribal college university professors and students with EPA scientists to solve the environmental problems most important to their communities.16 It has led to the construction of Ferrock building blocks manufactured from local recycled glass and steel for sidewalks and ramps. In fact, the community college’s patio was entirely constructed with Ferrock, utilizing fifty thousand glass bottles and several tons of steel dust that would have been dumped in the community landfill.
But Ferrock is not the only “green” cement that performs better and costs less to produce. Another firm, Solidia, has made early strides with carbon-negative cement by replacing a key ingredient, limestone, with another synthetic. Not only is it cheaper and faster to produce than traditional cement, it is also carbon negative, producing 70 percent less in emissions during its life cycle.17 Interestingly for the cement industry, which is facing increasing pressure from investors and governments to decarbonize, the biggest hurdle to mainstream adoption of these sustainable cements is the threat to traditional cement plants.18 Decommissioning them would eventually render them as distressed assets on financial statements. Distressed assets, in particular, are an outcome that operations and financial professionals are eager to avoid due to the implication that the capital invested in the produced goods cannot be recovered, and will be recorded as a loss on financial statements. Here the challenge of overcoming shut-down economics is the primary barrier to scaling. Innovation that is more efficient and higher performing than existing solutions threatens to shut down the economics of an entire industry. In this case, what is likely to be more practical in terms of a business application are drop-in solutions that can reduce the overall carbon-intensive nature of cement rather than a solution that would outright render existing practices obsolete.
The Status Quo Preserves Itself
Consider some of the twenty-first-century absurdities we live with today—things that individuals fifty to one hundred years from now will look back on and remark with correct judgment as our absurdities and obscenities: toxic preservatives in baby food, fertilizers, and cleaning products; air pollution from unfiltered vehicle emissions; and microplastics, to name a few. These things are so blatantly flawed in thought that it taxes our imagination to see why they are considered acceptable in today’s climate.
Now think about the processes that produce some of the most common products today. Some of the most embedded and seemingly innocuous products are created from toxic processes that have remained undisrupted for decades, and in many cases centuries. Like plastics. Like cement.
Why do we put up with them?
Our status quo bias, our irrational preference for the current state of affairs, our shortsightedness, is affecting our decision-making. It is fostering intellectual inertia, placing a higher value on embedded capital than on short- and long-term investments that could open new markets, capture previously untapped market segments, or even innovate-out competitors.
Every time a new technology, process, or innovation is rejected because it would disrupt the mechanism by which current processes run, that is the status quo preserving itself.
Every time firms forgo the opportunity to integrate innovative ideas that are better for the financial, social, and environmental bottom line in order to preserve the capital in existing supply chains, that is the existing supply chain preserving itself.
The message that we are hearing loud and clear from the status quo is that the only way to replicate the economic growth of yesterday is to keep doing what we’ve always done: employ an operating model wherein resources are considered infinite and passively accept the negative consequences that we are scaling.
And it simply isn’t so. We’ve been duped into believing that success requires harm (in the form of negative environmental or human health externalities) because we are living in a future designed by those before us, who assumed that trade-offs between social, environmental, and financial factors must occur for economic activities to be profitable. They did not consider that exponential growth in economic activity, coupled with an aging and increasing human population, would result in climate-change-related economic shocks. Take economist Milton Friedman.
In his 1962 book Capitalism and Freedom, Friedman expressed the idea that the social responsibility of business is to increase its profits.19 This idea was further socialized by way of his New York Times Magazine article in 1970 in which he wrote that firms that concern themselves with community rather than profit lend themselves to totalitarianism. Lies.
If all we are doing is maximizing shareholder wealth, we will take the shortest route to the end result, even if that end result comprises several negative consequences such as pollution, toxicity, and climate change—but hey, why fix it if it ain’t broke? Well, it’s broken.
At this stage of our economic life cycle, it is clear that addressing environmental and societal issues are key to businesses’ long-term existence, and significant management research and industry success stories exist regarding the curvilinear relationship between environmental and social governance (henceforth referred to as ESG) and financial profitability. ESG is a common term used by investors to indicate a firm’s performance on environmental, social, and governance related factors. Of course, management of the material and energy inputs that create the products and services firms sell to increase their profits is critical to their future operations and financial health. If material and energy resources were to run out, the interconnected supply chains that power our economy would also cease to exist.
Christine Bader, author of The Evolution of a Corporate Idealist: When Girl Meets Oil and Amazon’s director of social responsibility from 2015 to 2017, has a much more comprehensive and truthful view of capitalism than Friedman’s. She envisions a model in which businesses adopt metrics and principles that embed the environment and human rights into how they do business, in which “pro-social behavior is good for companies and society alike.”20
Let’s broaden our view to look at all aspects of the financial benefits—not just profits and expenses but also market share, sources of origination of revenue streams, a full perspective of cost accounting, and so on. As this chapter shows, inherently sustainable products and processes can lead to additional revenue streams, capture new markets or consumers, and decrease customer acquisition costs. These income-related benefits are further bolstered by expense reductions related to waste management and the handling of toxic materials. But these various benefits are realized only when firms and leaders challenge their status quos and invest intellectually in redesigning current systems to integrate meaningful innovation.
Social Responsibility Is Fiduciary Responsibility
It is intellectually more complex and operationally more challenging to design and implement inherently sustainable solutions in established organizations. This is inherently the case because creating circular systems and ensuring that all outputs ultimately either degrade safely or serve as inputs is a process design challenge. So challenging, in fact, that most of our current day processes are linear in nature. However, if you consider the cost of toxic waste management, transport, storage, and disposal and of potential litigation due to worker safety issues, building resilience into existing operations is a cost-saving measure that is well worth our time. Socially and environmentally responsible practices must be perceived as an investment, just as any other investment, to truly compute return on investment when embedded into the products and services core to corporate activity. For example, when supply chain transparency is embedded into the process, forced labor practices and environmentally extractive strategies are innovated out. This ultimately helps us arrive at the true cost of goods sold (rather, the true cost of doing business). In addition, the return on investment along environmental lines could result in regenerative inputs that ultimately decrease the total cost of production and even higher market share due to increased customer uptake (because of aligned business and customer values). Business continuity and the maximizing of shareholder wealth necessitate that material and energy flows remain intact for future economic activity. In other words, social responsibility is fiduciary responsibility and an act that ensures maximizing of shareholder wealth. We cannot survive without it.
In so many other aspects of business, companies that resist transformation become dinosaurs. The same goes for sustainability. Consumers are demanding more environmentally benign and nontoxic products, and leaders can no longer remain blind to the risk of disruption by competitors that can truly do better things—rather than just doing things better.
In the next chapters, we’ll show you how to create successful transformations that will embed sustainability into your corporate strategy and align your firm with the consumer of tomorrow while deftly managing the short-term consequences. That’s where the Sustainability Scorecard and its principles for managing and scaling sustainability come in. This science-backed path forward is the way you make it less organizationally and operationally complicated to move continuously in the direction of increasing sustainability.
