Natural Capitalism: Creating the Next Industrial Revolution

By David Reed, Rocky Mountain Institute (RMI),

Before the Industrial Revolution, there were few machines to multiply labor. A worker’s output was essentially fixed, like a horse’s: if you wanted two horsepower, you literally had to have two horses.

Now, of course, we can fit several hundred horses under the hood of a car, and our per-capita output is vastly higher than what our ancestors produced with hand tools and beasts of burden. Which is the main reason material standards of living have risen so dramatically over the past couple of centuries–and why labor productivity remains one of economists’ and industrialists’ chief preoccupations.

But conditions have changed since the start of the Industrial Revolution. Then, natural resources were abundant, people relatively scarce. Now, there’s a surplus of people, while nature is in decline. Saddled with an outdated view of the world, our economic system wastes both resources and people.

The next industrial revolution, like the first one, will be a response to changing patterns of scarcity. It will transform industrial processes and business practices to economize on what is now the limiting factor of production–natural capital. It will create undreamed-of new wealth for its practitioners and for society.

And it’s already under way.

That’s the message of Natural Capitalism: Creating the Next Industrial Revolution, the new book by best-selling author Paul Hawken and RMI co-founders Amory and Hunter Lovins. A groundbreaking blueprint for a new economy, it describes a hopeful future in which business and environmental interests merge, and in which corporations will play a pivotal role in bringing humanity back within its planetary limits.

As If

"Natural capital" refers to the natural resources and ecosystem services–air and water purification, climatic stabilization, waste detoxification, and so on–that make possible all economic activity, and indeed all life. Ecosystem services are of immense economic value; some are literally priceless, since they have no known substitutes. Case in point: in 1991—92, the $200-million Biosphere II project in Arizona was unable to sustain breathable air for eight people. Biosphere I–Earth–performs this task daily at no charge for six billion.

Current business practices essentially assign no value at all to ecosystem services other than the indirect costs imposed by environmental regulations. As a result, "industrial capitalism" defies its own logic. Instead of reinvesting in its largest stock of capital, it’s spending its 3.8-billion-year store of natural capital as if it were income–and at the current burn rate it’ll be largely gone in a century. That’s not a good survival strategy for a company or for its customers.

Maybe someday business will be forced to value natural capital properly, but don’t hold your breath. Fortunately, we don’t have to wait. It’s usually more profitable to do business as if natural capital were properly valued, even when (as now) it’s valued at zero. And thanks to efficient new technologies and techniques, the business opportunities are increasing all the time.

Natural Capitalism offers hundreds of examples of companies that are pioneering the next industrial revolution by availing themselves of these opportunities. They’re improving their bottom lines today and giving themselves a competitive edge for tomorrow. Not only that, their leaders and employees are feeling better about what they do: firing the unproductive tons, gallons, and kilowatt-hours often makes it possible to keep the people, who foster the innovation that drives future success.

The journey to natural capitalism involves four major shifts in business practices. They go together as a package: any one is worth doing on its own, but the greatest benefits come from implementing all four together.

Resource Productivity

Back in the mid-1700s, if anyone had predicted that in 70 years one person could do the work of 200, he would have been laughed out of the pub. In the same way, most of today’s leaders scoff at the idea that a gallon of gasoline or a board-foot of lumber could be used ten or 100 times more productively than it is now.

Yet given finite resources and a growing population, that’s what must happen if we hope to enjoy sustained prosperity while enabling poorer nations to satisfy their aspirations.

As it happens, we’re so darned wasteful now that it shouldn’t be hard to achieve such radical gains in efficiency. Only six percent of the vast flow of materials in the U.S. economy–more than a million pounds per American per year–ends up in products, and much of that is packaging. The efficiency of converting fuel from a power plant into light from a standard bulb is only three percent. And after a century of development, today’s cars use only one percent of their fuel energy to move the driver. The difference between these dubious achievements and what’s possible represents a vast business opportunity worth several trillion dollars a year in the United States alone.

Advanced resource productivity is the no-brainer of natural capitalism. Efficient new products–from lighting to air-handling systems to vehicles–are readily available and constantly improving, the savings are reasonably quantifiable, and almost any business can make stellar returns by investing in efficiency. Moreover, efficiency typically produces collateral benefits such as greater comfort (efficient buildings are less drafty), cleaner air, less noise, and greater employee satisfaction (which, incidentally, can translate into higher productivity). Natural Capitalism is full of examples of profitable advances in resource productivity in the automobile, real estate, timber, manufacturing, agriculture, and water industries.

With resource productivity, no one has to choose between business and the environment: what’s good for one is good for the other. In fact, the massive inefficiencies that are causing environmental degradation almost always cost more than the measures that would reverse them.

Resource efficiency postpones depletion while improving environmental health, buying time for even better techniques. And the money it saves can finance investment in natural capitalism’s other three principles.

Ecological Redesign

The standard industrial model of our age is a linear sequence of "take, make, and waste." Raw materials come from somewhere (enter nature, stage left); products are made; and the wastes from production processes, and soon the products themselves, are somehow disposed of somewhere else (exit waste, stage right). Nature’s capacity to provide materials and absorb wastes isn’t really the concern of this model. Needless to say, it’s processes like this that are eroding our stock of natural capital by depleting resources and replacing them with wastes.

Biological systems, in contrast, operate in closed loops. There’s no waste–every output either is returned harmlessly to the ecosystem as a nutrient, like compost, or becomes an input for another process.

Closed-loop industrial systems would be more common in the United States if government subsidies didn’t reward waste and maintain artificially low prices for virgin materials. In Germany, where most companies are legally responsible for disposing of their products, manufacturers are motivated to design cars and computers for remanufacture, turning waste back into value.

But even without such legislation, the economics of resource productivity are already encouraging industry to shift to biologically inspired production models that don’t just reduce waste but eliminate the very concept of waste. Eco-industrial parks provide venues where one tenant’s "waste" is another’s "food." DuPont is now closing the loop on its $800-million-a-year polyester film business–thanks to a new process of "unzipping" polyester molecules, the company is able to take back used film from its customers and recycle it more cheaply than making new film from virgin materials. Many other companies–from pallet distributors to makers of "disposable" cameras–are finding profitable ways to reuse or recycle their products.

Meanwhile, growing competitive pressures to save resources are inspiring companies to turn away from mechanical systems requiring heavy metals, combustion, and petroleum, and instead emulate nature’s life-temperature, low-pressure, solar-powered assembly techniques, whose products rival anything human-made. We can look forward to the end of the witches’ brew of dangerous substances invented this century, from DDT and PCBs to CFCs and PVCs, that were created to accomplish functions that can now be carried out far more efficiently with biodegradable and naturally occurring compounds.

Service and Flow

Dow Chemical sells industrial solvents, but nowadays it prefers to lease "dissolving services." Dow owns the solvents, loans them to its customers as needed, then recovers them for reprocessing and reuse.

That’s the third principle of natural capitalism: moving from the sale of goods to the delivery of a continuous flow of services. This subtle shift in the producer-consumer relationship can have profound implications. When you’re in the business of selling products, you have an incentive to make them cheaply and persuade consumers to buy lots of them; how long the products last, and how much it costs to operate or dispose of them, are secondary concerns. But when you lease the service that the product provides, suddenly you and your customer are on the same side of the table. You’re both rewarded for accomplishing the service in ever cheaper, more efficient, and more durable ways. Not only that, the producer benefits from reduced risk (no inventory backlogs and surpluses), while the customer gets automatic upgrades without the responsibility of owning and disposing of the product.

Almost by definition, this "service-and-flow" business model is better for the environment because it rewards the producer for reducing, reusing, and recycling. That reinforces natural capitalism’s first two principles–especially when it reveals ways to satisfy the end use while eliminating the product altogether. For example, instead of being paid by the square centimeter of parts degreased, Dow’s German subsidiary can even be compensated for improving a customer’s process to reduce or eliminate the need for solvent in the first place. Air conditioner manufacturer Carrier now offers cooling services, where its specialists work with clients to retrofit their buildings so that they need little or no air conditioning–better service at lower cost.

Invest in Natural Capital

Investment in natural capital is the last, and so far the least implemented, of the four principles. Companies in certain industries–forestry and tourism, for example–have clear incentives to look after their own stocks of natural capital, though even they don’t necessarily do so. And as far as most of the others are concerned, investing in natural capital seems to make no sense because the returns on any investment have to be shared.

That situation may be changing, though. As natural capital becomes scarcer, its price is going up, even if companies and governments don’t actually reflect it on their balance sheets. Certain signals–higher landfill fees, insurance claims from climate-change-related storms, consumer preference for green companies–are influencing business decisions and making investment in natural capital look more sound.

Capital begets more capital; a company that depletes its own capital is eroding the basis of its future prosperity. In time, companies will realize that the forms of capital they’ve been investing in–manufactured and financial capital–are ultimately dependent on the health of natural capital.

A Way Forward

There are many things that can and should be done to protect the environment; Natural Capitalism focuses on the ones that are profitable. It doesn’t preach or bash big business, but instead builds a powerful case for the sheer money-making potential of a more environmentally friendly business model.

That emphasis may not appeal to some environmentalists, concedes co-author Amory Lovins, but he makes no apology for it. "I think profits honorably earned can serve the wider society as well as the shareholders," he says. "We offer a set of operational principles for right livelihood that anyone should be proud to pursue."

But the book taps into more than just rational self-interest. "As we go around talking to business people, we’re finding an increasing number of them don’t want to be part of the problem," notes Hunter Lovins. "Their motivation is not, How do I make the most money in the shortest amount of time, but rather, What legacy can I leave for my children and for the world? And they’re realizing that there is not a contradiction between making money–making a lot of money–and leaving this legacy."

Natural Capitalism resolves this contradiction. Transcending ideology, it offers solutions that every reader–from environmentalists to corporate executives–can agree on. It shows a way forward that seems truly achievable because, as the book’s closing words state, "it is necessary, possible, and practical."

Implementing Sustainable Ethics

by Rev. Dr. David W. Randle

Sustainable Development has been a goal that was highlighted at the Earth Summit in Rio de Janeiro, which I had the privilege of participating in. In simple terms Sustainability describes a world in which natural resources are consumed sparingly and replenished within a lifetime. It is a concept where people attempt to "meet the needs of the present without compromising the ability of future generations to meet their own needs."

Recently the Governor of Oregon stated that he is preparing an executive order to promote sustainability. The United Nations has a Sustainable Development Plan called Agenda 21 to promote sustainable development. The European countries of Sweden and Holland have actually begun to implement some significant sustainability policies.

Despite these positive signs however, the world has a long way to go to achieve a sustainable society. Many claim that the United States has lagged behind the rest of the world in the implementation of sustainable practices particularly in areas such as the protection of bio-diversity, and the mitigation of Global Warming.

In the area of protection of biodiversity, scientists have reported that the recovery of bio-diversity is much more difficult than previously thought. A recent scientific study done by Dr. James W. Kirchner, an earth scientist at the University of California, and Dr. Anne Weil, a paleobiologist at Duke University, concluded that extinct species might now take the planet ten million years to recover. Some scientists have already concluded that humanity has destroyed enough species to require a 10 million year recovery, while other scientists are predicting it will be anywhere from 50 years to a thousand years or more before we reach that point.

But if diversity is what provides the fuel for the recovery from any extinction, as this new study suggests, then in terms of a practical application, Dr. E. O. Wilson, an evolutionary biologist at Harvard University, said the message was clear.

"The bottom line," Dr. Wilson said, "is that we had better take care to hold on to the biodiversity that still exists."

Sustainability is key to preserving bio-diversity.

In the area of climate change, Environmental Defense Fund scientists are now reporting that global temperatures have increased nearly a degree since Earth Day 1970. This new analysis demonstrates the rapid increase in temperature and greenhouse gases that has occurred since 1970. Scientist Dr. Jane Bloomfield says that "changes of this speed exceed any inferred for the past millennium, underscoring the fragility of our planet and the threat posed to our future by unchecked global warming." Dr. Bloomfield then goes on to say that "responsible and affordable actions must be taken now to conserve energy, cut greenhouse gas pollution and redeem the promise of the first Earth Day."

The report describes some of the key global warming indicators found over the last 30 years:

* Since 1970, global annual temperature has risen nearly 1°F. The rate of warming has been 0.36°F per decade since 1976.

* Total energy consumption in the US has increased almost 40% since 1970. Most of the energy is from burning fossil fuels, which releases greenhouse gas pollution that warms the atmosphere. Energy consumption in the US makes up nearly 1/4 of the total energy consumed in the world today.

* US population has increased 34% since 1970, from 205 million to 275 million while per capita energy consumption has risen slightly.

* Nearly half of the total increase in atmospheric concentrations of the greenhouse gas carbon dioxide since pre-industrial times has occurred since 1970. Concentrations of carbon dioxide have grown from 325 parts per million in 1970 to 367 parts per million in the year 1998 compared to pre-industrial levels of about 285 parts per million.

Again the climate change we are experiencing is directly related to our inability to develop wide spread sustainability on the planet particularly in North America. Admitting these larger global issues Envision Utah has recently identified some key values that are needed for the implementation of a sustainable ethic.

These include the need to:

Enhance air quality

Increase mobility and transportation choices

Preserve critical lands, including agricultural, sensitive and strategic open lands, and address the interaction between these lands and developed areas

Conserve and maintain availability of water resources

Provide housing opportunities for a range of family and income types

Maximize efficiency in public and infrastructure investments to promote the other goals

Thanks to the increasing scientific evidence of the dangers of the world's non-sustainable practices and the work of groups of like Envision Utah it is becoming clearer as what outcomes need to occur. What is not as clear is a process that will nurture the ethical will to help to break the strong norms of the dominant non-sustainable culture. In my twenty years of consulting in systematic cultural change processes I have learned that while a shared vision is a key starting point, it is by itself not enough.

Along with the shared vision is also a need to build a sense of community around that vision and to find strategic interventions to reinforce a positive culture for the shared vision that is to be achieved. This often involves a new ethic that is able to transcend the usual hurdles of apathy, skepticism, and blame placing that so fills the culture of our day.

Psychologist Rollo May stated it this way " Many of us are losing our ability to care about anyone or anything because we feel overwhelmed. We have a feeling of powerlessness -- our lives seem to be managed by impersonal and uncontrollable forces. Many are finding that the goals they seek are without meaning."

When you add to this the economics of the world, the threat of nuclear war, issues of violence and our children, and a political process that seems unresponsive to the desires and needs of the people they represent, many ask, "what hope do we have?"

It seems that the development of a new ethic, that places the greater wellbeing of our community as well as the future of our children as a higher priority, will have to overcome three key obstacles. They include:

the false belief that somehow no matter what negative things we do to ourselves, that somehow some new technology will save us;

the belief that society is already doomed and therefore we should not attempt to do anything;

the greed of individuals, politicians, and corporations that are willing to sacrifice the future for their own personal short term gain.

While it is true that there are many pessimistic trends to be concerned with, we must remember that trends do not make destiny. We can say "NO!" And while it may take millions of years for biological recovery, cultures can change quite rapidly particularly when a systematic effort is made to implement new ethics of a particular culture and with new leadership to guide this change effort.

In addition to our collective ethics that we need to implement we need to take personal responsibility for the ethical choices that we make and their consequences on the planet.

We can no longer continue to drive large cars with internal combustion engines if we truly want clean air. We can no longer justify our tremendous waste of the world's mineral and energy resources that literally means misery and death for other human beings. We can no longer pretend that we have no limits to growth as our precious water resources, the lifeblood of Mother Earth, continue to diminish. We can no longer pretend that increasing incomes are the sole measure of the quality of our lives while our open space continues to dwindle and along with it the very biodiversity of the planet which strengthens the chance for long term survival of our very species for the future.

There are a number of positive things that we can begin to do. Some of these include:

Begin to cut down on our energy consumption through efficiency such as simple things like using compact fluorescent light bulbs, increasing our use of public transportation, walking, and bicycling, and making our homes and office more energy efficient.

Begin eating lower on the food chain, maybe just once a week to begin with and then increasing this practice while at the same time attempting to consume food more locally grown.

Utilize community recycling programs.

Reduce our consumption of water through water conservation devices, our choice of landscaping, and the type of development we choose for our communities.

Support the preservation of more open space, development of parks and recreation programs, and the preservation of wild lands.

Create a lifestyle for yourself of voluntary simplicity.
There are also some signs of cautious hope. Some examples include:

Many young people have grown up since the first Earth Day of thirty years ago with a much stronger environmental ethic than either their parents or grandparents and are now of voting age.

Many faith communities are challenging their members to ask the question "What is true wealth?" and encouraging simpler lifestyles with more attention to quality relationships than quality goods, and for caring for God’s creation at least as much as they care for the Dow Jones average.

The growing political awareness that we must elect leaders with an environmental ethic who will tell the people the truth -- that we can’t have everything, that we are in serious trouble particularly as it relates to the longer term future of our children, and that we have to make some tough choices.

Our present ecological crisis is a result of our ethics and attitudes that we have developed toward Creation or the Biosphere, toward technology, toward money, and toward one another. These are all outcomes of the ethics we have allowed to shape our culture by.

We have the opportunity to rethink and to reshape these values and in some cases make drastic shifts in our cultural norms. In the process of forming new partnerships of cooperation we may not only begin to move toward sustainable development practices, we may in the process grow in our own personal and spiritual development as well.

The bad choices that led to the current ecological crisis are forcing the questions of life’s meaning, of who we are, what we want out of life, what is our purpose in life, and what do we want to really contribute to life.

This process of both personal and spiritual development, that will be necessary for true sustainable development, may be our greatest reward of all.