Sustainable Innovation: Creating Solutions for Sustainable Development
Innovation is roughly defined as the “production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and establishment of new management systems. It is both a process and an outcome” (Crossan and Apaydin 2010, p. 1155). Unlike invention, innovation is the realization of new ideas with a social function and an economic purpose (Schumpeter 1934); therefore, the value added provided by innovation focuses on the maximization of economic capital.
Sustainable innovation builds on these ideas, aiming to tackle social and environmental issues while also adding economic value. Consequently, sustainable innovation can be defined as the development of environmental, social, and economic value-added products, services, processes, marketing methods, or organizational methods (Klewitz and Hansen 2014; Adams et al. 2016). Sustainable innovation departs from the principles of novelty and its exploitation outlined in traditional innovation, but adds environmental and social dimensions. This has immediate consequences not only in the innovation process and outcomes but also in the input requirements, mechanisms for value capture, and actors involved.
Economic dynamics have often been blamed for the creation of unsustainable socio-ecological dynamics, ranging from environmental global problems, such as climate change or the so-called plastic soup in the ocean, to social issues such as access to nutritious food or socioeconomic inequality. While economic growth has helped many countries to achieve better standards of living, the coupling between increasing wealth and environmental degradation is apparent; for instance, GDP per capita is currently positively correlated with CO2 emissions per capita (Raupach et al. 2007; UNEP 2014). Moreover, such growth is often sustained at the expense of others, as it is the case, for example, of cheap clothing based on offshore labor exploitation (Reinecke and Donaghey 2015) or the production of palm oil in Southeast Asia (Schouten and Glasbergen 2011). While palm oil is mostly used to produce processed foods in Europe and North America, it brings problems of labor exploitation and deforestation in the areas of production.
There are three main factors that affect environmental resource use: amount of population, income, and the processes (technologies, policies, and management techniques) through which factors of production are turned into products and services (UNEP 2014). We assume that population growth is set to continue and a sustainable development target is to increase or at least maintain global income (since wealth is associated to better standards of living). Therefore, in the quest for sustainable development, a new way to approach economic production is needed to decouple economic growth from environmental degradation and social unfairness. This has direct and evident effects for economic agents and their innovation activities, which are, in essence, “the core renewal process in any organization” (Bessant et al. 2005, p. 1366), suggesting that new processes, management techniques, and products are the only variable in the degradation equation over which we can bring about impactful change.
Innovation has traditionally focused on economic purpose by fulfilment of a social function (Schumpeter 1934), that is, in bringing about a novelty demanded by the market (hence improving the user’s quality of life), while the firm or entrepreneurs capture value for their effort in the form of economic gains (examples of this range from corkscrews to self-service counters to Google’s search algorithm). The focus on adding economic value has attracted little attention on environmental or social dimensions beyond market demands. However, the increasing realization of the pervasive effect of the prioritization of economic gains, without taking into consideration its embeddedness in social and environmental systems, has led to a gradual introduction of socio-environmental concerns in businesses, the principal players in economic relationships (Bansal 2005; Hart and Dowell 2011). Moreover, the potential of innovation as a “future-creating activity” (Grinbaum and Groves 2013, p. 119) to bring about sustainable change has been realized by firms (Jay and Gerand 2015; Adams et al. 2016) and institutions (OECD 2009; European Commission 2012). While sustainable innovation has been explicitly included as SDG 9, it is a powerful tool to address other problems outlined in the SDGs, most directly, SDG 8 (United Nations 2014).
However, the inclusion of social and environmental dimensions both in the innovation process and outcomes bring about further complexity for the firm developing such innovation, by adding additional requirements and issues in value capture (Fichter 2005). A rich literature and practice have emerged to target such issues and provide answers for the business actors aiming to engage in sustainable innovation (Iñigo and Albareda 2016; Adams et al. 2016). In the sections below, the different frameworks and dimensions of sustainable innovation are explored, with an outline of the importance of collaborative dynamics and the emergence of new actors. This is followed by a recollection of issues in sustainable innovation and value capture. Finally, the entry closes pointing at future directions in sustainable innovation.
Frameworks of Sustainable Innovation
While eco-innovation was introduced as an innovation goal and process already in the 1990s (Fussler and James 1996) – in line with the Brundtland declaration for sustainable development (World Commission on Environment and Development 1987) – early efforts focused on the development of eco-efficient products and processes and the minimization of the environmental impacts of production. However, the realization of the increased complexity that embarking in sustainable innovation entails (Fichter 2005) led to the exploration of how organizational features, capabilities, and evolution differ from those who have not incorporated sustainability in their core innovation activities (Iñigo and Albareda 2016; Adams et al. 2016). Several frameworks have aimed to explain how sustainable innovation changes organizational practices and forms, looking at the organizational adaptation to the inclusion of new goals, different forms of innovation beyond product and process, and the role of innovation in addressing often intertwined social, environmental, and economic problems.
Disciplines Informing Sustainable Innovation and Issues in Its Definition
An important aspect to be taken into consideration when dealing with sustainable innovations is that they tend to be interdisciplinary in nature, as it is often the case when sustainability concerns are introduced. While innovation has often been a field dominated by engineering, design, and management sciences, several streams of knowledge have contributed to the development of the concept of sustainable innovation (Adams et al. 2016; Inigo 2017). Because of that, sustainable innovation distances itself from other forms of innovation in several aspects beyond the inclusion of additional goals for innovation. For instance, new research has been conducted on the organizational capabilities required to develop sustainable innovations, the effect of sustainable innovations on wider system changes, the added difficulties to capture value from design, and the intertwinement of environmental knowledge – mostly from the natural sciences, with social knowledge, provided by the social sciences, with knowledge about design processes, coming from engineering and the arts, etc.
Examples of sustainable innovations based on their degree of sustainability orientation
Degree of sustainability orientation
Minimalist furniture design. The decision to choose this design usually lies on trends in décor. This design is less material-intensive, which is an environmentally beneficial side effect. However, sustainability has no direct effect on other design decisions (for instance, painting the piece of furniture for design, or not painting it to avoid the use of unsustainable chemicals). Therefore, when new trends appear, or other decisions need to be made, sustainability will not be a criterion
Slow fashion. The slow fashion movement embeds ethical and ecological concerns in fashion design. Sustainability criteria such as fair working conditions, boat and lorry transportation, use of sustainable fibers, and durability of designs are included in the design process. However, the main goal of the innovations is to produce fashionable clothing – albeit in a sustainable way – which does not directly tackle a sustainability problem
Eco-designed energy windmills. Eco-designed energy windmills look at the life cycle of the windmill itself, therefore including a selection of sustainably sourced materials that can be recycled or remanufactured. In addition, their purpose is to be part of a wider energy transition to sustainable sources of energy. Moreover, through inclusive landscape planning, windfarms can bring additional qualified jobs and income to rural areas, helping to preserve local rural communities and prevent massive urban migrations. Therefore, their main goal is to address sustainability problems
While sustainability-informed and sustainability-driven innovations are almost always considered as sustainable innovations, sustainability-relevant innovations are sometimes not included as such, since they are unintended and contextual – therefore the sustainability effect may change. The most restrictive definitions limit themselves to sustainability-driven innovation, highlighting the relevance of intention (see, for instance, Jay and Gerand (2015)). However, most definitions adopt a comprehensive view that encompasses the three degrees of sustainability orientation (Inigo 2017), a good example of such inclusive definitions being the following: “the renewal or improvement of products, services, technological or organisational processes to deliver not only an improved economic performance but also an enhanced environmental and social performance, both in the short and long terms” (Bos-Brouwers 2010, p. 419).
Another discussion is related to the balance between the three sustainability pillars. While the inclusion of environmental, social, and economic goals is conceptually apparent, the social pillar has been largely overlooked by the longer-running eco-innovation literature (Fussler and James 1996; Buttol et al. 2012). This has fed a bias favoring environmental issues to the sustainable innovation literature that largely builds on eco-innovation. The literature on social innovation, which is also a building block for sustainable innovation, tends to prioritize social over economic goals and argue that these innovations are carried out by organizations mostly concerned with a social purpose (Mulgan et al. 2007). Although the idea of triple bottom line is central to sustainable innovation, the inclusion of this research stream in the conceptual development phase has allowed for a wider inclusion of innovation actors (e.g., NGOs, policy-makers, or hybrid organizations) and outcomes (e.g., institutional innovation, organizational, product-service systems).
A significant issue in sustainable innovation is to what extent innovations must pursue “weak” or “strong” sustainability (Hartwick 1978) to be labelled as such. The question whether social, environmental, and economic resources can be substituted for each other is widely discussed, particularly in the light of trespassing environmental thresholds (Inigo 2017). An example of this debate is that of the use of fossil fuels: if producing countries use the economic profit derived from environmental degradation to come out of poverty, invest in education, and provide for a better livelihood of the local population, is fossil fuel extraction and production unsustainable? Most definitions of sustainable innovation assume this substitutability among types of resources, as provided, for instance, by Klewitz and Hansen (2011, p. 3): “An improvement (and/or introduction) of a product, technology, service, process, management technique or business model, which, in comparison to a prior version and based on a rigorous and traceable (comparative) analysis, has a positive net effect on the overall capital stock (economic, environmental and social).”
Models to Categorize Sustainable Innovations
Aiming to bring clarity to the implementation of sustainable innovations despite its conceptual complexity, several models to categorize sustainable innovations have emerged. One of the most influential models to operationalize sustainable innovation, the “sustainability innovation cube,” was introduced by Hansen et al. (2009). This framework constructs a meta-method to evaluate sustainable innovations, looking at three different dimensions: innovation type (business model, product-service system, and technology), life cycle dimension (manufacture, use, and end-of-life), and target dimension (ecological, social, and economic effects). The sustainability innovation cube aims to integrate dimensions that are often treated separately in practice, in order to provide a systemic vision over the innovation at hand (hence capturing its complexity), while simplifying the approaches to the creation of sustainable value (Hart and Milstein 2003). Therefore, the objective of this model is to reduce the directional risk that sustainable innovation processes present and additional risk as compared to other forms of innovation. It includes two dimensions that are often not considered in other innovation processes: the point in the life cycle of a technology, product-service system, or business model that the innovation addresses – which has effects on its disposal and the closure of the economic production loop (see chapter “Circular Economy”) – and the target dimension. Ashford and Hall (2011) provide another categorization of sustainable innovations, based on four dimensions: innovation type (technological, organizational, institutional, or social), innovation rate (incremental or radical), nature (sustaining or disrupting the existing socio-technical system), and sustainability orientation (relevant, informed, or driven) (Jay and Gerand 2015). The evolution of this categorization shows three ways in which sustainable innovation has distinguished itself from traditional innovation: strength of the sustainability orientation, increased interest in non-technological innovations, and the effect of the innovation in its surrounding socio-technical system.
A growing interest in non-technological innovations and the tendency to distance from the traditional innovation outcome categories product, service, process, and business model (Crossan and Apaydin 2010) is observed in the abovementioned categorizations of sustainable innovation (Hansen et al. 2009; Ashford and Hall 2011; Jay and Gerand 2015). The reason for this is an increasing concern about the role of innovations – and more specifically, sustainable innovations – to produce positive social and environmental change (Ahlstrom 2010). In fact, the concept of system has been useful in classifying sustainable innovations. Carrillo-Hermosilla et al. (2010) categorize them based on four criteria: type of impact on the system (redesign for good or minimization of negative impacts), the scale of change on the system (incremental or radical), degree of environmental and social sustainability of the system, and degree of economic sustainability of the system. Based on these criteria, they identify three types of increasingly challenging – but also increasingly impactful – sustainable innovations: component addition (end-of-pipe solutions), subsystem change (eco-efficiency), and system change (eco-effectiveness).
To that extent, sustainable innovation brings about change not only through the inclusion of new products or services; in fact, engaging in sustainable innovation is seen as a journey of organizational transformation whereby a new role for business in the social and environmental systems is established (Loorbach and Wijsman 2013; Iñigo and Albareda 2016). In this line of thought, the following models of sustainable innovation are concerned with this wider organizational transformation, rather than on the outcomes of a particular innovation process.
In order to analyze this organizational transformation, Adams et al. (2016) developed a model that illustrates a dynamic, path-dependent, and stage-based model of engagement in sustainable innovation. Under these logics, the “sustainable innovation journey” is different for each organization and will build on a different departing set of capabilities and contextual factors. The evolution is dynamic, since leapfrogging and regressions may occur throughout the transformation toward the final stage, system building. The first stage is operational optimization, a stage in which the firms are mostly concerned with the reduction of negative impacts and the development of component addition (end-of-pipe) sustainable innovations (Carrillo-Hermosilla et al. 2010). The second stage is characterized by a cultural shift in the organization: beyond providing solutions that improve the sustainability status quo relative to the prior situation, the organization aims for “net positive impact.” Therefore, the organizational mind-set advances from seeking environmental efficiency and social legitimation through innovation, to proactively contributing to tackling sustainability-related issues. When it comes to the type of sustainable innovations developed, there is move in this phase from sustainability-informed innovations to sustainability-driven innovations (Jay and Gerand 2015), which requires the implementation of new processes and nurturing new sustainability-related capabilities. In the final stage of transformation, i.e., system building, organizations aim to become leaders in the wider system change, engaging others and working toward sustainability. In this way, businesses innovate their own role as market players, breaking from the traditional role and becoming an active actor in socio-technical transitions to sustainability (Geels 2010; Loorbach and Wijsman 2013).
Components and Dynamics in Sustainable Innovation
System components of sustainable innovations and main challenges
Focus and challenges
The operational component focuses on the methods, tools, and resources necessary for the development of sustainable innovations. Therefore, the development of acquisition of new capabilities or knowledge and the integration of sustainability-oriented processes and methodologies belong in this category. An example of a research stream within this component includes the relationship between the integration of environmental management systems and life cycle analysis for innovation (e.g., Inoue et al. (2013))
Collaboration with other stakeholders plays an important part in sustainable innovation (see subsection below). Beyond open innovation, the integration of stakeholder knowledge is relevant to truly addressing sustainability problems. In addition, the interdisciplinarity inherent to sustainable innovation often calls for the search of complementary capabilities in other actors. This component includes research streams ranging from industrial symbiosis (Mirata and Emtairah 2005) to public policy issues in supporting sustainable innovation (Horbach et al. 2012)
This component relates to the culture shift and capacity building process that the sustainable innovation performing organization undergoes as part of its SOI journey. Therefore, this includes streams related to organizational capabilities for sustainable innovation (van Kleef and Roome 2007) or the design of new business models to find new balances between environmental, social, and economic value creation (Inigo et al. 2017)
The instrumental component refers to the economic driver of sustainable innovation and the ability of the innovation performer to compete in the market, as well as aligning the organizational strategy with sustainable innovations goals. Therefore, one of the research streams in this component is the one linking sustainable innovation to competitive advantage (Nidumolu et al. 2009)
The systemic component is the final, aspirational one, in which the organization acquires a systemic vision of the other components and its role and ability to transform its environment and socio-technical system (Loorbach and Wijsman 2013; Adams et al. 2016)
The interrelation of these components drives advances in the transformation toward sustainable innovation, leading to the build-up of the systemic components (Iñigo and Albareda 2016). They relate through self-reinforcing dynamics, whereby developments in one of the components support developments in others. As an illustration, if the sustainable innovation process of a firm has an advanced instrument component, it will still need to acquire new knowledge for innovation (operational), which is likely to be acquired through relational skills and partnerships (collaborative), which will result in an organizational transformation to fit the innovation goals (organizational). According to this approach to sustainable innovation, these relationships among components are self-organized under principles of path dependence, which means that each combination of components and stages of development within them will be idiosyncratic to the organization. This idea is also sustained by the principles of emergence, which suggest that unexpected dynamics, components, and challenges will likely emerge from the combination of components and contextual factors. In any case, the reinforcing dynamics among components shall lead to an eventual nurturing of the systemic component.
The Collaborative Component and the Emergence of New Actors in Sustainable Innovation
As mentioned above, there is a collaborative component to sustainable innovation, which has been widely addressed in the literature because of the specificities that it presents as compared with other forms of innovation. Although in the last decade open innovation has risen as an innovation paradigm (Chesbrough 2003), many innovation processes remain closed. However, the interdisciplinarity of sustainable innovation has called for an opening of innovation processes, since complementary, often non-technical knowledge is required to develop such innovations. Stakeholders that are not usually involved in other forms of innovation (e.g., NGOs, governmental agencies, or civil society organizations) except for a consultative role become co-creators and innovation partners in sustainable innovation (Goodman et al. 2017). In this case, stakeholders provide in situ expertise and knowledge that is necessary to complement the innovator’s capabilities and resources.
Stimulator: provides seed funding or opens a public call for ideas.
Initiator: informal role, the stakeholder creates a conversation around a sustainability issue or comes up with an idea that triggers an innovation process.
Broker/mediator: brings other stakeholders to the table and manages the relationships between them and the focal innovator. It may also test pilots and collect feedback to be incorporated in the innovation.
Concept refiner: mostly develops technical aspects, provides specific knowledge, and incorporates criteria from stakeholder feedback.
Legitimator: enhances consumer trust and marketability of the innovation because of its reputation (e.g., a celebrity), its position in the community (e.g., CSO or NGOs), or its expertise (e.g., a professor or expert user).
Educator: informs and communicates to the public or interested audiences of the economic, social, and environmental properties of the innovation.
Context enabler: since sustainable innovation often taps into unregulated issues or provides solutions for which infrastructure is not ready (e.g., electric car and charging stations), the context enabler facilitates regulatory (licenses, drafting of new regulations) and infrastructure-related hurdles.
Impact extender: aims to maximize the impact and use of the innovation in question, by engaging users or providing additional platforms.
While traditional (open) innovation involves non-technical stakeholders mostly at the ideation phase, in the sustainable innovation process, they are present throughout all its phases (ideation, development, and commercialization). This also requires rethinking business models and how value is created and captured by different actors whose performance indicators lie at different realms. This has led to the exploration of collaborative business models for sustainability (Rohrbeck et al. 2013). In any case, beyond collaboration business models for sustainability also feature special requirements. Because of the creation of environmental, social, and economic value, how this value is captured by the innovator is not as straightforward. This issue is explored in the next section.
Sustainable Innovation, Value Creation, and Value Capture
The question on whether sustainability pays off at the firm level (translating social and environmental value creation in economic profits) has been often asked in the sustainable business literature (Wood 2010). When it comes to sustainable innovation, this question is not raised as often, since innovation is usually understood as a value-creating activity. Therefore, the profitability for the sustainable innovator is often taken for granted. However, even if the creation of net social, economic, and environmental value is a defining feature of sustainable innovation (as an example, see the definition provided by Klewitz and Hansen (2011)), this is not necessarily the case for all sustainable innovations (Ghisetti and Rennings 2014; Huang and Li 2015). The complex web of actors involved in the development of sustainable innovations, linked to potential trade-offs between social, environmental, and economic concerns, implies that the appropriation of a share of the value created in the form of economic profits is not as straightforward as in other forms of innovation (other shares of value are appropriated by users and consumers, competitors, suppliers, etc.).
If sustainable innovation carried out by private enterprises is to fulfil SDG 8, Decent Work and Economic Growth, it should be economically profitable. Being able to economically profit from such innovations translates in the creation of more jobs and, in the case of sustainable innovation, quality jobs. However, economic growth derived from sustainable innovation is not a straightforward process. In the case of sustainability-relevant or component addition, obtaining an economic profit lies mostly in line with traditional economic thinking; since large upfront investments are not required, it is not necessary to overturn the strategy of the firm, and material and energy efficiencies are money-saving in the short and long run. However, as the journey of engagement in sustainable innovation progresses, trade-offs among the three sustainability pillars become more apparent, and the gradual change of mind-set disallows progressing with a sustainable innovation process if one of them is going to suffer strongly. Consequently, it becomes harder to obtain benefits, which explains why only certain innovations seem to be economically profitable, at least in the short term (Ghisetti and Rennings 2014).
This suggests that firms need to find new ways to approach value creation, delivery, and capture strategies when developing sustainable innovations and developing special capabilities to bridge the development of sustainable innovations with their marketability and profitability (Huang and Li 2015; Inigo et al. 2017). One way in which research is aiming to fill this gap between value creation and capture is the development of business model innovations. Business model innovation for sustainability has three main vantage points: first, they can have a wider impact than other forms of innovation – like product of process innovations – since they require to rethink the whole organizational structure and dynamics, hence jumpstarting the organization transformation toward system building (Bocken et al. 2014; Adams et al. 2016). Second, they can provide the linkage between technological and organizational innovations, becoming the vessel to bring them to the market. Third, they provide a clear value creation, value delivery, and value capture structure to incorporate sustainability concerns (see chapter on “Sustainable Business Models”).
Sustainable innovation is consolidating as an innovation mind-set for businesses, which see in the value-creating activity that innovation is a fruitful road to contribute to sustainable development (see chapter “Enterprises”). It is also becoming a rich, consolidated field of research on its own, due to the different processes, capabilities, resources, collaboration patters, and systems of value creation respective to traditional innovation. While the great part of the sustainable innovation literature focuses on enterprises as the main actor, the transformation of enterprises itself is showing new focal actors of study, like social businesses or B corporations. New actors like NGOs or policy-makers are also engaging with sustainable innovation. Consequently, it is expected that new branches of study will emerge focusing on how these new actors that have traditionally played an advisory or support role innovation become the focal organization.
On another note, the role of innovation systems for sustainability is increasingly notable (see chapter “Innovation Systems for Sustainability”). The relationship of the firm engaged in sustainable innovation with its surrounding systems is noteworthy; first, it aims to obtain the necessary complementary knowledge; second, it aims to impact such system positively. With this twofold objective in mind, sustainable innovation firms tend to network and participate actively in the innovation system. Sometimes, firms in a local system become so highly interconnected as to deliberately act together as different components of a system at their strategic and operational levels, in so-called industrial symbiosis (Mirata and Emtairah 2005). The importance of systems vision and the emergence of this phenomenon call for the study of sustainable innovation from the innovation system perspective.
Finally, the realization of the fact that the development of sustainable innovation in isolation from others prevents them from achieving its maximum possible impact is opening new research avenues. Sustainable innovation is increasingly being analyzed from a perspective of interconnectedness and interrelation between the social and technological spheres. Some examples of this are the flourishing research on sustainable business models (see chapter “Sustainable Business Models”) or the abovementioned study of the development of innovation systems for sustainability (see chapter “Innovation Systems for Sustainability”). Interesting developments in which sustainable innovation in technological and non-technological realms are directed to changing the whole economic system are also gaining traction, the most notable one being the circular economy framework (see chapter “Circular Economy”).
In a nutshell, sustainable innovation has evolved from being a discipline and practice dealing mostly with environmental efficiency in its early developments to becoming a field increasingly interested in the systems perspective, a proper integration of environmental, social, and economic concerns, and focused on the potential of innovation to support wider transitions to sustainable development (see chapter “Transitions to Sustainable Development”). The future of sustainable innovation continues to be interdisciplinary, collaborative, and impactful.
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