In the quest to reduce the environmental burden of our industrial production and mass consumption society, we begin to focus our attention on current business models. For the past 20 years, researchers have been pointing to systems’ innovation. Bringing both ideas together in business model innovation is thought to be the most promising transformation that can bring capitalism into a circular economy.
In the 2012 report by Nordic Innovation, they studied a sample of twenty-nine cases of business models with environmental benefits. Of these, 100% know that their business model generates environmental improvements, yet only 6 of the 29 have calculated how much compared to traditional business models.
More importantly, this Scandinavian study of green business models exposes 8 types of models, divided into two categories. The first category describes models where a company incentivises its consumers in a way so that part or the entire value chain is more efficient. The second category is life-cycle models where organizations change the relationships within their value-chains and material life cycles.
But how much consumption reduction are we finding in greener business models? Is it 90% reductions? Or is it closer to 50% reductions? or even less?
Of the 9 business models studied in this 2009 empirical EPA study, there were 3 companies with a business model that reduced environmental impacts near the 90% mark: Performance-based resources, Remanufacturing and Car Sharing. The idea of “Performance-based resources” aims to develop a complete solution to answer the customer’s needs by reaching an agreed upon measure of value or performance. For example, instead of selling pesticides, a supplier could service the crops to ensure an agreed level of pest control.
However, when looking back at the evidence provided and other theoretical research on the subject of business models with environmental benefits, a radical reduction of consumption, above 90%, has not been recorded across the greener business models. In all, this research shows that a variety of business model types have improved various consumption levels near the 50% mark. In other words, better business models makes the glass is half-empty.
There are some limits to this evaluation. Although data provides consumption reductions such as product use or energy use, this information is not calculated in terms of environmental impacts like climate change or ecosystems quality. Also, the evidence we gathered here is sometimes coming from sample size of one single company and nine different models. This might be enough to empirically demonstrate the potential, but not to demonstrate the scalability of business models with environmental benefits.
Lest we forget that some services based business models can turn out to be less environmentally responsible. For example, the Italian luxury car sharing “Savarent” has leasing procedures which leads us to believe that it would cause easy and capital extensive access to high end cars, thus possibly leading to an increase in demand for transport. Conversely, we learn from the evidence of most car sharing cases that such a business model reduces the direct emissions through providing access to better technology but also by influencing a reflection on consumption. Users are redefining possible answers to their own needs thanks to multiple options of transport and business models.
Findings ways for clients not to consume is rarely beneficial for companies unless in a different business model. That is the challenge of the next century: to answer this paradox of generating more benefits, social and economic, while reducing environmental consumption.
Although business model innovation is one of the most radical ideas for driving businesses into the 21st century, it’s not automatically beneficial for the environment. If sustainability isn’t on the corporate agenda, organizations might have to choose a better business model to simply ensure their survival. In the end, Business model innovation can reduce consumption and environmental impacts. But, from what we see from research so far, the glass is only half empty.