Crossroads: Labor Pains of a New Worldview | FULL MOVIE
Evaluate strategic threats
The insurance industry makes a business out of accurately assessing risks. So it’s no surprise that they are the first service industry to be taking a strong stand on global climate change.
Both Munich Re (the largest reinsurance company in the world) and Swiss Re (the second largest) have been studying this issue with growing concern. Swiss Re created a tongue-in-cheek video of men in suits embracing trees and twirling in fields.
The punch line: ‘Now it’s really time for business and nature to fall in love.’ Insurance companies are not known for their sense of humor, so what possessed them to make such a video? The answer is that they see storm clouds gathering over all their major business lines. Because climate change is expected to increase the frequency and severity of freak weather events, insurers anticipate higher damage claims. Unless they revise their rates, this will translate into less profit. Some even fear climate change may bankrupt the industry.
Climate change is also expected to facilitate the spread of disease. Diseases that have traditionally been limited to remote, tropical regions – malaria, ebola and dengue, for example – will expand as the globe warms, facilitated by international travel.
The West Nile virus demonstrates how quickly diseases can spread, spanning the United States in about two years. What happens to life insurance claims if people start dropping like flies from diseases against which we have little immunity? What happens when super-bacteria, created from our overuse of antibiotics, hit a population centre?
Since 40 per cent of Swiss Re’s business is life insurance, they need their actuarial tables to factor in these increased risks. In addition to increased property damage and reduced life expectancy, Swiss Re is also concerned about legal risk. They see climate change as the next great corporate litigation theatre, following in the footsteps of asbestos and tobacco.
Many of the companies they insure are major emitters of greenhouse gases, key targets for such lawsuits. Shareholders are restless. There has been a dramatic rise in shareholder resolutions, many of which relate to climate change, and through proxies they are voting out directors at an unprecedented rate. Swiss Re has already sent out the word: they may not protect directors from litigation if the company is not doing enough to avert global warming. Since directors can be held personally liable for environmental judgments’, this gets their attention.
Explore emerging opportunities
Beyond merely protecting themselves from these threats, Swiss Re is also examining the potential business opportunities. They want to play a role in brokering carbon credits.At the moment, a carbon reduction project may achieve only a small return in the form of carbon credits as there is a great deal of uncertainty about the market. Will the project actually produce the CO2 reductions as advertised? Will the project pass muster once the audit criteria are finally standardized? Swiss Re sees its role as buying up a large number of projects, thus spreading the risk across them.
This should improve the liquidity and price of carbon offsets, speeding the rate at which organizations take action against climate change. Sustainability may help you discover new markets. Economically speaking the world can be divided up into three sectors:
1. The consumer economy (1 billion people);
2. Emerging markets (2 billion people); and
3 The survival economy (4 billion people).
Traditionally, business has focused predominately on the first two, ignoring more than half the world! This is even more noteworthy because much of the future population growth will be in this part of the world. Do not assume that serving the survival economy is unprofitable. While these people do not have a lot of cash to spend, products packaged to meet their needs can improve their lives and also provide a viable business model. Michigan Business School professor C. K. Prahalad challenged a group of business analysts to find a way to sell ice cream to India’s poor at a price they could afford – 1 rupee (or about 2 cents). Of course, the analysts initially thought it couldn’t be done. They soon discovered, however, that much of the cost of ice cream is from refrigeration. So they sidestepped electricity and used an innovative technology and employed dry ice instead. Now, people in India are buying scoops at 2-3 rupees and Prahalad expects the price to be down to 1 rupee soon.
Similarly, Unilever has made more profits from selling cheaper versions of detergent to India’s poor than selling the premium product to the more affluent. Aravind Eye Hospitals manages to perform 250,000 cataract operations at a cost of US$10 each and still make a 200 per cent profit. The trick is to use technology and innovation to find cheaper ways to provide the same service.
‘Turning India’s poor into a viable market requires a rethinking. You need to marry low cost, good quality, profitability and sustainability,’ advises Prahalad. You may also be able to use your position in industry to provide incentives for others to get on board. Citi has partnered with Ashoka, a non-profit focusing on social entrepreneurship to create the Change makers Competition Award programme.
The trick is to use technology and innovation to find cheaper ways to provide the same service. They want to provide financing for projects that promote social and economic justice. Similarly, SustainableBusiness.com produces their list of the 20 most sustainable stocks in their SB20.8 (For their 2008 winners, go to: www.sustainablebusiness.com/index.cfm/go/news.feature/id/1579 (Acessed May 18, 2013) Programmes like this create positive incentives for companies to get on board.
As you can see, the responsibilities of service organizations go far beyond recycling their paper and reducing energy use. There are a host of threats and opportunities to be considered. But service companies must look beyond the walls of their own organization to take advantage of these insights. They must both examine the potential threats to their own image and to the viability of their customer base and take into account demographic changes around the world.
