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Resource Management as a Competitive Edge

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  • Resource Competition in a World of 8 Billion People

    Companies are facing a new world of resource constraints. Humanity’s industrial footprint has greatly increased over the past two decades. (See Exhibit 1.) With rapid economic development in much of the world, global GDP is expected to rise from $69 trillion in 2008 (by purchasing power parity) to $135 trillion by 2030. The population will continue to grow, from 6.7 billion to 8.2 billion, in that same period. As a result, it will become increasingly challenging to meet demand for several vital minerals and metals, as well as for oil and water.

    exhibit

    Six sustainability megatrends are particularly pertinent for businesses and are amplified by society’s response. (See Exhibit 2.) Taken together, they represent a real call to arms for all companies in terms of addressing resource management. The decline of readily available supplies will increase competition and price volatility for four key factors of production: raw materials, energy, water, and food. At the same time, companies will need to become more aware of their generation of emissions and waste—especially if they pose health or pollution risks.

    exhibit

    Globalization has improved access to many resources, and human ingenuity continues to discover new sources and improved methods of extraction and distribution. But easily extractable, high-grade supplies are dwindling faster than new ones can be found. Few if any resources will actually run out, but companies will need to change their thinking as we go from a world of abundance to one of limits.

    As vital raw materials become harder to obtain, companies will face new roadblocks in their operations. These challenges range from higher and more volatile prices to social protest and unrest over the use of these resources as the public’s tolerance for pollution declines.

    Many commonly used materials have relatively limited known reserves. For example, silver, gold, zinc, and lead may no longer be available 30 years from now—except through recycling—if significant new stocks are not discovered or made economically viable. (See Exhibit 3.)

    exhibit

    Declining stocks inevitably lead to higher and more volatile prices, which have an immediate impact on operations and profitability. The prices of many raw materials have peaked recently, triggered by a number of factors, including an increase in demand from emerging countries—particularly Asia. Peak prices are bringing new supplies on the market, but these are usually lower-grade or hard-to-produce supplies that are useful only at high price points. Volatility, high prices, and competition for stocks will become the norm for an increasing number of raw materials.

    A similar logic applies to energy sources, such as fossil fuels—especially oil. Prices have risen from $25 to $100 a barrel in the past decade, mainly as a result of two factors. The first is again the large increase in demand from emerging countries. The second is a drop in conventional supplies as we exhaust the easily accessible deposits. Although new supplies have been discovered, these are often more expensive to refine and bring to market. The world is unlikely to run out of oil in the near term, but prices will probably continue to be volatile and gradually go higher. As for natural gas and coal, there are abundant global supplies, but most of the available natural gas requires “fracking” processes that pose environmental risks, while coal is a major contributor to air pollution.

    Water is often taken for granted, but freshwater supplies are also tightening in many parts of the world. There are multiple reasons for this, but rising affluence is a key driver. Many new middle-class consumers, for example, are replacing grain in their diet with meat, which requires far more water to produce. (See Exhibit 4.)

    exhibit

    Economic development and population growth are also affecting the stability of the climate. Rising carbon emissions have led to increasingly variable weather in recent years, and annual emissions are likely to grow by a third over the next 20 years. Long before the polar icecaps melt, companies will suffer from a greater frequency of severe weather events. CO2 emissions may well reach 40 gigatons in 2030, a good deal higher than widely accepted norms of stability. Future weather changes could be catastrophic: melting shelf ice could raise global sea levels by 20 feet, devastating coastal areas worldwide. Heat waves will be more frequent and more intense. This will ultimately affect all businesses in all parts of the world in one way or another.

    Whether companies themselves face shortages in resources, or governments and social pressures force the issue on them, these challenges will be a corporate priority in the coming years. As we move to a world where resources become a more prominent part of management’s agenda, what should companies do?