Businesses stand to benefit from sustainable restructuring

January 06, 2021

The Earth is populated by an increasing number of  people who demand more and more products, which is simply not viable in the long run. Our planet does not have unlimited resources. Emissions are harming the environment in various ways.

More companies thus need to switch to more sustainable production, sometimes due to pressure from consumers, but often resulting from new rules imposed by the authorities.

But this kind of change can't ever pay off - or can it?

A new study by a research group from the Norwegian University of Science and Technology (NTNU) has reviewed 100 articles on how sustainably oriented innovation affects companies' competitiveness.

"The majority of the studies find that sustainable innovation has a positive effect on company competitiveness," says PhD candidate Fanny Hermundsdottir in the academic group for Strategy and Business Development in the Department of Industrial Economics and Technology Management.

Sixty-four of the 100 articles concluded that sustainable innovation has a positive effect.

Twenty-nine of the articles showed mixed results - negative, positive and neutral.

Five of the articles offered no conclusion.

Two of the articles found negative effects.

The new NTNU study includes the results of many different studies, which use several distinct methods to measure sustainability and profitability. The answer is largely the same across the board: innovation and sustainability often pay off.

But innovation and development cost money and people. How are these results possible?

Hermundsdottir says the positive effects are not wishful thinking. "Innovation often results in increased value creation, reduced costs and other benefits," she says. "The sustainable shift opens up countless new business opportunities that companies can benefit from tremendously."

Arild Aspelund, a professor in NTNU's Department of Industrial Economics and Technology Management, says the number of customers who are willing to pay extra for sustainability is growing. "We're seeing this in the corporate market where sustainability is now usually a purchasing criterion that reduces the one-sided focus on price," he says.

The article reviews 188 different connections between sustainable innovation and value creation. Of these, 120 have positive effects. Only 14 are negative.

"Sure, we can discuss the validity of the finding that sustainability is profitable. However, this study shows that a lot of empirical research suggests just that. If we consider the opposite hypothesis, that sustainability only entails increased costs, then we find very little empirical research out there to support that claim," Aspelund says.

New thinking can lead to raw materials being used more efficiently, for example. At the same time, it can lead to the company using less energy, petroleum and water, or using smaller land areas to produce the same amount of products.

A thorough review of production processes can in any case lead to more cost-effective methods. Maybe the company can use other more environmentally friendly - or even recycled - materials, or it figures out how to use less packaging.

The changes, along with the new status as a more environmentally friendly company, can also open up new markets among environmentally conscious customers.

Aspelund points out that more and more consumers are willing to pay extra for sustainable products and services.

"This value is especially prevalent among young consumers, and is spreading really quickly. So in that sense, the results aren't surprising," he says.

In addition to the fact that innovation quite simply can be profitable in the long run, companies may not have any other choice when the authorities impose new requirements on them, such as for cleaning or recycling. Then be ahead of the competition might be the profitable option.

"Traditionally, companies have seen restructuring towards sustainability as a financial burden. But our findings indicate that this traditional view isn't true. So the question is no longer whether sustainable innovation pays off, but rather how innovation can take place in the best possible way," says Hermundsdottir.

Admittedly, results will differ a lot from company to company, which the background material also indicates. National, market, industrial and business factors have a major impact on the results. The connections are also very complicated, and what works for some will not necessarily work for others.
-end-
Reference: Fanny Hermundsdottir, Arild Aspelund. Sustainability innovations and firm competitiveness: A review. Journal of Cleaner Production. Available online 19 October 2020. https://doi.org/10.1016/j.jclepro.2020.124715

Norwegian University of Science and Technology

Related Consumers Articles from Brightsurf:

When consumers trust AI recommendations--or resist them
The key factor in deciding how to incorporate AI recommenders is whether consumers are focused on the functional and practical aspects of a product (its utilitarian value) or on the experiential and sensory aspects of a product (its hedonic value).

Do consumers enjoy events more when commenting on them?
Generating content increases people's enjoyment of positive experiences.

Why consumers think pretty food is healthier
People tend to think that pretty-looking food is healthier (e.g., more nutrients, less fat) and more natural (e.g., purer, less processed) than ugly-looking versions of the same food.

How consumers responded to COVID-19
The coronavirus pandemic has been a catalyst for laying out the different threats that consumers face, and that consumers must prepare themselves for a constantly shifting landscape moving forward.

Is less more? How consumers view sustainability claims
Communicating a product's reduced negative attribute might have unintended consequences if consumers approach it with the wrong mindset.

In the sharing economy, consumers see themselves as helpers
Whether you use a taxi or a rideshare app like Uber, you're still going to get a driver who will take you to your destination.

Helping consumers in a crisis
A new study shows that the central bank tool known as quantitative easing helped consumers substantially during the last big economic downturn -- a finding with clear relevance for today's pandemic-hit economy.

'Locally grown' broccoli looks, tastes better to consumers
In tests, consumers in upstate New York were willing to pay more for broccoli grown in New York when they knew where it came from, Cornell University researchers found.

Should patients be considered consumers?
No, and doing so can undermine efforts to promote patient-centered health care, write three Hastings Center scholars in the March issue of Health Affairs.

Consumers choose smartphones mostly because of their appearance
The more attractive the image and design of the telephone, the stronger the emotional relationship that consumers are going to have with the product, which is a clear influence on their purchasing decision.

Read More: Consumers News and Consumers Current Events
Brightsurf.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.