Sustainability-Oriented Innovation

A small piece on SOI:

The surge of industrial capitalism has successfully lighted up the homes of billions, extended human lifespan internationally, and connected the global community. Visionaries like Vanderbilt, Rockefeller, and Edison helped pave the way to this modern world with their revolutionary new enterprises. Little did these visionaries foresee, however, was that as their businesses scaled and their technologies became widely adopted, a network of resource-intensive systems would grow across the globe. These systems, like the grid and highways, provided extremely valuable services to many people, but at the same time it threw the world’s climate and resource distribution into massive imbalance. And the uneven rate of industrialization between North and South, and East and West, drew stark contrasts between the hemispheres. It has led to widespread impoverishment and global warming, and exponential population growth has only made the problems worse.

The challenge of the 21st century then has become one of sustainability: finding a way to carve out Raworth’s “safe and just operating space for humanity” on a planet with finite natural resources and an ever growing human population. But the real challenge of sustainability goes beyond Raworth’s moral plea though: the real challenge of sustainability extends to creating a healthy and thriving society that is prosperous for the long run. It is positive rather than defensive goal, and most importantly, business will play a key role in meeting this challenge.

The problem, however, is changing traditional mindsets around the purpose of business in society. Maximizing profit at any social and environmental cost has, intentionally and unintentionally, brought us to the crossroads we face today. Events like the BP oil spill and Monsanto farmer litigations have brought business ethics to forefront of the public’s mind and scrutiny. Reducing environmental impact through new efficiency initiatives like replacing lightbulbs, and starting new corporate philanthropy initiatives like educational outreach, have been noteworthy improvements to the otherwise narcissistic past of corporate business practice. But even when done in the name of corporate social responsibility, these initiatives do not suffice either—they are still grounded in the same age-old ideologies of business as usual.

The question therefore is how will society progress into Raworth’s 21st century vision—a noble one that any one would want—if the only equation business optimizes is a profit maximization equation? It is time for business to redefine itself, and do so quickly. Much more is at stake than reputation, and much more possible than financial profitability.

A new era of business and society is dawning, one where profit maximization is being rendered insufficient. The technologies and practices that brought us to the 21st century are being re-evaluated through a wider, systems lens. Surviving in this new reality will require adaptation. Thriving in this new reality will require innovation. But not just any innovation, as we have already haphazardly innovated our way into raising mean global sea levels around half a foot. Thriving in this new reality will require sustainability-oriented innovation (SOI).

It is a change in perspective and realization of purpose, on a systems level. It is not just a corporate means of risk mitigation, but an entrepreneurial means of creating business opportunity. It is not just about measuring footprints, it is about measuring handprints. It is not just about protecting the environment, it is about advancing human flourishing. It is not just about technological innovation, it is about new organizational and system innovation. It is not about tradeoffs, it is about pushing the frontier. SOI is about embracing the constraints of a planet with finite resources and a growing population. It seeks to maximize economic, social, and environmental profit equations. It sees our collective experience and expertise as a force to transform the 21st century challenge into a 21st century opportunity. SOI is a change in perspective.

Changing perspectives is not easy, however. Elon Musk created an entirely new car company to get his sustainability message across; Patagonia told its customers to purchase fewer jackets to get its sustainability message across; and Opower had to lobby government before it could even begin to get its sustainability message across. Incumbent businesses, technologies, and beliefs simply carry tremendous inertia counter to change. They are hard to redirect, and especially so when the world is imagined to be full of never ending resources. But rather than waiting for a reality check and push come to shove, SOI-thinking says why not embrace the constraints? This change in perspective sees constraints not as a threat, but rather as a driver of new innovation.

“If we do not discipline ourselves, the world will do it for us.” – William Feather

“With self-discipline most anything is possible.” – Theodore Roosevelt

This change in mindset is a powerful first step towards SOI, but it is only a step. Embracing and balancing the constraints in practice comes next, and it is no easy task either. It requires a high degree of discipline, and sometimes even the guts to take on extra costs upfront before more fruits can be realized later. Ben & Jerry’s is a case-in-point example of this when in mid-2015 they announced they were placing an internal price of carbon on all their products and processes. The $10 per ton price will spike all their product and process related costs at the outset, but both as a signal and as a constraint, will drive the Ben & Jerry’s team to innovate in ways they would not have otherwise. Surely they will payback the short-term costs with newfound efficiencies and revenue streams, but the real gain will come from the long-term value their creative new innovations produce, and the resulting strategic jump forward the company and brand will experience because of them.

Placing an internal price on carbon is one example of leveraging an economic or business constraint for innovation, but business constraints are just one of three dimensions of constraints involved in SOI. The other two are customer and system constraints. In order to maximize economic as well as social and environmental profit, what is good for business has to be balanced with what is good for customers and what is good for larger social and environmental systems. Finding the sweet spot between all three is SOI.

As examples of the other two constraints, Patagonia sought to leverage a (voluntary) customer restraint when it told customers to purchase less of its apparel. Although it accomplished the complete opposite, the idea was to sell less quantity and drive innovation to produce higher quality recyclable and reusable products. Opower, on the other hand, sought to remove a system constraint altogether when it lobbied for new utility energy policies. They were successful in their endeavor and IPO’d in April 2014. In all these cases, when one constraint is pressed, the others are relieved, and over time the result is often the total value of all three dimensions increase.

Still not convinced? Look no further than the Sustainia100 awards for what are essentially the top-ranked 100 SOIs nominated each year around the world. Each one is measured on the social, environmental, and economic value it produces. As shown in the 2015 edition, they cover the widest range of industry and societal segments. It includes entrepreneurial, corporate, nonprofit, and governmental innovators all seeking to balance a unique set of business, customer, and system constraints to successfully produce and scale their SOI.

There is a reason this international competition for SOIs has exploded in popularity, and a reason there is no such award for best ISO, GRI, or OSHA standard compliance. Sustainia’s mission rests on “giving people insights to how their everyday life could be improved by sustainable practices and routines,” and “shaping a new narrative of optimism and hope for a sustainable future that seeks to motivate instead of scare people with gloom and doomsday scenarios.” Society wants visions of a positive future, not a risk mitigated doomsday one. Business should therefore too if it wants to thrive in this new era of innovation and changed perspectives.

One such company doing exactly that is Patagonia. Their director of R&D, Testuya O’Hara, was delighted for example when he saw his Yulex bio-rubber wetsuit listed as a 2015 Sustainia100 finalist in the fashion sector. Years of hard work and belief enabled him and the Patagonia team to create something the surf industry had never seen or imagined before: a plant-based wetsuit. Although not 100% plant-based yet, Tetsuya and the team are determined to make it that way. Their hardwired sustainability perspective enables them to innovate in ways the rest of the industry simply cannot. It is forward thinking and tenacious, not boring and stagnant.

It also goes without surprise that the Sustainable Apparel Coalition Patagonia organized also had a Sustainia100 finalist nomination (Higg index tool). Patagonia strategically plays the “circular economy” megatrend, and as a result produces customer- and award-winning SOIs that are socially, environmentally, and economically profitable. But whether the circular economy or the sharing economy, these sustainability megatrends are real and growing in power. Patagonia and the other most innovative and forward thinking firms are capitalizing on them by changing their mindsets and values to match their underlying sustainability themes.

Balancing customer-business-system constraints in order to produce successful SOIs is quickly becoming the differentiator between average and outstanding companies. But just as Vanderbilt, Rockefeller, and Edison would argue, they will are useless unless they scale. They must scale to make meaningful impact, and must scale to replace the systems that the 20th century giants scaled to bring us to this crossroads in the first place. It will not be done through moral pleas of responsibility or through risk mitigation, but rather by the belief that a positive future can be created. Embracing constraints to produce ingenious SOIs is what will propel business to the forefront of the 21st century, and redefine its purpose and potential in society.