Jelizaveta Degtyareva, sustainability consultant, co-founder of 4D Sustainability Canvas
December 28, 2020
Bringing the societal and environmental context into product and business development is not only about doing good, but also imperative for any business aspiring to grow exponentially and thrive long term.
By stepping into the Fourth Industrial Revolution, we have been witnessing unprecedented disruptions brought by technological innovations and new business models like,
- sharing economy - distributing production, creation, trade and consumption of products and services,
- 3D printing revolutionizing the construction and food industry, or
- circular economy - eliminating waste from production processes by design
just to name a few.
We truly live in times of radical disruption, demanding the business to play a bigger role in the society than just profit making, to lead by purpose. Creating value for the planet and communities is what the new normal is calling for. Business as usual is no longer an option for any company, particularly not for start-ups that are at a massive head start in innovation and agility.
The economic development of the past decades happened on the cost of our disappearing ecosystems, biodiversity, and rising inequality, slowly leaving us with a planet we can no longer do business in. The effort of governments, NGOs and corporate social responsibility programs alone have not been enough to solve some of our most urging systemic problems like climate change and social inequality. Hence the creation of the 17 UN Sustainable Development Goals (SDGs or Global Goals) that are calling for all stakeholders on the planet to join forces and achieve prosperity through the restoration of our ecosystems and inclusive societies. But how does a business come to SDGs?
Today’s challenges can also be translated to market opportunities. The Business and Sustainable Development Commission even put a price on it. According to their calculations aligning business with SDGs could potentially unlock a 12 trillion-dollar market. No wonder that over 9000 companies worldwide signed up to the principles of the UN Global Compact and we see big names like Unilever, IKEA or MasterCard adopting sustainable business strategies in forms of new ventures, partnerships, and open innovation.
They don’t only do it to seize a new market, but because extreme weather events and social unrest have been disrupting their supply chains. Ignoring their dependency on forest fires, coastal floods, desertification, climate-driven migration and manifestations, as listed among the top 10 business risks according to Global Risks Perception Survey, can not only cost them fortunes but jeopardize their license to operate.
No wonder why big corporate companies are looking at their smaller allies for disruptive solutions, that can accelerate the shift in a more efficient way.
So, what is required for start-ups to tap into this new world of opportunities?
3 things: Unlock authentic purpose, leverage new business models and think social.
The first step is the willingness to redefine the role of your business, moving from the concept of maximizing profit for shareholders to creating value for all stakeholders: employees, suppliers, communities, environment, governments, and shareholders. Imagine it as instead of making decisions in the name of your shareholders (investors) you listen to what all six stakeholders have to say, thus making sure you would not impact them negatively.
3 reasons why embedding purpose in a start-up pays off:
1. Attracts talent and customers : Younger generations are overtaking the workforce and purchasing power, which naturally brings a shift of mindset and values, expecting companies to solve bigger, more complex, and collective problems. This is the reason why 9 in 10 millennials are more likely to switch to brands that are associated with a cause. Moreover, if we don’t want to lose their talent either, it is imperative to convey a strong purpose that will make them stay 5 times more likely than at other companies.
2. Cultivates innovation: Innovation is a key driver of all startups and when purpose is embedded in the company’s culture, the team is more inspired and willing to invest time in the development of new ideas.
3. Targets impact investment: As the market is shifting so does the investment scene. Investors’ appetite has risen significantly towards sustainable business models. A proof that today 1 in 4 dollars of professionally managed assets considers sustainability principles and the impact investment scene has grown exponentially since 2007 to US $502 billion according to Global Impact Investing Network (GIIN).
Unleashing purpose, however, is not only about crafting a catchy mission and vision statement, it is a more profound integration of the Global Goals into the DNA of an organization. Start-ups have the advantage to be able to develop a sustainable mindset at an early stage. First they need to expand their horizons from customer to wider stakeholder thinking and see how the product or service is impacting all of them. For instance, if you are developing a financial product for today’s market, you would ask if it protects vulnerable customers and your partners, and suppliers share ethical values.
It does not sound like you have a choice at early stage, but on the long run your brand will show an authentic value that customers will want to relate to. To explore how your product or service can unlock purpose and is impacting your community, employees, and the planet, you can run a 4D Sustainability Canvas assessment or conduct a more detailed B Impact Assessment. Both tools are an ideal way to start your sustainability journey.
Purpose alone however will not be enough. Re-thinking the role of your business in a wider context will eventually lead to considering new business models that are aligned with the Global Goals. According to Breakthrough Business Models, the following business principles will determine which companies will turn out to be exponential organizations, or as they called the Global Goals unicorns, which are valued over US$1 bn today.
LEAN : The LEAN methodology is central to the achievements of Global Goals. The proven cost reduction strategy and innovation method with zero-waste thinking at its core is now to be expanded to create value not only taking financial results into consideration but the human and natural capital as well. The question a lean startup should ask in this new context is not only whether a product can be built, but if it should be and if so, could it entail a sustainable business model?
Integrated: Consumers or as it is more appropriate to call them in the 21st century, citizens, demand more transparency and information on how companies ensure the protection of livelihoods and workers rights along their value-chains. A way to ensure transparency is to develop integrated reporting including data on financial, environmental and social results. There is a number of standards available, such as the Global Reporting Initiative (GRI) or investor-focused IRIS Impact Management and Measurement Standard that can provide guidance for those taking their social and environmental impact seriously.
Circular: One significant pillar of the sustainability transition is circular economy, proposing businesses to move from the linear take-make-waste production process to a closed loop circular model. Circularity imposes that one should design waste out of production or use waste as a resource for new products. Take the US-based Terracycle for instance, established in 2001 as an organic fertilizer producer from waste, evolved into the world’s leader in finding ways to recycle products that are traditionally considered as non-recyclable. Another proof of how high circularity is on companies’ agenda, Apple’s commitment to adopt a 100% circular business model for its products by 2024.
Thinking social is based on the very idea of moving from customer-centric product development to a citizen and eco-centric one. For-profit businesses leveraging technology and partnerships with NGOs can explore previously unimagined market segments leading to product innovations. Social enterprises for example are a great inspiration for building profitable businesses in places that traditionally have been overlooked or only served by non-profit organizations. Take as example Grameen Bank in Bangladesh that provides microcredit to unbanked customers (majority women), whose repayment rate is reported to be over 99%. Grameen Bank’s success inspired other companies worldwide to implement a profitable and efficient way to fight poverty and empower marginalized communities.
In summary, the new era is calling for a change, breaking from the old paradigm of thinking about a customer problem in a box, and responding to more holistic and complex problems like climate change and social unrest that today’s generation of citizens is preoccupied with. Startups that do not wake up to these changes and embed sustainability –purpose, stakeholder focus, new business models, social thinking into their strategy will not only stay behind but miss out on an enormous market opportunity.
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