Patrick George/Ikon Image
A sustainability-focused business strategy often requires solutions that do not yet exist. The ambitious bets that companies make on the future, such as decarbonizing their operations, can seem out of reach and require innovation to make tangible progress.
Yet, sustainability-driven innovators face two interconnected challenges. First, innovation and product development teams are increasingly required to incorporate sustainability criteria without compromising product performance, particularly in terms of cost and quality. Second, many sustainability objectives involve complex changes to a company’s value chain — and to society as a whole — demanding solutions that extend beyond a single company’s immediate control.
As a result, leaders may struggle to connect their sustainability goals with the transformative changes needed to achieve them. To learn how others have done this, we studied a dozen companies in a range of industries that have ambitious sustainability objectives and have made them the driving force for innovation in their products and operations.
These companies start with practices that will be familiar to innovation leaders. First, they reframe sustainability as a source of strategic growth rather than a compliance problem. Then they collaborate to develop new products and processes with lead customers and trusted partners who share their commitment to sustainability.
However, achieving their aspirations requires more than the efforts of innovation and product teams, so these companies have changed how they plan, invest, and compete. They involve business functions such as finance in creating a long-term strategic vision for sustainability. Further, they engage additional stakeholders — including competitors, universities, startups, and regulators — in collectively transforming their industries.
Balancing Sustainability With Traditional Performance Metrics
Innovators face two core challenges to incorporating sustainability. One of the most immediate and persistent is upholding traditional business metrics such as cost, quality, and performance for new products. For example, the Fabrics business within W.L. Gore & Associates, owner of the well-known Gore-Tex textile brand, had to overcome technical hurdles to create new fabrics using recovered coastal plastic. Although the project aligned with Gore Fabrics’ sustainability goals, the materials initially did not meet the stringent quality standards that loyal customers expected from its waterproof, breathable outdoor gear. Gore Fabrics was already paying a premium for the recycled plastic used in its existing products. Committing even more time and resources to recycle plastic recovered from remote coastal areas was not easy to justify.
For Renewcell, a Swedish textile startup, the tension between sustainability and cost proved to be fatal. The company invented Circulose, a fiber made from cotton waste. It had clear environmental benefits, but it cost more to produce than fibers made from traditional sources. Although Renewcell gained early traction with retailers such as H&M, its manufacturing partners struggled to find a viable price for the fiber, among other issues. The result: In 2023, Renewcell filed for bankruptcy — a sobering case of market enthusiasm outpaced by a lack of economic feasibility.1
These examples underscore a shared reality. Like many transformative innovations, sustainability-driven innovations often take time to generate traditional economic benefits. Until sustainable alternatives reach cost and performance parity with legacy products, or markets are restructured to reward environmental benefits, innovation leaders must navigate a complex landscape of trade-offs.
Innovating Beyond Organizational Boundaries
A second, equally complex challenge confronting sustainability-driven innovators is that many sustainability goals require solving problems beyond a company’s direct control, and even beyond existing technology. This is especially true for Scope 3 emissions — the greenhouse gas emissions generated by suppliers, intermediaries, and customers when they produce, distribute, sell, use, or dispose of a product. In this context, innovation is no longer a self-contained activity — it is shared across the company’s ecosystem.
The challenge is particularly evident in hard-to-abate sectors, such as construction. Holcim, a global cement manufacturer, cannot decarbonize in isolation. Its value chain begins with regulators, who define building codes; moves through developers and architects, who determine project specifications; and ultimately flows to contractors, who make material choices. Such interdependence requires innovation teams to think about the system in which the company operates and engage stakeholders as they navigate regulatory frameworks, industry standards, and incentives for company partners.2
Scope 3 is the core source of CO₂ emissions for Brazil-based pulp and paper manufacturer Suzano. Yet mobilizing its supply chain to act means influencing customers in more than 110 countries to reduce logistics-related environmental impacts and develop more sustainable packaging solutions.
Startups, though nimbler than many established companies, face similar — if not greater — systemic constraints. Renewcell’s story illustrates this vividly. As a raw-material supplier in the global fashion supply chain, Renewcell was several steps removed from the retail brands and consumers it aimed to serve. Because the company lacked firm commitments from fashion brands to use the product in their clothing, its agreements with fiber manufacturers faltered. The producers hesitated to scale up without assured downstream demand from the brands, while the brands contended that they did not see enough demand from customers. Compounding the challenge, the infrastructure for sourcing high-quality, pure cotton textile waste that Renewcell needed for its production process was fragmented and immature. Because no single actor had the power or the incentive to move first, the startup was trapped.3
In short, today’s sustainability challenges are boundary-spanning by nature. They require new thinking about how companies interact with other organizations in their value chain and beyond.
Innovation Practices That Serve Sustainability Goals
The scope of these dual challenges — balancing sustainability with traditional performance metrics and solving problems that extend beyond the organization’s boundaries — can be daunting. A more fundamental issue is that many leadership teams discuss sustainability only from a compliance perspective, without considering the potential for innovation.
Our research identified five innovation practices that can help companies break through such barriers.
Practice 1: Reframe sustainability as an opportunity. One of the most prominent practices among the companies we studied is reframing sustainability challenges as strategic growth opportunities. Rather than viewing sustainability as a regulatory burden or compliance cost, these innovators use it as a catalyst for business model innovation, revenue diversification, and market expansion.
Italian electrical utility Enel started by setting sustainability goals, which included delivering affordable clean energy to customers. From there, it identified new revenue streams. The Enel X unit, launched in 2017, supports smart homes, businesses, and public infrastructure.
One initiative transformed streetlight poles into multifunctional platforms that can also carry broadband cables and sensors that collect geographic data. Another focused on public transit in cities, such as the electrification of municipal bus systems to encompass not only electric buses but also solar-powered depots and smart bus stops.4
Suzano likewise saw opportunities to create new revenue streams by inventing a new, more sustainable product: Eucafluff, which is made from planted eucalyptus instead of slow-growing native forests.5 Eucafluff is a type of material called fluff pulp, which forms the absorbent core of diapers, feminine-care pads, and other hygiene products. Eucalyptus trees grow more quickly than the softwood trees that are typically used for fluff pulp and thus require less land. Milling Eucafluff takes less energy than producing other fluff pulp, and the material holds about 30% more liquid, which means improved product performance and lower costs for Suzano’s customers. Commercial demand for Eucafluff has been strong enough that Suzano expected to more than quadruple its production capacity by the end of 2025. Notes former CEO Walter Schalka, “Every gain we make in market share creates better sustainability outcomes.”
Each of these examples illustrates how leaders are reimagining sustainability as a springboard for innovation and strategic renewal rather than a constraint. This perspective is crucial for the success of sustainability-driven innovation and serves as a foundation for the next two practices.
Practice 2: Partner with mission-aligned lead users. Aside from turning sustainability threats into opportunities, innovators are also applying the long-standing innovation practice of working with lead users, specifically focusing on mission-aligned lead users who care deeply about the same sustainability goals.
For example, Holcim and British developer Canary Wharf Group (CWG) are codeveloping sustainable building solutions. The collaboration thrives because of a shared commitment to sustainability that fosters a deeper, more constructive partnership than is possible with clients focused solely on cost. When CWG set out to develop London’s Wood Wharf neighborhood, Holcim became a trusted partner in supplying innovative materials. It not only provided low-carbon concrete but also incorporated 20% recycled aggregates (such as gravel) to reduce the project’s carbon footprint by at least 30%.6
However, the experiences of Enel’s innovation team suggest that sustainability-driven innovators may sometimes need to look beyond traditional uses for their products in their search for lead users. Enel supplies electricity to homes and businesses, but the team saw a new opportunity when it learned that many brewers’ beer production processes rely on high-temperature steam that is traditionally generated by gas-fired systems. Enel partnered with a forward-looking beer manufacturer to generate steam using electricity derived from geothermal sources. Both parties benefited: The brewer produced cleaner steam, and Enel expanded its electricity sales portfolio while advancing its broader decarbonization efforts.
As the aforementioned examples illustrate, lead users for sustainability-driven innovation can emerge wherever purpose and urgency align. Holcim, Enel, and other companies we studied started their journeys to sustainability-driven innovation by engaging with like-minded customers at an early stage in the innovation process. Doing so enabled them to gain market traction earlier than if they were to target their entire market from the get-go.
Practice 3: Seek new partners. The resources needed to meet sustainability challenges often exceed the current capabilities of a company’s existing partners. Partnerships with new innovators are needed, not only to codevelop technologies but also to jointly own risks, reconfigure incentives, and define how sustainability-driven innovation performance is measured and financed.
For example, to pursue its vision for electrification of public bus transportation, Enel X zeroed in on opportunities in Latin America, where the company already had a significant presence. Among the small number of electric bus manufacturers worldwide, only China-based BYD was willing to venture into that market — as it shared Enel’s commitment. Enel brought its knowledge of electric grids, municipal customers, and technology to charge the buses. BYD brought the electric buses and post-sale maintenance services.
Together, they were able to solve the main obstacle they faced: the higher cost of electric buses compared with typical buses. The new buses were double the price of vehicles with traditional combustion engines. The partners overcame this market hurdle by switching to a bus-as-a-service revenue model, replacing upfront bus purchases with a monthly recurring fee.
Mutual trust and a shared commitment to electrification gave the partners confidence to make the upfront investments required, as well as for BYD to shoulder the risk of adopting a business model that involved leasing rather than selling its buses. The relationship evolved into a far-reaching collaboration that includes the public bus networks in Santiago, Chile; Bogotá, Colombia; and several European cities.
The sustainability mission of OCP Group in Morocco, in contrast, required more than one new partner. As a leading producer of phosphate-based fertilizers, OCP is engaged in a must-win battle to decarbonize its entire operations. One aspect of this effort involves using environmentally friendlier ammonia. Ammonia is an important component of fertilizer, but traditional ammonia production generates significant carbon emissions. If OCP could economically produce green ammonia, that would help it decarbonize its fertilizer processes and reduce its dependence on imported ammonia with a higher carbon footprint.
Morocco’s abundant wind and solar energy presented an opportunity for OCP to produce green hydrogen, a key input in the production of green ammonia. If OCP could efficiently produce green hydrogen, it could also become a renewable energy supplier. To develop the innovations needed to achieve this aspiration, OCP has partnered with multiple global technology and engineering companies, including Fortescue, which has expertise in green hydrogen and ammonia production, and Whorley, a global engineering firm that designs and builds energy infrastructure projects. InnovX, a unit within OCP, is leading the effort.
Gore Fabrics offers another example of the partnership model. To develop a fabric from recovered plastic, the division collaborated with Bionic Yarn, a startup focused on partnering with remote communities to clean up plastic waste and create new materials from it. Bionic Yarn’s mission — which includes creating a local recycling infrastructure and related jobs in coastal communities — resonated with Gore Fabrics. While the market opportunity for the fabric wasn’t immediately obvious, the partners identified a promising niche of consumers who might be receptive to top-quality products with a strong sustainability profile, even at a premium price. And because the quality of the recovered plastic makes a difference to the finished product, Gore Fabrics invested in Bionic Yarn’s recycling facilities in Costa Rica to help ensure a consistent supply.
The joint commitment to cleaner oceans carried the effort over the technical hurdles and made the financial risks more tolerable, said W.L. Gore’s global product director, Erik Schrei. “We’re used to science-based logic, but this partnership brought a new dimension — responsible performance that people could connect with emotionally,” he said.
In 2023, after six years, the partners joined with outdoor clothing retailer Patagonia to launch the first parka containing Gore-Tex laminates and Bionic Yarn’s ocean-recovered plastic for consumers in the premium lifestyle segment. The launch paved the way for Bionic Yarn and Gore Fabrics to develop additional collections with Patagonia. Rather than remaining exclusive with Patagonia for a longer period, however, the companies have begun collaborations with The North Face Japan and Stone Island brands.
These examples underscore how partners can prioritize the sustainability mission within a business venture. What each partner contributes may not be clearly defined at the start, as with Enel X and BYD, because the relationship and the innovation are still evolving. Partners may need to wait for a new market to develop before they are compensated for their intellectual property, whether it is technology or the use of their branding. And they may need to accept smaller returns initially or forgo exclusivity, as Patagonia, Bionic Yarn, and Gore Fabrics did. As for partnerships with customers, trust and patience are essential.
Practice 4: Think big about the future. Meaningful progress on sustainability starts with a vivid picture of the future. What conditions will be needed 10 or 20 years from now for humanity to thrive? A stable climate, healthy ecosystems, secure water supplies, and dignified work are essential to avoiding planetary and societal breakdown. Scholars call these issues grand challenges — sprawling problems that cut across industries, geographies, and sociopolitical categories and exceed the reach of any single actor.
Companies that aim to tackle grand challenges start with a vision of the desired end state and then identify what they must do — both to survive as a business and contribute to the greater goal. They work backward, from the future to the present, mapping growth or risk-reduction opportunities that they need to be ready for. They will also identify the technologies, investments, and partnerships needed to close the gap between the current and end states. While this process often reveals some short- and medium-term opportunities, the primary aim is to uncover opportunities that the typical strategic planning process would never surface.
Enel used the United Nations’ Sustainable Development Goals as the starting point for creating a long-term vision that clarified its purpose and its goals for sustainability. Unlike the usual five-year strategic plan, which focused on financial goals, the collective mission aimed to make employees feel that they were part of a process of change that would benefit themselves and future generations.
With a sustainability-focused purpose and goals in hand, Enel defined a business case for transitioning to clean energy that demonstrated that it was not only feasible but also more stable and strategic than remaining tied to fossil fuels. Finally, the company developed a 10-year plan for executing sustainability goals, exploiting growth opportunities, and mitigating associated risks. While fully aware that much is likely to change in the course of executing a long-range plan, Enel has a blueprint for innovation intent that includes the work of its Enel X unit.
Holcim took a similar approach, starting with a public commitment to net-zero emissions by 2050, among other goals. Next, sustainability leaders created an emissions reduction road map, with targets certified by the U.N. Science-Based Targets Initiative as aligned with the 2015 Paris Agreement goal for limiting global temperature increases.7
Understanding what it would take to close the gap between the current and future state was essential. Innovators conducted future-state gap analyses; monitored green technology road maps, net-zero emissions goals, and other megatrends; and took a systems view of the construction industry to uncover new opportunities. The analysis yielded three notable areas for decarbonizing the construction sector: hydrogen use; limestone replacements; and carbon capture, utilization, and storage (CCUS). Subsequent studies of each of these spaces identified venture opportunities that could be commercially viable within four years. However, supply chain and market readiness lagged behind — a gap that a large company like Holcim is well placed to overcome.8
By taking a long view, companies escape the trap of short-term goals and quick wins, and find market opportunities that go beyond the context of the existing business. A broader long-term perspective can reveal new opportunities that the company may never have pursued otherwise.
Practice 5: Create stakeholder coalitions. In pursuit of a sustainability grand challenge, companies may not only surpass their own capabilities but also those of the customers, suppliers, and partners in their value chains. In such cases, they can benefit from coalitions that include additional stakeholders, such as regulators, university researchers, startups, and even competitors, all working toward the same collective goals.
Schalka asserts that “sustainability is a game much more based on collaboration than on competition.” This conviction led Suzano to cofound Biomas, a multi-industry coalition that pools financial resources, land, and scientific knowledge to restore and conserve 4 million hectares of Brazilian forest, an area the size of Switzerland. By healing degraded cattle pastures, idle farmland, and public forests, Suzano helps to secure the fertile soils, water cycles, and biodiversity corridors that its eucalyptus plantations depend on.
Similarly, Enel convened suppliers, startups, and competitors to tackle its goal to decarbonize electrical grid cables, a significant source of Scope 3 emissions. The resulting Global Alliance for Sustainable Energy generated shared demand for cables produced with fewer emissions, along with investments in such innovations by Enel and competitors like Spanish electric utility Iberdrola.
In the cement business, CCUS is emerging as a key lever for reducing manufacturing emissions. Holcim is working with partners such as Neustark, a startup that has developed technology to sink captured CO₂ in recycled cement. Thanks to this partnership, Holcim and Neustark can offer customers like CWG cement that contains sequestered CO₂.
However, for CCUS to become standard in the cement production process, partners beyond the cement industry need to be involved. To that end, Holcim is collaborating with industrial engineering companies such as ThyssenKrupp and Linde Engineering to capture over 1.2 million metric tons of CO₂ annually from its Lägerdorf, Germany, plant — an amount equivalent to the emissions from driving 279,906 combustion-engine cars for a year.
Further, in 2023, Holcim founded All4Zero, a cross-industry open innovation hub, with three partners: fuel supplier Repsol, airline Iberia, and steelmaker ArcelorMittal. The companies aim to achieve net-zero emissions by 2050. They share their knowledge, industrial resources, and research centers with universities and other companies to test and validate innovative technologies for decarbonizing industrial processes and fostering a circular economy.
Work by Plug and Play, an open innovation platform and venture capital firm, illustrates how cross-industry coalitions can be cultivated on a global scale. Plug and Play partnered with the Alliance to End Plastic Waste (AEPW), a coalition of over 75 companies from across the plastics value chain, to set up an open innovation platform for innovators and entrepreneurs who are working on the issue of plastic waste. (Members include Coca-Cola, Daimler, and the water, energy, and waste management company Veolia Group.) With over $1 billion in capital committed by AEPW members, and hubs in places such as Paris, Singapore, and Silicon Valley, the coalition has connected startups with members who needed sustainability solutions. It has also facilitated collaboration among research institutions, venture capitalists, corporate venture capitalists, nongovernmental organizations, and governments.
“Each player brings a piece of the puzzle,” said Thomas Bigagli, a Plug and Play partner. “We help build, nurture, and accelerate this ecosystem so that all parties — startups, corporates, researchers — can act together. None of them can solve it alone.”
When corporate leaders commit to sustainability goals that stretch beyond today’s capabilities, they are calling for innovation. These commitments demand more than incremental technical breakthroughs, however. Innovation needs to become the strategic engine that transforms ambition into achievement.
Sustainability-driven innovation requires committed and passionate senior leaders who are willing to think big: to envision future opportunities and engage like-minded partners in diverse coalitions. Expert outsiders who bring proven innovation experience and commitment to sustainability can bolster internal efforts. No isolated visionaries, they will imagine boldly, act collectively, and build the future together.