As we face more challenges to society than the coronavirus pandemic, Koen Dittrich, Assistant Professor Management of Innovation at Rotterdam School of Management, Erasmus University, examines what we must address…
The world’s politicians, businesses and all of us who make up society at large are currently struggling with COVID-19. But it is important to remember that this isn’t our only struggle. Three hugely important economic and closely interrelated social transition challenges remain. These are climate change, energy transition and the move towards a more circular economy.
The first transition challenge is climate change, exemplified by the 2015 Paris Agreement, in which participants agreed that global warming cannot exceed two degrees Celsius. In 2019, this led to the Climate Act in the Netherlands, which aims to reduce greenhouse gas emissions by 2030. COVID-19 is not unrelated to these challenges. For instance, the fact that the virus is zoonotic — originating in animals — sends a clear warning that we need to treat our world’s natural wildlife with the respect and care that it deserves. In more concrete climate terms, cities across the globe have seen a reduction in CO2 and particulate emissions due to the simple fact that people are working from home. But it is not enough for ordinary people to change. Support must come from the top as well, and Dutch policy has been somewhat dubious in this respect. In the Netherlands, government supports big business, keeping them from bankruptcy and maintaining shareholder value. They focus on preserving economic value, but not so much on social and environmental value. They think in the short-term, and not in terms of big leaps. But what if the government offered tax incentives to large corporations in exchange for reducing their carbon footprint?
Big business needs to step up for energy transition
The second major challenge is a direct extension of climate change — energy transition. Energy demand driven by global consumers is huge. This requires investments from companies and governments to replace fossil fuel energy sources with renewable, sustainable energy sources. Some companies are stepping up. For instance, DSM has moved almost all of their production away from fossil fuels, using mostly bio-based resources. And Unilever’s ‘Sustainable Living’ approach to reducing environmental impact supports eight of the UN’s Sustainable Development Goals. It is also heartening to see an increasing number of companies start to actively choose suppliers based on their measurable ability to reduce CO2 emissions.
Food production and distribution must follow this lead, as they move away from global sourcing and transportation, reduce the effect of livestock on the environment and recycle residual food and waste streams. Poultry producing companies such as Kipster in the Netherlands are already going in this direction, with other companies down the chain, such as Lidl and Efteling, eagerly joining the effort. This proves that business can remain competitive and viable while also protecting our climate.
Here in the Netherlands, we are well-placed to do even more when it comes to wind and solar energy. We have easy access to the sea for large wind parks.
And Rotterdam Zoo has one of the world’s biggest solar rooftop parks. But what about the hundreds of industrial parks scattered across the country without solar panels? Again, this is not a matter of technology, which is improving every day. For instance, we are seeing great leaps in terms of wind and solar energy storage. It’s also not a matter of societal ignorance — an increasing number of consumers are demanding sustainable production for everything from the meat they buy to the houses they live in. Many consumers have become ‘prosumers’, who know how to spot ‘energy transition’ products, and who even offer active support, such as sustainably generating their own electricity. No, the bottleneck is where it usually is — a lack of government support and tax incentives for big business.
A circular economy by 2050
The third challenge is the transition to a circular economy. One of the major objections to this challenge is the misleading idea that ‘circular’ means ‘more expensive’. This is simply not the case — look at the thousands of people saving money through car and bike sharing schemes. In fact, the Dutch government and industry are committed to a 50 per cent reduction in the use of ‘virgin’ materials by 2030, and to completely phasing out their use by 2050. Take the construction industry, for example. Many companies are now using glass, stone and plant-based insulation materials. Replacing concrete with certified wood has become more prominent for low-rise residential homes in Scandinavia. Now, we are beginning to see this change for high-rise buildings as well. And in Rotterdam, one company is constructing a building made completely from second-hand bricks and circular concrete. These approaches can capture CO2 in the building itself, and significantly lower environmental impact.
A new, decentralized and sustainable economy
How can society meet these challenges? First, all actors in society must be involved, and social change must be central to our actions. Second, we need to move away from seeing ‘value’ as purely monetary. Value can also involve the climate and social conditions. Third, we need to stimulate a new batch of disruptive entrepreneurs who understand and can use technology to develop new solutions and sustainable value models.
And fourth, these companies need clear guidelines and tax incentives to encourage scalable and sustainable models that include ecological and social values.
If society continues to take these challenges seriously, we can transition from a central and vertically organized economy to a lateral (peer-to-peer), decentralized and sustainable economy. This new economy will be driven mainly by co-operation and shared ownership, rather than on business-as-usual financial transactions alone. And this is where big corporations need to take the lead. They can’t just write about a ‘commitment to sustainability’ in their annual reports. They need to drive cross-links between areas such as chemicals, agro-food, energy and logistics. And they need to participate in a new economic system that blurs the boundaries between sectors, companies and consumers.
Before the virus struck, high-profile protesters such as Greta Thunberg were already waking the world up to the results of our inaction. Now, COVID-19 is showing us that we can change our behaviours for the better. Now it is up to all of us to maintain these new approaches as we transition into the ‘new normal’.
Koen Dittrich is Assistant Professor Management of Innovation at Rotterdam School of Management, Erasmus University looks at what we must address. His research interests include innovation, co-creation, R&D collaboration, regional clusters and small worlds. Dr Dittrich received one of the Emerald Citation of Excellence awards 2011 for his article on Nokia published in The Journal of Product Innovation Management in 2007. He is also a researcher for the Innovation and Co-Creation Lab at RSM.