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A review of 100 studies crushes assumptions about conflict between profit and sustainability

Only two studies found negative effects on the bottom line from adopting sustainability practices
January 19, 2021

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Conventional wisdom holds that adopting sustainability practices increases costs and makes businesses less competitive. But most published studies on the topic find the opposite, a new analysis shows.

Researchers from the Norwegian University of Science and Technology searched through databases of scientific literature to find 100 studies published between 2005 and 2020 that tested relationships between sustainability and competitiveness.

Of the studies, 64 found that undertaking sustainability innovations was good for the bottom line, the researchers report in the Journal of Cleaner Production. Only 2 studies found negative effects, while 29 reported mixed results and 5 had inconclusive findings.

Pursuing sustainability can lead to lower costs for businesses by reducing their consumption of energy and raw materials, for example. It can also help them stand out from other similar businesses and attract new customers and investors who value sustainability.

The papers reviewed in the new analysis analyzed 188 different relationships between sustainability and increased value creation and found 120 of them to be positive, as well as 18 of 31 relationships between sustainability and cost reduction, and 27 of 35 relationships between sustainability and the ability to attract non-financial assets.

“This finding supports the revisionist view that new business opportunities accompanying the sustainability shift more than compensate for the associated liabilities,” the researchers write.

Research in this area is growing fast: 80 percent of the studies included in the new review were published in 2013 or after. Just over half of the studies focused on manufacturing or high-tech firms.

But the field still has blind spots. Sustainability has three aspects, the researchers explain: environmental, social, and economic. That is, firms have to reduce negative impacts on the environment and society while remaining profitable enough to stay in business.

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Relatively few studies have addressed the social pillar of sustainability—how business practices address health, education, safety, and other values of benefit to society. In the new analysis, most of the studies were about environmental sustainability; only 11 percent referred to social innovations.

Still, the overall picture is clear: “the question is not whether firms should implement sustainability but rather how,” the researchers write.

So far there’s little to guide businesses in these specifics. The researchers looked at what studies say about the factors that contribute to business benefits of sustainability. Do environmental regulations at a national level make it easier for firms to focus on sustainability? Do the costs and benefits differ by industry?

Overall, “current research has yet to provide a comprehensive answer to the question as to what factors positively moderate and mediate the relationship between sustainability innovations and firm competitiveness,” the researchers write.

There are a few hints about such factors. For example, highly dynamic markets foster sustainability innovations because “existing products and services become quickly outdated in the face of new and improved offerings,” the researchers write. ‘Hence, there is more ‘room’ for new sustainability innovations to succeed in the market.”

Studies that track how businesses do over time could help tease out the cause-and-effect relationships between sustainability innovations and business success, the researchers suggest. They may also reveal more positive effects of sustainability efforts, since these sometimes take time to come to fruition and pay off for companies. In turn, such information could help more companies feel confident about taking on the sustainability challenge.

Source: Hermundsdottir F. and A. Aspelund “Sustainability innovations and firm competitiveness: a review.” Journal of Cleaner Production 2021.

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