Sustainable Products Fatten Corporate Coffers

For many large companies, revenues from sustainable products and services are growing much faster than overall sales.
David McCannJuly 8, 2015
Sustainable Products Fatten Corporate Coffers

Many large companies are deriving a growing portion of their revenues from portfolios of products and services designed to enhance sustainability, according to new research by The Conference Board.

Among a sample of 12 S&P Global 100 companies, aggregate revenues from such products and services grew 91% from 2010 to 2013, while overall sales climbed by just 15%.

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Manifestations of the trend were startlingly extreme at some of the companies. For example, at Kimberly-Clark, while overall company revenue increased a modest 7.6% from 2010 to 2013, the topline tally from sustainable products ballooned by 296%. Over that period the company’s share of revenue driven by such products shot from 10% all the way to 37%.

Similarly, Dow Chemical’s revenue from sustainable products swelled by 147% over the four-year period, during which overall revenue inched up by 6%, while the share of revenue from such products increased from 4% in 2010 to 10% in 2013.

The trend was also evident, if less pronounced, at six other companies in the group of 12 studied, including household names like General Electric, Philips, Siemens, and Toshiba. Data for 2014 were available for just a few of the companies, but the trend clearly continued. Panasonic’s revenue share from sustainable products more than doubled just from 2013 (10%) to 2014 (22%).

“More than a matter of responsibility or reputation, sustainability has become a potentially lucrative business strategy for a broad range of companies,” says the report’s author, Thomas Singer, a former sustainability consultant who is The Conference Board’s principal researcher for corporate leadership.

Asked about the primary drivers for launching sustainable product initiatives, companies pointed to customer demand for solutions that address global sustainability challenges, such as climate change and resource scarcity. That demand is so high that companies are expending great effort to meet it.

“Launching these initiatives requires overcoming a number of significant challenges, such as a lack of existing global standards in this field; challenges associated with the trade-offs between cost, environmental design, and pressure to price sustainable products competitively; and challenges embedding these initiatives into existing company processes,” Singer writes.

A big part of the appeal of developing sustainable products and services is the opportunity to price them at a premium. The report cited a 2014 study by Nielsen in which 55% of online consumers indicated they were willing to pay more for products and services provided by companies that were committed to positive social and environmental impact.

The report, which was prepared in collaboration with the Investor Responsibility Research Center Institute, lists dozens of sustainability R&D initiatives in the automobile, chemical, industrial, and technology sectors (see page 33 of the report, which is available to members of The Conference Board).

The report also notes that commercial and investment banks are playing an increasingly significant role in financing the development of large-scale sustainable products and solutions, primarily through asset finance, tax equity, and green bonds. For example, total new investments in clean energy by Global 100 banks increased 142% from 2006 to 2014, reaching $310 billion, according to the report.