Better biz models needed for sustainability

Companies now see sustainability as driver for long-term growth and not just to meet compliance and CSR needs, but unprofitable business models may dampen their enthusiasm, reveals study.

While organizations recognize sustainability as a critical and worthwhile investment to future business growth, concerns over the greater costs, and thus lower margins, in the short term indicate many have yet to figure out how to achieve sustainable growth profitably, according to Accenture.

In its report released Wednesday, Accenture found that 44 percent of organizations globally considered sustainability as critical to their businesses while 48 percent viewed it as very important. Also, 78 percent agreed that sustainability was vital to their future growth, whereas only 17 percent were neutral and 5 percent disagreed.

The study, which was commissioned by Accenture and conducted by Penn, Schoen and Berland Associates in March, surveyed 250 senior executives and decision-makers across eight markets--Brazil, China, France, Germany, India, Japan, the United Kingdom and the United States.

Almost two-thirds, or 62 percent, of respondents said their investments in sustainability were motivated by consumer demand and expectations of sustainable products and services. Another 60 percent said such investments were meant to drive business growth. Comparatively, genuine concern for the environment and society garnered 52 percent, the report stated.

Asked if their sustainability expenses were primarily aimed at aiding growth or improving efficiencies and cutting costs, about 37 percent cited both reasons. It also showed 41 percent saying their investments were for growth, which was almost twice as much as the 22 percent who said the aim was improve efficiencies and cost savings.

Some 83 percent of respondent also pointed out that sustainability is an investment, and not a cost to meet compliance or minimal corporate social responsibility (CSR) commitments.

Not a profitable venture yet
However, when quizzed whether it is more expensive to be a sustainable business, 56 percent of the executives said it was while only 16 percent disagreed. Delving deeper, Accenture found that one of the reasons for this could be that margins for sustainable products and services are lower, as 49 percent of participants had indicated, which meant that these businesses were commercially unviable.

It pointed out two possible explanations. The first could be that the volume or the respective market share of sustainable products is insufficient to reach similar productivity levels as the other products. The alternative would be that the production of sustainable products is intrinsically more expensive, which is often the case for products and services re-engineered to be sustainable rather than designed with sustainability in mind. 

"Continuing in this vein inevitably means that companies' enthusiastic approach to sustainable markets cannot be justifiable to investors in the long term. Many companies have clearly not matched their appetite for 'sustainable growth' with a capability to achieve it profitably," Accenture stated.

To remedy this, Bruno Berthon, managing director of sustainability services at Accenture, suggested in the report that businesses will need to industrialize and scale their production in order to drive higher levels of productivity, operational discipline and cost optimization into what can often be immature operating models in high-growth, sustainable markets.

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