By Vincent Neate, Head of KPMG’s UK Climate Change & Sustainability practice
A colleague recently had dinner with a client who described the issues of growing consumerism and materials scarcity as being like two planes speeding towards each other. Neither can be stopped in midair but it may be possible to divert their courses.
Looking around, it certainly seems possible that some businesses are changing the direction of materials usage. However, few seem to be tackling the challenges of growing consumerism. Why would they when GDP, our primary measure of living standards, is a measure of consumption and so key to our sense of economic success? Personally, I think we have to tackle it.
Almost no amount of efficient production can offset the impact of two billion new consumers and studies are revealing that consumerism only improves wellbeing up to a point. It may even decrease happiness as a society becomes ever more materialistic. I always love it when pseudo-science catches up with what my Granny used to say.
What’s the issue?
We’re all familiar with the drivers for increasing consumption. A growing middle class and increasing wealth in developing countries are driving a huge demand for resources like food (particularly meat) and consumer goods like cars, electronics and clothing.
This represents a fantastic improvement in living standards and progress towards some of the Millennium Development Goals is hugely welcome. It is however putting pressure on already depleted natural resources (the WWF’s One Planet report puts this very clearly). This increased demand is not offset by reduced consumption in the Western economies. Whilst you might think we already have everything we need this doesn’t stop us wanting more. Consumer goods companies may say western markets are stagnant, but 500 million replacement mobiles do not miraculously reuse the precious resources that went into the billion we bought two years ago.
To put it in another way, sales growth in, e.g. China, may be offset by financial correction in Europe, but from a resource perspective, no such rebalancing occurs. This, in turn, has a knock on effect on the supply chain, transport and service sectors which consume more resources to support the consumer goods businesses.
The challenge for society is that increased consumption is exacerbating megaforces like climate change, water scarcity and resource depletion. We are merrily flying along in this aeroplane called Prosperity forgetting that, without radical new efficiency, increasing material scarcity and increasing consumption within a finite supply create a major challenge. Significant innovation, investment and new business models are urgently needed to divert the course of this ‘plane’. The great news is that we are at least starting to see the emerging shoots of this through resource efficiency and research programmes.
The other plane though is a different matter. I think that very few businesses to date have seized the opportunity presented to them by helping actually reduce consumption. Most see reduced consumption as a byword for reduced sales (aka corporate suicide). However, there are business models that actually deliver performance through reduced consumerism including more predictable revenue streams, improved brand, reduced risk and better customer engagement.
How businesses create success
At the most basic level, some businesses have reduced sales but increased profit margins by moving to a price premium product, often making the product last longer. Others have created success by moving from the sale of goods to a service based model. Many of us are familiar with the latter model without necessarily even realising our consumption is being reduced. Rental models where purchasers pay for a product over time or on a per-use basis now appear in sectors as diverse as transportation, carpeting, media and clothing. These can provide a regular revenue stream and a relatively captive market.
The goods producer is incentivised to produce longer lasting, upgradeable and recyclable products where the initial capital outlay is offset by a longer lifespan. For the user, they can potentially move costs from capital expenditures (capex) to operating expenditures (opex) reducing gearing. This can also help provide access to those in lower income brackets access goods and services without resorting to expensive financing arrangements through third party lenders.
Addressing the challenge of material scarcity is a vital component of many challenges facing society. It helps manage supply chain risk, controls business interruption, reduces long term cost and promotes innovation through exploration of new materials. But addressing reducing consumption as well will require even more creativity and innovation and, perhaps a mindset shift to measure success as a product of less.