Is sustainability innovation the route to saving capitalism?

The case for innovation in business has never been more compelling. 

A rapidly changing market environment, characterised by fast-moving and, arguably, unprecedented developments on the political, social and environmental fronts, means that business needs to be more responsive than ever, at all levels.

Short-to-medium term issues such as Brexit – as future relationships emerge (or not!) – will of course require business in the UK and the EU to be fleet of foot. Even longer term structural issues, such as how capitalism can be transformed to work for, rather than against, sustainable development, will require a new level of long-term focus and commitment by business leaders. 

The advent of student climate strikes, “extinction rebellions” and political calls for a green new deal need to be matched at the boardroom level. To this can be added the fresh urgency given by the latest IPCC reports – signalling the need for even faster and deeper emissions reductions than the Paris agreement if catastrophic climate change is to be avoided.

Surprisingly, however, many businesses seem not to have sustainability innovation built into their management systems, business models, products, supply chains and the like. And by sustainability innovation, I mean innovation aimed at strengthening the company’s future viability by aligning it more closely with the sustainability needs of society, now and in the future.

Effective sustainable innovation systems need be neither complex nor expensive. While there is no such thing as “future-proofing” an organisation, by following a few simple strategies, you might come about as close as you can to being a nimble, adaptive and successful company meeting investors’ and society’s needs.

 Take a look under the hood…

While there is a natural tendency to look to external expertise, this should always be a supplement – if needed – to internal sources of information and ideas for how the business might respond better to the changing market-place. 

There are many ways of doing this, but a key point is to engage all business areas in the process. Staff at all levels might be invited to a process that enables a “competition of the best ideas” on what the business needs to do to be more competitive in tomorrow’s world. 

Personally, I like innovation days that are routinely integrated into annual business trainings or creative retreats. In these, employees can be invited to discuss or make short pitches on four points.

·      What problems concern you most about the future of the business? Depending on the context, challenges might be confined to a specific issue (eg reducing carbon emissions), or widened to include business model, governance or other aspects of performance. In my experience, sustainable development issues will always arise in such scanning exercises, whether or not they are formally listed.

·      How would you propose to address the challenge? Here, responses might be management approaches, new products, technologies, financial mechanisms and so on. A key point to remember is that innovation is not limited to technologies. Systems innovation can sometimes be just as important.

·      Why is your approach better than the current system? What would change and how would the firm’s position be enhanced with respect to the problems (or opportunities!) identified? How would this place the firm in relation to competitors and changing legislative demands?

·      How would you propose to take the idea forward? In an initial innovation scoping exercise such as this, it is unlikely that innovative ideas will come fully formed. They will need to be workshopped across the organisation, possibly to find synergies (or deal breakers) elsewhere in the house. This phase should flag likely financial, technical, IP or other elements that will be required. 

A further phase could engage external stakeholders, such as suppliers, customers and local authorities. Using a similar set of questions to those above, these will add further layers of valuable ideas and information. 

 … then integrate and incentivise

Finally, there can be no sustainable innovation without two further steps. These are ensuring that innovation is firmly integrated into the management culture and that the necessary incentives are provided. Without these, the real benefits of any innovations identified will not be realised. 

A wide choice of measures can be taken. These include making sustainability innovation a standing item on board and management agendas, including it in all job descriptions as a desired skill, and providing financial rewards for innovations that cut operating costs or improve sales or reputation. Setting ambitious targets, such as reducing energy costs, and developing key performance indicators are also essential to inspire innovation. 

Often overlooked strengths of entrepreneurship and capitalism have always been about anticipating or responding to change, and to ensuring society’s needs are met. If we are to set capitalism on a sustainable course, the role of innovation will be central. 

 A former diplomat and associate fellow of the Royal Institute for International Affairs at Chatham House, Paul Hohnen has advised governments, international organisations and business on high level sustainability policy issues over a 40 year career.