Apertura June, 2001 Page 27 www.apertura.com Reprinted with permission from Apertura

ESSAY Natural The most innovative companies have already learned that saving energy and waste is not only an environmental action. It can also be good business.

Capitalism is the productive use of and reinvest- ing them as if all four were alike, leads to trouble. ment in ; yet capital comprises not only Without “” there is no life and there- and goods, but also people and nature, fore no economic activity. Nature provides such which are even more valuable. Economies seek to free “ecosystem services” as nutrient cycling, cli- economize on the scarcest resource. In the first matic stability, atmospheric composition, and bio- industrial revolution, that meant people, and labor logical productivity. The substitutes that are known productivity has been the holy grail ever since. But for only a few of the scores of ecosystem services now what’s scarce is nature, not people. The same are generally impractical—hand-pollinating a logic therefore yields new business models with world without bees, for example, would be tedious. striking competitive and environmental benefits. The $200-billion Biosphere II dome in the Arizona desert demonstrated the limits of human ability to replace natural ecosystem functions: it couldn’t DuPont has proposed, provide adequate and healthful air, water, and food for eight people. Biosphere I, our planet, does that in this decade, to increase its income and more for six billion people every day for free.

6 percent each year Accounting principles don’t let firms liquidate unrecorded assets and book the proceeds as without enlarging its use of energy. income. In the end, nature doesn’t either. Conservative scientific estimates of the economic value of ecosystem services equal the Gross World Industrial capitalism is a temporary aberration, not Product. The correct value will doubtless be long because it is capitalist but because it defies its own debated by those who find internalization incon- logic by liquidating, without valuing, its largest venient. However, even if the correct values for source of capital. It deals only with money and natural capital aren’t yet known and agreed upon, goods, not also with people and nature. Indeed, an economy that doesn’t book the value of such a what are called “labor and environmental prob- large and indispensable input will suffer. For exam- lems” in the globalization debate simply reflect the ple, harvesting a forest’s monetized resource, wood utter absence of people and nature from the concept fiber, can inadvertently liquidate its unmonetized of “capital” used in the ideology of trade. Since but far more valuable ecosystem services, such as money and goods are mobile, and can often be storing water, controlling atmosphere and climate, traded to advantage, while people and nature, being and providing habitat and biodiversity. Degrading rooted respectively in a culture and a biome, are such vital, valuable, and irreplaceable services trig- often damaged by mobility, it is no wonder that gered the Yangtze floods of 1998, which killed ignoring two of the four forms of capital, or treat- 3,700 people, displaced 223 million, inundated 25 million hectares of farmland, and cost $30 billion. than one-tenth as energy-efficient as the laws of BY AMORY China had to implement a logging moratorium and physics permit, and so is even the most energy-effi- LOVINS a $12-billion crash program of reforestation. cient economy. Such gross shortfalls below what’s now feasible are a business opportunity. , Obviously it’s important to take unmonetized natu- physicist and ral capital into account. However, we don’t need to New design practices can often make very large MacArthur Fellow, spend decades arguing about how much it’s worth resource savings cost less than small or no savings. and Hunter Lovins, before we can use it as if it were very valuable. This For example, a Dutch engineer’s redesign of a stan- lawyer and social practice follows the logic not of environmental eco- dard and supposedly optimized industrial pumping scientist, are co-CEOs nomics—which treats nature as a minor external loop recently cut its pumping energy by 92% while of (www.rmi.org), factor of production—but of ecological econom- reducing its capital cost and improving its perform- an independent, ics—which realizes that the environment (in econ- ance. This required no new technologies—only market-oriented omist Herman Daly’s words) is “the envelope that substituting fat, short, straight pipes for skinny, applied research contains, sustains, and provisions the economy.” long, crooked pipes. Similarly, our own house is center working chiefly That is, the economy is a wholly-owned subsidiary comfortable with no conventional heating system, with the private sector. of the environment, not the other way around. even when outdoor temperatures drop below –40°. Their work has been It cost less to build because the heat-trapping meas- recognized by the The first Industrial Revolution made people more ures cost less than the furnace and related equip- “Alternative Nobel”, than 100 times more productive because in the mid- ment that they eliminated. The house’s 99% sav- Onassis, Nissan, and 1700s, the relative scarcity of people was limiting ings in space and water heating and 90% in house- Mitchell Prizes, the progress in exploiting seemingly boundless nature. hold electricity repaid their cost in ten months Happold Medal, and the Heinz, World That logic is perennial, but today the pattern of using 1983 technology; today’s is much better. Technology, Lindbergh, scarcity has reversed: now we have abundant peo- Space heating and cooling equipment have similar- and “Heroes for the ple but scarce nature. The new imperative is thus to ly been eliminated in equally comfortable, cheaper- Planet” Awards. use such resources as energy, water, fiber, minerals, to-build houses up to +46°C and in large buildings Their 27th book, with and topsoil far more productively. This is not in a wide range of climates. Such buildings yield entrepreneur Paul because oil and copper are becoming scarce—pow- better health and labor productivity as a byproduct Hawken (Natural erful extractive technologies keep bringing com- of their superior comfort. Capitalism: Creating modity prices to new lows—but because such huge the Next Industrial gains in resource productivity are highly profitable. Improving typical existing motor and lighting sys- Revolution), was Resource productivity will also reduce the half-tril- tems could save half the world’s electricity with published in 1999 by lion-tonne-a-year global flow of resources from aftertax returns over 100% per year. Similar returns Earthscan (London) and Little Brown (New depletion to pollution. That extraction, transport, are often found in other major industrial energy savings. The Franco-Italian chipmaker York). It is posted, with processing, use, and disposal are compromising the a Harvard Business integrity of ecosystem services worldwide. But the STMicroelectronics, the eighth biggest in the world, has targeted improvements including 76% Review article resulting constraints, which a doubling of the summarizing its energy savings in new microchip fabrication plants human population would render acute, are a prob- business logic, at lem we don’t need to have, and it’s cheaper not to. (with lower capital cost and construction time and www.natcap.org. better performance) as a profitable way to cut CO2 The book is available Our new book Natural Capitalism and its per chip by at least 92%; 98–99% carbon reduc- in four languages May–June 1999 Harvard Business Review précis tions per chip will be profitable soon includ-ing Portuguese (www.natcap.org) describe an alternative that (www.rmi.org/sitepages/pid171.asp). Similarly, and is being translated yields astonishing benefits not only for future gen- DuPont plans in this decade to increase its revenue into seven others, regrettably not yet erations, but also for today’s shareholders. Its oper- 6% a year without increasing its energy use (by including Spanish. ational principles enable businesses to behave as if raising its energy productivity at least 6% a year); they were properly valuing natural capital—and to get a tenth of its energy and a fourth of its raw are highly profitable even today when it’s valued at materials from renewable sources; and to cut its zero. Natural capitalism combines four richly inter- greenhouse gas emissions to 65% below the 1990 laced and mutually reinforcing principles. level—all in the name of shareholder value. Implementing advanced resource productivity Its first step is to use resources 10 to 100 times more faces many barriers, but systematic “barrier-busting” productively. Only 1% of today’s resource flow ( www.rmi.org/images/other/C- actually ends up in durable products. Today’s cars ClimateMSMM.pdf) can turn each obstacle into a use only 1% of their fuel energy to move the driver. business opportunity. And in general, integrative Ordinary light-bulbs turn only 3% of power-plant design that optimizes whole systems for multiple fuel into light. The U.S. economy wastes at least benefits, not isolated components for single bene- $300 billion worth of energy every year: despite fits, can make very large resource savings cost less past savings of about $200 billion a year, it’s less than small or no savings: that is, it can make invest- ment in resource efficiency yield not diminishing of cloth-treating chemicals yielded a more attrac- returns but expanding returns. tive and durable product, but cut its cost, because the process could no longer poison the workers or To illustrate the impressive savings now achievable the neighbors. McDonough says the rethinking in many resources, often simultaneously: ultralight, “took the filters out of the pipes and put them ultralow-drag, hybrid-electric HypercarsSM can where they belong, in the designers’ heads”— provide uncompromised customer attributes and eliminating the pipes and the entire concept of decisive manufacturing advantages while saving waste. Any disused textile can be composted in 82% of their fuel—as much oil as OPEC now sells. your vegetable garden, and, adds McDonough, “If A midsized five-passenger sport-utility concept car you’ve got a fiber deficiency, you can eat it.” One of the keys is to redesign Both this biomimicry and advanced resource produc- tivity are rewarded by natural capitalism’s third ele- ment—a shift of business model from selling goods production on biological lines, to leasing a continuous flow of service that meets customers’ evolving value needs. For example, in with closed loops, Europe and Asia, Schindler leases vertical trans- portation services instead of selling elevators. Dow no waste, and no toxicity. leases dissolving services instead of selling solvents, of this type, developed by a young second-stage and Carrier is starting to lease comfort services company in Colorado (www.hypercar.com), com- instead of selling air-conditioners. This aligns the bines the capacity to haul a half-tonne up a 44% interests of providers and customers, rewarding both grade, sporty handling and acceleration, exception- for the same thing—doing more and better for longer al safety, 2.38 L/100 km, zero emissions, and com- with less. (James Womack notes that it could also petitive production cost. Such vehicles, in all damp out the business cycle by removing the insta- shapes and sizes, could also accelerate a fuel-cell- bility in capital-goods acquisition.) and-hydrogen transition (www.rmi.org/ images/other/HC-StrategyHCTrans.pdf) that can Combining the first three principles of natural capi- put coal and nuclear power plants out of business talism, Interface, a $1.5 billion global firm based in (by plugging in the cars’ fuel cells as generators Atlanta, now gets 27% of its operating profit from when they’re parked), decouple road transport eliminated waste—$165 million so far. Its new from climate and air quality, and cut automotive product, Solenium™, contains nothing toxic, is cer- materials flows by about tenfold. Competition is tified climate-neutral, doesn’t stain or mildew, can rapidly bringing such innovations to the market- be washed with a garden hose, and is five times place (www.rmi.org/sitepages/pid414.asp), in what more durable and 35% less materials-intensive than may become the biggest shift of industrial structure normal carpet (a sevenfold reduction in massflow since microchips. per square meter carpeted per year). This innovation provides a superior floor covering with 80% less Natural capitalism can also materials flow, lower production cost, and superior customer performance. Next, Interface is beginning to lease a floor-covering service rather than selling help to defeat the shortage carpet, so only the worn one-fifth is replaced, not the whole area. This raises the materials saving to jobs and hope, 97%—and soon to 99.9%, because Solenium is designed to be completely remanufacturable into security and satisfaction. identical product with no downcycling (loss of quality). Next will come conversion to renewable The second key principle of natural capitalism is to feedstocks, such as polylactic acid made from corn redesign production on biological lines (www.bio- wastes. That step will sever the link to the oil well mimicry.net), with closed loops, no waste, and no upstream and the landfill downstream, turning both toxicity. This reduces pressure on natural systems, into profits. Next, the corn can be organically grown turns wasted materials into inputs for composting in a way that sustains soil, poor rural communities, or profitable remanufacturing, and often yields and climate (since the farmers can get paid for tak- superior products at lower costs. When Steelcase ing carbon out of the oil and putting it back into asked architect William McDonough and green humus where it belongs). So far, all this is very chemist Dr. Michael Braungart to redesign a tex- good business: Interface is doing well by doing tile, they reported that eliminating the toxic 99.5% good. Just the first four years of its transition to nat- ural capitalism doubled revenue, nearly doubled employment, and tripled operating profit. And achieved through costly, single-purpose megapro- imagine how hard it will be to compete with such a jects. Rather, by integrating hydrology and phys- firm, which uses 97–99.9% less raw material and iography, transport and land-use, nutrient and 90% less capital to deliver a better service at higher waste flows, education and health, participation margin and lower cost...and as a tax-deductible and dignity, Curitiba has built one of the world’s operating lease to the customer. This illustrates the great cities—not through wealth but by design, in a kind of breakthrough competitive advantage that brilliant process led largely by architects and main- early adopters of natural capitalism are achieving. ly by women.

Fourth, prudent capitalists will reinvest their profits Natural capitalism will subsume industrial capital- in the most productive way—in restoring, sustain- ism into its new paradigm much as industrial capi- ing, and expanding the scarcest form of capital, talism subsumed agrarianism. It will reintegrate namely natural capital, so as to yield more durably ecological with economic goals, rewarding choices abundant biotic resources and ecosystem services. and companies that achieve both. The winning Initial benefits are being captured by such industries firms will take their values from their customers, as Collins Pine, which earns doubled margins on their designs from nature, and their discipline from certified-sustainable lumber. Ranchers using bio- the marketplace—everything genetically modified logically inspired grazing techniques increase their crops forgot to do, which is why they’ve failed in herds and the density and diversity of their range, the marketplace. Traditional environmental regula- even in areas with as little as 10 cm of Curitiba has become rain a year. Farmers grow more food one of the most most magnificent with higher profit and lower risk by cities of the world not because of imitating ecosystem behavior rather than its wealth, but as a result of its design. treating soil like dirt. Major companies substitute native prairie for tion will start to become a quaint anachronism, grass lawns and biological wastewater treatment for because the firms that most need it will already be chemical engineering. As more firms model their out of business, having spent too much money production processes on and take their feedstocks making things nobody wants—things that in the from natural systems, more will benefit directly 20th Century we called “wastes and emissions,” from such wise reinvestment in natural capital, and but now know to call “unsaleable production,” fewer will risk suffering the key business constraint because that term makes us focus on: “Why are we of this new century—nature’s falling behind on its making this thing if we can’t sell it? Let’s not make deliveries of ecosystem services. it; let’s design it out!”

Natural capitalism can also help overcome scarci- This shift takes time, but it is already accelerating ties of work and hope, security and satisfaction, by as early adopters gain stunning competitive advan- reversing the interlinked waste of resources, tage, boost short-term profitability, and empower money, and people. Firms that downsize their their people, who quickly zoom out of sight of both unproductive tonnes, liters, and kilowatt-hours can managers and competitors when the contradiction then provide more and better work for more peo- they felt between their work and their family goals ple. Countries that shift taxation from jobs and is suddenly removed. income to depletion and pollution will need less tax revenue to repair the damage to both families and As Edgar Woollard remarked when Chairman of nature. Indeed, by applying to a whole city the DuPont, companies that take such opportunities same integrated design principles and entrepre- seriously will do very well—while those who neurship that natural-capitalist firms apply to their don’t, he added, won’t be a problem, because ulti- production processes and equipment, the Brazilian mately they won’t be around. city of Curitiba has prospered even as its popula- tion quadrupled and tides of poverty lapped around Copyright  2001 Rocky Mountain Institute. it. Treating its formidable economic, social, and Licensed for translation and publication by ecological needs not as competing priorities to be Apertura on condition that RMI can subsequently traded off but as interlinked design elements with redistribute Spanish-language reprints for its non- synergies to be captured has brought greater suc- profit purposes. cess than most North American cities have