The technology sector is playing an increasingly prominent role in dealing with environmental problems. Not only because they have to, but also because investors demand more than just commercial goals. Making sustainability, well-being and social impact measurable is therefore becoming increasingly important.
“Who has ever changed a phone battery themselves?” Fairphone founder Bas van Abel asks his audience at the business tech event The Next Web, held a few months ago. A handful of hands go up in the air. “You must be developers,” he says jokingly, but with a serious undertone. The manufacturer of detachable phones argues that the life of the products should be extended.
It confirms the prevailing image of a society where we still throw away a lot unnecessarily and few raw materials and materials remain in circulation. This presents a problem of accessibility for future generations. And by the way, with the harmful consequences of global warming and loss of biodiversity, because our current method of linear production involves much more consumption and emissions than would be the case in a circular economy.
From a social point of view, this deficiency is a major problem. All the more so because the reduction of environmental damage is an infernal task when continuing current consumption patterns. That damage is still increasing, and therefore there is a need for a system change where consumers, governments, manufacturers and service providers play a role.
Use technology for social purposes
Such a system change cannot only rely on technology and innovation. Behavioral change is essential, as the UN climate panel IPCC also makes clear. Nevertheless, technology and innovation play a decisive role. It enables companies to produce in a more environmentally friendly way, to reduce dependence on fossil energy sources and to create awareness about, for example, energy consumption, thereby also supporting behavioral changes.
A good example of the importance of technology can be seen in the presentation of vertical farm Growing. The leafy vegetables, which are grown in a controlled environment, have – per cluster – digital doppelgangers through which the optimal lighting, nutrition, climate conditions and watering can be tested. This goes hand in hand with sensors that collect large amounts of data. This enables the company to grow as sustainably as possible and cause as little waste as possible.
The appeal that designer Anandita Punj of Info, which provides this Digital Twinning technology, makes to The Next Web is significant: no untargeted customer acquisition, but an emphatic commitment to work together to use the digital double for social ends. For example, there are possibilities for digital twins of e-bike batteries. Predictions about battery life can be made based on existing user behavior and information about the environment. “This allows us to give advice to users, for example on the optimal time to charge.”
In this way, the technology can also be used to encourage behavioral changes, explains the designer. “The life of a battery is strongly determined by usage behavior. For example, if we share knowledge about this, better maintenance can lead to longer battery life. If we can optimize the life of batteries by 10 to 20 percent as a result, large-scale use will result in much less electronic trash.”
Her call does not stand alone. New research (pdf) from the consulting firm Capgemini shows that – in addition to more commercial goals – sustainability is one of the decisive reasons why more than half of companies invest in Digital Twinning. An appealing example at the government level is Singapore, which has a replica of the city to run simulations. In this way, for example, it can be better determined where solar panels are particularly suitable.
Technology can also be used to save energy. The manufacturer of refrigerator sensors Therma helps restaurants and schools to real time Display temperature and humidity from a distance. In addition, failures can be predicted in advance, preventing the harmful emissions released by leaky refrigerators. Emissions of fluorocarbons and have a strong climate warming effect.
What a breakthrough of climate technology Tech companies don’t necessarily rely on legislation that encourages climate friendliness, says Therma founder Aaron Cohen. For example, California has a more sustainable political wind than Texas. “But in both cases, our dashboard is well received.” Tackling climate-related challenges is therefore partly motivated by one’s own intentions instead of simply waiting for guidance from the authorities.
Pressure from society
At the same time, societal pressure can accelerate a movement towards using technology for societal goals. This pressure comes e.g. from investors. The accounting and consulting firm PwC concluded last year that social responsibility is increasingly high on the agenda for investors, and that smaller venture investors are also aware of this. More money therefore goes to investments in social goals.
Although the focus seems to be primarily on climate, it is obvious that several social aspects of corporate social responsibility are also gaining more importance. This could, for example, concern the handling of human rights in a value chain, the contribution to an environment or the working conditions of our own employees. These are also components of sustainable entrepreneurship. An expert group from the European Commission agrees (pdf) that investors have paid more attention to the social aspect of sustainable business in recent years.
Culture as X factor
A further incentive is that economic and social interests can run parallel. Professor Alex Edmans of the London Business School concluded ten years ago, based on stock market data between April 1984 and the end of 2011, that employee satisfaction leads to higher returns.
If you do not take good care of your employees and the environment, you also run the risk of staff leaving or revenue being lost due to reputational damage. Harsh working conditions are less socially acceptable. This can lead to the loss of customers and suppliers or a slap on the fingers of the regulatory authorities. In addition, the voice of the employees is becoming more important now that the shortage of staff is severe.
“Culture is an X-factor for companies”, emphasizes Ernst Rustenhoven of the venture capitalist Slingshot Ventures the importance of well-being. The venture investor tests this with companies in which it is a shareholder. For example, surveys are conducted among management (and sometimes even interviews) to test the degree of well-being. This gives the venture capitalist more insight into matters that are not directly measured in the calibrated financial indicators, but which are of great importance.
Measurement of contribution to well-being for society
Director Meik Wiking of The Happiness Research Institute helps investors who want to quantify their contribution to the well-being of society. The Danish Research Agency has developed a concrete indicator for this: ‘Well-being adjusted life years’ or WALYs. With more than 100,000 panel members’ self-reporting over the years, it was investigated how many years of good well-being are lost when, for example, diabetes, depression or Alzheimer’s disease occurs. With this knowledge, the social return on an investment can be calculated depending on the business activities of the company in question.
The analysis agency thus offers an alternative on The Next Web to test the performance of companies against calibrated, financial and clearly measurable indicators, such as turnover, gross profit, operating result or ROI. With an objective method to measure well-being, it is possible to see how many WALYs are withheld per euro or dollar invested, the researcher shows. Such results can then be compared with more traditional return criteria, which are easier to quantify.
After all, the macroeconomic indicators, which are usually based on linear measures, do not tell everything about the actual development of well-being in a society. In Denmark, for example, economic growth went hand in hand with more stress, loneliness and psychological problems, shows a report (pdf) from the Happiness Research Institute. And for the Netherlands, ABN AMRO’s sectoral welfare monitor shows that economic growth can run counter to employee health and safety.
Measurement of contribution to well-being for society
The Danish researchers are joining an increasing number of initiatives to make social goals more measurable. It is not for nothing that the story got a big stage on The Next Web.
Measurable criteria for well-being give investors the tools to further increase their societal importance, and the pressure to put technology and innovation ahead of individual commercial goals is increasing. Companies that generate more societal significance will then have a greater chance of capital injections. In this way, the ecosystem around the technology’s social impact is further shaped.
About the author: Sonny Duijn is Sector Economist Themes at ABN AMRO.
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