sustainable business operations model

Operations-driven sustainability

The unexpectedly clean air that resulted in some places from steep COVID-19–induced drops in industrial activity appear unlikely to change a larger truth: the world is not yet on track to meet the greenhouse gas (GHG) emissions-reduction targets required by the 2015 Paris Climate Agreement. And it isn’t only the atmosphere that human activity is harming. At current growth rates, global annual waste generation would increase by 70 percent by 2050, while critical resources from minerals to clean water are being depleted at unsustainable rates.

Industrial activities are responsible for the lion’s share of global carbon emissions. Roughly 28 percent of global GHG emissions came from industry in 2014, so unless industry can lower its emissions, the world will continue to struggle to reach its GHG-reduction goals. Companies generate greenhouse gasses directly in their factories, and indirectly through the consumption of electricity and the fossil fuels required to transport products and materials.

Most organizations recognize the imperative to reduce the negative impact of their activities on the environment. There is also increased pressure from employees, investors, communities, and customers to improve environmental sustainability efforts.

The operations advantage

For business leaders already facing a difficult journey into the post-COVID next normal, sustainability and profitability can look like conflicting goals. Large-scale investments in renewable energy, advanced manufacturing technologies, or alternative materials may appear harder to justify in an environment when many organizations are reexamining their costs, product portfolios, and capital plans.

Sustainability doesn’t have to come with a hefty price tag. When companies optimize their operations—whether to increase productivity, improve quality, or reduce cost—better environmental performance can be a byproduct. Efficient manufacturing processes and supply chains don’t just cost less to run: they also consume less energy, use fewer resources, and produce less waste.

Today, many of the world’s largest businesses are learning how to maximize these synergies between operational excellence and environmental benefit, designing and executing improvement initiatives to address both cost and sustainability goals—simultaneously. A few examples illustrate the potential.

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Manufacturing: optimizing process control and product formulation.

The production of basic materials, such as steel and cement, is a major contributor to global greenhouse-gas emissions. Although full decarbonization is likely to require investments in new production technologies, companies in these industries are pursuing a range of strategies to reduce the climate impact of their production processes.

Some players have found that they can make significant improvements to the environmental profile of their products with only modest capital investments. In primary steel production, for example, optimizing the control of blast furnaces with better sensors and improved analytics can reduce coal consumption by 10 to 15 percent.

Inexpensive, strong, and versatile, concrete has long been the world’s favorite construction material. One of its key ingredients, cement, is also a major source of greenhouse gasses. The 4.1 billion metric tons of cement produced in 2019 generated around 2.7 billion tons of carbon, constituting seven percent of global carbon emissions. Most of those emissions are generated in the production of clinker, the main ingredient of Portland cement.

With tight control over material properties and production processes, some construction companies and suppliers of concrete products have been able to reduce their consumption of clinker by 10 percent or more, substituting materials such as fly ash, a waste product from coal-burning power stations.

In the right conditions, asphalt—a mixture of bitumen and aggregate used in road building—can be removed from worn out roads and recycled. By carefully managing material and process properties, some asphalt companies have been able to increase the fraction of recycled materials in their products to as much as 20 percent while still meeting customers' performance requirements. Used asphalt is usually free—some municipalities will even pay for its removal—so recycling also leads to a significant reduction in material cost for asphalt producers.

Consumer goods: Optimizing packaging through the supply chain

Public awareness of packaging-waste leakage, especially from plastic waste, into the environment has increased significantly over the past 12 to 24 months. Yet recycling rates for plastic packaging are relatively low. In the United States, for example, recovery rates for packaging and food-service plastics account for only about 28 percent of the total waste.

At one major quick-service food player, the manufacture, distribution, and retail sale of sandwiches alone created more than 900 metric tons of non-food waste every year. While some of that waste was generated at the point of consumption, much of it was produced upstream, as sandwiches were placed in multiple types of packaging as they travelled through the supply chain.

To address this issue, the company redesigned its packaging, developing a single, sustainable solution that could protect the product through the end-to-end supply chain. The change cut overall packaging costs significantly and eliminated 160 tons of waste every year.

Reimagining industrial operations

Logistics: reducing shipping costs and greenhouse-gas emissions.

The transportation sector is the world’s largest single source of greenhouse-gas emissions. In the US, it accounts for around 30 percent of total carbon emissions, with freight transport making up more than 40 percent of that total. Optimizing logistics helps companies reduce costs and emissions in tandem. That means using fewer trucks, ships, and aircraft to move their products—and planning supply chains so those transport assets cover fewer miles.

One company used telematics technology to monitor the movement of its large road-vehicle fleet, then applied advanced analytics to that data to optimize routes and vehicle utilization. The project led to an annual reduction in road miles of around 20 percent, cutting carbon emissions by 1,300 metric tons. Secondary benefits included a meaningful reduction in road accidents and lower insurance premiums.

Procurement: Buying into a smaller carbon footprint

Sophisticated purchasing practices can help companies control their external costs and minimize their impact on the environment. In road building, for example, asphalt prices can vary significantly according to local market dynamics. One road builder had traditionally purchased asphalt based on price per ton alone, which often meant product was transported long distances from the producer to the point of use. When the company adopted a total-cost-of-ownership approach to sourcing, including logistics costs in its calculations, it found that local producers were usually a better value. The change cut shipping and associated carbon emissions by 40 percent.

High-performing operations can deliver much more than just financial impact. Maximizing the output a business achieves for every unit of input is better for the environment as well as the income statement. While reductions in resource consumption and waste were once just a useful side effect of operational-improvement programs, many organizations are incorporating sustainability targets into their plans from the outset. In challenging times, that approach offers a rapid route to a next normal that can be sustainable both financially and environmentally.

Curt Mueller is a senior partner in McKinsey’s Chicago office, where Steve Seber is a consultant; Jeff Shulman is a senior partner in the Dallas office; Kimberly Stover is an associate partner in the Detroit office.

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• Original Paper
• Published: 11 July 2020

Sustainable business model: A review and framework development

• Feybi Ariani Goni 1 ,
• Abdoulmohammad Gholamzadeh Chofreh   ORCID: orcid.org/0000-0003-4934-6291 1 ,
• Zohreh Estaki Orakani 2 ,
• Jiří Jaromír Klemeš 1 ,
• Mehdi Davoudi 3 &
• Abbas Mardani 4  

Clean Technologies and Environmental Policy volume  23 ,  pages 889–897 ( 2021 ) Cite this article

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Integrating sustainability into business functions of organisations is a challenge faced by practitioners. They need to understand what aspects must be considered to achieve effective sustainability implementation. Few studies review current sustainable business models and reveal essential aspects that must be possessed by these models. This study aims to discuss the available sustainable business models and identify the main features of the models. Conceptual research is applied in this study to synthesise the current sustainable business models in the literature. The study reveals nine main aspects to consider, including sustainability, information technology, circular economy, value chain, core values, value creation, organisational values, performance management, and stakeholder engagement. The proposed framework would help the practitioners to capture important aspects of the sustainability implementation. These aspects would guide them to effectively embed sustainability into an organisation's business functions and fulfil stakeholder expectations.

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Acknowledgements

This research has been supported by the EU project "Sustainable Process Integration Laboratory – SPIL", Project No. CZ.02.1.01/0.0/0.0/15_003/0000456 funded by EU "CZ Operational Programme Research, Development and Education", Priority 1: Strengthening capacity for quality research.

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Goni, F.A., Gholamzadeh Chofreh, A., Estaki Orakani, Z. et al. Sustainable business model: A review and framework development. Clean Techn Environ Policy 23 , 889–897 (2021). https://doi.org/10.1007/s10098-020-01886-z

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DOI : https://doi.org/10.1007/s10098-020-01886-z

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The resilient operating model

Research report.

• The pandemic has fundamentally altered customer behavior and re-shaped markets.
• Organizational agility and resiliency are increasingly critical to helping companies deal with these changes.
• 74% of C-suite executives feel they need to completely rethink their operating models to be more resilient.
• 93% say their organization’s existence is jeopardized by operating models that can’t keep pace.

T he fallout from the COVID-19 pandemic has changed consumer behavior and fundamentally restructured the global economy. To survive, companies need to adapt. Fast.

One lesson is clear: Those armed with operating models that enable them to continuously adapt are more likely to prosper. However, 74% of C-suite executives feel they will need to completely rethink their operating models to be more resilient as a result of COVID-19. Organizations that fail to act now risk getting buried by the competition long before the next crisis.

Beyond value of shares to shared value

As we look towards a post-pandemic future, every company must consider their raison d’etre. Why they exist, their purpose and how they will create value—not just to shareholders but to extended stakeholders: their customers, employees, and the wider community. Defining a clear organizational purpose acts as the North Star to guide not only the overall corporate strategy but the operating model itself. Sustaining a sense of purpose over time means creating an understanding of how all levels and roles contribute to the organizational purpose.

Foresight begets agility and resilience

In a world of massive data proliferation, every company is challenged to derive insight from information. It’s another challenge that’s been exacerbated by the crisis. In fact, 68% of executives we surveyed ranked capturing insights as the most important element of the organization’s operating model for adapting to the COVID-19 crisis. Yet only 17% had full confidence their organization had the necessary insights to make the right business decisions.

Why agile teaming is not enough to win

Ecosystems as agents for change

90% of C-suite respondents consider building an ecosystem business model important for their company as they navigate the effects of the pandemic. Why? Partnerships allow organizations to rapidly access capabilities to refine their market approach. By turning to a trusted network of partners and alliances, companies can access the customers, capabilities, talent, and ideas needed to respond to changing market trends, new technologies, emerging competitive threats, and regulatory changes.

of C-suite executives surveyed by Accenture said their existence is jeopardized by operating models that can’t keep pace.

feel they will need to completely rethink their operating models to be more resilient as a result of COVID-19.

of executives ranked capturing insights as the most important element of the organization’s operating model.

Making the change

By designing the operating model to create a state of perpetual motion, organizations can withstand unexpected disruption and rapidly exploit new opportunities. Here are some concrete actions for building agility and resilience.

Agile governance

Organizations need to put in place the right governance to ensure their operating model is consistent with their purpose and values. They should ask themselves: How should we organize the workforce and transition the way work is done? What can we do to foster an environment that promotes a culture of experimentation and innovation?

Take a two-pronged technology approach

Making the right moves when it comes to technology is nothing less than “make or break”. This can necessitate taking a two-pronged approach: Modernizing by making investments in new technologies, and evaluating existing systems to make sure they’re being used to the fullest.

Configure and reconfigure

Smaller, multi-disciplinary teams (“squads”, “pods” or “cells”) operating like discrete businesses within the organization can help boost agility and responsiveness. These squads, built around specific objectives, products or services, are available for the organization to "plug and play" at will. Bringing together varying skillsets, they break down functional silos and hierarchies and help drive innovation and customer engagement.

Invigorate the ecosystem

Organizations should take a fresh look at what each ecosystem partner has to offer. What are their strengths and weaknesses? What new services, capabilities and channels can they offer to help achieve long-term objectives? How can partners help drive innovation, develop new products and services faster, enter new markets and promote agility?

Decision-making at the edges

Empowering the organization with the ability to share real-time data across the enterprise boosts collaboration and drives better decision-making “at the edges” of the organization, in areas closer to the customer. This requires not only the right technology tools, but also the right practices. Inherent in this: Allowing employees to act with more autonomy and make decisions on what they see in the data.

Reskill, reskill, then reskill again

Reskilling the workforce can never be a “one and done.” Instead, companies need to develop a culture of continuously adapting and building the skills of their people. Of particular importance is providing the workforce with the skills required to work with the latest technologies, creating a Human+Machine collaboration mindset.

Unlock growth through democratization

Resilience now and in the future.

Companies looking to gain the resilience and agility demanded by today’s competitive environment—in the short-and long-term—need to focus on their operating models. Specifically, that means harnessing insights, structuring and reskilling the workforce and re-invigorating partnerships to maximize organizational flexibility.

Senior Managing Director Talent & Organization, Operating Model & Organizational Design, Global Lead

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Katherine works with companies on their most critical business and operating model transformations.

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Sustainable Business Went Mainstream in 2021

• Andrew Winston

This year, ESG moved from a “nice to have” to an essential part of corporate strategy — and there’s no going back.

In 2021, many climate trends that were gaining steam in years past became the norm. In this article, which describes the five biggest climate and sustainable business stories from the past year, the author points to ESG standards and electric vehicles as two of these “there’s no going back” items. The other three stories — business defending democracy, the COP26 climate meeting, and tech’s role in sustainability, were decidedly more mixed. As for 2022, look out for the growing youth voice, ESG tug-of-wars and new standards, and more partnerships to solve big problems, among other coming trends.

How do you know when something becomes the norm? Trends in corporate sustainability have been mostly consistent — an expanding climate crisis, lightning-speed growth in clean tech, rising pressure from many stakeholders, and more. But I generally felt a sense of, “these trends are growing and will be dominant…someday.” In the past year, however, “someday” seems to have finally become “today” — and there is no going back.

The discussion around what most now call “ESG” (environmental, social, and governance) has become far more common than I’ve ever seen in my 20 years in the field. It’s now ubiquitous, and some data backs that up. Virtually all of the world’s largest companies now issue a sustainability report and set goals; more than 2,000 companies have set a science-based carbon target; and about one-third of Europe’s largest public companies have pledged to reach net zero by 2050. On the social side of the agenda, companies have been expanding diversity and inclusion efforts, committing funds to fight racial inequity , and speaking out on societal issues they used to avoid.

None of this equates with actual action to reduce emissions or tackle inequality, but it’s clearly not fringe anymore (which fossil fuel giant ExxonMobil found out when activist investors forced it to take on sustainability-friendly board members). To me, we’ve reached the end of the beginning. No business leaders seriously doubt that sustainability should be on the agenda, and companies are moving from incremental improvements to bolder, systemic approaches that create a net positive impact on the world.

So what happened this year that built such momentum? It’s hard to summarize a complicated, volatile time period. I’ve left out some large stories, because it’s unclear if they’re blips or part of a larger more permanent shift toward sustainability. For example, is global inflation a reflection of a long-term resource constraint — a mega-trend that’s driving efficiency and forcing an exploration of circular and regenerative business models — or is it just a hangover from the warped buying patterns of the Covid years?

I’ve tried here to touch on big themes and stories from 2021 that seem more lasting, and offer some thoughts on what to look out for in 2022. Here we go.

The Big Stories of 2021

Business defends democracy..

On January 6, insurrectionists stormed the U.S. Capitol, supported by many in Congress. Starting on January 7, many companies pulled their donations from all politicians, or just the ones who voted to overturn the election of 2020. I never would have imagined companies picking sides — they want influence in both parties. But the threat to democracy was real, so American Express, Marriott, Dow, and dozens more took a stand. A few months later, corporate giants also spoke out against state laws meant to restrict voting.

This is an important story if only for how far it expands the role of business in society. But what’s happened since is unclear. Reports vary on the percentage of those companies that re-started donations to insurrectionists (some say only 23% have kept the policy ). Either way, the attack on democracy is not over, so companies will face serious choices again.

Global climate meeting falls short.

The COP26 meeting in Glasgow ended the same as every COP: there was clearly progress in what countries committed to, but given the scale of a crisis that the UN Secretary General called “ code red for humanity ,” it was woefully inadequate. If all countries hit their targets, we may hold warming to 1.8°C. That’s much better than where we were headed before the conference, but still above the 1.5°C that will helps us avoid much worse outcomes. And these are still just commitments, with no enforcement mechanism. The bottom line is that emissions are still rising.

The gap between science and policy is an opportunity, and a responsibility, for business to take a bigger role. Corporate ambition levels did rise dramatically this year, with rapidly proliferating net zero goals. Innovative goals included PepsiCo aiming for enough regenerative farming to offset its whole agricultural footprint, or mining company Fortescue talking about net zero for its heavy industry customers. Maersk even advocated for a $150 per ton carbon tax on shipping fuel. All good, but a tremendous amount of work remains to make these targets a reality.

Sustainable finance and ESG explode into the mainstream.

The acronym “ESG” took over in the sustainability world, mostly because it’s more of a financial sector term and banks are, finally, serious. Anecdotally, I’ve talked to many sustainability executives who once rarely met with investors, but are now going to dozens of meetings a year. The investors are asking. For the 5th straight January, the year kicked off with Larry Fink’s letter to corporate CEOs and investors in his company, Blackrock, the largest asset manager in the world. His letter included this gem : “There is no company whose business model won’t be profoundly affected by the transition to a net zero economy…companies not quickly preparing themselves will see their businesses and valuations suffer.”

The message is that managing climate and other ESG issues is core to business value. Many banks agreed: JPMorgan Chase , Citi , Morgan Stanley , and Bank of America (to name a few) committed from $1 trillion to $2.5 trillion to invest in climate action (clean technologies) and sustainable development (e.g., affordable housing and efforts to improve racial equity). For context, I worked with Bank of America in 2008 on the first commitment of this kind — it was for $25 billion . Trillions is serious, mainstream money. And at the COP26 meeting in November, a new group representing $130 trillion in assets (that’s a lot — well above global annual GDP) formed the Glasgow Financial Alliance for Net Zero , co-chaired by Michael Bloomberg and former Bank of England head Mark Carney.

Supply chains: The carrot, the stick, and the dumpster fire.

Let’s start with the dumpster fire: global supply chain flows. The dramatic shift in the flow of goods from distribution to businesses to at-home buying has not worked itself out yet. But it’s not just about manufacturing and shipping. We’re also seeing shortages in truck drivers still willing to do the job at current pay and conditions . Some pushback from people seeking more meaning or higher-paid work in jobs where wages have been stagnant for decades is a sign of inequality hitting a breaking point.

But the mess hasn’t stopped companies from making supply chains more sustainable, especially as “scope 3” emissions (those from your value chain) have become more of a focus. Companies are demanding more information, setting higher standards, and pushing suppliers to, for example, place climate and human rights demands on their suppliers. Some use the stick: Salesforce “asked” its suppliers to set science-based targets and help Salesforce be more sustainable, or risk paying a fine. Others try the carrot: Tesco and Santander teamed up to offer Tesco suppliers preferential financing rates for improving their businesses, but only for those making progress on sustainability goals.

Auto industry goes all-in on electric vehicles.

There are many indications of the blistering pace of the shift to the clean economy, including ever-cheaper renewable energy dominating all-new electric capacity. But nothing seemed as dramatic this year as what’s going on in the auto industry. It’s been building for a few years, but now major automakers and dozens of countries say that they’ll stop selling gasoline cars in the next 15 to 20 years. Ford, in just one example, announced it would invest billions to build four large battery and EV plants in the U.S. With this pace of investment, it seems there’s no turning back and EVs are the future. To put a final point on it, Tesla’s Elon Musk was named Time magazine’s Person of the Year .

Tech industry does its best Jekyll and Hyde.

Tech giants can be major advocates for sustainability. Some like Salesforce try to help with the housing crisis and homelessness in their home cities, and others continue their aggressive push on climate action. Microsoft and Google are working toward 24/7 renewable energy (only green electrons, full time) and investing in carbon sequestration. Google also offered new tools to “ help one billion people make more sustainable choices ,” like showing users which flights they searched for have the lowest footprint. The search giant also started to tackle our biggest problem, misinformation, by stopping ads with climate misinformation and eliminating YouTube videos that promote lies about vaccines.

This is all great work. And yet, Meta’s largest brand, Facebook, continues to be the hub of global misinformation. A brave whistleblower exposed how much the company knows about the negative impacts it has, from fomenting anger and mistrust globally, to making body image issues for girls worse (through Instagram). The Hyde side of climate leaders like Microsoft and Google popped out when they stayed quiet as the U.S. Chamber of Commerce tried to kill a budget bill in the U.S. with the most spending on climate investment in history. These are real disconnects and can’t last.

I could add many more stories, but let’s turn our gaze forward now.

What to Look for in 2022

There are some other trends that were more promise than reality in 2021, but could gain steam in the year ahead.

A loud, growing youth voice.

At the climate summit in Glasgow, while the Boomer and Gen X leaders stumbled toward moderate improvement in climate goals, Swedish climate leader Greta Thunberg led youth groups in chants of “blah, blah, blah.” Young Millennials and the Gen Z-ers that are entering the workforce today are speaking out. This includes more than 1,000 McKinsey consultants who wrote an open letter to their bosses calling the firm out for working with fossil fuel companies and other clients that could “alter the earth irrevocably.” (It’s a safe bet the consultants are millennials and Gen Z as 80% of McKinsey employees are under 40 ). The talent war is real, and engaged workers looking for values — especially the younger ones that make up 50% or more of the workforce  — have the power. Expect them to use it.

An ESG tug-of-war, with both acceleration and backlash.

The rush of money into ESG will continue. Much of the pressure is coming from, again, younger people — members of wealthy families asking for more focus on impact investing. But we’re starting to see pushback on what ESG even means. A former Blackrock exec published an essay saying that ESG was “ a dangerous placebo .” The concern he raises is legitimate — does putting money in funds labeled “ESG” really tackle issues like climate and inequality? It’s unclear, and the world of ESG is undefined. Companies providing ESG metrics are growing and evolving, but it’s early days. We need patience as a lot of kinks are worked out. Remember, the three major financial statements that we take for granted took centuries to evolve.

More standards and regulations.

To help manage the ESG anarchy, regulators and watchdogs will continue to develop standards for companies to follow. The IFRS foundation, the body that sets international financial reporting standards, announced the formation of the International Sustainability Standards Board (ISSB) to develop disclosure standards. There will be an increasing harmonization of how companies report on their impacts and assess the environmental and social issues that are material to their businesses. It’s wonky, but standards make the world go ‘round.

Continued expansion of business’s role in society.

In the last couple of years, business and NGO leaders have felt the need to make statements and take action on everything from LGBTQ rights to racial equity to democracy. With a fundamental gap in government’s ability to solve our biggest problems, we will see companies facing even higher expectations from their customers, communities, investors, and employees. Issues that have long been avoided such as taxes, CEO pay, and corruption — some of the “elephants in the room” that my co-author, Paul Polman, and I talk about in our book Net Positive — will hit boardrooms and C-suites. This year, for example, the G-7 nations signed a pact to set a minimum tax for corporations. There’s more like this to come.

Revisiting issues that got lost.

While the broader sustainability agenda did not slow down during the pandemic, some issues took a back seat. Concern about plastics and packaging, for example, was a huge issue in 2019. But then we needed disposable medical equipment and we increased shipping to homes, so it was hard to make progress. But stakeholders didn’t forget. At DuPont, a shareholder resolution asking the company to track plastic pollution better got 81% support. Plastics, human rights, and other issues remain, and companies will need to focus on them again.

More partnerships to solve big challenges.

In 2021, the number of partnerships created to tackle the biggest environmental and social issues seemed to accelerate. For example, six big banks came together to work on decarbonizing the steel industry, and a range of companies with big fleets partnered to call for federal standards on EV charging and payments. It’s early days for most of these collaborations, but we should have achievements to point to by next December.

I’m sure I missed many stories that were interesting or exciting to you. I’ve posted a longer list of dozens of news items or announcements that I saved during the year, including the ones above. Check it out here , and happy New Year!

• Andrew Winston is one of the world’s leading thinkers on sustainable business strategy. He is an adviser and speaker on how to build companies that profit by serving the world. His books include Green to Gold , The Big Pivot , and Net Positive . AndrewWinston

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What Does "Sustainability" Mean in Business?

• 10 Oct 2018

A growing number of organizations are integrating sustainability into their business strategy —realizing they can do well by doing good. In a recent McKinsey survey , 70 percent of respondents said their companies have a formal governance of sustainability in place. But what exactly does it mean to be “sustainable” in business?

In business, sustainability refers to doing business without negatively impacting the environment, community, or society as a whole.

Sustainability in business generally addresses two main categories:

• The effect business has on the environment
• The effect business has on society

The goal of a sustainable business strategy is to make a positive impact on at least one of those areas. When companies fail to assume responsibility, the opposite can happen, leading to issues like environmental degradation, inequality, and social injustice.

Sustainable businesses consider a wide array of environmental, economic, and social factors when making business decisions. These organizations monitor the impact of their operations to ensure that short-term profits don’t turn into long-term liabilities.

Examples of Sustainability in Business

Many successful organizations participate in sustainable business practices, however, no two strategies are exactly the same.

Sustainable business strategies are unique to each organization as they tie into larger business goals and organizational values. For instance, sustainability in business can mean:

• Using sustainable materials in the manufacturing process
• Optimizing supply chains to reduce greenhouse gas emissions
• Relying on renewable energy sources to power facilities
• Sponsoring education funds for youth in the local community

Why Is Sustainability Important?

Beyond helping curb global challenges, sustainability can drive business success . Several investors today use environmental, social, and governance (ESG) metrics to analyze an organization’s ethical impact and sustainability practices. Investors examine factors such as a company’s carbon footprint, water usage, community development efforts, and board diversity.

Research shows that companies with high ESG ratings have a lower cost of debt and equity, and that sustainability initiatives can help improve financial performance while fostering public support. According to McKinsey , the strongest motivating factors to adopting a sustainable mindset in 2017 were to align with a company’s goals, missions, or values; build, maintain, or improve reputation; meet customer’s expectations; and develop new growth opportunities.

The overlap between social and environmental progress and financial gain is called the shared value opportunity . In other words, “doing good” can have a direct impact on your company’s ability to “do well.” Due to this opportunity, it’s clear why many businesses have adopted these practices. Find out how to make your business more sustainable by following these four steps to align your strategy and mission to create shared value.

How to Create a More Sustainable Business Strategy

There are several ways you can go about transforming your organization’s purpose into performance. Here are a few steps to follow to create a more sustainable business strategy .

1. Assess the Problem and Define Objectives

The first step to driving change is assessing what sustainability means to your team, company, industry, and client. Consider the big problems each of these groups thinks is a priority.

To guide this process, consider asking questions, such as:

• How much waste is the organization creating?
• Is our company culture struggling?
• Are our hiring practices attracting diverse job candidates?
• Is our product targeted to help a certain audience?
• What impact does our company have on the local community?

Answering these types of questions will help you establish your company’s sustainability objectives.

• Quick Tip: Need help defining your sustainability objectives? Take the SMART goals approach as you move through these steps. Making sure your goals are “SMART”—specific, measurable, achievable, relevant, and time-bound—in this early stage can save you time in the future.

2. Establish Your Mission

Once you’ve agreed on concrete objectives, you’re ready to define your company’s mission. A distinct mission statement is an important part of becoming a more sustainable business.

An effective mission statement outlines your company’s focus on “doing.” It should capture your organization’s values and purpose and serve as a guiding light of why you do what you do. In other words, your mission statement should define your company’s five Ws: who, what, when, where, and why.

Here are two examples of companies with effective mission statements:

• Eyewear brand Warby Parker’ s mission is “to offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.”
• Build the best product
• Cause no unnecessary harm
• Use business to protect nature
• Do not be bound by convention

In each, it’s clear what the company’s values are and how they’re executing against them.

• Quick Tip: Consider how your mission statement will grow as your company scales. A mission statement should help a business evolve with the market , not hinder internal capabilities to innovate and disrupt. For this reason, make sure your objectives can be extrapolated from your mission statement.

3. Craft Your Strategy

Once you’ve created a strong mission statement, you’re ready to realign your organization with a sustainable business strategy .

In crafting a sustainable business strategy, it’s important to ensure your company remains profitable. You can’t help your cause if you can’t stay in business. As proven, your sustainability efforts may help you become more profitable.

Consider the triple bottom line , which refers to how a company’s actions impact profit , people , and the planet . With this framework in mind, you can develop a sustainable business strategy that's also profitable.

Small changes can be the starting point for large-scale impact. For instance, does your company typically leave the electricity and heat on overnight, even when there are no employees on site? Imagine how much savings could be realized, in both cost and energy resources, if the last person in the office shut them off, or if you used a timer or motion sensor to automatically turn them off after the last person left.

What about the consumers willing to pay more for a sustainably produced product? A Unilever study found that 33 percent of consumers want to buy from brands “doing social or environmental good,” creating an opportunity in the market for sustainable goods.

Explore industry-specific strategies that can increase your operational efficiency while driving social and internal value. Putting in the work to build a robust sustainability strategy can help both your company and the environment in the long term.

• Quick Tip: Need a starting point for crafting your strategy? Consider internal and external opportunities to create value around your mission. Ask your team questions like, “Will our customers pay more for our product if we produce it more sustainably?” or “Can an enhanced business process decrease our emissions?” If the answer to either of those questions is “yes,” you may have the beginnings of your strategy, while simultaneously increasing your productivity and profit.

4. Implement Strategy and Assess Results

It’s one thing to talk about a newfound motivation to do well and do good, but it’s another to take a public stance, pledge quantifiable results, and actually achieve them. With your mission and strategy solidified, you’re ready to make strides toward reaching your objectives.

As you’re implementing your strategy , remember to revisit your process periodically to assure your objectives, mission, and progress remain aligned.

• Quick Tip: Unsure of where to start? Ask yourself if there are any areas where your mission can quickly have a great impact. Consider partnering with an organization that has a similar mission to yours. Aligning your missions can help drive progress fast. Partnering with an established player can also enhance your credibility.

Sustainable Business for a Greater Impact

You’re now equipped with four simple steps—from purpose to performance—that can help you create a more sustainable business.

When objectives become a purpose, a powerful story is established. That story will drive your mission and allow you to create an actionable plan. Don’t worry if results don’t come immediately; the road to 100 percent sustainability is long and may require testing a few different approaches for you to make the greatest impact.

Are you interested in learning more about how to turn purpose into profit and create business models that drive change? Explore our online course Sustainable Business Strategy .

This post was updated on January 21, 2022 . It was originally published on October 10, 2018.

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The Secrets of Sustainability Front-Runners

May 27, 2021  By  David Young ,  Martin Reeves , and  Marine Gerard

This article is part of an ongoing series that describes the concept of “Sustainable Business Model Innovation” (SBM-I) and how companies are putting it to use.

Every enterprise is finding that its space for business as usual is increasingly constrained by the planet’s environmental limits, by broader social and economic needs, and by rising stakeholder demands. Consequently, in addition to addressing all the traditional factors defining competition, company strategies now need to explicitly confront the dynamic socio-environmental externalities of the business. From their impacts on climate to the communities where they operate, the growing challenge for business leaders is to navigate through wider sustainability constraints while still delivering the financial results on which its employees and shareholders depend. But new opportunity can be found in creating innovative business models that integrate growth and value creation with the generation of broader environmental and societal benefits. And we’ve seen that some leading companies are fundamentally reimagining their businesses to turn sustainability into core business advantage.

Take the example of Schneider Electric, a digital energy management firm based in Rueil-Malmaison, France. Driven by a vision to be a leader in sustainability, the company has reimagined its business model over time, evolving from initially being a French-based, traditional electric installations player to becoming a truly global leader in digital sustainability solutions. Today, much of this company’s business model relies on the EcoStruxure platform. Introduced in 2007 and enabled with sophisticated digital tools, analytics, and the Internet of Things, EcoStruxure manages the data and controls for buildings, infrastructure, data centers, power grids, and industries. By shaping the way its customers manage their energy consumption and sustainability footprint across almost half a million sites, EcoStruxure has helped them collectively save 90 million metric tons of CO 2 per year (equivalent to taking almost 20 million cars off the road for an entire year).

Schneider Electric also actively works on improving environmental and societal impact in other ways. For instance, it has worked on a ground-breaking collaboration with Walmart to provide increased access to renewable energy across the retailer’s US-based supply chain. The initiative, called the Gigaton Power Purchase Agreement (GPPA) Program, is designed to educate Walmart suppliers about renewable energy purchases and facilitate adoption through aggregate purchase agreements.

The company also worked with countries around the world to develop fast-track health care facilities throughout the COVID-19 pandemic. In China and Turkey, Schneider helped get new hospitals operational. In the UK and Italy, it helped convert exhibition centers into temporary hospitals. In France, India, and Spain, it helped manufacture respirators, and on a global scale, it worked on rapid deployment of solutions to enable intensive care units to better manage the challenges of the pandemic.

• Four Steps to Sustainable Business Model Innovation
• How to Tell If Your Business Model Is Creating Environmental and Societal Benefits
• How to Tell If Your Business Model Is Truly Sustainable
• Why the New Competitive Advantage Demands Sustainability
• The Quest for Sustainable Business Model Innovation

These efforts are emblematic of Schneider Electric’s reimagination of its business model, from being a traditional B2B electrical distribution equipment manufacturer to becoming a recognized global leader in environmental sustainability solutions. Its annual revenues have grown accordingly, from €15 billion ($18 billion) in 2007 to €27 billion ($33 billion) in 2019. In January 2021, the prominent Canadian “clean capitalism” magazine Corporate Knights named Schneider Electric the most sustainable corporation in the world.  

Stakeholder expectations increasingly demand that companies go beyond mitigation and demonstrate positive environmental and societal benefits.

Companies face increasing constraints on conducting business as usual. Stakeholder expectations from all sides are demanding accountability to address negative impacts and increasingly demanding that companies go beyond mitigation and demonstrate positive environmental and societal benefits.

And in recent years, businesses have invested in significant initiatives to demonstrate their commitment to creating environmental and societal benefits—or at the very least, mitigating their harmful practices. Many companies have developed sustainability initiatives that aim to reduce greenhouse gas emissions, improve general quality of life, reduce vulnerability to diseases, or lift people out of poverty. But too often these efforts remain fragmented, lacking scale and impact. And too often they are disconnected from underlying drivers of business value. In interviews, executives say their greatest challenge with these initiatives is integrating them into their core business. These initiatives have limited ability to release the tightening constraints on a company’s opportunity space. To break through, companies must make sustainability a source of business advantage, and that requires taking a new approach that seeks out innovative ways to address environmental and societal needs through their core business models.

Sustainable business model innovation (SBM-I) brings these two ideas together, addressing the main challenge executives face in making sustainability a source of advantage. Exhibit 1 depicts competitive advantage and business value on the left, environmental and societal benefits on the right, and in the center, the place to focus attention: continued development and improvement of a sustainable business model. Companies like Schneider Electric solve for their business objectives and their environmental and societal commitments together, widening their opportunity space in the process.

The Landscape of Sustainable Business Model Innovation

As part of our BCG Henderson Institute research on SBM-I, we sought to understand how far companies have moved in building out sustainable business models. In a group of approximately 500 sustainability initiatives around the world, we found just 102 cases where companies changed some part or all of their core business model to generate environmental and societal benefits and business value. Even among these companies, few have captured the full potential possible through SBM-I. There are two main reasons for this shortfall.

First, most companies have only begun their SBM-I journey. They still regard corporate social responsibility as a matter of compliance and securing a “license to operate” from regulators and public opinion. They limit themselves by thinking of their environmental and societal benefits primarily in the narrow terms of ESG performance. It takes time and concerted executive attention to develop the necessary attitudes, mental models, strategies, and practices that can leverage the core business and turn sustainability into an advantage.

Second, there has not yet been a holistic, structured approach for designing sustainable business model innovations that generate full value. The intersection of business value and environmental and societal benefits does not occur by chance; it takes a rigorous innovation approach and a set of organizational design choices. In this article, we look at the landscape using SBM-I to build competitive advantage.

To understand the state of sustainable business model innovation, we plotted the 102 case studies against three dimensions to depict the landscape of sustainable business model innovation:

• The scale and scope on which SBM-I changes the business model
• The extent to which SBM-I is creating business advantage
• The magnitude of the environmental and societal benefits SBM-I creates  

1. Expanding the Scale and Scope of Innovation

This dimension represents the scale and scope of the company’s SBM-I initiatives. It includes how ambitious the effort is—for instance, the extent of its reach across the company’s value chain, or how many businesses and product and service lines it involves. How willing are they to use sustainability to reimagine business-as-usual? Could it lead them to a fundamental reimagining of their business model?

Companies tend to fall into one of three stages of maturity on this dimension. In initial stages of SBM-I development, the focus is generally on improving the environmental and societal benefits of a product or process . For instance, the Swedish fintech Doconomy launched “DO”, a mobile banking platform and credit card that helps consumers track, limit, and offset the CO 2 emissions associated with their purchases. This offering directs consumption toward more environmentally friendly products and services.

In the next stage, the SBM-I initiatives focus on enriching the company’s value chain —upstream with its suppliers, downstream with distributors and customers. The Brazilian cosmetics company Natura, for example, developed its very popular line of Ekos nature-friendly cosmetics by sourcing products in ways that empower indigenous communities and preserve and replenish biodiversity in the Amazon rainforest. Similarly, PepsiCo’s well-established sustainable farming program helps more than 40,000 farmers across 38 countries adopt precision technologies and regenerative agriculture and soil health management techniques. As a result of this program, the potatoes used to make Frito-Lay products sold in the US and Canada are sustainably sourced.

Downstream, Samsung's large-scale e-waste recycling program was active in 54 countries as of 2018; it had collected more than 3.55 million tons of products since 2009. The apparel brand C&A made a similar commitment to “circular fashion,” launching a program to take back and donate or recycle garments from consumers. Since 2012, the program has collected one thousand tons of used garments in Europe, Brazil, and Mexico. In addition to managing waste responsibly, the Samsung and C&A programs are also poised to improve resource use as they gain scale. They can potentially serve as a valuable source of input materials to develop more circular models—for example, providing precious metals for electronics manufacture or textile fibers for garments.

Some companies go still further, reimagining the business model to deliver environmental and societal benefits. They unlock new growth opportunities by solving for environmental and societal needs heads-on, often transforming their core business model. Schneider Electric, with its EcoStruxure platform, falls into this category. So does Yara, a pioneering Norwegian agricultural products company, which diversified beyond its traditional fertilizers business to launch a digital “smart” agriculture arm. Using satellite imagery and connected sensors and dispensers, Yara’s solutions enhance customers’ farming yields while reducing the amount of water and fertilizer dispensed and providing optimal support for crops. A third example is the Dutch social enterprise Fairphone, which is reimagining the consumer electronics business model to produce and sell a more ethical and durable smartphone. The Fairphone is composed of sustainable materials, including responsibly sourced and conflict-free tin and tungsten and recycled copper and plastics; it has a modular design that can be upgraded and repaired by swapping out components.

2. Gaining Business Advantage

The second dimension has to do with the level of business advantage derived from sustainable business model innovation. Here, too, there are three stages of maturity, depending on the way each company builds its brand and competes in the marketplace—or, better yet, changes the nature of competition.

In the initial stages of business advantage, SBM-I enhances and amplifies the brand . Its environmental and societal benefits increase differentiation, competitiveness, and stakeholder value. Natura's sustainable Ekos cosmetics line and Fairphone’s ethical phone appeal to consumers who value sustainability and wholeness, attracting their loyalty and willingness to pay premium prices.

In further stages of advantage, SBM-I shapes the business ecosystem and its stakeholders’ values and dynamics . On the basis of its capacity for business model innovation, the company influences industry norms, standards, and regulations, along with supplier and consumer demands and behaviors. For example, Dell's Digital LifeCare platform enables early screening of non-communicable diseases and care delivery for hard-to-reach populations in rural India. To deploy the platform, the company works with stakeholders across the ecosystem, including the Government of India and a diverse ecosystem of partners. Digital LifeCare’s enrolled population has grown from 58,000 in late 2018 to nearly 60 million as of mid-2020, positioning the company as a critical player in the country’s digital health infrastructure. Similarly, the Dutch company Royal DSM is partnering with the Rwandan public sector, international aid agencies, and local NGOs to provide more nutritious, fortified foods in the country. Together, in 2017, they launched Africa Improved Foods, a private-public joint venture that has developed local farming and supply networks, manufacturing capacity, and a pan-African customer base.

The most mature stage of advantage involves creating a new playing field, with reshaped boundaries of competition and stakeholder dynamics enabling new value creation. One example is Yara's foray into digital farming, which unlocks new growth opportunities by shifting from selling crop nutrition products to solving broader agricultural and environmental problems. Another is BIMA, a digital insurance provider that started operations in Ghana in 2010. Thanks to its innovative technology platform and partnership model with telecom providers, mobile money providers, and insurance underwriters, BIMA provides affordable, easy-to-manage life and health insurance to more than 35 million low-income customers across ten emerging economies. BIMA’s customers have access to its services through their mobile phones. Many of them are lower-income families who earn less than $10 a day. About 75% of them are obtaining insurance for the first time in their lives.  

3. Creating Environmental and Societal Benefits

The third dimension has to do with the magnitude and nature of environmental and societal benefits generated. In our work to holistically define impact, we identify six dimensions of environmental and societal value that companies can create through their products, services, operations, and value chains. These areas include economic vitality, environmental sustainability, lifetime well-being, ethical capacity, societal enablement, and access and inclusion.

In the initial stage, the environmental or societal benefit is still limited in scale and often oriented toward mitigating the negative impacts of the business . SBM-I addresses the symptoms of the environmental or societal issue rather than the underlying causes. For instance, collecting and recycling plastics is an excellent first step in reducing the impact of plastic waste. However, it does not achieve true sustainable packaging. That would require fully circular solutions in which all plastics are recycled, or even packaging-free solutions. Similarly, ensuring animal welfare at the food production stage is an essential early-stage activity. Still, it does not address head-on the challenges of emissions-intensive production of cattle for food.

In the next stage, SBM-I delivers meaningful environmental and societal benefits by targeting root causes of the environmental or societal challenge . The company’s activity generates net environmental or societal benefits, and there is potential for significant positive impact if it can scale. For instance, IBM's Food Trust blockchain-enabled technology platform establishes transparency around environmental sustainability for products in the grocery supply chain, ensuring product integrity and safety from production to consumption. This platform delivers meaningful environmental and societal surplus just by increasing the integrity or ethical capacity of the supply chain.

Finally, the most mature group of SBM-I efforts on this dimension creates high, at-scale environmental and societal benefits , addressing the root causes of the issue at hand. For instance, M-Pesa—a peer-to-peer mobile money service for people without a bank account—was born as a joint project between Vodafone and Safaricom. Launched in Kenya in 2007, M-Pesa has since increased the financial resilience of 40 million users in Africa, while creating income for 300,000 M-Pesa agents and a healthy business for the telecommunications venture.

By combining these three dimensions, a picture of the current competitive landscape of sustainable business model innovation emerges. Exhibit 2 shows the placement of all 102 SBM-I initiatives according to our three dimensions. It divides these initiatives into three groups, according to how far they have advanced.

Of the case studies, 45% are “initiative leaders” (shown at the lower left of Exhibit 2). These companies are often associated with a strong brand promise based on sustainability. They tend to invent or improve products to address consumer, regulator, or investor demands for more environmentally and socially mindful outcomes. While these SBM-I efforts can enhance and differentiate a company from its competitors, their advantage can fade as competitors replicate their approach or join industry coalitions. For example, most plastics recycling programs are no longer differentiating, because nearly all consumer packaged goods companies have made commitments to tackle that waste issue.

Moving to the center of the matrix, 25% of our cases qualify as “ecosystem leaders .” Companies undertaking these SBM-I initiatives seek to provide environmental and societal benefits by reshaping the dynamics of suppliers, distributors, investors, policymakers, and customers. They are often visionary companies, seeking to turn environmental and societal challenges into new business opportunities. Some of them form novel cross-industry or cross-sector partnerships to build their new sustainable business models. For example, Microsoft’s Airband initiative works with regulators and develops novel distribution partnerships with local telecommunications companies and internet service providers (including small and medium-size enterprises) to extend broadband voice and data access across low-income and rural areas. Its goal is to reach more than 40 million additional people in the US and abroad by 2022.

The Front-Runners of SBM-I

The final 30% of cases are “front-runners.” They pave the way forward for their industries and markets, and they provide insight into what advanced SBM-I could look like. Front-runners have shifted their perspective from incremental “company-out” activities to more radical “societal needs-in” innovation. That is, they reorganize their capabilities, assets, products, services, and ecosystems to proactively solve for the UN Sustainable Development Goals, with close ties to their own business value drivers. Front-runners generate business outcomes (for example, total shareholder return) and environmental and societal outcomes in mutually reinforcing ways. They are closest to turning sustainability into a competitive business advantage.

In analyzing front-runner case studies, we found several factors that characterize them:

• They emphasize sustainability as part of their purpose. All of the companies in our sample explicitly mention environmental or societal surplus in their formal purpose, vision, or mission statements.
• They build a robust, resilient business model and deploy it for all their goals. The drivers of environmental and societal impact are directly linked to the drivers of business value and competitive advantage. These companies thrive as businesses because of their efforts to tackle the root causes of an environmental or societal issue.
• They optimize for holistic environmental and societal outcomes. Rather than focusing on an isolated symptom of a particular issue, they seek a comprehensive solution that addresses its complex, systemic root causes. This differentiates them from competitors. It allows them to shape the stakeholder dynamics of the ecosystem and even reshape the boundaries of competition (the “rules of the game”) to their advantage.
• They combine several sustainable business model innovations. In “ The Quest for Sustainable Business Model Innovation ” we introduced common innovation archetypes for sustainable business models: Own the origins; Own the whole cycle; Expand societal content; Energize the brand; Re-localize/regionalize; Expand the value chains; and Build across sectors. By combining and layering these approaches, companies develop holistic strategies and models that increase business value and increase societal and environmental benefits simultaneously.
• They deploy advanced technology and digital capabilities. This enables them to develop new solutions, break old economic constraints and tradeoffs, and amplify their reach and scale. Companies that demonstrate sophisticated use of digital tools, analytics, and other advanced technology tend to score higher on the value drivers associated with business value and increase societal and environmental benefits.
• They gain leverage from new cross-industry and cross-sector partnerships. Front-runners partner with private, public, and social entities to pool resources, exchange capabilities, unlock new markets, and amplify their reach and scale.
• They create value for a wide range of stakeholder groups. They proactively take into account the long-term interests of customers, suppliers, employees, shareholders and investors, government, and all of society, and in so doing they expand their basis of advantage.
• They experiment with new ways of capturing value. They look for innovative approaches to securing customer preferences and accessing new markets. They also experiment with novel ways to get returns on the stakeholder value they create—for  example, leveraging blended financing to reduce risk and amplify their own investments.

Proficiency in any new field is a moving target, and sustainable business model innovation is no exception. The front-runners of today will be joined by many other companies. Many of them, like Schneider Electric, are finding ingenious solutions to pernicious societal and environmental problems. Along the way, they are demonstrating what a quality company will be like in the future. The SBM-I landscape provides a quick way to understand just how far your company is leveraging sustainability as advantage. Start by looking closely at your current business model and sustainability initiatives, in light of the three dimensions of the SBM-I landscape. We’ve explored answers to some related questions in other articles in this series. What is the scale and scope on which you’re innovating to drive environmental and societal impact? How much sustainable business advantage are you creating? What kind of environmental and societal surplus are you generating? Where do you start your SBM-I journey?

The BCG Henderson Institute is Boston Consulting Group’s strategy think tank, dedicated to exploring and developing valuable new insights from business, technology, and science by embracing the powerful technology of ideas. The Institute engages leaders in provocative discussion and experimentation to expand the boundaries of business theory and practice and to translate innovative ideas from within and beyond business. For more ideas and inspiration from the Institute, please visit our website and follow us on LinkedIn and Twitter .

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Managing Director & Senior Partner, Chairman of the BCG Henderson Institute

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10 key considerations for creating a sustainable operating model

Sustainability Lead Sam Maguire explores the ten questions businesses should consider to embrace a sustainable operating model.

Meet the author

Sam maguire.

As the world transitions towards net-zero carbon emissions, businesses are under regulatory pressure and demands from investors, customers, and employees, to become more sustainable.  There are clear benefits for companies that steal a march on their competitors by embracing a sustainable operating model. 

By helping to address the world’s challenges, companies can benefit from higher risk mitigation and resilience, as well as yielding high financial rewards. 

An operating model incorporates every aspect of how an organisation operates, the people, culture, processes, governance, information, technology, infrastructure and facilities and other aspects that enable its running. 

Creating a sustainable operating model means integrating a focus on people, the planet and prosperity across each of these areas. 

But how does a company go about building a more sustainable operating model?

Here, our sustainability team, led by Sam Maguire , outlines 10 key points that companies should consider when embarking on such an exercise.

Are there clear elements of sustainability that your operating model should prioritise?

There are so many different elements of sustainability in the environmental space including carbon emissions, pollution, waste, and impact on biodiversity, that it is not feasible to prioritise each one simultaneously. In addition to environmental issues, companies need to consider equitable pay, diversity and inclusion, and health and wellbeing among other social issues with regulatory compliance. And regulatory compliance is another important piece of the jigsaw. Clearly, there’s too much to consider at once. So, we need to be clear about which elements we are going to focus on from an operating model perspective. 

What is the level of risk under your current operating model?

Who has responsibility for sustainability within your organisation.

When a central team looks after sustainability, the impact is never as great as when responsibility is distributed and incorporated into the roles of different people around the business. Therefore, we really need to think about who makes decisions in specific areas. For example, if a large national supermarket tries to reduce its carbon emissions, the head of the delivery team would be an ideal candidate to adopt sustainability responsibilities. This person has first-hand knowledge and is invested in ensuring a new strategy works. 

The supermarket might also give responsibility for sustainability to the head of procurement, as this person will make sure every organisation in the supply chain shares similar values and is taking responsibility for its own emissions.

Are people and the planet part of your decision making processes?

Where are there opportunities to redesign more sustainable processes.

We should look at where processes can be improved to achieve the sustainability outcomes designed. For instance, is the billing process completely paperless, or have your redesigned your manufacturing to be fully circular?

How will you track the impact your operating model has on people and the planet?

How will your systems and data architecture enable you to plan and deliver a more sustainable operating model, how will you work with partners and the broader system to enable a sustainable operating model, do you need to upskill your people to deliver the new operating model, what are the behaviours and mindsets you want people to embody.

There’s a lot to think about here, and we aren’t suggesting wholesale change over a short period. Organisations should go through a structured design process by taking a high-level look at current sustainability levels and where it wants to be in the future. Move forward by breaking actions down into small chunks to deliver change in an agile way. By bringing people together from across the organisation, and introducing change in a collaborative way, the rewards will be greater.

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How to navigate successful organisational change

Enabling future success: motivating teams and reskilling employees

How to create more sustainable operations – one asset at a time

Sustainable operations, sustainable operations start with assets.

Our assets, like buildings, energy grids, vehicles and industrial equipment, are key contributors to the sustainability challenges we face today. But good asset management practices can be part of the solution. The desire to be a more earth-friendly organization is more than altruistic, too. It’s also good for business – “doing well by doing good.” That’s why today, we’ll focus on the ways you can create more sustainable operations while you also deliver more value to your organization.

Consider the number of assets needed in your operations. Each has a finite lifecycle that includes maintenance, refurbishment and/or replacement, which are not always the most eco-friendly activities. A better approach is to extend the life of each of those assets.

You can create more sustainable operations by employing enterprise asset management . You’ll reduce waste and gain operational efficiencies in the process. Two examples:

• Manage maintenance requests at an enterprise level to create optimal, efficient routes and reduce the amount of fuel your technicians use.
• Give your maintenance teams mobile tools with in-depth asset information and access to critical knowledge to increase first-time fix rates and decrease return visits.

Sund & Baelt is using AI and IoT to preserve and protect some of the world’s largest infrastructure, projecting lifespan extension for Great Belt bridge 100 years, avoiding 750,000 tons of CO2 emissions.

Why sustainable operations are good for everyone​.

Enhance Asset Performance

Take sustainable operations to the next level with iot data, analytics and ai.

The essential elements of sustainable operations management are reduced labor coupled with improved products and service quality. Better uptime, as well as understanding the root cause of failure and defects is key to process optimization in every industry. Many organizations, however, have already wrung out what they can from a traditional approach to improving operations. That’s why AI-powered capabilities for asset performance management are critical for a more efficient, sustainable model:

• Remotely monitor critical assets for enterprise-wide visibility into performance. Then use data to plan a strategic, sustainable asset strategy based on risk and criticality.
• Develop predictive maintenance plans to improve asset availability by 20% and extend the lives of machines by years, which also reduces C02 emissions.
• Use AI-powered visual and auditory inspections to spot small defects before they become large-scale problems then take action to reduce waste and rework.

How asset performance management works.

Green Buildings

Make your buildings as green as possible.

Creating facilities that are environmentally responsible and resource efficient is really thinking about asset management at a building level. And like every other asset that has a lifecycle, you can make them more sustainable through every phase. From siting to design, construction to operation (including facilities management, maintenance and renovation) to the deconstruction of that space, you can apply the same advanced asset management technology and processes that we discussed above. For example:

• When it comes to your offices, you can monitor space, understand how it’s being used and right-size your real estate.
• Just like a manufacturing facility, you can manage and monitor the assets within each structure – like HVAC systems, elevators and even the exit signs – and use AI-driven insights to perform predictive instead of reactive maintenance and reduce both the energy used and the overall carbon footprint of your portfolio.
• And a digital twin of your facility – just like a digital twin on any other assets – lets you mirror and monitor building systems and troubleshoot problems before wasting resources on unnecessary or inaccurate repairs.

Plan for Weather Impacts

Don’t just worry about the weather – plan for and respond to it.

From acquiring raw materials to making the last-mile delivery to the end consumer, weather impacts every facet of business , every day. Couple that with that fact that in 2020, there were 22 separate billion-dollar weather and climate disasters in the US alone and you can understand why modeling the risk from weather is so critical to your operations. In the same way that IoT data and AI can help protect your assets, when combined with your proprietary and third-party geospatial information, this data can help you prepare for the unexpected. For example:

• Accurate weather data allows you to better predict energy demand and reduce waste so that you don’t buy more power than you need.
• You can reduce C02 emissions from vehicles by using weather information to predict and avoid disruptions and plot the most efficient routes.

Good for Business

Put technology to work for your business… and the planet.

Without a doubt, being better stewards of the planet is shaping a new corporate agenda. Purpose-driven consumers are putting their money behind companies that address their environmental concerns. Employees, especially Millennials, are making employment decisions based on the corporate responsibility efforts of a company. And shareholders, too, now consider the environmental and social impact of their portfolios. It’s not surprising then that 62 percent of executives consider a sustainability strategy as essential in order to be competitive.

Sustainability Resources

Sustainable solutions for a sustainable future.

If you want explore sustainability for your operations, IBM is ready to help . With open, AI-powered solutions and platforms, and deep industry expertise, we can partner with you to create a more sustainable infrastructure and operations:

• Explore how market-leading IBM Maximo Applications Suite delivers greater sustainability through intelligent asset management, monitoring, predictive maintenance, computer vision, safety and reliability, all in a single platform.
• See how you can design a sustainable, safe and flexible workplace and drive greater operational efficiency in your facilities with IBM TRIRIGA .
• Discover how the IBM Environmental Intelligence Suite can reduce weather-related disruption to your business with advanced analytics and intelligent workflows. See how you can reimagine processes and better predict how weather will impact your assets, employees and customers.

Get more resources for your sustainability journey

Read more on the topic of sustainability and the role of technology in helping companies reduce their impact on the planet. Reports include Sustainability as a business strategy and The rise of the sustainable enterprise .

You can also learn more about IBM sustainability solutions , explore sustainable manufacturing solutions and view more from our enterprise sustainability series:

• 5 ways to manage climate risk to drive sustainability
• 3 high-value ways to accelerate your journey to supply chain sustainability
• Sustainably fueling the future: accelerating decarbonization through clean electrification
• Sustainability: Core of your business strategy

Challenges of business models for sustainability in startups

RAUSP Management Journal

ISSN : 2531-0488

Article publication date: 11 October 2022

Issue publication date: 4 November 2022

This study aims to analyze the challenges startups face in implementing business models for sustainability. In particular, the research question of this study is: How do the challenges faced by startups affect business models for sustainability in the context of an emerging country?

Design/methodology/approach

Startups are increasingly incorporating ways to thrive in a competitive environment with innovative sustainable business models, a key factor for competitive advantage and corporate sustainability. This paper analyses startups’ challenges in adopting business models for sustainability through a case study in two startups, using the sustainable value exchange matrix (SVEM) tool through workshops, to carry out the diagnosis of these challenges.

The barriers and challenges of business models for sustainability in startups were found in different categories, where the main barriers are linked to the institutional category, the organizational and the market and sales culture. Thus, the authors concluded that there is a need to reformulate public policies and to have greater participation of the actors involved.

Research limitations/implications

The main limitation of the research is the number of case studies (only two), which makes it difficult to generalize the results.

Practical implications

The research presents two major contributions. First, through the case studies, it is possible to verify that the barriers and challenges in business models for sustainability have relevance for startups. The second contribution is the adaptation of SVEM in conducting the debate by incorporating the barriers and challenges in value creation and delivery system.

Social implications

This study contributes to the business models for sustainability literature to better understand the challenges startups face in practice and can serve as insights to help overcome them. As this is an empirical study, the information gathered can help create metrics and public policies to achieve the United Nations sustainable development goals.

Originality/value

The present research has as originality the analysis of the challenges in startups in implementing business models for sustainability and their relationships with the value proposition, capture and creation, as well as and delivery (adapted to the challenges found in the literature) applying the SVEM tool proposed by Morioka et al. (2018).

• Business model innovation
• Sustainable development goals
• Sustainable entrepreneurship
• Circular economy

Nunes, A.K.d.S. , Morioka, S.N. and Bolis, I. (2022), "Challenges of business models for sustainability in startups", RAUSP Management Journal , Vol. 57 No. 4, pp. 382-400. https://doi.org/10.1108/RAUSP-10-2021-0216

Emerald Publishing Limited

Copyright © 2022, Andressa Kelly da Silva Nunes, Sandra Naomi Morioka and Ivan Bolis.

Published in RAUSP Management Journal . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Entrepreneurs who pursue business sustainability link their commercial success directly to achieving positive effects for the natural environment and humanity, thus creating value for a wide range of stakeholders ( Freudenreich, Lüdeke-Freund & Schaltegger, 2020 ). Business efforts are expected to be combined with other societal actors (governments, civil society, etc.) according to the 17 sustainable development goals – SDGs ( Morioka, Bolis, Evans & Carvalho, 2017 ). Business challenges are issues that repeatedly appear as impediments to successful business models. As such, they must be resolved to enable a paradigmatic shift toward innovation and sustainability ( Todeschini, Cortimiglia, Callegaro-de-Menezes & Ghezzi, 2017 ).

Sustainable systems are challenging because of the wide range of environmental, economic and social factors that must be considered throughout the system’s life cycle ( Fiksel, 2003 ). As research delimits business models from the perspective of three elements: value proposition, value creation and delivery system and value capture ( Richardson, 2008 ), companies are initially invited to think about behavior, responsibility and corporate performance; to define their resources to frame the main activities; and finally, to analyze the stakeholders and their economic context ( Bocken, Rana & Short, 2015 ; Svensson & Wagner, 2011 ).

Research on business models for sustainability demonstrates that the process is iterative, with sustainability objectives gradually integrated into stakeholders’ priorities ( Baldassarre, Calabretta, Bocken & Jaskiewicz, 2017 ). The research gap is because it is an emerging topic that needs studies to empirically analyze the barriers associated with business models for sustainability as well as the effectiveness of related strategies ( Hueske & Guenther, 2021 ). Therefore, it is essential to continue studying the relationship between organizational commitment to sustainability and its effective implementation and performance ( Silvestre & Fonseca, 2020 ).

How do the challenges faced by startups affect business models for sustainability in the context of an emerging country? Based on the gaps, this research aims to analyze the challenges startups face in implementing business models for sustainability. The sustainable value exchange matrix (SVEM) tool proposed by Morioka, Bolis and Carvalho (2018) will be used for this aim.

Despite possible semantic differences between the terms “barriers” and “challenges,” the present research considers the two terms synonymous, as literature uses both. For example, Bocken and Geradts (2020) , Hueske and Guenther (2021) , Laukkanen and Patala (2014) and Salim, Stewart, Sahin and Dudley (2019) mention barriers to sustainable business models , while Todeschini et al. (2017) , Geissdoerfer et al. (2018) and Morioka et al. (2017) use challenges .

Section 2 discusses business models for sustainability and the challenges of implementing business models for sustainability in startups based on the exploratory literature. Section 3 discusses the research method (case study), selection of startups and application of the SVEM, proposed by Morioka et al. (2018) . The SVEM aims to critically analyze the mutual benefits of the stages of value proposition, value creation and delivery and value capture with the stakeholders. Furthermore, with this tool, we aim to assess the challenges of startups and how they can become more sustainable by making explicit decisions to connect their business model elements to address the barriers to sustainable development. Section 4 presents the results and discussions obtained through the application of SVEM. Finally, Section 5 summarizes the conclusions of our analysis and its relation to other research streams and suggests possible avenues for future research.

2. Theoretical framework

2.1 business model for sustainability.

Several studies have examined business models from the perspective of their three elements: value proposition, value creation and delivery system and value capture ( Richardson, 2008 ). A brief explanation of each element in the context of sustainability is presented below. The customer value proposition supports a business model’s logic, data and other evidence, integrating a viable revenue and cost structure for the company delivering that value ( Teece, 2010 ). The challenge of developing offerings (products and services) that can create value for customers and contribute to global sustainable development is considered high for companies ( Selberherr, 2015 ). Economic viability is a requirement for the business model for sustainability ( Boons, Montalvo, Quist & Wagner, 2013 ; Morioka & de Carvalho, 2016 ). However, business goals should be aligned with social and environmental values, following the triple bottom line – TBL approach ( Elkington, 1997 ).

The principle of reflexivity is interesting to define the value proposition and support organizations. It can be defined as a continuous consideration of environmental, economic and social aspects of corporate sustainability, which should be constantly observed to achieve the goals and analyze the power of all organizational actors ( Schneider, 2015 ). This principle supports organizations, critically analyzes their role in society and reinforces the formation of the value proposition of business models for sustainability ( Boons et al. , 2013 ).

The study conducted by Morioka et al. (2017) in the analysis of multiple case studies converging to business models for sustainability resulted in the value proposition being composed of two levels: tangible and intangible . The tangible level is ensured by the products and services offered by the organization, whereas the intangible level of the value proposition represents the business purpose, combining entrepreneurial vision and personal values and beliefs. Therefore, delimiting a value proposition is fundamental in the business model for sustainability because incorporating a sustainability mission in the company’s strategy and values directly affects corporate behavior, responsibility and performance ( Svensson & Wagner, 2011 ).

The value creation and delivery system is the second element of business models for sustainability and serves to delimit the organization’s main activities: supply chain and logistics, operations, marketing and sales, innovation (design, research and development), human resources, corporate governance and organizational culture ( Morioka et al. , 2017 ). Several logics within the literature address how business models for sustainability create and deliver value. Some examples are corporate social responsibility (CSR) as a bridge between TBL pillars toward the business model for sustainability ( Govindan, Kannan & Shankar, 2014 ), business for the sharing economy ( McLoughlin et al. , 2009 ) and circular economy ( Salim et al. , 2019 ; Tura et al. , 2019 ).

Value capture, the third element of business models for sustainability, refers to aspects of the business model related to the capture of economic, environmental and social value by different stakeholders ( Lashitew, van Tulder & Muche, 2020 ) and tends to consider the financial flow captured by the organization ( Richardson, 2008 ). In general, the ultimate goal of value appropriation is to maximize shareholder value through decisions related to pricing, customer acquisition, market development and cost management, among others ( Lashitew et al. , 2020 ). However, the value captured by stakeholders tends to be often intangible. Thus, business models for sustainability face the challenge of measuring the value captured or destroyed by their existence. Value capture by stakeholders who have not (directly) contributed to value creation is referred to as value diversion ( Lepak, Smith & Taylor, 2007 ).

Sustainable business model innovation is a change in how a company operates to create positive impacts or reduce negative consequences for the environment and society. This article aims to explain which paths a company can follow when implementing a sustainable business innovation process aligned with the SDGs ( Ferlito & Faraci, 2022 ). The UN SDGs bring support for implementing business models for sustainability. To deepen the integration of the SDGs into business operations and stakeholder engagement, corporations’ need strategy, governance and operation ( Devalle et al. (2020) . Promoting network empowerment due to explicitly highlighting the contribution to the SDGs will require improvements in stakeholder-level governance and, in many cases, will also require changes in the existing institutional logic of actors ( Giacomarra, Crescimanno, Sakka & Galati, 2019 ).

A research stream is focused on proposing tools to help organizations with business model innovation for sustainability, as they need to create a sustainable value proposition ( Minatogawa et al. , 2022 ). Studies have proposed practical tools to support sustainable capability integration, such as the business model canvas ( Osterwalder & Pigneur, 2010 ), the three-layer business model canvas ( Joyce & Paquin, 2016 ), the evolutionary processes of sustainable entrepreneurship ( Schaltegger, Lüdeke-Freund & Hansen, 2016 ), the value ideation process ( Geissdoerfer, Bocken & Hultink, 2016 ) and the sustainability-driven service innovation (SOSI) ( Calabrese, Forte & Ghiron, 2018 ).

In the early stages, Bocken et al. (2015) proposed the value mapping tool, using structured workshop-based brainstorming sessions to surface both positive and negative value deployed from the organization using a multi-stakeholder perspective ( Silvestre, Fonseca & Morioka, 2022 ). Another particularly suitable tool is the SVEM ( Morioka et al. , 2018 ), which seeks to instigate discussions of corporate sustainability innovation based on face-to-face interactions between academics and practitioners with brainstorming/workshop support, in addition to conducting a diagnosis of the organization’s value proposition, value creation and delivery system and value capture.

2.2 Challenges of business models for sustainability in startups

The ability to quickly and successfully switch to new business models is an important source of sustainable competitive advantage and a key lever for improving the sustainability performance of organizations ( Geissdoerfer et al. , 2018 ). However, the aforementioned author’s research found that many business model innovations fail, and despite the importance of the topic, the reasons for failure are relatively unexplored in academic works; in the context of startups, they are yet to be implemented.

Inigo and Albareda (2019) point out that companies can engage in four main organizational changes in innovating for sustainability: seeing new social and environmental regulations as an opportunity; making their value chains sustainable (operations and life cycle assessment); designing sustainable products and services; and developing sustainable business models (finding new ways to deliver and capture value).

There is a threefold problem in sustainable business model innovation: the first is that meetings and workshops on business model innovation occur, but the ideas are not followed up; the second is that even though there are promising sustainable business model concepts, they are still not implemented; the last is that most implemented business models, especially at their inception, fail over time in the market ( Geissdoerfer et al. , 2018 ).

Table 1 was divided into the contexts of the challenges found in the literature that fall into different categories such as institutional, organizational culture, marketing and sales, supply chain, operations and logistics, innovation and research and development. These categories were an adaptation of SVEM, which frames the following categories in the value creation and delivery system: supply chain and logistics, operations, marketing and sales, innovation, research and development, organizational culture and corporate governance ( Morioka et al. , 2018 ). These dimensions are interconnected, and business models for sustainability depend on balancing all of them, as a lack of performance in one can harm the others.

The discussion in the literature of barriers is in different segments of companies following business models for sustainability, e.g. the renewable energy sector ( Engelken, Römer, Drescher, Welpe & Picot, 2016 ; Salim et al. , 2019 ), circular economy ( Tura et al. , 2019 ; Vermunt, Negro, Verweij, Kuppens & Hekkert, 2019 ) and fashion industry ( Todeschini et al. , 2017 ). Most studies mention barriers in general terms and lack conceptual clarity on how barriers may differ across various business models for sustainability ( Vermunt et al. , 2019 ).

External barriers are considered external forces that prevent companies from developing their business model for sustainability. They were also divided into two categories: institutional and market and sales. Category 1 refers to social norms and rules that impact business models for sustainability, such as regulations (considered “hard” institutions) and social values, habits and traditions (considered “soft” institutions) ( Crawford & Ostrom, 1995 ). Lack of strict legislative pressure and economic incentives are seen as the main barriers to the business models for sustainability of technological orientation, whereas, in the social category of market and sales, the main challenge is the lack of consumer or customer acceptance and economic incentives to those of social orientation ( Laukkanen & Patala, 2014 ). In the context of market and sales, Vermunt et al. (2019) pointed out challenges related to efficient interaction with stakeholders, which is given by the lack of involvement of stakeholders in decision-making.

supply chain, operations and logistics;

organizational; and

innovation, research and development (Hoffman, 1999).

The factors related to organizational culture are linked to the company’s internal decision-making; when the company becomes flexible to new changes and empowers employees to be protagonists, it may be innovation-oriented ( Morioka et al. , 2017 ).

There are differences in the types of barriers encountered between business models. Research by Vermunt et al. (2019) shows that companies with a product-as-a-service model mentioned mainly internal organizational and financial barriers (88 and 63%, respectively), and external market and institutional barriers (63 and 50%, respectively) but did not mention supply chain barriers. Firms with a product life extension model encountered mainly external supply chain and market barriers (70 and 80%, respectively). Most companies with the resource recovery model mentioned supply chain barriers (67%), followed by institutional barriers (56%) and market barriers (50%). Regarding knowledge and technology barriers, 44% mentioned them ( Vermunt et al. , 2019 ).

3. Research method

To analyze startups’ challenges in implementing sustainability business models, this research will adopt the case study method. This method is appropriate to specify research questions until reaching their closure, in addition to checking whether validation occurs with the exploratory literature, allowing theory building through the combination of previous publications and the data collected about the organizations ( Eisenhardt, 1989) . The steps for the core case studies adopted in this study follow the sequence proposed by Eisenhardt (1989) and are described below to ensure replicability and increase research reliability ( Yin, 2001 ).

This research was divided into three stages ( Figure 1 ), according to Yin (2001) :

definition and planning;

preparation, collection and analysis; and

analysis and conclusion.

The first stage focuses on the part of the exploratory literature review, the research question described earlier in this paper and the elaboration of the case selection criteria. According to Eisenhardt (1989) , defining the research question allows the researcher to specify the type of organization to be addressed and the type of data to be collected.

3.1 Case definition and planning

Case selection was conducted with two companies named “Company A” and “Company B.” Both companies are located in Brazil, an emerging country that faces institutional gaps and sustainability paradoxes, requiring greater empirical evidence ( Jabbour et al. , 2020 ). Company A is focused on solutions related to the environment, also serving as a consultant and in the development of products such as composting. In terms of services, it offers solid waste management plans, water allocation, rainwater harvesting and licensing, among others. Company B is in the phase of consolidating the minimum viable product on the market. Its product is an automated waste collector that automatically separates recyclable waste, without the need for human collection.

to be a startup company;

to be concerned with environmental and social issues, expressing the need to minimize society’s challenges to sustainable development; and

the workshop participants had to be the company’s chief executive officers (CEOs), given their high hierarchical level and the support required to conduct the research, as indicated by Voss, Tsikriktsis and Frohlich (2002) .

3.2 Data preparation and collection

The second stage consists of developing the research protocol, conducting Case studies 1 and 2, and finally, the case study report. According to Yin (2001) , the protocol is one of the main tactics to enhance the reliability and validity of the case study research as well as the procedures and general rules that should be followed when using the instrument and instructions for collecting other empirical evidence. A fundamental strength of data collection for a case study is the opportunity to use multiple sources for obtaining evidence, allowing for triangulation. Such methods may include interviews and workshops that can strengthen the validity of the research ( Voss et al. , 2002 ).

In this research, a workshop was conducted with each company. A guiding script drove the workshops using the SVEM ( Morioka et al. , 2018 ). Before the application of SVEM, improvements were made to adapt the research instrument, with a researcher expert in business models for sustainability, to refine and make the understanding easier in the reality of challenges found in Table 1 . After the initial contact, the workshops with the startups were conducted in July 2021 with a CEO from Company A and two CEOs from Company B, which lasted 1 h and 21 min and 1 h and 9 min, respectively.

(A) value proposition: delimitation of the business reason for existence;

(B) value capture: value captured by stakeholders;

(C) value creation and delivery system (in the case of this article, this stage was adapted and is related to the challenges): practices, capabilities and resources ( Figure 2 ); and

(D) critical analysis of the matrix.

During the application of SVEM, delineations of relevant contextual factors were considered, from which the more specific sustainability challenges can be derived. Step (A) serves as an input to delineate the business purpose and competitive advantage, which is made tangible by the organization’s offerings, e.g. its products and services ( Morioka et al. , 2018 ). Step (B) starts with naming the key stakeholders and seeks to identify the key sustainable value captured by each stakeholder. Step (C) names key business processes, i.e., participants are asked to point out the key practices, capabilities and resources required for each process ( Morioka et al. , 2018 ). In the case of this paper, Step (C) was adapted by making a relationship between SVEM and the barriers found in the literature in Table 1 .

Steps A, B and C seek to promote a description of the main aspects that represent the organization, initiating some reflections during execution. In the end, we expect to provoke more profound reflections by pointing out the contribution of business model innovation guidelines for sustainability (Step D) for an organization that can become more sustainable by making explicit decisions to connect its business model elements as a tool to address the challenges of sustainable development ( Morioka et al. , 2018 ).

3.3 Data analysis and report generation

The third stage of the research consists of analysis to produce analytical conclusions involving the description of the cases. After this, a comparison of the challenges with the literature was carried out to analyze whether existing theories match the empirical findings to strengthen them at a higher conceptual level ( Voss et al. , 2002 ). As for the recording of workshops, two synthesizing reports were prepared with transcribed information from the interviews with the CEOs, resulting in four pages for each company. Subsequently, both reports were forwarded to the respective interviewees to validate and ensure information accuracy.

Then, the analysis of the transcribed data occurred through content analysis of the workshops. This technique consists of a systematic and objective research method to make replicable and valid inferences from data in their context to build a model, conceptual system or category that describes a broad phenomenon ( Elo & Kyngäs, 2008 ). At this point, it is noteworthy that the results of the empirical study were compared with the literature review findings, thus enabling data triangulation and discussion.

4. Results and discussion

Business models can involve different organizational contexts ( Morioka et al. , 2017 ). Therefore, this section is divided into three sub-sections: (4.1) analysis of the value proposition of the case studies; (4.2) analysis of sustainable value capture by stakeholders; and finally, (4.3) discussion of the barriers to value creation and delivery practices affecting business models for sustainability, derived from the theoretical foundation (Section 2.2).

4.1 Value proposition

Company A is an environmental consulting startup whose work mainly focuses on a solid waste management plan, water and sewage treatment and environmental licensing. Company B proposes technology solutions in more sustainable projects and develops services through one of its projects, the “LISA - Lixeira Inteligente Seletiva.” It automates the separation of solid residues. In addition to forwarding them to companies that perform recycling, it also supports recyclable materials collectors.

The debate on the company’s value proposition started with the contribution of startups to the SDGs of the United Nations Organization, the company’s purpose, its main products and services and its competitive advantage. The companies’ value proposition corresponding to each category is summarized in Table 2 . The 17 2030 United Nations Goals can be considered a call to action for society actors, including organizations ( Morioka et al. , 2017 ).

Therefore, it is possible to see that startups have common points concerning the SDGs, considering that they contribute to sustainable cities and communities (11), responsible consumption and production (12) and action against global climate change (13). Therefore, startups’ relationship with the SDGs can be based on their value proposition; for example, the products and services offered by the company are able to contribute to one of the SDGs, even if it is on a small scale.

Below, we list examples mentioned by companies regarding their contribution to the SDGs. Company A: “(SDG 6 - drinking water and sanitation), we carry out projects for systems to capture and use rainwater.” Company B: “(SDG 11 - sustainable cities and communities), as we contribute to the reduction of waste sent to landfills and this also impacts on (SDG 13 - action against global climate change), as it reduces the emission of greenhouse gases.”

The results show that the value proposition is composed of the company’s purpose, encompassing the value that is delivered to customers with social and environmental responsibility, in addition to the economic one. For Company A, evidence of this is: “To deliver services and projects to our clients and partners with social and environmental responsibility on an ongoing basis.” For Company B, this value delivered to customers is given by its product’s contribution to the circular economy, as evidenced in the following line: “Encourage our customers, by purchasing our product, to send waste that would previously go to landfills, to recyclable material cooperatives.” The tangible level of this delivered value is evidenced by products and services such as rainwater harvesting and home composting (A) and advertising in app advertisements and integration with other apps (B).

Data collection showed personal narratives and insights to build the company’s value proposition regarding economic, environmental and social values. Both organizations focus on the social, environmental and economic pillars. A sustainable business opportunity can derive from an environmental problem, adding social and economical solutions ( Morioka et al. , 2017 ). One of the common roles of both companies is to make environmental information available to society, government and customers. Evidence of this are the sentences: “Environmental responsibility, in addition to social issues. Deliver socio-environmental responsibility to our customers and partners continuously. […] Try to show that customers can generate economic value to their companies through environmental licensing. The licensing can be positive so that these regularized customers can get loans with banks” (Company A). “In addition to our product, we intend to build a platform to serve our clients with various resources. One of them would be to integrate our platform with the National Solid Waste Information System (SINIR), and the companies that would have the data of this waste stored in the cloud would directly communicate with SINIR since they need to account for this waste.”

As expected, the competitive advantages pointed out by the case studies depend on the sector in which they operate. The competitive advantages mentioned include an innovative approach to problem-solving and knowledge in the environmental area, as well as meeting deadlines: “Competitive advantage with deadlines, we are able to ensure delivery within the deadlines” (Company A). “We see our project as a very broad field, we were able to identify few companies in Brazil with our product and there is little exploration. Waste generation is high and we can’t recycle even 4% of it. Our product would help in this regard, but everything that is new needs to prove its worth” (Company B).

4.2 Value capture

Several stakeholders capture the value created by the case studies’ business models for sustainability: shareholders/investors, customers, employees, suppliers/stakeholders, society, environment, government, competitors, universities, organizations with similar interests and indirect stakeholders. In addition, the startups studied present indirect stakeholders represented by a person or group.

In terms of the financial value captured by the companies studied, income generation is a point in common for both. Clients of startup A capture value from their customers through regularization, licensing and environmental awareness. Those of Company B can benefit by obtaining greater control of their waste and through scoring apps “place your waste and score,” in addition to waste management and green marketing itself ( Table 3 ).

Mechanisms to be used by companies to ensure the value captured by society were mentioned, such as environmental education through lectures (Company A) and by reward systems for the user in exchange for benefits (Company B). For the environment, points such as improvements are highlighted through reports and in the very performance of Company A: “We were able to make groups of people gardening, giving lectures on how to compost at home, applying environmental awareness daily. And the encouragement of selective collection and assistance in the logistics of forwarding the collection of solid waste”; Company B: “Environmental education, through the application and gamification, which is precisely a reward system, obtaining discounts on energy bills, in supermarkets.”

In the case of the value captured by the government, there is the aid in environmental licensing (Company A), which minimizes the environmental impacts through the conditions established in the licenses. There is also urban cleaning for municipalities (Company B), by allocating part of waste to collectors of recyclable materials, in addition to generating information on waste to the municipality on platforms such as SINIR (National Information System on Solid Waste Management) and optimizing the collection of recyclable materials collectors. This is a measure that also generates social value by increasing customer satisfaction for using more sustainable products. As mentioned by both companies, sharing knowledge is necessary to strengthen the network and thereby enable companies to obtain a better market view.

4.3 Value creation and delivery system – challenges and barriers

Several aspects were pointed out during data collection to affect the business model. This topic addresses a vision based on the challenges and barriers found in the literature. Companies indicated that the presence of competitors increases market awareness and the understanding of the solution proposed by the business models for sustainability. Consequently, it can increase market demands to demonstrate product quality when remanufacturing, promoting education and culture on remanufacturing and circular economy ( Table 4 ).

The proper functioning of regulatory structures in business models for sustainability has great relevance ( Laukkanen & Patala, 2014 ). The startups reported different views regarding the institutional scope. Company A perceives the government as absent and legislation as hindered by changing laws or by customers hiring only because it is a legal requirement to obtain reports or environmental permits. Company B mentions that the institutional category is not a barrier for them, as they receive incentives from the “Centelha” program (deriving from the public policy), which facilitates taxation mechanisms. For example, “Centelha” includes the company in the Simples Nacional , a simplified taxation system so that companies pay fewer taxes, favoring its services.

Different forms of businesses, e.g. social businesses, cooperatives and collectives, are not well supported by regulators ( Laukkanen & Patala, 2014 ). This occurs with Company A, in terms of the lack of technologies provided by environmental agencies in the transaction of the licensing processes. Another barrier related to the lack of regulatory incentives for Company A is the risk of change in legislation on environmental licensing, which can be evidenced in the statement, “There is a new project to make licensing basically optional. To keep our business active, it is necessary that there is an obligation for the entrepreneur to have engineering projects in the licensing part.”

The absence of government incentives, in general, is emblematically revealed in the following statement of the interviewee from Company B: “I don’t see tax incentives, I don’t see project incentives. I don’t see incentives from other agencies, for instance, the Regional Engineering and Agronomy Council (CREA), at least not for the environmental area.” In fact, in the Brazilian scenario, double taxation of recyclables is an example of the lack of institutional incentives that should not be ignored. Reductions in taxes on the marketing of recycled materials and products made with them are absent; however, they could be an effective incentive for manufacturers to use more recycled materials, encouraging the entire production chain ( Haro-de-Rosario, Gálvez-Rodríguez, Sáez-Martín & Caba-Pérez, 2017 ).

As for organizational culture, the barrier arises for companies to delimit their proposition for the next generation. In general, this question was interpreted as relating to their financial affairs, in the short term, which suggests the difficulty in staying true to the core values of sustainability, consistent with sustainable strategic objectives ( Todeschini et al. , 2017 ; Zott, Amit & Massa, 2011 ). The challenge of this category for Company A is related to short-term investments, as the startup is focused on growing as fast as possible. The only medium-term investment is made in internet platforms, such as Google Ads, which is still incipient.

Another point raised was the lack of ethics amongst competitors, which hinders relations with the municipality’s city hall, indicating that the focus on value creation and on value capture encompasses activities beyond the company’s own borders ( Zott et al. , 2011 ). Therefore, Company B is concerned with recyclable material because this requires a partnership effort with local recyclable material cooperatives. However, to get to this collaborative relationship, it is first necessary to map these cooperatives and their constraints, which limits the startup’s scalability and growth to other regions, suggesting a typical challenge, converging with previous studies ( Todeschini et al. , 2017 ; Zott et al. , 2011 ).

Regarding the market and sales, the investment with social media is a challenge for Companies A and B, it is related to attracting customers. Consumers or customers appreciate cheaper prices than sustainability aspects, a “disposable” culture is created, where it is more profitable to produce or buy cheap and short-lived products ( Laukkanen & Patala, 2014 ). For Company B, evidence of the difficulty in attracting customers is highlighted in the speech: “capture investments from other agents, get more people in society to know the company and help in the dissemination of the product.”

In the category of innovation, research and development , continuous training and academic research for developing new solutions in Companies A and B, fundamental for companies’ growth, are also challenging in the sense of continuously maintaining innovations: “We use software, but then we went after other tools for more visual work. One of our members is in his doctorate, and developing research is of great value, but it requires a lot of his time” (Company A). “What we are working on today would already be an innovation, and every innovation involves research. The challenge is to reconcile, in terms of time, the Master’s degree activities with the company’s activities” (Company B). Thus, one notices that both startups have difficulty prioritizing and reconciling time, because at least one company’s CEO has other academic activities. What is divergent from what we found in literature, i.e. problems in lack of knowledge and technology ( Vermunt et al. , 2019 ).

Finally, in as much as the supply chain is concerned, challenges are related to public agencies with failures in the monitoring system due to the lack of technology updates (A) and for (B) the products that are being discarded might not be the materials that the waste pickers recycle, and there is a concern as to the functioning of the process. Another point for Company B would be possible problems with suppliers of the boards to manufacture their product: “The services that we consume from other suppliers, are well available in the market, but a possible problem could be with the raw material of the boards in the manufacturing of our product.” Supply chain dependencies were found to be problematic also in Vermunt et al. (2019) research, mainly caused by the limited number of suppliers of circular materials. As the circular economy is still in its infancy, few suppliers are already producing biodegradable or recyclable materials ( Vermunt et al. , 2019 ).

5. Conclusion

This study explores the existing research gap concerning the emerging theme and the need for empirical studies insofar as it empirically analyzes the barriers found in the literature associated with business models for sustainability and the relationship between organizational commitment, reflected in the value creation and delivery system, to sustainability and its practical implementation.

This research found that the barriers and challenges of business models for sustainability in startups are found in different categories. The existing theoretical frameworks of business models for sustainability were highlighted through the challenges focused on the following categories: institutional and organizational culture, market and sales, innovation, research and development, supply chain, operations and logistics. As the case study method, the SVEM tool ( Morioka et al. , 2018 ) was applied to analyze the value propositions, value capture and the value creation and delivery system related to the categories of the challenges found in the literature.

The barriers linked to the institutional category have a greater impact on Company A, whereas the market and sales category prevails in Company B. This leads to the conclusion that there is a need to reformulate public policies and to have a greater participation of the actors involved. Similarly to what was found in Hueske and Guenther’s research (2021), the barriers related to market and sales are linked to investments and financial return. In other words, the difficulty in making the business model economically viable.

Challenges related to innovation and technology for the product life extension model were reported, for example, by Matsumoto et al. (2016) . In our sample, technological barriers were prominent in continuing education, especially regarding the search for the development of new solutions and continuous improvement in entrepreneurial performance. This can be explained by the fact that at least one of the CEO’s of each company is also pursuing a Master’s/PhD degree in parallel to the entrepreneurial activity.

The challenges found in both startups regarding organizational culture are related to short-termed and are also found in the research of Bocken and Geradts (2020) . While corporations seek to realize immediate profits to satisfy shareholders who demand quick returns, it is said that short-term investment beliefs dominate investment decisions. Meeting this assertion, the sustainable business model involves a broader understanding of value and stakeholders, as it “captures economic value by maintaining or regenerating natural, social and economic capital beyond its organizational boundaries” ( Schaltegger et al. , 2016 , p. 6).

Our research presents two major contributions. First, through the case studies, it is possible to state that barriers and challenges in business models for sustainability have great relevance for startups and collaborate with empirical data to understand the obstacles to business development toward sustainability. This information can help us create metrics and national public policies to achieve the SDGs. The second contribution is the adaptation of SVEM by holding the debate incorporating the barriers and challenges in the value creation and delivery system.

The main limitations of this research are the number of case studies, which was limited to only two, making it difficult to generalize the results. Furthermore, future research should observe whether the conclusions of this research can be replicated in companies from different sectors. It is also suggested that further research should include a more significant number of case studies of startups to compare with the results of this research and others that deal with barriers and challenges in the literature. Another suggestion for future research is to apply other tools found in the literature on business models for sustainability, after diagnosing the challenges.

Research framework

Barriers/challenges of sustainable business models

*CREA – Regional Council of Engineering and Agronomy

Source: Authors (2021)

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Acknowledgements

This work was carried out with the support from the Coordination for the Improvement of Higher Level Personnel (CAPES) through the grant of a scholarship from the Postgraduate Program Production and Systems Engineering/UFPB and from the Foundation for Research Support of the State of Paraíba (FAPESQ), UFPB Grant Term 046/2021 and FAPESQ Grant Agreement: 3216-2021.

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Sustainable Business Models

Published by jp on october 8, 2022 october 8, 2022.

Over the last few years, a new business concept has emerged – sustainable business models . So far the term has been used to signal the need for businesses to go beyond innovating products or services, and change the fundamentals of how a business makes money.

Sustainable business models are all about identifying how companies cannot only generate value for themselves and their shareholders (in terms of profits) but also how they can create value for all stakeholders , such as society and the environment. 

With increased consumer and investor awareness about global issues like climate change and pollution, companies need to factor sustainability into their business model in order to remain successful in the long-term. In fact, it is proven that purpose-driven companies generate higher profits and have a higher likelihood of survival, as can be read in these sustainability books .

What is Sustainability?

There is no commonly accepted definition of sustainability . Depending on the area of interest, there can be different ways to define sustainability. Generally, sustainability can be described as   the capacity to support, maintain or endure   and connecting the environment with society and economy. That way, sustainability aims to  meet the needs of the present without compromising the ability of future generations to meet their own needs.

In recent years, the topic of sustainability has received increasing attention in public debates about climate change and pollution. Though, the word itself has become a buzz-word and is sometimes associated with  greenwashing . 

Based on the principles of the circular economy , sustainable business models emerged as a result of increased public awareness on sustainability and rising demands for green alternatives.

What are Sustainable Business Models?

Essentially, sustainable business models are business models that go beyond the generation of financial value to create a better world .  They  help in describing, analyzing, managing, and communicating companies’ sustainable value propositions to their customers and all other stakeholders, and how they create and deliver this value. Sustainable business models describe how these companies capture economic value while maintaining or regenerating natural, social, and economic capital beyond their organizational boundaries.

The following are the key characteristics of sustainable business models, which are derived from the stakeholder theory and also referred to as the three  three principles of sustainable business  or the “Triple P”:

• economically successful → profit
• socially responsible → people
• environmental friendly → planet

1. The "Profit" Principle

The first principle of sustainable business models is the “profit” principle, which addresses the bottom-line of every business: profit!   Companies have to make profit to remain sustainable. They can only do good in the world if they generate financial value in the form of profits that they ca re-invest or donate.

That said however,   profit still can’t outweigh the other two principles . Profit at any cost is not what the “profit” principle is about. It rather stands for   compliance, proper governance and risk management .  Traditionally, this principle has been the easiest to understand. Companies seeking economic sustainability aim for profitability, by efficiently using their   assets  and maintaining their  capital . 

The “profit” principle goes hand in hand with the   circular economy , which is a   systems solution framework that tackles global challenges like climate change, biodiversity loss, waste, and pollution while being used as a foundation for every sustainable business model.

2. The "People" Principle

The second principle of sustainable business models is the social principle, which is concerned with   how companies’ employees but also other internal and external stakeholders are affected and treated by the operations of a company . “People” oriented businesses care about their employees’ welfare and maintain a connection with their workforces and stakeholders that go beyond just business relationships. 

Socially-oriented companies with well-defined sustainable business models provide security, individual development and overall health support to employees, suppliers and partners. Something as simple as acknowledging your own employees’ work and rewarding them accordingly is significant in order to create a long term loyal workforce. 

On a global scale, a   business needs to be aware of how its supply chain is being operated . In order to be socially sustainable, companies need to make sure that the work environment along its supply chain is safe, that people are being paid fairly and no child labor is involved.

3. The "Planet" Principle

The first principle of sustainable business models is the “planet” principle, which stresses the   impact of business activities and business decisions on the environment .

Now more than ever, it is important for companies to be aware how their business activities affect the environment, and to   limit and change business activities that have damaging consequences for our earth .

Environmental initiatives that businesses take include finding alternative energy sources, reducing their carbon footprint, getting rid of plastic bags, and using sustainable materials for the packaging of their products such as paper. Last but not least, they might also make efforts to “green up” the entire supply chain of their products, pushing suppliers to act more environmentally responsible too. 

A program can be considered “environmentally sustainable” when  natural capital  and  environmental resources  get preserved, maintained and not overexploited. 

Why do we need Sustainable Business Models?

In times of climate change, global pollution, resource extinction, loss of biodiversity, and the rise of global pandemics such as COVID-19 , we will need to find ways to manage our resources in a more sustainable way . 

Today, the global economy:

• is releasing more than 10 million tonnes CO2 into the atmosphere every day.
• is cutting down more than 42 million trees per day.
• is producing 1 million tonnes of plastic a day, of which 32.000 tonnes end up in the ocean every day.
• is causing that more than 150 species are going extinct per day.

However, we need to maintain our economic activities as humanity couldn’t survive without them . For example, if we would stop our modern agricultural activities that have become highly efficient over the last decades and go back to traditional agriculture, we wouldn’t be able to feed the world. As a result, a large part of the human population would hunger and eventually starve.

This is is exactly why we need to make our global economy sustainable. By applying sustainable business models, companies cannot only ensure their future economic survival, but also the survival of humanity.

5 Sustainable Business Models Examples

1. circular business.

Currently, our economic system is based on a linear “take, make, dispose” approach in which goods are ultimately thrown away. However, there is no “away” ! Therefore, we are in urgent need for businesses to transform from a linear approach to a circular approach . Looking beyond the current extractive industrial model, the circular economy aims to create closed loop industrial systems and redefines growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources , and eliminating waste , with the overall goal for economies to grow in abundance.

For example, Adidas has a range of footwear designed with recycling in mind. Its UltraBoost DNA Loop shoes are made from just one material – thermoplastic polyurethane (TPU). No glue is used in its manufacture, instead, it is assembled using high temperatures. Adidas describes the UltraBoost Loop as the  shoes customers will never own , but will instead return once they are finished with them. “If the end can become the beginning, we can help keep products in play and waste out of landfill”, the company says.

2. Sharing Economy & Product-Service Systems

Usually facilitated by a community-based online platform, the sharing economy is a peer-to-peer based economic model that involves the acquisition, provision, or sharing of access to goods and services . The underlying principles are so-called “product-service systems”, which are business models that provide for cohesive delivery of products and services . They are emerging as a means of collaborative consumption of products and services, with the aim of pro-environmental outcomes.

Examples of such systems include Airbnb, MudJeans, and Uber. All of these companies are selling a specific solution (instead of physical products) to their customers’ problem . For instance, what Uber customers are actually looking for is comfortable transportation, not a car. What Airbnb’s customers are actually looking for is short-term accommodations, not apartments. And what MudJeans customers are actually looking for is jeans, and not the ownership of clothes.

By sharing assets, such as textiles, accommodations, or cars, resources are used as efficient as possible and carbon emissions avoided. Furthermore, the sharing economy also solves other problems. For example, by reducing car ownership rates in cities, car sharing services are solving the problem of space taken away by parked cars.

3. Innovation & Biomimicry

Another way for companies to develop sustainable business models is by investing into R&D that is based on biomimicry , in order to drive innovation. Biomimicry is the imitation of models, systems, and elements of nature for the purpose of solving complex human problems. Sounds more complicated than it is!

An example for a product that was developed by the application of biomimicry are wind turbines. By looking at the bumpy tubercle fins of humpback whales, researchers found out that the same physiology could be applied to increase the efficiency of wind turbines. Thanks to this innovation, at wind speeds of only 10 miles per hour, the same amount of energy can be produced as with 17 miles per hour before the technology was applied. This drastically increased the amount of potential locations for wind turbines globally.

4. Cradle-to-Cradle

Linked to the concept of the circular economy, cradle-to-cradle focuses on eco-effectiveness rather than eco-efficiency . This framework is based on the idea of nutrient cycles. According to cradle-to-cradle, new designs for products need to involve clear planning for what to do with waste after a product’s usage, so that the product can “decompose and become food for plants and animals” or that they “can return to industrial cycles to supply high-quality raw materials for new products”. Cradle-to-Cradle is not about being less bad, but about being good from the beginning .

Several products that have either earned a C2C Certification or followed a similar design and production principle have been introduced in the market. Consider BioFoam as an example. Unlike expanded polystyrene or Styrofoam, which are made from polymers derived from fossil fuels, this patented biodegradable foam is made from vegetable materials. When discarded and disposed of, is material constituents become biological nutrients that can safely decompose while enriching the soil.

5. Reverse Logistics

Finally, reverse logistics are another way to move towards a sustainable business model. Organizations use reverse logistics when goods move from their destination back through the supply chain to the seller and potentially back to the suppliers. The goal is to regain value from the product or dispose of it . Worldwide,   returns are worth almost a trillion dollars annually   and have become increasingly common with the growth of ecommerce. The objectives of reverse logistics are to recoup value and ensure repeat customers . Less than 10% of in-store purchases are returned, compared to   at least 30%   of items ordered online. Savvy companies use reverse logistics to build customer loyalty and repeat business and to minimize losses related to returns .

A prime example of how to do this is that of French online fashion store   Espace des Marques . The retailer has considerably lowered its number of returns with the Mecalux Group’s Easy WMS, which sends operators specific instructions on how to prepare each order, thus, avoiding mistakes. With this solution, the company has completely eliminated errors in order picking. Consequently, its customers are happier and don’t return as many purchases. Of course, there is still a percentage of returns not necessarily due to mistakes in the warehouse (e.g., changes in sizes, colors, and models).

How to Create Sustainable Business Models?

Build sustainability into the ethos of your business to tap into the over 50% of people who are changing their lives to become more environmentally friendly. There are simple steps that you can take in creating your business model that will allow you to compete for longer in this demanding sustainability shift.

However, before going through the following steps, take a look at the Sustainable Business Model Canvas and get familiar with the concept. Besides economic criteria it focusses on  ecological and social consequences of the activity . It aims at maximizing positive and avoiding negative impact on society and nature. Therefore, sustainability is integrated into the core business. Fill it up with the most relevant information on your business (idea), and finally translate the business model into a business plan.

While doing so, consider the following steps:

1. Develop robust values

You can change a lot about your business, but you can’t change the core values once your business has grown – at least not without a lot of difficulty. By building sustainability into the core beliefs and values of your business, you create a stronger starting point that will be able to support future development.

2. Shape your values into something valuable

Your values cannot support your business on your own. The next step is to think about how your values will make your goods or services more valuable. A fashion business, for instance, cannot rely on simply having a sustainable value, the products still need to be fashionable. But when fashion and sustainability are working together, it increases the value of the product, making your business more attractive.

3. Focus on the future scale of your business

The assumption is that businesses will grow. When you are planning your business growth, consider how increased workforce, the need for larger premises, higher energy consumption, and geographical expansion might influence your sustainability. As your business grows, it will draw more on natural resources. Your job now is to consider how you can lighten that burden by planning for sustainability in the future.

4. Consider your resources

Every business uses resources. Are the resources your business uses sustainable? Where do they come from and how are they replenished? Are your supplies environmentally friendly from source or are you only looking at them from the middle of production onwards? It is your responsibility to know where your resources come from to ensure sustainability.

5. Give back

Stakeholders often place more long-term trust in businesses that have shown they value sustainability in tangible ways. This long-term trust is vital to your long-term growth. Find ways to give back to the community – volunteering, donating, going green, and joining sustainability initiatives are all good ways of giving back to the environment and the community that you want to support you.

6. Think sustainably

Consider ways in which your office or storefront could be more sustainable. It may be as simple as having more recycling options or changing to more energy-efficient lightbulbs. Or you could end up “greening” the whole building and switching to fully sustainable energy sources. Whichever it is, make sure that sustainability is constantly on your radar.

7. Promote sustainability

Finally, get your stakeholders, employees, and colleagues on board with your sustainability plans. The more support you have, the easier it will be to create corporate structures that support a sustainable business model.

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Operational Sustainability - Meaning & Definition

What is operational sustainability.

‘Operational sustainability’ is a method of evaluating whether a business can maintain existing practices without placing future potential resources at risk. Sustainability can refer to any one of a variety of areas, say ecological resources, social or economic resources.

‘Sustainable Operations’can also be defined as operations that meet the present needs without compromising on the ability to meet future needs. Sustainable supply chain management is a subset of sustainable development focused on the development and management of the supply chain. The aim is to create supply chains that perform well economically, socially, as well as environmentally.

Business sustainability is often defined as managing the triple bottom line - a process by which companies manage their financial, social and environmental risks, obligations and opportunities. These three impacts are sometimes referred to as profits, people and planet. Sustainable businesses are those businesses that can survive shocks because they are intimately connected to healthy economic, social and environmental systems. These businesses create economic value and contribute to healthy ecosystems and strong communities. 

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Texas cryptomining outfit earns more from idling rigs than digging Bitcoin

It's not a broken business model if the subsidies make up for cratering market and flagging demand.

Bitcoin mining outfit Riot Platforms earned $31.7 million from Texas power authorities last month for curtailing operations – far more than the value of the Bitcoin it mined in the same period. 

In a press release yesterday, Riot said it produced 333 Bitcoin at its mining operations in Rockdale, Texas, which would have been worth just shy of $9 million on August 31. All the cash earned from those energy credits, on the other hand, equates to around 1,136 Bitcoin, Riot CEO Jason Les said in the company's monthly update.

"August was a landmark month for Riot in showcasing the benefits of our unique power strategy," Les said. "Riot achieved a new monthly record for Power and Demand Response Credits … which surpassed the total amount of all Credits received in 2022.

"These credits significantly lower Riot's cost to mine Bitcoin and are a key element in making Riot one of the lowest cost producers of Bitcoin in the industry," Les said. 

The Electric Reliability Council of Texas (ERCOT) operates a demand response program that allows big energy consumers, like Riot, to earn power credits for using less of it for operations and selling power back to the grid, as well as additional credit for being enrolled in its demand response programs.

As we reported in August of last year, the company earned $9.5 million in credits during a July 2022 heatwave as well – still far less than it earned in Texas's hottest August on record this year.

Energy prices have been generally up, and aren't coming down, but you know what has deflated? The price of a Bitcoin. Sure, the price of 1 BTC has been up from the depths it plumbed late last year, but hovering in the mid-$20k range all year is nothing like the heady late-2021 highs of near $70k per coin.

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The combination of inflated electricity costs and a drop in the value of Bitcoin means mining simply isn't as profitable as it was in 2021, the year Riot's revenue soared as demand for, and the value of, Bitcoins rose. 

Fast forward just a year and things began looking different . Losses followed as Bitcoin prices plummeted and trade volume started to shrink – a problem that has only continued in the crypto world.

Analysts see Bitcoin miners struggling , and JPMorgan Chase said recently that the market cap of the largest Bitcoin mining firms in the US dropped by 21 percent in August. Surprise, surprise – Riot, with a 39 percent drop in market cap over the month, was the worst hit. While Riot's stock is up this year, like Bitcoin its value has dropped precipitously since 2021, when the mining firm peaked at $71.33 a share. Today it's worth just $11.10. 

But if ERCOT is going to pay the market mWh rate for not mining, it can't be that bad of a business model.

Neither ERCOT nor Riot responded to questions for this story. ®

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Tesla releases refreshed Model 3 with longer driving range in China

Visitors check a Tesla Model 3 car at a showroom of the U.S. electric vehicle (EV) maker in Beijing, China February 4, 2023. REUTERS/Florence Lo Acquire Licensing Rights

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SHANGHAI/SAN FRANCISCO, Sept 1 (Reuters) - Tesla (TSLA.O) shares fell nearly 6% on Friday after the electric automaker unveiled a restyled, China-made Model 3 with a higher price, while slashing prices of its premium vehicles and its "Full Self-Driving" (FSD) software.

The launch of the new Model 3 sedan marks the first time the automaker has rolled out a vehicle in China ahead of the United States, underscoring its growing reliance on the country where it is in a race for market share with BYD (002594.SZ) .

The vehicle is being built at Tesla's Shanghai plant and comes with a starting price that is 12% higher than the previous, base model in China. It will also be exported to other markets in Asia, Europe and the Middle East.

Raising the base price on the Model 3, Tesla's top-selling model after the Y, could help protect margins. But the price cuts for its more premium cars highlight the intense competition EV makers face, especially in China.

The automaker led by Elon Musk has started a price war this year that has boosted deliveries but sent its industry-leading margins to a four-year low.

The exterior design of the refreshed Model 3 does not look dramatically different from the previous one, Guidehouse Insights analyst Sam Abuelsamid said.

"The market thinks that this may not be enough" to revive sales in the face of slacking demand and rising competition, he added.

Tesla shares were trading down 5.8% at $243.06 by late afternoon, compared with a nearly flat broader market (.SPX) .

FSD PRICE CUT

Tesla cut the prices for its premium Model S and Model X by between about 14% and 21%, in China and the U.S. - its two biggest markets.

By dropping the starting price of the Model X to $79,990 in the United States, Tesla made the sport utility vehicle eligible for federal tax credits of up to $7,500.

Tesla's much-touted FSD software, technology which has been in the crosshairs of regulators over safety concerns , now costs $12,000, down 20% and well below the $15,000 Musk in July said would be a low price.

Abuelsamid, who expects further reductions, said the FSD price cut was an indicator that consumers are "not convinced", despite Musk's argument that a car's value increases dramatically if it's autonomous.

"It's nowhere close to being at the point where the driver can tune out," Abuelsamid said.

CHINA-FIRST DEBUT

The new Model 3 is Tesla's first change to its mass-market car line-up since it launched its global best-seller, the Model Y, in 2020.

Tesla did not announce a launch date for the new Model 3 in the U.S. where it currently offers discounts of more than $5,000 on some of those vehicles in inventory. The Model 3 is also assembled in Fremont, California.

Tesla plans to debut the latest Model 3 at a trade fair in Beijing on Saturday and some of its new features, including a rear display for back-seat passengers, seemed aimed at Chinese car buyers. It said it would also show the new model at the Munich auto show.

Images of the exterior showed small changes that gave the sedan a sleeker front and new headlights.

The new Model 3 also promises a longer driving range of 606 km (377 miles) for the standard version based on China's testing standards, about 9% higher than the base model it replaces in China.

Tesla said it had started taking orders in China, where it would begin deliveries in the fourth quarter, and in other markets where it exports to from Shanghai, including Germany, Japan, Malaysia, Australia and New Zealand.

The new Model 3 should sell well outside China where there is less competition in EVs, said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.

"But in China, we have already seen plenty of new models rolling out since the (Shanghai) auto show in April with similar and even better features and lower prices," he added.

PROJECT 'HIGHLAND'

Reuters first reported last November that Tesla was developing a revamped Model 3 in a project codenamed "Highland" . People involved in the project said it was aimed at cutting production costs and boosting the model's appeal.

Tesla did not give any details about the new Model 3's battery, but a person with knowledge of the features said it was the same lithium-iron-phosphate battery from CATL (300750.SZ) for the base model.

The higher range is the result of taking weight out and improving the car's profile so it faces less wind resistance, the person added. Tesla did not respond to a request for comment on the battery.

In China, the Model 3 competes against BYD's Seal, the Zeekr 001 from Geely (0175.HK) , Nio's (9866.HK) ET5 and Xpeng's (9868.HK) P7i. Xpeng has just announced zero-interest loans and free upgrades for that car.

($1 = 7.2582 Chinese yuan, $1 = 0.9211 euro)

Reporting by Zhang Yan in Beijing, Hyunjoo Jin in San Francisco, Daniel Leussink in Tokyo, Brenda Goh in Shanghai; Writing by Kevin Krolicki; Editing by Miral Fahmy, Edwina Gibbs, Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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Business Definition of Operational Sustainability

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Business operational sustainability is a method of evaluating whether a business can maintain existing practices without placing future resources at risk. Sustainability can refer to any one of a variety of areas, though it is often linked to ecological resources. Operational sustainability is also focused on social or economic resources.

Ecological Sustainability

Operational sustainability from the ecological standpoint refers to a company's ability to use natural resources at its current pace without depleting the resources it relies upon. This can be a company perspective or an industry-wide perspective. Global ecoefficiency exists when delivering goods and services minimizes the effects on the environment. Ecological sustainability looks at a company's use of natural resources, recycling and waste reduction through the production and sales process.

Social Sustainability

Social sustainability refers to the ability of all persons in a community to access equal or similar resources. Often these are parts of city planning programs. Large companies seeking to develop large production plants or development centers might look to become involved in social sustainability, demonstrating an understanding of the basic needs of all residents.

Economic Sustainability

Long-term strategies of business development and growth must consider economic sustainability. Should one business have a dramatic effect on the overall economic condition of one region, the effect not only hits the people in that region but the business's ability to continue and prosper. Think about a city where a car factory is the center or the economy. If the factory closes, the city and its residents will find itself in economic strife.

Considerations

Businesses must focus on more than just products, sales and profits to succeed in the 21st Century. For some businesses, developing operational sustainability models can increase costs. However, the partnership of industry and community has many benefits for business in terms of better employees and a positive public image that attracts more customers seeking to support companies that support a high quality of life for this and future generations.

• The Mindful Network; The Sustainabile Small Business; Sally Lever; November 2008
• Sustainable Operating Strategies: Sustainable Operation
• The Sustainable Scale Project: Sustainable Business Practices
• Sustainable Operating Strategies: Identifying, Classifying and Evaluating Inputs and Outputs
• City of Boulder: Social Sustainability

With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.

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