Sustainable vs. regenerative business models: Creating resilient growth
The current COVID-19 pandemic has created unprecedented global challenges. All of us are waking up to a new vulnerability and uncertainty about the future is on everyone’s minds. As we wade through the economic fallout it will become increasingly critical for us to find ways to build resilience against future challenges. Because indeed, they will come. We in businesses and organizations must ask ourselves, how can we recover and grow in ways that enhance society’s ability to weather future storms?
Search the term “sustainable value” on Google and you’ll get 1.7 million results. It’s a goal that many businesses have sought to deliver for some time now. Aligned with a strong sense of purpose — a company’s reason for being beyond profits that guides business growth — achieving sustainable value aims to ensure the long-term resilience of an organization.
We generally think of sustainable value as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. While a worthy goal, its fault lies in its objective of doing less harm, rather than creating more good. When you look at it this way, are business models built on sustainable value enough? Obviously, for some industries, the answer is still yes.
The effects of the linear “take – use – discard” model that discounts future repercussions are all around us. From the social environmental and economic impacts of toxic dumping and subsequent financial impacts of supersite cleanup to the exploitation of human capital still prevalent across a swath of industries, evidence suggests a global sustainable value tipping point is a long way off, unfortunately.
But if we look at those sustainably run organizations that are making a good show of walking the talk, how can they do better? What comes next?
It might make sense to first define the components of a sustainable business model. Typically based on three value pillars (the Triple Bottom Line), it includes:
Economic value – financial resilience, healthy balance sheets, minimal cash-to-debt ratio, realistic market valuation, etc.
Social value – social justice, equity, career development, community development, health and well-being, etc.
Environmental value – conscientious resource use, sustainable materials sourcing, renewable energy, etc.
Because sustainable business models focus on doing more with less — less waste, less energy, less resources, one pillar might suffer to benefit the other. Economic value might be compromised if the cost of environmental investments, say planting trees or carbon offsets, doesn’t feed back into the growth of the organization.
A regenerative business model, on the other hand, strives to enhance future generations’ ability to flourish. At its core is a systemic approach that recognizes the interconnected ecosystem of economic, social, and environmental factors. Just like sustainable models, regenerative models put an emphasis on long-term value over short-term gain and are based on a purpose-driven value proposition that applies to stakeholders and society. Beyond doing no harm, however, a regenerative approach strives to feed the future, nurturing systems that enhance the well-being and future potential of the community. As Steve Diller wrote in his recent blog:
“But it’s also an idea rooted in that economic concept of “win-win” that says that each party to a transaction should be demonstrably better off for having engaged in it. With an added recognition that the “parties” include the broader community, and the ecosystems upon which all economic transactions depend.”
Other aspects that define regenerative models include seeking connections beyond the traditional scope of the core business and considering future disruptive conditions and scenarios. An example might be a labor-reliant manufacturing organization anticipating the inevitable shift to automation, who invests in early education and cross-functional training within the community to build a future labor market that is more able to adapt to technology changes and contribute to innovation.
Regenerative business models also take into account broader consequences that are sometimes ignored or overlooked. Bioplastics is a good example.
Compostable bioplastic containers from renewable organic sources seems a great alternative to petroleum-based plastics. With corn as its primary raw material source, however, the growth of bioplastics is driving up the price of this important staple, potentially threatening food security.
In Japan, a professor from the Kyushu Institute of Technology (KIT) is rethinking the bioplastics business model. He and his team devised a localized solution using food waste to produce bioplastic. Instead of paying for GMO corn, small-scale plastics producers realize a new revenue stream by collecting fees from restaurants to haul food waste, diverting it from landfills. Because production is localized, energy costs for transport and transformation are a fraction of standard costs and factory size can be tailored to the local landfill. This example delivers social (building localized industry) and environmental benefits and has also proved economically viable.
How might other industries and organizations apply a regenerative model to their business? What other efforts can enhance future generations’ ability to flourish?