The Wall Street Journal, 11 September 2006
GLOBAL INNOVATION AWARDS: ESSAY
How to use innovation to create sensible, sustainable consumption
By Kenny Tang, Francis Yeoh and Ruth Yeoh
Traditionally, corporate excellence has been defined in terms of price, product quality, delivery time and profitability. This definition, however, will no longer suffice in the 21st century where the foremost priority will be the quest for sustainability. Excellent companies must not only meet economic rationality but also take into account social and environmental rationality.
A new world order beckons – a world in which energy and resources increasingly dominate our key considerations in business and in foreign policy. Energy supply and security are two critical issues going forward. With oil prices at an all-time high and likely to stay there for the foreseeable future, attention is increasingly focused on alternative energy sources, especially renewables. Energy security has shot up the agenda given the recent problems with gas supplies from Russia and war in the Middle East, not to mention China’s thirst for oil (and resources) bringing China into coalition with unstable regimes in Africa and South America. As for resources, commodity prices such as copper are at or near their record levels, driven by demand from China and elsewhere.
The world at large – cities, communities and villages – are experiencing increasing demands for food, products and services (especially energy) that exceed our capacities and our natural resources to produce. Concurrently, the mounting costs and impacts of air, water and solid waste pollution are adversely affecting local economies, natural environments and public health. Besides energy-resource allocation, the coming decades will also challenge us with uncontrollable reductions in global food production, as well as industrial production.
Voracious appetite for resources
Consider, for example, the developed countries’ voracious appetite and consumption of virgin and synthetic material resources such as timber, minerals, metals, plastics, glass, and concrete – which increasingly depletes our ecosystems’ natural capital and at the same time produces enormous amounts of waste and pollution. The industrialized world comprises only 20% of the world’s population but consumes between 75% and 85% of the world’s aluminium, paper, iron and steel, and timber.
The imperatives of the new world order require us to achieve more with less. Why? Because current patterns of consumption and production in developed countries could not be replicated in developing countries world-wide. Estimates suggest that three planets' worth of resources would be needed to achieve Western levels of consumption across the globe. The largest and fastest-growing pressures on the global environment come from areas such as household energy and water consumption, food consumption, and transport and waste.
In the Western industrialized world, energy is so cheap and incomes are so great that consumers think of buying ever larger homes, more powerful cars, more appliances and gadgets – in fact increasing their energy and resource use without knowing it. Today, in the major developing countries such as Brazil, Russia, India and China, they use far less energy per person. But they also want the cars, the homes, the entertainment systems, the appliances and myriad other features of the energy-rich Western lifestyle. Developing countries already account for 45% of the world’s energy and it is likely to go up to 60% by 2020. Such a situation calls for radical approaches and solutions.
Societally responsible innovation
Meeting today’s and tomorrow’s critical resource and consumption challenges in the new world order depends on innovation. Innovation is central to the well being and progress of any society. We need innovation for medical progress, technological advancement and solving basic needs. However even the sustainable development paradigm’s best hope of averting ecological and environmental disaster through pervasive technological innovation – in effect religiously pushing down the social and environmental impacts of each unit of extra production through incremental improvements in resource efficiency – is becoming untenable and unsustainable in the new world order. The world population explosion of 100 million new citizens every year with its increasing voracious consumption together with the shrinking resource base will see to that.
Technological innovation alone cannot get us out of this current hole – we have to re-engineer our mindsets and re-think a new approach to innovation - societally responsible innovation, or SRI. Such innovation must be societally responsible – it must meet the critical needs of society and its exploding citizens. It needs to move away from the old “use-and-discard” model of innovation. It needs to and instead, move towards sensible and sustainable consumption. A truly societally responsible innovation will have distinctive environmental, social, resource, societal and economic benefits as its core focus.
Links with today’s innovations
What is societally responsible innovation? Is it technological innovation? Yes, but not solely for the sake of it. Is it social innovation? Yes, it could have social impact but not necessarily so. Is it environmentally friendly innovation? Yes, but it is not enough. Is it financially sustainable innovation? Yes, but it is more than that. Is it resource sustainable innovation? Yes, especially one that makes minimum use of natural resources and maximum use of recycled materials as well as maximum use of human innovation and skills. Innovations such as closed-loop production processes with minimal waste and zero emissions, producer responsibility for material flows from purchase through to end of the life of all products, and full recyclability of these products – yes, all this and more!
Five tests of SRI
So, how do you test such an innovation? The first test is: Does it address the wider basic needs of society? Who is the innovation really intended for? For both developed and developing countries?
University of Michigan Professor C.K. Prahalad has studied the bottom of the economic pyramid – which consists of four billion people living on $2 a day. His work has yielded significant impact.
Take, for example, Procter & Gamble Co., which has long focused on selling detergent, toothpaste and beauty products to the world’s wealthiest 200 million customers at the top of the economic pyramid. P&G now devotes about 30% of its $1.9bn in annual research and development spending to low-income markets, a 50% increase from five years ago.
The second test is the impact test on society and the resulting societal wealth creation in the long run. Will it be a long life product? Does it actually help to reduce our consumption of vital resources or is it actually the reverse? For example, innovations in house design and materials that improve energy efficiency and reduce our energy use fit comfortably into this category, while the latest laser printer with a product life cycle of nine months and problems of waste disposal should not.
The third test is the “technology-push-versus-consumer-pull” test. Consumer values play a critical and important role. Companies often assume who their consumers are and what values they hold. But world-famous brands have been stung by boycotts, negative campaigns and bad publicity as a result of misjudging public values.
Is the innovation merely the result of technological advance and then “pushed” to the consumer to meet a perceived need? Are we wasting valuable resources on innovations that consumers do not really need? Or does the innovation meet a genuinely “pull” test from the consumer and end-user? The majority of the world’s population has many basic needs – are these being met? Is there a right balance between technology push and consumer pull?
The first three tests are acceptability tests. The next two deal with the external impacts of the innovation.
The fourth test is whether the innovation is resource sustainable – both inputs and outputs. Use of natural resources has expanded dramatically over the last 50 years. We are probably reaching the natural limits of use of our natural mineral resources, and beyond the natural capacity of our eco-system to sustain our growth and consumption. Is there prudent use of natural resources in the sourcing, production, transportation, packaging, use and disposal? Is there extensive use of recycled resources? Are the key considerations of waste disposal and recyclability taken into account in the initial design?
The fifth test is the short- and long-term impact on the environment. Do the production, transportation, use and ultimate disposal of the innovation have huge environmental impacts in terms of emissions, discharges, waste, etc? When considering an innovation and its initial design, is sufficient thought given to the impact on the environment?
Three companies that pass the above five SRI tests are among the winners in the Journal’s Technology Innovation Awards.
Silver winner, HelioVolt Corp.’s innovation drives significant improvements in solar manufacturing and materials efficiencies. Beyond lower costs, the flexible photovoltaic printing method marks a paradigm shift for solar, enabling a new generation of attractive energy-producing building materials.
Bronze winner, Pfizer Inc.’s innovation is a dry powder formulation of human insulin that is inhaled into the lungs through a hand-held inhaler, which does not require electricity or batteries.
The winner of the Environment category, ETwater Systems LLC, produces a smart landscape irrigation system that combines horticulture science, real-time weather data and Web technology to optimize and automate irrigation so plants get the right amount of water – no more, no less. This virtually eliminates all over watering, thus cutting water use by 20% to 50% and eliminating runoff.
To encourage more societally responsible innovations, YTL Corp. of Malaysia is establishing the Puan Sri Rosaline Yeoh Prize for the most Societally Responsible Innovation, which will be awarded in 2007.
Every threat also represents an inspiring challenge to those who are bold and creative enough to rise up to it. Investment in the future technologies and products and the new energy infrastructure that will shape our increasingly resource-constrained future offers a huge opportunity to entrepreneurs and businesses large and small around the world.
The rise of these societal-preneurs demonstrates that, with the right leadership and incentives, we can harness the talent and skills that exist to find lasting solutions.
Societal-preneurs and their companies that are skilled in responding, identifying, reacting to the imperatives of the coming low-carbon and resource-constrained economy will be in a stronger position to build value and exploit the responsiveness more effectively.
Those truly creative ones will be able to build an innovative culture that constantly helps them to generate sustainable growth as well as act as stewards of our earth in trust for future generations.
Five Tests of Societally Responsible Innovation
1. Does it address the wider needs of society?
2. What is the lasting impact on society and societal well-being?
3. Is there a right balance between technology push and consumer pull?
4. Is it resource sustainable – for both inputs and outputs?
5. What is the long-term impact on the environment in terms of emissions, discharges, and waste in production, transportation, use and disposal?
Dr. Kenny Tang, a member of the panel of judges for The Wall Street Journal's Technology Innovation Awards, is founder CEO of Oxbridge Capital, leading experts in climate change and clean energy. He is the author of “The Finance of Climate Change – A Guide for Governments, Corporations and Investors” (Risk Books) www.riskbooks.com published in September 2005. His next book is “Corporate Strategies for Climate Change and Sustainability” to be published by Middlesex University Press in early 2007. He can be reached at firstname.lastname@example.org. Tan Sri Dr. Francis Yeoh is Group Managing Director of YTL Corp. (www.ytl.com.my) and Ruth Yeoh is Finance Director of YTL Holdings. This article is dedicated to Puan Sri Rosaline Yeoh, who passed away on Aug. 5.
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