Sustainable Innovation is Gaining Steam, says MIT Study

This year, more respondents to MIT's Sustainability and Innovation Global Executive Study say sustainability is on their company's management agenda.

In the summer of 2010, Jos de Wit, a senior research associate for Eastman Chemical Co., was thinking about $50,000, Kenya, and HydroPack, a paper-thin, five-by-seven-inch bag that could transform contaminated water from virtually any source — sewage, floodwater, swimming pools — into a nutritious drink.

De Wit was trying to convince senior managers at his company to finance a $50,000 demonstration project that would field test HydroPack in a village in Kenya. While HydroPack was not an Eastman product — it is produced by a small company called Hydration Technology Innovations — the product does incorporate Eastman materials. De Wit believed Eastman should extend its support for a technology that had already demonstrated its ability to save lives: Some 24,000 HydroPacks were used in Haiti in the aftermath of the country’s 2010 earthquake.

At first, de Wit tried to persuade Gaylon White, who as director of the Eastman Innovation Lab seemed a natural champion. White, however, was overloaded with work and knew that obtaining funding for the project would be a challenge. The amount of Eastman material used in the HydroPack membrane was so small that it was insignificant from a business standpoint.

Two months passed and de Wit again approached White, who agreed to meet with HTI officials. They quickly convinced him to back the Kenya project. White then began to cultivate support within the organization. According to White:

We had early resistance because the HydroPack did not have big volumes and was not from a big brand. But you know what? Starting small is how many interesting innovations start. Plus, there are huge applications for this technology that could open up markets for us. Some people got this. When I framed the decision in terms of having a responsibility to educate and improve the world, everyone was persuaded.

In other words, for Eastman, the HydroPack project was initially viewed as a small project with small impact. Only after this small project was discussed more broadly, in terms of Eastman’s mission, did it gain support from senior managers.

Some aspects of this story are unremarkable: It’s not surprising that managers needed to be persuaded that financing this project was valuable for reasons other than a quick, visible return. But, the fact that they were persuaded at all is much more surprising. We might attribute management’s change of mind to White’s persuasive powers, but also to something else: seeing the relevance of a company’s purpose and mission in a small project.

For many managers, it is difficult to see how the aspirational attributes of a project can trump other considerations when the risks of uncertain returns loom large. Even so, in our third annual Sustainability & Innovation Global Executive Study, jointly produced by a collaboration between MIT Sloan Management Review and the Boston Consulting Group, we have evidence that an increasing number of managers and companies are — like the Eastman managers who saw the HydroPack initiative as part of Eastman’s mission to educate and improve the world — taking sustainable business practices seriously even when the business case for such practices is less than obvious.

Despite a lackluster economy, many companies are increasing their commitments to sustainability initiatives, the opposite of what one would expect if sustainability were simply a luxury afforded by good times.

In our survey, we found that more respondents than ever before say their companies are putting sustainability on their management agendas. Our survey this year involved 2,874 managers and executives from 113 countries. According to the respondents, 70% of companies that have placed sustainability on their management agendas have done so in the past six years; 20% have done so in just the past two years. Two-thirds of our respondents said that sustainability was critically important to being competitive in today’s marketplace, up from 55% in our 2010 survey. Moreover, despite a lackluster economy, many companies are increasing their commitments to sustainability initiatives, the opposite of what one would expect if sustainability were simply a luxury afforded by good times.

This rosy picture must be balanced against another set of data. Our survey findings suggest that most companies are struggling to define sustainability in a way that is relevant to their businesses. And while sustainability has made it onto many management agendas, responses indicate it ranks just eighth in importance among other agenda items. Meanwhile, economic growth continues to deplete the planet’s stocks of natural resources, despite the efforts of many companies to minimize their impacts through activities such as decreasing their carbon footprints and cultivating closed-loop production systems.

In spite of this mixed story, sustainability is becoming a profitable opportunity for many organizations; about 31% of our respondents say their companies are currently profiting from sustainable business practices. Taken together, the data suggest that the sustainability movement is nearing a tipping point, the point at which a substantial portion of companies not only see the need for sustainable business practices but are also deriving financial benefits from these activities. We describe the distinguishing characteristics of such companies and elaborate the lessons managers should glean from their practices.

Who the “harvesters” are – and why they’re profiting

Those companies that are profiting from sustainability are likely to be out in front of both external and internal sustainability drivers. We call this group the “Harvesters.”

Respondents who we classified as Harvesters shared one primary characteristic: They all said that sustainability contributed to their organization’s profitability. Why are we emphasizing this group, rather than some other group that has, say, high commitment levels to sustainability or has business cases for sustainability or who thinks sustainability is critical to their competitiveness? We believe that the longevity and robustness of an organization’s sustainability agenda ultimately turns on how well sustainability is embedded in business processes, and the extent to which that happens turns on whether sustainability adds to profitability over time. Having a commitment, a business case and an ethical stance are insufficient for the long term. Commitments may falter, business cases can fail in execution and belief can be supplanted by other beliefs. Unless sustainability adds to profits over time, a sustainability agenda will likely fail to gain or hold its traction in the enterprise.

This article is adapted from “Sustainability Nears a Tipping Point” by David Kiron, Nina Kruschwitz, Knut Haanaes and Ingrid von Streng Velken, which appeared in the Winter 2012 issue of MIT Sloan Management Review.