Here’s what you can learn from the new study of MIT Sloan Management Review and Boston Consulting Group (BCG): Sustainability is paying off for a growing number of companies that are utilizing innovation to “translate sustainability opportunities and pressures into business value.” The new study also reveals that “nearly 50 percent of companies have changed their business models as a result of sustainability opportunities.”
The message of the study is quite clear – more companies see sustainability as a core business driver, and innovate and profit from it. This is supposed to be great news. After all, we’re constantly looking for more data that will make the business case for sustainability stronger, and this study, based on replies from 2,600 companies worldwide, shows us how sustainability drives success. So we’re good, right?
Well, not so fast.
While the study provides some encouraging indications of the growing importance of sustainability in business and shows the strong intercorrelation between sustainability and innovation, it has couple of fundamental problems that might suggest a more cautious interpretation of the findings. In other words, it seems like this study paints a rosy picture of a much more complicated reality.
Here are five of the study’s most important findings followed by five things you need to take into consideration when you look in these findings.
1. Sustainability-driven innovation is key to success – Two-thirds of the respondents said that “innovation advantage – identifying better solutions early” is the way to profit from sustainability. It correlates well with business challenges companies face in general – the number one challenge in the next two years, according to the respondents, is innovating to achieve competitive differentiation.
2. Innovation not just in the supply chain – The study points out that while the supply chain is a natural place for innovation (reducing packaging costs for example), sustainability-driven innovators that want to profit from sustainability look for further opportunities to innovate, from combining target segments (looking to serve new customers or new needs of current customers) with value chain innovations, to doing things differently or doing entirely different things.
3. Greater chance to succeed when sustainability is on the C-suite’s agenda – The study found that top management attention is central – “Sixty-one percent of companies that have changed their business model and have sustainability as a permanent fixture on their management agenda say they have added profit for sustainability.”
4. The potential and challenges in intangible benefits – While 52 percent of the respondents said intangible benefits is where they see profit from sustainability, almost half of the survey respondents admitted they find it difficult to quantify the intangible effect of sustainability. Apparently, this will be the next big thing – finding how to make the seemingly unmeasured benefits measurable.
5. It’s branding after all – Even after all the talking about the sustainability-related challenges – from resource scarcity to climate change, it is very interesting to see that the number one benefit to organizations in addressing sustainability is improved brand reputation (40 percent).
And here are some issues you should pay attention to when reading this report:
1. Replies, not data – Please note that this study is based on a sample of 2,600 respondents from commercial enterprises worldwide, not analysis of data. It means that the findings are based on what executives tell us that their companies are doing rather than a review of what these companies are actually doing. Sometimes there can be a difference between the two.
2. Materiality – While we learn that companies innovate and make changes in their business models as a result of sustainability considerations, we have no idea how material are these changes to their core business – are we talking about substantial changes like we see at Unilever or M&S, or more subtle changes like we see at Bank of America or H&M? One represents revolution while the other represents a slow evolution, so which one is the “change” we’re talking about here?
3. Is consumer demand a real driver? – “Consumers are becoming more discerning about the sustainability footprint of the products and services they use. In order to thrive, businesses need to respond – and are,” the authors write. It might be a reflection of the respondents’ answer to the question, “what factors have led to changes in your business model” – the number one reason they give is “customer prefers sustainable products” (52 percent).
Is this really the situation or more like wishful thinking? Real data might suggest the latter. If you want another reality check – try to find sustainability within the Super Bowl ads. Good luck there!
4. How significant is the profit companies make from sustainability? – The study tells us that more companies profit from sustainability, but doesn’t tell us how substantial the profit is. Does the sustainability-derived profit represent 0.5, 5 or 50 percent of companies’ profit? This part is as important as the fact that sustainability is in the black, not the red.
5. CEOs committed to sustainability? – Sixty-two percent of the respondents report that their company’s CEO has a strong commitment to sustainability. If this was the situation we would probably be in a much better place, moving fast forward rather than just slowly forward. Since we’re not, I assume that either as John Elkington once said, CEOs don’t understand sustainability, or the respondents just didn’t accurately describe the way their CEOs feel about sustainability.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.