In a world facing increasing social and environmental challenges and the rise of the sustainability-conscious consumer, it is no longer a question of whether or not to incorporate sustainable business practices that have positive, or at best, neutral, consequences on our ecosystems and society.
As seen in “Sustainable Business Model Design – 45 Patterns”, there are ample blueprints from which to draw inspiration for the how of implementing sustainability transformation through sustainable business models. So what’s next? After implementing sustainability in one’s strategy, it’s essential to measure the actual impact achieved.
As sustainability mandates become the norm, corporate sustainability reporting frameworks have been refined and regulations have tightened. Assessing sustainability performance is no longer just a necessity for well-established enterprises. It’s now important for startups and emerging companies to embed these considerations in their product and business model development from the outset.
In this joint interview with Professors Florian Lüdeke-Freund, ESCP professor of sustainability and ESCP STAR co-founder, and Klaus Fichter, director of the Borderstep Institute for Innovation & Sustainability, the two researchers, who have been collaborating on this topic for years, define a specific type of business model — the impact business model — suggesting what to keep in mind when developing one and measuring the impact.
For readers who aren’t entirely sure about the definition, what are impact business models and how do they differ from normal business models?
Florian Lüdeke-Freund: ‘Normal’ business models are typically developed to create and maximize value for customers and, consequently, for the companies themselves. For quite some time, there has been research on, and growing practical interest in, so-called sustainable business models. Impact business models are a subset of sustainable business models. Here, more stakeholders, and their interest in value creation beyond customer and firm value, are considered in the development and implementation of business models.
Klaus Fichter: Impact business models intertwine social or environmental objectives into their core strategy, ensuring that making a difference is as fundamental as making a profit. Impact business models aim at creating what we call a “double dividend”, an economic and societal benefit.
At what point in time can an organization become an impact business? Is this something that can only be considered from the very start?
KF: An organisation can become an impact business at any stage of its lifecycle. While some companies embed impact considerations from inception, established organisations can also pivot and transform their business models to prioritise sustainability and societal outcomes.
FLF: In addition, business model designers must consider that they will face different challenges in different stages of their life cycle. While, for example, a startup can decide to become an impact venture with some freedom, they will later face challenges such as finding financiers and customers who are willing to support their impact mission. For established companies, the challenges are often more related to overcoming existing paradigms and narratives within the organisation.
It’s essential to have a holistic view, understanding that every business activity, from procurement to product disposal, has potential repercussions that should be measured and managed.Klaus Fichter
What are some of the challenges and dangers established organisations face when trying to transform their business models?
FLF: As mentioned, the existing culture, values, and practices of an established organisation may turn out to be barriers. ‘Don’t fix what’s not broken’ mindsets have their merits, but the question is, under which conditions do the established systems run? We are seeing a lot of change in all fields of production and consumption — lifestyles, food, mobility, energy, education etc. Balancing the present output of existing business with exploring emerging and future societal demands is the biggest challenge firms report about.
KF: Established organisations face issues such as resistance to change from internal stakeholders, potential short-term financial setbacks, and the intricacy of overhauling existing processes. There’s also the danger of appearing disingenuous to the public, especially if the transition seems sudden or is perceived as a marketing tactic (“greenwashing” or “impact washing”) rather than a genuine shift in values.
Provided everyone agrees to do so, when the leadership team sets out to create an impact business model for an organisation, what does it need to watch out for?
KF: Leadership teams should ensure clarity in their mission and objectives, maintain transparency in their operations and decisions, and foster an organisational culture that values sustainability. It’s also essential to engage with stakeholders, including employees, customers, and investors. Be authentic and original in your sustainability activities and don’t become a sustainability copycat.
FLF: There are the rather ‘hard’ issues (adapting production processes, product designs, finding new sources of funding) and ‘soft’ issues (organisational and societal culture and values). In my view, the soft factors will turn out to be the real game changers. Strong, consistent, and positive visions and missions are crucial. But not just on paper or fancy websites. A strong and inspiring idea of a future in which every employee can contribute to having a positive impact must be authentic and grounded in an organisation’s values. We cannot overestimate the importance of a values-based approach to developing organisations and their business models!
Let’s say an organization has incorporated an impact business model and has all the necessary resources to proceed with its activities. How can one measure impact?
KF: Measuring impact has to be an integral part of what we call the “impact cycle”. The impact cycle describes the ongoing management process from clarifying your business role in regard to grand societal challenges, clearly defining your vision, mission, and targets, and analysing and improving impact. We describe this more thoroughly in our “IMPACT Guide” which Borderstep published in 2021. Organisations can use frameworks like the Global Reporting Initiative (GRI), Environmental, Social and Governance criteria (ESG) or the Sustainable Development Goals (SDGs) to gauge their performance.
However, it’s not just about adopting these frameworks but integrating them into a continuous impact management system and impact cycle. This system ensures that impact measurement is an ongoing process, allowing for timely interventions, recalibrations, and improvements based on real-time data and feedback. To avoid greenwashing, transparency in reporting, third-party verifications, and consistent communication about progress and challenges are crucial.
Strong, consistent, and positive visions and missions are crucial. But not just on paper or fancy websites.Florian Lüdeke-Freund
What factors do organisations need to take into account when evaluating their impact?
KF: When assessing their impact, organisations should delve into both the immediate and long-term consequences of their actions on the environment, society, and economic structures. This encompasses evaluating aspects like resource consumption, contributions to community development, ethical sourcing, and the ripple effects on local economies. It’s essential to have a holistic view, understanding that every business activity, from procurement to product disposal, has potential repercussions that should be measured and managed. Using a combination of quantitative and qualitative metrics can provide a comprehensive understanding of an organisation’s true impact.
FLF: In this context, it is also important to distinguish between the effects you want to measure. Nowadays, terms like value and impact are used everywhere and interchangeably. But if it comes to really measuring and managing the effects, very clear terminology and understanding of concepts such as performance, output, outcome, and impact is needed. The latter, impact, is typically associated with change on the level of systems, such as ecosystems, societal groups, or whole systems. Value should rather be assessed from the perspective of stakeholders and what they need or strive for. Current debates clearly show that still some work is needed in this regard to help companies in meaningfully measuring and managing their value creation and impacts.
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