In the most widely recognized analysis of sustainability performance, the Dow Jones Sustainability Index, companies such as BMW, Samsung, Novartis, Unilever, P&G, M&S, Intel, BT, TNT and Adidas have all come top in their individual sectors in 2006. While all of these companies should be applauded for their achievements, how does this attention to sustainability translate into business growth? Innovaro’s Innovation Leaders analysis and a KPMG International survey may provide some clues.

Over 50% of the companies identified in the most recent Innovation Leaders analysis as being among the world’s top organizations for delivering organic growth also appear in the DJSI. Furthermore, a recent KPMG-survey survey of over 1,600 of the world's largest companies in 16 industrialized countries determined that as many as 53% of the companies surveyed indicated that much of their Corporate Social Responsibility / Sustainability behaviour is motivated by innovation. This suggests that when real performance is assessed, an organization focused on improving sustainability can also deliver significant profitable innovation-driven growth.

The debate on the role of business in society is increasing. Over the past 15 years, the global economy has seen unprecedented growth and rising profitability – much of which has come with rising environmental impact. Within this context, however, an increasing number of progressive companies have recognized that it is in their interest to act responsibly within this increasingly sensitive framework to reduce their business risk. For example, this might involve developing technologies that will help to solve or mitigate major environmental problems. Another might be nurturing new markets in developing countries in an ethical manner. However, one common denominator is the ability to create and deliver new innovation by understanding and addressing societal challenges that, in the long run, translate into competitive advantage and the creation of economic value.

The Innovaro / KPMG analysis supports the view that a relationship between innovation and sustainability exists and that sustainability can be considered a driver rather than a barrier to creating growth and value for organizations and their stakeholders. A closer look at some of the companies that have demonstrated leadership in both shows that in many cases, sustainability can drive innovation; stimulate alternative ways to develop products, processes and services; and also create new opportunities that their competitors have not yet recognized.

Taking a strategic approach Toyota has developed a vision for a 21st century vehicle that complies with sustainability principles by addressing environmental and natural resource issues. One starting point led the automotive giant to conclude that current technologies would never be capable of achieving an ambitious 100% fuel efficiency improvement target. Therefore, building on a number of existing development projects using a variety of hybrid solutions, Toyota was able to radically innovate around the engine concept. This ultimately led to a number of new vehicles under the Lexus and Toyota brand including the globally recognized “Prius.” Cumulative sales have now reached over 300,000 units. This has successfully positioned Toyota far ahead of the majority of its competitors by creating products that are driven by sustainable innovation and lead to real business growth. 

GE’s ecomagination is another exemplary example of how a company has made a strategic decision to provide innovative products and solutions which address many of its customers’ sustainability issues. All products in the ecomagination portfolio – clean energy, water purification or home appliances spaces – are measured both in terms of financial contribution to the company’s performance and environmental benefit. In order to be included in the portfolio, new proposed products also have to comply with very specific criteria that address the impact they might have on the environment or society in general. The ecomagination portfolio already contributes $10B to GE’s revenues, a figure which the company aims to double by 2010 supported by an additional $700M investment in associated R&D activity. This strong commitment to sustainability and its link to clear financial and environmental targets is visibly driving innovation at GE and is helping the company leap-frog many of its peers in respective arenas.

While these examples highlight intentional focus on innovating in and around the sustainability agenda, the big question is how will organizations consciously unlock the often “hidden” potential of sustainability? On one hand, it must be part of the organization’s supporting culture through inclusive thinking; on the other hand, it has to be part of the innovation process itself. This can be quite a challenge, especially for those not fully familiar with the implications and benefits of moving towards more insight-driven innovation – whether it be focused on societal changes, technological developments, market dynamics, or shifts in the political landscape.

If an organization is to successfully embed sustainability in its innovation processes, they need to consider the following:

1. Organizations have to recognize sustainability as a driver rather than a barrier to innovation. This enables them to see new opportunities and growth platforms.

2. Firms need to understand that sustainability is broader than a company’s environmental footprint, providing good working conditions for employees, or respecting local communities
in which it operates. It also encompasses how their current and future products and services potentially impact the sustainability requirements of both their customers and ultimately,
the consumer.

3. As with any insight-driven innovation process, companies must have the capability to learn from external views and then translate them into action for their current and future business operations and across their value chain.

4. A firm must define measurable targets to ensure that sustainability is not treated as a “nice to have” but is instead viewed as being essential to long-term growth from innovation.

5. Finally, for any company, the change towards more sustainable innovation needs to be inspired by clear leadership, demonstrated by public commitment, and driven by internal support for those who design and lead programs that will fuel future growth.

If the ingredients for successful, sustainable innovation are clear, the ultimate challenge is to encourage a culture of corporate responsibility and implement innovation processes that collectively drive sustainable growth. In the words of Charles Darwin, “It is not the strongest or most intelligent that survive, but the ones that are most responsive to change.”

For more on this topic or to get a copy of the 2006 Innovation Leaders survey results, go to www.innovaro.com.