Sustainability And Economic Development

What Does “Sustainability” Have To Do With Your Economic Development Strategy? John Cleveland Innovation Network for Communities

Learning Objectives Define “Sustainability” and its multiple dimensions. Map the possible connections between sustainability and economic development. Describe the range of strategies you can consider integrating into your economic development plan. Share some “lessons learned” from over a decade of work in Grand Rapids.

Summary of Key Points “ Sustainability” is a very broad concept and needs a precise definition in order for it to be a useful element of your strategy. A sustainability strategy is not appropriate for every economic development organization – it requires a certain level of resources and expertise in order to be effective. There are two main approaches you can take: Supporting and/or leading community sustainability initiatives Supporting the development of sustainable business practices and enterprises Recent surges in energy prices and resource scarcity driven by the emerging economies of India and China are increasing awareness of sustainable business strategies – this is likely to be a core competitive differentiator going forward. A genuine sustainability strategy takes a long time to develop and implement, and needs to approached with patience. There are, however, a wide variety of strategies to start from, and no “right way” to begin.

The Multiple Dimensions of “Sustainability”

Defining “Sustainability” Sustainability is an “umbrella” concept that encompasses a wide range of behaviors and strategies. As a result, it means many things to many people. There are two basic definitions of sustainability in most contexts: As a broad descriptor of prosperity goals related to an integrated approach between the economy; ecology; and community – improving each domain without diminishing the other. More specifically, as improvements in “environmental performance” of social and economic systems (resources consumed; waste produced). This is what is typically referred to as “environmental sustainability.” Because it is so broad a concept, you need a precise definition to work with in your local strategy in order to be effective. “ You need to differentiate before you can integrate.”

A Simple Definition of Environmental Sustainability “ Sustainable development is living on nature’s income rather than its capital.” Bjorn Stigson, President, World Business Council for Sustainable Development “ At the heart of the current crisis in economic theory and practice is the fact that we are consuming the earth’s resources beyond its sustainable capacities of renewal, thus running down that capacity over time; that is, we are consuming natural capital while calling it income.” (Herman Daly, Beyond Growth )

Other Definitions of Sustainability “ ...meeting the needs of the present without compromising the ability of future generations to meet their needs.” -Bruntland Commission “ Leave the world better than you found it, take no more than you need, try not to harm life or the environment, make amends if you do.” Paul Hawken, Co-author, Natural Capitalism

Four Dimensions (“Layers”) of Communities

Broad Community Sustainability Goals By Layer Layer Systems Sustainability Goals NATURAL Flora, fauna, water sheds, air, minerals and other natural resources. Protecting, preserving and restoring the adaptive capacity of bio-regional systems. BUILT Water supply, waste systems, transportation grid, information highways, building codes, zoning systems. Designing built environments that reduce consumption of natural resources. ECONOMIC Firms, markets, economies, currency, labor markets, technology. Supporting ways for people to create wealth without harming natural systems or human beings. SOCIAL Governance, media, neighborhood organizations, informal associations, politics, government, education, social services, art, religion, health care, etc. Creating opportunities and capacity for citizens to participate in the shaping of their future; and creating educational, health, human services, spiritual, artistic and other systems to support human growth and renewal.

Sustainability and Business Enterprises

Sustainability and Business Enterprises Since the core focus of economic development is on business retention, attraction and development, it is important that economic developers understand sustainability from the business point of view. The easiest way to think about business sustainability is to look at businesses from the viewpoint of “integrated capital formation.” The different kinds of “capital” business develop define the dimensions of sustainability from their point of view. The practice field of “green” commerce or “sustainable business” typically focuses on improving the impact of businesses on natural capital.

An Integrated Approach to Capital Formation CAPITAL WHAT SUCCESS LOOKS LIKE Financial Capital The enterprise creates sufficient economic value added to: Generate competitive rates of return for its investors Pay above-average compensation to its employees that exceeds “livable wage” standards Human Capital The enterprise nurtures the intellectual, physical, psychological and spiritual growth of its employees in ways that: Result in higher rates of innovation and intellectual property creation Minimize unwanted employee turnover Encourage entrepreneurial spin-offs Inspire a sense of contribution to the greater good Social Capital The enterprise contributes to the economic, social and environmental well-being of the communities that it is located in, and deliberately structures its core business processes to contribute to the growth of social equity. Natural Capital The enterprise radically reduces consumption of minerals, biological products, energy and water in an effort to eventually become part of a “closed loop” ecology. Long-term, the enterprise contributes to the “re-weaving” of the natural ecology that has already been destroyed (restoration).

An Integrated Approach to Capital Formation Financial Natural Social Core Process: Customer value creation. Embodied in: Money, physical assets, “good will.” Core Process: Building trust and reciprocity. Embodied in: Social relationships and social institutions. Core Process: Learning and personal development. Embodied in: Physical, mental, emotional, spiritual capabilities; and intellectual property. Core Process: Water, mineral, energy and biotic cycles. Embodied in: Natural system resilience and productivity; raw material inputs. Human The Focus of “Sustainable Commerce” is Here

Typical Business Practices For Each Capital FINANCIAL HUMAN SOCIAL NATURAL Strategic planning Balance scorecards Rapid product development Lean enterprise systems Continuous improvement and Kaizen Quality systems (ISO 9000) Workplace organization and visual controls (5S) Supply chain management E-Business Activity-Based Costing Economic Value Added Organizational learning networks Continuous learning and development Innovation and creativity in the workplace Livable wages with full benefits Family-friendly workplaces Opportunities for employee ownership and asset accumulation Employee health and wellness Entrepreneurial incubators Autonomous teams and decentralized decision-making School to career links Community service Financial investments and contributions to community institutions Facility location to support community development Hiring of low income or disadvantaged populations Support for minority and women-owned suppliers Support of minority ownership Procurement from local suppliers Neighborhood improvement Closed loop production Design for Environment Green building design for facilities Green supply chain development ISO 14000 certification Reduced and returnable packaging Reduced fuel use Customer education about sustainable practices Selling solutions rather than products Participation in community sustainability initiatives

A Focus on the Natural Capital Aspect of Businesses (aka “Sustainable Commerce”)

Market Drivers for Sustainable Commerce External Drivers Consumer preferences OEM requirements Regulatory requirements Development of new markets Internal Drivers Leadership values Employee values Waste reduction & cost saving opportunities Innovation opportunities

Environmental Performance With the undisputed (at least in the scientific world) emergence of global warming that is altering climate patterns around the globe, and the continued rapid depletion of many natural resources stocks (especially fresh water), there are increasing pressures on the business sector to improve their environmental performance. While the U.S. has been slow to respond to these trends compared to our developed trading partners (e.g. Canada, Japan, and Europe) the effect is already being seen in our manufacturing markets. Consumer acceptance of “green” products is high and manufacturers are responding by implementing strategies to “green” their supply bases. “ Companies that ignore climate change will be lower on the learning curve; innovations developed in other markets may disrupt their markets and they will be forced to play a game of technological catch up. Perhaps more importantly, they will lack the management know-how and familiarity with energy and climate change issues to operate effectively in a carbon-constrained world.” (The Conference Board)

Firm Environmental Performance The environmental performance of firms can be looked at from at least three different useful dimensions: Environmental impacts The facet of the natural ecology that is being affected (what ISO 14000 refers to as “environmental impacts”) Environmental aspects The dimension of the company’s operations that can have an impact on the environment (what ISO 14000 refers to as “environmental aspects”) Improvement goals The generic strategies that can be deployed to reduce environmental aspects and impacts.

Environmental Impacts This dimension of environmental performance refers to the aspect of natural capital that company activities are most likely to affect. The four main categories are linked to the four primary natural cycles that sustain us. Cycle Description Energy Energy cycles represent the pathways through which energy is captured, stored, and used. There are three different energy “pathways” – energy “income” which is reflected in direct solar absorption, biomass storage, wind, and hydro power; energy “savings” which is our store of fossil fuels; and energy “inheritance” which is our store of nuclear and geothermal energy. Mineral These are the cycles of minerals from underground to above ground and back to the earth. In natural systems, this occurs through plants and the soil, which makes minerals available for use by living species. Mining and other human cycles accelerate and disrupt these cycles. Water Waste moves through a continuous cycle of evaporation, precipitation, percolation and infiltration. Disruptions to the natural water cycles affect its quality, quantity and timing. Animal and plant populations Plant and animal ecologies depend on energy, mineral and water cycles. When we disturb these cycles, we affect both individual species and entire eco-systems.

Environmental Aspects (Company Systems) Environmental Management Environmental policy Continuous improvement Pollution prevention EMS Product Design Sustainability mandate Environmental impact score Life-cycle thinking Facilities Energy conservation Water conservation Indoor air quality Construction materials Landscaping Biological diversity Purchasing Whole cost accounting Supplier sustainability guidelines Green supplier development Operations Process redesign Pollution prevention Standard operating procedures Waste reduction tracking Hazardous/toxic materials Packaging Green packaging guidelines Supplier waste reduction Minimum recycled content Returnable packaging Transportation Energy use Greenhouse emissions Waste reduction Sales and Marketing Measure customers green demands Promotion of sustainability Education of customers Use of green literature SUSTAINABLE BUSINESS PRACTICES Source: West Michigan Sustainable Business Forum

Improvement Goals Goal Strategic Focus Reducing the intensity of material or energy use This strategy focuses on simply using less of whatever is already being used to produce a product or service. It is important to look at this both at the level of the individual user, and at the aggregate level. So, for instance, we can have more fuel efficient cars that use less gas per mile, but experience an increase in miles driven that effectively negates any aggregate energy savings. This strategy encompasses activities focused on increasing the “yield” levels in manufacturing, and reducing the level of waste produced in the process. It also encompasses strategies designed to replace materials with services. Increasing use of renewable material and energy sources Changing the sourcing mix – switching from fossil fuels to wind energy, for instance; or substituting bio-based materials for petroleum-based polymers. Increasing the level of material reuse Increasing the use of recycled materials as inputs, and increasing the recyclability of both products and waste streams Extend service and function Increasing the length of service of a product, so that it needs to be replaced less frequently. Reduce health and pollution risks Reducing the toxicity intensity of both materials and practices. Restoration Restoring the ecological productivity of damaged ecosystems

Some Principles to Guide Improvement The Natural Step Scientific Principles “ Mother Nature’s Quality Requirements” 1. Substances from the earth’s crust must not systematically increase in nature. 2. Substances produced by society must not systematically increase in nature. 3. The physical basis for productivity and diversity of nature must not be systematically deteriorated. 4. The use of resources must be efficient and just with respect to meeting human needs. Eco-efficiency vs. sustainability. Improvements strategies that reduce the impact of businesses on natural systems are referred to as “eco-efficiency” strategies. These are to be differentiated from “sustainability” strategies, which eliminate impacts (total closed loop) or reverse impacts (restoration). Principles of “Natural Capitalism ” Dramatically increase the productivity of our resource use. Shift to biologically-inspired production models. Move to a solutions-based (vs. product-based) business model. Reinvest in natural capital. (Source: Natural Capitalism)

Summary of Environmental Performance Strategies Product Design Operations Facilities Transportation Etc. ENV. IMPACT GOALS Environmental Aspect (Co. Systems) Environmental Impact Improvement Goals Energy Impact Mineral Cycle Impact Water Cycle Impact Plant & Animal Population Impact Reduce Use Intensity Increase Renewable Resources Increase Degree of Reuse Extend Service & Function Reduce Health and Pollution Risk Restore ecosystems

Business Strategy Map for Environmental Sustainability Environmental Performance Outcomes Reduced intensity of material or energy use. Increased use of renewable materials & energy sources. Increased level of material reuse. Extended service & function. Reduced health & pollution risks. Restoration of ecosystem resilience. Business Outcomes Cost reduction. Product innovation. Consumer acceptance. Reduced liability. External Drivers Consumer preferences OEM requirements Regulatory requirements New markets Internal Drivers Leadership values Employee values Waste reduction opportunities Innovation opportunities Innovation Opportunities Policy and management systems Product design Facilities Purchasing Operations Packaging Transportation & Logistics Sales and Marketing

Sustainability and Business Innovation

Core Hypotheses Innovation is the key to future competitiveness in manufacturing. The “sustainability revolution” (i.e. demand and opportunity for improved environmental performance in products and process) present a large opportunity for innovation. One of the largest opportunities for manufacturing is in the use of bio-based materials and processes.

Sustainability As An Innovation Opportunity “ We believe that the integration of sustainability thinking into a business’s innovation processes – not as a negative or limiting factor in the creative process, but as an opportunity – is in its best business interests. Companies whose products and services receive quick acceptance from society and also create solutions to environmental or societal problems will benefit. In the long run, such companies will be the ones that succeed.” (World Business Council for Sustainable Development, Innovation, Technology, Sustainability & Society , 2004)

Integrating Sustainability and Innovation Be clear on the values of your company – when will you give precedence to a sustainability opportunity despite other less sustainable options with greater commercial potential? Understand the market opportunities – be clear about the market drivers related to consumer demand; regulatory requirements; OEM demands and efficiency opportunities. Understand the technology drivers – become expert in the emerging technologies that reduce resource consumption while increasing market competitiveness.

Sustainability At Each Stage of Product Development 1. Opportunity Identification 2. Opportunity Selection 3. Development & Testing 4. Production & Launch Look for consumer, OEM, regulatory and other drivers that favor sustainable solutions. Build Voice of the Customer networks in the “cultural creative” class. Track emerging technology opportunities. Integrate sustainability screens into opportunity selection processes. Build business cases for sustainable solutions. Develop clear engineering & performance metrics related to sustainability. Use Design for Environment. Use Design for Disassembly. Integrate resource efficiency into process design. Integrate sustainability in marketing and customer feedback. Product lifecycle management planning. PRODUCT DEVELOPMENT PROCESS

Product Life-Cycle Management (PLM) 1. Opportunity Identification 2. Opportunity Selection 3. Development & Testing 4. Production & Launch Product Lifecycle Management Traditional PLM Concerns Ongoing profitability management Pricing over the product life Development of enhancements and derivatives Market positioning & branding over time Product service and maintenance management Product obsolescence Input into new product planning The Product Lifecycle Sustainability Concerns Product recycling Energy intensity of use Environmental impacts of use Health impacts of use Community impacts of use Impact of disposal

The Auto Market Example “ The ultimate goal of producing cars and trucks that emit nothing more harmful than water vapor and use up no finite resource is not only achievable, but will in fact occur because society demands it, consumers say they want it, and competition is advancing to the point that no auto manufacturer can afford to be left behind.” Ashok Goyal, Director of Product Development, Ford Motor Company (Industry Week, “Green Machines”, Feb. 2005)

Some Auto Greening Technologies Production & Recycling Use of clean power for manufacturing – even at cost premium Initiatives for end of life vehicle recycling – now being considered at design phase Packaging for transit – more responsible decisions and use of materials Low emission paint operations – eliminate VOCs, solvent-free waterborne paint system Material Usage Use of plastics for weight reduction Use of lighter weight high-strength and advanced high-strength steels Use of plant fibers for reinforcement in thermoplastics Increased usage of recycled content Initiatives to reduce use of toxic materials like lead, mercury, hexavalent chrome, etc. Driving Technologies Intelligent transportation systems (ITS) to make driving more efficient (quicker routes, avoid congestion, reduce emissions) By-wire technologies like electro mechanical brakes, power-assisted steering Powertrain Solutions Development of various classes of low emission vehicles (LEVs) Research on fuel cells Hybrid electric vehicles Alternative fuels (ethanol, compressed natural gas etc.) Continuously variable transmissions On board refueling vapor recovery systems Oil life monitoring systems Regenerative braking Displacement on demand

Sustainable Economic Development Strategies

You Can Focus At Many Different Levels of the Economy Level Focus Community Advance and support community sustainability initiatives. Develop a sustainable business cluster in a region (Michael Porter’s cluster strategy) Sector Examples would include manufacturing (or sub-sectors, such as automotive, metal forming, plastics, raw materials, leather processing, plating, etc.), farming, forestry, real estate development, tourism, health services, etc. Sector strategies are designed around the idea that companies in a sector will have common environmental issues, and that a higher scale of impact can be accomplished by working through existing sector-based infrastructure (such as trade associations, professional associations, etc.). Supply Chain This approach focuses on the supply chain within an industry. An example would be the EPA Green Supplier Network, which in Michigan is focusing its work on the automotive and furniture supply chains. Individual Company Many initiatives are focused on the individual company, and supporting either general improvements in their environmental performance, or improvements linked to a specific environmental impact or aspect. Specific Environmental Aspect or Impact Some strategies are focused on specific environmental “value streams” – e.g. water, toxic chemicals, energy use, etc., whether at the company, supply chain or sector level.

Some Typical Community Sustainability Strategies Layer Sustainability Goals Typical Strategies NATURAL Protecting, preserving and restoring the adaptive capacity of bio-regional systems. Green Infrastructure and Open Space initiatives Eco-system restoration BUILT Designing built environments that reduce consumption of natural resources. Smart Growth Initiatives (see following slides) Green Building Design “ Greening the Campus” Initiatives ECONOMIC Supporting ways for people to create wealth without harming natural systems or human beings. Developing and Attracting Sustainable Commerce SOCIAL Creating opportunities and capacity for citizens to participate in the shaping of their future; and creating educational, health, human services, spiritual, artistic and other systems to support human growth and renewal. Community sustainability indicators Citizen involvement (Citizen Scientists; Citizen Planners) Local Education and Awareness Broad-Level Community Involvement Community Capacity-Building & Leadership Development

The “Smart Growth” Formula To achieve these positive outcomes… Community Design 2. Increase density in urban and village centers. 3. Encourage compact, walkable neighborhoods. 4. Mix land uses. 5. Develop vibrant urban centers and downtowns. 6. Increase housing choices. 7. Preserve critical cultural and historical assets Green Infrastructure 1. Protect open spaces. Gray Infrastructure 8. Direct development to existing communities. Transportation 9. Provide a variety of transportation choices. Government 10. Support cross-jurisdictional and cross-agency planning that effectively involves stakeholders. SOCIAL EQUITY Strong community and neighborhood identity Socially and economically diverse communities High quality school districts The opportunity to live, work, shop and play in close proximity to each other Reduced concentrations of poverty and racial segregation Seniors, youth and low-income families have public transportation access to jobs, education, culture and shopping ECONOMIC VITALITY Economically vibrant urban centers and villages Fiscally sound local governments Efficient use of infrastructure Viable land-based industries Attraction of entrepreneurial talent ENVIRONMENTAL SUSTAINABILITY Reduced air and water pollution Preservation of ecosystem resilience bio-diversity Preservation of open space Less traffic and congestion Follow these principles…

Typical Smart Growth Principles 2. Increase density in urban and village centers. In order to accommodate growth and protect open spaces, we need higher levels of density in our development centers. This density also contributes to the social and economic vitality of these areas. 6. Increase housing choices. A diversity of housing types and prices improves community diversity and access, and allows more families to live in proximity to where they work. 1. Protect open spaces. Open spaces (“green infrastructure”) provide multiple benefits to communities, including protection of ecosystems and habitat; recreational opportunities; aesthetic value; viability of land-based industries; and watershed protection. 8. Direct development to existing communities. Efficient use of our infrastructure requires that we maximize the value of what we have already invested in to reduce redundancy and duplication. 3. Encourage compact, walkable neighborhoods. Compact, walkable neighborhoods contribute to our sense of community and reduce our need for automobiles. 10. Support cross-jurisdictional and cross-agency planning that effectively involves stakeholders. Many issues cross existing political jurisdictions and can benefit from collaborative planning across communities and across agencies. Ultimately, successful planning requires that all community stakeholders have input into the process. 7. Preserve critical cultural and historical assets. People like to live in place that have a strong “sense of place.” This requires preserving those assets that make a place special and reflect its history. 5. Develop vibrant urban centers and downtowns. Urban centers and downtowns make living in more dense areas an attractive option. And they attract the creative and entrepreneurial talent that fuels our business growth of the future. 9. Provide a variety of transportation choices. Safe and reliable public transportation, sidewalks and bike paths increase mobility while reducing dependence on the automobile, reducing cost to consumers, pollution, energy consumption, congestion and infrastructure costs. 4. Mix land uses. Increasing density and encouraging compact neighborhoods is supported by close proximity of residential, commercial and retail uses..

Strategies to Support Sustainable Commerce Strategy Description Invest Invest, either directly or indirectly (i.e. through equity or debt funds) in the growth of existing companies or the creation of new ones that demonstrate superior environmental performance (e.g. “green gazelles”). Subsidize Underwrite some cost of doing business (e.g. tax abatements; tax credits; equipment purchase; land and utilities; etc.) that help companies improve environmental performance. Regulate Change regulatory incentives and penalties to encourage environmental performance. Create New Inputs Through R&D and other investments, create new products, materials, or intellectual property that can improve firm environmental performance (e.g. university research institutes for alternative materials).

Strategies to Support Sustainable Commerce (cont’d) Strategy Description Create Demand Be a customer for products or services that exhibit improved environmental performance (e.g. buy green buildings; purchase green power); aggregate demand among many customers to make the sale more feasible. Advise and Consult Provide consulting services to companies (such as MMTC’s “lean and green” services; or the Green Supplier Network assessments) Inform Provide market research; tool kits; and other information materials. Create indicators of environmental performance for firms and sectors. Educate Develop curricula (credentialed and non-credentialed) and educational programs to provide the knowledge and skills that companies need to improve environmental performance. Network Create relationships between players that would not happen in the normal course of their business.

Summary of Lessons Learned Sustainability and improved environmental performance will become increasingly important competitive factor for businesses and communities. Knowledge workers who are mobile increasingly make decisions about where to live based on “quality of life” factors linked to sustainable communities. Much of what comes under the “sustainability” umbrella, communities are already doing. It takes a long time and some deep knowledge immersion to effectively integrate the deeper dimensions of sustainability into your economic development strategy. Sustainability strategies can only be done through broad collaboration with multiple organizations. It is never too late to start!

The INC Mission is to develop and spread scalable innovations that transform the performance of community systems. www.in4c.net Pete Plastrik 231-448-3169 [email_address] John Cleveland 616-240-9751 [email_address]

Sustainability And Economic Development

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