Put Your Money Where Your Mouth Is: Sustainability and the Role of Corporate Venturing

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Corporate Venturing & Innovation Partnering Conference 2014

Over the past decade, sustainability has emerged as a boardroom-level issue for many corporations. Leading firms recognize that sustainability should no longer be viewed merely as a cost-driver or simply “corporate social responsibility” but increasingly as an enabler of innovation, growth and in some cases, a license to operate. By sustainability, we mean creating solutions that solve emerging customer needs while providing economic, social and environmental good and mobilizing supply chains to act in a manner consistent with these principles.

Adopting this thinking can create powerful opportunities for product and technology innovation, operations innovation and business model innovation. Forward-thinking executives recognize this and are adopting sustainability mindsets and principles into their strategies. The 2013 Sustainability Report by MIT Sloan Management Review found that nearly 50% of companies changed their business models as a result of sustainability opportunities. This is a 20% increase over 2012. And, that an increasing percentage of firms are reporting economic profits from sustainability initiatives.

Given all this, what then is the role of sustainability in corporate venturing? To be effective, any strategy must of course have a clear connection to resource allocation and investments. The corporate venturing unit offers a strategic vehicle for the firm to invest in and partner with the startup world to gain insight, create optionality and build new possibilities for the future. For firms engaged in corporate venturing, is this a case of “putting your money where your mouth is” with respect to sustainability?

We believe it is and explored this topic with leading practitioners at a panel discussion entitled: Sustainability & Corporate Venture Capital: What role does sustainability have, if any, in the world of CVC? The panel was moderated by Peter Bryant, Clareo Partner and Senior Fellow of the Kellogg Innovation Network (KIN) and included leading executives with experience from BP, Exelon and Nike. Panelists included:

Kevin Phelan – Former Senior Vice President and Head of Target Neutral, BP America; Principal, Clareo

Avi Sahi – Partner, Strategic Investments & Innovation Partnerships, Nike

Michael D. Smith – Vice President and Head of Constellation Technology Ventures, Exelon

The panel explored a wide range of topics and yielded the following insights:

  • Business goals and sustainability goals should be viewed as an “and” rather than an “or” proposition. Both are a must have for a successful firm. It’s not about positioning sustainability as something separate but more about the “how” of implementing strategy.
  • Sustainability is a “way” of doing business providing a new lens through which to view performance, operations and opportunity. It is not a separate set of initiatives.
  • Sustainability can benefit a company in four dimensions: improving risk management, strengthening social license to operate, enabling efficiency and new sources of competitive advantage and creating new growth options for the firm.
  • Sustainability is the intersection of economic and environmental stewardship. It is not about backing away from the delivery of goods and services that people need (and want) but identifying and bringing new technologies to value chains that deliver things more efficiently. Internal collaboration is key to success. Close coordination between Operations, Marketing and Sustainability functions helps to navigate the inherent tensions and create real change and success for the business.

Building on these insights, the panelists discussed three concrete ways in which Corporate Venturing can play a role in advancing the sustainability agenda:

  1. Product creation: investing in emerging technologies that bring both economic benefits and social good and using those investments to influence the supply chain. For example Nike’s investment in DyeCoo, the Dutch firm with a proprietary method for dying fabric without water.
  2. Business process innovation: investing in businesses that generate efficiencies in the supply chain of the parent company. Examples: Additive manufacturing, 3D printing and supply chain network modeling technologies.
  3. Enabling resource efficiency: corporate venturing is helping to create totally new business model opportunities, while helping to drive an increased focus on sustainability. The example of Google’s investment in Nest, the home automation startup is a reflection of an underlying belief in the value of data related to energy efficiency.

Collectively the panel shared their views on key “watch” areas and implications for venture investing that included:

  • Technology and approaches to the sourcing, use and re-use of natural resources—in particular water, which will become increasingly scarce in coming years
  • Leveraging “Big Data” and analytics to fundamentally adapt both supply and demand
  • Opportunities from additive manufacturing to improve the efficiency of supply chains
  • Solutions to address the needs of underserved customers in the private & public sectors

Overall, there was a recognition that investing in sustainability will help strengthen the license to operate for companies and open up entirely new possibilities for innovators. For many the increasing sense of urgency around sustainability can be summed up in the provocation from one of our panelists: “You will either be the driver or be driven by others.”

Written by: Scott Bowman and Kevin Phelan.