Stakeholder Trends and Insights

Study Finds Increased Profits for Companies Embracing Sustainability

Companies reporting a profit from their sustainability efforts rose 23 percent last year, to 37 percent of the total, according to a new global study called The Innovation Bottom Line, released yesterday by the MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG).

By Jennifer Elks | Published 11 years ago | About a 3 minute read

Companies reporting a profit from their sustainability efforts rose 23 percent last year, to 37 percent of the total, according to a new global study called The Innovation Bottom Line, released yesterday by the MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG).

The study, which is based on a survey of 2,600 executives and managers from companies around the world, also found that nearly half of respondents said their companies had changed their business model as a result of sustainability opportunities, a 20 percent jump over the previous year. The report calls these companies that have made business-model innovations "Sustainability-Driven Innovators."

Interestingly, the study found that companies in emerging markets change their business models as a result of sustainability at a far higher rate than those based in North America, which has the lowest rate of sustainability-driven business-model innovation and the fewest business-model innovators.

Innovation Bottom Line

Sustainability-Driven Innovators also bring a strong execution focus to their efforts, are much more likely to place customers at the center and work closely with many stakeholders, and drive sustainability objectives through skillful organizational change, Kiron said.

The extent to which a company incorporates sustainability concerns into its business model often correlates with its increase in profit, the study found. For example:

50 percent of survey respondents who had changed three or four business model elements said they profited from their sustainability activities, compared with only 37 percent of those who had changed only one element of their business model.
When innovations to both target segments and value-chain processes were among the three or four business-model changes, the percentage of respondents who said sustainability added profits climbed from 50 percent to nearly 60 percent.
More than 60 percent of respondents at companies that had changed their business model and had sustainability as a permanent fixture on their management agenda said they have added profit from sustainability.
Companies that profit from sustainability are almost 200 percent more likely to develop sustainability business cases. The business case is often integral to the company's overall strategy.

"The research suggests that business-model innovation, top-management support, collaboration with customers, and having a business case are all critical to creating economic value from sustainability activities and decisions," said Knut Haanæs, a BCG partner and co-author of the report who leads the firm's Strategy practice. "Executives need to view sustainability as both a business necessity and an opportunity. Even moderate changes to company business models can reap significant financial rewards."

In a section called "Hitting the Sustainability Bull's-Eye," the report recommends that executives emulate five practices common to many of the companies that are finding profit in sustainability:

Be prepared to change business models
Lead from the top, and integrate the effort
Measure and track sustainability goals and performance
Understand how customers think about sustainability and what they are willing to pay for in connection with sustainable products or services
Collaborate with individuals, customers, businesses, and groups beyond the boundaries of the organization

The report cites numerous examples of companies that are practicing these principles, including: AT&T, Campbell Soup Company, Dell, Ecover, Greif, Intel, Kimberly-Clark, Kraft Foods (recently renamed Mondelez International), Marks & Spencer, Nestlé, Patagonia, PepsiCo, Sainsbury, SAP, Sprint, Timberland, UPS and Zipcar.

In related news, environmental concerns are compelling businesses to shift their primary focus from serving customers to addressing sustainability, according to a new academic paper on information systems. And in December, the Network for Business Sustainability (NBS) published a report called Innovating for Sustainability that describes 39 practices businesses can use to foster innovation.