Sustainability leads to higher profits: BCG
Innovators focus on increasing market share, competitive advantage.
CAMBRIDGE, Ma. — Embracing sustainability doesn’t have to be viewed as a cost. A new global study shows companies reporting a profit from sustainability efforts rose 23% last year to 37% of the total.
The Innovation Bottom Line by the MIT Sloan Management Review and The Boston Consulting Group (BCG) is based on a survey of 2,600 executives and managers from companies located around the world. It found that nearly half of the respondents said their companies had changed their business models as a result of sustainability opportunities, a 20% jump over the previous year.
The report says “sustainability-driven innovators” in emerging markets change their business models at a far higher rate than those based in North America, where companies show the lowest rate of innovation and have the fewest business-model innovators.
“[They] see the opportunity differently than companies that haven’t gleaned sustainability’s financial rewards,” explained David Kiron, executive editor at MIT SMR and a co-author of the report. “They don’t dwell on it as a cost issue. They focus on how their efforts can increase market share, boost energy efficiency, and build competitive advantage.”
The report notes these innovators are big on execution, are much more likely to place customers at the centre, they work closely with many stakeholders and drive sustainability objectives through skilful organizational change.
The extent to which a company incorporates sustainability concerns into its business model often ties in with its increase in profit, the study found. For example: half of the companies that changed three or four business model elements said they profited from their sustainability activities, compared with 37% of those that changed only one element.
When innovations to target segments and value-chain processes were among the three or four changes, those reporting added profits climbed from 50% to nearly 60%.
More than 60% of companies reporting sustainability as a permanent fixture on their management agendas show increased profits.
And companies that profit from sustainability are almost 200% more likely to develop sustainability business cases. The business case is often integral to the company’s overall strategy.
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.
Click here for more information about the study.