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Making Sense of “Sustainability”
Making Sense of “Sustainability” 1
Making Sense of “Sustainability”
Sustainability is one of the topics clients ask us about the most, but also one of the most contentious. The word is on everyone’s lips, but when it comes out, it still can provoke an eye roll or a skeptically arched eyebrow. There seems to be a general consensus about its importance, but it can still evoke impressions of naïvely idealistic activism, or of cynical corporate “greenwashing” campaigns that amounted to a lot of marketing and little substance.
Lux’s view is that, while the term might be toxic in some quarters, the substance of sustainability is increasingly important for innovation leaders to consider. We choose to follow the UN World Commission on Environment and Development’s definition – “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
That’s hard to argue with – but to help make sense of what it should actually mean in practice, we address here three of the most common questions we get from clients on the topic:
1. Should you bother with sustainability at all?
2. How do you set the right goals?
3. How do you incorporate sustainability into your strategy?
Asking and answering these questions lays the groundwork for developing a sustainability strategy.
Should you bother with sustainability at all?
Some company leaders do still wonder if the term is more a marketing buzzword or charitable aspiration than a real strategic priority. The answer here is clear: Over the past few years, numerous stakeholders have begun to demand sustainability, showing that this trend will last and not be a passing fad.
• Investors have shown increased interest in environmental and social impact. In a presentation on quantifying megatrends, Director Cosmin Laslau noted that “climate and sustainability” has become arguably the most important trend for shareholders. Companies with the highest environmental, social, and governance (ESG) scores have seen above-average growth over the previous five years. Even more telling was State Street calling out three companies for poor ESG performance. With shareholders making these moves, business leaders need to respond.
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• Consumer preferences have shifted from wanting sustainability to demanding it, and these preferences have had major impacts on established businesses. Fast fashion brand Forever 21 filed for bankruptcy in part due to its poor response to customers concerns about the waste produced from “fast fashion.” Even entire products can be upended – plastic straws have been removed from many establishments after a video of a plastic straw stuck in a turtle’s nose went viral in 2018. These issues matter to consumers and are driving product choices, so many consumer-facing brands are committing to sustainability goals – and pushing their suppliers to do the same.
• Employees now strive to work for more environmentally friendly companies and are increasingly taking action to improve their workplaces – amicably or not. Lux is no exception: Spearheaded by my colleague Kristin Marshall, we’ve transitioned to a more sustainable office, featuring a podless coffee machine, reusable cups and utensils, and no canned beverages. However, failure to hold to important values can lead to significant backlash from employees – more than 300 Amazon employees protested against Amazon’s climate and social practices, even with a warning that they could be fired for doing so. Attracting and retaining top talent requires taking values like impact and inclusion seriously.
How do you set the right goals?
The “sustainability” term remains amorphous, so even after agreeing to address it, leaders still need to decide what that means. Here, the answer is different for each organization – ranging from CPG brands’ recycling goals with the Ellen MacArthur Foundation’s New Plastic Economy, to utilities striving to reduce methane emissions, to governments aiming to become leaders in Li-ion battery and EV manufacturing. To determine your targets, we recommend evaluating these key questions:
S&P 500’s growth from 2014 to 2019, from Lux Executive Summit Global 2019: Quantifying Megatrends: Improving Innovation Efforts With New Data and Insights
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• Use Fewer Resources: Cutting down on resource inputs, from water to energy to raw materials, is a clear way to reduce impact. For instance, while companies are taking a myriad of approaches to achieve sustainable packaging goals, a simple strategy is to merely reduce packaging used. Unilever, for example, aims to reduce its virgin plastic packaging used by 50% by 2025, targeting multiuse packs and “no plastic” products – and Thai supermarket chain Rimping replaced produce packaging with banana leaves.
• Reduce emissions: Cutting back on releases of harmful byproducts, most notably CO2 and other greenhouse gases, is another objective. Emission reduction can manifest in numerous ways: Lightweighting results in fewer emissions from transportation; switching to renewable sources makes energy use greener, and reusing materials or products curtails the impact of manufacturing. However, sometimes changing the process entirely moves the needle the most. Current ammonia production is as energy-efficient as possible, but there is significant interest in altering the traditional Haber-Bosch process, including adding carbon capture, using green hydrogen, or switching entirely to electrochemical synthesis, with big impacts on emissions.
• Reduce waste: Even with a reduction in resources used, there will always be waste, which can have its own negative effects. Companies can focus on reducing waste and developing a “circular economy” – from increasing recycling rates for plastic packaging to using food waste as a feedstock for feed and fertilizing. However, the efforts to develop a circular economy extend beyond consumer-produced waste like food and packaging to addressing end-of-life issues with energy technologies, such as lithium-ion batteries and wind turbine blades.
How do you incorporate sustainability into your strategy?
Taking action overall is important, but there still needs to be a business case for the specific moves you make toward your goals. To develop a strategy that aligns with overall business goals, in our work with clients, we ask the following questions to identify a value proposition.
• Make your operations more sustainable: All companies can work to manage the impact of their factories, offices, and logistics, often finding financial benefits to doing so. Much of the focus here is on reduced emissions – can you use a low-carbon fuel, can you electrify, can
Innovation interest in Haber-Bosch-related technologies
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you use less material to reduce energy needs? Lux tracks various companies’ approaches to sustainable operations – for example, UPS announced plans to invest $450 million in deploying 6,000 natural gas vehicles (NGVs), reducing its carbon footprint through an economically viable approach. The business value proposition here is in cutting the operational cost associated with energy usage (and potentially saving on a carbon tax bill).
• Help your customers become more sustainable: Another strategy is less in operations and more in product development – providing more sustainable solutions for customers that allow them to improve their operations and products (for businesses) or reduce their own personal impact (for consumers). Examples include offering bio-based and recycled materials or selling consumer products in reusable packaging. Lux commonly works with clients in chemicals and materials to identify leading waste conversion tech developers for relevant materials, as many in the industry are scrambling to build capabilities to supply recycled materials for their downstream customers. The value proposition here is to protect or grow market share – or even gain first-mover advantage – as downstream demand shifts to prioritize sustainability.
• Tap into new business opportunities created by the sustainability trend: Apart from improving existing products for existing customers, there are opportunities to develop products for new markets that are emerging due to the sustainability trend. These targets can range from new battery materials for energy storage to alternative proteins that offer a lower environmental footprint than meat. In fact, this interest in plant-based proteins has led brands to invest in a variety of options, including Kellogg’s investing in a moringa developer and General Mills investing in an almond protein-based beverage. For this strategy, the value proposition is in the new topline growth opportunities it can generate.
All told, this three-step process of assessing the drivers of sustainability, selecting the relevant goals, and aligning to business strategy provides a roadmap for companies looking to get their arms around what sustainability means for their business – getting beyond its use as a buzzword and focusing on the substance of what it means for strategy. The exact answers will be different for each organization but asking the right questions and taking a structured approach can place your team on a solid path. Reach out to us to discuss how to get aligned on tackling sustainability.
Why addresssustainability?
What sustainabilitygoals?
Which sustainabilitystrategies?
Improving operations
Helping customers
Finding new businesstargets
Using fewer resources
Reducing emissions
Minimizing waste
Appeasing investors
Serving consumers
Attracting & retainingemployees
About Lux ResearchLux Research is a leading provider of tech-enabled research and advisory services, helping clients drive growth through technology innovation. A pioneer in the research industry, Lux uniquely combines technical expertise and business insights with a proprietary intelligence platform, using advanced analytics and data science to surface true leading indicators. With quality data derived from primary research, fact-based analysis, and opinions that challenge traditional thinking, Lux empowers clients to make more informed decisions today to ensure future success.