Business Sustainability 2.0: Market Transformation

The concept of sustainability in business has become mainstream, and market forces have driven sustainability strategy. But, in its current form, business sustainability will not solve the root causes of the problems it is intended to address, says Andrew Hoffman in “The Next Phase of Business Sustainability,” recently published in the Stanford Social Innovation Review.  Hoffman is the Holcim (US) Professor of Sustainable Enterprise at the University of Michigan and a faculty member of the university’s Erb Institute for Sustainability in Business. To enact change on a larger scale, business must transform the market.  The Erb Institute calls this “market transformation,” and it is the next phase of business sustainability.

Hoffman explains that the previous phase, which the Erb Institute calls “enterprise integration,” has involved businesses responding to shifts in the market by integrating sustainability into what they already know how to do. But market transformation looks further forward—it involves business transforming the market to make it more sustainable.

And businesses are equipped to make it happen. “The market is the most powerful institution on earth, and business is the most powerful entity within it,” Hoffman writes. “Business transcends national boundaries, and it possesses resources that exceed those of many nation-states.”

To combat climate change more substantially, for example, companies have to do more than reduce their environmental footprint. As Hoffman explains, “the market must go carbon neutral and eventually go carbon negative. We don’t yet know how to do that, but we know that it cannot be done by one company or one product. It requires a change in the overall market.”

Strategies and systems

This broader change will require companies to reshape their strategies to include the sustainability of the wider systems they fit within. They will need to change their approach to operations, partnerships, government engagement and transparency.

In operations, for example, companies can incorporate circular models that pay more attention to the end of the life cycle—including how materials and energy can be recovered or reused. Novel partnerships can make gains as well, including partnerships with nonprofit organizations, the government, competitors and typically unrelated companies. Hoffman points to Ford’s collaboration with Infineon, SunPower, Whirlpool and Eaton to develop its MyEnergi Lifestyle program. The program looks at how hybrid electric vehicles, solar power systems, energy-efficient appliances and home design all can reduce someone’s carbon footprint.

Transparency is key as well. Hoffman cited Nestlé as an example: The company found forced labor and poor worker treatment in its Thai fish supply chains, made its report public, imposed new requirements on suppliers and, in the process, nudged other companies to take action as well.

Business not as usual

Market transformation also requires a new approach to the business model, including new conceptions of corporate purpose, consumption, and models and metrics of business success. Evidence of changes in corporate purpose are emerging in innovations like benefit corporations, or “B Corps,” which integrate objectives beyond profits into their purpose and governance.

Companies also are rethinking consumption. One example is Patagonia, which encourages people to try buying used Patagonia products before buying them new, through its Common Threads Initiative. Regarding business models and metrics, new models such as positive organizational scholarship and appreciative inquiry go beyond standard conceptions about behavior, which are cynical about people’s motivations. These new models look at what motivates people to devote their work to improving the world around them.

Public sentiment is shifting in favor of sustainability efforts. Most companies see the long-term trajectory of climate change—and many are poised to take action.