Regulate the Primary Industry

The complexity of environmental regulation is growing beyond any kind of common sense. Perhaps the only way forward is government-regulated labelling of primary sector input. Nice move on the banks and the financial reporting, EU – now you need to take a look at the other end of the chain.

Integrate at your own peril

As a consultant, I meet companies in a wide range of industries to discuss sustainability and the impact of a changing business environment. For some types of companies, ?such as our own, which primarily provide mind-work or immaterial services, the game is relatively easy: how do you manage transportation, and what do you serve in the canteen? The rest is normally details.

However, if you are a production company, the complexity of your supply chain and the future life-cycle of your product can be quite significant. And even worse: if your business consolidates products or performance of other companies and adds a service on top, e.g. if you are in construction, run a department store or sell pension products, you are almost per definition in the woods. Why? Because at the bottom of it all is the primary sector providing raw materials that are entangled in each other in a mesh (or a mess) that no single person or company can fully comprehend.

And let us be honest: as consumers, we have low or zero trust in the messaging coming from the poor companies that try to bring the whole thing together. If we truly believed the system worked, most of us would be willing to pay the small additional fees or run the marginal additional risk of choosing the green alternative for our next flight or insurance scheme. Alas, most of us do not.

The CEO of Norwegian, Geir Karlsen, recently accused his customers of lying (bold guy), because 50% of them stated that they wanted greener airline products, yet only 1.8% were willing to pay the marginal fee for offsetting that they offered. I do not think they are lying. On the contrary, I think that they speak their honest intention, but they (rightfully it seems) find the offer from the company to be bogus.

The deeper issue here is that if no one trusts the integrators of services and products to solve the complexity, then nobody moves. If it is impossible to make a credible claim anyway, then why bother even trying?

1,000 flowers may wither

I am not the first one to identify this complexity. Sustainability managers of all stripes struggle with it every day, and I cannot count the digital start-ups and investors who are jumping on this challenge in the hope of becoming THE credible platform to share information about sustainability measures. Right now, it looks like a race that nobody will win unless we build some tracks.

The need for sustainability regulation is far from met. Many of us are beginning to grasp the basics of carbon emissions and how to measure and address them. A few of us are peeking into biodiversity and the complexity that brings. But what about the next issues on the list? How many of us seriously have a clue about our impact on marine life (as evidenced by the recent stark reminder to the Danish farming industry - with no effect)? And what about the circular potential of the raw materials we directly or indirectly consume?

As a consultant, I could be cynical about the whole thing and clap my hands to celebrate the growing complexity. After all, our livelihood is to manage the complexity others face. But really, I am saddened. My honest feeling is that the current direction of letting the financial markets and the invisible hand drive solutions to this complexity will be insufficient in the long run.

Only the most straightforward claims gain traction: Buy this – save energy, add that – avoid a tax. The reality is that most companies struggle to build credible cases, and the motivation ends at “How do we avoid looking horrible?” or “How do we keep up with the others?” Broader claims that address multiple aspects of sustainability or claims about marginal contributions are stillborn, even though both are needed to turn the ship around.

Dramatic innovation is rare, so we should embrace the marginal effort. But “should” is a very weak concept. Do you as a consumer or as a procurement professional seriously appreciate that the packaging is made from 40% recycled material? Or that your supplier has improved their Ecovadis score by 10%? I doubt it.

Go to the source

At the heart of the problem lies the “Material World”. In June this year, Ed Conway released a beautiful account under that title, describing how sand, salt, iron, copper, oil and lithium shape the world we live in – yet are almost invisible to most of us in our daily lives. None of us – as companies and consumers alike – can seriously understand or handle this complexity. But if we do not understand, we are not on our way to solving our problems.

I came out of the box with a liberal mindset, but sometimes you just have to go for collective solutions. I am not yelling “Regulate me!” to curb my evil instincts. What I am proposing is that we look in the toolbox from so-called “regulated industries.”

Consider as an example the medical industry and the approval process they have to go through to put a new product on the market (luckily, countries are looking over each other’s shoulders, or it would be unbearable). Maybe we need a similar approach for all primary production. If we can achieve a single approval and labelling of the raw materials, we can minimise the burden on secondary industries, make meaningful consolidation possible and incentivise reduced consumption. If we do not, we may just keep on adding complexity and stay in the current deadlock forever.

Disclaimer at the end: I know this proposal may seem slightly na?ve, given the global flow of raw materials. However, GDPR has managed to move the privacy needle, so why not give it a try?