Inclusive Green Transition: Business models

Climate change is one of the biggest issues of our time and numbers from Eurobarometer confirm this:

• 77% of EU citizens think climate change is a very serious problem
• 58% of EU citizens think the use of renewable energy sources should be accelerated, energy efficiency increased, and the transition to a green economy sped up
• 37% of EU citizens say that they are personally exposed to environmental and climate-related risks and threats

Climate change impacts our lives slowly but consistently. Through changing weather patterns it not only impacts agricultural yields and the frequency of natural disasters, but also the development of urban heat islands among other things.

The cascading effects of climate change have been widely popularized by Wallace-Wells with his book “The Uninhabitable Earth: Life After Warming”. Lawrence, Blackett and Cradock-Henry discuss these effects in their example for New Zealand and describe it in this particular example of the heavy rainfall cascade. The effects described might be very specific but exemplify the chain of events:

More frequent higher-intensity rainfall, compounded by infill housing, increases exposure by overwhelming stormwater systems. This leads to localised flooding; inflow of stormwater to wastewater systems; damage to property, roads, and stormwater networks; public health risks; sedimentation; and potential death and injury. Older low-lying settlements with aging gravity stormwater systems and houses built close to waterways or with floors close to the ground are particularly susceptible. Community intolerance accelerates in response to repeat flooding, disruption, cost of evacuations, and the ineffectiveness of agencies’ responses. Current funding models to navigate local government debt limits and the ability of communities to absorb rates increases become stressed, and homeowners who want to move, face difficulty selling their property and feel stuck. The time lag required to establish new funding arrangements for addressing the ongoing impacts creates general community stress and frustration.

The accompanying illustration shows how domains of life are related to each other. It might not be obvious, but it shows how financing costs are related to climate change-induced shifts of weather patterns.

Mitigation and adaption strategies

Climate change is mainly driven by the emission of Greenhouse Gases (GHG), which include carbon dioxide, methane, nitrous oxide and fluorinated gases. These gases are emitted through the burning of fossil fuel, deforestation or through agricultural practices.

Consequently, one of the main strategies to mitigate climate change is to reduce these emissions. At the same time, these strategies also help to reduce pollution and waste.

There are thousands of potential ways to reduce GHG emissions. It can include the insulation of buildings, less consumption of meat, less waste in the food supply chain, better use of old materials or increased use of bicycles to mention just a few. Overall, there are hundreds of thousands of potential concepts that might help to reduce overall GHG emissions.

The table developed by the Rare’s Center for Behavior & the Environment shows some of the potential solutions. It gives a good impression on what are potential solutions.

Adaptation strategies are focused on increasing the resilience of societies to better cope with the effects of climate change. The discussion of resilient societies is often a bit vague. Documents and strategies always refer to the impact on societies but remain limited in their discussions of what it means.

One key issue is that climate change is a slow-moving process. It might take years or decades to realize that agriculture is not feasible anymore, or that areas do not offer enough income opportunities or insurance rates are restrictively high.

It is also obvious that there is a social dimension of climate change and its effects. It is clear that certain regions face different risks. While food security is more of a topic for emerging countries, health-related issues are a global concern. There are topics such as longer heat periods, increased danger of floods but also problems of forced displacement. Resource scarcity might also lead to conflicts over allocations.

The transition to a low-carbon economy has many challenges and poor households might suffer most from these policies. It is not entirely clear which changes one might expect.

Let us assume that the costs for car ownership and its use continue to increase over time. It has an impact on job availability, social interactions, access to services and infrastructure but also put jobs in the automotive industry at risk. Related topics are rural isolation, energy poverty and fewer economic opportunities, but also a shift in types of jobs.?

On the relationship between social and green

Some concepts require a social business model to be effective. The involvement of volunteers or access to non-market resources might not be possible with a for-profit business model. In some cases, concepts are only able to work when they gain the trust of the stakeholders or include marginalized target groups. Social enterprises are known for their capabilities in this field. Examples can be found in alternative forms of mobility, carbon footprint trackers, regional food production, urban farming or the circular economy.

The second aspect group involves those concepts that combine social and environmental targets. This is sometimes referred to as the “triple bottom line” (Norman and MacDonald 2004) or as a “green collar army” (Vickers and Lyon 2014). Concepts include the circular economy or concepts related to waste recovery or upcycling.

The third group of concepts are those that try to mitigate the impact of climate change on society. Societies need to adapt to changing realities but there is also a need to make sure that any transition to a low-carbon economy is fair and inclusive. Urban heat islands impact society through higher mortality rates, the heat-induced reduction of physical activities with its accompanying health issues and – some even argue – an increased level of conflict. It also impacts insurance rates, income opportunities, migration patterns or life quality through high pollution levels.

The power of social business models

It is obvious that many of the concepts that try to mitigate climate change are purely technological. There is no need for impact-oriented enterprises to be involved in the development of renewable energy technologies or new automotive engines.

Samer Fawzy, Ahmed Osman, John Doran and David Rooney review strategies for the mitigation of climate change. Their bibliometric analysis of the research on climate change mitigation has no mention of anything related to social business models and changes in society. They mostly focus on technological concepts such as bioenergy carbon capture and storage, reforestation, or space-based mirrors.

Take the example of the global food supply chain. Minimizing food loss and wastage could help to reduce emissions quite significantly and some of the solutions are straightforward. Farmers might benefit from better weather prediction data; transport systems can be upgraded and logistics made more efficient.

However, there are also examples that need other business models. Food banks are essential to redistribute food at risk of being disposed of, to those who need it. They are mostly run by social economy organizations due to the trust they enjoy.

Consider the problem of “ugly fruits” which are hard to sell in supermarkets. Ribeiro et al. (2018) discuss the example of Fruta Feia in Portugal. It is basically a concept that markets and distributes aesthetically ‘non-standard’ ugly fruits (“fruta feia” in Portuguese) to consumers.

It is a cooperative where consumers pay an annual fee of €5 and €4 for a box that contains 3 - 4 kg of different fruits. Volunteers help in the distribution process and are rewarded with a weekly box for their efforts. At the moment, they have more than 9,000 customers. They describe their motivation as follows:

The big distributors’ current preference for aesthetically perfect fruit and vegetables has been largely imposed by consumers that go to the supermarket and choose the most "beautiful fruit", rejecting the others.

From the moment that “ugly” fruits and vegetables stopped being a product for the consumer, they also stopped being a product for the supermarkets and distributors. As such, we felt that it was the time for consumers to unite, to say ‘Enough!’, and to get these products back on the market. The consumer’s co-operative model matched Fruta Freia's goal perfectly because, as a non-profit organization, every possible profit is directed to the growth of the project and every member is part of it.

It is rather obvious that such concepts need an approach that we most often find in impact-oriented enterprises. They mobilize non-market resources and are trusted by other partners in the sector.

Vickers & Lyon (2014) have discussed similar concepts in a paper called “Beyond green niches? Growth strategies of environmentally motivated social enterprises”. They argue that some of the enterprises focus on local or regional ethical consumer markets such as food, local transport or renewable energy. They might also emphasize local ownership and control, focus on healthy and sustainable consumption, and deepen the impact through education and collaboration within the community.

They also add that some of these business models might be limited to premium markets and that there remains a need for voluntary input. Interestingly, Vickers & Lyon (2014) add that oppositional and countercultural values might limit the willingness of green enterprises to engage with incumbents in the markets or financial intermediaries.

Collective ownership

Not many energy-generating assets such as wind or solar parks have been organized and financed by the local community. Cooperatives and initiatives have started to set up collective ownership schemes to capture some of the profits for the local community.

In Germany alone, there are more than 900 such energy cooperatives. Energiewerke Sch?nau is one such example. It has its origins in a civil initiative following the nuclear catastrophe in Chernobyl. The cooperative has more than 12,500 members, more than 220,000 clients with annual revenues exceeding €324 million.

Ridesharing and cycling infrastructure

The reduction of the use of cars is something often referred to when it comes to reducing GHG emissions. Paul DeMaio identified in an article published in 2009 the first bike-sharing experiments in Amsterdam in 1965. This early scheme quickly collapsed when bikes were thrown in the canals. Recent technological advances helped current programs to be more sustainable.

This illustration is based on information from 2009 but it shows nicely the different organizational structures and what still works 15 years later.

Social and green enterprises or the Green Collar Army

There are many areas that combine social and environmental targets. Waste recovery or upcycling is one such area. It is labor intensive and can be used in relationship with work integration services. Vickers and Lyon summarize these concepts in a paper published in 2014 as “Green Collar Army”.

The concept of the circular economy makes sense environmentally as it reduces the need for virgin material and energy and helps to reduce waste and emissions. The circular economy can also help to speed up the collection of scrap materials as metal products should be recycled immediately after their lifespan ends. These elements help to reduce costs for waste management and raw materials.

Julian Kirchherr, Denise Reike and Marko Hekkert develop a 9R Framework to better understand the steps towards a full circular economy. The activities involving re-use, repair, refurbishment, remanufacture, repurposing and recycling are rather labor-intensive and often involve what would be considered entry-level jobs.

Repair services

There is quite a range of organizations active in the field of repair services. One can find repair festivals and neighborhood initiatives but also fast-growing enterprises.

The Paris-based company Murfy is one of them, offering repair services for all kinds of household appliances such as dishwashers or washing machines. A repair package costs between €45 and €100 and includes as many visits as necessary. So far, the company has raised €8 million in a series A and an undisclosed amount in a Series B.

Ethical fashion and upcycling

Vienna-based Gabarage is designing upcycled products. It uses tarpaulins to produce bags or old books to produce stools. In the process, persons are employed and coached. This social enterprise is using funds from the European Social Fund (ESF), Vienna City Council, and employment agencies as well as funds from the Austrian Ministry of Labor among others.