In today’s increasingly complex business world, pressing social and environmental challenges are forcing companies to rethink their traditional business models. In this context, sustainable business models are increasingly becoming the focus of attention and necessity.
Basic understanding: Sustainable business model – what is it?
In the traditional understanding, a business model basically describes the way in which a company generates profit – in other words, how the business works.
With a sustainable business model, the focus expands. It is no longer just financial gains that play a role here, but a broader range of factors. This is because companies are changing their perspective and seeing themselves less in isolation and more as part of a larger system. They recognize that their decisions and actions have an impact on a variety of stakeholders, including customers, employees, the community and the environment.
In this sense, they are committed to achieving economic benefits as well as having a positive social and environmental impact. In this way, a sustainable business model ensures that long-term economic value, social benefits and ecological advantages are generated at the same time.
The sustainable business model goes beyond the traditional concept of corporate social responsibility (CSR) and integrates sustainability deeply into business activities. It involves all stakeholders – from employees and customers to suppliers, the local community and “Mother Earth” – and thus contributes to creating a fairer world worth living in. After all, at the heart of any sustainable business model is the belief that companies can play an important role in tackling challenges such as poverty, inequality, climate change, species extinction, pollution, peace and justice.
The business model revolution: Why sustainable business models are the future
Expectations of companies have changed significantly in recent years. Customers, employees, investors and even the state are increasingly demanding that companies take social and ecological responsibility into account. This shift, combined with the growing realization that sustainability can also bring economic benefits, is leading to an increasing change of thinking.
In my opinion, we are on the cusp of a revolutionary change in the way companies manage and develop their business. While many reactions may still be hesitant at the moment, others are forging ahead at a rapid pace. Sustainable business models are at the heart of this revolution.
In the past, most companies focused exclusively on financial profits. But the business world is changing. Companies’ own “purpose” is being called into question: What are we actually doing business for? At whose expense are we operating? How can we do better? This growing movement has set the way for the emergence of business models that integrate sustainability into the core of their strategies.
Again, I would also like to emphasize the long-term economic benefits of sustainable business models. These types of business models help companies to minimize risks and strengthen resilience by preparing companies for long-term trends and changes such as resource scarcity, extreme weather conditions, changing ecosystems, unstable supply chains, regulatory requirements or even sustainable market trends.
Studies have shown that companies that take sustainability seriously tend to perform better financially than their less sustainable competitors. For example, a meta-analysis published by Friede, Busch and Bassen in 2015, one of the most comprehensive studies to date, summarizes over 2000 empirical studies. The analysis illustrates that around 90% of primary and secondary studies show a non-negative and the majority a positive correlation between environmental, social and governance criteria and corporate financial performance. The authors also point to a long-term focus on sustainable and responsible action and its necessity in order to fulfill their duties in society and align the goals of stakeholders and the company.
(Source: Research Report 2023: Are sustainable companies more financially successful? Implementation of sustainability management and financial impact)
This means that there are both purpose-driven and economic reasons to bring your own business model into the 21st century and prepare for the future. The revolution in business models towards more sustainability is more than just a trend – it marks a fundamental shift in the way companies operate and how they create value. It is an opportunity that companies must seize in order to remain competitive in the long term.
Different types of sustainable business models
Different priorities can be set when developing a sustainable business model. There are a variety of approaches that can be applied depending on the specific situation and objectives of the company.
Circular economy business models focus on reducing waste and maximizing resource efficiency, or designing products to be resource-efficient from the outset. These models, which are often used in sectors such as manufacturing or retail, rely on concepts such as the R strategies (Refuse, Rethink, Reduce (by design), Reuse, Repair, Refurbish, Remanufacture, Recycle) in order to achieve closed technical and biological material cycles as far as possible.
Social business models, on the other hand, focus on creating social value. Companies that pursue such models aim to address social challenges such as inequality, access to education or healthcare through their products, services or business practices.
Green business models are specifically geared towards ecological sustainability. Companies that follow such a model integrate environmentally friendly practices into their value chain. This can be done, for example, by using renewable energies, reducing emissions or developing environmentally friendly products.
Holistic business models combine social, ecological and economic goals and follow the “triple bottom line” approach – profit, people, planet. They strive to create holistic added value that has a positive impact on all stakeholders, from employees and customers to society and the environment as a whole.
Regenerative business models go beyond maintaining the status quo and aim to achieve active improvements in the systems and environments in which they operate. Regenerative businesses strive to repair environmental damage, address social injustice and reduce economic inequality. They do this by using resources sustainably, supporting their communities and promoting a more resilient economy. Here are a few examples to illustrate this:
- Regenerative agriculture companies can use techniques that improve soil health, promote biodiversity and have a positive impact on the climate.
- A regenerative fashion label can aim to improve the environment and the living conditions of textile workers in its supply chain by producing clothing from materials that improve the soil during cultivation or by guaranteeing fair wages and safe working conditions for its employees along the value chain. In addition, implemented recycling programs help to ensure that the company’s own products do not end up in landfills at the end of their service life.
- A renewable energy company can be considered regenerative if it goes beyond simply selling clean energy and focuses on projects that support local communities and create jobs while promoting environmentally friendly energy sources. For example, offering educational programs to get the next generation excited about renewable energy or partnering with non-profit organizations to bring clean energy to underserved regions.
Clearly, a regenerative business model places the highest demands on a company, as it requires both sustainable, long-term business practices and proactive measures to improve social and environmental systems. But it also offers a huge opportunity to drive positive change as a company while building a thriving and resilient business.
Choosing the right approach depends on many factors, including the industry, the size of the company and the specific business strategy. However, it is crucial that sustainability is not just seen as a nice extra feature, but is deeply anchored in the company’s DNA.
The components of a sustainable business model: The Sustainable Business Model Canvas
Nowadays, there are many different ways of presenting a company’s business model. The most popular and most efficient way proved to be the use of a canvas. The Business Model Canvas, developed by Alexander Osterwalder and explained in detail in his book Business Model Generation, has spread far and wide and today determines the work of business development units, innovation departments and all teams involved in business model development. New business models or an analysis and improvement of the existing business model are approached using the Business Model Canvas as THE tool.
The hitch is: it focuses on how the company can generate maximum profit with the best possible value proposition (front stage) and the best possible internal structure (back stage). What it does not consider at all are the effects of this business model. Resources are given, the planet provides unlimited resources, society is seen as a potential customer segment. The Business Model Canvas framework is based on the assumption that a company’s business model is detached from the planetary system and therefore takes neither ecological nor social issues into account. The 9 fields of the canvas are therefore insufficient and urgently need to be expanded.
This has led to the development of advanced canvas models such as the Sustainable Business Model Canvas. The Sustainable Business Model Canvas consists of the following 13 elements and thus extends the familiar 9 fields of the classic Business Model Canvas in order to focus holistically on a sustainable business model:
The fields in detail:
- Customer segment & responsibility:
Identifying the most important target groups and/or end consumers in order to offer sustainable solutions, create added value and enable customers to act sustainably. - Value proposition:
Definition of sustainable products, services and solutions that meet customer needs and at the same time create ecological and social added value. - Distribution channels:
Defining and designing the channels through which the company delivers and communicates its sustainable products and solutions to customers as sustainably as possible. - Customer relationship:
Building and maintaining long-term relationships with customers to build trust and loyalty and communicate the added value of sustainable offerings. - Value retention:
Integration of circular systems to keep materials in the cycle and to consider the “end-of-life” of your own range from the outset. - Sustainable resources:
Identification of the resources needed to implement the sustainable business model, e.g. natural/energy/technical resources, financial resources or specialized knowledge. - Core activities:
Definition of the central (value creation) activities that are required to implement the sustainable business model, e.g. research and development, production or establishing partnerships. - Partner:
Identification of the most important partners with whom the company works in order to strengthen the sustainable business model and utilize synergies. - Costs:
Assessment of the costs associated with the sustainable business model, including investments, operating costs and sustainable procurement costs. - Revenue:
Determining the various sources of revenue that the company generates through its sustainable products and solutions in order to ensure long-term financial stability. - Subsidization:
Identification of subsidy opportunities for the necessary changes to finance and implement the sustainable business model and individual projects. - Negative effects:
ecological and social costs (e.g. damage to the environment or violation of human rights) - Positive effects:
Ecological and social benefits (e.g. positive impact on the environment such as renaturation or positive impact on people such as improved health)
Sustainable Business Model Canvas vs. Sustainable Business Model Tree
One question that comes to mind with this visualization framework: Is the canvas still the right way to represent a holistically sustainable, if not regenerative, business model? Or are we simply adding a few new fields to our existing canvas without stimulating a real paradigm shift?
Sustainable and regenerative business models are core elements of a new form of economic activity. Meaningful economic activity with goals other than profit maximization and growth. It’s about building your business in a way that doesn’t harm the planet or society and even giving something back in a regenerative way. The why (“purpose”) of the company comes to the fore, and business models must translate this defined why into a business.
So how about a completely different form of presentation?
Instead of a static canvas, the “Sustainable Business Model Tree” uses the image of a living, breathing tree as a symbol of a company embedded in a diverse ecosystem. The tree helps to close cycles, regenerate and is a valuable part of the planetary and social system.
We at verrocchio translated the fields of the Sustainable Business Model Canvas into a new visual language and used it to develop the Sustainable Business Model Tree poster. The 13 core elements of a sustainable, regenerative and circular business model have thus been translated into the following image. The large poster helps teams starting out with sustainable business models to reflect on their self-image and develop a new understanding of themselves as a value-generating part of a larger ecosystem.
Example Sustainable Business Model Tree based on Patagonia
To understand the Sustainable Business Model Tree and its components, it is a good idea to run through an example. In workshops, we like to use Patagonia as a more advanced sustainable company to illustrate the individual components.
As far as can be recognized from Patagonia’s external appearance, the following picture emerges:
If you want to find out more about the Patagonia business model, you can find helpful resources here:
- https://eu.patagonia.com/de/de/home/
- https://eu.patagonia.com/de/de/activism/
- https://eu.patagonia.com/de/de/our-footprint/
- https://survivalmesserguide.de/wo-produziert-patagonia/
- https://wornwear.patagonia.com/trade-it-in
- https://help.patagonia.com/s/article/How-can-I-recycle-a-Patagonia-or-Worn-Wear-item
In principle, companies that are already on the path to sustainability transformation can serve as lighthouse examples of what is possible. They demonstrate how the pursuit of profit, social welfare and environmental protection can go hand in hand. Their successes inspire other companies to take similar steps and integrate the concept of sustainability into their own business models. Most importantly, they show how we can create an economically prosperous, socially just and environmentally sustainable future through innovation and creativity.
