Enfragy

Why Sustainability Is Now the Key Driver of Innovation

There is no alternative to sustainable development.

Even so, many companies are convinced that the more environment-friendly they become, the more effort will erode their competitiveness. They believe it will add to costs and will not deliver immediate financial benefits.

Talk long enough to CEOs, particularly in the United States or Europe, and their concerns will pour out making our operations sustainable and developing “green” products as a disadvantage vis-à-vis rivals in developing countries that don’t face the same pressures. Suppliers can not provide green inputs or transparency; sustainable manufacturing will demand new equipment and processes and customers will not pay more for eco-friendly products during a recession. The reason, most executives treat the need to become sustainable as a corporate social responsibility, divorced from business objectives.

Not surprisingly, the fight to save the planet has turned into a pitched battle between governments and companies, between companies and consumer activists and sometimes between consumer activists and governments. It resembles a three-legged race, in which you move forward with the two untied legs but the untied third leg holds you back. One solution, mooted by policy experts and environmental activists, is more and increasingly tougher regulation. They argue that voluntary action is unlikely to be enough. Another group suggests educating and organizing consumers so that they will force businesses to become sustainable. Although both legislation and education are necessary, they may not be able to solve the problem quickly or completely.

Executives behave as they have to choose between the largely social benefits of developing sustainable products or processes and the financial costs of doing so. But that’s simply not true. We’ve been studying the sustainability initiatives of 30 large corporations for some time. Our research shows that sustainability is a mother lode of organizational and technological innovations that yield both bottom-line and top-line returns. Becoming environment-friendly lowers cost because companies end up reducing the inputs they use. In addition, the process generates additional revenues from better products or enables companies to create new businesses. In fact, because those are the goals of corporate innovation, we find that smart companies now treat sustainability as innovation’s new frontier.

Indeed, the quest for sustainability is already starting to transform the competitive landscape, which will force companies to change the way they think about products, technologies, processes, and business models. The key to progress, particularly in times of economic crisis, is innovation. Just as some internet companies survived the bust in 2000 to challenge incumbents, so, too, will sustainable corporations emerge from today’s recession to upset the status quo. By treating sustainability as a goal today, early movers will develop competencies that rivals will be hard-pressed to match. That competitive advantage will stand them in good stead, because sustainability will always be an integral part of development.

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