How to Create a Sustainable Business Model

Table of contents.

Creating a sustainable business model is a top priority for many companies. A sustainable business helps the planet and may prove more successful in the long run; customers want to work with companies that care about making a positive contribution to the world. 

Sustainability isn’t just for large corporations. Businesses of any size can work toward a sustainable business model by following specific practices and adopting a sustainable strategy.  

What is sustainability?

Sustainable means the ability to be maintained at a certain rate or level, and sustainable development meets current needs without compromising future generations’ ability to meet their own needs.

However, we must dig a little deeper to understand how the concept of sustainability is relevant to business development.

What is a sustainable business model?

To Rex Freiberger, president of Superlativ Media, a sustainable business model helps generate value for everyone involved, without draining the resources that help to create it.

“A business model meant to capitalize on a trend isn’t sustainable, for example, because the social resources that get it started won’t exist in years or even months,” Freiberger said.

Lia Colabello, managing principal of Plastic Pollution Solutions, noted that there’s a difference between a sustainable business model — a business that will likely achieve profitable growth —  and a business model that prioritizes sustainability.

“A sustainable business model is what every business leader hopes to achieve — a business that will turn a profit quickly and stay afloat for the long term,” Colabello explained. “A business model that prioritizes sustainability is one that, at a minimum, considers all stakeholders, assesses and addresses environmental impacts, and is transparent and thorough in its reporting.”

Eco-friendly packaging practices are a way to commit to sustainability. Other methods include careful resource usage and donations to worthy organizations.

What makes a sustainable business model work?

There are four key elements of a sustainable business model.

1. A sustainable business model is commercially profitable.

You can make a profit and be socially responsible . No business can succeed or scale unless it attracts customers. What is your value proposition? Who are your target customers ? Why is your business valuable, and what niche do you fill?

2. A sustainable business model can succeed far into the future.

A trendy business or one that relies on limited resources may be profitable for a few months, but how will it fare in a year or two? Resource availability and pricing are never guaranteed or fixed; you don’t want to build your castle on a sinking rock. 

3. A sustainable business model uses resources it can utilize for the long term.

You can’t have a sustainable business model without sustainable resources. Many business activities are limited by finite resources or exceptionally high prices. On the other hand, some resources may be readily available yet environmentally harmful. 

Palm oil is a famous example of a cheap and plentiful resource. However, farmers are razing acres of land and causing severe environmental destruction by cultivating the crop. Cheap resources may be tantalizing for business, but consider the big picture instead of taking a shortcut now.

4. A sustainable business model gives back.

One theory is that a truly sustainable business model is one that gives as much as it takes. This concept is called the cyclical borrow-use-return model. 

Bob Willard, expert and author on quantifiable sustainability strategies, contrasts this model with the current “linear take-make-waste model” that so many modern businesses are built upon, which he said is “culpable for contributing to [this world’s] unsustainability.”

Instead of taking from the Earth, a sustainable business “borrows” resources with the intent to replenish them. This concept of responsible consumption is one that both businesses and consumers can promote and practice.

Reducing resource burn — wasted time, money and other resources — is another way a business can prioritize sustainability.

What is a sustainable strategy?

A sustainable strategy takes the big picture into account. “A sustainable strategy is one that understands the flow of ‘in’ and ‘out’ — not just cash flow, but again, the resources, both tangible and intangible, that are required to create the product or service,” Freiberger explained.

Colabello noted that the most effective sustainability strategies start with an organization’s purpose. She encouraged businesses to ask these questions, similar to what you’d ask when crafting a vision or mission statement :

  • Why does the organization exist?
  • What problem is it solving?
  • How is it going to improve the world, environment and society?

“From there, a strategy can emerge that engages the entire brand ecosystem — internally, the supply chain, its communities and its industry,” Colabello said. “The approach is prioritized and diagrammed out, complete with goals, KPIs [key performance indicators] and a timeline. These are communicated both internally and externally, in keeping with transparency.”

Why do we need sustainable business models?

There are many ways to approach the issue of sustainability, but the simplest one, which can unite all stakeholders, is this: Kind businesses attract more customers. According to the 2022 Global Buying Green report , 86 percent of consumers under 45 were willing to pay more for sustainable packaging, and 68 percent purchased items in the past six months based on companies’ sustainability credentials.

It’s OK to be open about your sustainability goals and use your sustainability as a selling point. Customers will ask, and the friendlier you are about it, the more likely they will be to share that news with their friends.

But maybe you’re not motivated entirely by money. Perhaps you’re driven by the desire to be the change you’d like to see in the world. 

After all, the larger a business grows, the greater its impact is on the world and the people around it. And it’s better to start sustainably than to make the switch 10 years down the line — or when stakeholders begin pushing back on unreasonable business practices.

Going green can boost business and profits. Businesses are marketing green innovation to show consumers they prioritize environmental concerns.

How can you start and maintain a sustainable business model?

Getting started with a sustainable business model can be straightforward. Consider the following guidelines. 

1. Plan your resource usage. 

Consider the resources your business requires to operate, and then do the following:

  • Make a list of the raw materials you’ll need. This list will vary dramatically by business type. Software-as-a-service companies, for example, don’t require the raw resources that clothing brands do.
  • Consider where your materials might be sourced. Who is making or harvesting your product materials? How are they being sold?
  • Consider where the resources are coming from and how they are being transported. How far do they have to travel to arrive at your home or warehouse? How can you cut down on fuel miles? What are the riskiest resources on your list, and how can you increase their productivity while lessening your dependence on them?

After you address your resource usage, outline your manufacturing and business processes. Ask yourself these questions:

  • Which manufacturing processes are the most wasteful? How can you mitigate the adverse effects of these processes?
  • For physical materials, is it possible to source locally?
  • How are you packaging your products? (Sustainable, biodegradable packaging can reduce the amount of trash stuck in landfills.)
  • Which materials on your list are the riskiest or least sustainable? How might you replace them? Could you replace them now?
  • What are the end products of these processes? How can you reuse waste material? Does it have to be thrown away?
  • Can the produced waste be used as a resource or be fed into a different process to be used again? How can you reduce unusable waste?
  • Where can you reduce waste? How can you stretch your raw materials? Can you lower the number of resources used to create a specific product while maintaining its quality?
  • What are the labor conditions like? Are your laborers being paid fairly? Is their quality of life improving or worsening because of your business processes? Is their time being respected?

To make your business’s computing eco-friendly , implement cloud computing, allow your employees to work remotely, and eliminate paper from your workflow.

2. Consider alternative forms of company ownership.

The traditional top-down business model can create unreasonable wage gaps between those at the highest rungs of the ladder (CEO, other C-level executives, founders, managers) and those at the lowest (laborers tasked with creating raw materials or carrying out the manufacturing processes). Including everyone in your sustainability goals can help you keep your business on track and give those who are typically disadvantaged a larger say.

3. Engage your customers.

Going green can improve your brand reputation among consumers, but your dedication to sustainability may result in higher prices. But that’s OK; in a compelling blog post, series of posts or dedicated brand story page , tell your customers why they’re paying more for your products.

You might choose to engage customers by pledging a percentage of revenue to support a charity or by offering different shipping or packaging options. Customers who love your product can be converted into brand ambassadors when you create messaging that resonates with them. 

If you involve your customers in your discussions about sustainability, they will become more invested in your company’s success and your products. You could also consider crowdsourcing sustainability ideas from consumers through a forum or online group.

Sustainable businesses must lead with transparency when dealing with customers and shareholders. This means sharing wins and being honest when things don’t work out as planned.

What roadblocks are there to a sustainable business model?

Building a sustainable business can be daunting. If your business is stuck, you may struggle with one or more of these issues:

1. You hold innovation meetings, but ideas don’t go anywhere.

Many good ideas arise when founders or leaders get together at a workshop or meeting. However, you must nurture these ideas and draft a plan of action.  

2. Ideas are not implemented.

Another issue founders face is that the plans for change are never implemented. This could be because it seems too challenging to change the status quo or because the members of the company aren’t yet convinced of the need for a greener, kinder business model.

3. The implemented business models fail in the market.

Two of the most common reasons businesses fail to move toward sustainability include the wrong mindset and a reluctance to dedicate resources to change.

To address these issues, find your allies — those who believe sustainability is essential for the company’s bottom line and the larger world — and connect with them. Together, you can remove or alter harmful, outdated systems and encourage innovation.

Practicing and following through with your sustainability goals helps consumers feel closer to you and instills more trust in your brand. This is crucial at a time when customers expect more warmth and honesty from companies.

Why is sustainability important in business?

Shel Horowitz, an expert on green and transformative business profitability, raised three points about why sustainability is crucial in business:

  • Sustainability allows you to be here decades from now because you’ve created something of lasting value.
  • Sustainability makes you much more attractive in the eyes of customers, employees and other stakeholders who actively want to do business with companies that think beyond the single bottom line.
  • Sustainability helps the planet and its creatures heal from the abuse humans have piled on it, especially in the past 250 years or so.

Aside from businesses’ immense environmental impact, Colabello noted these forces putting pressure on companies to build robust sustainability strategies:

How is a business sustainable?

Freiberger believes a business can make itself sustainable by focusing on the bare essentials it needs to survive and then growing from there. Make long-term projections, and keep an eye on the distant future instead of focusing on more immediate profits, he advised.

As part of making your business sustainable, consider these statistics from the SUMAS Sustainability Management School , and determine where you can cut back to reduce your business’s carbon footprint :

  • An estimated 5 trillion plastic bags are used worldwide each year.
  • 400 million tons of plastics are produced globally every year.
  • Globally, only 9 percent of plastic ever produced has been recycled; 79 percent can now be found in landfills, dumps or the environment; and 12 percent has been incinerated.
  • With rapid population growth and urbanization, annual waste generation is expected to increase by 70 percent from 2016 levels to 3.4 billion tons in 2050.
  • If it continues at the same rate, the plastic industry will account for 20 percent of the world’s total oil consumption by 2050.
  • The construction and later demolition of buildings produce 40 percent of all waste.

If you are thinking about implementing a sustainable business model, consider the short-term expenses you will incur. However, these costs are a small price to pay for a better future and a compelling brand value for increasingly eco-conscious consumers. In other words, sustainability sells.

Jamie Johnson contributed to this article. 

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Organizing for sustainability success: Where, and how, leaders can start

Sustainability and environmental, social, and governance (ESG) issues affect how all companies do business —and increasingly so in recent years. More companies, and their investors, are recognizing sustainability as a strategic priority that involves significant business risks and opportunities. But historically, few companies have organizational structures that are designed to treat sustainability as a material business issue. Instead, sustainability activities—and the organizations that support them—have focused primarily on investor relations, PR, and corporate social responsibility.

The “sustainability organizations” that still operate that way (and there are many) are tasked with managing stakeholder communications, target setting, and reporting. While those tasks are important, they are also insufficient for sustainability organizations to be successful. Our experience suggests that success is more likely when executives empower sustainability organizations to engage proactively and strategically hold them responsible for creating measurable impact. Only then will companies be able to maximize the value at stake from their sustainability initiatives (see sidebar, “A leader’s guide to embedding sustainability in corporate strategy”).

A leader’s guide to embedding sustainability in corporate strategy

To make sustainability a true organization-wide issue and a pillar of company strategy, CEOs and senior executives must be leading from the front. In our experience, leaders are most effective at doing so when they follow these three strategies (usually in this order):

  • Embed sustainability in the company’s strategy-setting process. This is a prerequisite for the effective management of sustainability—and something that senior leaders are best positioned to do. The goal is not simply to have a great sustainability strategy but rather a corporate strategy that includes sustainability as a core component.
  • Shape the portfolio to reflect an integrated strategy. Once a company’s sustainability-related priorities are clear, companies must make decisions on capital allocation, R&D funding, and portfolios accordingly.
  • Scale up sustainable business practices through a full transformation. To incorporate sustainability in business planning and to empower and motivate the whole organization to take action on these issues, leaders should approach sustainability as they would any other new large-scale change effort. To ensure buy-in across the organization, it’s important to be clear about which sustainability topics the company will and won’t prioritize.

To get sustainability programs right, companies have big decisions to make. To start, they should choose which issues under the broader sustainability umbrella should be the responsibility of their sustainability organizations and which issues should be left to other parts of their businesses. The issues range widely, from building new low-carbon businesses and commercializing green products to managing environmental compliance and ESG reporting more proactively. As companies mobilize to respond to increasing sustainability concerns, many have struggled with the differences between sustainability and other business issues in the trade-offs involved, decision-making and governance processes, and even employee and leader mindsets.

So how do executives build sustainability organizations that are well placed and empowered to help their companies meet stakeholders’ increasing expectations, manage sustainability-related risks, and capture business opportunities? In this article, we outline four ways that leaders can guide the organizational redesign of their sustainability work and why they must think differently about sustainability compared with other, more traditional business issues (Exhibit 1).

sustainability business model

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Design according to sustainability topics , not sustainability overall

Sustainability is often used as a catchall term covering a great many topics. But for any given company, few topics will be of equal importance. Our work shows that companies address sustainability issues more effectively when they design their sustainability organizations to focus on each sustainability topic the company is prioritizing (for example, green hydrogen or its subtopic, operational decarbonization).

To do this well, companies should define the list of sustainability topics that matter for the organization, either because they are important to the business or because they are the areas in which the company is uniquely positioned to make a difference. One way to do so is with evergreen materiality assessments, 1 A materiality assessment is the process of identifying and prioritizing the potential sustainability topics that are most important for a company to address because of their potential impact on the business or its stakeholders. The process requires the engagement of both internal and external stakeholders, especially business-unit leaders with profit-and-loss responsibilities, investors, customers, nongovernmental organizations, regulators, and other key partners to the business. which account for the potential impact from, and likelihood of, a range of issues that could affect the company. Based on its materiality assessment, a company can then develop a short list of priority topics for its sustainability organization to cover. This will help companies make better decisions on resourcing and organizing around the issues that matter to their business.

When it comes to supporting sustainability work at the topic level, our experience suggests that a modular organizational design—rather than one holistic, central sustainability organization—often works best. A modular design gives companies the nimbleness to address emerging topics in a more agile way. Indeed, many sustainability topics arise quickly: for example, in 2018, the number of earnings calls that mentioned “plastic waste” increased 340 percent year over year. 2 Audrey Choi, “The business case for investing in sustainable plastics,” World Economic Forum, January 20, 2020, weforum.org. In practice, even if there’s a dedicated center of excellence for a certain topic, it doesn’t necessarily need to be part of the central team. Instead, it could be embedded in a business unit that has particular expertise on the topic or will be primarily responsible for leading the company’s response to it.

To support sustainability work at the topic level, our experience suggests that a modular organizational design—rather than one holistic, central sustainability organization—often works best.

One company we worked with built a carbon-management organization that distributed initiatives among different parts of the company, rather than relying on a central organization that covered all sustainability topics or that managed all of the organization’s carbon initiatives. The R&D department, for example, focused on researching and developing new low-carbon innovations. A separate business unit was created to commercialize low-carbon offerings to customers. Meanwhile, manufacturing sites set their own carbon-reduction targets, embedded their decarbonization initiatives in line with site-level turnaround schedules, and were held accountable for implementing those initiatives. The procurement team focused on decarbonizing the company’s supply chain. Finally, a lean central team coordinated carbon-emissions reporting and other carbon-related activities across the company.

Give your central sustainability team the decision rights to execute change

In our experience, it’s important for companies to have a central sustainability team to coordinate their work on these topics. Our experience also suggests that companies don’t need large central teams to implement their sustainability agendas successfully. While we have seen many companies start their sustainability transformations by allocating more central resources to these issues, we have also seen that having a smaller central team and more dedicated resources in the business lines that execute the detailed planning and implementation of sustainability can be most effective. In fact, among the companies we have worked with, some of those with highly effective sustainability programs have lean central sustainability organizations whose mandate is to incubate new sustainability ideas and integrate sustainability initiatives across the company.

What makes the central team particularly effective is having the decision-making authority to execute change, particularly regarding priority sustainability topics that affect multiple functions or that have a material impact on the overall organization. This authority has several dimensions. First, the central group should also engage the board of directors on critical sustainability topics, since the board holds the ultimate decision rights on such issues and the company’s strategic direction. The central team should also be empowered to hold others accountable, which it can do by setting centralized targets. Individual sites or businesses then come up with specific initiatives, timelines, and plans for pursuing those targets, and the central team tracks their progress while also maintaining a corporate-wide view of the company’s performance on the topic.

To ensure broad engagement in and commitment to common sustainability goals, the central team can enlist the company’s leaders to develop and define a corporate-level sustainability agenda. When the central team has a clear mandate from the business, it can better see that the sustainability agenda cascades through the organization and that business units have clear guidance on which priorities to take on.

At one company with a successful sustainability organization, an existing business unit worked closely with the central sustainability team to incubate a new business for end-of-life products. Once the idea reached a defined financial milestone and level of technological maturity, the responsibility of business building shifted away from the central team to that business unit. Since the business unit was involved in the effort from the start, the transition of the business’s decision rights was smooth.

To be clear, not all decisions need to be made by the central team, which could overstretch it (especially if it’s a small group) and divert attention from specific priorities. Rather, cross-functional decisions and those that are highly material to the full company are best suited for central-team oversight. 3 For more on how to classify and make decisions appropriately, see Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “ Untangling your organization’s decision making ,” McKinsey Quarterly , June 21, 2017. The right to make other decisions, such as those that involve single functions, can be assigned to leaders or teams that are more closely associated with those units.

Find the structure that best fits your sustainability agenda—and your organization as a whole

Reporting structure is usually the first topic that comes to mind when companies consider organizational redesigns, and so the first question we are often asked is, “Which organizational structure is ideal for capturing the full potential of sustainability?” In reality, there is no single “right” answer for the design of a sustainability organization and no one-size-fits-all approach, beyond the general principle that the structure should be well integrated into—and compatible with—the rest of the company’s setup.

There is no single ‘right’ answer for the design of a sustainability organization beyond the general principle that the structure should be well integrated into—and compatible with—the rest of the company’s setup.

That said, we do see that some organizational models tend to be more effective than others at elevating sustainability as a true strategic priority (Exhibit 2).

Compared with two other models that we see most often today in which sustainability is embedded in a support function or fully decentralized within business units, these three models help link sustainability to an overall strategy and give a sustainability organization real decision rights:

  • Large central team with few business-unit resources. In this model, a large central team plans—and maintains the decision rights to—most sustainability initiatives and also coordinates with individual business units that are actively working on specific sustainability issues or have expertise related to the topic. The central team incubates sustainability initiatives before handing them off to the business units and supports activities that have no other natural owners in the organization. It also ensures that sustainability priorities across the company have sufficient budgets and staff and that the organization stays focused on its priority topics. A central team may also have the best view of broader sustainability trends and stakeholder demands, though it’s likely less equipped than business units to respond to new sustainability-related market opportunities and risks. As an example, Newmont Goldcorp (a leading gold-mining company) was prompted by shareholders and its board to improve its management of sustainability issues after completing a merger. It responded quickly, creating a centralized sustainability group from 2002 to 2007 to design and drive the implementation of global environmental standards across its operational sites. This central group also managed decision making and the allocation of execution resources to sustainability issues.
  • Lean central team with decision rights and many business-unit resources. In this structure, the prioritization of sustainability topics is largely a top-down process, led by the lean central team, to ensure that a common company-wide agenda and targets are in place. Business units have a mandate to develop specific initiatives to achieve company-wide goals, which they do by deploying their own resources. Business units also have the flexibility and resources to set up and work on sustainability initiatives of their own, in line with the central team’s guidance. In our experience, this structure can be most effective at companies that have already embedded sustainability in the organizational culture, which increases the likelihood that sustainability becomes a true cross-functional effort. Since 2019, this model has been in place at International Paper, a leading pulp-and-paper company. Its lean central team sets the company-wide sustainability agenda and focuses on both managing external relationships and integrating internal efforts. Meanwhile, business-line leaders drive the sustainability agenda. They set targets, develop the company’s sustainability initiatives, assume responsibility for delivering on those initiatives (including the coordination of resources), and embed sustainability into day-to-day operations.
  • Central team that deploys agile or SWAT teams to business units. This structure puts a central team in charge of deploying sustainability-focused task forces to individual business units. Once a task force is embedded in a business unit, it helps with the planning and initial execution of that unit’s priority sustainability initiatives and builds capabilities so that the business can eventually run its own initiatives, once the task force leaves to support another unit. This facilitates the deployment of sustainability expertise and the sharing of best practices across the company, as well as the nimble reallocation of resources in response to the rapidly changing sustainability landscape. From a talent-development perspective, this model (what we call the “helix organization ”) also allows for a clearer separation of leaders—between those who help individuals develop capabilities and those who oversee employees’ day-to-day work. The result is that sustainability talent can be developed both ways.

Prioritize the design of processes and governance—rather than reporting lines—that account for sustainability’s complexity and dynamic nature

In our work on organizational redesign, we have found that many companies’ default mode is to focus solely on reporting structure. But we know from experience and research that going beyond “lines and boxes” corresponds with a much higher chance for redesign success: in a McKinsey Global Survey on organizational redesigns , respondents were nearly three times more likely to report successful redesigns if they focused on improving multiple elements of the organization (for example, performance management, business processes, and culture), not just on changing reporting lines. With respect to sustainability, which involves reorganizations that are more complicated and multifaceted than those of a typical function—and priorities that can shift much more quickly than in other areas of the business—we have found that it’s critical to think about redesigning sustainability-related processes and governance early on. Several guiding principles can help with this kind of effort.

For one, companies’ processes for making sustainability-related decisions should be robust and clearly define when an issue or decision should be escalated from the business unit to the central sustainability team. Decision-making processes should also include frequent discussions among stakeholders and fast decision cycles so that cross-functional or high-level topics can be identified and resolved quickly.

In most cases, the central team should be empowered to make decisions on topics that individual business units can’t resolve on their own. If the central team, in turn, finds it can’t resolve high-priority issues, it can escalate them to the executive team or a C-suite sustainability council. We have seen many companies fail to adapt their cadence on engaging with sustainability issues as they would with other topics. But that’s what sustainability necessitates, since many of these topics require quicker decision making and responses than other business issues. For many companies in traditional and mature sectors (for example, petrochemicals, cement, steel, and other heavy industrials) that are used to longer decision-making cycles, this may require a significant mindset shift. The executive team can help effect such a shift by clarifying that sustainability is a strategic priority that requires different decision-making approaches.

Another principle of effective sustainability processes and governance pertains to capital allocation. Sustainability investments often have different risk–return profiles and greater uncertainty than other, more traditional investment types. In our experience, many companies that lead on sustainability have set aside a separate pool of funds dedicated to sustainability initiatives, defined different hurdle rates for sustainability investments, introduced an internal carbon price to account for carbon impact and related risks, and put in place integrated financial and sustainability criteria to facilitate capital-allocation and M&A decisions.

Finally, it’s valuable for companies to develop sustainability-specific performance metrics. While the specific metrics will vary depending on the topic, the same principles of good performance management of other business activities also apply to sustainability: setting measurable targets (both financial and nonfinancial), establishing incentives (such as linking compensation to sustainability performance), and putting in place regular performance reviews of sustainability.

Sustainability is no longer an issue of compliance for most companies but rather a strategic and operational one. Once senior leaders integrate sustainability into their corporate strategy, they will benefit from having a dedicated organization to support their sustainability efforts. There is no right structure that applies to every company; each will need a structure of its own and will likely need to adjust this structure as business conditions and requirements change. A well-designed sustainability organization, we find, can give the company the capabilities that it needs to capture value and manage risks from sustainability in a systematic and even transformational way.

Aaron De Smet is a senior partner in McKinsey’s New Jersey office; Wenting Gao is an associate partner in the Houston office, where Thomas Hundertmark is a senior partner; and Kimberly Henderson is a partner in the Washington, DC, office.

This article was edited by Daniella Seiler, a senior editor in the New York office.

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A business model for sustainability

A general view shows wind farms in Union Hidalgo, in the Mexican state of Oaxaca, Mexico September 18, 2018. Picture taken September 18, 2018. REUTERS/Jorge Luis Plata - RC1DF3262D30

It is impossible to outsource corporate responsibility - businesses must take the lead in moving to a sustainable future. Image:  REUTERS/Jorge Luis Plata

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sustainability business model

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Stay up to date:, sustainable development.

Business leaders must recognize that in global value chains, there is no way to outsource environmental or social responsibility. On the contrary, multinational companies can and must use their extended supply chains to drive change and improve the quality of life in the markets where they operate.

In a recent report , the Intergovernmental Panel on Climate Change (IPCC) warned that without “rapid and far-reaching” changes to how land, energy, industry, buildings, transport, and cities are managed, the damage to our planet could be irreversible. The message was clear: we need a cooperative effort on a global scale to change our current trajectory. And, given that many of the toughest sustainability challenges the world faces are linked to how it does business, the only prudent way forward is to change how business is done.

This may sound daunting, but we already have a framework to guide the transition: the United Nations Sustainable Development Goals (SDGs). The SDGs, adopted in September 2015 by 193 countries, are designed to achieve a “more sustainable future for all” by 2030, which, by extension, will enable a better business environment. The Business and Sustainable Development Commission has estimated that meeting the SDGs could add some $12 trillion and 380 million jobs to the global economy by the end of the next decade.

With so much to gain – and to lose from inaction – the private sector is beginning to focus on the connection between profits and sustainability. According to the Ethical Corporation’s latest Responsible Business Trends report , 69% of business executives surveyed said they are integrating SDGs into their strategies. At the same time, the number of companies receiving B Corp Certification – which measures a firm’s social and environmental performance – has increased in recent years.

Global finance is also inching toward sustainability. For example, environmental, social, and governance assets under management are estimated to be as high as $22 trillion dollars; $82 trillion is committed to the UN Principles for Responsible Investment ; $32 trillion is pegged to carbon pricing ; and even the market for “ green bonds ” is growing exponentially. This momentum matters because financial market support will be essential in achieving the sustainable development agenda.

And yet, to sustain this progress, businesses must recognize that even in a global value chain, it is impossible to outsource corporate responsibility. On the contrary, multinational corporations must use their market power to drive social change. Consider my company, Unilever : 2.5 billion times every day, someone somewhere uses one of our products distributed via a supply chain that includes more than 80,000 suppliers and nearly two million farmers, who in turn support communities of millions of people. Such scale enables Unilever to contribute to and benefit from the SDGs , which is precisely what we try to do.

Have you read?

How sustainable infrastructure can help us fight climate change, how has the g20 performed on its sustainable and inclusive growth goals, new forum report sets out how sustainable consumption can transform business value.

In 2009, we introduced the Unilever Sustainable Living Plan , a blueprint to bolster our social, environmental, and economic performance. Goals include strengthening the health and wellbeing of over a billion people; reducing the environmental footprint associated with the production and use of our products; and enhancing the livelihoods of millions of workers. This approach has allowed us to be more strategic in identifying the challenges and opportunities that our business faces.

By using our resources and brands, we have also addressed key development challenges like poor nutrition, sanitation, and hygiene; climate change and deforestation; human rights; skills training; and workplace equality . And we have done all of this with nearly a 300% return over ten years and a 19% return on equity, demonstrating that it is possible to employ a development-focused agenda that delivers for shareholders and stakeholders.

I am not suggesting that success has come easily, or that our job is finished. Although I will be retiring from Unilever at the end of 2018, I am confident that the company I have led for more than a decade will continue to improve business processes with an eye toward strengthening sustainability.

The key to addressing the world’s social and environmental challenges is using the power of markets and building coalitions to improve effectiveness. The final SDG, Partnerships for the Goals (SDG 17), recognizes this and urges business leaders to cooperate with governments and civil society to deliver on sustainable-development objectives. A good example of SDG 17 in action is the Food and Land Use Coalition , a global network of business executives, scientists, policymakers, investors, and farmers that is working to transform the world’s fragmented and complex food systems. One key area of focus for this coalition is the disconnect between production and consumption.

We need more of this; the future of the global economy is no longer dependent on whether we act, but on how long we take to do so. Despite some progress on the SDGs over the past three years, we are not moving fast enough. As Winston Churchill once said: “I never worry about action, only inaction.” That wisdom should shape our approach to business and the SDGs today. The world we want for our children will arrive only when we choose action over indifference, courage over comfort, and solidarity over division.

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5 Principles of a Sustainable Business Model

  • | December 5, 2011

Systems theory identifies 5 elements for a sustainable business model: Diversity, modularity, openness, slack resources and matching cycles.

Tima Bansal is the Founder of the Network for Business Sustainability and Professor at Ivey Business School. She wrote this article in 2011; see her 2020 article on sustainable business models for more recent perspectives.

Do most shareholders believe they make enough money? Probably not. No matter the profit numbers, shareholders are still clamoring for more. And, the easiest way to grow profits is to grow the business.

Yet, the natural environment cannot accommodate more industrial growth. Our natural resources are being extracted and disposed of faster than they can be renewed. Nowhere is this more evident than with fossil fuels. The more fossil fuels we extract, the more that ends up in our air, water and landfills as either carbon emissions or as byproducts and waste.

The fact that the natural environment is not on the minds of most managers is not entirely surprising. Many business professors still teach the 1970’s doctrine of Milton Friedman: “The social responsibility of business is to increase its profits. ” Growth, therefore, is at the heart of the business model. But the foundation of this model was developed at a time when we didn’t comprehend the natural limits to growth .

Business sustainability tackles these issues head on. Many business advocates translate business sustainability into the triple bottom line: firms are expected to manage the social, environmental and financial implications of their actions. The triple bottom line encourages firms to seek win-wins, where they search for profitable activities that benefit society and the environment.

But, most managers recognize that such win-wins are elusive, especially in the short-term. And as shareholder scrutiny intensifies, managers are under even greater pressure to show consistently high and growing profits each quarter. What’s more, the triple bottom line advises firms what to measure, but not how to manage. It does not tell managers how to organize their business and how to make important tradeoffs. The triple bottom line is still grounded in the short term and in the existing business model.

What is a sustainable business model?

For business models to be sustainable, they need to emphasize resilience. Resilience not only recognizes the importance of profits, but also values longevity and bouncing back from shocks. It shifts the paradigm from business-centric to recognizing that businesses are part of a wider system – a resilient business requires resilient relationships.

Five elements for a sustainable business model

Based in systems theory , approaching sustainability as resilience reveals some important insights into organizational forms, some of which I describe below.

Diversity: The firm needs a diverse set of resources, people and investments to be resilient. While diverse investments are seen to draw on resources and absorb managerial attention, a single line of business, single sources of revenues, or people with similar mindsets can expose the firm to greater risks. Firms can no longer simply ‘stick to the knitting.’

Modularity : Matrixed organizations are often seen as facilitating knowledge flows. However, such organizations are not only resource intensive, they expose the whole organization to shocks as they reverberate through the organization. Organizations need to be less interdependent, and focus on modularity (keeping functions separate), so they can be insulated from shocks.

Openness: Resilient firms must know what’s going on outside their boundaries. These firms can sense issues on the horizon. They are constantly monitoring the external environment, and drawing scenarios of possible futures. They expect not only to react to those potential futures, but also help to shape them. The link between the organization and the external business and natural environment is vital, permeable, and malleable.

Slack resources : In an era of just-in-time production, slack or spare resources are often seen as costly and wasteful. However, innovation and adaptation requires both financial and creative investments, and the space to change direction. Firms that can ride storms must allow for a little more time to accommodate new ideas, scenarios, and shifts in thinking. Slack resources, both assets and capabilities, are always considered as very important to shape a sustainable business model.

Matching cycles : Firms often think about optimizing performance and getting more from less. But, this thinking puts firms on a treadmill, doing the same thing faster every day—and, it has them bumping up against resource constraints. Resilient businesses think, not about constant growth, but rather about cyclical processes: cycles of growth and contraction, cycles of production, and cycles of consumer purchase patterns. Understanding the rhythms of business and the environment will allow the firm to synchronize with them meaningfully, and not overreact to what is likely just a cycle.

5 elements for a sustainable business model

These ideas need to be developed and tested. But, they offer a starting place for dialogue for a 21st century business model based on sustainability.

More from Tima Bansal

From Tima’s Desk features ideas about sustainable business. Tima highlights published and in-process articles, observations, and conversations that have piqued her interest and provoked her thinking. Read the column .

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Tima Bansal

Tima Bansal is the Founder of the Network for Business Sustainability and Professor of Strategy and Sustainability at the Ivey Business School (Canada). She also heads Innovation North, which helps businesses create value for themselves and society simultaneously over the long term.

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Business Transitions: A Path to Sustainability pp 101–112 Cite as

Business Models for Sustainability

  • Haley Knudson 2  
  • Open Access
  • First Online: 22 February 2023

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The concept of business models for sustainability (BMfS) has attracted research attention in the fields of corporate sustainability, entrepreneurship and management. BMfS are a way of linking sustainable innovation to an organization’s business model, and as a means for management to operationalize sustainable activities and strategies across an organization’s value chain. This chapter provides the history and description of BMfS as both a tool and conceptual logic that divides activities into three components – value proposition, value creation and delivery, and value capture. Practitioner tools are introduced, along with a brief conceptual overview.

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1 Background

Sustainability at a societal level is dependent on the sustainable development of organizations. Agenda 2030 and the UN Sustainable Development Goals (SDGs) have highlighted the importance of industry’s involvement in the necessary shift in the current economic system (United Nations General Assembly 2015 ; Sachs et al. 2020 ; United Nations 2020 ). Traditional business models are unsuitable for meeting global sustainable development (SD) challenges (Wells 2013 ). Business models for sustainability (BMfS) are a concept that can help bridge the gap between the sustainable innovation necessary for SD and the strategies employed by organizations (Boons et al. 2013 ).

Research on BMfS has emerged to link sustainable innovation to the business model of an organization and its stakeholder network. It is a means for management to ideate and operationalize sustainable activities, mechanisms, and innovations from a system perspective. For this reason, BMfS are located on Level 3 of the CapSEM model, as they provide a structure and logic for the creation and capture of sustainable value. Methods and perspectives from Levels 1 and 2 for reducing negative and increasing positive sustainability impacts can be operationalized through the organization’s business model as it links these operational activities to the wider value creating logic. Research on BMfS continues to expand and asserts the need for the incorporation of stakeholder interests and social and environmental values into an organization’s strategy (Stubbs and Cocklin 2008 ; Boons and Lüdeke-Freund 2013 ; Bocken et al. 2014 ). Organizations can use business model thinking to reflect on their current operations and to find ways to redesign and innovate to meet sustainability needs and objectives across all Levels of the CapSEM Model.

2 BMfS Concepts

This section presents key concepts used in the study and implementation of BMfS, summarized in Table 10.1 .

2.1 Business Models

A business model (BM) represents the way a company creates and captures value (Chesbrough 2010 ; Osterwalder and Pigneur 2010 ; Zott et al. 2011 ). Traditionally, this means the activities and resources that combine to allow the organization to meet its objective of delivering value to its customers, while also creating a profit. It is a reflection of a firm’s strategy (Casadesus-Masanell and Ricart 2010 ; Seddon et al. 2004 ; Shafer et al. 2005 ; Richardson 2008 ) and, on an operational level, can provide the organizational and financial architecture of an organization including its understanding of its customers and their needs (Teece 2010 ). The BM and its activities can be structured around a common framework of three components – value proposition, value creation and delivery, and value capture (Richardson 2008 ; Chesbrough 2010 ; Osterwalder and Pigneur 2010 ). Value proposition refers to the organization’s product or service offering, and the value embedded within it. The organization’s activities and processes, including its resources, suppliers, partners, and distribution, represent value creation and delivery . Value capture is the organization’s cost structure and revenue streams.

In practice, the BM can be a helpful tool for thinking about an organization’s strategy. It can help outline or conceptualize an organization’s value activities, and the way in which they interact, impact customers and stakeholders, and help meet corporate strategy and its goals. As responsibility in the value chain becomes a more pressing requirement from regulators, customers and stakeholders, organizations need to change the way in which they do business. They can use their current BMs as a starting point for brainstorming and thinking systemically about how they can shift to new or adapted business models that create and capture value across economic, environmental, and social dimensions.

2.2 Business Models for Sustainability

BMs for sustainability present an opportunity to affect larger societal and environmental change by transforming the value that guides organizations and the current market. They also provide a vehicle for organizations to increase their long-term value and competitive advantage (Porter and Kramer 2019 ). The BMfS definition presented in Table 10.1 extends the traditional BM components into the sustainability domain, as presented in Fig. 10.1 . Distinguishing characteristics of a BMfS include the explicit and proactive consideration of stakeholders, of environmental, social, and economic capital, and that the organization looks beyond its own boundaries and over the long-term perspective (Schaltegger et al. 2016 ; Geissdoerfer et al. 2018 ). BMfS are placed on the organizational change level (Level 3) of the CapSEM Model because they provide a common framework within which the organization can discuss its current operations, partners, stakeholders, suppliers, and value flows. By viewing its BM as a system of activities, a company can work on identifying where and how changes can be made in the process (Zott and Amit 2010 ).The long-term outlook is an implicit requirement of SD, and it is important that organizations specifically integrate it into their strategies, performance measures and BMfS. Additionally, stakeholder needs over the long-term must be actively and intentionally integrated into BM processes and activities, so that the organization’s activities reflect and meet them.

A block diagram of B M f S components is value proposition, value creation and delivery, and value capture.

BMfS components

Embedding the three dimensions of sustainability, long-term thinking, and the engagement of all stakeholders into a BM requires an organization to understand how its activities, resources and relationships interact to create value. Conceptually, the value proposition in a BMfS extends beyond its goal of highest economic return and removes the purely economic value an organization associates with its product or service (Boons and Lüdeke-Freund 2013 ). It reflects the fact that the relationship between the organization and its customers and stakeholders is based on an exchange of value (wants and needs), rather than on the product or service itself (Bocken et al. 2014 ). If the customer wants to purchase a product with a lower environmental footprint, for example, they may be willing to pay more to have the same need met, or even sacrifice some functionality for social and environmental benefit.

Drawing attention to its position in a larger system, value creation and delivery in a BMfS is based on sustainable supply chain processes, such as the supply of resources, and production and transport activities, that reduce ecologic and social pressure. Impacts on stakeholders and environments across the life cycle and value chain must be considered (Boons and Lüdeke-Freund 2013 ). Improved processes may allow the seizing of new opportunities, revenue streams and markets, e.g., through recycling and closed-loop systems or creating new markets based in sustainable and efficient design or production (Bocken et al. 2014 ). Organizations can use the perspectives and tools from Levels 1 and 2 of the CapSEM Model to better orientate their production processes and value chain activities towards sustainability. Examples of innovation for sustainability in value creation and delivery could be new technology for improved resource efficiency in production, redesign of transport systems or improved labor conditions and worker’s rights. These innovative activities also require the organization to look beyond its own boundaries and consider the needs of local communities and stakeholders. Such a perspective requires applying the thinking embedded in Level 4 (systems change) of the CapSEM Model.

Value capture in a BMfS recognizes the value awarded to the organization in performing in an environmentally and socially beneficial way that meets economic, environmental and social needs, and produces more than monetary profit (Boons and Lüdeke-Freund 2013 ; Bocken et al. 2014 ). It is structured in a way that helps to balance the value the organization associates with social, environmental, and economic costs and benefits. The value capture also “describes how part of the value generated for a stakeholder can be transformed into value useful for the company” (Geissdoerfer et al. 2018 ). Placing value on a reduction in resources or emissions, or on the benefit of creating community programmes, can then work its way into the organization’s overall cost-benefit structure. More advanced value capture structures might incorporate leasing or sharing schemes that reduce traditional consumption patterns and collect payments per use or time-period rather than one-time purchases.

2.3 Business Model Innovation for Sustainability

The process of conceptualizing, adapting, or changing a BM to one that fosters sustainability is a development that requires a shift in the logic and system of interacting value components of the organization. This process can be referred to as Business Model Innovation for Sustainability (BMIfS). Conceptual clarity between the terms business model and business model innovation remains ill-defined (Foss and Saebi 2017 ; 2018 ; Geissdoerfer et al. 2018 ). However, one can generally distinguish between the BM as the system of interacting components, and BMI as “designed, novel, nontrivial changes to the key elements of a firm’s business model and/or the architecture linking these elements” (Foss and Saebi 2017 ). For sustainability-based BMI, an organization must undertake more than single innovations that, for example, reduce the environmental impact of a single production process. Instead, it requires a broader and more complex understanding of innovations, and whether and how they transform and permeate through the business model, including the logic and processes that create, exchange and capture value for sustainability.

Another essential aspect of BMIfS is the holistic consideration of all components. BMfS components must be considered outside of their individual boxes since the activities within them are intertwined with activity processes within the others. Reflecting on these core aspects, the next section presents principles and tools for operationalizing BMfS and innovating a BM for sustainability.

3 Developing a Business Model for Sustainability

This section presents tools and guiding principles for innovating an organization’s BM for sustainability. Based on their sustainability goals, an organization may choose to take a defensive , accommodative or proactive approach to innovating its BM (Schaltegger et al. 2016 ). These range, respectively, from making small incremental changes to mitigate risk and reduce cost, to improving internal processes that consider sustainability on some level, to the redesign of the core logic of the business for sustainable value (Schaltegger et al. 2016 ). To reach the more mature levels of BMIfS, important attributes that may help an organization in the process are (Stubbs and Cocklin 2008 ):

Treating sustainability as a strategy in itself

Using triple-bottom-line reporting for measuring and communicating progress e.g., SDG targets and indicators or the Global Reporting Initiative (GRI)

Taking the stakeholder view of the organization

Embedding sustainability into top management so it makes its way into organization processes and culture

Recognizing nature and the environment as key stakeholders

Practitioner tools for BMI for sustainability ideation and development also come in different forms. Taking an inside-out approach , some tools begin with mapping an organization’s current BM elements along sustainability dimensions to identify areas for reducing negative or increasing positive sustainability impact (Joyce and Paquin 2016 ). Other approaches take the outside-in perspective and look to types of BMIfS that have worked for other organizations and have been categorized into archetypes (Bocken et al. 2014 ; Joyce and Paquin 2016 ). The next sections briefly introduce two alternatives for organizations depending on whether they would like to start by first mapping their current BM, or by looking to successful sustainability or BM innovations of outside organizations. The approaches are not exclusive and should be combined for greater knowledge building, inspiration, and development.

3.1 Mapping a Business Model for Sustainability

Applying the BM concept from the operational level can be valuable as a mapping tool of component parts. Expanding the framework of three BM components, a business model canvas (BMC) takes an inside-out perspective to identify areas for innovation across nine “building-blocks” of the BM (Osterwalder and Pigneur 2010 ). In addition to the value proposition building block, value creation & delivery are divided into key partners, activities, and resources, and customer segments, customer relationships, and delivery channels. Value capture in a BMC is represented by segments of cost structure and revenue streams. Business model canvases for sustainability help organizations map their BM elements in a set architecture and in relation to their social and environmental performance objectives (Foxon et al. 2015 ; Upward and Jones 2016 ; Tiemann and Fichter 2016 ; Joyce and Paquin 2016 ). Explicitly viewing activities as components that interact as a system, helps to highlight their connections and the way each influences the others, potentially exposing areas for sustainable value creation.

In extending the original BMC for traditional BMs, numerous canvases have been developed to integrate sustainability dimensions, e.g., (Foxon et al. 2015 ; Upward and Jones 2016 ; Tiemann and Fichter 2016 ; Joyce and Paquin 2016 ). Some studies have shown that mapping tools may have a limited effect on implementing designed innovation strategies (Morris et al. 2005 ; Demil and Lecocq 2010 ; Boons and Lüdeke-Freund 2013 ; Geissdoerfer et al. 2018 ). However, mapping different BM elements and functions across a generalizable framework can be a helpful starting point for visualization, ideation, and communication purposes within an organization.

The triple layered business model canvas (TLBMC) (Joyce and Paquin 2016 ), extends the original economic focused BMC to include additional layers for environmental and social value creation. The TLBMC should be performed in two steps – first as a baseline outlining the current BM and interactions, and then to identify areas for sustainable innovation opportunity.

The TLBMC has been selected for presentation in this chapter because the additional layers force an organization to specifically consider each of their BM components in relation to environmental and social aspects and impacts. Other BMCs for sustainability add important sustainability components, but not in the comprehensive way that the TLBMC embeds them The TLBMC mandates focus on interactions between the building-blocks on each layer (horizontal coherence), but also between and across the layers (vertical coherence) for systemic consideration of activities and stakeholders.

In addition to the economic layer, the environmental layer of the TLBMC requires an organization to take the life cycle perspective when identifying their environmental impacts. It specifically focuses on addressing the impacts of value creation & delivery activities such as material selection and supply, production processes, distribution, and impacts through use- and end-of-life phases. The environmental layer strongly encourages the use of quantitative indicators for measuring impact, and many of the Level 1 and 2 CapSEM model tools can therefore be applied. The social layer takes a stakeholder management approach to help the organization identify the impacts of relationships and interactions with its stakeholders including guidelines for local community engagement, organization governance, and management of employee, customer and societal culture. This helps the organization understand the flows of value within their value network, and to recognize opportunities for creating and capturing social value in their BMfS.

3.2 Business Model for Sustainability Archetypes

From an outside-in approach, BMfS have been classified into archetypes , or common models, based on the way(s) in which the models work to create and capture sustainable value (Bocken et al. 2014 , 2016 ). The archetypes identified by Bocken and colleagues are categorized according to the type of mechanism or innovation that helps the organization deliver on sustainability – technical, social or organizational (Boons and Lüdeke-Freund 2013 ; Bocken et al. 2014 ). Footnote 1 While the categorization was performed to make sense of the growing literature in the field, the clear groupings and naming of archetypical models now provides both scholars and practitioners with common forms and patterns to discuss and reflect upon in the business model innovation process.

Technical archetypes are characterized by technical innovation in the business model through, for example, design or manufacturing processes that are more resource efficient and/or support the principles of the circular economy. Social grouped archetypes depend on social innovation to offer sustainable value, such as through a change in the functionality they offer the customer or a change in consumer behavior. Organizational grouped archetypes focus on restructuring the organization and its value creation, possibly as a reorganization of ownership, social or hybrid enterprises or base-of-the-pyramid business models that veer away from traditional company profit maximization structures (Bocken et al. 2014 , 2016 ). Figure 10.2 presents the eight sustainable business model archetypes, and some examples, grouped by their innovation type (Bocken et al. 2014 ). Table 10.2 describes each of the archetypes across the BM elements of value proposition, value creation and delivery, and value capture (D’Amato et al. 2020 ).

A block diagram depicts value proposition in a B M f S, value creation and delivery in a B M f S, and value capture in a B M f S.

Sustainable business model archetypes. (Bocken et al. 2014 ). doi: 10.1016/j.forpol.2018.12.004

Archetypes can also be grouped based on their foundational principles, e.g., the circular economy (Lacy et al. 2014 ; Lewandowski 2016 ; Lüdeke-Freund et al. 2019 ), or by their main value creation area – mainly economic, social-economic, social, mainly ecological or integrative (Lüdeke-Freund et al. 2018 ). The categorization of common patterns can provide inspiration to organizations working to improve the sustainability of their BM. Archetypes point out specific innovations that can transform the current BM or create an entirely new BM. They can be helpful in reconceptualizing current processes and identifying potential opportunities.

4 Conclusion

This chapter has provided an overview of the conceptual framing of BMfS, along with some of the practitioner tools that can be used by organizations to begin adapting, transforming, or creating new BMs that support sustainability objectives. BMfS are placed on the organizational level (Level 3) of the CapSEM Model because they can be used by management to visualize and understand the way the organization’s activities combine and interact to create and capture value. To improve or better orientate their BM toward sustainability, BM activities must incorporate and combine environmental, social, and economic dimensions over a long-term perspective with the active consideration of stakeholders. Organizations should therefore apply and utilize the methods and tools associated with each of the Levels of the CapSEM Model to establish and measure the impacts of their activities within and beyond their business model. For example, Level 1 and 2 tools can be used to measure the material flows and life cycle impacts of production processes and value chains which can subsequently be incorporated into the value proposition and value creation and delivery elements of the business model. Changes in the material flows or resource use can then make their way into the value capture activities of the BM. Furthermore, management can apply other organizational level tools (Level 3) to manage, track, report and communicate their progress toward sustainability indicators, and identify areas where they are not meeting selected performance indicators. The organization must make strategic decisions to root sustainability in its organizational strategy so that sustainability objectives also drive the development and innovation of its BM. Corporate social responsibility (CSR) could be one such perspective for helping ground the BM in sustainable practices. Finally, to gain an overview of the network of actors and interdependent systems and activities that make up its BM and that must be considered in potential BMI for sustainability opportunities, the organization must take a holistic systems view (Level 4) to its operations, business model, and sustainability strategy. The framework of components – value proposition, value creation and delivery, and value capture – can then be used to structure environmental, social, and economic activities within the business model and position them for improved sustainability.

The technological, social, organization groupings were later updated to environmental, social and economic groupings (Bocken et al. 2016 ) paralleling triple bottom line dimensions, and a ninth archetype of ‘inclusive value creation’ added under the organizational/economical grouping. The original grouping is still most widely used, however, and therefore presented in the chapter.

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Knudson, H. (2023). Business Models for Sustainability. In: Fet, A.M. (eds) Business Transitions: A Path to Sustainability. Springer, Cham. https://doi.org/10.1007/978-3-031-22245-0_10

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Make Sustainability Part of Your Business Model

Table of contents.

sustainability business model

At this point, the effects of climate change are pretty much an everyday conversation. As a small business owner, you can play a part in that conversation: Certain business practices can harm the environment. You might feel obliged to respond with sustainable business measures, and that’s a good move because sustainable practices can be a selling point. 

The thing is, sustainability measures can be challenging to implement while keeping your business profitable , but that doesn’t make it impossible. That’s why we’ve gathered expert advice from several businesses on going the sustainable route without breaking the bank. 

What is sustainability?

Sustainability is the capacity to continue over time without having negative environmental consequences. In the business world, sustainability is a goal: minimizing or entirely eliminating your company’s negative impacts on the environment.  

Sustainable business practices prioritize people, the planet and everything in between. As concerns about man-made climate change continue to increase, more organizations are becoming eco-conscious. They often do so by making sure they use only enough resources to meet their needs, minimizing the use of environmentally harmful materials, and establishing ecologically friendly procedures and supply chains.

Sustainability means not prioritizing immediate profit over long-term environmental impact. Most companies that embrace sustainability try to have a positive impact on the environment or society.

How to make sustainability a part of your business model

Sustainable practices can positively affect the environment and thus your whole customer base. In fact, some customers actively seek sustainable products . Of course, being eco-friendly is easier said than done. A sweeping change in company policies to implement sustainability practices takes serious time and effort. This adjustment period can go more smoothly with the proper strategies. Some of the most effective tips for transitioning to sustainability include:

1. Make sustainability part of your mission.

Making sustainability part of your business model can be difficult, and it is often more expensive or complex to implement. To do so authentically and effectively, sustainability should be a core part of your business mission, not just a marketing move or a public relations talking point.

“When dreaming of our own adult shades, we wanted to create a value proposition that felt authentic to us, something that hopefully makes a positive difference in the world,” said Molly Fienning, founder of ethically made sunglasses brand Notra, who reduces single-use plastics and eats less meat as personal steps toward sustainability. “Sustainability is infusing more and more of our own at-home lives. We [wanted] to begin taking steps and making business decisions that care for the environment today and every day, even if they cost a little more in the short term.”

Fienning’s and her partners’ eco-friendly commitment is reflected at every level of their business, be it the compostable frames of their sunglasses, their packing and shipping materials, or the manufacturing facility they partner with in Italy. For your business, you may have similar considerations, or you may be thinking about corporate partners, investors , worker conditions, or waste management and recycling. Any of these elements can incorporate sustainable and ethical principles.

“Sustainability is a core value of ours,” said Mik Breiterman-Loader, CEO of Vestive. “It affects our business both internally and externally, [from] our branding, our investment models, to what snacks we have in the office.”

Regardless of the moving pieces that make up your business, if you define sustainability as a vital part of your business’s values, it will naturally inform the decisions you have to make and create a more sustainable business model at every level.

2. Think outside the box.

It can be difficult for small businesses to find partners that are both ethical and affordable to work with. Most established supply chains, for example, are not set up to meet sustainable and ethical principles.

“A truly sustainable business model or supply chain is a step change, where you must think about disrupting the current business structure in order to make major changes to address more of the market,” said William Crane, founder and CEO of IndustryStar Solutions. “Your company and your suppliers need to think more like strategists to create new industry structures.”

When creating the supply chain for Notra’s sunglasses, Fienning and her partners had to spend a long time exploring their options. Less-expensive suppliers didn’t meet their requirements for an ethical production process, while the industry-standard plastics used to make most sunglasses weren’t eco-friendly. Their search eventually led them to a facility in Italy that produced a plant-based, plastic-like material, where they could also have their sunglasses manufactured according to their standards for worker treatment.

Whether you’re trying to create an ethical supply chain, looking for eco-friendly packing materials, developing a marketing plan or trying to solve any other challenge that arises in your business model, thinking outside industry norms can often lead to a more sustainable solution. Don’t be afraid to look overseas, emulate businesses outside your industry or see what previously unknown resources are available to you.

3. Accept imperfection.

Fienning and her partners work hard to incorporate sustainability at every level of their business. Their packing materials, for example, avoid plastics, and the packaging Notra sunglasses come in is compostable. But they admit on the company website that nothing is perfect.

Though the frames of the sunglasses are biodegradable, the lenses have to be thrown in the trash. Though Fienning would like that to change eventually, she doesn’t let it discourage her.

“Perfection is not possible,” she said. “But all those small steps in the right direction will add up to a significant distance over time.”

Greenbar Distillery in Los Angeles has made imperfect, sustainable practices part of its style by rejecting the heavy, “luxurious” bottles favored by many competitors and using more environmentally friendly lightweight glass, which saves the company about 30%.

Though your business model should strive to incorporate your sustainable and ethical principles at every level, that may not be possible due to your budget, industry or other limitations. That shouldn’t stop you from doing what you can from the beginning.

As more sustainable businesses enter the market, you may find that other supply chains, materials or partnerships become both available and affordable. Then, as your company grows and expands, you will be better positioned to effect change in your industry or take advantage of solutions that were once outside your budget.

Fully understanding the impact of one organization or set of business practices is a big challenge in going eco-friendly. Plus, sustainability is still controversial, so it’s difficult to predict how your customers might react to the switch.

4. Embrace social marketing.

The movement toward sustainable business has a strong online presence, with devoted followers of #zerowastelife, #minimalistliving, #organic and other sustainability practices on social media and blogs. Taking advantage of these social communities can help you reach a wide and engaged audience, even with a limited marketing budget.

“Our marketing efforts at Notra have really been focused on making beautiful outdoor photography,” Fienning said. These images, she explains, are popular online, which has helped interest in the brand spread naturally in social media communities.

Consumers interested in sustainability are also active in finding and sharing products made by ethical brands, which Fienning says Notra has also benefited from.

“I’ve had multiple women approach me, saying they discovered Notra because their friend was wearing our shades and looked so great … This natural desire for consumers wanting to buy green has helped us,” she said. “People already want to buy and support the brand without additional marketing.”

5. Build a community.

In addition to using the preexisting online community, you can expand your brand’s presence and marketing impact by making a conscious effort to build your own community. Seek out popular bloggers who fit with your brand’s ethics and image, create your own hashtag for social sharing, and devote time to engaging with your followers and customers online.

Don’t forget to reach out to other sustainable brands. These businesses are often deeply invested in promoting the work and products of other sustainable businesses to their own customers.

“There are other really interesting green products out there from other cool companies, and we’d love to help boost those brands and their efforts,” Fienning said. “I am thrilled when I see any company genuinely trying to be more eco-conscious, because we are all starting a wave that will get stronger the more people join the effort.”

This sort of community sharing and support is essential to the growth of sustainable businesses. Interacting with other ethical brands can help you access new resources and markets. It can reinforce the value of creating a business that meshes with your personal principles if you ever find yourself doubting or struggling. You may even encourage others in your industry to start incorporating sustainable principles into their own business models.

“All these small changes, these businesses’ baby steps, add up to make a difference,” Fienning said. “If we make a … change in the right direction for our business today, maybe we inspire others – our customers, our competitors – to do the same.”

Isaiah Atkins and Katharine Paljug contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Working Definitions of “Sustainable Business Model” & “Business Model for Sustainability”

by Florian Lüdeke-Freund

Research on “sustainable business models” (SBM) and “business models for sustainability” (BMfS) is gaining momentum and shows first traits of a field in its own right ( Lüdeke-Freund & Dembek, 2017 ). An important questions in this area is:

How to define a “sustainable business model” or “business model for sustainability”?*

Such a definition would be an important ingredient for further conceptual and theoretical work.

Below you find a list of definitions that emerged and evolved in our research over the last ten years. They take different theoretical starting points (such as re-defining customer value or connecting to the business case for sustainability) and emphasise different business model functions (such as creating competitive advantage or supporting different kinds of innovation).

This list is neither complete nor does it provide final or ultimate definitions. It should rather be seen as a collection of snapshots of an ongoing research process and an impulse for your own work in this field.

Our latest thinking on this issue has been presented in this posting .

(*A question directly related is: What is the difference between an SBM and a BMfS? Is this all just words, or does it point to some profound differences?)

6. Definition (2016) – BMfS to offer a sustainable value proposition and maintain or regenerate natural, social, and economic capital

“A business model for sustainability helps describing, analyzing, managing, and communicating (i) a company’s sustainable value proposition to its customers, and all other stakeholders, (ii) how it creates and delivers this value, (iii) and how it captures economic value while maintaining or regenerating natural, social, and economic capital beyond its organizational boundaries.”

  • Main purpose defined as maintaining or regenerating natural, social, and economic capital through offering a sustainable value proposition to cutomers and further stakeholders
  • Inspired by classic business model theory, stakeholder theory (Freeman, 1984), and a focus on critical capitals as in ecological economics (cf. Ehrenfeld & Hoffman, 2013)
  • Puts particular emphasis on major business model functions, which are decribing, analyzing, managing, and communicating (cf. Osterwalder et al., 2005)

Schaltegger, S.; Hansen, E. & Lüdeke-Freund, F. (2016): Business Models for Sustainability: Origins, Present Research, and Future Avenues (Editorial), Organization & Environment, Vol. 29, No. 1, 3-10. DOI | ResearchGate

5. Definition (2014) – SBM to create positive value for all stakeholders

“[A] sustainable business model can be defined as a business model that creates, delivers, and captures value for all its stakeholders without depleting the natural, economic, and social capital it relies on.”

  • Main purpose defined as “creating, delivering, and capturing value for all business model stakeholders while acknowleding natural and social/societal limitations”, i.e. co-create societal and business value through considering any effect on any possible stakeholder, while the involved (external) systems’ limitations are considered
  • Inspired by stakeholder theory and a focus on critical capitals as in ecological economics (cf. Ehrenfeld & Hoffman, 2013)
  • Tries to connect the value creation function of business models with the idea of (strongly) sustainable capitals management (cf. Upward & Jones, 2016)

Breuer, H. & Lüdeke-Freund, F. (2014): Normative Innovation for Sustainable Business Models in Value Networks, in: Huizingh, K.; Conn, S.; Torkkeli, M. & Bitran, I. (Eds.): The Proceedings of XXV ISPIM Conference – Innovation for Sustainable Economy and Society, 8-11 June 2014, Dublin, Ireland. ResearchGate | SlideShare

4. Definition (2013) – SBM for technological, organisational, and social innovation

“… sustainable business models with a focus on technological innovation are market devices that overcome internal and external barriers of marketing clean technologies; of significance is the business model’s ability to create a fit between technology characteristics and (new) commercialization approaches that both can succeed on given and new markets.

Business model change on the organizational level is about the implementation of alternative paradigms other than the neoclassical economic worldview that shape the culture, structure and routines of organizations and thus change the way of doing business towards sustainable development; a sustainable business model is the aggregate of these diverse organizational aspects.

… sustainable business models enable social entrepreneurs to create social value and maximize social profit; of significance is the business models’ ability to act as market device that helps in creating and further developing markets for innovations with a social purpose.”

  • Main purpose defined as supporting different kinds of sustainability innovation (technological, organisational, and social); differentiating these innovation functions allows for a more encompassing view on sustainable business models
  • Theoretically inspired, inter alia, by Doganova and Eyquem-Renault’s (2009) definition of what business models do, and Chesbrough and Rosenbloom’s (2002) definition of the business model as a mediating, value-creating device
  • Tries to create a bridge between the mainstream business model discourse and the field of sustainability innovation research; proposes general topics for a possible research agenda

Boons, F. & Lüdeke-Freund, F. (2013): Business Models for Sustainable Innovation: State-of-the-Art and Steps towards a Research Agenda, Journal of Cleaner Production, Vol. 45, pp. 9-19. DOI  |  ResearchGate

3. Definition (2012) – BMfS to create business cases for sustainability

“Based on the understanding of a business case for sustainability, a business model for sustainability can be defined as supporting voluntary, or mainly voluntary, activities which solve or moderate social and/or environmental problems. By doing so, it creates positive business effects which can be measured or at least argued for. A business model for sustainability is actively managed in order to create customer and social value by integrating social, environmental, and business activities.” 

  • Main purpose defined as “supporting activities which solve or moderate social and/or environmental problems”, i.e. co-create societal and business value through the support of (mainly) voluntary, measurable, and deliberate entrepreneurial activities aiming for business cases for sustainability
  • Based on the business case for sustainability concept (BCfS) (Schaltegger & Wagner, 2006, 2011)
  • Tries to make a theory-based and direct connection between the BCfS, corporate sustainability strategies, and business model innovation

Schaltegger, S.; Lüdeke-Freund, F. & Hansen, E. (2012): Business Cases for Sustainability: The Role of Business Model Innovation for Corporate Sustainability,  Int. Journal of Innovation and Sustainable Development, Vol. 6, No. 2, pp. 95-119. DOI  |  ResearchGate

2. Definition (2010) – SBM to create extended customer value

“A business model that creates competitive advantage through superior customer value and contributes to a sustainable development of the company and society can be interpreted as a sustainable business model … Since customer value is the strategic nexus of any business model, sustainable business models are crucial for creating extended customer value for individual customers and society, i.e. private and public benefits.”

  • Main purpose defined as “creating extended customer value”, i.e. co-creating societal and business value through an extended approach to customer value – for the focal firm itself, for its customers in a narrow sense, and for society at large (incl. stakeholders who are non-customers)
  • Based on conceptions of customer value and public customer value (Meynhardt, 2009; Meynhardt & Stock, 2009)
  • Tries to broaden the common value creation function of business models

Lüdeke-Freund, F. (2010): Towards a Conceptual Framework of Business Models for Sustainability, in: Wever, R.; Quist, J.; Tukker, A.; Woudstra, J.; Boons, F. & Beute, N. (Eds.): Knowledge Collaboration and Learning for Sustainable Innovation, ERSCP-EMSU Conference, 25-29 October 2010, Delft, The Netherlands. Delft: Delft University of Technology. ResearchGate

1. Definition (2009) – BMfS to overcome the public/private benefit discrepancy

“A business model for sustainability is the activity system of a firm which allocates resources and coordinates activities in a value creation process which overcomes the public/private benefit discrepancy. That is, a business model for sustainability is the structural template of a business logic which creates the business case for sustainability. This can be achieved by

  • extending value propositions to integrate public and private benefits (product/value proposition pillar),
  • making customers involved and responsible partners in value creation processes (customer interface pillar),
  • taking advantage of partnerships which enhance resources and activities (infrastructure pillar),
  • evaluating combined measures like Environmental Shareholder Value and Environ-mental/Social Business Model Value (financial aspects pillar), and
  • dedicating resources and activities to secure free, legitimate and legal behaviour and to explore currently neglected opportunities in non-market spheres (non-market pillar).”
  • Main purpose defined as “overcoming the public/private benefit discrepancy”, i.e. co-creating societal and business value through business cases for sustainability
  • Based on Osterwalder’s (2004) earlier BMO approach
  • Tries to extend the basic four-pillar-concept by adding a fifth “non-market” pillar according to the Sustainability Balanced Scorecard concept (Schaltegger & Dyllick, 2002)
  • Merges Amit and Zott’s (2010) activity system with Osterwalder’s structural template view

Lüdeke-Freund, F. (2009): Business Model Concepts in Corporate Sustainability Contexts: From Rhetoric to a Generic Template for “Business Models for Sustainability”. Lüneburg: Centre for Sustainability Management. ResearchGate

Chesbrough, H. & Rosenbloom, R. (2002): The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies, Industrial & Corporate Change, Vol. 11, No. 3, 529–555.

Doganova, L. & Eyquem-Renault, M. (2009): What do business models do? Innovation devices in technology entrepreneurship, Research Policy, Vol. 38, No. 10, 1559–1570.

Ehrenfeld, J. & Hoffman, A. (2013): Flourishing: A Frank Conversation About Sustainability. Sheffield: Greenleaf Publishing.

Osterwalder, A. (2004): The business model ontology: A proposition in a design science approach. PhD Thesis. Lausanne: Universite de Lausanne.

O sterwalder, A., Pigneur, Y., Tucci, C.L., 2005. Clarifying Business Models: Origins, Present and Future of the Concept. Communications of the Association for Information Systems 16, Article 1.

Meynhardt, T. (2009). Public value inside: what is public value creation? International Journal of Public Administration, 32(3/4), 192–219.

Meynhardt, T. & Stock, R. (2009). Customer Value und Public Value. Der Kundennutzen im Bauch der Gesellschaft [Customer value for the society]. Marketing Review St. Gallen, (01-2009), 53–57.

Schaltegger, S. & Dyllick, T. (Eds.) (2002): Nachhaltig managen mit der Balanced Scorecard. Konzept und Fallstudien. Wiesbaden: Gabler.

Zott, C. & Amit, R. (2010): Business model design: an activity system perspective, Long Range Planning, Vol. 43, No. 2/3, 216–226.

Schaltegger, S. & Wagner, M. (2006): Managing and measuring the business case for sustainability. Capturing the relationship between sustainability performance, business competitiveness and economic performance, in: Schaltegger, S. & Wagner, M. (Eds.): Managing the business case for sustainability. Sheffield: Greenleaf Publishing, 1–27.

Schaltegger, S. & Wagner, M. (2011): Sustainable entrepreneurship and sustainability innovation: categories and interactions, Business Strategy and the Environment, Vol. 20, No. 4, 222–237.

Upward, A. (2013): Towards an Ontology and Canvas for Strongly Sustainable Business Models: A Systemic Design Science Exploration. Masters of Environmental Studies / Graduate Diploma in Business + Environment. Toronto: York University.

Upward, A. & Jones, P. (2016): An Ontology for Strongly Sustainable Business Models: Defining an Enterprise Framework Compatible With Natural and Social Science, Organization & Environment, Vol. 29, No. 1, pp. 97-123.

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According to my understanding the difference is below, but it would be great to get feedback from native speakers.

SBM- the aim is the sustainability of the particular organization, i.e. the duration of existence of the company that is employing this BM. It does not need to be related to environmental aspects. Similarly as you can say “sustainable competitive advantage”.

BMfS- the aim is the sustainability of society (locally, nationally, or globally). This includes the economic, environmental and social aspects. Scalability and replicability are crucial here. If this is achieved, then from the global perspective it does not matter if the organization that for the first time used it, eventually stops existing.

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Building a sustainable business model in tech

Those without a sustainable business model stand to lose out on customers and fall behind competitors

A green paper cutout representing sustainable business models, showing factories, wind turbines, hulls, and high-rise buildings. In the background, the sun peeks out from paper clouds.

As environmental concerns become a core focus across all sectors, leaders aiming to build a sustainable business model in tech need to draw up plans for taking this from an aspiration to a reality.

I'm a professor in HR management – here are three things every business gets wrong about digital transformation

Customers are increasingly looking to spend their money with businesses that can demonstrate strong sustainability credentials. Customers are willing to question whether some strategies, like carbon offsetting, are really evidence of a sustainable business model and will shop around to find businesses with in-depth, holistic commitments to sustainability at the heart of their operations. 

There are a number of steps leaders in tech can take to adopt a sustainable business strategy, ranging from strategic shifts to rolling up their sleeves and conversing with partners to uproot practices.

Defining sustainability for business

It is important to understand up-front how sustainability is defined in the context of a sustainable business. Carmen Ene, CEO of the BNP Paribas 3 Step IT joint venture puts it very clearly, telling ITPro , “If by “sustainability” we mean what was defined in the U N Brundtland Report as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”, then there’s definitely more to it than just the economic benefits of net zero or energy efficiency.

“From my perspective, building a holistic sustainability-focused business model today involves, first and foremost, carefully considering how resources are used to maximize their full lifecycle impact,” Ene continues.

By this measure, building a sustainable business model in tech can only be achieved by embedding sustainability across every process within a business, or at the very least considering each process in the context of its environmental impact.

Sustainable business model: A holistic approach

For sustainability to be truly embedded within the business it has to be holistic: central to everything the business does. Sustainable operation must be a core business objective. Step one in achieving this for leaders is measuring the sustainability performance of their firm as it is, to draw up benchmarks and inform deadlines for improvement. This will feed into  environmental, social and governance (ESG) reporting and can inform big data analytics results as leaders use all the tools in their disposal to optimize their approach.

This can then tie into Ene’s recommendation regarding the lifecycle impact of specific business processes, as leaders work to lessen the climate impact of all their workloads. This also applies to third-party services and those achieved through the channel. While the IT channel is already working to improve the supply chain’s sustainability credentials , leaders have a responsibility to engage with all customers and partners on an equal footing to get a handle on their short-term and long-term sustainability goals.

In addition to the pressure exerted on the business by customers, stakeholders may place an emphasis on firms to adopt a more sustainable approach and hold them to account in the event of leaders missing key targets.

Professor Luciano Barin Cruz, director of the sustainability mindset at McGill-HEC Montreal's Executive MBA, tells ITPro that a holistic approach to sustainability can be challenging to implement and will necessitate the attention of all those at the top of an organization. At present, the majority of firms are missing business sustainability goals and getting there 

Discover how you can reduce energy consumption without sacrificing performance

“We shouldn’t think any more about separate general and sustainability strategies. Sustainability strategies must be aligned with the general strategy. And a company’s board and top management must be involved. Sustainability implies a major governance challenge – it is the responsibility of all directors and board members. The level of data collection, KPI evaluation and impacts from ESG factors oblige top management to take full responsibility over sustainability results.”

This may mean a strategic rethink of the business aims and objectives, its mission, and how it goes about day-to-day activity. It may mean a reformulating of financial strategy and reporting, and a much better understanding of how the business fits into its supply chain and customer base, and what it expects of its own suppliers and the businesses it supplies to. 

Some roles may be have to take on more responsibility than others when it comes to building a sustainable business model. CIOs can get a grip on sustainability through IT audits and cloud audits that reveal inefficiencies in workloads or even undertake digital transformation projects to take advantage of solutions like green data centers.

“We’ve made savings of around 85%”: Embracing green energy for data centers by migrating to Iceland

As cutting-edge technologies implemented, tech leaders will also have a chance to factor these into their sustainability model from day one. For example, generative AI workloads can bring massive energy demands , demanding a strong implementation strategy from chief AI officers or those in similar roles.

Cruz suggested two business models leaders could consider: the circular economy model – which is focused on reducing waste and maximizing resource efficiency and the social enterprise model, which integrates business and society. This could be realized as companies reinvesting earnings to help address social or environmental issues. Whatever model leaders choose, Ene, whose BNP Paribas 3 Step IT adopts the circular economy model, is clear that “A holistic approach to building a sustainability-focused business model requires a shift in thinking; there’s no doubt about it.”

Sustainable business model: Getting there the right way

Building a sustainably focused business model cannot mean simply bolting various features onto the existing business model. Carbon offsetting is one strategy some have used as a bolt-on, and there are plenty of examples of where the offsetting doesn’t achieve sound environmental outcomes.

While bolt-ons aren’t advisable, the holistic change required can be by achieved incremental means. Ene tells ITPro , “organizations risk getting stuck and delaying plans even further by trying to enact exclusively systemic changes – root and branch – from day one.” She advocates making practical changes that are tactically and strategically sound in the context of a sustainably focused business model.

Some of the changes can influence organizational behaviours by dint of their fundamental nature.  Cruz gives ITPro two examples: “In Québec, Energir, an energy company, started a program recently to define part of the directors’ remuneration according to their ability to reduce CO2 emissions and  Patagonia has created a business model in which reuse and recycling have an important role in its worn wear project, as well as by changing the ownership structure of the company.”

Sustainable business model: Not ‘if’ but ‘when’

As the customer’s mind turns further and further away from businesses that don’t have strong sustainability credentials, the imperative to embed these into the core of the business will get greater. They will get more market share, as business bet on sustainability to mitigate against future disruption.

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“Change is never easy, but it’s sometimes inevitable,” says Ene. “And if true resilience is what we are talking about it, then business leaders must acknowledge that the traditional, linear way of doing business – buying, using, throwing away – might look convenient, but it’s unfortunately no longer fit for purpose.”

All the signs are that the future of business is sustainable business models. With that in mind, taking a careful, strategic, holistic approach to building a sustainability focused business might be a very smart business move.

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Sandra Vogel

Sandra Vogel is a freelance journalist with decades of experience in long-form and explainer content, research papers, case studies, white papers, blogs, books, and hardware reviews. She has contributed to ZDNet, national newspapers and many of the best known technology web sites.

At ITPro, Sandra has contributed articles on artificial intelligence (AI), measures that can be taken to cope with inflation, the telecoms industry, risk management, and C-suite strategies. In the past, Sandra also contributed handset reviews for ITPro and has written for the brand for more than 13 years in total.

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  • 2 Master the multi-cloud with Global Fabric
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Circular economy: definition, importance and benefits

The circular economy: find out what it means, how it benefits you, the environment and our economy.

sustainability business model

The European Union produces more than 2.2 billion tonnes of waste every year . It is currently updating its legislation on waste management to promote a shift to a more sustainable model known as the circular economy.

But what exactly does the circular economy mean? And what would be the benefits?

What is the circular economy?

The circular economy is a model of production and consumption , which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended.

In practice, it implies reducing waste to a minimum. When a product reaches the end of its life, its materials are kept within the economy wherever possible thanks to recycling. These can be productively used again and again, thereby creating further value .

This is a departure from the traditional, linear economic model, which is based on a take-make-consume-throw away pattern. This model relies on large quantities of cheap, easily accessible materials and energy.

Also part of this model is planned obsolescence , when a product has been designed to have a limited lifespan to encourage consumers to buy it again. The European Parliament has called for measures to tackle this practice.

Infographic explaining the circular economy model

Benefits: why do we need to switch to a circular economy?

To protect the environment.

Reusing and recycling products would slow down the use of natural resources, reduce landscape and habitat disruption and help to limit biodiversity loss .

Another benefit from the circular economy is a reduction in total annual greenhouse gas emissions . According to the European Environment Agency, industrial processes and product use are responsible for 9.10% of greenhouse gas emissions in the EU, while the management of waste accounts for 3.32%.

Creating more efficient and sustainable products from the start would help to reduce energy and resource consumption, as it is estimated that more than 80% of a product's environmental impact is determined during the design phase.

A shift to more reliable products that can be reused, upgraded and repaired would reduce the amount of waste. Packaging is a growing issue and, on average, the average European generates nearly 180 kilos of packaging waste per year . The aim is to tackle excessive packaging and improve its design to promote reuse and recycling.

Reduce raw material dependence

The world's population is growing and with it the demand for raw materials. However, the supply of crucial raw materials is limited.

Finite supplies also means some EU countries are dependent on other countries for their raw materials. According to Eurostat , the EU imports about half of the raw materials it consumes.

The total value of trade (import plus exports) of raw materials between the EU and the rest of the world has almost tripled since 2002, with exports growing faster than imports. Regardless, the EU still imports more than it exports. In 2021, this resulted in a trade deficit of €35.5 billion.

Recycling raw materials mitigates the risks associated with supply, such as price volatility, availability and import dependency.

This especially applies to critical raw materials , needed for the production of technologies that are crucial for achieving climate goals, such as batteries and electric engines.

Create jobs and save consumers money

Moving towards a more circular economy could increase competitiveness, stimulate innovation, boost economic growth and create jobs ( 700,000 jobs in the EU alone by 2030 ).

Redesigning materials and products for circular use would also boost innovation across different sectors of the economy.

Consumers will be provided with more durable and innovative products that will increase the quality of life and save them money in the long term.

What is the EU doing to become a circular economy?

  In March 2020, the European Commission presented the circular economy action plan,  which aims to promote more sustainable product design, reduce waste and empower consumers, for example by creating a right to repair ). There is a focus on resource intensive sectors, such as electronics and ICT , plastics , textiles and construction.

In February 2021, the Parliament adopted a resolution on the new circular economy action plan demanding additional measures to achieve a carbon-neutral, environmentally sustainable, toxic-free and fully circular economy by 2050, including tighter recycling rules and binding targets for materials use and consumption by 2030. In March 2022, the Commission released the first package of measures to speed up the transition towards a circular economy, as part of the circular economy action plan. The proposals include boosting sustainable products, empowering consumers for the green transition, reviewing construction product regulation, and creating a strategy on sustainable textiles.

In November 2022, the Commission proposed new EU-wide rules on packaging . It aims to reduce packaging waste and improve packaging design, with for example clear labelling to promote reuse and recycling; and calls for a transition to bio-based, biodegradable and compostable plastics.

Find out more

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How to Market Sustainable Products

  • Frédéric Dalsace
  • Goutam Challagalla

sustainability business model

Many companies overestimate customers’ appetite for sustainable products, flooding the market with offerings that don’t sell. The reality is, social and environmental benefits have less impact on purchasing decisions than basic product attributes do. Consumers buy products to get specific jobs done, and only after they find something that will do that will they look for a product that provides some social or environmental advantage.

Of course, that’s only if they value sustainability. Not everyone does, and marketers need to recognize that. Some customers (greens) place a premium on it, some (blues) value it only moderately, and some (grays) don’t care about it and view it skeptically. The three segments cannot all be approached in the same way. How sustainable product benefits interact with traditional benefits is also critical: They can have no impact on a product’s performance (independence), diminish it (dissonance), or enhance it (resonance). Marketers need to follow different playbooks for independent, dissonant, and resonant products, tailoring their approaches to green, blue, and gray customers with each.

Three paths to success

Idea in Brief

The problem.

Many companies overestimate consumers’ appetite for sustainable products, flooding the market with offerings that don’t sell well.

The Opportunity

By understanding how sustainability features interact with a product’s core benefits, companies can devise effective marketing strategies for different consumer segments.

The Solution

Assess whether your sustainable offering’s performance is equivalent, inferior, or superior to that of conventional alternatives. Tailor marketing messages to customers according to how they value sustainability versus traditional attributes.

When companies market the sustainability features of their offerings, they often overlook a fundamental truth: Social and environmental benefits have less impact on customers’ decisions than basic product attributes do. With any purchase, consumers are first trying to get a specific job done. Only after they find something that will help them do that job—and only if sustainability is important to them—will they look for a product that in addition confers a social or environmental advantage. No one decides to buy a chocolate bar to, say, improve the working conditions of farmers on the Ivory Coast. People buy chocolate, first and foremost, because they want to indulge in a small pleasure. No one decides to buy an electric car to prevent climate change. People buy cars because they need transportation; reducing their carbon footprint is an ancillary benefit.

  • FD Frédéric Dalsace is a professor of strategy and marketing at IMD.
  • GC Goutam Challagalla is a professor of strategy and marketing at IMD.

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Six Steps to a Sustainability Transformation - rectangle

Related Expertise: Business Transformation , Sustainable Finance and Investing , Fund Strategy and Operations

Six Steps to a Sustainability Transformation

August 31, 2021  By  Rich Hutchinson ,  Vinay Shandal ,  Judith Wallenstein ,  Mark Wiseman ,  David Young , and  Kilian Berz

If you think the disruption caused by digital has been far-reaching, just wait. That impact will pale in comparison to the changes coming as companies wrestle with how to transform their businesses to become truly sustainable.

Sustainability, a company’s ability to create positive environmental and societal impact, is rapidly reshaping competitive advantage. It is remaking whole industries, blurring and in some cases obliterating boundaries between industries, and generating new waves of growth. The scale of the disruption that will play out over the next few decades, along with the opportunity it creates, will be staggering. Just the push to limit global temperature increases to 1.5°C—the central sustainability challenge of our time—will drive a massive transformation of the global economy and require investments totaling an estimated $100 trillion to $150 trillion by 2050 .

But while the opportunity is clear, the way to drive a successful sustainability transformation is less obvious. To succeed and create a competitive advantage, companies must simultaneously integrate an environmental, social, and governance (ESG) lens into every element of the business and capture the value that this transformation creates.

On the basis of our extensive experience working with companies and investors to drive sustainability transformations, we have identified six actions that distinguish leaders from the rest of the pack:

  • Develop a sustainability strategy anchored in purpose.
  • Capture business value.
  • Build new sustainable businesses.
  • Make the core sustainable.
  • Build capabilities.
  • Own the narrative, and engage investors and stakeholders.

Companies that fail to take up the challenge, and instead continue to view sustainability through a compliance or ESG reporting lens, will miss the opportunity to tap into lucrative new markets and create new, winning business models. They will also see their space for creating shareholder value narrow dramatically. On the other hand, companies that execute effectively in all six areas will truly transform their business and turn sustainability into a competitive advantage.

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Develop a Sustainability Strategy Anchored in Purpose

Companies must devise a strategy that takes as its starting point the principle that sustainability is a source of durable competitive advantage. The strategy must clearly connect to the company’s purpose , focus on long-term value creation, and be driven from the top, including the CEO and board.

To outline a clear strategy, companies should step back and look at their performance in all material environmental, social, and governance (ESG) areas. Then they should focus on the areas that matter the most to all stakeholders—not just to investors—today and in the future, and where outperformance can contribute most significantly to long-term business success. That prioritization is critical to helping companies avoid the all-too-common pitfall of creating a profusion of siloed initiatives that ultimately have little impact.

At the same time, companies can reassess their existing business model with the objective of understanding its degree of sustainability. This assessment will likely reveal opportunities to enhance the environmental and societal benefits that the company generates, but it will also strengthen the company’s competitiveness by improving the resilience of its business model.

Capture Business Value

Companies that lead in sustainability, as reflected in ESG performance, can also outperform their rivals financially. But capturing the value that sustainability efforts create can be challenging.

That’s why companies must be intentional and systematic about capturing this value. To start, they must develop a robust business case that accesses all sources of value that their sustainability efforts create. These sources are numerous and varied:

  • Enhanced brand equity and loyalty
  • Price premiums
  • Fresh growth in the form of share expansion, penetration of new markets, or new businesses
  • Operational cost savings
  • Advantages in sourcing, including reliable supplies of scarce inputs
  • Improved access to or reduced cost of capital
  • Reduced risk
  • Valuation premiums

Once they have clearly articulated those business cases, companies should ensure that key areas of the business—including marketing, sales, product development, and finance—have the capabilities not only to capture the value created, but also to track and measure it accurately.

Companies can move quickly to test and scale changes and initiatives in areas where value capture is straightforward and likely to yield immediate financial results. Such efforts will validate the power of the overall sustainability transformation and can be the source of revenues or cost savings to fund other aspects of the journey.

Take, for example, decarbonization for auto OEMs. According to BCG analysis, eliminating 60% of scope 1 and 2 carbon emissions during an initial phase of decarbonization will generate significant annual savings, and those cost reductions can help fund the costs of eliminating the remaining 40%. Even in cases where manufacturing a sustainable product leads to higher costs, the increase often proves to be marginal and more than offset by the enhanced value perceived by customers. For instance, the increased cost associated with creating a smartphone with a net zero supply chain is less than 1% for a $400 smartphone, according to BCG analysis.

Build New Sustainable Businesses

Companies have a major opportunity to unlock new sources of growth, particularly in relation to the trillions of dollars that the public and private sectors will be investing every year to drive the global economy to net zero carbon emissions. They should look for places in those new markets where they have unique advantages, and create new offerings and business models to leverage those advantages.

Digital tools and technology will be critical in building new businesses and helping companies create solutions that fulfill customer needs in new ways. For example, Norwegian mobile operator Telenor partnered with microfinance bank Tameer (with additional support from the Bill and Melinda Gates Foundation, the International Finance Corporation, and the Consultative Group to Assist the Poor) to launch a mobile-based financial services platform for unbanked and underbanked consumers in Pakistan. By the end of 2019, the operation had become the largest branchless banking service in Pakistan, with 6.4 million users. Companies also have an opportunity to invest in deep-tech innovation , including in artificial intelligence (AI), synthetic biology, nanotechnologies, and quantum computing—to generate and commercialize breakthroughs in areas such as decarbonization .

In addition, companies that embrace sustainable business model innovation can help transform entire value chains and ecosystems. They can, for example, introduce new circular business models to reshape the whole product usage cycle. And they can create new business models or make investments in ventures that address the looming scarcity of critical sustainability inputs . Consider recycled plastic. Some 45% of demand for recycled polyethylene terephthalate will be unmet by 2025, according to BCG analysis. Already, a number of companies are investing in innovation to address the gap, including through investments in R&D and recycling infrastructure.

Make the Core Sustainable

Companies that aim to become sustainability leaders must assess and enhance the sustainability of their existing portfolio and operations.

In supply chains , for example, they have an opportunity to create end-to-end transparency, from sourcing through distribution. New tools and technologies are critical in this area. AI can help companies monitor, predict, and reduce their carbon emissions . At the same time, companies can engage suppliers to impose standards, track and improve their performance, and push the ecosystem in which they operate toward greater sustainability. Companies should also re-engineer product designs to make existing products sustainable. This may involve reformulating products with more sustainable ingredients, reducing packaging, and developing refillable products or concentrated versions that reduce weight (and therefore carbon emissions tied to transportation), water consumption, and packaging. Beyond Meat, for example, leveraged plant-based proteins to re-engineer one of the world’s most famous dishes—the burger. That innovation not only launched a popular new alternative to meat, but also helped fuel one of the most successful IPOs of 2019.

Build Capabilities

Companies that want to drive a sustainability transformation must ensure they have the right capabilities and foundation in place to succeed.

First, they must design robust governance of sustainability efforts, both at the board level and within the company itself, including accountability and incentives linked to ESG targets. Second, they need to develop strong, granular data capabilities and robust ESG reporting processes to enable the business to direct and adjust efforts on the basis of real-time performance data and to meet increasingly stringent regulatory reporting standards. Third, they should build new partnerships that allow them to pool resources, combine expertise, co-invest in ways that minimize risks associated with high-fixed-cost investments, and deliver sustainable outcomes at scale more quickly. Fourth, they must embed sustainable business model innovation in the organization.

This last element is particularly critical. Companies will need to continue to adapt their operations, product portfolio, and business models as the bar for sustainability inevitably rises over time. What qualifies as leading performance in carbon footprint or equitable business practices today, for example, will likely be table stakes in the future. As a result, companies must embrace an “always-on” mentality toward innovating in sustainability. The process of driving sustainable business model innovation will be central to that mentality, allowing companies to assess the degree to which their current business models create positive environmental and societal impacts and to improve that performance over time.

Own the Narrative, and Engage Investors and Stakeholders

Leading companies must create a compelling and distinctive narrative around their sustainability strategy —one that connects and amplifies their purpose. At the same time, they can own their sustainability story in the public markets and share that story in a way that resonates with investors, rather than letting ratings agencies and investors tell their story for them. This means going beyond sharing the relevant information with rating agencies, and instead going directly to investors with an effective narrative that includes four key elements:

  • A well-defined point of view about what is most material to the business
  • A clear connection to purpose and an overall sustainability strategy
  • Targets, milestones, and initiatives to get there
  • Robust measurement and disclosure of ESG performance

The measurement and disclosure component is particularly critical, as it will provide evidence to investors that the business is hardwiring the narrative into the organization. Companies should go beyond the annual or biannual reporting cycle and instead provide real-time ESG measurement and reporting mechanisms that increase investors’ confidence in the company’s ability to monitor progress and correct course. Companies can also use ESG measurement to establish clear incentives and accountability mechanisms for employees and leaders.

As companies share their narrative with investors, they should proactively engage with shareholders, and they should do so not just during the release of quarterly earnings. In particular, they should maintain a strong dialogue with active investors who, unlike ETF or index investors, may move in and out of the stock over time. They should also share the narrative with other critical stakeholders, including customers, employees, and members of communities in which they operate. The buy-in of these stakeholders is ultimately what drives value creation.

Driving a successful sustainability transformation requires a fundamental shift in mindset. Company leaders should view the push toward sustainability not as a compliance exercise or a cost of doing business, but rather as an opportunity to create new value. Companies that do so will expand their competitive advantage and develop the muscle to continue to rethink and remake their business as expectations about sustainability inexorably rise in the years ahead.

The authors would like to thank Fanny Berthaud for her assistance in the development of this article.

Headshot of BCG expert Rich Hutchinson

Senior Managing Director and Partner and Social Impact Global Lead

Headshot of BCG expert Vinay Shandal

Managing Director & Senior Partner

Headshot of BCG expert Judith Wallenstein

Senior Advisor

Headshot of BCG expert David Young

Managing Director & Senior Partner, BCG Henderson Institute Fellow

Headshot of BCG expert Killian Berz

ABOUT BOSTON CONSULTING GROUP

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

© Boston Consulting Group 2024. All rights reserved.

For information or permission to reprint, please contact BCG at [email protected] . To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com . Follow Boston Consulting Group on Facebook and X (formerly Twitter) .

Perspectives on Strategy and Value: Insights on creating sustainable value in an uncertain world.

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  6. The Sustainable Business Model Canvas, 11 Steps to designing a successful sustainability strategy

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  24. Circular economy: definition, importance and benefits

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  27. Sustainable and circular textiles

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