Sustainability as a Business Model

Businesses have long been flourishing without really appreciating anything other than how they make profits. An ignored behavior towards the environment has led businesses to understand its ill-effects, not just for the environment but the business and its profits as well. For the purpose of this report, I have chosen a normal article named “Business Model Innovation for Sustainability: Towards a Unified Perspective for Creation of Sustainable Business Models” (Evans 2017). The article was published in a journal named “Business Strategy and the Environment” on 5th April, 2017 and talks about how sustainability can help businesses in increasing their profits.

In the hoard of becoming the most successful company in their fields, businesses have ignored the way they utilize the natural resources that are available to us, and have solely concentrated on generating more and more revenue and sales. In the recent times however, there have been a number of businesses that have come forward to adopt the sustainable way of doing business and this has not only just been an environment friendly way of doing things, but has also resulted in increased profits and success. A number of reports have been written and an even more number of case studies have been reviewed with the objective of understanding how adapting sustainable practices helps in increasing profits. However, there still remains a need to demonstrate, within the current modes of capitalism, how sustainability impacts financial performance (Tantram 2015).  

While sustainability initiatives by firms are increasingly encouraged by customers, investors, and the government, the economics of sustainable decisions remains in question (Singal 2013). The conceptual exploration of sustainable business models (SBMs) is new in the literature, and there is still a limited understanding of how these models might look in practice (Cauchick-Miguel 2017). From a very long time, businesses have thought about sustainability and profit generation as two opposite sides of a coin. Research reveals however, that the truth might actually be something completely different. Below are discussed three major issues within the article that talk about business related concepts.

A business model, by definition, is what keeps a business running. This includes its structure, the way it functions, and what generates profits at the end of the day. Looking at a business model in conjunction with sustainability seems too odd and quite new to many people. However, research has shown that incorporating sustainability into a business model shall have numerous advantages; the stakeholders have been unaware of. In the journal article, the author has listed down some key points as to why stakeholders are hesitant and neglectful towards adopting SBMs or Sustainable Business Models.

The first major issue discussed in the article points towards the imbalance and complications while managing profit creation and sustainability. A lot of businesses think it is difficult to maintain a sustainable front while running a business in itself is complicated enough. To have the added pressure of contorting to sustainable practices adds to their complexity. They feel it is an unnecessary burden, one that can very well be avoided.

Management of Risks

The second major issue is the mindset of the people. A company’s top level management is dedicated to making their businesses flourish successfully. For this, they have a particular set of rules and guidelines imbedded in their minds, a mindset that running a business is directly equivalent to profit generation and all the other things take the back seat. These people are therefore, reluctant towards having any changes in the existing business models.

The third reason is that businesses often are not willing to invest their time, money and resources into the research for new and innovative business models. They feel this is unnecessary and would not benefit them in any substantial manner.

Rapid changes in technology and a company’s inability to cope with them are another factor responsible for why businesses might not want to adopt sustainable practices.

In spite of all the above mentioned factors, any business can turn its existing business model into a sustainable business model provided its stakeholders are willing enough to take the plunge. The author also talks about ‘value” in a business environment and what it means for different people in different set ups. For a business, a company’s only value lies in the creation of more and more economic value, others also focus on creating customer value and often ignore their contribution to creating some sort of social value through their businesses. Businesses need to reconsider their business models and look for innovative ideas and solutions to incorporate business model whose base is sustainability. By doing this, they shall be able to generate social value, contribute towards a healthy future of the generations to come and make their businesses successful all at the same time.

In addition to only focusing on the generation of economic value from their businesses, companies today are at a major risk of running out of resources and raw materials for production and manufacturing.

According to a survey conducted, more than 8000 supplier businesses that export goods to around 75 countries have reported that climate changes have had a major negative impact on their businesses. Climate risks are very much unlike business risks. While strategies and solutions can solve the biggest risk and threat to a company’s business, there is not much that can be done when it comes to controlling the climate of the environment single handedly. However, if every person on the planet does his or her bit in contributing to having a better, cleaner, safer and less polluted environment on this planet, the natural resources available to us will be utilized more efficiently as well as for longer durations.

Climate change has a direct impact on the change in growing of crops and such changes affect the food and textile industry heavily. Due to droughts that happened back in 2010, a company named “Bunge” reported a loss of around $50 million in one quarter. In another scenario, floods in 2011 caused damages to as many as 160 companies dealing in textiles and brought the global prices up by a whole 28% due to shortage of supply. Climate implications are serious and must not be ignored. . Many companies have forward in recent times to take an action and help the farmers in their difficult times. (Whelab 2016)

Profits and Sustainability

Many of us have always taken water for granted. Back in 2004, Coca-Cola faced such an extreme shortage in water that the company had to shut down its plant in India. Since then, Coca Cola has been known to invest a huge amount of money to reduce and recycle water.

Businesses face a serious threat of resource shortage in the present day. Therefore, it is essential that they incorporate sustainability into their business model. This shall prevent their companies from running out of business and the planet from running out of natural resources.

There is a huge myth as well as an engrained belief that a company can either be profitable or be sustainable, but it cannot be both. As companies are unaware and do not really comprehend its core, they tend to sideline sustainability, thinking of it as just a fancy term used to lure customers into thinking their business is “eco-friendly”. What companies have failed to understand, however, is that sustainable practices are not just meant to benefit the environment, but also to the company’s business itself. Over recent years, a number of companies have committed to sharing information relating to their environmental, social and governance (ESG) activities, in response to a higher demand for transparency from stakeholders (Siew 2012). Studies have shown increased profits to businesses who are better managing their resources and there is a direct link established between sustainability and increased number of sales and profits. With reduced energy and less consumption of resources, companies see a decrease in their operational costs. This implies greater profit margins. GE has been reported to save a whopping $300 million dollars by bringing down its gas emissions by 32% and water usage by 45%. Dawson has also been able to save a enormous amount of money, totaling to $9.8 billion dollars by investing $2 billion in efficiency of resource usage.

Conclusion

Little doubt remains about the correlation between improved sustainability practices and better financial results (Gaspar 2013). Time has come that companies worldwide realize the potential sustainability has and adopt it as the base of their business models. In the journal article, there have been a number of references talking about reduced use of energy, water, and other resources. These have direct link to businesses saving money and resulting in extreme profit generation. Gone are the times when businesses mindlessly wasted resources with the sole motive of earning money. It is now crucial and essential to businesses that they bring about a change into their existing business models and experience its positive impacts themselves.

Cauchick-Miguel, PA 2017, ‘Exploring business model innovation for sustainability: an investigation of two product-service systems’, Total Quality Management & Business Excellence, vol 1, no. 1, pp. 1-19.

Evans, S 2017, ‘Business Model Innovation for Sustainability: Towards a Unified Perspective for Creation of Sustainable Business Models’, Business Strategy and the Environment, vol 26, no. 5, pp. 597–608.

Gaspar, R 2013, Sustainability and financial performance: The chicken-egg dilemma, viewed 1 October 2017, <https://www.greenbiz.com/blog/2013/03/06/sustainability-financial-performance-chicken-egg>.

Siew, RYJ 2012, ‘The relationship between sustainability practices and financial performance of construction companies’, Smart and Sustainable Built Environment, vol 2, no. 1, pp. 6-27.

Singal, M 2013, ‘The Link between Firm Financial Performance and Investment in Sustainability Initiatives’, Sage journals, vol 55, no. 1, pp. 19-30.

Tantram, J 2015, Show Me the Money: Sustainability and Financial Outperformance, viewed 2 October 2017, <https://www.sustainablebrands.com/news_and_views/business_models/joss_tantram/show_me_money_sustainability_financial_outperformance>.

Whelab, T 2016, The Comprehensive Business Case for Sustainability, viewed 28 September 2017, <https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability>.