BUS604: Innovation and Sustainability

Anticipating growing pressure for sustainability from regulators, shareholders, consumers, and employees, a number of companies and entrepreneurs are taking bolder steps to expand in the fastest-growing markets related to the Global Goals. Many of these innovators are using one or more of the game-changing, largely digitally-enabled business models that have developed over the past decade. These can be adapted to capturing market opportunities in line with both environmental and social Global Goals. The models include: 

• The sharing economy. By reselling, giving, swapping, renting, and lending help, these models extend the lifetime of resource-consuming goods, lower demand for replacements, and cut waste by up to 20 percent. Car sharing schemes, for instance, not only reduce distances travelled, but also idle capacity and the need for new vehicles (the average car spends around 95 percent of its time in a parking space).
• Lean service. Across the service sector, lean management is being used to drive dramatic reductions in waste and inventory. Among other effects, this can significantly boost access to important services such as healthcare. In India, heart surgery is often performed for a fifth of its cost in the US, with the same or better outcomes, not only because of lower wages in the health sector, but also because of significantly leaner processes.

• Circular economy. By taking a circular approach to design, manufacturing, and reuse, circular business models keep resources in play for as long as possible and recover and reuse spent materials and products. In Brazil, waste company Veolia works with paper and pulp producer Fibria to turn 90 percent of the mineral wastes from cellulose manufacture into a corrective for soil acidity. Desso, a global carpet tiles company, aims to make all of its products "cradle to cradle" by 2020. Already more than 50 percent of yarn used to produce Desso tiles worldwide is recycled from previously used yarn.
• Big data and machine learning. At least 20 billion devices are now connected to the internet and the volume of data captured by business is surging. This is generating new development opportunities, from modelling malaria using mobile phone data to hooking smallholder farmers up to IBM's hyper-local weather forecasting tool Deep Thunder, or driving down electricity use through smart metering.
• New social enterprise models. Businesses specifically set up for social or environmental impact are proliferating. In Africa, for instance, a partnership between Moringa School, a Kenya-based coding school, and Hack Reactor, a coding trainer based in the US, identifies children with strong tech potential and gives them top-notch web development training, in the process creating a future talent pool for the scheme's partners, which include Safaricom and Barclays.

Exhibit 9 shows how far these business models are already being used to develop businesses across the main business themes identified in the Commission's research. 

For case examples, see Box 1: Innovating for success in sustainable markets on page 49 and report.businesscommission.org. 

Exhibit 9: 
The prevalance of five new business models across the 12 Global Goals business themes

The majority of businesses successfully targeting sustainable market opportunities today are built on digital technologies. Digital industry groups and players, for instance the Global e-Sustainability Initative and Accenture, are also collaborating with policymakers to identify where digital technologies can speed progress towards the Global Goals and to develop enabling policy. This collaboration is likely to be a powerful driver of rapid change in many sectors. 

Drawing on these and other innovations, some "radical incumbents" are using their position in established sectors to enter more sustainable, "Global Goals-related" markets rather than defend the status quo. For example, BMW is repositioning itself over the longer term as a provider of mobility services such as car-sharing, while it continues to manufacture increasingly efficient cars. Effectively, it is operating today over three time horizons simultaneously (Exhibit 10). Similarly, Novo Nordisk, now a global leader in diabetes treatment, is moving into diabetes prevention even though success will mean smaller markets for its existing products. For more detail, see report.businesscommission.org.

Exhibit 10: 
Forward-looking companies operate simultaneously on three time horizons

Other innovators are using technology allied with their freedom from fixed assets and existing business models to move rapidly into growing sustainable markets and drive their growth. Such "disruptive innovators" include: 

• Bla Bla Car, which has scaled ride sharing between cities across Europe, allowing 1 million tons of CO2 emissions to be avoided in just two years. Like Transferwise, it is now valued at over US$1 billion although less than a decade old. 

The Commission's research has identified 32 such "sustainable development unicorns" or companies developing Global Goals-related markets with market caps of more than US$1 billion. Among them: Didi Chuxing, a Chinese ride-sharing company that estimates it has cut 13.5 million tons of carbon emissions per day in 2015, reducing congestion, toxic smog, and other air pollution in the process; and GuaHao, a Chinese mobile medical consultation platform now valued at US$1.5 billion, which connects patients and doctors via the internet, dramatically improving access to healthcare in a country with one-tenth the number of nurses per 1,000 people in the US. (Exhibit 11)

Exhibit 11: 
Number and valuation of unicorns by Global Goals business theme

Box 1: Innovating for success in fast-growing sustainable markets: four case examples

Insurer MicroEnsure is bringing affordable insurance to previously unreachable groups via a model inspired by the popular computer game Angry Birds. The company saw an opportunity in providing health, life, and disability insurance cover for low-income groups in Asia and Africa. These groups represent a US$40 billion market opportunity for insurance companies. But as they face extensive risks and can only afford tiny premiums, they tend to get overlooked. For instance, in Africa less than three percent of the population has health insurance. Working with local telecoms companies and big insurance providers, MicroEnsure created an Angry Birds model: free but with paid-for bolt-ons. It provides free basic insurance in exchange for improved consumer loyalty to local telecoms companies, with the option for consumers to buy more extensive cover once they understand the value of being insured. In effect, MicroEnsure extended its market by finding ways to bring affordable insurance to previously unreachable groups. For more detail on this case, see report.businesscommission.org. 

A joint venture between Nissan and Enel Group is allowing electric vehicle owners to sell energy back to the grid, empowering consumers and raising the prospect of mass clean energy storage. Hooking Nissan LEAF electric vehicles up to Enel's Vehicle to Grid (V2G) infrastructure allows power from distributed batteries to go back into the network. By combining their core capabilities, the companies have developed an offer with staggering potential. The UK's 18,000-strong fleet of Nissan LEAFs could contribute the equivalent of a 180 MW power plant if fully integrated, according to Nissan. And if all UK vehicles were electric, they would in effect be a virtual storage facility with 370 GW capacity – enough to power the UK, Germany, and France. Nissan projects that this could save the UK £2.4 billion in electricity costs by 2030 if fully adopted. The environmental gains would be big too: incentivising more people to switch to electric cars could help tackle urban pollution and cut CO2 emissions. And by acting as storage units for clean power, electric cars could help grid managers overcome the problem of irregular renewable energy generation. For more detail on this case, see report.businesscommission.org.

¡Échale! a tu Casa is a social enterprise based in Mexico that co-designs homes with low income families and sets up housing committees. It sees building communities as a part of the housing solution. It also buys over 60 percent of building materials locally and provides employment to local construction workers. Under iÉchale!'s assisted self-building programme, participants receive the materials and technical training necessary to build a small house in a month, with supervision from a certified architect. The resulting homes, made from ¡Échale!'s patented compressed earth blocks, are designed for minimal energy and water use, making them ecofriendly as well as cheap to run. Green features include solar water heaters, woodsaving stoves, and systems to harvest rainwater. ¡Échale! is exporting its technology to Belize, Egypt, Haiti, Nicaragua, and the UAE and developing a social franchise model to allow others to replicate its success. Already, 30,000 houses have been built and over 150,000 homes improved in Mexico alone using its model.

Pharmaceutical giant Merck is deploying US$500 million on an innovation in its MSD for Mothers programme with an eye on long-term market growth. In Senegal, where contraceptive use is among the lowest in the world and a woman's chance of dying in pregnancy or childbirth is still 1 in 61, MSD for Mothers has teamed up with the Bill & Melinda Gates Foundation, IntraHealth International, and the Senegal health ministry to reboot the country's contraceptives distribution system. The resulting Informed Push Model (IPM) gets third-party logistics providers – usually local businesses – to deliver contraceptives directly to health facilities and uses tablets to collect data on consumption patterns. Rewards for the private suppliers are linked to their performance forecasting and meeting demand, incentivising them to keep clinics well stocked, and freeing up healthcare workers to focus on essential medical tasks. While the project offers no immediate commercial gain for Merck, their investment in learning about the local market and distribution systems that work in these circumstances positions the company to expand its contraceptive products rapidly in this and similar markets as progress on the Global Goals opens them up. For more detail, see report.businesscommission.org.