Continuing the discussion on low carbon dioxide emission in land use, Roberto S. Waack, CEO of the Renova Foundation, discusses the importance of technological innovation and management from the concept of dynamic capabilities. Continue reading.
INNOVATION AND DYNAMIC CAPABILITIES
“You really only know when you know little. Doubt grows with knowledge”. Goethe
The management of externalities is one of the main drivers of innovation in the world today. One of the great scholars of the role of innovation in business management, David Teece, of the Institute for Business Innovation of the University of California (Berkeley), addressed the concept of dynamic capabilities a few years ago. Its application in the agroforestry sector is more relevant than ever. It involves important technological breakthroughs on several frontiers: forest, land use, intensification of production, processing and logistics of food, fiber and energy.
According to Teece, the global winners will be companies with a rapid and dynamic response to the innovative environment, demonstrating management capabilities to incorporate new skills and deal with new challenges, both internal and external, that may arise. In other words, innovation does not take place only in the field of new technologies or products, but requires new skills in management models. The concept of dynamic capabilities emphasizes two aspects: first, the ability to understand and incorporate fast changes in the external environment; and second, the need to adapt, integrate and reconfigure organizational elements, resources, skills and functional routines.
After a long process leading to a reaction of the countries threated by climate change, culminating in the Agreement of Paris, a new journey has begun. We have entered the phase of the technological curve necessary for the consolidation of the low-carbon economy. According to the theory of technological adoption life cycles (“S curve” of innovation), technologies that will replace the prevailing ones in each period are hidden in these.
At first, they are less efficient, more expensive, less attractive to consumers, demanding changes of habits and regulations. They need to enter the exponential growth phase to finally overcome the traditional way goods are produced. Therefore, events such as COP-21 normally demand a tipping point.
During the Paris Conference, Christiana Figueres, former executive secretary of the United Nations Framework Convention on Climate Change (UNFCCC), mentioned a few times that “the signal is above the noise”. Meaning: COP-21 confirmed the signal of a future low-carbon economy. The noises are the doubts of Goethe’s quote. The phrase reflects the fact that the range and depth of an area of knowledge grows for those who dig deeper. The open questions are multiplying instead of decreasing. The movement Coalition Brazil, Climate, Forests and Agriculture daily experiences this situation.
Technology changes occur when a certain critical mass is reached. Discussing the role of the various players in the field of the consolidation of a low-carbon economy, Al Gore used a funny and enlightening joke: “The US president arrives at a dinner and asks for butter. The waiter refuses. The President asks: ‘Don’t you know who I am? I am the president of the United States!’ And the waiter says, ‘And I am the one who take care of the butter’.”
Who takes care of the delicacies to spread on the bread at each moment in time are the entrepreneurs and civil society. Governments have a critical role in consolidating the political and regulatory environment, but the menu of opportunities is challenging. It is not known exactly how the economic system will work in an environment where the low-carbon economy will be predominant.
In this game, the private sector has a key role, not only facing the moral dilemma of externalities, but leading the opportunities that the new scenario offers. It is a challenging environment, unlike the way the economy develops traditionally. So, it is not clear yet how it will evolve. Social and environmental inclusion is inexorable. “We have created a very powerful dream. Now we need to create reality”, says Figueres, citing Golda Meir.
The dialogue between nations is not trivial, but everything changes when the community of institutional investors enter the field. The realization that their fiduciary responsibilities are related to climate change is evident and requires new ways of dealing with investment profiles. Moving forward, from this it is understood that the opportunities for Brazilian agribusiness are immense and require adjustments in how the land is used. Just observing what happens on the farms is no longer enough. It is necessary to seek greater integration with the surroundings.
The concept of landscape management shows to be a promising path. New professional skills are necessary, expanding the already innovative management of externalities towards a wider territorial vision, more interdependent and complex.
Tom Steyer, one of the important names in the world of capital management, says that the game goes through three “Cs”. First, the commitments of countries aligning the private agenda to the Intended Nationally Determined Contributions (INDCs) and binding commitment of transparency and the measurements of emissions of greenhouse gases. Second, cooperation, or interdependence, as nothing will occur in isolation. The links are becoming evident and among them there are opportunities for new institutional and business arrangements. Finally, trust, crucial to expectations and long-term decisions, but highly dependent on the momentum that the Paris agenda imposed. Clarity is the basis for building cooperation which in return generates confidence.
The role of financial players navigates the world of impact of the climate agenda in the valuation of assets. Valuations will change dramatically with the inclusion of externalities and future risks associated with climate change. But not only risks. Diving into the opportunities of the new frontiers and innovations that this agenda offers will be crucial to define the leaders who will occupy the gaps of the low-carbon economy. In other words, one of the great risks is precisely to lose this opportunity. Advances in pricing and carbon taxation are on the horizon. Business associated with emissions – such as those related to fossil fuels – are confronted with those who promote the sequestration and storage of carbon, similar to the forests. The unique feature of the land-use segment and its relation to emissions stands out. Innovations orientated towards the reduction of emissions arising from land management, relations with conservation and restoration of soils and forests, as well as advances in the production of agricultural and forestry commodities, possibly combined, align themselves for the removal of carbon dioxide related to the preserved and stimulated plant metabolism.
One of the richest discussions concerns the macro-alternatives to deal with the reduction of emissions. One line argues that the solutions will come from the development of technologies for low-carbon emission and its sequestration in the atmosphere. These are the so called “artificial trees” the developed countries are investing in. On the other hand, there is the forceful defense of the forests as the most efficient means to remove and keep carbon stocks under control. Brazil has significant comparative advantages in land use and the production of food, fiber and energy. The mobilization of key forest stakeholders and agribusiness – including livestock and their interrelationship with civil society – is crucial so that we can take advantage of the new technological wave.
In Brazil’s case, it is based on the extensive valorization of natural capital. The country dominates most of the necessary technological fundamentals. Among the demands are refinement efforts, such as in the field of native forestry (for the restoration agenda), and the consolidation of opportunities to combine forest with agriculture. The adjustment of public policies is essential, as demonstrated by the successful case of ethanol.
In the list of practical challenges appear instruments for monitoring, control and traceability to end deforestation and illegal timber trade. This does not mean that Brazil will act only on the front of changes in land use. National emissions are growing in the areas of energy and transportation (fuel), but both may also come up with partial solutions from the proper management of natural capital. The low-carbon logistics is an example.
This game of the consolidation of new technological curves depends on many players. The leadership in the development and use of new technological alternatives seem to be in the private sector, but it will require decisive public policies and elements such as changing consumer habits and the educational component of the population.
On April 5, the fourth post in the series on low-carbon dioxide emissions in land use, article by Roberto S. Waack, CEO of the Renova Foundation will be available. Keep informed.