Economic / Future Trends

Ecological trends impacting business in 2020 and beyond

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Editor’s Note: This article is part of a series on external trends impacting small and midsize businesses in 2020. In Part 2, we study ecological trends in business. Read Part 1 on social trends impacting business here.


During the twentieth century, the world population multiplied fourfold. For much of that time, man’s impact on the planet was unknown.

Today, business leaders around the world are weighting their responsibilities for balancing the interests of shareholders and the environment. They are also seeking out opportunities to shape how energy is produced and consumed. Here are seven ecological trends in business for 2020.

Cost of energy

In 2020 there are subtle shifts in energy consumption. The U.S. Energy Information Administration Outlook predicts U.S. energy production to be segmented as follows:

Share 2019 2020
Natural gas-fired power plants 34% 37%
Coal 25% 22%
Nuclear  20% 20%
Renewables (including hydro power) 17% 19%

Cost 2019 2020
Residential electricity 13.0 kw 13.12 kw
Industrial electricity 6.8 kw 6.84 kw
Natural gas 2.83 btu 2.70 btu

Current state of climate change and business impacts

From 1965 to 2019, carbon dioxide levels increased from 320 parts per million (ppm) to 408 ppm. In every decade since the 1970s, the earth has been warmer than the decade before it.

While naturally occurring environmental factors can alter temperatures by half a degree (Celsius), human factors have already warmed parts of the earth by 1.0 degree. Signed in 2015, the Paris Accord had a stated goal to prevent “dangerous interference” in the environment, defined as a change of 2 degrees from pre-industrial temperatures. Year 2020 marks the first year of the cycle mandated in the Paris Accord. [i]

The economic impact of climate change ranges beyond costly wildfires, floods, hurricanes, higher insurance costs and the loss of property. For example, Panama is experiencing a severe drought and water levels in the Panama Canal are receding, requiring vessels to reduce cargo volume.

While eroding biodiversity, climate change is also causing agriculture failure and food and water shortages in the poorest of countries. Cape Town, Bangalore and Jakarta are sinking (7.5 centimeters per year in the case of Jakarta) due to groundwater depletion. [ii] In Asia, burgeoning urban centers have experienced more severe floods. Swine flu is on the rise amid climbing temperatures. In Malaysia, haze is predicted to have caused over 200,000 respiratory infections. With regions of the world becoming less hospitable, there have been fundamental shifts in migration.

The costs associated with climate change are mounting. Supply chains are under strain and companies are investing in business continuity plans. Major increases in property and casualty insurance premiums are expected during 2020 renewals.

Valuations are even impacted in an age of carbon taxes and tradable emissions permits. One study of global companies estimated the financial impact of physical threats to valuations at about 3%. [iii] That doesn’t take into account the legal obligations companies may have as a result of health events or pollution.

The 2019 United Nations Climate Change Conference, or COP25, will now be held in Spain in December after Chile had to bow out due to civil unrest in the region.

Changes in gas, coal and energy sources

By 2030, the top four energy sources (coal, nuclear, natural gas and renewables) will reach equilibrium and contribute roughly equal parts of the world’s energy. [iv]

While renewable energy investment is growing in almost every industrial nation, some countries are lagging, and in some cases consumption of fossil fuels such as coal is still increasing. For example, China will add 129,000 megawatts of energy capacity next year – about a quarter of it in the form of coal. Solutions are hard to come by. Even the German government (whom it would have you believe is leading the charge on emissions reductions) has been unsuccessful in reducing the country’s dependency on coal. The mix of electricity coming from coal has remained unchanged for the last twenty years. [v]

The average emissions per person in the U.S. is double that of the Chinese. Some Democratic nominees for president (Sanders and Warren) are proposing $3 trillion in federal spending to curb U.S. emissions, with a goal of zero emissions by 2050.

The Trump administration has altered its stance on fuel economy standards. As of 2018, the U.S. became a net exporter of oil. Obama enacted a 5% annual efficiency standard for automakers, which Trump had previously frozen at 2020 levels. New proposals are expected to net 1.5% annual gains. [vi]

U.S. nuclear power plants are struggling to remain relevant in a market flooded by cheap natural gas. Seven have shuttered their doors since 2003, yet nuclear power still provides about 20% of U.S. electricity. [vii]

Agribusiness ecological trends

U.S. farmers have been frustrated with the government’s stance on biofuels. The EPA has expanded the number of refiners who can blend biofuels into the supply of gasoline. Farmers had been hoping for controls that would boost demand. [viii]

The “meatless” movement could have a dramatic impact on our environment. [ix] The consumption of meat worldwide has doubled in the last sixty years and is expected to double again in the next thirty. Livestock is the source of 12% of greenhouse gas emissions (of those that have human causes). Heat stress is already threatening food supply and animal production.

The trend may be counteracted by “precision farming,” designed to improve efficiency and yield. [x] By using satellites, drones and sensors, farmers can more precisely manage tractors, equipment and irrigation. It is predicted that by 2050, yield could rise by 70%, reducing impacts on soil and water. Yet challenges with investment and connectivity in rural areas constrain innovation.

The future of water

It is predicted that in 2020, roughly 35% of the world’s population will experience “water scarcity.” In 2020, China will produce 807 million gallons a day from desalination. [xi]

With irrigation representing 66% of the worlds “water withdrawals,” farmers are seeking out more efficient water delivery systems such as drip irrigation and utilization of drought tolerant crops. As we move into 2020, farms are leveraging technology such as DNA mapping, drones and self-driving tractors to take better care of their soil. [xii]

The industrialists

Approaches to energy investment vary around the world. China leads the world in offshore wind capacity (followed by Britain, Germany and the U.S.). Industrialists are taking notice with large institutional investments from the likes of Bill Gates, Elon Musk, Warren Buffett and Michael Bloomberg. [xiii]

Musk’s bet in Tesla and batteries is massive. Gates has invested in TerraPower which is developing innovative nuclear reactors, and energy ventures that invest “risk-tolerant capital” in green projects.

Conservation

Conservation is just good business. According to the Center for Climate and Energy Solutions, businesses can improve their impact on the environment and their bottom line by:

Making sure equipment purchased (computers, copiers, lighting, etc.) is ENERGY STAR certified. An ENERGY STAR-certified computer uses 35 to 60% less electricity over the course of its lifetime.

Recycling. Paper waste increases disposal costs. By utilizing reusable mugs, plates and silverware (in addition to any industrial waste), you can cut down on your consumables.

Reducing consumption of water. With rising costs for water and sewage, industrial water users are taking notice. There has been a dramatic increase in the number of companies measuring their water consumption and training their manufacturing employees in techniques that reduce consumption. Also, the little things matter. Install drought-tolerant landscaping and low maintenance ground cover plants. Keep faucets and toilets in good repair.

Cutting down on travel and meetings. Twenty-seven percent of emissions are transportation-related, much of that from workers traveling to work or meetings alone. Companies have introduced carpool policies, electric car power stations, virtual work policies and purchased carbon offsets to reduce their footprint.

Engaging employees. One thousand Google employees recently submitted a letter requesting that the company reduce its carbon footprint. Seventy-six percent of millennials consider an employer’s corporate sustainability measures when evaluating them for potential employment. Engaging employees in conservation is one of the best ways to improve their satisfaction, save money and cut down on energy consumption.

Stay tuned for upcoming reviews of trends expected to influence business in 2020.


References

[i] World Leaders to Sign Paris Climate Change Pact, Associated Press
[ii] The Future Center
[iii] Planet Inc., The Economist, September 21, 2029
[iv] The Kiplinger Letter
[v] Germany’s Pricey “Coal Exit” – Dirty, And Not Quick, The Economist, September 21, 2019
[vi] Trump Makes U-Turn On Fuel Efficiency Standards by Maxine Joselow, E&E News
[vii] The Kiplinger Letter, Vol. 96, No. 37
[viii] Trump Administration Proposes Plan to Raise US Biofuels Use, Reuters
[ix] Meatless a Day a Week, Bloomberg Businessweek, September 30, 2019
[x] The Kiplinger Letter, Vol 96, No. 36
[xi] 18 Surprising Projections about the Future of Water, Seametrics
[xii] 5 Types of Familiar Tech Come to Farming in 2020, AgWeb
[xiii] The Not-So-Dirty Dozen, The Economist, September 21, 2019

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Marc Emmer About the Author: Marc Emmer

Marc Emmer is President of Optimize Inc., a management consulting firm specializing in strategic planning. Marc is a sixteen-year Vistage member and a Vistage speaker. He has he…

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