Three keys to scale sustainability through innovation

Renewcell was founded in 2012 after a serendipitous discovery by two professors at KTH University in Sweden. While working on a green fuel derived from cellulose, they realized their method also broke down the cellulose in textiles, creating fresh fibers from old clothes and cotton waste. Supported by a small group of investors, they launched Renewcell to market this sustainable innovation under the brand Circulose. 

Momentum quickly built. In 2014, the first dress made from Circulose was unveiled. By 2017, H&M had invested in the company and eventually became Renewcell's largest shareholder. In 2019, the company made its first commercial sales, totaling 22 metric tons of its fiber, and by 2022, it had agreements to sell up to 275,000 tons. Everything seemed to be on track, yet by the end of February 2024, Renewcell filed for bankruptcy. What went wrong? 

The answer to this question is essential to ensure sustainable innovations reach mass production and scale their impact. Ivanka Visnjic, Professor and Director of the Department of Operations, Innovation, and Data Sciences at Esade, has researched the “all too familiar pattern” that determined Renewcell's fate. She recently wrote about her work in Harvard Business Review. 

The struggle for survival

For Renewcell, the main challenge lay in navigating the complex network of suppliers between their product and the global fashion brands they aimed to serve. Its fall was not due to a technical challenge, an insurmountable price point, or a lack of consumer interest. “It was the lack of effective strategic and organizational preparedness on the part of incumbents to work together with the startup,” Visnjic explained. A recipe for green success 

Innovation teams at large corporations excel at identifying new opportunities with startups like Renewcell, but these opportunities often fail to survive beyond the initial engagement with the business units, existing suppliers, distributors, or other collaborators.  

Through her research, Visnjic closely examined the practices of a handful of incumbents that successfully transformed their business and entire value chains to enable the scaling of sustainable innovations. She identified three traits that distinguish them: 

1. Sustainability and innovation as core strategy

When Italian electricity producer Enel embraced the UN Sustainable Development Goals (SDGs), particularly those related to clean energy and sustainable cities, they went further than most competitors. Besides pledging to reach Net Zero by 2040, Enel decided to discontinued sales of thermal heating solutions and replaced them with new electrified heating solutions based on heat pumps.  

When innovation teams commit to sustainability as a core value, their objectives shift

“They used innovation and collaboration to turn sustainability challenges into business opportunities. More importantly, they created new sales opportunities for electricity where fossil fuels were previously used,” Visnjic explains. Enel succeeded tackling tensions between its financial and sustainability objectives thanks to innovation. “Because where others see obstacles, innovators see opportunities,” she claims. 

The company also used innovation to turn potential conflicts between sustainability goals into win-wins. For instance, after environmental groups raised concerns about wind turbine poles left buried after decommissioning, Enel found a solution: recycling the old windmills and selling them to a startup that reused them for gravitational energy storage. 

Enel’s success lay in viewing sustainability and innovation not just as corporate functions but as the backbone of their organizational purpose. According to the professor, when innovation teams commit to sustainability as a core value, their objectives shift. “The goal is no longer to directly pursue traditional KPIs related to customer adoption and business value, but to do so in relation to reaching sustainability goals,” Visnjic says. 

2. 'Innovability’ is everyone’s business

Sustainability is a systemic challenge. Unsustainable business practices are rarely confined to a single business unit but tend to spread across the entire organization. Solutions for sustainability often require collaboration across various functions, and success can only be achieved by mobilizing the entire company to support the effort. 

Enel provides a great example of cooperation between the finance and innovation departments, for instance. They created the first sustainability-oriented bond to lower borrowing costs through a commitment to measurable sustainability goals. Over the year of its implementation, Enel borrowed 26 billion euros through these bonds and created 100 million euros in interest savings. By pursuing these goals, Enel also demonstrated to financiers that they could reduce conflict with governments, communities, and environmentalists, which in turn lowered the company’s risk and interest rates. 

This example proves the potential of ‘innovability’—the fusion of innovation and sustainability—when it becomes everyone’s responsibility, even the CFO’s. While Enel’s approach was top-down, in other companies, the movement may start from the middle of the organizational chart, with innovation managers and young business leaders recognizing green growth opportunities and persuading senior leadership to support them. 

3. Turning the business ecosystem into a corporate social movement

Internal organizational change alone is often insufficient to address sustainability challenges, which are typically spread across the entire value chain and not confined to one company. Because sustainability requires innovation throughout value chains, Visnjic states that “green growth can only be unlocked when companies redefine their ecosystem relationships and form new partnerships.” 

It is key to view competitors as partners—rather than rivals—in achieving mutual sustainability goals

While ecosystem collaborations are already relevant in digital innovation, in sustainability they go much further. Companies must collaborate with unconventional partners from other industries, influence the strategies of existing partners, and view competitors as collaborators. 

For instance, Enel formed an alliance with electric bus manufacturer BYD to electrify cities by replacing traditional buses with electric ones. This collaboration required co-innovation, including the development of microgrids for charging buses during peak hours, the creation of new adapters, the construction of charging stations, and the introduction of a new business model: offering buses as a service rather than selling them outright. 

It is also crucial to influence the strategies of existing partners. Much of Enel’s Scope 3 emissions came from its cable suppliers. Since Enel alone didn’t generate enough demand to change the suppliers' practices, it formed the Global Alliance for Sustainable Energy, bringing together competitors, startups, and suppliers into a collaborative ecosystem. A key part of this shift was a change in mindset: viewing competitors as partners in achieving mutual sustainability goals, rather than rivals.