In December 2021, popular fast-food chain McDonald’s announced it would be switching to strawless lids for all its beverage cups in Singapore, in a move to signal its stance for sustainability by reducing its usage of single-use plastics. And it’s not the first conglomerate in the world to do so — in fact, the very first “No Straws” campaigns began in 2018, as various companies in the US started implementing alternatives for plastic straws, in a bid to address the fact that annual global plastic production has exceeded 350 million tonnes a year since 2018.
In the past few years, more companies have made a push towards Environmental, Societal and Governance (ESG) agendas, as climate change has been threatening businesses’ profits and people’s livelihoods, and social inequality has been further exacerbated by Covid-19. Unfortunately, it’s not that easy for businesses to recalibrate their entire organisation around the pursuit of ESG goals overnight. Many businesses are struggling to find a way to balance their environmental and social obligations with business growth, to resolve conflicts between economic and environmental innovation, or tackle the lack of collaboration between relevant stakeholders.
Yet, this does not mean that balancing ESG values with revenue generation is an insurmountable challenge, as SMU PhD in Business (General Management) candidate Tianni Xie (Tracy) discovered. The executive doctorate programme provides advanced training in applying academic theory in practical business settings for senior management and managers.
In her dissertation, Dual- agenda Innovation: How Firms Pursue Economic and Environmental Goals Simultaneously, Tracy proposes that firms are more likely to achieve superior environmental and economic performance (E2) performance by engaging innovation that integrates environmental goal with economic goal, and by making deliberate decisions along the innovation process to achieve both goals.
Otherwise known as the dual innovation agenda, Tracy suggests that this two-pronged pursuit of economic and environmental performance is slated to become increasingly important for many companies with the rise of the ESG movement. Here are four essential capabilities for businesses detailed in the study that could aid companies in their efforts to achieve a triple bottom line.
- Value Identification and Quantification
To lay the foundations of being able to pursue the dual-agenda innovation, it’s imperative for businesses to identify and translate the positive effects from environmental initiatives into understandable baseline benefits adeptly. According to the dissertation, this could come in many forms, ranging from quantifiable boosts in revenue and cost savings, to improved brand reputation and customer experience.
Case in point: Nike’s remarkable Flyknit is a top-line product that was produced with 60 per cent less waste than traditional sports shoe manufacturing while generating upward revenue streams for the brand. Who says that there must be a trade-off between sustainability and profit?
More importantly, companies who are also proactive in identifying how environmental initiatives could be weaved into their corporate strategies seamlessly are also better able to position themselves for sustainable development. Just like what Nike has achieved with Flyknit, proactive companies tend to be better poised in creating products that encompass both business and environmental value, relative to reactive companies who strive for compliance with ESG, rather than innovation.
- Stakeholder Management
Apart from just driving the innovation of sustainable products and processes, Tracy also shares that the clear communication of identified value from ESG initiatives to all involved stakeholders will go a long way in enabling companies to pursue a dual innovation agenda. When the value of imbuing sustainability into the company’s ethos is made clear to senior management staff, for example, it would then be easier to enact top-down change regarding these initiatives throughout all levels of the organisation. Obtaining and allocating resources to justify involvement in going green would also be met with lesser contention, as key decision-makers are able to understand the rationale of these proposals. Besides internal stakeholders, an effective engagement with external stakeholders is also critical to achieve both environmental and economic results. The research pointed out that companies who are able to identify and communicate with different stakeholders are also the E2 winners through dual agenda innovation.
On the contrary, when the value of prioritising ESG goals is not communicated clearly to stakeholders, companies may face additional obstacles in their path towards sustainability. For instance, fast-fashion company H&M has been accused of “greenwashing” by consumers, which refers to marketing products that are ostensibly beneficial towards the environment but are in actual fact counterproductive to the cause. As such, companies who see themselves in such a situation may have to devote even more resources to restore their brand image, which could have been avoided with proper stakeholder management policies in place.
- Cross-functional Collaboration
Generally defined as one’s ability to work with separate teams that each brings unique perspectives and resources to the drawing board for innovation, cross-functional collaboration can manifest in various forms. Other than inter-departmental cooperation between the engineering and product management teams, for instance, collaboration can occur between companies in the same industry and/or cross-industry to fulfil economic and environmental goals. Given the complexity and challenges to pursue E2 results simultaneously, it is unlikely that one single company possesses all the resources required to be successful. Tracy suggests that such collaboration allows for greater exchange of fresh ideas, and may even result in open innovation networks being formed, as companies band together to share their knowledge about going green for the greater good. It is also validated through the study that E2 winners demonstrate the highest cross-boundary collaboration capability compared with their peers.
- Digital Transformation
Finally, Tracy recommends that businesses embrace digital transformation in their sustainability blueprints. With digitalisation in the form of data collection, storage and analytics, companies will have an easier time quantifying the possible economic benefits they can reap by embarking on their ESG goals, and also use data to predict future dividends or revenue streams. This also lends increased credibility for the environmental cause, as stakeholders are likely to be more easily convinced when proper data is available to back sustainability initiatives, as opposed to only having theoretical deductions for decision making. Other than the role to support ESG measurement and reporting, the research found that digital transformation has an amplifier effect on the other three capabilities’ contribution to E2 performance. It can not only help solve the functional/design dilemma in pursuing environmental benefits, but digital transformation can also make other activities more effective if deployed properly, making it the most important capability in achieving E2 performance.
Nonetheless, if companies are truly keen to reshape their identity and associate themselves with the dual-agenda innovation, building on any of these approaches singularly is probably insufficient. For complex problems of this scale to be resolved efficiently and effectively, companies would likely require an integrated strategy involving varying combinations of these core capabilities. By leveraging a multi-prong, synergistic approach, companies can then achieve their economic targets while upholding their ESG commitments.
