For future generations to meet their needs, and to close the global inequality gap, we need to degrow. That is we need to reduce resource and energy consumption to bring the economy back into balance with the living world in a way that reduces inequality and improves human well-being (Hickel, 2020a,b).
This transition has consequences for business, because instead of boosting sales companies need to encourage consumers to make do with less, avoiding build in obsolescence, extending product lives to slow disposal and replacement, focusing on satisfying ‘needs’ rather than ‘wants’ and reducing overall resource consumption through conscious changes in sales and marketing techniques, new revenue models and innovative technology solutions (Bocken & Short, 2016). Overall, we can say that companies have to rethink their business models, therefore I specifically aim to answer the following research question: what could a degrowth business model framework look like?
Degrowth business models (DGMs) are supposed to serve the dual aim of (1) obeying planetary boundaries whilst simultaneously (2) contributing to reducing inequality and increasing well-being. That is companies need to develop value propositions that, on the one hand contribute to absolutely reducing resource and energy consumption, and on the other are aimed at production of protected needs (Di Giulio & Defila, 2021).
Since degrowth is considered an authentic and legitimate interpretation of sustainable development, SDGs 12-16 can serve as proxies for obeying planetary boundaries, whilst the remaining SDGs (minus SDG8.1 -economic growth) can be regarded as proxies for well-being and reducing inequality.
Keywords
Degrowth; degrowth business models; sustainable development;
Introduction
Sustainable development is often coined as “a development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987). Although the definition lacks precision, it does show that sustainable development goes beyond merely satisfying economic needs. Also an intergenerational and intragenerational perspective can be detected.
Looking at the intergenerational perspective, we see that in the 2000-2030 period, based on the New Policies Scenario of the International Energy Agency (IEA), consumption of fossil fuels is likely to increase by 31, 64 and 85 percent for oil, coal and gas respectively (World Energy Outlook 2018, 2018). This is estimated to result in an increase of CO2 emissions by almost 50 percent, thus fueling climate change. We have already trespassed critical CO2 levels (Rockstrom, 2009 IPCC, 2021). If we continue to go on like this, we are facing melting ice caps and glaciers, severe droughts and inundations, more extreme weather conditions, and close to 8 million climate deaths by the end of the century (Carleton et al., 2022).
The OECD estimates that material resource use will more than double in the 2011 -2060 period (from 79 Gt to 167 Gt) (OECD, 2018). Depletion of some critical resources, like iron ore, gold, zinc etc., is merely a matter of decades (Dobbs, Oppenheim, Thompson, Brinkman, & Zornes, 2011; Copper Alliance, 2018 ). The same applies to fossil fuels. According to the oil company BP, based on the year 2016, reserve-to-production ratios are approximately 50 years for oil and natural gas, and 150 years for coal (BP,n.d.). Extraction and processing of materials, fuels and food make up about half of total global greenhouse gas (GHG) emissions and more than 90 percent of biodiversity loss and water stress across the globe (IISD, 2019).
All these problems are mainly caused by overconsumption driven economic growth in Global North countries and looking at the intragenerational perspective we see a huge divide between Global North and Global South countries in many domains.
Going beyond the limits brought us exactly where we are today, and to stay within these limits, we need to degrow. That is we need to reduce resource and energy consumption to bring the economy back into balance with the living world in a way that reduces inequality and improves human well-being (Hickel, 2020a,b). In my view, degrowth is an authentic and legitimate interpretation of sustainable development.
Considering their impact on the planet earth and people living elsewhere on the planet, Global North countries (including businesses) have a moral responsibility to contribute to a transition towards a degrowth economy. To express their moral responsibility, in a degrowth context, businesses deliver sustainability by reducing absolute material throughput and energy consumption associated with the provision of goods and services by moderating end-user consumption: encouraging consumers to make do with less through education, and consumer engagement, making products that last and avoiding build in obsolescence; extending product lives to slow disposal and replacement, focusing on satisfying ‘needs’ rather than ‘wants’ and fast fashion and reducing overall resource consumption though conscious changes in sales and marketing techniques, new revenue models and innovative technology solutions (Bocken and Short, 2016).
Overall, we can say that companies have to rethink their business models. In this paper I specifically aim to answer the following research question: what could a degrowth business model framework look like?
This paper is organized as follows. In section 2 the requirements of a degrowth business model will be discussed. In section 3 the Degrowth Business Model Framework will be presented, whilst section 4 discusses the PURE LIVING concept as an example of a degrowth business model. Finally, some conclusions will be drawn in section 5.
Requirements of a degrowth business model
Referring to the moral responsibility of business to contribute to the degrowth transition, degrowth requires businesses to align its activities with societal issues and challenges. That is to say, the prime goal of business is to help solving societal issues instead of pleasing their shareholders. Degrowth does not imply that making or earning money is relevant. It is, but the focus is no longer on profit maximization and putting shareholders first.
The consequences of degrowth for business are heavily understudied (Vazquez-Brust & Plaza-Úbeda, 2021), but it is obvious that degrowth has a huge impact on the business sector, especially their strategies and business models. To focus on the latter, considering the degrowth definition provided earlier, degrowth business models (DGMs) are supposed to serve the dual aim of (1) obeying planetary boundaries, whilst simultaneously (2) contributing to reducing inequality and increasing well-being. Both will now be discussed.
Obeying planetary boundaries
By reducing energy and resource use, companies can help bringing the economy back into balance with the living world. That is by reducing energy and resource consumption companies contribute to -amongst other things- mitigating climate change and biodiversity loss, thus obeying planetary boundaries. Although ten critical boundaries (Rockstrom et al. 2009) have been identified, not all may be equally sensitive to economic growth.
Back in 2009, Rockström et al. published a seminal paper in which they identified ten boundaries critical to maintaining the planetary biosphere: (1) climate change, (2) biodiversity loss, (3) ocean acidification, (4) change in land use, (5) nitrogen loading, (6) phosphorous loading, (7)global freshwater use, (8) atmospheric aerosol loading, (9) chemical pollution and (10) stratospheric ozone depletion (Rockström et al, 2009). Three of these boundaries have been transgressed already, most notably the boundaries for biodiversity loss, nitrogen and climate change. Based on research reports by the Intergovernmental Panel on Climate Change (IPCC) we now know that climate change has already crossed critical levels, and that it will be extremely difficult to keep global warming below 1.5 degrees Celsius (IPCC, 2021). The stratospheric ozone depletion process is under control, and chemical pollution and atmospheric aerosol loading data are not robust enough yet. So, for climate change and biodiversity loss we know that these are somehow directly or indirectly connected to economic growth. For other boundaries, specifically fresh water use and change in land use we can sense a relationship with economic growth, whilst for other boundaries the connection may be less obvious or has yet to be established.
Furthermore, we need to realize that reducing resource and energy consumption needs to go beyond merely increasing resource and energy efficiency. Although this is a prerequisite, companies need to absolutely reduce resource and energy consumption.
Reducing inequality and increasing well-being
Contributing to the degrowth transition entails that companies should focus on needs rather than wants (Bocken and Short, 2016). However, there is quite some diversity in definitions of ‘needs’ and ‘wants’, but generally speaking we can say that needs are basic necessities for survival, while wants arise out of desires people have (Pant, 2022). But then again, we can still argue about what basic necessities and desires are. To end the stalemate, I would like to introduce the term ‘protected needs’, which -in sustainability contexts- can be seen as an operationalization of the quality of life (Di Giulio & Defila, 2021), which borders the term well-being. A overview of protected needs is presented in Figure 1.
Figure 1: The list of protected needs1
Group 1: Focusing on tangibles, material things
To be provided with the material necessities of life
To realize their own conception of daily life
To live in a livable environment
Group 2: Focusing upon the person
To develop as a person
To make their own life choices
To perform activities valuable to them
Group 3: Focusing upon community
To be part of a community
To have a say in the shaping of society
To be granted protection by society
Source: Di Giulio & Defila (2021)
To focus on protected needs not only means to focus on well-being, but also on reducing inequality. The latter is warranted by items specifically mentioned in Group 3 ‘Focusing on Community’. To be granted protection by society entails -amongst other things- that individuals should have the possibility to pursue their goals without discrimination and with equal opportunity, to live in legal certainty, and to be treated with dignity and respect.
Earlier, I argued that degrowth is an authentic and legitimate interpretation of sustainable development, although this runs counter to how the UN, the Organization on Economic Cooperation and Development (OECD) (Belmonte-Ureña et al., 2021, Hickel & Kallis, 2019) and the European Commission (A European Green Deal, 2019) interpret sustainable development. To these institutions sustainable development coincides with green growth, which aims at greening capitalism whilst leaving established power and economic structures intact. Green growth proponents argue that economic growth and environmental preservation are compatible (Sandberg et al., 2019). However, the belief that growth is possible without having a severe and negative environmental impact rests on the yet unproven premise that technology can undo the harm done without causing further harm either in the farther future or in the form of externalities (Ossewaarde & Ossewaarde-Lowtoo, 2020).
In 2015, 193 United Nations member states leaders of government concluded an agreement on 17 ‘Sustainable Development Goals’ (SDGs). These SDGs (see Figure 2) make up the outline for the 2015-2030 sustainable development agenda, which focuses on the previously mentioned social, economic and ecological principles. In addition to the SDGs, an international system of indicators to measure the implementation progress of the agenda has been agreed upon as well. The measurement system comprises a set of 169 sub-goals, and the progress itself is measured on the basis of 244 indicators (CBS, 2018). That sustainable development coincides with (green) growth is also reflected in the SDGs. SDG8 is conflicting with some of the other SDGs, specifically environmentally related SDGs (i.e. SDG12, SDG13, SDG14 and SDG15) (Hickel, 2019). Therefore, to frame the SDGs in a degrowth context implies that SDG8, and more specifically SDG8.1, has to be expelled from the overview.
Figure 2: Sustainable Development Goals
Source: United Nations (n.d.)
SDGs can be divided into two categories: environmentally related SDGS (SDG12-15) and well-being related SDGs: SDG1-11 and SDG17. Since economic growth is no longer a goal, environmentally related SDGs can easily be associated with (staying within) planetary boundaries through resource and energy reduction. The other SDGs bear strong resemblance to the protected needs mentioned earlier.
Degrowth Business Model Framework
For a degrowth business model (DBM), a value proposition concerns any product or service that contributes to meeting the twin-test of reducing resource and energy use -and thus mitigating climate change and biodiversity loss- on the one hand, and boosting well-being and reducing inequality by focusing on protected needs on the other (see Figure 3).
A similar result can be achieved by taking SDGs as the starting point. In this case a value proposition should meet the twin test of contributing to the environmental SDGs (SDG12, SDG13, SDG14 and SDG15), whilst simultaneously contributing to well-being SDGs (all other remaining SDGs, minus SDG8.1 -Economic growth).
Activities, channels and technologies etc. as part of the value creation and delivery component of the business model should intentionally be in line with the value proposition, implying -amongst other things- that in realizing the value proposition, partners are selected who also are actively engaged in degrowth.
To emphasize the societal focus of DBMs, the value capture component of a DBM focuses primarily on social and environmental value creation. Financial value creation is still relevant, if only to make sure that the costs of production can be covered, but financial value creation is not the prime aim. Social value creation indicators include at least quality of life, and inequality and wellbeing measures, whereas environmental value creation indicators include at least energy and resource reduction measures, as well as carbon emission and biodiversity measures. These measures can be supplemented with relevant SDG indicators.
Figure 3: Degrowth Business Model Framework
Example of a Degrowth Business Model: PURE LIVING; Living concept of the Future
In the city of Groningen in the Netherlands, the PURE LIVING project is being developed by a consortium of 6 local and regional stakeholders: the Hanze University of Applied Sciences Groningen, a regional authority, a financier, a CEO of a sustainability related civil society organization and two entrepreneurs. The aim of the project is to create a living environment in which interconnectivity between residents (well-being and quality of life) and interconnectivity with the ecological environment (obeying planetary boundaries) is key.
Driving forces underlying the project are (in random order):
Climate crisis: economic growth and consequently the increasing demand for fossil fuels is becoming a no-brainer. That is why we need to build homes which contribute to climate change mitigation and adaptation, and why communities need to be self-sufficient in terms of energy production.
Resource crisis: increasing prices of resources; increasing waste and pollution levels and biodiversity loss. That is why we need to focus on circular and biobased construction (materials) and local/regional production, including locally grown crops.
Social: increasing social inequality; access to means of existence is becoming more and more difficult for citizens. That is why we need cooperatives that contribute to overcoming socio-economic inequality.
Governmental: political and democratic systems are getting jammed; trust in politics and politicians decreases. That is why we want new trust relations between parties.
Complexity of everyday life: situations are changing quickly. That is why we wany to turn to flexible use of materials, services and space.
Tensions on the housing market: poor access to affordable housing for students, the elderly and migrants. That is why we need to develop affordable quickly to produce, modular building systems.
The project entails the construction of two (one fully circular and a one fully biobased) homes on the Hanze University campus as an experiment. Students will be involved in designing, testing and improving materials, construction and business models etc. The next stage is to scale up production of these homes on new sites. This requires developing new supply chains and networks centered around regenerative agricultural and circular business models.
The social and governing principle is based on the so-called task democracy principles, developed by one of the consortium members. In the preparation fase scientists, potential residents, authorities, businesses and CSOs will collectively decide on how to tackle which problems. In the decision-making process all parties are equally relevant, implying that no one party can master one or more of the other parties involved.
Conclusion
In my view degrowth is an authentic and legitimate interpretation of sustainable development. In consequence, for businesses going sustainable this entails that they adopt a degrowth business model. In this paper I tried to provide an answer to the question what a degrowth business model framework could look like. The core of a DGM is that companies should simultaneously (1) obey planetary boundaries and (2) contribute well-being and reduction of inequality. In terms of SDGs (1) resonates with SDG12, 13, 14 and 15, whilst (2) is fairly congruent with the other SDGs, except SDG8. Ironically, the latter SDG (Decent work & Economic Growth) -particularly SDG 8.1 (Economic growth)- does not contribute to sustainable development and should not be included for that matter.
The assumption underlying a DGM is that business primarily contributes to solving societal issues. That is, companies have a societal focus, implying that its strategies are in line with and contribute to reaching societal goals. Of course, companies need to make money, if only to cover the costs of production, but making money is not the prime goal.
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