New business models shared value in the 21st century

New business models

Contents

1

Foreword

2

About the research

3

Executive summary

4

Part I

Sustainability: Still seen as linked to financial performance 

6



Box: Sustainability gains ground in developing economies

9

Part II

The challenge of measuring and reporting sustainability indicators

10



Box: A new way to track environmental impact 

12

Part III

The early emergence of new business models

13



Box: An evolving role for NGOs

17

Conclusions

18

Appendix: Survey results

19

References

31

© The Economist Intelligence Unit Limited 2014


New business models

Foreword

2

Six years after the onset of the global financial
crisis, sustainability concerns are continuing
to work their way into the mainstream of
business. Despite continued uncertain economic
conditions, most companies remain persuaded
that there is a strong causal link between
their financial performance over a 5-10-year
time horizon and their current commitment
to improving their environmental, social
and governance performance. Against this
background, a number of business leaders are
reviewing their approach to sustainability,
weighing new corporate strategies and new
business models in efforts to ensure their longterm sustainability.

discusses companies’ views on sustainability
measures, the challenge of measuring and
reporting sustainability outcomes, and the
prospects of business models focusing on longterm sustainability. (Sustainability is defined
as “meeting the needs of the present without
compromising the ability of future generations
to meet their own needs”.) The research was
commissioned by the Enel Foundation. The EIU
bears sole responsibility for the content of this
report. The findings and views expressed in the
report do not necessarily reflect the views of
the Enel Foundation. Christopher Watts was the
author of the report, and Aviva Freudmann was
the editor.

New business models for the 21st century is an
Economist Intelligence Unit (EIU) report that

October 2014

© The Economist Intelligence Unit Limited 2014


New business models

About the
research

In September-October 2013 The Economist Intelligence
Unit surveyed 285 senior executives, mostly in Asia-Pacific,

Europe and North America, on their approaches to corporate
sustainability, their experiences in measuring and reporting
sustainability outcomes, and their plans to explore new
business models to ensure long-term sustainability. This
briefing paper is based on the results of this survey and a
comparable survey conducted in 2011. The research also
includes a programme of in-depth interviews, as well as desk
research on the topic of corporate sustainability.
More than half (58%) of the 285 respondents to the latest
survey are executives at C-level or above; approximately 60%
are responsible for strategy and business development at
their companies. Around 37% of those surveyed represent
businesses with US$500m or more in annual revenue.
Companies in the professional services, financial services and
manufacturing sectors have the strongest representation in
the survey. Approximately 58% of respondents to the latest
survey are based in developing countries.
These demographic characteristics are similar to those of
the survey taken in 2011. In that survey, the sample of 282
respondents was also at a senior level, with 74% at C-level or
above. Approximately 74% of respondents to the 2011 sample
were responsible for strategy and business development at
their companies. About 43% represented companies with
US$500m or more in global annual revenue. Professional
services were strongly represented in the 2011 sample as
well, and approximately 53% of respondents were based in
developing countries.
Five of the survey questions asked in 2011 were also asked
in the latest survey. This allowed a comparison of changes
3

in company views over time in those areas, for example
views of the link between commitment to sustainability
goals and financial performance; the main obstacles to
incorporating sustainability principles; how companies
report their performance in sustainability measures; and
their top priorities in environmental, social and governance
sustainability.
In addition to the online survey, The Economist Intelligence
Unit conducted a programme of eight in-depth interviews with
senior business executives and other experts in sustainability.
The insights from these interviews appear throughout the
report. The Economist Intelligence Unit would like to thank all
survey respondents, as well as the following executives (listed
alphabetically by organisation name) who participated in the
interview programme:
l Mark Kramer, founder and managing director, FSG, US
l Ernst Ligteringen, CEO, Global Reporting Initiative,
Netherlands
l Kate Gibson, vice president of corporate responsibility,
and Paul Snyder, vice president of corporate responsibility,
InterContinental Hotels Group, UK
l Wim Bartels, global head of sustainability assurance, KPMG,
Netherlands
l Beroz Rumie Gazdar, senior vice president, group
sustainability, and Vishwesh Palekar, senior vice president,
innovation and emerging markets, Mahindra & Mahindra, India
l Gladys Naylor, environmental manager, and Lora Rossler,
group head of corporate affairs, Mondi Limited, South Africa
l João Paulo Ferreira, vice president, Natura Cosméticos, Brazil

l Justin Bakule, executive director, Shared Value Initiative, US

© The Economist Intelligence Unit Limited 2014


New business models

Executive
summary

As growing numbers of companies embed
environmental, social and governance (ESG)
sustainability issues into the core of their
businesses, a range of challenges is emerging.
Not least among these is the perception that
sustainability practices are becoming part of the
business mainstream—thereby, paradoxically,
diminishing the perception that an individual
company stands to gain an advantage over
its immediate competitors by adopting such
practices. Against this backdrop, a small number
of business leaders are reviewing their approach
to sustainability and considering fresh corporate
strategies and alternative business models. These
new approaches are aimed at improving their own
companies’ long-term fortunes, as well as those
of the communities and the environments in
which they operate.
This briefing paper is based on an online survey
of 285 senior executives and on eight in-depth

interviews with corporate executives and
other experts in sustainability, complemented
by extensive desk research. These research
components provide the basis for the discussion
of current approaches to sustainability among
companies in both developed and developing
economies; the challenges of measuring and
reporting sustainability; and the emergence of
alternative business models.
4

© The Economist Intelligence Unit Limited 2014

Here are the main findings of the research.
The perceived link between sustainability
efforts and long-term profitability remains
strong. In the latest survey, 66% of managers
say there is a strong causal link between
sustainability and long-term financial
performance, a figure largely similar to the
70% who said so in 2011. On the other hand,
11% of respondents now see no such link—an
increase from 6% in 2011. Meanwhile, more and
more managers say they are facing obstacles
to embedding sustainability principles in their
businesses, with 52% saying that immediate
financial goals are currently more urgent.
Despite uncertain financial times, companies
continue to promote sustainability. The survey
shows that more managers now understand

the wider importance of sustainability and are
stepping up their efforts to embed sustainability
principles into their strategies. The increased
willingness to act could stem in part from
tightening regulation in the environmental,
social and governance spheres.
Sustainability is gaining ground more in
developing markets than in developed markets.
Survey responses among business managers in
developing markets indicate a strengthening
commitment to sustainability; indeed, the


New business models

majority of the expansion of sustainability
practices in the past two years appears to have
come from developing economies. The reason
for these countries’ strong commitment may be
their relatively heavy dependence on natural
resources requiring conservation, as well as their
tightening regulations.
More developing-market firms are reporting
their sustainability performance. Amid
growing regulation, 20% of firms now publish
sustainability goals and performance at
least once a year, similar to the 18% who
reported doing so in 2011, while 15% of survey
respondents state that they regularly publish
an integrated report combining financial and

sustainability results, up from 11% in 2011.
The results from developing economies show
an increase in reporting, with 24% of such
companies now publishing sustainability reports,
compared with 19% two years ago.
Companies are focusing on measuring core
indicators. Businesses are tending not to develop
and report new metrics. Many are focusing on
core measures such as resource efficiency (39%),
workplace accidents (32%) and waste (30%).
Experts interviewed for this report emphasise

5

© The Economist Intelligence Unit Limited 2014

that external reporting is only part of the picture;
embedding sustainability indicators in internal
processes and systems is just as important.
Almost two-thirds of firms are reviewing
their sustainability strategies. While 28%
of respondents are dissatisfied with their
existing environmental, social and governance
sustainability strategies, 32% doubt that these
strategies will stand the test of time. Almost
two-thirds (63%) of firms say they are reviewing
new strategies or business models to ensure longterm sustainability.
Most companies have yet to revise their overall
strategies based on such reviews. In efforts to
ensure their long-term sustainability, a small

number of firms are considering alternative
business models, such as the concept of creating
shared value, which aims to identify business
opportunities that address social issues, creating
value for the firm and for society around it.
For now, uptake of the shared value approach
remains low. While 21% of managers say they
have drawn up new strategies or business models
with a specific focus on creating shared value,
16% say they have not reviewed the case for
shared value and do not intend to do so.


New business models

1

Sustainability: Still seen as linked to
profitability

The link between introducing sustainabilityoriented policies and bolstering long-term
profitability appears to be well anchored in
corporate thinking. Our survey shows that
around two-thirds (66%) of respondents believe
that there is a strong causal link between a
company’s commitment to embed environmental,
social and governance (ESG) sustainability
goals and its long-term (5-10 years) financial
performance. “There are immediate gains, but
having commitment to sustainable development

brings long-term gains,” asserts Gladys Naylor,
environmental manager at paper and packaging
group Mondi Limited. “These gains translate
into cost savings across a wide range of areas
including risk mitigation measures.”
One company that has established a link between
its commitment to environmental and social
goals, on the one hand, and its bottom line,
on the other, is Brazilian cosmetics company
Natura Cosméticos. It introduced the Crer para
Ver (“To Believe is to See”) product line in 1995,
earmarking the earnings from these products for
the Natura Institute, a corporate body that funds
education projects. Since 1995 the institute has
invested R15.5m (€5.1m) in local elementary
schools. The company says that its overall
focus on sustainability issues has helped drive
Sustainable Investing:
Establishing Long-Term Value
and Performance, Deutsche
Bank, June 2012. Available
at: />cr/en/docs/Sustainable_
Investing_2012--Establishing-long-termvalue-and-performance.pdf
1

6

annual revenue to R6.3bn, from R429m in 1995.
“Since Natura started including sustainability
in its business model, its financial results

have improved significantly,” says Natura vice
president João Paulo Ferreira.
In seeing opportunity in sustainability, Natura
is not alone. Some companies believe that
environmental improvement programmes or
social betterment initiatives help them bolster
their reputations, differentiate themselves from
competitors and/or achieve cost efficiencies.
Others say simply that such programmes help
them meet their regulatory obligations. In
any case, a growing body of research suggests
that sustainability can give firms a financial
advantage. Not least, research by Deutsche
Bank concludes that “there is overwhelming
academic evidence ... that firms with high
ratings for corporate social responsibility (CSR)
and ESG factors have a lower (ex ante) cost
of capital in terms of debt (loans and bonds)
and equity”.1 One reason for this may be that
firms committed to sustainability are relatively
less risky. “Companies that are preparing for a
resource-constrained future are companies that
are strategically well run,” says Justin Bakule,
executive director of the Shared Value Initiative,
a US-based non-profit strategy consulting firm.

In your view, how strong, if at all, is the causal link between a company’s financial performance and its commitment to
environmental, social and governance goals? - Short term (1-2 years)
(% respondents)
Strong

16

Weak
36

No causal link
40

Don’t know
8
© The Economist Intelligence Unit Limited 2014


New business models

In your view, how strong, if at all, is the causal link between a company’s financial performance and its commitment to
environmental, social and governance goals? - Long term (5-10 years)
(% respondents)
Strong
66

Weak
14

No causal link
11

Don’t know
9

Although the majority of respondents believe
in the link between sustainability and longterm profitability, there has been a slight
decline in this majority: the figure has fallen by
4 percentage points from the 70% recorded in a
comparable survey in 2011. However, 11% of the
survey panel state that they see no long-term
connection, up from 6% in 2011. And only 16% of
the survey panel see a strong causal link between
a company’s short-term (1-2 years) financial
performance and its commitment to ESG goals.

Growing numbers of businesses act to
promote sustainability
The corporate perception of a link between
commitment to sustainability goals and
improved long-term financial performance
tracks the sentiment on sustainability practices
as a source of competitive advantage. In
the latest survey, 48% of respondents say
that sustainability practices are a source of
competitive advantage—roughly comparable to
the 51% who said so in 2011. As sustainability
practices become mainstream—owing to
regulatory requirements or for other reasons—
there may be less of a perceived competitive
edge to be gained by any one company vis-à-vis
its competitors by adopting such principles,

since the competitors may be adopting similar
principles and practices. “Sustainability is

becoming less of a competitive advantage
now that many companies have moved into
it,” explains Wim Bartels, global head of
sustainability assurance at KPMG. “Many of these
companies want to follow the leaders.”
However, it appears that sentiment in favour
of the idea that such practices help companies
improve their own performance—relative to their
own previous performance, if not relative to the
performance of their competitors—continues to
be strong. According to the latest survey, 70% of
respondents believe that having a sustainability
strategy is a prerequisite for their company’s
long-term growth; this compares with 76% who
said so in 2011. Here, the steepest decline is
evident among companies in developed markets
(65% in the latest survey, versus 71% in 2011).
That said, it is not always easy for companies to
embed sustainability principles in their systems
and daily practices. Sustainability-oriented
practices may have their internal corporate
champions, but they also have their detractors.
Uncertain financial and market conditions may
play a role here as well. In the survey, 44%

To what extent do you agree with the following statements? Please select one answer for each statement
(% respondents)
Strongly agree

Agree somewhat

Neither agree nor disagree

Disagree

Strongly disagree

Don’t know

ESG sustainability strategy is a pre-requisite for my company’s long term growth
33

38

16

9

41

ESG sustainability is currently a source of competitive advantage for my company
20

27

27

19

61

Sustainability issues are important in my geographic region
32

39

19

9 2

Sustainability issues are currently important in my sector
27

31

22

16

41

Sustainability issues are relatively unknown in my sector but are becoming more important
11

7

34
© The Economist Intelligence Unit Limited 2014

18

23

10

3


New business models

Which, if any, of the following are the main obstacles to incorporating sustainability principles into the company’s strategies
and practices? Please select up to three
(% respondents)
Immediate financial goals are more urgent
52

Absence of a compelling business case for sustainability
44

Lack of consensus on ultimate goals of a sustainability programme
31

Inadequate budget
30

Insufficient clarity concerning responsibilities in the company
27

Lack of clarity on legal or regulatory obligations to meet sustainability standards
26

Need for more transparency in operations or practices
10

Other, please specify
3

Not applicable—we have no obstacles to implementing sustainability principles
9

Don’t know
1

of respondents—who are overwhelmingly in
strategy, business development and general
management functions—describe the absence
of a compelling business case for sustainability
as an obstacle to incorporating sustainability
principles into their company’s strategies and
practices. This figure represents a major increase
from the 27% who said so in 2011. Meanwhile,
52% of respondents claim that immediate
financial goals are more urgent, up from 44% two
years ago.
The survey shows that a growing proportion of
executives appear to understand the importance
of sustainability as a concept. About 70% of

respondents say that sustainability is important
in their region, about the same as the 66% who

said so two years ago. Among respondents in
developed markets, this figure is 71%, about
the same as the 69% who said this in 2011, but
in developing economies the figure is now 70%,
up markedly from 63%. (See box: Sustainability
gains ground in developing economies.)
Similarly, companies’ efforts to incorporate
sustainability into their businesses appear to
be gathering pace, in spite of the obstacles.
For example, 54% of respondents say that
their firms have drafted new strategies or
business models in the past three years in

Which of the following statements describes your company’s policies on setting environmental, social and governance (ESG)
goals? Please select all that apply
(% respondents)
Our company has set more demanding social goals for itself (vis-à-vis employees and surrounding communities) within the past three years
29

Our company has set more demanding environmental goals for itself within the past three years
28

Our company has set more demanding governance goals for itself within the past three years
28

Our company has not focussed on ESG objectives but plans to do so in the next three years
22

Our company plans to incorporate new environmental, social and/or governance goals into new business models during the next three years
20

Our company has incorporated new environmental, social, and/or governance goals into an entirely new business model during the past three years
17

Our company is not focussed on ESG objectives and has no plans to do so in the next three years
16

Our company has created a new business model to deliver both profit and ESG objectives
14

8

© The Economist Intelligence Unit Limited 2014


New business models

Sustainability gains ground in developing economies
Responses to a variety of survey questions indicate that
sustainability is gaining ground in developing markets more
than in developed markets. Why? Here are three possible
reasons.

not addressed. One recent report2 calls this the “lens of
proximity”, which it describes as a “heightened perception
of sustainability issues when their impacts are close by and
immediate”.

l First, sustainability regulation in developing economies
is becoming heavier. One example is energy efficiency

regulation in heavy manufacturing industries such as iron
and steel, chemicals and cement, which typically account
for a greater proportion of economic activity in developing
markets than they do in developed economies.

l Third, in some developing economies traditional values
relating to conserving resources and minimising waste
remain deeply entrenched, whereas they may be less
engrained in the consumerist societies of the developed
world. Beroz Rumie Gazdar, senior vice president of group
sustainability at Mahindra & Mahindra, an India-based
industrial concern, says: “As Indians, we were always taught
to conserve things, not to waste.”

l Second, many developing countries are dependent on
natural resources; people in these countries may have a
sharper sense of what is at stake if sustainability issues are

The UN-Global Compact
CEO Study on Sustainability
2013: Architects of a
Better World, Accenture,
September 2013. Available
at: enture.
com/Microsites/ungcceo-study/Documents/
pdf/13-1739_UNGC%20
report_Final_FSC3.pdf
2

Trends in Sustainability

Disclosure: Benchmarking
the World’s Stock Exchanges,
CK Capital, October 2013.
Available at: http://static.
corporateknights.com/
StockExchangeReport2013.
pdf
3

efforts to ensure long-term sustainability. And
approximately 29% say their businesses have
set themselves more demanding environmental
and social sustainability goals within the past
three years, the highest proportion being among
respondents in developing markets.
Part of the reason for this stepped-up activity
may be the growing volume of new sustainability
regulation being introduced by governments
and other stakeholders. For example,
India’s Perform, Achieve and Trade scheme,
targeting energy efficiency, is being rolled
out progressively across the country’s heavy
industry. In addition, sustainability disclosure
requirements have been growing steadily in the
past decade;3 the proportion of such initiatives
that are mandatory has risen to 72%, from 58%

4
Carrots and Sticks:
Sustainability reporting

policies worldwide – today’s
best practice, tomorrow’s
trends, KPMG Advisory, the
Global Reporting Initiative,
and the Centre for Corporate
Governance in Africa,
2013. Available at: https://
www.globalreporting.org/
resourcelibrary/carrotsand-sticks.pdf

9

© The Economist Intelligence Unit Limited 2014

in 2006.4 To some extent, such initiatives are
driving the adoption of sustainability principles,
even among managers who are sceptical that
their business will benefit.
For many companies, incorporating
sustainability principles means reviewing
their strategies and business processes
with environmental, social and governance
sustainability principles in mind. A case in point
is Natura of Brazil. “Our strategic planning cycle
provides for annual reviews and adjustments
based on external and internal assessments,”
says Mr Ferreira. “Sustainability provides
guidelines for the company’s business strategy.
We are constantly reviewing our positioning
regarding sustainability, as well as our business

strategy.”


New business models

2

The challenge of measuring and
reporting sustainability indicators

While corporate managers’ conviction that
commitment to sustainability delivers tangible
benefits appears moderately weaker today than
it was in 2011, their companies are increasingly
subject to scrutiny from external stakeholders,
including governments, non-governmental
organisations (NGOs) and investors. In response,
growing numbers of businesses are putting in
place sustainability targets, measuring their
performance against these targets using a variety
of indicators, and publishing information about
the progress they are making in reaching their
sustainability goals.

disclosure requirements there. The reporting
requirements introduced by the Shanghai
Stock Exchange in 2008 are resulting in more
widespread sustainability reporting in China, for
example.
As sustainability reporting is gaining ground,

so too is the tendency to combine financial
results and sustainability measures in a single
integrated report. According to the survey, 15%
of respondents say their firms regularly publish
a report that integrates financial results and
sustainability performance, compared with
11% in 2011. Again, it is clear here that firms in
developing economies account for the bulk of the
increase: 19% now publish integrated reports,
an increase from the 14% of developing-country
firms that did so in 2011.

The survey results are clear on this point. Some
20% of managers state that their firms publish
their sustainability goals and their progress
towards meeting them at least once a year, about
the same as the 18% who did so in 2011. The
clearest advances in sustainability reporting are
evident among firms in developing markets (24%
in the latest survey, versus 19% in 2011), owing
in part to the growing volume of sustainability

The indicators that count
At the same time as sustainability reporting is
becoming more widespread, so is commentary

How, if at all, does your company report its performance in environmental, social and governance (ESG) sustainability?
Please select all that apply
(% respondents)
We publish our ESG sustainability goals, and our progress toward meeting them, at least once a year

20

We do not publish such an integrated report, but plan to do so within the next two years
18

We have an ESG sustainability communications strategy that is part of our group communications strategy
17

We regularly publish a report which integrates our financial results and our progress toward ESG sustainability goals
15

We have a separate communications strategy for ESG sustainability issues
15

We publish our ESG sustainability goals, and our progress toward meeting them, on an ad hoc basis
10

We do not publish any information about our sustainability practices or goals
39

Don’t know
5

10

© The Economist Intelligence Unit Limited 2014


New business models

on companies’ sustainability practices from
external observers. Not all of that commentary
is constructive. “You get the sense that many
issues that the socially responsible investment
communities are looking at really aren’t
material either to the economic performance
of the company or to the overall social and
environmental impact of the company,” says
Mark Kramer, founder and managing director of
US-based consulting firm FSG. “It is shocking
that the most common criteria [that they look
at] are whether the company does business in
Sudan and other repressive regimes, followed by
CEO compensation and board governance. While
these are all important issues, they are not the
most material social or business factors for most
companies.”
Which sustainability indicators do companies
use to track the environmental, social and
governance outcomes that they consider
important? The most popular indicators,
according to survey results, are those related
to energy or natural resource efficiency (used
by 39% of firms), followed by the number of
workplace accidents or injuries (32%) and
the level of waste production and means of its
disposal (30%). There is a reason why these
indicators are at the top of the list, says Mr
Kramer: “When it’s about external reporting
about shared value, you’ve got to focus on the

very few issues that really are material to your
business and to your competitive positioning
within the industry.”
A few other indicators of progress on
sustainability goals also rank high on corporate
lists. For example, 23% of respondents say their
firms track the percentage of women in senior
positions. This is more evident among larger firms
(28%) than among smaller ones (20%). Bribery
or corruption incidents are measured by 17% of
companies. Carbon emissions levels are tracked
by just 17% of firms, with larger firms more
likely to say they measure emissions (27%) than
smaller firms (13%).
Progress towards other sustainability-related
goals—for example, contributions to community
welfare—may be harder to measure. (See box:
A new way to track environmental impact.)
Furthermore, such issues may be subject to
external influences that are beyond the control
of any single company. In all, says KPMG’s
Mr Bartels, “we see few [new] indicators being
developed, and a lot of hesitation to really
implement these indicators and report on them.”
While companies tend to focus on certain core
indicators of sustainability performance, some
are extending their measurement to include the
activities of suppliers, and even the impact of

What metrics does your company use to measure environmental, social and governance outcomes? Please select up to three
(% respondents)
Energy or natural resource efficiency
39

Number of workplace accidents or injuries
32

Level of waste production/means of disposal
30

Percentage of women in senior positions
23

Bribery or corruption events
17

Carbon emissions levels
17

Level of pollutants in air, water and soil related to your company’s activities
15

Presence of ethical/SRI (socially responsible investment) funds among the company’s shareholders
12

CEO pay as a multiple of other employees’ pay
5

Other, please specify

13

11

© The Economist Intelligence Unit Limited 2014


New business models

A new way to track environmental impact
 any managers are focusing on tracking and
M
reporting a range of core indicators–such as
resource efficiency–and in some cases applying
these measures to suppliers and customers too.
Fewer appear to be developing new measures.
One exception is Jochen Zeitz, the former
chairman of German sportswear maker Puma.
Under his guidance, the company released its
first so-called Environmental Profit and Loss
Account (E P&L) in November 2011, which
placed a cost on Puma’s greenhouse gas
emissions, water use, land use, air pollution and
waste in its operations and supply chain for the
year 2010.

impact, Puma calculated that its supply chain
accounts for 94%; over half (57%) is associated
with the processing of raw materials such as
leather, cotton and rubber; two-thirds (67%)

accrued to the Asia-Pacific region. The firm’s
footwear division accounted for almost twothirds (66%) of its total environmental impact.
Puma’s parent group, Kering, appears to
be encouraged by the results of the E P&L
experiment. The group now plans to roll out
the E P&L concept to brands in its Luxury and
its Sport & Lifestyle divisions by 2015. These
include clothing names such as Gucci, Alexander
McQueen, Brioni and more.

The result? Costs were assessed at €145m
million (US$200m). Of this total environmental

some of their products. Puma and Wal-Mart, for
example, track the environmental performance
of their suppliers. Unilever and Philips track
resources used during the consumption of their
products, with a view to making the products
more resource-efficient.
Experts interviewed for this report emphasise
that companies should go beyond mere
measurement and reporting and embed such
metrics into their management systems and
processes. Paper and packaging group Mondi put

12

© The Economist Intelligence Unit Limited 2014

in place a sustainable development management

system in 2007. “The objective was to ensure
that sustainability became integrated into our
business management processes,” explains Lora
Rossler, group head of corporate affairs at the
company. Its management uses a dashboard
of metrics that include, for example, monthly
energy usage relative to earlier periods and
relative to targets. “The better entrenched
sustainability is within our business systems,
policies and philosophies, the better chance we
have of being able to deliver against it,” says
Mrs Rossler.


New business models

3

The emergence of new business
models

weakness in their current strategy, but it may also
signal expectations of tighter regulation in the
future.

As managers step up their efforts to incorporate
sustainability into their businesses, some are
questioning their own approach to sustainability
and are pushing through fundamental changes.
While the data on sentiment for or against new

business models related to sustainability are
inconclusive, a small number of companies are
drafting new strategies or business models that
highlight their sustainability ambitions.

A handful of companies are taking action to
deal with perceived shortfalls. A majority of
respondents (54%) say that they have drafted
new strategies or business models in the past
three years in efforts to ensure long-term
sustainability. Companies that have set new
strategies or business models are most likely to
be in developing economies (61%), notably in the
Middle East and Africa (67%). Among developed
markets, fewer (44%) say they have set new
strategies or business models, with the figure
being lowest in North America, at 42%.

One reason is that many managers are not
entirely happy with their current approach to
sustainability. In the survey, 28% agree with the
statement that “the firm’s ESG strategy is falling
short of our stated expectations”, while 38%
agree that “the firm’s ESG strategy is meeting or
exceeding our stated expectations”.

In addition, 63% of respondents say their
companies are currently reviewing new strategies
and business models to ensure long-term
sustainability. These firms are more likely to be

in developing economies (70%) than developed
markets (54%). Fully 68% of firms expect to set
new strategies or business models in the next

Similarly, while 52% of respondents believe
that their ESG strategy is sufficient to meet
sustainability goals in the long term, nearly onethird (32%) say that their sustainability strategy
is not sufficient to meet long-term sustainability
goals. This mixed result may reflect perceived

To what extent do you agree with these statements about your firm’s approach to sustainability?
Please select one answer for each statement
(% respondents)

Strongly agree

Agree somewhat

Neither agree nor disagree

Disagree

Strongly disagree

Don’t know

The firm’s ESG strategy is falling short of our stated expectations
6

21

34

24

9

5

The firm’s ESG strategy is meeting or exceeding our stated expectations
10

28

37

16

3

6

The firm’s ESG strategy is sufficient to meet sustainability goals in the long term
16

36

24

17

3

4

The firm’s ESG strategy is not sufficient to meet sustainability goals in the long term
8

24

22

22

10

6

In the past three years our firm has set new strategies and/or business models to ensure long-term sustainability
19

35

20

18

5

4

4

4

Our firm is reviewing new strategies and/or business models to ensure long-term sustainability
22

42

22

7

In the next three years our firm will set new strategies and/or business models to ensure long-term sustainability
27

13

© The Economist Intelligence Unit Limited 2014

41

16

6

3

6

New business models
Thinking about your company’s environmental, social and governance goals over the next three years, which of the following
represent the company’s top three priorities? Please select up to three
(% respondents)
Increasing energy efficiency
57

Improving employee health and safety
43

Improving local community relations
35

Ensuring compliance with laws and regulations, eg anti-corruption laws
30

Fostering accountability and transparency to all stakeholders
24

Promoting diversity and inclusion in the company’s work force
23

Offering environmentally sound products and services
21

Reducing other environmental pollution
17

Reducing CO2 emissions
16

Improving transparency in board member selection, and in board operations
5

Increasing transparency concerning board members’ compensation
3

three years to ensure long-term sustainability.
Again, firms in developing markets appear to
be leading the way (74%), ahead of those in
developed markets (61%).
There are already a few well-known examples of
companies that have placed certain sustainability
goals at the centre of their business strategies.
Consider Philips of the Netherlands, which
has made sustainability a central pillar of its

corporate strategy since 1994. Since then,
with significant investments in researching and
developing environmentally friendly products—
€509m (US$702m) in 2013 alone—the company
has been able to drive sales of “green” products
to 51% of its total revenue.
That said, few firms appear to be introducing
fundamental strategic change. “Are all
companies truly transforming their business

Thinking about your company’s environmental, social and governance goals over the next five to ten years, which of the

following should represent the company’s top three priorities? Please select up to three
(% respondents)
Increasing energy efficiency
47

Improving employee health and safety
36

Offering environmentally sound products and services
32

Improving local community relations
32

Fostering accountability and transparency to all stakeholders
30

Ensuring compliance with laws and regulations, eg anti-corruption laws
28

Promoting diversity and inclusion in the company’s work force
25

Reducing other environmental pollution
22

Reducing CO2 emissions
16

Improving transparency in board member selection, and in board operations

6

Increasing transparency concerning board members’ compensation
2

14

© The Economist Intelligence Unit Limited 2014


New business models

models in a deep and meaningful way? I have not
seen that evidence,” observes Ernst Ligteringen,
CEO of the Netherlands-based Global Reporting
Initiative, a not-for-profit organisation that
promotes sustainability reporting.
Indeed, survey respondents say that offering
environmentally sound products and services—
for many businesses a central pillar of a
sustainable business model—has fallen lower on
their list of short-term priorities. In the latest
survey, 21% say that offering “green” products
and services is among their top three priorities
for the next three years, ranking this option
seventh; in 2011, this was among the top three
priorities for 28% of respondents, placing it
fourth. Still, 32% say that green products should
be among their company’s top three priorities in
the next 5-10 years, ranking third on the list.

As business managers contemplate a shift in
strategy or business model, many are focusing
on gaining specific, and sometimes short-term,
advantages from doing so. The most popular
motivation for any shift in corporate strategy or
business model, cited by 42% of respondents,
is to differentiate the company from its peers
and to allow the company to market itself as
an environmental leader. Meanwhile, 36% of
respondents say that a top motivation for a shift
in strategy or business model adopted over the
past three years was that it offered the potential
to improve company earnings.

The case for shared value
In efforts to ensure their companies’ long-term
sustainability, a handful of business managers
are looking beyond customary approaches to
sustainability and considering an alternative
approach to the role of business within society,
namely to “create shared value”, as outlined by
Michael E Porter and Mark R Kramer in an article
published in the Harvard Business Review in
early 2011.5
As described in that article, the shared value
concept is based on “policies and operating
practices that enhance the competitiveness
of a company while simultaneously advancing
the economic and social conditions in the
communities in which it operates”. In practical

terms, the concept focuses on identifying
business opportunities that address social
issues—creating value both for the company and
for society around it. Not all of society’s issues
can be turned into a compelling business case;
nor can business tackle these issues singlehandedly (see box: An evolving role for NGOs).
Although they are distinct from one another,
the principles of creating shared value and
ensuring sustainable corporate practices overlap
to a considerable extent. “The sustainability
agenda is a very broad agenda that encompasses
all of a company’s social and environmental
performance, and is very much about reporting,

With sustainability in mind, what are your motivations behind any shift in strategy and/or business model that your firm has
implemented in the past three years or plans to implement in the next three years? Please select up to three
(% respondents)
The new approach enabled/will enable us to differentiate ourselves from our peers and market ourselves as environmental leaders
42

The new approach offers/will offer the potential to improve company earnings
36

Michael E Porter and Mark
R Kramer, “Creating Shared
Value: How to Fix Capitalism
and Unleash a New Wave of
Growth”, Harvard Business
Review, January 2011.
Available at: http://www.

hbr.org/2011/01/the-bigidea-creating-shared-value

5

15

Our existing approach delivered/will deliver strong results and led/will lead us to seek further ways to embrace sustainability
26

Our existing approach was/is not adequate in reaching our sustainability targets
24

The new approach enabled/will enable us to find ways out of the current economic slowdown
18

Other, please specify
2

We have not implemented any shift in our strategy and/or business model in the past three years and do not plan to implement any in the next three years
19

Don’t know
5
© The Economist Intelligence Unit Limited 2014


New business models

An evolving role for NGOs
A core element of the shared value approach is making a

business case for addressing social needs. Yet business
cannot be expected to tackle society’s issues singlehandedly, notes Justin Bakule, executive director of the
Shared Value Initiative, an organisation that promotes
the concept of shared value. “It speaks for the ongoing
importance of the role of both profit and non-profit efforts in
helping address social issues,” he says.
Mr Bakule sees a growing role for non-governmental
organisations (NGOs) in creating shared value, labelling them
“a critical part of the equation”. For example, he points out
that companies planning to invest in healthcare in rural India
“needs some mechanism of understanding how big the social

issue is and how their products and services can connect to
it, in order to gauge the size of the business opportunity”.
This is where NGOs can help—possibly working together with
private companies.
Many NGOs have solid, on-the-ground expertise in numerous
countries across the world—as do private companies. To
capitalise on the opportunity presented by shared value,
some NGOs—including Save the Children—are already
drawing up strategies to assess the scale of social needs
in co-operation with companies. “They are positioning
themselves to work much more actively with companies in
this arena,” points out Mr Bakule.

disclosure and accountability, and about
minimising the harm within the company’s
day-to-day activities,” explains Mr Kramer (who
is the co-author of the article in the Harvard
Business Review). “Shared value is much more

about corporate strategy; it’s about identifying
the issues that are truly material both to the
company’s economic performance and to the
social and environmental impact.”
One example of a corporate application of the
concept is Coca-Cola’s Coletivo initiative in
Brazil. The firm runs a training programme in
favelas (shanty towns) to provide training to
impoverished youths and to place them in jobs.
The company measures four metrics every month
to gauge the success of the programme in the
favelas—employment and self-esteem among
trainees, affection for the Coca-Cola brand, and
Coca-Cola’s sales. “The company finds a very
positive correlation between its sales, reputation
and the initiative’s social impact,” says Mr
Kramer. “That is a great example of measuring
shared value; unlike most companies that
would just assume a reputational benefit from
philanthropy, Coca-Cola is measuring both the
social and the business benefits rigorously and
making regular improvements to the programme
to increase both social and business benefits.”

16

© The Economist Intelligence Unit Limited 2014

The shared value idea has generated some buzz,
but business managers interpret the phrase

“shared value” in a variety of ways. For now,
take-up of the concept of shared value, as
promoted by Mr Porter and Mr Kramer, appears
limited. In our survey, 28% of business managers
state that their firm has reviewed the case for
shared value and implemented changes to
incorporate it into their existing strategies or
business models; 21% say they have reviewed
the case for shared value and have drawn up new
strategies or business models with a specific
focus on shared value.
Meanwhile, 13% of survey respondents say they
have reviewed the case for shared value and did
not find it more compelling than their current
ESG approach; 17% report that they have not
reviewed the case for shared value but intend to
do so in the next three years; 12% say that they
have not reviewed the case for shared value but
intend to so in the next year; a further 16% say
they have not reviewed the case for shared value
and do not intend to do so; and 18% of business
executives state that shared value has not
appeared on their company’s agenda.
Even if take-up of the shared valued approach
is limited for the time being, it may be that


New business models

Which of the following best describes your company’s approach to creating shared value – that is, creating long-term value

for various stakeholders in addition to shareholders? Please select up to three
(% respondents)
We have reviewed the case for shared value and implemented changes to incorporate it into our existing strategies and/or business models
28

We have reviewed the case for shared value and have drawn up new strategies and/or business models with a specific focus on shared value
21

We have not reviewed the case for shared value but we intend to in the next three years
17

We have not reviewed the case for shared value and at this time we do not intend to
17

We have reviewed the case for shared value and did not find it more compelling than our current ESG approach at the current time
13

We have not reviewed the case for shared value but we intend to in the next year
12

Other, please specify
0

The shared value approach has not appeared on our agenda
18

Don’t know
6

the concept is proving to be influential. “The

concept is already having an influence,” remarks
Mr Ligteringen of the Global Reporting Initiative,
“because I see a broader acceptance of the notion
that a company cannot only look at shareholder
value in isolation from the value it is generating
for other stakeholders.”
One company that has embraced shared value is
Mahindra & Mahindra, an India-based industrial
concern. One of the group’s subsidiaries has
overhauled its business in order to provide

17

© The Economist Intelligence Unit Limited 2014

financing to farmers, many of whom have limited
access to finance. “[That is an example of one
of Mahindra’s] businesses that [is] carved out
of a shared value model,” points out Vishwesh
Palekar, the group’s senior vice president of
innovation and emerging markets. The shared
value approach holds promise, he concludes:
“There are many businesses—particularly in the
context of India and countries like India—where
the concept of sustainable growth of customers is
a business opportunity in itself.”


New business models

Conclusions

Despite a continued unfavourable economic climate across the
globe, more and more companies are embedding sustainability
principles into their businesses. As they do so, however, the
proportion of business executives who expect sustainability
to boost competitive advantage and financial performance
appears to be declining somewhat. Many are reviewing their
sustainability strategies and business models; some are
going further, considering new corporate strategies and
alternative business models in efforts to ensure their longterm sustainability.
The experiences and viewpoints of those business managers
and experts included in this report—both those within
the survey sample and those included in the interview
programme—provide a number of insights.

l Sustainability is gaining ground in developing markets
faster than in developed markets. Sustainability principles
are becoming more deeply entrenched among businesses
in developing markets, according to survey results; take-up
of sustainability in developing countries is faster than in
industrialised ones.
l Take-up of the shared value concept remains at an early
stage. Managers attach varying meanings to the phrase
“shared value”, and it appears that the concept has yet to
gain traction. However, a few companies are experimenting
with the shared value approach. In time, more companies may
consider the concept as part of efforts both to ensure longterm profitability and to contribute to the sustainability of the
environment and the communities in which they operate.

l Perception that sustainability strategies and programmes
are a source of competitive advantage remains strong. A
rising number of businesses are embracing sustainability
principles and practices in the environmental, social and
governance spheres. Some newcomers are doing so to comply
with regulations rather than out of conviction.

18

© The Economist Intelligence Unit Limited 2014


New business models

Appendix

Which of the following statements describes your company’s policies on setting environmental, social and governance (ESG)
goals? Please select all that apply
(% respondents)
Our company has set more demanding social goals for itself (vis-à-vis employees and surrounding communities) within the past three years
29

Our company has set more demanding environmental goals for itself within the past three years
28

Our company has set more demanding governance goals for itself within the past three years
28

Our company has not focussed on ESG objectives but plans to do so in the next three years
22

Our company plans to incorporate new environmental, social and/or governance goals into new business models during the next three years
20

Our company has incorporated new environmental, social, and/or governance goals into an entirely new business model during the past three years
17

Our company is not focussed on ESG objectives and has no plans to do so in the next three years
16

Our company has created a new business model to deliver both profit and ESG objectives
14

To what extent do you agree with the following statements? Please select one answer for each statement
(% respondents)
Strongly agree

Agree somewhat

Neither agree nor disagree

Disagree

Strongly disagree

Don’t know

ESG sustainability strategy is a pre-requisite for my company’s long term growth
33

38

16

9

41

ESG sustainability is currently a source of competitive advantage for my company
20

27

27

19

61

Sustainability issues are important in my geographic region
32

39

19

9 2

Sustainability issues are currently important in my sector
27

31

22

16

41

Sustainability issues are relatively unknown in my sector but are becoming more important
11

19

34

© The Economist Intelligence Unit Limited 2014

18

23

10

3


New business models
In your view, how strong, if at all, is the causal link between a company’s financial performance and its commitment to
environmental, social and governance goals? - Short term (1-2 years)

(% respondents)
Strong
16

Weak
36

No causal link
40

Don’t know
8

In your view, how strong, if at all, is the causal link between a company’s financial performance and its commitment to
environmental, social and governance goals? - Medium term (2-5 years)
(% respondents)
Strong
36

Weak
42

No causal link
13

Don’t know
10

In your view, how strong, if at all, is the causal link between a company’s financial performance and its commitment to
environmental, social and governance goals? - Long term (5-10 years)

(% respondents)
Strong
66

Weak
14

No causal link
11

Don’t know
9

Which, if any, of the following are the main obstacles to incorporating sustainability principles into the company’s strategies
and practices? Please select up to three
(% respondents)
Immediate financial goals are more urgent
52

Absence of a compelling business case for sustainability
44

Lack of consensus on ultimate goals of a sustainability programme
31

Inadequate budget
30

Insufficient clarity concerning responsibilities in the company
27

Lack of clarity on legal or regulatory obligations to meet sustainability standards
26

Need for more transparency in operations or practices
10

Other, please specify
3

Not applicable—we have no obstacles to implementing sustainability principles
9

Don’t know
1

20

© The Economist Intelligence Unit Limited 2014


New business models
Within your company, which among the following departments is most likely to be in charge of setting and reaching
environmental, social and governance goals?
(% respondents)
The CEO’s office
47

There is no single unit; ESG issues are spread throughout the organisation
15

The business operations themselves
12

A separate unit devoted to ESG issues
10

The marketing function
6

The finance function
4

Other, please specify
7

Thinking about your company’s environmental, social and governance goals over the next three years, which of the following
represent the company’s top three priorities? Please select up to three
(% respondents)
Increasing energy efficiency
57

Improving employee health and safety
43

Improving local community relations
35

Ensuring compliance with laws and regulations, eg anti-corruption laws
30

Fostering accountability and transparency to all stakeholders
24

Promoting diversity and inclusion in the company’s work force
23

Offering environmentally sound products and services
21

Reducing other environmental pollution
17

Reducing CO2 emissions
16

Improving transparency in board member selection, and in board operations
5

Increasing transparency concerning board members’ compensation
3

21

© The Economist Intelligence Unit Limited 2014


New business models
Thinking about your company’s environmental, social and governance goals over the next five to ten years, which of the
following should represent the company’s top three priorities? Please select up to three

(% respondents)
Increasing energy efficiency
47

Improving employee health and safety
36

Offering environmentally sound products and services
32

Improving local community relations
32

Fostering accountability and transparency to all stakeholders
30

Ensuring compliance with laws and regulations, eg anti-corruption laws
28

Promoting diversity and inclusion in the company’s work force
25

Reducing other environmental pollution
22

Reducing CO2 emissions
16

Improving transparency in board member selection, and in board operations
6

Increasing transparency concerning board members’ compensation
2

How, if at all, does your company report its performance in environmental, social and governance (ESG) sustainability?
Please select all that apply
(% respondents)
We publish our ESG sustainability goals, and our progress toward meeting them, at least once a year
20

We do not publish such an integrated report, but plan to do so within the next two years
18

We have an ESG sustainability communications strategy that is part of our group communications strategy
17

We regularly publish a report which integrates our financial results and our progress toward ESG sustainability goals
15

We have a separate communications strategy for ESG sustainability issues
15

We publish our ESG sustainability goals, and our progress toward meeting them, on an ad hoc basis
10

We do not publish any information about our sustainability practices or goals
39

Don’t know
5

22

© The Economist Intelligence Unit Limited 2014


New business models
What metrics does your company use to measure environmental, social and governance outcomes? Please select up to three
(% respondents)
Energy or natural resource efficiency
39

Number of workplace accidents or injuries
32

Level of waste production/means of disposal
30

Percentage of women in senior positions
23

Bribery or corruption events
17

Carbon emissions levels
17

Level of pollutants in air, water and soil related to your company’s activities
15

Presence of ethical/SRI (socially responsible investment) funds among the company’s shareholders
12

CEO pay as a multiple of other employees’ pay
5

Other, please specify
13

To what extent do you agree with these statements about your firm’s approach to sustainability?
Please select one answer for each statement
(% respondents)

Strongly agree

Agree somewhat

Neither agree nor disagree

Disagree

Strongly disagree

Don’t know

The firm’s ESG strategy is falling short of our stated expectations
6

21

34

24

9

5

The firm’s ESG strategy is meeting or exceeding our stated expectations
10

28

37

16

3

6

The firm’s ESG strategy is sufficient to meet sustainability goals in the long term
16

36

24

17

3

4

The firm’s ESG strategy is not sufficient to meet sustainability goals in the long term
8

24

22

22

10

6

In the past three years our firm has set new strategies and/or business models to ensure long-term sustainability
19

35

20

18

5

4

4

4

Our firm is reviewing new strategies and/or business models to ensure long-term sustainability
22

42

22

7

In the next three years our firm will set new strategies and/or business models to ensure long-term sustainability
27

41

16

6

3

6

Which of the following best describes your company’s approach to creating shared value – that is, creating long-term value
for various stakeholders in addition to shareholders? Please select up to three
(% respondents)
We have reviewed the case for shared value and implemented changes to incorporate it into our existing strategies and/or business models

28

We have reviewed the case for shared value and have drawn up new strategies and/or business models with a specific focus on shared value
21

We have not reviewed the case for shared value but we intend to in the next three years
17

We have not reviewed the case for shared value and at this time we do not intend to
17

We have reviewed the case for shared value and did not find it more compelling than our current ESG approach at the current time
13

We have not reviewed the case for shared value but we intend to in the next year
12

Other, please specify
0

The shared value approach has not appeared on our agenda
18

Don’t know
6

23

© The Economist Intelligence Unit Limited 2014

New business models
With sustainability in mind, what are your motivations behind any shift in strategy and/or business model that your firm has
implemented in the past three years or plans to implement in the next three years? Please select up to three
(% respondents)
The new approach enabled/will enable us to differentiate ourselves from our peers and market ourselves as environmental leaders
42

The new approach offers/will offer the potential to improve company earnings
36

Our existing approach delivered/will deliver strong results and led/will lead us to seek further ways to embrace sustainability
26

Our existing approach was/is not adequate in reaching our sustainability targets
24

The new approach enabled/will enable us to find ways out of the current economic slowdown
18

Other, please specify
2

We have not implemented any shift in our strategy and/or business model in the past three years and do not plan to implement any in the next three years
19

Don’t know
5

24

© The Economist Intelligence Unit Limited 2014