Sustainability: An Engine for Growth

This article is part of the Council's second annual SEPTEMBER SUSTAINABILITY MONTH, which kicks off a year of events and resources on sustainability. Generous funding of the Carnegie Council's 2010-2011 sustainability programming has been provided by Hewlett-Packard and by Booz & Company. Sustainability is changing the way businesses think about innovation—with customers, partners, and within organizations themselves. Leading corporations are not waiting for climate legislation to launch innovation strategies. They don't want to be told how to innovate. They don't want to put the responsibility for growth on someone else's shoulders.

Indeed, regardless of the speed of climate legislation, sustainability is already a driving force for business opportunity. A 2009 study of 224 business executives worldwide by IBM found that 69 percent of companies were focusing their sustainability efforts on creating new revenue streams. There is a rising tide of expectations coming from all directions—employees and investors, customers and business partners, NGOs, and local communities—which drives constant efforts to reshape business and provide new opportunities for growth.

As deputy chair of the Corporate Eco Forum—an invitation-only association of more than 75 Fortune 500 companies dedicated to linking sustainability, innovation, and strategy—I've seen firsthand how our member companies are focusing their efforts to make sustainability an engine for growth. This past June, more than 200 senior executives representing these same companies gathered for two and a half days of behind-closed-doors sessions and workshops focused on this topic. Evident throughout these discussions were several specific innovation concepts. In particular, sustainable innovation today is being driven by customer engagement and by new types of partnerships, often redefining competition and collaboration. Strategies for measuring this innovation are also emerging, although there is still much work to be done in this area.

Sustainable Innovation Comes through Customer Engagement

Two recent IBM studies have highlighted the gap in corporate knowledge regarding customers' sustainability expectations. For example, while more than two-thirds of executives in one report said they were using sustainability to generate new revenue streams, only 35 percent actually knew their customers' sustainability expectations well.

As many companies struggle to understand customer expectations, leading corporations are analyzing their customers in order to learn their drivers and motivations and catalyze new opportunities through sustainability. At Alcoa, the world's third largest producer of aluminum, customers have pushed the company to understand that a successful product was not "just about the dirt. It was about better alloys. It was the functionality in the use phase. It was the recycling. It was using things like nano-technology to have products literally clean themselves," said Alcoa's president of growth initiatives, Kevin Kramer. His company now looks to transform some of its biggest byproducts, such as red mud—a bauxite residue generated in large quantities by alumina refineries—into profit-making assets.

Bloom Energy, which has developed a unique fuel cell energy server, took an even more direct approach, interviewing potential clients and asking questions to gauge their approach to sustainability and the processes they were pursuing in an effort to make their businesses more sustainable. Through this course of action, Bloom was alerted to such issues as the growing impact of rising energy prices, the volatility and unpredictability of pricing, the need for plug-and-play energy technology, and the desire to make it accessible anywhere in the world, regardless of infrastructure.

Sustainable Innovation Comes through Partnerships

Leading corporations are redefining competition and collaboration. They are looking at ways in which even their adversaries can provide support in innovating and scaling initiatives. They are consciously choosing how they will compete—often on the merits of a product—while identifying "precompetitive" areas, such as recycling or the acquisition of raw materials and water, where they are open to opportunities to collaborate with competitors. And they are recognizing gaps in their business models and skill sets and using other organizations to fill these voids.

"New organizations and legacy companies come from different places, but they need to collaborate to learn from one another," said Beth Springer from Clorox. Learning from new models pioneered by startups and social entrepreneurs, companies are infusing new thinking into their larger, traditional employee base. "When we were confronted with the need for green chemistry, and we mostly have conventional chemists...that's really what provided an incremental push to join new networks and meet new partners," said Springer.

The U.S. Dairy Association, which has committed to improving sustainability among its 50,000 plus members, is reaching outside its industry for new ideas and opportunities. As Kevin Ponticelli, chairman of the U.S. Dairy Research Institute described, "We're finding now, in order to get to the kind of technical breakthroughs required to really begin to activate projects of significance, we need to build alliances outside of the industry. We're working with the United Soybean Association, in hopes that they might bring some insights to us on feeding practices that may improve both cost as well as carbon emissions. [We're also working with] the National Rural Electric Association, trying to anticipate an opportunity to transmit excess fuel off the farm and really plug it into a broader grid."

In another example of collaboration, competing real estate owners, investors, and financial institutions, including Allianz and Jones Lang LaSalle, have banded together to launch the GreenPrint Foundation, a worldwide alliance committed to reducing carbon emissions in the global property industry. They are developing programs and tools that are shared among members, and plan to expand pilot programs that turn out to be successful. The group recognizes that together they have the best chance of scaling efficiency improvements.

Other corporations are redefining the idea of patent protection. Ninety percent of patents are latent—rather than being used, they are obtained primarily to prevent competitive innovation. So Nike and nine other partners including Yahoo! Best Buy, and IDEO, launched GreenXchange, a Web-based marketplace promoting a different way of doing business. At GreenXchange, organizations can share patents that, hopefully, will lead to new sustainability models. The initiative was designed with three goals in mind: to increase the pace of patents reaching the marketplace through its online site; to enable collaboration with universities as well as corporations; and to incentivize organizations to bring patents to market with competitors. This new model is redefining a long-held view of competitive advantage, aiming to create a patent system that is not "all or nothing."

How Can we Measure Sustainable Innovation?

While some companies actively promote sustainable innovation, many more struggle to define and measure their current business case for sustainability, leaving future opportunities on the table. Companies need to understand the extent to which sustainability touches their entire organization in order to quantify its impact on innovation. So how are companies measuring this today?

As I learned from our members at the Corporate Eco Forum, strategies vary, but basic parameters are emerging. Companies are analyzing the entire value chain—from procurement to fulfillment, from real estate to remediation, from selling products to services—which by definition makes it a collaborative effort. And it is a continuous process, as companies evolve and change direction and strategic goals. It is also critical to understand the organization's management style. Companies will need to be able to answer questions such as: Who is supposed to do what? Who defines what to measure? Who acquires the information and submits it? What is the frequency? Who reviews it?

Going beyond these questions, corporations are looking at sustainability in the context of a portfolio. They are defining the characteristics that qualify an existing product as sustainable. They are creating a baseline around that by connecting a timeline with a goal, for example, 20 percent carbon reduction in 18 months, and then looking to see if the tools exist to make this goal attainable. When benchmarking, they are considering a wider spectrum of companies. Several leading corporations have described benchmarking against companies with similar raw material needs regardless of the industry or product, but many suggest focusing on one's own business drivers as a way to narrow down the selection first.

Moving Forward

Growth opportunities through sustainability are quickly becoming the focus of businesses looking to expand into new markets, address resource constraints, and capitalize on emerging environmental and social gaps. As Mindy Lubber, President of Ceres explained, going forward it will be a necessity. "We are a world of 6.2 billion people going to 9 billion people. We don't have the water, the food, the natural resources [to continue down a business-as-usual path], unless we stop and look and think about how to take on these challenges, how to integrate them, and how to do them differently." A new vision for partnerships will be the key—with customers, competitors and civil society. And it is the companies willing to turn the concept of collaboration on its head that will lead the way.