Faced with an economy still struggling to make ends meet, the European Union's take on sustainability relies heavily on fundamental industry make-over for signs of economic recovery.

European policy has a long, detailed record of policy measures to support discussion on required standards to be applied by the business sector, mostly focused on resource efficiency (RE). The ultimate goal in supporting RE implementation is to boost productivity, namely to reduce input use (energy, water, materials) for a given level of economic output, which would encase the issue of environmental sustainability on the economic growth agenda once and for all. So far, Europe’s policy-makers seem to be testing ground for the hypothesis that businesses fall short of tapping into great RE potential, which some studies refer to as having an overall savings potential of billions of Euros for European industry [1].

EUROPE 2020 STRATEGY AT WORK

The Europe 2020 Strategy may be seen as the main pillar in policy-making supporting Europe’s shift towards a sustainable economy, as the to-do-list of resource efficiency and along with it, of competitiveness in the global arena. At the time of its adoption in 2011, the EU attempted to put forward measures of green economy development against the background of financial turmoil and insecurity in the business sector. Through its 2020 flagships, policy-makers are putting a stamp on criteria for competitiveness; taking the example of the RE flagship, business ought to increase their use of renewable energy, reduce greenhouse gas emissions, enhance resource efficiency and promote innovation. This comes as no surprise given the fact that Europe is the largest importer of raw material and non-renewable energy.

The latest policy developments in this area suggest an increased focus on sustainability as the driver for innovation in the European region, as shown by the 7th Environment Action Program (January 2014) which clearly lists RE management as a priority objective. Being challenged as it is by other regional players in relation to manufacturing and extraction volumes, Europe’s winning card could be its favorable climate towards innovation - due to its tradition in research & development and in ensuring well-educated labor. Complementing its roadmap to resource efficiency – which basically maps Europe’s challenges in its effort to decouple growth from extensive resource use – the European Commission has announced its drafting of a communication on Circular Economy, due before summer 2014. The goal is not to replace the concept of RE with a more sophisticated one, but rather to highlight a transformative growth model, which would radically change both producer and consumer patterns by eliminating waste. The continual flow of resources in the production cycle, as opposed to the current economic models in use, would require tremendous innovation efforts to re-do the value-chain systems so as to accommodate a no-waste principle.

SUSTAINABILITY-DRIVEN INNOVATIONS

RE improvement can be compared to a first-tier change of the business operations, e.g. replacing the old equipment to save more energy or finding an innovative way to use less water, less materials, landfill less waste etc. These are incremental changes most experts would call “picking the low-hanging fruit” because, as the idiom implies, there is little work required doing it, investments are relatively low-cost and return on investment (ROI) is achieved on a short-time basis.

The circular economy model of business, however, is a different matter altogether: it builds-up on the first-tier changes in the company but implies a complete make-over. Not only will the business change its operations, but it will change its whole methodology and its whole processes in order to come up with something novel, assessing its suppliers, employees and even the entire organization to accommodate this make-over. Arguing for the business case here involves a long-term perspective on ROI, but success stories in this area have one thing in common: the ambition to take measures in the present to position the business as an industry leader in the future.

…SO WHERE'S THE HONEY?

The European Commission is a busy bee as ever, surveying small and medium-sized enterprises (SMEs) around Europe, checking for policy impact on companies’ strategy towards RE or issuing policy on corporate reporting requirements, while at the same time dealing with the intricate job of harmonizing or at least attempting to harmonize its initiatives/roadmaps/action plans etc. for the sake of cohesiveness.

So far, a recent survey published in March this year has put forward a curious finding: 175 respondents to a study done in the SMEs sector in Europe have reported lack of information/knowledge in implementing RE measures, despite the fact that, according to the experts who authored the study, up to 50% of a company’s cost comes from using resources such as water, energy and materials. Since RE measures are meant to lower these expenditures, the reported findings are puzzling! It seems the majority of European SMEs fall short of being proactive in a matter that affects their revenues, not to mention their environmental footprint.

It seems the majority of European SMEs fall short of being proactive in a matter that affects their revenues, not to mention their environmental footprint.

Academia could contribute to the understanding of this conundrum we seem to be in: researchers have long debated the merits of policy in driving business innovations as a response to social and environmental challenges, yet policy can become a double-edged sword. Policy-making is not an easy game; it is about calibrating economic and political interests, which is challenging enough. On the one hand, too much policy focus on environmental sustainability measures would hinder business operations through additional costs, costs that might prove economically unsustainable, and would undoubtedly attract unwanted lobbyism against these measures. On top of that, it is no easy task to quantify the economic benefits acquired in the process of implementing RE measures. However, as this study reveals, the information asymmetry reported here is costing the European industry 630 billion EUR each year [3]. No wonder policy-makers would like these costs turned into savings, but how to avoid regulation becoming too strict?

On the other hand, too little focus will send mixed signals to the market, giving the impression that the sustainability agenda has not been promoted to the grown-ups table (aka CFO and CEOs), which is a common view even in environmentally conscious business cultures such as Denmark’s. A case in point here is the latest decision on corporate reporting (Feb. 2014), where listed companies in Europe with over 500 in staff (app. 5000 in Europe) are obliged to report specifically on, among others, environmental issues. Corporations need to abide the rule of disclosing their due diligence policies (mechanisms to identify, prevent, mitigate and account for negative impact) and their reporting will have to include supply chain issues. Critics [4], however, are pointing out the loopholes limiting the effects of this reform, as corporations may exempt themselves from disclosing sensitive information and the choice of reporting standards and indicators seems too flexible, making it difficult to use a benchmark. And of course, there are no sanction mechanisms in place.

As usual, one could say these regulation attempts are better than nothing, but I say that at the rate things are getting done, 2020 is a non-realistic target to say the least. The Commission will need to dust-off its strategy of pushing things onto the governance agenda if Europe is to become a competitive economic force in due time. The changes needed are of a systemic nature, and even if the business sector is at the heart of our economic recovery, turning the European economy into a circular one takes a multi-stakeholder approach. Consumers and civil society need to be equally engaged to support such an industry make-over. Also, powerful forces such as market demand, supply chain value, competitiveness are unexploited in this matter.

THE BIG QUESTIONS REMAIN...

So, is policy, soft policy that is, the right driver to push the European industry to change its ways? The answer I would give is that hard policy is not the right driver either, as it would never get that far. Talking money in a crisis climate though could do the trick, and this is probably why the Ellen MacArthur Foundation’s project on Circular Economy seems to be the only model embraced by all stakeholders in this discussion – because it talks about concrete economic targets.

One major aspect not to be overlooked is the fact that, as Worldwatch Europe's living economy report pointed out last summer, it is as much about changing the way businesses impact the social and environmental aspects of our society as it is about changing their mentality about making money. Sustainability doesn’t really work as an add-on to what they’re already doing, and quite soon policies will be put in place to remind them of this.

Last but not least, another factor slowing down the process is the unnecessary emphasis on denominations used within the issue of sustainability measures: sustainability is as much the producers’ responsibility as it is the consumers’ when they spend their money, and until the consumer case story will advance to the front page of this issue, the pace at which things improve will be up to industries and policy-makers.

It’s about time more people contribute to decision-making. So what is your take on this?


[1] Greennovate! Europe (2012) "Guide to resource efficiency in manufacturing: Experiences from improving resource efficiency in manufacturing companies". EuropeINNOVA cited in “Report on the results of the public consultation on the Green Action Plan for SMEs”, March 18th 2014.
[2] Porter, M.E., (1991) America’s Green Strategy, Scientific American 264.4:96
[3] Wagner, Marcus Sustainability-related innovation and the Porter hypothesis in Tukker et al. (2008) System Innovation for Sustainability, Greenleaf Publishing UK
[4] European Coalition for Corporate Justice, Media briefing 26-02-2014