Transformative Markets: Harnessing the Power of Markets for a More Sustainable Future

By Robert Ludke

We face a stark reality – nearly 8 billion people living on a planet without the resources needed to ensure a better life for future generations. Transformative Markets is a roadmap for turning the outdated markets of today into powerhouses for driving the innovation of sustainable goods and services that create value for everyone

• Language: English
• Publisher: New Degree Press
• Release date: Apr 10, 2020
• ISBN: 9781641375702

Book preview

Transformative Markets

Harnessing the Power of Markets for a Sustainable Future

Robert Ludke

new degree press

copyright © 2020 Robert Ludke

All rights reserved.

Transformative Markets

Harnessing the Power of Markets for a Sustainable Future

ISBN

978-1-64137-568-9 Paperback

978-1-64137-569-6 Kindle Ebook

978-1-64137-570-2 Digital Ebook

Contents

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Acknowledgments

Introduction

Part 1

Defining a Sustainable Market and Sustainability

Chapter 1

The Way Forward

Chapter 2

Sustainability 101

Part 2

The Backdrop

Chapter 3

The Markets in Which Sustainable Markets Operate

Chapter 4

Finding a Cure to the Curse of Short-Termism

Chapter 5

Why This is Important

Chapter 6

The Precursor to Sustainable Markets: Sustainable Business Practices

Part 3

The Actors

Chapter 7

The Networks of Sustainable Market Actors

Part 4

The Work of Markets We Do Not See

Chapter 8

Ground Zero

Chapter 9

The Power and Potential of Informal Markets

Part 5

Going Forward

Chapter 10

The Power of the Purse

Chapter 11

Recommendations to Accelerate the Transformation to Sustainable Markets

Research Methodology

Select Bibliography

Acknowledgments

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While these are the first words of Transformative Markets you will read, they are the last to be written. I have waited months to write these words, and each of them means more to me than all the words you will read in the following chapters.

The most enjoyable part of writing Transformative Markets was that it was the perfect excuse to reconnect with people I had not seen or spoken to in a while. It was also a great way to reach out to people I had never met before. Everyone I spoke to while writing the book was incredibly gracious with their time and thoughts. Spending time with interesting people is why everyone should write a book.

First and foremost, I would like to acknowledge Eric Koester and the Creator Institute. Established by Eric, the Creator Institute is a program that works with aspiring authors—especially first-time authors—to help them write and publish their own books. Without Eric and the others at the Creator Institute—Brian Bies and Michael Bailey—I never would have had the courage to start and finish writing Transformative Markets.

My wife (Sabrina Corlette) and my children (Katie and Norah) were incredibly patient and supportive of me on every step of this journey. Their support sustained me on the days when the words did not come as easily as I wanted them to.

A number of people spent considerable time and effort reviewing, refining, and editing the manuscript in order to make it more understandable and interesting for you. My parents (Bob and Barb Ludke), my in-laws (Marvin and Jane Corlette), Susan Kahn, Sally Curley, Michael Green, Stephanie Benedetto, and Angela Bonarrigo spent far more time than I could have reasonably expected in making the manuscript better.

My friends and colleagues at Handshake (especially JR Kerr, Elias Stahl, Lisa Feldner, Laurie Moskowitz, Amanda Demarest, Petra Dizdar, Mark Hamilton, Shivam Kollur, and Mike Gogis) were instrumental in allowing me to turn the work of Handshake into an incubator for the ideas seen in Transformative Markets.

Sonya Smirnova spent considerable hours of her free time with me in developing the methodology used to understand how individuals and organizations are working together to create sustainable markets and to measure which of those actors are most effective in that effort.

Noah Zandan and Sarah Weber of Quantified Communications used their proprietary platform, which fuses data analytics and behavioral science, to provide me with additional insights on how companies engage with consumers in marketing sustainable goods and services.

Peter Nicoll coached me through a truly uninspiring performance on my part in producing the promotional video content for Transformative Markets. Somehow, he made my articulation of this book seem compelling and engaging.

The team at FuseLab Creative—Marc Caposino, George Railean, and Alina Ghimp—created a beautiful website on which I can market the book and the ideas behind it.

Finally, there were the many people I interviewed while writing Transformative Markets. Each one brought a set of interesting perspectives and experiences to this book. Almost every one of them started the interview with the same statement: I am not sure how much I can add to your book… Yet, every one of them provided me with a new insight, idea, or way of thinking that I never would have found on my own. Those interviewed include:

Dominic Bea

Ian Bailey

Stephanie Benedetto

Hannah Calvert

David Corlette

Sally Curley

Michael Green

Kim Harr

Benjamin Herzberg

Craig Holland

Cindy Huang

Susan Kahn

Tom Kelly

Eric Lambin

Melody Lee

Robert Luo

Sarah Malm

Gideon Maltz

Lisa Mandle

Erica Matthews

Gautam Mehta

Chris Miller

Jim Pass

Cory Searcy

Elizabeth Seeger

Melody Serafino

Jennifer Silberman

Taiya Smith

Elizabeth Sturcken

Kari Thompson

Andy Weitz

Robin Wiener

Ashley Winston

Roger Zhang

Introduction

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You probably did not pay much attention to July 29, 2019, unless it was your birthday, wedding anniversary, or the start of summer vacation. But July 29, 2019 was Earth Overshoot Day—the day each year when we use up our allowance of natural resources the Earth is able to regenerate and replenish in a year.

That means from July 30 to December 31, 2019, we lived on borrowed time. We are consuming, degrading, and polluting our resources—water, soil, and air, to name a few—faster than they can recover and regenerate to help sustain our lives. At our current pace, we need 1.7 Earths to support our demand for natural resources.¹

This is the equivalent of living beyond your paycheck and needing to dip into your long-term savings account by the middle of summer because you are out of money. Just as you will run out of money, society will run out of the most basic resources it needs to function.

People may want to debate who (or what) has caused our climate to become significantly volatile over the last few decades. This book is not about that. Others may want to blame government policy or the bad actions of big corporations for the rise of climate change, poverty, or resource depletion. This book is also not about that.

Transformative Markets is about finding a way to address the indisputable facts that we are living in a way that is unsustainable, and we are running out of time to fix it. Every year, Earth Overshoot Day comes a day or two earlier than the previous year. Even more troubling is that we still have hundreds of millions of people living in abject poverty. We are consuming resources at a staggering rate, and yet people are being left behind and denied the opportunity to lead a better, healthier, more prosperous life.

To our credit, we are slowly realizing that the path of production and consumption of goods and services we are currently on is unsustainable. We are more committed than ever before to fighting human rights abuses, increasing access to health care and education, and slowly—very slowly—finding ways to address a changing climate. Unfortunately, this progress is not enough. If we were given a report card today, it would read: Failing.

We are living a life that cannot endure for much longer.

If we are to secure a better life for future generations, we must transform how our society innovates, builds, and sells to meet the needs of our everyday lives. The only way to achieve that transformation is by adapting and improving the markets that exist all over the world that are responsible for the production of goods and services.

We use markets every day in our lives—they are places where buyers and sellers meet to exchange goods and services. A neighborhood farmers’ market is a market, as is Amazon or Alibaba. It is through that interaction between buyers and sellers that prices are determined for goods and services which, in turn, impacts the forces of supply and demand. While we most often come in touch with the endpoint of a market (the grocery store or a shopping mall), supply and demand are what drives how goods and services are invented, made, priced, and mass-produced throughout the world.

While markets have been around since the earliest days of mankind, today’s markets do not reflect the reality of our world—nearly eight billion people living on a planet with resources nowhere near able to provide the decent quality of life that all of us want and deserve. Thus, we need to reimagine how markets work and how they foster the creation of goods and services consumed by each of us.

This new type of market must be sustainable. That means markets must produce goods and services in a way that respects the natural, human, financial, and social capital that goes into production so that it provides a net positive to society rather than being a drag on precious resources.

Together, we consumers account for trillions of dollars of products. Our desires and preferences go a long way in determining what is made in a market and how it is made. Consumers vote with their money all the time—avoiding buying toys made by child labor, choosing a Tesla over an SUV, and so on. But consumers cannot do it alone. While their desires certainly are a powerful incentive for the makers of goods and services to make things that meet those desires, market activity does not happen in a vacuum.

The only way a sustainable market is created, lasts over time, and has the influence to fundamentally transform a part of the economy is when four key actors in the market come together in collaboration to create and maintain it through a balance of generating profits and meeting the public good:

1.Public Sector (the Enablers): policy and regulatory officials at all levels of society—ranging from local mayors and city councils to the United Nations—that establish the legal and regulatory framework for markets.

2.Private Sector (the Builders): those that bring the expertise and the infrastructure (namely manufacturing facilities, skilled labor, and supply chains) to engage in the production of whatever goods and services are needed by society.

3.Cause Sector (the Validators): foundations like Gates Foundation, academic institutions, and not-for-profit organizations such as World Resources Institute that bring expertise and credibility.

4.Finance Sector (the Financiers): those that supply the financial capital needed to fund the innovation of the private sector and provide resources needed by it to turn the innovations into actual products, such as development banks like the World Bank or Asian Development Bank, investment firms, pension funds, and other types of banks.

Melody Lee, Vice-President for Brand Development at Shiseido, a global cosmetics company, suggested that a helpful way to think about making markets more sustainable is through the lens of topology.² Topology looks at how objects are preserved under continuous deformation and the stretching and twisting of materials—but not through tearing or gluing.

Transformative Markets will look at how we can twist, turn, and stretch markets to make them better. We cannot tear apart the connective tissue of thousands of years of market-based economies and start over—markets are too embedded in every aspect of the global economy and our lives. Instead, we must work with what we are given and reshape it to make markets better so all of us may live a more prosperous life.

A sustainable market can range in size and scope from food grown and sold in a community cooperative all the way to those established by Fortune 500 corporations such as Unilever and Tesla that have supply chains and consumers all over the world.

In a way, a sustainable market is a combination of the concepts of sustainability, sustainable business practices, and sustainable products. Thus, providing a basic definition of each will help establish the context in which sustainable markets operate.

The most commonly accepted definition of sustainability was established in 1987 in the World Commission on Environment and Development’s Brundtland Report: Meeting the needs of the present without compromising the ability of future generations to meet their own needs.³

Building on that terminology, sustainable business practices are those where an organization creates value for society across the environmental, social, and economic aspects of its operations as well as the supply chain and end products used by consumers.⁴ The reason Earth Overshoot Day keeps moving up on the calendar each year is that the production of goods and services is taking more value from society than it gives back.

A company that makes a highly pollutive product containing chemicals that pose harm to consumers while paying its employees the lowest possible wages is not a sustainable company.

A sustainable product is one that provides environmental, social, and economic benefits while protecting or enhancing the health of consumers and the environment over its whole life cycle, from the extraction of the raw materials used to create the product until their final disposal.⁵ Allbirds shoes, made from wool, recycled plastic, castor bean oil, and recycled carbon—with a production process that uses 60 percent less energy than what is used to make typical synthetic shoes—is an example of a sustainable product.

Examples of Sustainable and Unsustainable Markets

My Journey to Sustainable Markets

My journey to sustainable markets began almost twenty years ago when I had the chance to spend a year teaching at a university in Nairobi, Kenya. That was long before phrases like global warming and resource scarcity entered into the mainstream.

However, in that brief time in Kenya, it became clear to me that things were not right. Farmers found it more difficult to achieve strong yields in their fields because the rainy season so important to the health of crops had become shorter. And, when it rained, it was a downpour rather than a soaking rain needed to nourish the plants. The value of human labor was so diminished that it really had no value at all.

At that same time, things in my home country of the United States were just as troubling. Malfeasance and fraud brought down high-flying companies like Enron and WorldCom. Moreover, millions of Americans came to the realization that their wages were stagnating, and they could no longer be assured of a future better than that of their parents.

Following my stint in Africa, I became a consultant to companies and organizations around the world committed to using business practices to address social and environmental challenges. A trip to the Pantanal in Brazil showed me how habitat protection for jaguars was mutually beneficial for the health of the local ecosystems and for the farming practices of local ranchers, not mutually exclusive. I witnessed the partnership between Kohlberg Kravis Roberts (KKR), a global private equity firm, and the Environmental Defense Fund. The two organizations partnered to reduce the environmental footprint of the companies owned by KKR as a way to improve their bottom-line performance.

More recently, I had the opportunity to work at Handshake Partners, a boutique consulting firm founded on the belief that the Private Sector must play a role in solving many of the pressing challenges facing society. Handshake, and much of my work there, served as an incubator for many of the ideas behind this book, including the initial concept about sustainable markets and the methodology behind the network analysis used in later chapters.

Also during my time at Handshake, I was part of the work done by Guggenheim Partners, a global asset management firm, to create a publicly available assessment tool to help investors understand the sustainability implications of infrastructure projects in the hopes that those projects would generate a strong rate of return for their investors and provide environmental, social, and economic benefits to local communities.

However, I rarely took a step back and looked at this innovative work from a broader, more societal perspective. I often found myself focused on the project at hand and the immediate benefits it could provide to a select set of audiences, be they investors, farmers, or local residents. I missed the broader macro-forces in society that have a powerful say in the long-term success of those endeavors.

I most certainly failed to see that, despite the wonderful progress created by each one of these initiatives, their transformational power is not enough if we are to address the challenges facing society. Climate change, poverty, resource scarcity, and so on must be addressed in the coming years—not decades—before the damage done to our planet and the social fabric that ties all of us together is so great that we forever lose the quality of life we know today.

It was not until late 2018, when I was tasked with researching what makes a sustainable market, that the discrete observations and experiences I gained from much of my professional career began to come together into something coherent.

When I first took on that research assignment, I assumed that it would be easy. After all, sustainability was a fairly well-understood concept. Pretty much everything we use and consume is created through markets. All I had to do was look at the world through those two lenses and it would be easy to define a sustainable market.

I was wrong. Really wrong.

It only took a few days of research to make my first set of observations:

1.While much research has gone into defining a sustainable organization or product, no one has conclusively defined what makes a sustainable market and applied that definition to existing markets engaged in the production of goods and services.

2.There are precious few examples of a successful sustainable market with the ability to deliver goods or services to consumers day in and day out.

3.The world is in trouble (not that I needed much convincing).

4.The only thing powerful enough to solve the big problems facing us is sustainable markets.

5.The four sectors of the economy needed to create markets—Public, Private, Cause, and Finance—are not collaborating nearly enough to accelerate the adoption of sustainable markets.

But my research showed me enough to start making more thoughtful and informed observations:

1.A sustainable market is a marketplace that is able to bring goods and services to the consumer in a way that strikes a balance between generating profits for the producers and generating value for society, both today and into the future.

2.While there are precious few examples of existing sustainable markets, there are enough already working to give us a starting point to create more of them.

3.The world really is in trouble.

4.The only force powerful enough to save the world is sustainable markets.

5.We may be able to save the world through sustainable markets, but every one of us must first change our behaviors—and do so right now.

The Villain

Every book needs a villain—something or someone to create a sense of urgency for the reader and bring to life the ideas that come from the writing process.

Unfortunately, that villain is us.

We are running out of time. We are running out of