From Reactive to Proactive
Legal compliance (i.e., the obligation to comply with national and local social and environmental regulations) drove the inception of corporate sustainability practice. Today, such “reactive” corporate sustainability practice is still creating a large market demand for sustainable innovation. For example, waste management projects in China usually exceed a million USD due to regulatory and technical complexity.
Nevertheless, in recent years, an increasing number of industry-leading corporations are viewing corporate sustainability as an area of comparative advantage as the development of such strategies inextricably ties to corporate longevity. Consequently, those corporations are proactively pursuing sustainability standards higher than the compliance requirements.
According to Knut Haanaes, Professor of Strategy and International Management at IMD, 62% of executives consider corporate sustainability strategies necessary to be competitive today, and another 22% think they will be in the future. The Economist Intelligence Unit (EIU) found in a survey that 57% of top executives believe that the benefits of efforts to achieve sustainability outweigh the costs.
AB InBev, the world’s largest brewer, for example, links its sustainability focus areas with the natural resources key to the production of their beer. “If there’s no water, there’s no beer; it’s that simple,” Carlos Brito, AB InBev’s chief executive, told Financial Times. “Our consumers and our people also want to know where we stand on those [issues].”
Unlike “reactive” sustainability practice, where corporates comply with a holistic set of regulations, “proactive” sustainability practice usually targets a few material issues where the company wishes to develop or strengthen its comparative advantages against its peers. As such, the management needs to carefully align their company’s proactive sustainability practice with their business strategies. Otherwise, proactive sustainability acts may not be sustainable in the long run.
Allbirds, one of the world’s fastest-growing footwear company, uses natural and sustainable materials such as merino wool, trees, sugar cane, recycled bottles, castor bean oil, and bio-TPU that allow them to make more comfortable shoes - a core advantage of the company against its peers.
Open Innovation in Corporate Sustainability
An MIT/BCG survey showed that in 2014, the majority of companies were engaged in some form of sustainability collaboration, compared to 60% in 2000. The study also shows that 67% of corporate executives think collaboration with a broader sustainable innovation ecosystem is imperative for the successfully delivery of their sustainability strategies.
As important parts of the sustainable innovation systems, startups with impactful technologies have seen an increasing number of opportunities to collaborate with leading corporations. Below Plug and Play China’s Energy and Sustainability team summarizes technologies where corporations are frequently seeking collaboration with start-ups.
For corporates whose sustainability practice is driven by compliance needs, cost reduction is the predominant driver behind the corporations’ pursuit of sustainable innovation. Those companies usually seek start-ups and innovative technologies that can help them meet the environmental regulations at a lower cost, such as replacing imported products with less expensive home-made ones.
By contrast, companies that take a more proactive approach to sustainability seek start-ups that create higher sustainability values while making business sense.
Take Melephant, a natural dye start-up that won this year’s Plug and Play-Kering Sustainability Challenge as an example. Melephant’s patented technology allows it to produce plant-based dyes with a colorfastness on par with chemical dyes, which is the backbone that supports Melephant dyes’ applicability within the industry. Besides, Melephant proprietary dying solutions can reduce the water consumption throughout the dying process by 20% and cut the solid waste treatment cost by 67%, adding economic benefits on top of the applicability and sustainability of Melephant dyes.
Ariel Ziyuhan Wang is an intern with Plug and Play’s Energy & Sustainability Program in China. Currently, she is a graduate student at Stanford University major in environmental engineering. Before, she graduated from Penn State University with nearly 2-year-long research experience in drinking water purification technologies.