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Planetary boundaries as a source of external risk

By Jim Ormond and Jane Fiona Cumming

If one reviews the business strategy of the top companies around the world a recurring theme emerges – developing markets are critical engines of growth. For instance, by 2020 Unilever expects developing markets to account for 70% of total sales, by 2015, Starbucks aim to have 1,500 stores in 70 Chinese cities. The pattern continues if you look at companies from emerging markets (for instance Indian company, Karuturi Global plan to invest in over 1 million hectares of land in Africa)

Whilst these organisations are confident that there will be enough young and affluent consumers in these markets to support this growth, far less consideration has been paid to whether there will be enough natural resources to support these rapid expansions.

For example, whilst a watershed in Northern India may have sufficient water to support 2 million more bottles of soft drink, or 50 new restaurants or 6 new factories – does it have enough water to support all of these in parallel? And what about the increased domestic use of water?

Alternatively, how will the demand for increased rice yields funded by one company (or division) impact the availability of nearby fisheries relied upon by another company for their growth (e.g. given the connections between increase nitrogen use and marine ‘dead-zones’)

At the core of these dilemmas is a lack of “context” to organisational thinking and a failure to consider how one organisation impacts upon wider planetary (or regional) boundaries and thresholds. For instance whilst an organisation may have set a laudable 20% reduction in GHG emissions by 2025 – is this enough? Does this account for future market expansion? What if consumers drink twice as much of your product in 2025, will your organisation really be emitting 25% less GHG emissions?

Previous discussions of environmental limits may have been consigned to a form of reputational-risk. However as we continue to approach (and breach) our planetary boundaries these issues increasingly shift to become business-critical, commercial risks relating to resource scarcity. In short, when your business relies on water to make its products, and there is no water available (and water has to be piped in / or products trucked in), suddenly the issue becomes material to shareholders.

Therefore, just as the U.S. investigation into the Deepwater Horizon oil rig disaster attributed the catastrophe to the inability of individuals to identify the risks they faced, so to does the inability to consider future ecological limits as a commercial risk - represent a looming disaster both to planet and profit.

However, there are emerging methodologies and tools for an organisation to integrate context-based thinking into their business models. Over the next 6 weeks Article 13 will be publishing a series of blogs – informed by our latest practitioner research - which examine how leading organisations are beginning to apply planetary boundaries to organisational level performance – and what this means for your organisation.

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