With society growing from the comforts of industrial production and consumption, it is not an easy task to continue providing society with such a level of affluence in the future. It is even more difficult to imagine a lifestyle where society’s relationships with the earth’s ecosystem could allow for all of life to flourish. Balancing these relationships is at the heart of the IPATE formula initially proposed by Holdren and Ehrlich (1974). Many have followed this approach to understand what sustainable relationship could balance Impacts (I) coming from Population (P), Affluence (A) and Technology (T) and Ethics (E) (Reijnders, 1998) (Kågeson, 1999) (Schmidt-Bleek, 2000).
Starting from this formula, Armory and Hunter Lovins set out to double the output while halving the necessary resources, in what was called Factor 4 reductions (Weizsēker et al., 1998). In order to determine a level that would ensure answering the needs of all society and future generations, Factor 20 reductions have been hypothesized as the level that balances the system back to equilibrium (Ryan, 1998). In 1998, Vergragt related the following origins of this goal of Factor 20 (Vergragt and Van der Wel, 1998).
“If in the next 50 years the world’s populations would increase by a Factor 2, and if the welfare of the world’s population goes up by a Factor of 5 (a condition for equity), the environmental burden per unit of need fulfillment should go down by a Factor of 10-20 in order to reach a sustainable society.”
2I : 2P · 5A ·T · E
The uncertainty between Factor 10 or 20 depends on if we consider that we are already consuming the equivalent of one or two Earths. If we were to regard the influence of population demographics as the responsibility of governments through their policies and thus beyond the reach of business, all organizations should strive for a Factor 20 reduction of impacts from the technology and affluence couple. The challenge becomes to search for means and opportunities to reduce the impacts of everyday products and services we consume by 95%.
Figure 1: Hierarchy of Eco-efficiency
In the diagram above, working towards a Factor 20 objective from a purely technological standpoint is described as reaching a sustainable level. We can then see that four levels of improvements have been identified to form an eco-efficiency hierarchy (Brezet and Hemel, 1997). To observe the difference between the levels, we can take for example the function of mobility offered by a car. At the first level of product improvement, we could look to optimize the propulsion engine in the form of a hybrid car. The second level of product redesign, we could consider refocusing on the context of city use and thus propose a smaller car for just two people. At the second level, the product changes but the same business model suffices within an existing distribution chain. The third level of function innovation addresses the need of individual travel in the city as well. However, it changes the way we answer this need of mobility. An example of this level is a car sharing business model. We expect to see Factor 10 environmental benefits for this 3rd level. For the fourth and last level, we are referring to a system innovation where a different approach all together can answer the need of multiple consumers in the city centre. A common example would be a mass transit system like a metro and bus network. Or, completely different lifestyle scenarios within a service economy such as the ones designed by Manzini and Vezzoli (2003). Also, according to Charter and Tischner (2001) this last level of system innovation is considered to be in line with a sustainable level placed at Factor 20.
This illustration turns out to be more of a diagram than a precise graph. It serves as a simple image to explain the varying reach and potential transformation in a product or its system. On the X axis of time, it is assumed that it’s easier to create better products and process redesigns than whole systems changes, including the establishment of new cultures and infrastructures. On the Y axis, the actual correspondence to differentiated factors of environmental benefits remains a theory to be demonstrated in empirical research.
The direct correspondence between function or system innovation and high factors of environmental impact reduction is what is questioned in this paper. Although, having certain business and environmental potential, current examples and cases often lack sufficient evidence about their environmental superiority as compared to traditional business models (Mont and Lindhqvist, 2003). Therefore we ask: Is there enough research evidence to conclude that function or system innovation actually offers a potential for reducing environmental impacts of the level of Factor 10 or Factor 20? In order to answer this question, we will review existing research data on function and systems innovation in the form of new business models and see if they offer a 90 to 95% relative amount of environmental improvements.
More precisely, we begin by describing the evolution of business models that constitute a function or system innovation. Second, we briefly describe the need for life cycle assessments to evaluate reductions in environmental impacts. Third, we aggregate multiple research data of business models and their corresponding impacts on the environment. Fourth, in light of this evidence, we discuss the following three elements. We determine if there is enough empirical proof from this review that business models can attain Factor 20 environmental impact reduction. We go further into studying the evidence of environmental benefits of the car sharing business models. We reflect upon the limits in measuring the impacts of business models as they are bound by the means to calculate these reductions: life cycle evaluations. Finally, we conclude by offering some insights for designing and further researching business models with environmental benefits.