September 3, 2019
Sustainability may be a buzzword to some, but not for Morten C. Lassen, UL’s vice president, North-West European Region.
For Lassen, the term sustainability is indicative of a movement that is changing how companies and consumers approach goods and services. Although Lassen does not consider himself a sustainability expert, he has a comprehensive understanding of its business implications through his 20-plus year career leading globally diversified organizations in a wide range of industries throughout Europe as well as in Japan, Singapore and the U.S. That experience has given him a firsthand view of the dynamics driving today’s global economy, as well as a strong sense of the importance of cultural values in informing individual decisions about sustainability.
Lassen spoke with us from his office in Copenhagen, Denmark, and shared his thoughts on why it’s time for sustainability to become an essential component in the strategic priorities of companies around the world.
Let’s start with the obvious. What does sustainability mean to you?
It’s about the services you provide, the customers you serve, the employees who get the job done and society as a whole. The concept is perfectly captured by the phrase “people, planet and profit,” the so-called triple bottom line that addresses environmental, social and economic performance. I like that definition. Sustainability, as delivered by a business, is ultimately the value to customers, employees and society over time.
How does that relate to the circular economy?
Well, the roots of the circular economy, or circularity as it’s often called, originated with an initial focus on waste, that is, designing out waste to minimize pollution and its impact on our environment. Over time, especially in the 1980s and 1990s, companies started examining other complementary dimensions, such as keeping products and materials in use and working to regenerate natural systems and resources. As a result, circularity is now a global trend.
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Circularity is about effectively leveraging the finite resources on Earth. Today, we use about “1.7 Earths” worth of finite resources every year. Some would argue that the solution is to grow the economy less rapidly or consume less of those resources. However, I agree with those who believe that the solution is about decoupling growth from our use of finite resources. When finite resources are reused in a circular economy, the economy can continue to grow without depleting them.
Were there consumer factors that pushed this approach?
Yes, definitely! Consumers started paying more attention to the societal impacts of the practices used by the companies whose products and services they purchased, including human rights issues, the use of child labor and so on. Recently, that focus has expanded, due in part to the United Nations Sustainable Development Goals (U.N. SDGs), which have increased societal awareness and understanding of sustainability.
We now see sustainability issues impacting government policies, such as the push in some countries for lower taxes on sustainable products. We also see consumers preferring to purchase products from companies that support sustainable values through their practices. Throughout the world, a growing, well-educated middle class is demanding sustainable products as one way to make a positive contribution to society.
And, consumers are also employees. Many choose to work for companies whose practices are having a positive and authentic world impact.
But is “doing good” enough of an incentive for a business to change its approach?
For many companies, probably not. One could argue that relying exclusively on “doing good” is not scalable or sustainable, and large-scale philanthropy is an option only for a select few. On the other hand, a profitable, sustainable business is scalable and can have a much larger global impact.
Some companies may simply choose to embrace sustainable practices because they make good business sense. “Doing good” and “doing good business” are not mutually exclusive. But, in the end, it’s a win-win for everyone when companies introduce products — or new ways of making or delivering products — that benefit the company, consumers and the planet.
What about this idea of buying into a service, not necessarily a product?
It’s a whole new way of thinking about how we consume products. For example, instead of purchasing a new car, you buy a transportation service. Most cars are parked 90% of the time. So, if companies continued to own the cars, they could allocate this asset to multiple users. They just need to ensure that a car is available when and where you need it.
In such a system, the company is incentivized to produce and deploy vehicles that are energy-efficient, long-lasting and recyclable to get the greatest return on their investment. Even though there is still the same amount of driving to be done, the demand can be served with fewer cars, resulting in a positive impact on the environment — not to mention a potential reduction in traffic congestion.
That’s a complete upheaval of the traditional model. Are companies up for that?
The model is already being deployed in many manufacturing operations. Companies provide the factory machinery or equipment and handle all of the maintenance and servicing aspects. Their customers are not buying a piece of equipment but, rather, the function that the equipment provides. And they don’t have to worry about how to maintain it, where the parts come from, or when and how to replace it. The “product as a service” concept has become a very strong model in B2B commerce and is now migrating over to address consumer needs as well.
Let’s talk about lighting. You can now buy bulbs that last more than a decade. How does a company make money if it’s selling something to consumers that will last five times longer than the previous model?
Consumers do not have a need to own a light bulb. They have a need for lighting. And that lighting need is clearly increasing as we learn more about how to improve our indoor environment with special lighting for work, play and sleep. However, the focus should be on how that need for lighting is served. Companies are already purchasing lighting-as-a-service contracts. In such a scenario, the lighting company now has a direct interest in making their products intelligent, for example capturing data about usage/maintenance, ultra-long-lasting and recyclable, and in making sure that your lighting needs are satisfied. The need increases, but the delivery model is completely different.
So, will companies have to educate their customers on this new approach?
Yes, but it’s a different kind of conversation compared to a typical new product introduction. Many people have a genuine interest in buying sustainable products and services, and companies have an opportunity to support those goals through efforts that both improve the ways people use their products and reduce their environmental footprint. So, in that kind of conversation, we must be authentic and transparent.
Consumers are very skeptical about “green-washing,” where companies communicate sustainability claims that are not authentic. For example, a company with a legacy product adds a more sustainable version of that product to its portfolio. The company might claim improvements in the overall performance of the product, but the legacy product remains on the market unchanged. This not only affects consumers but also impacts the many companies that offer technologies and products that offer substantial benefits over others. Fortunately, regulations, testing and reporting about product sustainability characteristics are rapidly evolving to help address this problem.
Where did this current push for sustainability come from?
I think it comes from a number of places. Regulators around the world are developing policies that foster sustainable practices, and consumers are playing their part as well by pushing for products that support sustainability goals. The motivation is also coming from the financial markets, where investors are increasingly putting their money behind companies that embrace the “people, planet, profits” mantra. And, as those companies begin to outperform those that fail to change, their market values will increase, and business leaders will see that sustainable practices can translate into increased shareholder value.
Just to play devil’s advocate, what are some things that would scare a company off from addressing sustainability?
There are several challenges and let me mention two. First, modern sustainability reporting includes not only the environmental impact made by a company but also the environmental impact of raw materials, components and even energy sources (coal/wind/solar) used in the company’s processes. For example, several large global retailers have mentioned that more than 70% of their environmental impact comes from the products they sell. This means they need to get their suppliers (and their suppliers’ suppliers) to conduct business in a new way. That is difficult.
Another challenge is that, in order to be effective, the task of implementing company sustainability efforts can’t be delegated to a committee or addressed as a function of some administrative department. Instead, sustainability has to be integrated into the very core of the business, on a level equal to quality, profitability and design. The best companies in the world have embraced sustainability in all areas of their organization and have adopted a sustainability mindset for every aspect of their business. Value-chain considerations and core business challenges are two good examples of why this is difficult and also why some companies will be able to build a competitive advantage with a sustainability business model.
How will a circular economy impact transportation? Or maybe the better question is: How will transportation affect the circular economy?
The transportation industry is supporting a lot of innovation, such as new fuel, new types of ships, etc., to help drive down the negative environmental impact of industrial transportation. New technologies, such as additive manufacturing, also called 3D printing, will transform where and how we manufacture products and will also have a positive environmental impact. From a circularity perspective, there will be a growing need for the disassembly and reuse of components at different points in the manufacturing process that will increase the demand for transportation. It is going to be an interesting balance between cost and benefit to help keep finite resources in the loop. Here, the transportation industry will be an important stakeholder.
How would a model based on reusing a product — or parts of a product — work?
If I’m a manufacturer, I can examine the sources for the raw materials and components that I use. Maybe I can get that material as a “second-life” component and use it in my “first-life” product. For example, a component in an old hospital scanner may have plenty of second-life usage left for my product. Harvesting and certifying second-life components can help lower costs and significantly improve the environmental footprint of products.
Similarly, I can consider which components from my finished products could be used again in other products. Maybe another manufacturer would be willing to collect these old products in the market, at no cost to me, in order to gain access to the embedded components. If so, I might even consider using a higher-quality component in my product to secure its second-life use.
So, as you can see, it is about thinking about multiple value chains of different products across different industries to support multiple lives. This thought process opens up the possibilities for true circularity of finite/expensive resources. That decoupling of growth from finite resource constraints represents true circularity.
Technology could play a role as well.
That’s right. Think of the new manufacturing methods that will only be improved over time. As we mentioned earlier, additive manufacturing will allow you to make the components you need right where you need them. As more experimentation takes place with resins and other raw materials used in 3D printing, recycled materials may become an important raw material source. And connected industrial products will be able to assess and communicate the “rest-of-life” usage available for various components at the point of decommissioning. Such data may well become the future currency in a circular economy.
How do you think this circular-economy approach impacts employment?
That’s a good question. I can see both negative and positive impacts on some individual businesses and within certain industries. As with most transformations, some jobs will no longer be needed while other new employment opportunities will emerge. Many jobs available today within social media or artificial intelligence did not exist 15 years ago. In a similar way, an intelligent, connected circular economy will help create a variety of new jobs and career opportunities. The challenge will be to support educational efforts that can provide workers with the skills they need for these new jobs.
In the end, business sustainability efforts will create value for shareholders and a new set of opportunities for employees. And, they’ll have a significant positive impact on the global environment.
You work in an optimistic field.
Let’s just say I’m an excited but cautious optimist. UL’s mission is to promote safe, secure and sustainable products to both living and working environments. For a 125-year-old company, this mission is becoming more relevant every day. The sustainability focus is gaining momentum as a true business opportunity and a way for companies to positively differentiate their products to consumers and their companies to prospective employees. In the future, we’ll look back on this era and the convergence of consumer demand, governmental focus, new technologies and new business models as a time when progress on sustainability dramatically shifted into high gear. And, it will be exciting to watch!
This article was originally published in On the Mark, a UL magazine. Marco Buscaglia is the author. You can read more stories about the growing connection between sustainability and business by either downloading the magazine or subscribing to receive the magazine by mail.