Despite much hype the sustainability movement globally is painfully slow. Daniel Lopez Dias, CEO and Founder of Route2, in a freewheeling chat with Benedict Paramanand, Editor of SustainabilityNext, reflects on various issues, concepts and trends that are dominating these days.
Daniel did a PhD in Ecological Economics, which involved advising President Obama’s Climate Action Plan. In California he worked on Enterprise Resource Planning (ERP) software where he got a patent for integrating business processes with environmental considerations. He taught business sustainability – the construction of Carbon Efficient Stock Indices – at the Tel Aviv University.
Can you explain a bit more about Route2, what do you do?
Route2 collaborates with businesses, investors, and governments to quantify their Value2Society. We forge the links between business performance and sustainability, by quantifying societal impacts through our Value2Society™ Accounting Software. We also offer strategic advisory.
I set up Route2 to do its very best to shift the global economy. We have an aspirational goal, to introduce new signals to economy that direct capital to sustainable outcomes.
Once companies effectively integrate sustainability considerations into decision making, to navigate business risks and build resilience into business strategy, then long term change can take place.
What are the key trends these days?
We are still early in this movement to understand the financial implications of ESG or sustainability performance – for example, what does gender inequality, or a ton of CO2 mean – both in terms of cost to society and cost to business. Companies are still grappling with how to integrate sustainability into the day-to-day running of business, and the trend is, for the majority, to be reactive. It is imperative that the trend changes to a more strategic approach.
So, what phase are we in, in this? One a scale of one to ten?
I would say three.
I’ve been working in this space for about 25 years. The pace of change is very, very slow. The recent report issued by the UN on the progress of the UN SDGs noted that we are failing miserably. Only 12% of the 169 targets are going in the right direction. So, when you think about that, you would argue that countries like the UK, Europe, and North America are obviously not doing enough.
Do you think it is easier for countries like India which do not have these legacy problems to leapfrog in this area?
I’d love to think that is true. I do not know India as well as other countries, but my impression is that there are some fundamentals that are still being worked upon, but I think from a business perspective, once those are stabilized, yes, why not? Why not reach for, or aspire to, something that is an improvement to what is happening in Europe? I think it is a great aspiration to have, and certainly there is the ingenuity amongst the population to do it.
What are the three reasons for the slow pace of change?
Firstly, there is still the primary goal of private profit. That is the core purpose of business and although you are hearing terms like ‘purposeful business’ it is still very much a label. So there needs to be the primacy of a societal profit. Only this approach can accelerate change.
Secondly, you must put the data systems in place that will allow you to manage your business to drive the non-financials, as well as the financials. This is slowly beginning to take shape, but it is still slow.
And then, thirdly, we have a landscape of haphazard policies that do not give business and the investment community the right signals to make the right investments (to deliver sustainable outcomes). Yet, if you ask me, I blame the government least. I think businesses, particularly in Europe, need to take the initiative and stop using the slow pace of policy change as an excuse. Businesses still have a lethargic and reactive approach to sustainability, which needs to change.
Talking of systems approach, do you think that artificial intelligence is going to help businesses get better at Sustainability metrics?
AI tools will help but they are not a panacea. It will certainly help in data synthesis when we are looking at big macro datasets. For example, we are currently working on a project where we are integrating Earth Observation Technologies for quantifying impact. We are using AI to help synthesize data and information within remote sensing imagery.
A lot of steps have to happen to accelerate change, but definitely, the advances in these areas will help.
It is interesting that you have done a PhD in Ecological Economics. So, what are the top of your mind trends today in relation to this subject?
The biggest thing for me is the infatuation with GDP growth, as the single barometer of societal progress. This needs to change. We need to promote alternative measures of progress for example, Genuine Progress, Green GDP, Gross National Happiness etc.
The ‘De-growth’ concept seems to be popular these days?
I think it is an extremely poor term. What we are looking for is a reduction in the material and fossil fuel throughput in an economy combined with an increase in output in qualitative value terms. So, if we can keep on progressing as an economy whilst reducing the material and fossil fuel energy throughput, then we will be in a much better place. I personally do not like the term ‘de-growth,’ as I believe it is confusing for people. What we should be talking about instead is a reduction in material throughput.
Then, is the ‘de-growth’ concept closer to ‘Green GDP’ concept?
There are similarities. Yet, what I do not like about ‘Green GDP’ concept is that it places emphasis on the natural environment and tends to neglect social issues. So, of these more common alternative macro measures, the Genuine Progress Indicator is favorable.
What are the three drivers that can accelerate the Sustainability movement?
Firstly, and ultimately, it is the consumer. It is me, and you, going into a shop and making choices that send the right signals to the market economy. And then, secondly, you have the investments which have a huge role to play. ESG investing is currently ineffectual, typically using partial, self-selected, disclosed metrics to make performance comparisons and direct capital. Investors need to better understand and compare the totality of impacts, throughout the value chain. Equipped with the right information investors have a huge role in delivering sustainable outcomes. And then the final one, obviously, is the policy landscape.
How can we get consumers to play a bigger role in the transition to a green economy?
Societies and governments need to offer smarter incentives to both rich and not-so-rich consumers to help them make decisions in favor of the planet in all kinds of products – essential and luxury. Only then will consumers drive change.