In recent decades, the private sector has been widely perceived as the primary sector capable of meeting human needs. This view has prevailed at the household, community and national levels. However, the pursuit of profit has led to significant inequalities in access to services, over-consumption of the Earth's resources and environmental degradation, including greenhouse gas emissions. This has raised questions about the ability of existing business models to meet people's needs in a sustainable way, and about the feasibility of introducing sustainable business models into the current economic system.
As part of the project, we analysed the scientific literature on sustainable business models and conducted a series of Delphi and multi-stakeholder discussions on the changes needed in business models to meet the goal of limiting climate change to 1.5° Celsius. The results show that while there are promising local and sustainable business model variations, they are strongly influenced by national and supranational policies. Moreover, when governments implement subsidy programmes for industries with high environmental impacts (e.g. conventional agriculture and livestock), the responsibility for changing consumption patterns falls mainly on households.
While business representatives often justify their product and service choices in terms of consumer demand, which is undeniably important, this perspective only tells part of their business story. In numerous discussions, we observed that business representatives recognise the potential for creating a level playing field that could encourage more sustainable and moderate consumption through stronger national and supranational policies. Interestingly, alternative business models related to reduced international flights are not only undervalued, but also indirectly subsidised through lower taxes compared to rail transport.
Towards sustainable business models
In addition, the pursuit of ever-increasing corporate profits is a major barrier to achieving sustainable business models. The relentless focus on generating profits often leads companies to prioritise short-term gains over long-term environmental and social considerations. This profit-driven approach can inhibit investment in sustainable practices, technologies and ethical standards. Overcoming this barrier requires a paradigm shift that encourages companies to adopt a triple bottom line perspective that values people, planet and profit equally.
Policymakers, business experts and civil society activists engaged in discussions on climate-smart business models have made several observations that challenge current business paradigms. In today's rapidly evolving world, the inefficiency of existing business models has become increasingly apparent. Why is it necessary to change these existing models? Several interrelated factors highlight the inadequacy and unsustainability of mainstream business approaches, including environmental concerns, environmental degradation, public health, resource scarcity and shifting market demand.
The transition to a 1.5° business model requires a fundamental rethinking of traditional approaches to business and industry. To guide this transformative process, several key principles must be embraced:
- Substitution: This involves replacing high-carbon or resource-intensive materials, processes and technologies with more sustainable alternatives. For example, shifting from fossil fuels to renewable energy sources.
- Efficiency: Improving the efficiency of resource use and energy consumption can be achieved through innovations in production processes and technology upgrades.
- Sufficiency: This principle focuses on meeting the basic needs of consumers while reducing overall consumption and waste. It encourages companies to prioritise quality over quantity, promote durable and sustainable products and services. It encourages companies to prioritise quality over quantity, to promote durable and long-lasting products, and to move towards business models that emphasise frugality.
These key principles, which facilitate the rethinking of traditional business models, can be supported and accelerated by global and national policies.
Through discussions with stakeholders, we have identified several guiding ideas that can be addressed as hot highlights that were present in discussions about changing business models to be fit for 1.5° lifestyles. The selected quotes illustrate observations that emerged from the discussions.
"Recognising the unique role of smaller-sized enterprises and leveraging their inherent advantages is crucial.” (activist)
"A key enabler for the successful realisation of sustainable business models lies in the implementation of strategic fiscal measures by the state.” (researcher)
"Businesses should be provided with clear and comprehensive choices through robust business comparisons, e.g. in terms of ESG criteria.” (social business expert)
“Health-promoting and climate friendly lifestyles should be combined. Let it not be that when we hear about saving the climate, we, entrepreneurs, immediately stand aside. But if it's about health, let's read right away and delve deeper.” (business expert)
The crucial role of the government
While business models have promising local and more sustainable variations, they are also heavily dependent on national and supranational policies that set the dominant tone. Governments have a key role to play in developing policies to bring economic activity into line with planetary boundaries
“Airlines have been removed from the basic law of polluter pays. Airlines do not pay. There has been no change in European legislation that would increase the liability of airlines. No change at all. There have been several attempts to increase this responsibility. [They are] Holy cows. In principle, airlines should pay for pollution.” (business expert)
“At the political level, no one will make a decision to reduce agriculture and animal husbandry, because agriculture is our fields, jobs, survival, provision for families and the surrounding society. Fields are also needed for keeping animals – for meat, milk, everything else, especially for young children. Changing habits and people's willingness to change can reduce the production of the products. The conventional way and animal husbandry is valid also because it has the support of both Europe and Latvia, so that animal husbandry is developed and maintained.” (policy-maker)
Some of the most significant policy options for fostering 1.5° business models include:
- Choice editing of high-emission options: Governments and businesses can phase out high-emission products and services, encouraging businesses to transition towards more sustainable alternatives, e.g. incandescent lamps have been banned in the EU.
- Direct or indirect public subsidies for low-carbon choices: Providing financial incentives, grants, or tax breaks to businesses that adopt low-carbon technologies, practices, and products, making sustainable options more economically attractive.
- Monitoring of company culture based on non-financial goals: Evaluating and monitoring companies based on their environmental, social, and governance (ESG) performance, encouraging businesses to prioritize sustainability alongside financial performance as well as limiting greenwashing.
- Higher taxes on natural resources and pollution: Implementing taxes or levies on the extraction of natural resources and emissions to internalize environmental costs and incentivize resource-efficient and cleaner production processes.
- Public procurement only for low-carbon products and services: Governments can leverage their purchasing power to drive demand for low-carbon products and services, creating market opportunities for sustainable businesses and encouraging innovation in the green economy.
By adopting and implementing these policy options, governments can create an enabling environment for businesses to transition towards 1.5° business models, fostering a low-emission, sustainable, and resilient economy aligned with the goals of limiting global warming to 1.5° Celsius.
Kārlis Lakševics, Green Liberty
Jānis Brizga, Green Liberty
Inga Belousa, Green Liberty
Linda Zuze, Green Liberty