Search in book...
Toggle Font Controls
Create new playlist

Name your new playlist

Playlist description (optional)
Sign In

Email address

Password

Forgot Password?

or

Continue with Facebook

Continue with Google
Sign Up

Full Name

Email address

Confirm Email Address

Password

or

Continue with Facebook

Continue with Google

Chapter 19
Innovation, Research, and Development

The second element in the Strategy and Execution section of the Scorecard addresses the extent to which companies embed sustainability into their innovation, research, and development processes.

3M has, for many decades, had a near obsession with eco-efficiency—the systematic reduction in the amount of energy and materials wasted in the full life-cycle creation, use and disposal of goods and services. The company’s widely known Pollution Prevention Pays (3P) program has saved many billions of dollars over more than four decades (since its visionary launch in 1975).

More recently, 3M has transitioned its innovation credo from eco-efficiency and waste reduction to innovation and revenue growth. The company launches an average of twenty new products every week—an astonishing feat. And increasingly over the past decade, sustainability has been at the core of the innovation and product development processes.i

3M invests nearly 6% of annual sales into R&D to drive a strong and continuous pipeline of new products leveraging 46 technology platforms and serving customers across disparate markets. This investment is tracked rigorously, part of employee compensation, and consistently delivers over 30% of revenues from products introduced in the last 5 years.ii

The overarching strategic question that senior executives and board members should be asking with respect to innovation and sustainability is:

Key Question: How are sustainability and ESG issues integrated into innovation research, processes, and investments—ultimately aimed at helping our customers and delivering value to society?

To help answer this key question, the Scorecard analyzes how companies manage and perform in three areas:

–The role innovation plays in the business and the extent to which sustainability is “hard-wired” to innovation

–The processes and methodologies for embedding sustainability into innovation, research and development

–The output of innovation investments

Within each of these areas, executives evaluate their company performance on several key sustainability indicators (KSIs).

Role of Sustainability and Innovation

The Scorecard addresses the role of sustainability and innovation with three KSIs: one dealing with the linkage between sustainability and innovation and the next two addressing how environmental, social, and governance (ESG) is embedded into innovation both through material and labor—and through technology.

KSI 9.1: Link Between Sustainability and Innovation. The linkage between sustainability and innovation is profound. Experienced innovation leaders have found that few things can inspire greater imagination and innovation than the opportunity to completely rethink how goods and services delivered to customers can provide the same or greater value with a far lower negative impact on the planet and on society.

The range of ways companies link sustainability and innovation is depicted in the table below.

Some examples of how global leaders in innovation have embraced sustainability follow:

–3M: Innovation is core to 3M’s success and the company’s “15 percent time program” is a key way sustainability is embedded in the innovation processes.iii Launched in 1948, 15 percent of working time from all employees has been used to drive innovation.

–GE: The company launched Ecomagination in 2005 to drive innovation and generate growth. Between 2005 and 2012, Ecomagination generated more than $130 billion in revenue—no small feat. Innovation through Ecomagination “has helped our customers save billions of dollars while significantly reducing their environmental impact.”iv

–SC Johnson: The company’s goal is to continuously improve products to adhere to their Greenlist™ rating system so that products will all use “Better” and “Best” rated ingredients.v

–Tesla: CEO Elon Musk’s goal to accelerate sustainable mobility is a major step in reinventing the entire automotive business model.

The Scorecard descriptor for Stage 4 includes a reference to the precautionary principle. The principle implies that there is a social responsibility to protect the public from exposure to harm, when scientific investigation has found a plausible risk. Most companies—especially those in the chemical industry or sectors that rely heavily on chemicals—have historically taken a very dim view (to say the least) of the precautionary principle. However, leading companies have adopted the principle not only as a risk management measure but also as a way to spur innovation.

–Kaiser Permanente: As one of the largest not-for-profit health plan in the United States, Kaiser Permanente has adopted the Precautionary Principle to guide both food and chemicals policy.

–Bristol-Myers Squibb: The global pharmaceutical company has adopted the Precautionary Principle to guide its use of chemical processes.

In each of these examples, companies have embraced a bold ESG positioning (such as massive reduction in carbon and hazardous materials) to drive further innovation and growth.

KSI 9.2: Sustainable Innovation Through Material and Labor Inputs. One major way to drive sustainable innovation is by rethinking the material and labor inputs to a product or service. The range of ways companies do this follows:

Several examples of how companies have rethought materials and labor follow:

–Ecovative: The company produces packaging materials and building insulation that decompose completely in the environment. Its core mission is to envision, develop, produce and market earth friendly materials—to help rid the world of toxic, unsustainable materials. The company is best known for making packaging created from mushrooms. The start-up company quickly caught the attention of Dell and Ikea.vi

–Dell: The technology shipped the first recycled ocean plastics packaging in its industry in 2017.vii

–LEGO Group: announced plans in early 2018 to introduce a new product family of plant-based LEGO bricks sourced from sugarcane.viii

–TerraCycle: The innovative recycling company has become a global leader in recycling hard-to-recycle waste, often converting it into office products.ix

–3M: The diversified manufacturing company invented a technology that structurally reinforces water pipes, without digging them up.x

In each of these examples, the company unleashed its innovation process to completely rethink a product or waste stream or problem—to find a solution that significantly reduces life-cycle environmental impacts.

KSI 9.3: Sustainable Innovation Through Technology. Toyota launched the Prius in 1997, arguably ahead of its time. Yet, over many years, the technology behind the Prius has been a success. However, not all technology enhancements result in market success—and the same is true in the sustainability space.

Dow Chemical Company may also have been ahead of its time with its solar shingles business—a great idea and technology that, in the end, did not result in commercial success. Dow created Solar Shingles that are cost effective and easy to install. The company later divested the business in 2016, because of lack of customer demand.xi The period 2016 to 2017 were devastating in terms of bankruptcies in the solar business.

The range of approaches to sustainable innovation through technology are depicted below.

Some examples of companies that are Stage 3 or better include:

–Siemens: The company is one of many companies in the manufacturing, oil, and gas and utility sectors that have started using drone technology for inspections. In Siemens’ case, the purpose was inspecting wind farms.xii

–Toyota: Described as the “catalytic converter” of pollution-reducing billboards, they use a titanium dioxide coated vinyl to purify the surrounding air.xiii

In each of these examples the companies are applying new technology to address a fundamental environmental or social challenge.

Processes and Methodologies

The Scorecard addresses processes and methodologies used to embed ESG into innovation with three KSIs: the product development process, innovation tools, and R&D partnerships.

KSI 9.4: Sustainability Innovation Process. This phrase (sustainability innovation process) can be misleading. Hopefully, companies do not have a discrete sustainability innovation process; instead, they systematically incorporate ESG considerations into their main business processes around innovation. The range of approaches across the maturity curve follows.

In addition to 3M’s 15 percent time mentioned above, an excellent example is Infosys, India’s second largest information technology company. Infosys uses its Sustainable Tomorrow framework to drive resource intensity, which essentially means seeking ways to do more with less, conserve natural resources, eliminate waste, reuse, and recycle raw materials.xiv

KSI 9.5: Sustainable Innovation Tools. The Conference Board (and many other leading business organizations) has conducted extensive research about highly innovative companies. During 2017, their latest research (“Signposts of Innovation”) specifically analyzed environmental stewardship and social responsibility issues as one of six key signposts of innovation.

Many well-established innovation tools have been used by industry leaders.xv A few of these are:

–Crowd Sourcing—The general practice of obtaining needed information, financing or services from a large group of people, especially the on-line community.

–The Stage-Gate Process—The basic blueprint for managing the new product development process from idea to launch wherein decision “gates” are set up to make decisions about continuation or adaptation of a project.

–Big Data Customer Analytics—Examining very large and varied data sets to uncover hidden patterns, etc.

The question for companies is how to tap into these well-established tools to embrace and embed ESG principles—rather than creating a distinct set of sustainability innovation tools.

The range of approaches is depicted below.

Companies use a variety of innovation tools to address environmental and social challenges. A few examples are:

–Adidas: The company partnered with Fashion For Good, a global apparel industry initiative that uses a cradle to cradle-inspired, circular approach to product design.xvi

–Starbucks: The company announced in March 2018 that it is launching the “NextGen Cup Challenge,” an innovation accelerator aimed at developing and commercializing fully recyclable and compostable cups. The company is doing this in the Closed Loop Partners’ Center for the Circular Economy.xvii

In each of these examples, the partnerships will tap into a wide range of innovation tools available, especially leveraging technology and creative thinking of start-up enterprises.

KSI 9.6: Sustainability R&D Partnerships. Historically, at many companies the research and development (R&D) activities were carried out behind closed doors. After all, this was the pipeline for future sales growth and competitive differentiation. Thus, the range of partnerships spans from nonexistent to robust.

A few examples of innovative partnerships in the R&D area include:

–Danone: The global food company partnered with Nestlé Waters to fund start-up development of 100 percent bio-based bottles.xviii

–IBM: Over a decade ago, the technology leader used Innovation Jam to bring together employees, families, and customers to innovate. Then CEO Sam Palmisano agreed to put $100 million into promising ideas.xix

–Walmart: In 2014, the company convened over a dozen CEOs of major companies and CEOs of leading NGOs to sign new commitments accelerating innovation in sustainable agriculture and recycling.xx

In each of these examples, companies looked outside their company walls to find partners who could help them move faster, smarter and cheaper than they would have on their own.

Sustainable Innovation Investments

As noted before, General Electric is undergoing some headwinds in 2017 and 2018; however, the company’s twelve-year investment in Ecomagination continues. Ecomagination is GE’s business strategy to deliver clean technology solutions that drive positive economic and environmental outcomes for GE’s customers and the world.

GE has invested a total of $20 billion in cleaner technology solutions; that has returned GE $270 billion in revenues. That gets attention!

The Scorecard addresses sustainable innovation investments with two KSIs: one dealing with the amount of investment and a second that looks at sustainability investment criteria.

KSI 9.7: R&D Investments in Sustainable Products, Services, & Solutions. It is very difficult to distinguish which R&D investments are “ESG driven” and which are not. In reality, projects or technologies that receive these investments may have some aspects that meet environmental or social criteria: does it help save energy? Does it eliminate hazardous materials? And so on.

–DuPont: The company doubled its R&D investment from 2007 to 2017 in products with quantifiable environmental benefits and committed another 5B to meet its 2020 goals.xxi

–Skyonic: The Texas startup is working to convert carbon emissions into revenue streams, taking CO2 emissions from factories, refineries and power plants and converting them into value-added byproducts that generate cash. xxii

–DSM: The Dutch chemical company opened America’s first cellulosic biofuel plant using corn waste in Iowa in 2014.xxiii

In each of these examples, companies allocated a very significant portion of their capital budget to projects that had a strong ESG component.

KSI 9.8: Sustainability Investment Criteria. The range of ways companies think about sustainability investment criteria follows.

Companies tend to treat capital investment decisions—and the criteria that underpins those decisions—as fairly confidential. Clearly, companies like the GE example above have publicly disclosed both the amount of capital investment tied to ESG issues—and the general criteria supporting those investments.

How Do Companies Stack Up?

Starting in 2018, we are capturing data from a group of founding participants—invited to use the Scorecard for a company self-assessment and to provide feedback. As we assess the data from the first sixty companies (all Fortune 500 or equivalent), three key messages stand out:

–In terms of the linkage between sustainability and innovation, the data suggests an even split in three buckets: one third of the companies rated their company at Stage 1.5, meaning ESG issues are not formally embedded in innovation processes. Another third (~20 companies) are in the middle; while the top third rated their company Stage 3 or higher—meaning the goal is to decouple sales growth from footprint.

–Most companies have a formal product development process; yet, the data suggests that nearly one-third of companies are not yet at Stage 2. This means that group of companies remains largely compliance-focused—rather than strategy and growth focused.

–Only eleven of the sixty companies (18 percent) rated their company as Stage 3 or higher on R&D investment in sustainable products, services and solutions. That means less than 50 percent of total R&D investment is based on ESG criteria (see Figure 19.1).

Figure 19.1: Scorecard Data from Sixty Companies on KSI 9.7: R&D Investment in Sustainable Products, Services, & Solutions

Figure 19.1 shows that there is a major opportunity for companies to strengthen the linkages between the R&D organization and those in the company embracing ESG principles.

i https://hbr.org/2012/05/3ms-sustainability-innovation

ii Email from Gayle Schuyller, Vice President and Chief Sustainability Officer, 3M to the author, dated August 22, 2018.

iii https://www.3m.com/3M/en_US/sustainability-us/

iv http://www.sustainablebrands.com/news_and_views/articles/ge-generates-25-billion-revenues-sustainability-investments

v http://www.scjohnson.com/en/commitment/focus-on/greener-products/greenlist.aspx

vi http://www.businessinsider.com/ecovative-turns-mushrooms-into-packaging-ikea-dell-2016-8

vii http://www.dell.com/learn/us/en/uscorp1/press-releases/2017-02-22-dell-announces-ocean-plastics-shipment

viii https://www.lego.com/en-us/aboutus/news-room/2018/march/pfp/

ix https://www.terracycle.com/en-US/about-terracycle

x https://hbr.org/2012/05/3ms-sustainability-innovation

xi https://www.greentechmedia.com/articles/read/dow-chemical-sheds-solar-shingle-business#gs.lyDy=zA

xii https://www.prnewswire.com/news-releases/skyspecs-collaborates-with-siemens-wind-power-for-use-of-automated-drone-technology-in-offshore-turbine-inspections-300414202.html