SUSTAINABLE BUSINESS MODELS

A discussion paper produced by Scottish Enterprise - that aims to be thought

provoking and to stimulate debate. It does not necessarily reflect current Scottish
Enterprise policy.

Introduction
This discussion paper aims to challenge the conventional approach to
business sustainability – that resource efficiency is the only solution to
solving business environmental issues. It explores the following
‘beyond
questions:
resource
efficiency’
• Why should business be more sustainable?
• Why are businesses not already sustainable?
• What is a sustainable business?

This paper seeks ways to align the legitimate business profit motive with
care for the environment. Only by achieving this will sustainable
businesses thrive. The paper outlines the characteristics of a sustainable
business model.

The paper also includes inspirational case studies that demonstrate good
practice. The symbol on the right will refer you to the relevant case
studies at Appendix A.

Business sustainability

What are the drivers for sustainable business practices?

Many drivers in combination provide a strong business case for

sustainability. Main drivers:
• cost savings
• Cost savings – using less material and energy means reduced • customers
costs and less exposure to volatile raw material prices. • regulations
• supply chain
• Customer demand/ loyalty/ trust – many consumers now alter
their buying habits for environmental benefit.
• Regulations - increase in Government regulation, standards,
green taxes and incentives.
• Supply chain - pressure from suppliers to improve efficiency and
become more sustainable.
• Employee recruitment, retention and motivation – many
employees demonstrate greater commitment when they work for
environmentally responsible firms.
• Innovation – going green requires a commitment to innovation,
which can increase profits.
• Moral issues - many companies adopt a sustainability position
because of the moral imperative to tackle environmental issues.

If you would like to find out more about how Scottish Enterprise can
help you or your business please contact us on 0845 607 8787 or
visit our website http://www.scottish-enterprise.com
These pressures are increasing because of global concerns over access
to resources and climate change. In this context, innovative business
practices and models can emerge that may not have been viable in the
past.

‘Business as usual’ will not be a viable option since market leaders are
already reducing emissions in their products, services and supply chains
and are gaining competitive advantage from doing so.

Why are all businesses not sustainable already?

A sustainable business model is one in which the profit motive and

environmental benefits are aligned. We make the case that there are
structural reasons as to why this is not being achieved. For example in
most businesses:

• profits are usually made by increasing the consumption of goods

and services;
• there are short term pressures from investors;
• a low purchase price is attractive to consumers, and this may be at
the expense of sustainable design and product quality;
• externalities, for example householders left to dispose of products
which have not been designed to be recyclable;
• the benefits to consumers of improved design, for example lower
energy bills, are not shared with the construction company or
manufacturer.

Companies benefit directly from investing in resource efficiency to reduce

their own costs, but the alignment between economic and environmental
objectives is limited, as companies only benefit indirectly through The Scottish
enhanced reputation from encompassing a wider approach. Government
‘purpose’ is to
To a certain extent, regulations can overcome these structural issues, but increase
these need to be extensive and potentially bureaucratic to be effective. sustainable
economic growth
The sustainable business model outlined in this paper encourages
‘responsible consumerism’, employee engagement, long-term
relationships between customers, business and suppliers and a focus on
the needs of customers. All of these should help to provide sustainable
economic growth.

2
What is a sustainable business model?

A business model is how a company operates. It focuses on how funds

flow between customers, business and suppliers. Improving business
models requires a focus on the needs of the customer.

Innovation in business models requires a business to change how it

interacts with the market. For example, low cost airlines challenged the True sustainability
established business model by cutting out the travel agent and adopting is to enhance the
environment, the
an approach to marginal charges based on seat availability.
economy and
peoples lives
The term ‘sustainability’ covers environmental issues, wider corporate
social responsibility (CSR), and the long-term continuity and economic
survival of business.

A sustainable business model is an approach to offering goods or services

that provides financial benefits for the business, helps to improve the
natural world and provides social benefits for employees and the local
community.
A Sustainable Business Model

A sustainable business will make profits over the long term whilst not
causing environmental damage. The sustainable business model
provides a competitive advantage by aligning profit and environmental
objectives. The table below, and subsequent pages, describe the ‘building
blocks’ of a sustainable business.

Table 1: The ‘Building Blocks’ of a Sustainable Business Model

Philosophy Respect for Align customer Long-term
nature and needs and approach
people environmental
benefits

Strong relationships Suppliers Customers Community Employees

Sustainable Life-cycle Closed-loop Durability Biomimicry

design analysis resources principles

Hierarchies Waste Transport Energy Raw

materials
Impact on Biodiversity
Provide a service

3
Company philosophy

To be truly sustainable businesses should respect nature and people with

the environment being an integral aspect of all operations. Profits are Related case
made by meeting customer needs and reducing adverse environmental studies:
impacts, perhaps through more efficient production methods or through • Car clubs
reduced, or altered, consumption patterns. • One Planet Sutton
• pv for free
Fundamental to sustainability is the freedom to take decisions for the long-
term benefit of the business, for example, investing in energy efficiency
with relatively long payback periods. This requires trust between
managers and investors, and sound financial models that demonstrate the
benefits of such an approach.

Relationships

Sustainable businesses will gain benefit from engaging employees to work

with suppliers, customers and the wider community. Related case
studies
• Larderbytes
Work in Partnership
• Proctor and
Gamble (Ariel)
Wal-Mart is insisting on higher environmental standards throughout its
supply chain. Coca-cola has worked with its suppliers to lightweight its
bottles. This focus on collaboration and resource efficiency has business
and environmental benefits.

Ongoing Relationships

Companies that engage with consumers around their aspirations for a

better future can win customer loyalty and repeat sales. Ariel’s ‘turn to 30’
campaign helped its customers feel good, be better informed, save money
and energy and it increased sales of their washing powder.

Similarly, a company that offers extended guarantees or maintenance

agreements is likely to design products well and be trusted by the
consumer.

Community and Social Involvement

Business can work with Social Enterprises or communities to mutual Related case
studies:
advantage. The resulting goodwill is good for sales and brand reputation,
• M&S/ Oxfam
whilst environmental advantages accrue from, for example, increased
• One Planet
recycling. The successful M&S and Oxfam partnership arose from an
employee suggestion.

4
Sustainable Design

Sustainable design will encourage businesses to understand the wider

consequences of decisions. Cost savings and productivity improvements
can arise from more efficient use of raw materials, energy, water and
waste. Marketing advantages may accrue.

Lifecycle approach

A lifecycle approach encompasses concern about supply chains, Related case

manufacturing, the product in use and disposal – also called a Cradle to study:
Cradle (C2C) approach. It requires sharing information with suppliers and • Steelcase/ Vitsoe
customers and integrating an eco-design and closed–loop approach into
specifications when procuring products.

Table 2 : Closed-loop Approach

waste to energy or innovation

compost eco-design
recycle

suppliers

raw materials
collect and reuse

customers community
zero waste
manufacture to landfill
maintenance

renewable energy

Durability

Long-life consumer goods such as washing machines or cars can be

designed to be durable and reliable. Upgrades can be provided by
Related case
changing one part, rather than replacement through planned
studies:
obsolescence. Return goods to the manufacturer on disposal for reuse or
• Interface
recycling. Initiatives to maintain customer contact throughout the • Steelcase/ Vitsoe
product’s useful life may result in repeat sales.

5
It may not be practical to design durability into certain fashion and
technological goods, particularly if there is a rapid rate of innovation (eg
mobile phones). The focus of eco-design should be on recyclability.

Products of consumption are single-use or short-life items (eg food,

detergents and packaging). The focus should be on using organically
based materials that are biodegradable after use.
Related case
Biomimicry study:
• Binn eco-park
Biomimicry is a specialist design technique that seeks sustainable
solutions by copying nature. Nature has had millions of years to evolve,
so we can often copy nature to design sustainable solutions that solve
energy, transport, waste and recycling issues.
Hierarchies

A sustainable business will design the business to minimise waste,

transport, energy and raw materials to accrue cost savings and
environmental benefits.

Table 3: The four sustainable hierarchies

Waste Transport Energy Raw materials
prevent/ minimise travel less use less use less
→

reuse walk or cycle conserve energy recycled materials

Increasingly sustainable

like for like public transport energy efficiency renewable resources

recycling
downcycling commercial transport renewable non-renewable
(lower quality) generation resources
energy recovery multiple occupancy lower carbon non-renewable and
private transport generation toxic
landfill disposal single occupancy high carbon non-renewable, toxic,
private transport generation non-recyclable

Waste

Using eco-design principles it is possible to implement a closed-loop

approach including a zero waste to landfill policy. Design products using
materials that are recyclable or compostable and in a manner that
facilitates future reuse or recycling of the raw materials.

Transport
Related case
The aspiration should be to provide goods and services on a local basis
studies:
where possible, albeit in a globally competitive world, it will be more
• Larderbytes
• Binn eco-park

6
carbon efficient to produce certain goods in bulk and transport them,
rather than to produce everything at a local level.

Co-location is the principle of using geographic proximity for competitive

advantage. The business and environmental benefits arise from reduced
transport requirements for suppliers, customers and/or employees
commuting. Co-location can also take advantage of renewable energy
sources, for example, an aluminium smelter next to a hydroelectric plant or
the re-use of waste heat to grow tomatoes.

Energy

The aspiration should be to source all energy from renewable or low

Case study:
carbon sources. Energy demands should be minimised because all
• Proctor and
energy generation has some environmental impact. This twin track Gamble (Arial)
approach may also help to provide energy security.
Design products to minimise the requirement for energy, water and other
consumables when in use.

Raw Materials

Environmental screening of chemicals in raw materials will help to reduce

any risks arising from toxins and other hazards. This approach may lead
Related case
to fewer raw materials being sourced; resulting in manufacturing study:
efficiencies, fewer waste disposal problems and products that will be • Interface
easier to recycle.

Minimise the use of non-renewable resources such as oil and minerals.

Products made from natural raw materials (wood, corn starch, cotton, bio-
plastics etc) are biodegradable. However, not all natural materials are
sustainable and harvesting can have a high environmental impact.
Synthetic materials can be used if they have a lower life-cycle analysis
impact than natural materials – particularly if the materials are easily
recyclable.
Biodiversity

A sustainable business will ensure that its activities protect or enhance

nature. This requires a long-term approach and a business model that
places a value on nature. The potential business benefits include cost
savings, staff morale, marketing advantages and enhancing corporate
reputation.

Provide a service
Related case
A service (or leasing) based model may be appropriate where both the studies
company and the consumer can benefit from improved product design and • Car clubs
durability. The manufacturer makes more money by designing the goods • Interface

7
to be reliable, durable and easily reused or recycled at the end of the
lease. The environmental benefits flow from these principles.

Where improved design can lead to lower energy running costs, a long
term service contract, and/ or a partnership approach can have mutual
benefits. For example, ‘green’ property leases allow the benefits from
improvements in energy efficiency to be shared between landlords and
tenants. The Better Business Partnership provides guidance on how to
adopt green leases.

Sustainable Business Model - Case Study

Inteface Flor aim to be a fully sustainable company by 2020. They manufactures carpet tiles and
offer a leasing option to customers. They have reduced chemical use, increased the proportion of
recycled raw materials and improved the durability of their product. The innovative random design
of carpet tiles enables an individually damaged tile to be replaced. They have a take back scheme
for the end of useful life and can recycle old tiles.

This focus on environmental sustainability has reduced costs and enhanced their reputation. The
leasing model means that Interface gain direct financial benefit from improving the durability of their
products.

Next Steps
Why should I adopt a sustainable business model?

Government regulation, consumer demand and supplier push are

combining with a strong environmental imperative to create a ‘perfect
storm’ that is driving sustainability in business.

The advantages of adopting a sustainable business model stem from

connecting to increasingly eco-conscious customers and your ability to
differentiate your business from your competitors. Additionally, your
employees are more likely to be motivated working within an
environmentally responsible work culture.

Failure to adapt to these changing circumstances could leave your

business exposed to volatile fuel prices, disruptions to the supply of raw
materials and increased competition from your competitors who are taking
advantage of new sustainable business opportunities.

How do I transform my business to a sustainable business model?

There is no single methodology, however, the steps outlined below may

help you on this journey:

8
 • undertake a lifecycle analysis of your existing products or services
to highlight key environmental issues;
• map the flow of funds between the customer, your business and
your suppliers – covering manufacturing, design, research, service
support, profits and overheads;

then set up a facilitated, brainstorming workshop:

• Focus on the needs of your customer – what are the outcomes that
the customer and other beneficiaries need?;
• Consider your rivals and adjacent markets – are there any different
ways of providing the service to your existing or new customers?
• Consider the energy, waste, resource use and transport
hierarchies;
• How can you align economic and environmental objectives?;
• Does your financial model (paybacks, rate of return etc) facilitate or
hinder long-term sustainable decisions?;
• Draw a flowchart of the most environmentally efficient method of
providing your service – this is the basis of your new business
model.

Successful innovation requires a culture of risk taking, whilst

“a culture of
transformational change rarely comes from successful incumbents. It is risk taking”
often possible to penetrate and disrupt adjacent markets using skills that
you already possess.

Once a new model is agreed, strong leadership is required to share your

new goals with your stakeholders. Staff performance assessment and
incentives should include sustainability objectives. This will help to drive
through the changes.

What can Scottish Enterprise offer me?

Scottish Enterprise may be able to help you through these changes.
Please contact your Account Manager or our Helpline on 0845 607 8787.

Scottish Enterprise offers many sustainable and low carbon services to businesses. These include
organisational development, company strategy, innovation, resource efficiency, LEAN manufacturing
and promoting the development of renewable energy.

9
APPENDIX A

Inspiring Case Studies

(in alphabetical order)

Case studies Sustainability concepts demonstrated

Binn Eco-park, Glenfarg • co-location
An integrated vision encompassing sustainable • waste hierarchy
waste management, generate renewable energy • biomimicry principles
and food production – gaining the maximum • sustainable economic growth
environmental value out of waste.
Car Clubs (eg City Car Club) • service (leasing) model
Car Clubs offer members the opportunity to rent cars • reduces demand for travel – behaviour change
by the hour. • manufacturer takes on responsibility for energy
during product use, providing the maximum
Riversimple aim to design a hydrogen fuelled car incentive to design efficiently
and lease it with fuel costs included in the leasing • outcomes driven – focus on needs of customer
charge. (mobility, rather than a private car)
Larderbytes.com • localism, reduced transport
An e-shopping facility for locally sourced food • healthier food
products delivered to the home. • waste hierarchy
• relationship with consumers
M&S and Oxfam Clothes Exchange • partnership relationships
A partnership agreement – donate used M&S • increased reuse/ recycling
clothing and soft furnishings to Oxfam and receive a • corporate social responsibility
£5 voucher off your next purchase of over £35.
One Planet Sutton • work with communities
A partnership between the Borough of Sutton, B&Q • partnerships
and BioRegional to offer residents loans to invest in • new financial business model
energy efficiency in their homes. • energy saving
Proctor and Gamble • partnership with consumers
Launched a number of eco-innovative products • life cycle assessment
including their ‘turn to 30’ campaign for washing • reduced energy
powders.
PV for Free • new financial business model
A number of companies (eg Homesun) offer free • long-term partnership approach
installation of solar pv panels. They benefit from the • 25 year maintenance agreement
feed in tariff, the consumer benefits from free • energy saving
electricity.
Steelcase and Vitsoe • cradle to cradle approach
Both companies design products to minimise its • flexible and durable
lifetime impact on the environment. • simple design –can be disassembled after use for
repair/ recycling (also saves assembly time/ cost).

10