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2013


Since 2010, MIT Sloan Management Review and The Boston Consulting Group have been charting how organizations have tackled sustainability-related challenges — from resource scarcity to customer demands for healthier products — with innovations that create business value. Our 2010 study found Sustainability Embracers, who firmly believe that sustainability is necessary to be competitive. In 2011, we probed the business dimension more deeply and discovered that sustainability had become a permanent element of many company agendas and a source of profit for some.

This year, the trend toward profit continued: Key measures bumped up and showed that sustainability is paying off for a growing number of companies. Overall, the portion of respondents reporting profit from sustainability went up 23%, to 37% of the total.

But perhaps most important: Nearly 50% of companies have changed their business models as a result of sustainability opportunities — a 20% jump over last year. As we will explore in detail, business-model innovation is the crux of sustainability profits. Companies reporting that it adds to their bottom lines leverage these innovations to translate sustainability opportunities and pressures into business value.

A Clear Trajectory

Demands are coming from all sides, creating a systemic imperative and an opportunity to advance sustainability goals. As companies in many industries grapple with costs, they are turning to their supply chains to reduce energy use, simplify packaging, mitigate commodity price risks and meet customer sustainability expectations. Consumers, especially in Europe, are increasingly aware of a product’s sustainability credentials and willing to pay a premium for environmentally sound products and services. Employees’ expectations bring a strong internal pressure. Their growing commitment to sustainability makes the company’s footprint a key element in attracting and retaining talent, especially among younger generations.

The systemic effect of these demands is elevating the sustainability agenda in a wide range of industries. Companies in resource-intensive industries have been grappling with sustainability issues for a number of years. But other industries, from consumer products to software, are also increasing their focus on sustainability. Reinsurers, for example, are adding sustainability risks to the actuarial equation, driving companies to innovate to avert those risks.

About the Authors:

David Kiron is executive editor of MIT Sloan Management Review‘s Big Ideas initiatives.

Nina Kruschwitz is MIT Sloan Management Review‘s managing editor and special projects manager.

Knut Haanaes is a partner and managing director in the Boston Consulting Group’s Geneva office, as well as head of BCG’s Strategy Practice Area.

Martin Reeves is a senior partner and managing director in the Boston Consulting Group’s New York office and leads the BCG Strategy Institute worldwide.

Eugene Goh is a principal in the Boston Consulting Group’s Oslo office and a core member of BCG’s sustainability team.


Contributors

Carola Diepenhorst, marketing manager, BCG
Stian Glendrange, associate, BCG
Olivier Jaeggi, managing partner, ECOFACT
Jason Jay, director, MIT Sloan Initiative for Sustainable Business and Society, MIT Sloan School of Management
Martha E. Mangelsdorf, editorial director, MIT Sloan Management Review
Edward Ruehle, writer
Diederik Vismans, project leader, BCG
Douglas Woods, partner and managing director, BCG


Acknowledgments

Dan Bena, Sr. Director of Sustainable Development, PepsiCo Inc.; Betsy Blaisdell, Sr. Manager of Environmental Stewardship, The Timberland Company; Michael Bremans, Chairman, Ecover Belgium NV; David Bresch, Head of Sustainability and Political Risk Management, Swiss Re; Robin Chase, Cofounder and former CEO, Zipcar and founder, Buzzcar; Douglas Conant, former CEO, Campbell Soup Company and founder, ConantLeadership; Tom Falk, CEO, Kimberly-Clark Corporation; Suzanne Fallender, Director of CSR Strategy & Communications, Intel Corporation; Peter Graf, Chief Sustainability Officer, SAP AG; Scott Griffin, CEO, Greif Corporation; Dan Hesse, CEO, Sprint Nextel Corporation; Jason Jay, Director of the MIT Sloan Initiative for Sustainable Business and Society, MIT Sloan School of Management; Hans Jöhr, Corporate Head of Agriculture, Nestlé SA; Chris McGrath, Vice President of External Affairs, Kraft Foods Group Inc.; Paul Murphy, Chief Executive Officer, Valid Nutrition; Ronald J. Meissen, Sr. Director of Sustainability, Baxter Healthcare Corporation; John Pflueger, Principal Environmental Strategist, Dell Inc.; John Schulz, Director of Sustainability Operations, AT&T Inc.; Susan Voigt, Vice President, Environment, Health, Safety and Sustainability, Bristol-Myers Squibb Company; Stefan Waechter, Knowledge Analyst, Boston Consulting Group Inc.; Peggy Ward, Director of the Enterprise Sustainability Strategy Team, Kimberly-Clark Corporation; Scott Wickers, Chief Sustainability Officer, United Parcel Service Inc.

Portions of this article previously appeared in “The Benefits of Sustainability-Driven Innovation,” MIT Sloan Management Review 54, no. 2 (winter 2013): 69-73.

References

1. PepsiCo, "Purpose," n.d., www.pepsico.com.

2. There are many business model frameworks to choose from. See, for example, H. Chesbrough, "Open Business Models: How to Thrive in the New Innovation Landscape" (Boston: Harvard Business Press, 2006); M.W. Johnson, C.M. Christensen and H. Kagermann, "Reinventing Your Business Model," Harvard Business Review 86, no. 12 (December 2008): 50-59; A. Osterwalder and Y. Pigneur, "Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers" (Hoboken, New Jersey: John Wiley and Sons, 2010); P. Lindgren, R. Jørgensen, Y. Taran and K.F. Saghaug, "Deliverable D 4.1 Baseline for Networked Innovation Models," NEFFICS Consortium, 2011; R. Amit and C. Zott, "Creating Value Through Business Model Innovation," MIT Sloan Management Review 53, no. 3 (spring 2012): 41-49; and Z. Lindgardt, M. Reeves, G. Stalk and M. Deimler, "Business Model Innovation: When the Game Gets Tough, Change the Game," Boston Consulting Group, December 2009.

3. N. Kruschwitz, "Why Kraft Foods Cares About Fair Trade Chocolate," MIT Sloan Management Review, September 12, 2012, http://sloanreview.mit.edu/feature/why-kraft-foods-cares-about-fair-trade-chocolate/.

4. L. Brokaw, "Marks and Spencer's Emerging Business Case for Sustainability," MIT Sloan Management Review, July 13, 2012, http://sloanreview.mit.edu.

5. Regulators, NGOs and the media are not driving the focus for Sustainability-Driven Innovators. However, our study found that companies less successful at sustainability business-model innovation are 25% more likely to be influenced by legislative and political pressures than Sustainability-Driven Innovators are, and 72% more likely to be driven by the need to maintain operating licenses.

6. N. Kruschwitz, "New Ways to Engage Employees, Suppliers and Competitors in CSR," MIT Sloan Management Review, November 14, 2012, http://sloanreview.mit.edu.

7. Some recent research using highly rigorous randomized field experiments shows that people are willing to pay premiums. See J. Hainmueller and M. J. Hiscox, "Buying Green? Field Experimental Tests of Consumer Support for Environmentalism," http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2062429.