Why you should invest 3.5% of your earnings in planet-positive business models

In the transformation to a sustainable society, everyone must take responsibility. Also companies, which is underlined by the court case in which duid became clear that 45% CO2 reduction by 2030 and 100% by 2050 are realistic guidelines to adhere to as an organisation. And that is just CO2 legislation; over nitrogen and other planetary boundaries planetary boundaries the same could just happen: we now have more than 5 out of 9 boundaries. We believe that every organisation would like to get rid of its negative impact. The question is: how do we do that? We believe you should focus on 2 tracks: 1) reduction and 2) developing planet-positive business models. Below, we explain why you should invest 3.5% of your turnover in planet-positive business models.

In the transformation to a sustainable society, everyone must take responsibility.

Can you get to 100% reduction?

If we focus purely on the 'Paris Agreement', 45% reduction of CO2 emissions by 2030 is challenging but not unachievable. By looking at the whole lifecycle of your services, you can make choices everywhere that lead to efficiency, cleaner resources and less waste, among other things. Only, as you can imagine, each choice comes with a different price tag. Each per cent reduction becomes more difficult and requires more investment. If you extend that line to 2050, is 100 per cent reduction feasible?

Looking at reducing the footprint of energy consumption, reducing your consumption often requires "something" (e.g. insulation, smart switches, energy storage, solar panels or heat exchangers). But all these interventions also have their own footprint - purely 'Zero on meter' is not enough.
In terms of waste, it is also a challenge; if you want to reuse, refurbish, repair or recycle 100% of your products (or anything needed to deliver your services), then you also need to control 100% of your products. Certainly a difficult challenge for organisations selling physical products.

In short, reducing negative impacts alone will not get you there. Even pioneers like Interface have experienced this in practice. You have to work on new business models - which are basically planet-positive.

The case for planet-positive business models

In many organisations, negative impact is ingrained in the business model. You quickly see this in product organisations; as a linear chain, they currently have no influence on how their products are treated at the end of their life and that is where negative impact is always created (such as CO2 emissions and pollution). This is why circular business models are quickly being looked at. Only, if Patagonia also shows that this is not a simple reorganisation of your own chain.

Finding a sustainable - planet-positive - business model is at its core similar to what we know as "disruptive innovation": creating new successful business models that recognise the risks of the original business models and succeed in changing the market. This is an uncertain process of trial and error, with only a small proportion of projects becoming successful. But it is the only path to long-term relevance. This similarity to disruptive innovation has the side effect that the Investment - Impact curve runs very differently from that of reduction. It is known from investor insights into innovation (Survival rate, Dave McClure, Dow Jones VentureSource) that if you double your investment, the chances of success more than double. So every extra dollar you put into new business models pays off more than the previous dollar.

3.5% of your income

While reduction is characterised by a quick start, investing in planet-positive business models is a long-term approach. To avoid investing all your resources in the "reduction" track, it is important to determine how much you need to invest in planet-positive business models to transform yourself over time. For an average company, this is 3.5%. By investing 3.5% of your revenue, you will develop a positive planet business in 10 years. There are some caveats to this percentage, though:

We assume that finding a planet-positive business model is as uncertain as "ordinary innovation".
Non-financial value is not included in this model (environmental & social)
By doing valuation at below average, above average and average (a percentile of 25, 50 and 75) of the benchmark, the more extreme industries are not included in the calculation (benchmark for margins & for valuation).
When calculating portfolio size back to investment, we assume a certain level of innovation maturity
This is a long-term investment strategy: the budget must be structurally invested over the next 10 years. A ring-fenced budget and allocation of funds that cannot be cut - even if cuts have to be made.
This percentage is separate from existing R&D; it is really about investing in new business models.

So: 2 tracks and start investing now

To stay relevant in 2050 and be part of a sustainable economy, you not only have to tackle reduction, but also start developing an alternative, planet-positive business model now. Because you never know whether you need 10 or 100 projects to find one. This requires a sustainability strategy that links disruption and sustainability. And, above all, the conviction and determination that responsible business starts now. Paul Polman also knows how to put it well: "Much of today's focus is on becoming 'less bad'. But that's not good enough anymore. Some CEOs go further, they want to be net-zero or sustainable. However, the only viable business models are those that are recovering or 'net-positive'."

Want to know how much your organisation should invest in planet-positive business models? Send pieter.vanderboog@elementalstrategy.com or ferry.vanhalem@elementalstrategy.com a message and we will make the calculation with you.