An Introduction to Eco-innovation for Business

Posted in Blog, Eco-innovation, Entrepreneurship, Innovation by Jo North

What is eco-innovation?

Eco-innovation is business innovation that has the purpose of reducing or eliminating harm to the environment, or of helping to restore positive environmental conditions. Click To Tweet

Other definitions of eco-innovation are:

• “The development of new practices, processes, products or services that support environmentally positive development.” Centre for Global Eco-innovation, Lancaster University

• “A new business approach which promotes sustainability throughout the entire life cycle of a product, while also boosting a company’s performance and competitiveness.” United Nations Environment Programme

• “Innovation in any form that results or aims at making significant and visible progress toward achieving sustainable development by reducing negative environmental impacts, increasing environmental resilience, or achieving a more efficient and responsible use of natural resources.” Sobczak E, Głuszczuk D, Raszkowski A. (2022)

• “The development of products and processes that contribute to sustainable development, applying the commercial application of knowledge to elicit direct or indirect ecological improvements. This includes a range of related ideas, from environmentally friendly technological advances to socially acceptable innovative paths towards sustainability.” Wikipedia

• “The production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organisation and which results, throughout its life cycle, in a reduction of environmental risk, pollution, and other negative impacts of resource use compared to relevant alternatives.” Kemp and Pearson (2007)

Key themes in definitions of eco-innovation for businesses

Key themes in eco-innovation definitions for businesses are therefore:

• Development of new practices, processes, products, services and business models
• Protection, and sometimes strengthening of the environment
• Promotion of sustainability and circularity throughout the lifecycle of the innovation
• Contribution to the business’ competitiveness and profitability

Eco-innovation synonyms

Other terms used for eco-innovation include:

• Sustainable innovation
• Environmental innovation
• Green innovation
• Responsible innovation
• Circular innovation

The purpose of this article

The purpose of this article is to help you to consider eco-innovation for your business. It will help you to understand what eco-innovation is, why it’s important and some of the most important types of eco-innovation that you’ll want to consider.

The article provides insights, tips and prompts for you to apply to your own business.

Summary of eco-innovation insights, tips and prompts in this article

• Given the real and pressing challenge of climate change, every innovation needs to be an eco-innovation.
• Building a more environmentally sustainable, customer-centric business model is likely to accelerate your business’ growth over time.
• Whatever size, age, type, sector or location of your business, the drive towards more sustainable solutions is strong and ever-growing. The best time to start eco-innovating was decades ago. The next best time is now. Disrupt your business or be disrupted.
• Whether or not the diffusion, or dissemination, of eco-innovation in your sector is strong, there is an opportunity for your business.
• There are seven core eco-innovation practices that extend the product lifecycle, turn waste into something of value and create a more sustainable and resilient business model. They provide a good checklist of prompts for you to consider in making your business more environmentally sustainable.
• If you’re working on your next product or service innovation, it’s crucial to pivot to eco-innovation by building in sustainable, circular economy principles now, to help future-proof your product or service.
• It is not just the products or services that you sell that need to be sustainable. All the processes that you have in place to create them and get them to market need to be sustainable, too. Consider doing a thorough review, or sustainability audit, or how you produce your products and services if you haven’t already done so.
• Technology eco-innovations are playing a significant role in shaping the sustainability agenda for businesses. Consider how technology can help your business achieve its sustainability goals.
• It’s important that you consider how you can make the technology that you use in your business more sustainable, at the same time as exploiting technology to help your business become more sustainable.
• Follow the steps outlined later in this article to get started with eco-innovation for your business.

Why eco-innovation matters

Eco-innovation is part of the climate change solution

In April 2022, the Intergovernmental Panel for Climate Change published a substantial report showing that immediate, unprecedented action from every country is necessary to meet the goals of the Paris agreement. Emissions need to peak by 2025 to keep global warming well below the 2°C limit set.

The report clearly demonstrates how the impacts of climate change are observed in many ecosystems and human systems worldwide.

“Global warming, reaching 1.5°C in the near-term, would cause unavoidable increases in multiple climate hazards and present multiple risks to ecosystems and humans (very high confidence). The level of risk will depend on concurrent near term trends in vulnerability, exposure, level of socioeconomic development and adaptation (high confidence). Near-term actions that limit global warming to close to 1.5°C would substantially reduce projected losses and damages related to climate change in human systems and ecosystems, compared to higher warming levels, but cannot eliminate them all (very high confidence).”

IPCC Climate Change 2022, Summary for Policy Makers

Given the real and pressing challenge of climate change, every innovation needs to be an eco-innovation.

Businesses of all sizes and in all sectors have an important role to play and a significant opportunity to make sure that as a minimum they do no harm to the planet, and better still may play a part, however small, in its recovery.

Many customers are demanding more sustainable solutions

Customers want want to purchase products they view as sustainable and know that their own buying and consumption choices won’t negatively affect the environment, influenced by behaviors they observe in their social environment.

According to the Deloitte Global 2021 Millennial and Gen Z Survey, millennials continue to influence for a world in which businesses and governments demonstrate a clear and transparent commitment to driving positive change for society, putting people and planet ahead of profits.

Building a more environmentally sustainable, customer-centric business model is likely to accelerate your business’ growth over time.

Many employees want to work for environmentally-conscious companies

Making sure that your innovations are eco-friendly will help your business to attract and retain talent.

30% of respondents in a 2021 Deloitte survey said they would consider switching jobs to work at a more sustainable company. A 2021 Gallup survey shows that seven in 10 US jobseekers care at least somewhat about a potential employer’s environmental record.

Drivers or determinants of eco-innovation

Research shows that a number of factors drive eco-innovation. These are:

• Technological capabilities
• Understanding and ability of the organization to develop green solutions
• Market demand
• Competitive pressures and customer green demand
• Environmental regulation
• Net zero innovation

Whatever size, age, type, sector or location of your business, the drive towards more sustainable solutions is strong and ever-growing. The best time to start eco-innovating was decades ago. The next best time is now. Disrupt your business or be disrupted.

Eco-innovation diffusion

Eco-innovation diffusion is how, over time, sustainable innovations gain momentum, spread and are adopted across a specific industry sector or location.

A 2021 study by Fichter and Klausen shows that eco-innovation is disseminated at different rates, according to business sector. For example, the average dissemination rates of environmental product and service innovations in the catering and food sector as well as in the transportation and mobility sector are only slightly above ten per cent (12.2%).

On the other hand, diffusion of eco-innovations in the renewable energies and energy efficiency sector is much stronger.

The highest average dissemination rate found is in the internet and computing sector. Here, Fichter and Klausen discovered that the average dissemination rate is almost fifty per cent (49.1%), and 84% of all cases investigated in this sector reach a dissemination rate of 10% or more.

Whether or not the diffusion of eco-innovation in your sector is strong, there is an opportunity for your business.

• Where eco-innovation dissemination is high, you can learn from your industry peers and competitors.
• If eco-innovation diffusion is low, you have the potential to achieve first-mover advantage. You can also look beyond your own sector for eco-innovations that you can adapt and transfer into your company.

Eco-innovation practices – the Circular Economy

The circular economy is a production and consumption model for organizations and the economy that aims to achieve sustainable growth over time.

Using the circular economy model, businesses can optimize use of resources, reduce the consumption of raw materials, and recover waste by recycling or giving it a second life as a new product.

The purpose of the circular economy is to make the most of the material resources available by applying seven core practices: reduce, reuse and recycle.

The Ellen MacArthur Foundation website here is packed with great information and resources on the circular economy.

Applying these seven core eco-innovation practices extends the product lifecycle, turns waste into something of value and creates a more sustainable and resilient business model. They provide a good checklist of prompts for you to consider in making your business more environmentally sustainable.

1. Redesign

Eco-innovation means reimagining new product and service design.

Before new product development or new service design begins, it’s about setting the intention that making and using these new products and services in a sustainable way will consume fewer raw materials, extend their lifecycle, and either create less waste, or at least waste that is easier to recycle.

2. Reduce

Reducing consumption is a core practice of eco-innovation. By using less in the first place, we avoid generating of waste, we use fewer and less raw materials, and lessen environmental impact.

3. Reuse

Reusing items, sometimes through repurposing, extends their life and helps to reduce consumption.

4. Repair

Repairing instead of replacing a broken or end-of-life item is the fourth eco-innovation practice. Repairing is often cheaper, avoids the use of new raw materials, saves energy, and does not generate environmental waste.

5. Renovate

Renovating means updating and refreshing items so that they can be reused. Examples include cars, houses, clothing.

6. Recycle

Recycling is about getting as many uses out of a product as possible. It means the process of collecting and processing materials that would otherwise be thrown away as trash and turning them into new products.

7. Recover

Recovering means finding new uses for products that are going to be thrown away. An example is using plastic bottles to create watering systems, flower pots, or bird feeders.

Types of eco-innovation

There are four key types of eco-innovation.

1. New product and service eco-innovation

According to the Harvard Business Review, entrepreneurs launch more than 30,000 new consumer products every year.

If you’re working on your next product or service innovation, it’s crucial to pivot to eco-innovation by building in sustainable, circular economy principles now, to help future-proof your product or service.

2. Business model eco-innovation

A business model is a document or strategy which outlines how a business creates, delivers and captures value for and from its target customers. A business model shows the core value proposition, revenue streams, costs, collaborations, manufacturing, service delivery and distribution methods for the company.

It is unlikely that a company’s business model will stay the same throughout time, due to external factors and internal changes. This means that the business model needs to innovate to pivot in response. Business model innovation is this fundamental pivot in how the company delivers customer value.

Business model eco-innovation means fully integrating sustainability principles into how you do business.

With the increasing drive for transparency from customers and regulators, sustainability principles need to be at the core of your business model, rather than simply an add-on.

It can take time, so the sooner you start to consider this for your business, the better.

3. Process eco-innovation

“A process innovation is the implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.

Process innovations can be intended to decrease unit costs of production or delivery, to increase quality, or to produce or deliver new or significantly improved products.”

OECD

Whereas process innovation is typically concerned with cost efficiency and quality improvements, process eco-innovation is also focused on how to reduce the environmental impact created by a business’ product or service processes.

Process eco-innovation involves looking at every input into the company’s transformation model – energy, raw materials, distribution, technology choices, waste and so on – to identify better, more sustainable methods of production.

It is not just the products or services that you sell that need to be sustainable. All the processes that you have in place to create them and get them to market need to be sustainable, too. Consider doing a thorough review, or sustainability audit, or how you produce your products and services if you haven’t already done so.

4. Technological eco-innovation

Technology eco-innovations are playing a significant role in shaping the sustainability agenda for businesses. Consider how technology can help your business achieve its sustainability goals.

It’s easy to see how digital technology has transformed how we live, and how we run our businesses. It means that we can create targeted products and services that minimize waste, and transact faster and more conveniently than ever.

New technology such as smart building systems, cloud computing, robotics and digital twins are already helping businesses to become greener and more efficient.

It’s important that you consider how you can make the technology that you use in your business more sustainable, at the same time as exploiting technology to help your business become more sustainable.

Examples of eco-innovation

Here are just a few examples of eco-innovation in practise.

Example 1: Innovating new sources of protein

The demand for animal-based food products is outstripping the growth of the global population. Over 20% of greenhouse gas emissions come from agricultural sources. This has led to new, alternative-protein companies challenging themselves to deal with emergent regulation and to change what many of us eat.

TiNDLE (chicken made from plants) and Turtletree, using modern cell-based technology, are examples of such companies pursuing this type of eco-innovation.

Example 2: Applying circular economy principles to polyurethane foam

Repsol is currently building the first plant in Spain to chemically recycle polyurethane foam.

The company says that polyurethane foam, the main component in mattresses, couches, and vehicle seats, among other uses, is considered bulky waste due to its very low density and large size. This makes it one of the materials with the lowest recovery rate once it has reached the end of its useful life.

The new plant will produce circular Repsol Reciclex^® polyols with this new process, which closes the loop for this kind of waste by giving it a new life.

Example 3: Making packaging disappear

Notpla is an innovative material made from seaweed and plants. It biodegrades in weeks, naturally.

The product doesn’t compete with food crops, or need fresh water or fertiliser. It actively contributes to de-acidifying our oceans.

Notpla is a sustainable packaging start-up founded in 2014. A combination of designers,  chemists, engineers, and entrepreneurs, the team create advanced packaging solutions made from seaweed and other natural materials as an alternative to single-use plastic.

Eco-innovation challenges

There are three challenges for business leaders wanting to action eco-innovation in their companies. These are:

1. Knowing where to start, especially when the task feels huge.
2. Finding practical ideas and solutions for more sustainable business operations.
3. Building a positive business case for eco-innovation, especially when your business is trading well and profitably as it stands today.

Follow the steps outlined below to get started with eco-innovation for your business.

How to get started with eco-innovation for your business

Step 1: Assess your external eco-innovation opportunity

“[Eco-innovation] can help small- and medium-sized enterprises (SMEs) access new and expanding markets, increase productivity, attract new investment into the business, increase profitability across the value chain, and help SMEs stay ahead of regulations and standards – notably those related to the environment.”

United Nations Environment Programme

Eco-innovation could bring significant opportunities for your business, but there are so many directions you could take. Begin by carrying out a wide market review of your industry, and your customers’ industries. Identify trends that you could capitalize on, or gaps and opportunities that you might fill.

Conduct competitor analysis to find potential market space.

Use horizon scanning and trend forecasts to see what’s likely to change in the near and longer-term future.

Explore potential collaborative innovation with businesses in and outside your sector, with customers or suppliers.

Run a business strategy workshop with your team.

Step 2: Analyze your internal eco-innovation opportunity

Do a through sustainability audit of your products, services and business model, including all processes. Check your activities against the seven Rs of eco-innovation.

How well are you…

1. Redesigning products and services?
2. Reducing consumption?
3. Reusing to extend life?
4. Repairing?
5. Renovating?
6. Recycling?
7. Recovering items?

How sustainable are the inputs to your transformation model?

• Raw materials?
• Distribution and transport?
• Energy and other utilities?
• Technology?

Step 3: Shape your value proposition

A Value Proposition is the fundamental reason why your target customer should buy your product or service instead of one provided by a competitor. It is a statement or phrase that clearly communicates the most compelling, differentiating benefits that your product or service achieves for the customers you are aiming to attract. A value proposition could also be described as your distinctive promise of what you will deliver for your customer.

Based on your external and internal analysis in steps 1 and 2 above, start to shape your new and improved, sustainable customer value proposition, inspired by your innovation.

Step 4: Evaluate customer demand

Use the lean innovation principles of test fast, fail fast, learn fast to assess potential customer demand for your proposed new, sustainable value proposition.

Keep tweaking and testing until you have evidence that suggests you’re onto a potential winner.

Step 5: Put sustainability at the heart of your business model

With your sustainable value proposition nailed, it’s time for business model eco-innovation. Map out your new, greener ways of operating. Prototype your new products and services. Work through how you will create, deliver and capture value for and from your customers in real, practical ways.

Create an eco-innovation roadmap and project plan that visualizes the big picture and details of how you will get to your target operating model.

Step 6: Invest in eco-innovation for your business

Now that you have your new value proposition and business model, get real with the numbers. Work through best, realistic and worse case revenue, cost, pricing and growth scenarios for your new business model. Take into account the impact of making any changes on your cash flow, now and in the future. If you spot that you will need additional cash, take action to access it sooner rather than later.

Create an investment case or business case for yourself, not just for others, and remove some of the emotions that might not help you away from your decision-making process.

At this stage, you might need to explore alternatives, and pilot different elements to check affordability and return on investment in practise.

Consider building the principles of environmental accounting into your investment case.

Environmental accounting

Environmental accounting is management tool for a variety of purposes, such as improving environmental performance, controlling costs, investing in cleaner technologies, developing greener processes and products, and
informing decisions related to product mix, product retention, and product pricing.

Environmental accounting helps to demonstrate the impact of business actions on the environment, to complement existing financial measurement methods.

Eco-innovation next steps

Eco-innovation means building a more sustainable business, one innovation at a time.

We help our customers to integrate sustainability their business strategy, new product development and service innovation plans.

Through our eco-innovation consulting, facilitated workshops and sprints, we help your team and stakeholders to innovate more sustainably. This includes how you serve your customers, shape your product and service value propositions and grow profitability by being greener.

Eco-innovate with us to launch a brand new business, product or service, to pivot your current portfolio or to accelerate your journey to achieving net zero carbon, or carbon negative.