How sustainable business model innovation provides fiscal and environmental opportunities

The new model from Boston Consulting Group gives businesses the tools and structure they need to become industry leaders in sustainability and value creation.

Over the past two years, companies have had to evolve quickly to respond to global infrastructure changes, as well as shifts in public opinion. In addition to the pandemic-driven overhaul to the way operations now work internally, businesses have had to reckon with external factors around environmental concerns, social needs, and rising stakeholder demands.

“One of the discussions that started with COVID was whether the sustainability agenda was going to slow down because of the pandemic,” says David Young, managing director, and senior partner at Boston Consulting Group (BCG), a global management consulting firm. “Instead, what we saw was a tipping point to where there is even more commitment to the environment, social, and governance (ESG) concerns.”

To keep up with heightened ESG expectations, many companies are turning to sustainable business model innovation (SBM-I) to combine these new priorities and reimagine their business models. From supply chains to product delivery processes, SBM-I can help leaders transform their business to create value and fuel growth while also generating broader environmental and societal benefits.

SBM-I requires leaders to reimagine their operations. This model prioritizes sustainable business practices and production, making sustainability the core. Although most companies are already making short-term plans to achieve environmental and social impact goals, SBM-I makes sustainability a core tenet of how a company functions and competes.

“Companies can innovate their business models by understanding how to use sustainability for competitive advantage and innovating with the latest sustainability practices,” says Young. “There’s a universal opportunity to make the world better through business and capital.”

Young acknowledges that there are still challenges to business model innovation, especially when considering supply chains. Remaking these networks in a completely environmentally friendly manner requires finding new suppliers and vendors taking an innovative approach to environmental and economic impact. While this can be a complex undertaking, it signals that the business is fully committed to sustainability. 

“Stakeholders—investors, customers, employees, and even social activists—are demanding businesses demonstrate positive environmental and societal benefits,” says Young. “We should recognize the profound impact that activism and capital have had on the attention companies are placing on ESG.”

The process of figuring out who is a part of the larger scope of your business is called stakeholder discovery, and it’s an integral part of SBM-I. To truly promote sustainable business practices, company leaders need to take a broad scope and consider everyone who interacts with the business, as a stakeholder in the business’s future. This process allows the business to better evaluate how the company is addressing stakeholder interests, in addition to how it’s doing in terms of talent acquisition, diversity, equity, inclusion goals, and employee retention.

“[We need to] understand stakeholders with the same sort of depth and zeal [with which] we understand investors,” Young says. “When you understand your stakeholders, you can enhance their well-being and see new opportunities for the business.”

Though stakeholders have material needs, they also have existential needs: Employees want to feel connected to their work, for instance, and customers want to exercise environmentally friendly purchasing power. So outside of fulfilling simple needs like providing a paycheck or a product, the goal of SBM-I is to enhance the lifetime well-being of stakeholders.

The strategy based on these findings has to scale upward—you can’t make the entire supply chain sustainable all at once. “Not everybody can convert everything into being sustainable at the same time,” Young says. “But there will be portions of a supplier’s business that can become greener, less resource-intensive, more inclusive, and offer more benefit than other parts.”

Part of BCG’s model for SBM-I is identifying and understanding the root causes of unsustainable business practices so that companies can make changes bit by bit. When leaders identify places in their business where they can convert quickly to more sustainable practices, that’s where they should start. Establishing short-term goals that tie into the bigger picture of a complete sustainability overhaul is crucial. 

“These sustainable business practices will create new opportunities for investment and innovation,” says Young. “Being at the forefront of the turn toward sustainability will set your business up for a competitive future.”