Exploring the sustainability transition

Why are some countries poor and others rich? How can companies improve their social and environmental sustainability — and why do they often fail at this?

When Addisu Lashitew enrolled at Wageningen University in the Netherlands as a graduate student, he expected “reasonably clear” answers to these questions.

“After all, what is the purpose of a development economics program if it cannot explain why the Netherlands is among the richest countries in the world, with a GDP per capita of $86,400, while Ethiopia remains among the poorest, with an income per capita just $3,400?” he says.

But as time went on, “it became clear that there is no single answer,” says Lashitew.

Lashitew is an associate professor of Strategic Management and the newly named Canada Research Chair (CRC) in Sustainable Enterprise.

Lashitew’s research in environmental and developmental economics has taken him all over the world. He grew up in Ethiopia and has taught in Addis Ababa as well as universities across Europe and Canada. He is also a nonresident fellow at the Global Economy and Development program of the Brookings Institution in Washington, D.C., and an adjunct associate professor at the University of Cape Town.

His CRC work will focus on a timely question of global significance: how do emerging technologies shape the incentives and capabilities of business enterprises to improve their sustainability performance?

“One of the key challenges facing business enterprises in the coming years is substantially curtailing greenhouse gas emissions to achieve carbon neutrality by 2050, as stipulated by the Paris Agreement,” says Lashitew.

At the same time, businesses must stay competitive during a period of rapid technological disruption. Lashitew’s research will analyze the multi-faceted relationships between digital transformation and corporate climate transition. He will investigate, among other things, whether technological advances will strengthen corporate environmental governance and spur green innovations that can accelerate sustainability transition.

Another question Lashitew is interested in is whether small and large firms see equal performance benefits through the use of digital technologies like AI.

Two-faced outcomes

Is technological advance always good for the environment?

Some scholars use the two-faced Roman god Janus as a metaphor for the relationship between digital technologies and environmental outcomes, says Lashitew. While digital technologies can be used to advance human and planetary health, they can also undermine it.

One example of a deliberately harmful environmental application of digital technology is Volkswagen’s 2015 emissions scandal. The company used algorithmic control to manipulate emissions performance during laboratory tests, says Lashitew. “The episode reportedly cost the company more than $30 billion (USD) in regulatory penalties and related costs. It also shows why researchers need to look behind the façade of sustainability reports to understand the underlying values of corporate leaders who make such myopic decisions.”

But there are examples on the flip side. Lashitew says firms are increasingly using AI capabilities to accelerate green innovations. “Google, for instance, has reported that it used AI to reduce the energy used for cooling its data centers by 40 per cent and Nvidia likewise claims to have improved the energy efficiency of its next-generation GPUs by 50-fold,” he says.

The problem is that such efficiency gains will make it cheaper to build data centers and ultimately increase emissions. “This is the famous Jevons paradox, which is in fact a very old idea. It goes back to the 19th-century English economist William Jevons, who noticed that when people found more efficient ways to use coal, overall coal use actually increased,” he says. This means we may not be able to innovate our way to a climate transition.

Electric vehicles are a case in point. Chinese firms that embraced the technology dominate global markets, while most North American and European automakers are struggling to keep up and calling for trade protection. (Lashitew has written about Canada’s tariff reductions for Chinese EVs.)

Clearly, the relationship between technological change and sustainability transition is full of dilemmas and paradoxes. But Lashitew hopes his research will help generate valuable insights to inform public policy and business practice toward achieving carbon neutrality by 2050.

“Most of these questions do not have simple answers, but that is precisely what makes them so interesting,” says Lashitew. “They are also timely and highly important.”