The vast majority of businesses say that sustainability is vital to their future growth, but almost half say that margins are currently lower on sustainable products and services, according to new research by Accenture.
The survey of 250 senior executives in eight leading mature and emerging economies reveals that 44 percent think sustainability is critical to their business and 78 percent say it is vital to their future growth. Nearly two thirds (62 percent) of respondents claim their sustainable investments are motivated by customer expectations for sustainable products and services and 60 percent by the opportunity to drive growth. Only 41 percent of those surveyed are motivated by regulatory compliance and only 29 percent by the need to reduce energy and material costs.
When respondents were asked if their sustainable investments are primarily aimed at aiding growth or improving efficiencies and cost cutting, almost twice as many pointed to growth over efficiencies (41 percent to 22 percent). In emerging markets, the distinction was greater still, exactly half of surveyed executives opting for growth over cost savings (18 percent).
While the vast majority (83 percent) of responding senior decision makers see spending on sustainability as an investment rather than a cost, a majority (56 percent) say it is currently more expensive to be a sustainable business. 49 percent say that margins are currently lower on sustainable products and services. The figure rises to 54 percent of surveyed businesses in the United States and 58 percent in emerging markets.
“The good news is that companies now systematically see sustainability as being vital to their future growth and core to their business,” said Bruno Berthon, Managing Director, Sustainability Services at Accenture. “Sustainability has broken free from the realm of regulatory pressure and reputation management, and is now rising into a virtuous circle of commercial opportunity and investment growth. Businesses must now industrialize and scale production in order to drive higher levels of productivity, operational discipline and cost optimization into what can often be immature operating models in high growth sustainable markets. ”
The concern over lower margins may be explained by the survey’s finding that businesses think consumers are reluctant to pay more for sustainable products and services. Almost half (47 percent) of respondents say that consumers are not willing to pay a premium for them (exactly a quarter of respondents believe that they are willing to do so).
Nevertheless, 60 percent admit to charging premiums for sustainable products and services and the largest proportion of those that do so (68 percent) claim they can charge between 5 and 20 percent premiums. 17 percent claim they can charge premiums of between twenty and fifty percent. Yet, despite charging higher prices, over one third (37 percent) of surveyed businesses say they cannot keep up with customer demand for sustainable products and services. This figure rises to 44 percent in emerging markets.
When asked what actions they have taken to respond to rising customer demand, 44 percent of respondents claim to have promoted existing sustainability credentials. 43 percent have launched new products and services and 41 percent have checked their supply chain credentials.
“Companies are trying to meet consumer demand for sustainable products and services, but many cannot keep up,” said Berthon. “Businesses will have to look beyond adapted or customized products, short runs and premium pricing. Now is the time to get closer to consumers, embed sustainability early in the innovation and design process and put in place the operational capabilities to meet market demand at scale and profitably.”
Actions for successful sustainable growth strategies
Accenture Sustainability Services makes the following recommendations to ensure that companies are better able to keep up with market demand for sustainable products and services:
1. Remodel innovation and design processes by embedding sustainability early, helping to drive greater resource efficiency in existing operations and create new sustainable products and services. Integrate consumers and other stakeholders throughout the innovation process, using enhanced social media capabilities.
2. Invest in capabilities, including analytics, to improve understanding of fast changing consumer expectations for sustainable products and services, and to identify new business models and profitable market opportunities with innovative demand-side partners.
3. Review operations and supply chain capabilities through sector- wide value chain collaborations that deliver adapted operating models, economies of scale and more responsive production and servicing.
The survey was undertaken as part of Sustainability 24, an online global broadcast of live debates on sustainability issues, bringing together business and policy leaders from around the world. The event takes place on 23rd May 2012.
A note on Japanese survey results
The survey included 40 respondents from Japan. The data suggests that Japanese executives are less committed to sustainability as a source of growth. Less than one third (32 percent) said that sustainability is critical to their business versus 44 percent globally, and only 60 percent say is central to how they run their business, against the global average of 73 percent. The proportion seeing sustainability as an investment is approximately half in Japan compared to global figure (42 percent to 82 percent) and over half see it as a cost (58 percent) versus the 17 percent of all respondents. These figures may explain why only 36 percent of Japanese respondents say they are able to charge a premium, compared to the global average of 60 percent.