Building a sustainable business model

These days, issues of corporate sustainability seem to be popping up everywhere, from companies announcing their new climate commitments to asset managers integrating ESG policies to consumers demanding corporations take social and environmental responsibility.

As new biodiversity targets emerge there is an even greater urgency and investment potential in ESG issues, leading more business leaders to see the benefits of sustainability. Looking ahead, how can today’s businesses successfully integrate green practices into their business model for long-term success? What’s more, how can they effectively scale up and still create purposeful change?

Integrating sustainability

Building a sustainable business model begins with a comprehensive understanding of the broader ecosystem in which a company operates. The Boston Consulting Group's study of over 100 companies practicing sustainable innovation reveals that the most advanced companies or "frontrunners" have developed a deep insight into the environmental and societal trends that impact their business landscapes. This knowledge allows them to identify both vulnerabilities and opportunities that could affect their business models.

To effectively understand their business ecosystem companies need to:

●       Map the wider ecosystem of stakeholders and societal issues that impact business operations.

●       Stress-test their business model within this ecosystem to ensure resilience against potential challenges.

●       Extrapolate trends and build scenarios that help forecast future challenges and opportunities.

●       Identify strategic intervention points that can serve as opportunities for innovation and scaling.

Innovating for a Resilient Business Model

The transition to a sustainable business model requires innovation that integrates business advantage with environmental and societal benefits. For example, consider a hypothetical consumer packaged goods (CPG) company grappling with the toxic impacts of plastic packaging. Annually, about 18 billion pounds of plastic waste enter the world’s oceans, causing significant damage to both land and marine life.

To address such challenges companies can:

●       Shift to innovative eco-friendly packaging formats that minimize environmental harm.

●       Initiate plastic collection drives and support government-backed deposit return systems.

●       Join or form coalitions to invest in recycling technologies and infrastructure.

●       Educate consumers on sustainable consumption and disposal practices, encouraging them towards better habits.

Through these innovations, companies not only address critical environmental issues but also position themselves as leaders in sustainable business practices.

Linking Sustainability to Profitability and Competitive Advantage

Today’s front-runners increasingly view sustainability as a source of competitive advantage. These front-runners are not necessarily small enterprises but global corporations that have gradually built new business models integrating sustainability and competitive edge.

Key steps include:

●       Capturing value in pricing, market share, and loyalty.

●       Testing and iterating business concepts to ensure they align with sustainability goals and improve resilience.

●       Refining the business model continuously to improve environmental and societal value of products and services.

●       Experimenting with new forms of value capture such as blended financing sources.

Scaling Up for Broader Impact

To realize the full potential of a sustainable business model, it’s important to expand these practices extensively within a company’s ecosystem. The Boston Consulting Group's research indicates that almost 90% of front-runners have broadened their sustainability efforts through strategic partnerships. To effectively scale up sustainable practices, companies can:

●       Form partnerships with other organizations, both within and across industries or sectors. These collaborations can help companies pool resources, fill capability gaps and unlock new markets.

●       Leverage digital technology, similar to about 80% of the front-runners. Digital tools can open up new distribution channels, reaching previously underserved or unserved populations more efficiently and at a lower cost.

●       Develop a supportive company culture and leadership values that prioritize sustainability. Such a culture attracts and engages employees, stakeholders and customers who share these values.

Measuring impact

To achieve sustainable growth, businesses need to integrate ESG practices that set a foundation for future resilience and competitiveness. An impact assessment is a fundamental step in this process as it provides critical insights into how sustainability efforts are performing and where improvements can be made. Moreover, drawing on case studies from industry front-runners can provide actionable insights and proven strategies for success. By harnessing these tools companies pave the way for a greener future and position themselves as leaders in corporate responsibility.