Sustainability innovation is powering business growth, according to a new research report published this week. Between 2010 and 2013, revenues from company-defined portfolios of sustainable products and services grew by 91 percent among the companies examined in the report. For S&P Global 100 companies that break out revenue for sustainable products or services separately, that revenue stream grew at six times the rate of overall company results.
The new study, Driving Revenue Growth Through Sustainable Products and Services, is authored by Thomas Singer, a principal researcher in corporate leadership at The Conference Board. The research was supported by the Investor Responsibility Research Center Institute (IRRCi). Register here or at http://bit.ly/1HjxLot for a webinar to review the report findings on Tuesday, July 14, 2015, at 2:00 PM ET. Download the research here.
“It’s a totally false dichotomy to suggest that sustainability somehow comes at the expense of growing a company,” said Jon Lukomnik, IRRCi executive director. ”In fact, leading corporations are realizing a substantial and positive impact on revenue from their sustainability products and services. The trend we’re seeing is that corporate sustainability programs are evolving from adhering to the best environmental, social, and governance standards to becoming a critical element of a company’s growth strategy.”
“More than a matter of responsibility or reputation, sustainability has become a potentially lucrative business strategy for a broad range of companies,” said Singer, report author and a principal researcher with The Conference Board. “In addition to quantifying that impact using revenue and R&D spending data attributed to sustainable products and services, we examined how companies are seizing the opportunity on the ground through in-depth case studies of sustainability leaders.”
The twelve companies profiled include Allianz, BASF, Caterpillar, Dow Chemical, DuPont, GE, IBM, Johnson & Johnson, Kimberly-Clark, Philips, Siemens and Toshiba.
Key findings from the report:
- Among companies in the sample, revenues from sustainable products and services grew at six times the rate of overall company revenues. Between 2010 and 2013, revenues from sustainable products and services among sample companies grew by 91 percent, while overall company revenues grew by 15 percent. Revenues from these products and services have in most cases significantly outpaced overall company revenues.
- Sustainable products represent a growing share of revenues from companies in the sample, and on average account for 21 percent of total revenues in 2013 compared to 18 percent in 2010.
- Commercial and investment banks are playing an increasingly significant role in financing the development of large-scale sustainable products and solutions, primarily through asset finance, tax equity, and green bonds. Total investments in clean energy, for example, increased 142 percent from 2006, reaching US$310 billion in 2014. Renewable energy asset finance accounts for the greatest share of total clean energy investments, totaling $184 billion in 2014—a 16 percent increase from 2013. Estimates from Bloomberg New Energy Finance show investments in clean energy may reach $630 billion by 2030.
- A few companies have published measurable sustainable product revenue goals, helping spur growth of these portfolios by incorporating sustainable products into strategic planning and target-setting. All but one of these goals are set to be realized by 2015, and the majority of them have already been achieved.
- Inclusion in portfolios of sustainable products and services is in most cases determined by a product’s performance across a set of environmental criteria. In many cases, these portfolios focus on climate change mitigation, energy usage and efficiency, and resource and materials usage.
- Not all companies track revenues from sustainable products separately, and very few companies track sustainability-specific R&D spending. Some companies intentionally make no distinction between sustainable and non-sustainable products, and therefore do not track revenues from these products separately.
- Among the few companies in the sample that track sustainability-specific R&D, on average about two-fifths of R&D spending is allocated to sustainability. These investments contribute to the growth in revenue from sustainable products and services.
- Companies say a driving force for sustainable products is customer demand for solutions that address global sustainability challenges, such as climate change and resource scarcity. Launching these initiatives requires overcoming a number of significant challenges, such as a lack of existing global standards; trade-offs between cost, environmental design, and pressure to price sustainable products competitively; and challenges embedding these initiatives into existing company processes.
- Successful launches of sustainable product initiatives requires broad stakeholder engagement. This includes getting CEO buy-in, tapping into motivated and passionate employees, understanding the specific needs of customers and society, and clearly communicating the business benefits of the company’s sustainable products.
Despite significant advancements in guidelines and standards related to corporate sustainability reporting, this area of corporate sustainability is still nascent. Companies operate under their own guidelines and methodologies, leading to limited and unstandardized data. This research acknowledges the “wild west” nature of this evolving field and the efforts of a small but growing group of companies that are trailblazers within it. As such, this report should be viewed as a first step—and invitation—to advance the analysis of corporate sustainability initiatives as drivers of business growth.