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Convened by Senator Robert Hill, Minister for the Environment and Heritage, Canberra, 5 July 2000
Environmental Economics Research Paper No. 7
© Commonwealth of Australia, 2000
ISBN 0 642 19485 8
Traditional 'environmental programs' in business, and the monitoring of those programs by indicators, and LCA based on such indicators, generally have an 'impact' perspective. From an action-point of view, it means to evaluate impacts in nature from various operational practices on the one hand, and determining what is considered to be 'realistic solutions' on the other. This 'Forecasting' methodology of planning is helpful to monitor improvements from a current perspective. However, when we want to evaluate alternative strategies to discover the routes that are most feasible to develop towards sustainability, thereby applying a strategic rather than a tactical planning methodology, we need to complete the impact perspective with backcasting from basic principles for sustainability, followed by the application of qualitative indicators that are developed from the same perspective. The principle relationships between different levels of planning in complex systems are discussed, and based on this discussion, a strategy of combining forecasting with backcasting is suggested.
Environmental measures taken in firms have so far generally been based on evaluations of scientific proofs for, or market reactions on, impacts in nature from their operational practices. This has generated substantial improvements in operational performance that are often referred to as a 'greening' of industry. Partly this greening has been about a change in attitude, from a defensive state to a more proactive. Partly it is characterized by the introduction of administrative routines such as environmental management systems like ISO 14001. Finally, it has led to some substantial changes on the market as regards a change of certain operational practices. The successful phase out of certain CFC’s is an example of the latter, and demonstrates how increasing knowledge about impacts in nature can lead to large-scale changes on the market.
This way of planning can be described as forecasting, i.e. to use the current situation, with it’s problems, as well as all the realistic assets to deal with the problems, as the starting point for planning. This perspective will not be sufficient by itself to foster an effective societal transition towards sustainability. The need for a framework for discussing problems and solutions from a sustainability perspective within the highly complex field Industrial Ecology (IE) is in line with the concluding statements from the 1996 Norwegian Academy of Technological Science seminar: 'Industrial Ecology and Sustainable Product Design' . The importance of systems thinking has been further pointed out by Bucciarelli , who means that the field of IE is full of uncertainty and it is therefore a need to see the system as a whole to consider the big picture.
We have recently presented how planning ahead can take basic principles for sustainability as its starting point, and how this perspective offers more strategic ways for overall business planning, as well as a methodology for the choice and design of tools to monitor the transitions [1,2,11]. In this paper we describe why today’s way of planning with forecasting needs to be combined with a framework based on backcasting. In section 1 we describe some characteristics of the 'forecasting-perspective', and comment on the rationales for it. In section 2 we describe an abridged version of the previously presented backcasting methodology–The Natural Step Framework. In section 3 we describe a model that outlines the hierarchical relationships between principally different levels for planning in a complex system. In section 4 we discuss why effective business strategies should build on a combination of forecasting and backcasting.
Forecasting from current trends
Using forecasting implies that the future is predicted from experiences of the past, and planning is carried out as an extrapolation from today’s situation . Forecasting is often used within environmental management systems through the application of impact-assessments for different processes . When impact assessments are used it is possible to detect and evaluate the relative impact that each product and service has on nature, as well as to make a comparison between their respective contributions to effects in nature. In this context, improved operational practices are generally easy to communicate. Since current knowledge about impacts in nature–by natural reasons–is often reflected in media, decision makers often need this perspective to remain credible in the eyes of their stakeholders.
Backcasting from a sustainability perspective
Using backcasting implies that the starting point is a description of a successful outcome in the future , where after the strategic paths towards this goal are designed. In this way, today’s trends (i.e. customers preferences) are only allowed to determine the pace of transition, not its direction. This is the essence of backcasting .
Since nobody can foresee the future in detail, backcasting can sometimes be considered to be a problematic way of creating momentum in a process of change. It is difficult to reach consensus on very detailed descriptions of a desirable future. We have previously described how this problem can be dealt with by using basic principles that define a successful outcome, rather than to start the planning from detailed visions . In The Natural Step Framework we use a set of non-overlapping basic principles, called The Four System Conditions. These principles are concrete enough to serve as guidelines for planning and yet general enough to cover all aspects of sustainability in all sectors of business and society at large. This could be compared with the game chess. It is principles for success–the principles of check mate–that is the overall goal for any strategy by which the game is played .
The System Conditions for ecological sustainability are elaborated from the only three basic mechanisms by which nature can be destroyed, followed by a 'not' inserted in those mechanisms. The System Condition for social sustainability is simply stated as the requirement to meet human needs within the frame set by the three System Conditions for ecological sustainability:
In order for a society to be sustainable, nature’s functions and diversity are not systematically…
When using The Natural Step Framework the System Conditions are used in a dynamic way to first lay out the overall business goals, and then to structure information and prioritize measures in a way that is relevant for the transition towards the planned goals. It is then easier to chose and design relevant tools and data to foster and monitor the transition towards sustainability . When using The Natural Step Framework sustainability planning is structured in the following way:
A. Share and discuss the framework among the participants. The principles for sustainability are derived and the rationale behind the A-B-C-D steps is discussed between participants taking part in the process.
B. Analyze present situation. List critical flows and practices with reference to the system conditions. 'In what ways and to what extent, are we contributing to the violation of the system conditions today? In what ways are we part of today’s increasing concentrations of CO2 in the atmosphere, heavy metals in soils (system condition 1) etc.' At this point, relevant indicators and tools to monitor the phase out of these contributions are also identified.
C. Envisioning of a future, in which the actual business (or any societal activity) is no longer part of the problem. 'How can the services we provide, and in which we are specialists, be provided in a way that does not contribute to the violation of the system conditions?' List possible solutions, and disregard whether they are economically 'realistic' or not in the short term.
D. Design a strategic program. Solutions leading to point C are selected by combining two characteristics: firstly that they are well suited to elaborate further, i.e. flexible platforms rather than dead ends for future improvements. Secondly that they are believed to be sound from a business strategic point of view, i.e. are likely to give good return on investment. It is the combinations of these characteristics that provide the rationale for how to strategically link short term with long term.
The System Conditions are helpful for discovering the 'upstream' causes behind problems at hand (part B above). The understanding of the System Conditions makes it easier to see through all the social and ecological impacts from violating them, and to solve problems 'upstream' rather than fixing symptoms 'downstream', one by one as they appear. The other major advantage is that the same System Conditions can be used as a 'lighthouse' to secure that all suggested 'solutions' to the problems are sustainable (part C above) and that the selected solutions are flexible for further improvements in a sustainable direction (part D above). In combination with the strategy to select measures with relatively good chances of giving good return on investment, the chances of optimizing future progress get fueled by a relatively stronger economy in a positive spiral. If the qualities are not combined, the actor might run out of money, find their competitive position diminished , or find solutions in a sub-optimized way .
Hierarchical relationships between principally different levels for planning in a complex system
Before we describe how it is possible to combine the perspectives that were described above we need to present a general outline of how principles, activities, and ways to monitor a process, are interrelated in any system (see figure 3) . There are constitutional principles, i.e. principles that (1) describe the system. For instance principles that define society’s infrastructure for an air transport system (principles that describe the interrelated functions of airlines, airplanes, airports, authorities etc.). Then there are principles that (2) determine favorable outcomes in a system. In the case of an air transport system, the principles determining favorable outcomes would be that (a) frequent enough airplane flights (b) arrive at the right destination, (c) safely, (d) comfortably, and (e) on time. Then there are principles that (3) describe how to reach a favorable outcome in a system, in these cases strategic principles for supervising, operating and navigating airplanes.
Then, there are (4) various activities that must be aligned with those principles, i.e. the series of concrete activities that make all the technical facilities and logistics of a system work in line with the principles for how to reach a favorable outcome. Finally, there are (5) numerous ways of measuring and monitoring those activities ('metrics'), so that they are really aligned with the principles necessary to reach the favorable outcome. For instance measures to determine that the speed, direction, and altitude are in line with the planning of a flight, that the remaining fuel in the tanks is sufficient, etc.
Sometimes, things go wrong in spite of thorough planning. It is therefore important to develop measuring systems also for the negative effects, for instance statistics on complaints from angry or scared passengers, metrics to determine material weaknesses in the production of the airplanes, analysis of 'black boxes' after flight accidents, etc. The two aspects of metrics–metrics on activities for operation and improvement on the one hand, and metrics on mistakes on the other–are interrelated. Thoroughly performed metrics on previous mistakes, will help design more efficient principles for safe and comfortable flying, as well as suggesting improved metrics to monitor such progress. Smart strategies, activities, and metrics for improvement of the air transport system, should at first be focusing on principles that deal with the underlying causes of previous mistakes, so that the need for metrics on unfavorable outcomes and accidents in the future will be reduced as much as possible.
Figure 4 describes the same outline as in figure 3 but from a sustainability perspective. Level 1 consists of principles describing how the biosphere/society system is constituted, for example ecological principles and social principles. The framework that has been outlined in this paper, called The Natural Step Framework, is a framework that covers level 2 and 3. Level 2 consists of principles for sustainability (the System Conditions) and these are principles that define a stage, a certain favorable outcome. Principles for sustainability should not be confused with ecological principles that belong to level 1. Level 3 consists of principles for sustainable development. These are principles for a process to meet principles for sustainability (the transition towards sustainability, and then the safe development thereafter). Principles for sustainable development should not be confused with principles for sustainability.
Level 4 are activities that are aligned with the principles for sustainable development, for instance to change from non-renewable energy to renewable energy, or to start the recycling of material in society. Other examples are changes to more appropriate tax systems, or other economic measures to foster activities aligned with principles for sustainable development. Activities for sustainable development should not be confused with principles for sustainable development. For instance, it is possible to violate all principles for sustainability and sustainable development with renewable energy or recycling if the action changing from using 'non-renewable' to 'renewable' energy could lead to the impoverishment of forests and other parts of the ecosystems, or to increased concentrations of scarce metals in the ecosystems from poorly recycled photovoltaics. In the same way 'recycling' of cadmium batteries from households can lead to increased concentrations of cadmium in nature. This metal is normally very scarce in ecosystems, and should only be used in tightly controlled technical systems. This tight control is lost in flows between households and industry subsequently resulting in increasing concentrations of cadmium in nature. Consequently, it is essential that we relate various activities to the underlying principles, and avoid confusing these levels with each other.
Metrics for sustainable development, level 5, are different concepts and tools for measuring and monitoring the transition. There are two levels of this. Firstly, metrics can be used to (i) test the relevance, quality, and quantity of various activities to ensure they are really aligned with the principles for sustainable development. Examples are measurements to determine that material flows are really decreased to levels that are sustainable. Other examples are the rate of recycling, and the purity of the recycled fractions, or the use of renewable compared to non-renewable energy. Secondly, one can (ii) perform metrics on specific impacts in nature (when principles for sustainability are violated). Examples are various indices on 'global warming potential of gases', or 'H+ equivalents of acidifying substances'. Such data can be of value of the choice of smart 'stepping stones', but like with metrics for the air transport system, metrics focusing on upstream solutions of the underlying causes of symptoms generally have a higher strategic value than metrics on the downstream effects–the symptoms. 'Which of these alternatives is the easiest–from a business point of view–to elaborate all the way?' One major advantage of having access to basic principles for the favorable outcome of any planning procedure (in this case sustainability) is that it creates questions that steers decisions in the desired direction.
To combine forecasting and backcasting for successful planning
The traditional forecasting perspective provides a planning procedure with relevant information on today’s impacts in nature, and how those impacts influence current market trends. This is orientation around current trends, and responding to actual market demands from a competitive point of view. The weakness in applying solely a forecasting perspective in a planning procedure is that it deprives the planning process of a sense of direction, and may lead into blind alleys. Marginal changes can be counter-productive, even if they are reducing today’s impact on nature. Marginal changes of an old system can lock up resources that could be used in a strategically smarter way. Finally it is difficult to deal with tradeoffs. Due to complexity, 'pest or cholera' debates often provide less help for strategic planning than to first imagine a future situation where the trade-off does not exist, and then find paths to that point.
Neither is it a good business idea to solely apply backcasting. It would mean to deprive the planning procedure of the important trends that drive the market today and that determine what is realistic or not. When combining the two perspectives, backcasting gives the direction of planning, and forecasting can provide important information on relevant market trends and can sometimes also influence the choice of smart 'stepping stones'.
Today’s LCA and other environmental management assessments are often based on a current impact perspective. Calculations are, for instance, based on how different product alternatives are influenced by today’s use of fossil fuels in electricity production and for transportation [5,7]. Maybe the results would have played a larger role for business, if they had been proceeded by discussions in how to merge short term trends with long term perspectives in a strategic step-by-step fashion, and if the LCA had been complemented with assessments that assume that the product or process exists in a sustainable society. What parameters are likely to change when the whole society approaches sustainability?
A recent Swedish study on the implementation of environmental management systems in Swedish companies concluded that it is only 10% of corporations that have allowed the results from LCA to influence the measures taken . The paper did not present any ideas of the background to this. However, in line with the above the mechanisms may be that:
In conclusion, traditional indicators, and LCA based on such indicators, generally have an impact perspective, in order to foster reduction of deleterious effects in nature. This can be helpful to monitor improvements from a current perspective. However, when we want to evaluate alternative strategies to discover the routes that are most feasible to develop towards sustainability, thereby applying a strategic rather than a tactic perspective, we need to complete the LCA with qualitative assessments that follow from principles for sustainability.
In what ways can a firm suffer from such alleys that are 'blind' from a sustainability perspective?  If a firm is systematically part of the problems rather than the solutions–contributing relatively much to society’s violation of the system conditions–it is easy to demonstrate relatively larger risks for that firm to be economically 'hit' by increased costs for purchase of resources, waste management, taxes, insurances, loans, and to loose market shares to those who plan skillfully towards a sustainable future. In practice, the risk in making progress too fast on the market must be balanced with the risk of being too late. 'to be on the leading edge' is the most commonly applied strategy, and backcasting is the way to know where the leading edge is.
An example from Electrolux
An example of concrete planning comes from Electrolux, who started the planning to get rid of CFC’S by forecasting . The first option they considered was to substitute CFC’s for HCFC’s since HCFC’s have a lower impact on the ozone layer. This plan was further supported by an 'LCA/Forecasting' perspective. It had revealed a tradeoff between HCFC on the one hand (with its uncertainty on the future market) and the high efficiency of HCFC-produced insulation on the other. Considering that the main environmental impact from a refrigerator is not during its production (relatively small amounts of HCFC’S), but during the time it is used (relatively large amounts of emissions from the energy-sector), this forecasting analysis had favored HCFC technology. However, by applying backcasting from the system conditions the management team of Electrolux realized that the switch to HCFC would imply an expensive transition into a blind alley, since there was no room for the relatively persistent HCFC’s in their future scenarios (system condition 2). Instead they choose a 'flexible stepping stone' through the intermediate step of R134a, the technology of which fitted as a flexible platform to the next generation of hydrocarbons, in the same time as R 134a fitted current trends on the market.
When companies expand their environmental work from solely forecasting on current trends into a strategy for sustainability they often find it hard, or unnecessary defining their boundaries for responsibility. When using backcasting they instead involve various stakeholders in their strategy.
An example from Swedish McDonalds
As a consequence of applying The Natural Step Framework, Swedish McDonalds expanded their business idea from 'selling hamburgers' to a sustainable idea of 'fulfilling the need for nutritious inexpensive fast food where people happen to be'. By then Swedish McDonalds entered a discussion on where the boundaries for responsibility were. They decided that there were no boundaries; they needed to include the suppliers into the process.
Usually business-to-business suppliers are facing very short term and detailed demands from their customers. Swedish McDonalds decided to choose another approach that they found more effective in this area. As a first step they identified the core processes of their business, (Farming, Goods transportation, Construction, Packaging and Hygiene). For each one of these processes, together with external experts, using The Natural Step Framework, McDonalds developed so called 'pathfinder documents'. These documents describe today’s problems from a sustainability perspective (B above) and a vision for sustainability (C above), and some overall priorities to be further elaborated in a dialogue with the suppliers.
The next step was to invite all suppliers and explain the rationale behind the 'pathfinder documents', and to involve all suppliers in McDonalds strive towards sustainability. During the seminar Swedish McDonalds director of procurement stated that: 'You (the suppliers) are the experts and we will work with the ones of you who most effectively support our journey towards sustainability' . The dialogue implies, that it is possible for both parts to concentrate on what they are good at, and to do so step-by-step by improvements in today’s work as well as prepare for tomorrows market.
The two business examples provide examples of a strategic perspective with the linkage of short term with long term on the one hand, and ecology with economy on the other. This perspective is closer to CEO thinking than an isolated impact perspective, which thereby helps recruiting the management team into the process as intellectual partners. This is not only mandatory–the business evaluation of different optional routes towards sustainability is key–but also highly feasible, since using a framework for a strategic approach towards economical and ecological sustainability, as well as the self-benefit in applying such framework can easily be communicated to business people.
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