Impact of sustainable innovation on organizational performance
Egbert Dommerholt, Mariusz Soltanifar, and John Bessant
Introduction
Sustainable development, and along with it, corporate sustainability, corporate social performance, creating shared value and similar concepts accentuating the business—society relationship, ranks high on societal and corporate agendas nowadays. Numerous sustainability-related concepts have been used interchangeably and morphed over the years to describe organizations’ efforts to make their operations sustainable. Some scholars believe that the sustainable development discussion commenced in the mid-1950s, whereas others claim the emergence of this concept goes back to the 19th century. According to Aguirre (2002), the sustainable development concept has a more recent date and gained momentum in the mid-1980s through the publication of the United Nations’ World Commission on Environment and Development’s publication Our Common Future (World Commission on Environment and Development [WCED], 1987). While others believe that sustainable development as a concept dates back to the 19th century (Sociaal Economische Raad, 2001), at that time such a term was not present in the literature or business practice.
To adhere to the concept of sustainable development, firms are increasingly expected to develop innovations that reconcile economic, environmental, and social goals (i.e., sustainable innovations) (e.g., Silvestre & Jirca, 2019). Therefore, the understanding and application of sustainable development is important because sustainable development aims to meet the needs of the present without compromising the ability of future generations to meet their own needs (WCED, 1987). For instance, we cannot continue using resources at current levels as this will not leave enough for future generations. For that, stabilizing and reducing carbon emissions is key to living within environmental limits in a world exposed more and more often to natural disasters. Interestingly, the line between sustainability and sustainable innovation is quite blurry. What some refer to as sustainability, or corporate social responsibility, is referred to by others as sustainable innovation (Inigo, 2019; Ratten, Pasillas, & Lundberg, 2019). As Business Insider (2019) reported recently, ‘being socially and environmentally responsible’jumped from sixth to third place in terms of priorities for companies surveyed in Europe and North America. Moreover, the companies that are already thinking about their energy responsibility are expected to prosper the most and forecast to increase their revenue by more than 20% over the next five years. These findings indicate the additional importance placed on the issue of sustainability nowadays.
But what causes companies and other organizations to pay attention to sustainability-related issues in the first place? There are a number of answers to this question, such as reduced company costs, recruiting and retaining eco-conscious employees, taking advantage of tax incentives, image and reputation building, access to grants and loans, consumers recognizing green companies, stimulating innovation by going green, helping the environment, building brands, positioning themselves as a thought leader, providing a healthier work environment, and contributing to the sustainability of the planet (e.g., Kerenyi & McIntosh, 2020). Basically, we can distinguish three broad categories of reasons why companies and organizations pay crucial attention to sustainability-related issues, which encompass all the above-mentioned arguments. Organizations go sustainable mainly for the three following reasons: profitability, environmental policy and stakeholder pressure (Naidoo & Gasparatos, 2018).
Entities that invest in technology and integrate sustainable energy into their core company values can expect improved brand reputation (Business Insider, 2019). The main motivator for companies to seek a green or sustainable orientation seems to be gaining a competitive advantage and boosting profitability (Papadas, Avlonitis, Carrigan, & Piha, 2019). This may cause people to think that corporate sustainability, and along with it, sustainable innovation, is primarily about serving organizations’ self-interest (e.g. Kar- nani, 2011), or to put it provocatively, that contributing to society is a mere by-product of enhancing financial performance, which is basically grounded in the neoclassical economic view voiced by Milton Friedman in the 1970s. In this traditional or conventional economic view, innovations, be they sustainable or otherwise, will be effectuated only if they contribute to creating shareholder value, irrespective of the societal value that is being, or might be, created. This means that, from a neoclassical perspective, creating societal value is a random and hence unpredictable process. But is that really the case in practice?
In this chapter we seek to answer this question using the sustainability performance construct developed by Dommerholt (2019), which we elaborate in detail in Section 13.2. In contrast to other constructs accentuating the business—society relationship, the sustainable performance construct specifically takes regime—transition orientation and single—multiple creation as the starting point. Existing concepts are not sufficiently adequate to bring about the required social and economic system transformation (e.g., Loor- bach & Wijsman, 2013). Although for this chapter we review relevant literature on corporate sustainable innovation as opposed to collecting primary data, we are confident that this chapter provides insights for further research and managerial practice. For practitioners, this framework can be perceived as a useful explanatory lens for coping with practical sustainability-related issues. However, the sustainability performance construct is still very much in its infancy and needs further testing and populating.
