Introduction: Sustainability, Innovation and Profits

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. The global software giant SAP has declared sustainability as its purpose, according to Peter Graf, chief sustainability officer. “We want to be the company that helps manage more than finance and human resources,” he says.

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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.

1 Comment On: Introduction: Sustainability, Innovation and Profits

  • THE BIG RE-THINK: SUSTAINABILITY | April 10, 2014

    […] truly ethical brand. The number of companies that profited from sustainability initiatives climbed from 23% to 37% in 2012, meaning Green Growth is a key future opportunity in an era of overpopulation and resource […]

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