Fortune Favours the Brave - A £100 billion opportunity in innovation and sustainable growth for UK plc #fortunefavoursthebrave

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Fortune Favours the Brave - A £100 billion opportunity in innovation and sustainable growth for UK plc #fortunefavoursthebrave
Fortune Favours
the Brave
A £100 billion opportunity
in innovation and sustainable
growth for UK plc

#fortunefavoursthebrave

Copyright © Marks & Spencer and Accenture, 2013
Fortune Favours the Brave - A £100 billion opportunity in innovation and sustainable growth for UK plc #fortunefavoursthebrave
02 / 71

Copyright © Marks & Spencer and Accenture, 2013
Fortune Favours the Brave - A £100 billion opportunity in innovation and sustainable growth for UK plc #fortunefavoursthebrave
Fortune Favours the Brave                                                                                                               03 / 71
Contents

Contents and Acknowledgements

Foreword                                 04       The authors would like to thank the following business leaders who gave up their                Additional Thanks
Executive Summary                        06       time and helped inform the messages in this Report. While the views expressed                   The authors wish to thank the Ellen
                                                  in this study do not reflect the totality of opinions received from all contributing            MacArthur Foundation for providing
1.0 Introduction                         15       executives, their participation and guidance has been critical.                                 data to support the section on the
2.0 New Areas for Innovation             18                                                                                                       Circular Economy in this Report.
3.0 Capturing the Prize                  52                Andy Wood                     Chris Sullivan              Colin Matthews
4.0 A Call to Action                     64                Chief Executive,              Chief Executive,            Chief Executive Officer,     In addition the authors would like to
                                                           Adnams plc                    Corporate Banking           Heathrow Airport
                                                                                                                                                  thank Mike Barry and Adam Elman
Appendices                               66                                              Division, RBS Group         Holdings Limited
                                                                                                                                                  from Marks & Spencer; James Arnott,
Authors                                                    Estelle Brachlianoff          Ian Cheshire                Ian Livingston               Melissa Barrett, Bruno Berthon,
                                                           Chief Executive Officer,      Group Chief Executive,      Chief Executive,             Aimie Chapple, Camilla Drejer, Oliver
Richard Gillies                                            Veolia Environmental          Kingfisher plc              BT Group
                                                                                                                                                  Grange, Rod Kay, Nijma Khan, Peter
Director Plan A,                                           Services (UK)
Marks & Spencer                                                                                                                                   Lacy, Hannah Mansour, Aimy Ngo
Carmel McQuaid                                             John Hayes                    Keith Williams              Marc Bolland                 from Accenture; Victoria Gilbert, Gail
Sustainability Manager,                                    Chief Executive,              Chief Executive Officer,    Chief Executive,             Greengross, Patrick O’Meara from
Marks & Spencer                                            Axis                          British Airways             Marks & Spencer
                                                                                                                                                  BITC and also Peter Bragg, Niall Dunne,
Justin Keeble
Managing Director,
                                                                                                                                                  Jonathan Garrett, Matt Gorman,
Accenture Sustainability Services,                         Mark Allen                    Matt Brittin                 Nicolas Petrovic            Marcela Navarro and the team at
Europe, Africa and Latin America                           Chief Executive,              Vice President               Chief Executive Officer,    Dragon Rouge.
Harry Morrison                                             Dairy Crest                   Northern & Central           Eurostar
Director,                                                                                Europe, Google
Accenture Sustainability Services
Zomo Fisher                                                Olly Benzecry                 Paul Drechsler              Paul Sheffield
                                                                                                                                                  Further Information & References
Senior Consultant,                                         Managing Director             Chief Executive,            Chief Executive,
Accenture Sustainability Services                          UK & Ireland,                 Wates Group Limited         Kier Group plc                       The Sustainable Business
                                                           Accenture
                                                                                                                                                          Toolkit is available on the BITC
Project Advisers                                           Paul Walsh                    Dr Ralf Speth               Stephen Howard
                                                                                                                                                          website at
                                                           Chief Executive,              Chief Executive Officer,    Chief Executive,                     sustainablebusiness.bitc.org.uk
Alan Knight                                                Diageo                        Jaguar Land Rover           Business in the
Marketplace Sustainability Director,                                                                                 Community
Business in the Community                                                                                                                         Join the conversation:
Emma Price-Thomas                                                                                                                                 #fortunefavoursthebrave
                                                           Steven Holliday               Tony Lenehan
Marketplace Sustainability Manager,                        Chief Executive,              Chief Executive Officer,
Business in the Community                                  National Grid                 Styles&Wood

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Copyright © Marks & Spencer and Accenture, 2013
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Foreword                                                           04 / 71

Foreword

UK businesses have the opportunity to unlock £100 billion
a year in value from five opportunities for innovation.
Companies in the UK face a complex and fast-changing
landscape. Consumer values are shifting and businesses
need to work hard to win trust and build community support.
At the same time resource constraints and environmental
concerns put pressure on supply chains and profitability.

Faced with these challenges, there is a compelling need
for innovation. We must accelerate progress in order
to meet the changing hopes, needs and aspirations of
customers, while operating in a way that wider society
deems acceptable, now and in future generations.

The commercial imperative for action is clear. Our research
shows that UK businesses have the opportunity to unlock
around £100 billion a year in value from new innovation
opportunities that address social and environmental challenges1.
By designing higher quality sustainable products, adapting the
way of doing business, innovating in supply chains and engaging
communities, business can better meet customer needs
simultaneously creating value as well as environmental and
social benefit. In other words become sustainable businesses.

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Foreword                                                                                                05 / 71

Foreword

Through consultation with Chief Executive Officers across different   Marc Bolland
industries in the UK, we have identified five opportunity areas       Chief Executive,
                                                                      Marks & Spencer
for innovation. In order to support businesses to tap into these
opportunities and drive sustainable growth, we are launching
the Business in the Community Sustainable Business Toolkit
alongside this report. The toolkit provides essential resources
for companies to start the journey of change – to ‘Think,
Test and Deliver’ a better approach to business that creates          Olly Benzecry
value for shareholders, employees and communities alike.              Managing Director UK & Ireland,
                                                                      Accenture

Marks & Spencer, Accenture and Business in the Community are
grateful for the time and insight of all those who have contributed
to our research and supported development of this report.
                                                                      Stephen Howard
We encourage businesses to take forward the messages in               Chief Executive,
this report, and use the Business in the Community Sustainable        Business in the Community
Business Toolkit. We are confident that the creative power
of business can address the challenges of today and unlock
a more prosperous and sustainable future for us all.

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Executive
Summary     In a tough global economic environment,                                      “We need to make
            UK companies are seeking to future-                                            sustainability part
            proof their businesses and to identify                                         of our targets and
            new options for growth.                                                        an intrinsic part of
            The economic situation is compounded by pressing social                        our Brands.”
            and environmental issues: a lack of trust in business; youth                 Marc Bolland, Chief Executive,
            unemployment coupled with skills shortages; and the depletion                Marks & Spencer
            of natural resources on which business depends. Leading Chief
            Executive Officers (CEOs) recognise that innovation is essential
            to addressing these challenges and achieving long-term success.

            Five key innovations identified in this report provide the
            potential to catalyse direct economic and commercial benefits:
                                                                                         “Everybody wants a
            –– Productivity gains worth an estimated £100 billion each                    racing car – But even
                year in the UK2.                                                           a racing car can be fuel
            –– Access to rapidly growing markets already worth almost                     efficient. We need to
                £200 billion annually3 in the UK alone.
                                                                                           make sustainability
            By capturing these opportunities businesses can increase                       desirable, appealing
            competitiveness and deliver sustainable growth whilst                          and relevant, and by
            simultaneously addressing customer needs, improving
            environmental performance, creating jobs and supporting
                                                                                           responding to customer
            social progress.                                                               wants, UK business will
                                                                                           have more impact.”
                                                                                         Marc Bolland, Chief Executive,
                                                                                         Marks & Spencer
Fortune Favours the Brave - A £100 billion opportunity in innovation and sustainable growth for UK plc #fortunefavoursthebrave
Executive Summary                                                                                                     07 / 71

                                                  Capturing these opportunities will likely require a major shift               “Traditional approaches
                                                  in business thinking. Companies may need to go beyond
                                                  Corporate Social Responsibility (CSR), sustainability reporting and
                                                                                                                                  to sustainability aren’t
                                                  philanthropy to ground sustainability performance at the heart                  sufficient – they’re not
                                                  of business strategy. Companies that wish to achieve sustainable                sufficiently positive
                                                  growth should align their core purpose and vision with the delivery             to be motivating and
                                                  of positive societal and environmental outcomes.
                                                                                                                                  don’t provoke the level
                                                  At the same time businesses must work harder to engage their                    of change required.”
                                                  customers by making sustainable lifestyles an accessible, easy
                                                                                                                                Ian Cheshire, Group Chief Executive,
                                                  and better choice. Sustainability is too complicated for most                 Kingfisher plc
                                                  customers today, and companies have a key role in educating and
                                                  enabling customers whilst improving quality of life at the same
                                                  time. This shift together with innovation in how businesses drive
                                                  supply chain efficiency and resilience can unlock the path to a               “Real material
                                                  more dynamic UK economy.                                                        change will only
                                                  Without building and maintaining adequate social and natural
                                                                                                                                  come from innovation
                                                  capital, businesses will struggle to grow and function in the way               that enhances the
                                                  they do today. The new generation of business leaders need to                   customer value
                                                  unlock the innovation potential and creative drive of business                  proposition whilst
                                                  to deliver growth in a very different economic environment.
                                                                                                                                  driving sustainability
                                                                                                                                  outcomes.”
                                                                                                                                Olly Benzecry, Managing Director UK &
                                                                                                                                Ireland, Accenture

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Executive Summary                                                                                                 08 / 71

New areas for innovation

Five innovation areas offer the potential to transform business                                                             “There is real power
in the UK by delivering more sustainable growth, making                                                                       in seeing that people
sustainable lifestyles accessible and aspirational for customers,                                                             at the top are taking
creating positive social outcomes and building lasting value.                                                                 action – it inspires
In the UK alone the market for                    Future growth potential is high.   These innovations now need to            people to follow.”
these opportunities is already                    For example, over the past five    be scaled effectively to catalyse
                                                                                                                            Chris Sullivan, Chief Executive,
worth almost £200 billion                         years, clean technology and        prosperity and growth for the          Corporate Banking Division, RBS Group
annually, with the potential for                  circular economy services have     UK economy and commercial
productivity improvements of                      grown an estimated 24% and         returns for business in both the
around £100 billion a year 4.                     18%, respectively5.                short and long term.

   Shared value                                                     #sharedvalue

   Companies can build the conditions for their                     Shared value approaches catalyse direct
   own success by focusing on the convergence of                    productivity gains through improved employee                                 £3bn-£29bn
                                                                                                                                                   Potential
   interests with society, promoting community                      engagement and reduced churn and indirect                                     productivity
   prosperity, improving skills and enhancing health.               returns through enhanced reputation and trust.                                   gains29

   More with less                                                   #resourceefficiency

   Companies can drive cost savings and mitigate                    Clean technology companies can directly
   environmental concerns through more rapid                        contribute to economic recovery by building                 £119bn              £61bn
                                                                                                                                Current            Potential
   adoption of resource efficiency and deployment                   skills and creating a potential 40,000 jobs               market size39       productivity
   of emerging clean technologies.                                  each year 6.                                                                    gains40

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Executive Summary                                                                                      09 / 71

New areas for innovation

   Circular economy                                  #circulareconomy

   Companies can cut costs, improve margins and      Improved recycling technologies, growing
   preserve natural capital by closing the loop on   regulation and volatile commodity prices                      £13bn         £15bn-£18bn
   supply chains through product design, extending   create a compelling business case for retaining               Current         Potential
   asset life, re-use and recycling.                 ownership of valuable materials and creating                market size54    productivity
                                                                                                                                     gains55
                                                     circular business models.

   New consumption models                            #newbizmodels

   Companies can grow recurring revenue              Technology and social media have driven
   streams and help customers to live lower          resurgence in sharing and service-based                       £27bn
   impact lives by enabling ‘collaborative           business models, creating a market already                    Current
   consumption’, by delivering ‘products as a        worth an estimated 1% of private sector                     market size67
   service’ and through developing compelling        turnover in the UK7.
   new customer propositions.

   Transparency & customer engagement                #transparency

   Companies can build loyalty and drive             Enhanced traceability enables better resource
   productivity gains through embedding              planning and risk management and the market                   £33bn            £3bn
   sustainable supply chain standards and            for ‘ethical’ goods and services has achieved                 Current         Potential
   transparently sharing information on product      an average 14% year-on-year growth over the                 market size77    productivity
                                                                                                                                     gains78
   origins with customers.                           past decade8.

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Executive Summary                                                                                                  10 / 71

Capturing the prize

                                                  Unlocking the value from these five areas                                  “Business has a key
                                                  of innovation demands that business leaders                                  opportunity today
                                                  move beyond the current CSR and reporting-                                   to reinvent itself –
                                                  focused approaches to sustainability.                                        driving transformative
                                                  These approaches have provided a solid foundation of                         change to help solve
                                                  measurement and transparency and supported a better                          tomorrow’s major
                                                  understanding of the inter-connectedness between business,                   challenges.”
                                                  society and the environment. However, we now need to increase
                                                  the pace and scale of action.                                              Estelle Brachlianoff, Chief Executive
                                                                                                                             Officer, Veolia Environmental
                                                                                                                             Services (UK)
                                                  Businesses can begin by assessing the implications of
                                                  environmental and social trends on their market and identify their
                                                  contribution to delivering a more prosperous and sustainable               “We need to move
                                                  future. Companies that wish to achieve sustainable growth should             away from CSR
                                                  align their core purpose and vision with the delivery of positive
                                                  societal and environmental outcomes: doing good becomes
                                                                                                                               and transform our
                                                  good business. Finally investment can be channelled to test and              businesses to be
                                                  scale the new innovations identified in this report, with a goal of          better aligned with
                                                  delivering commercial returns and improved outcomes for society.             sustainability as a
                                                  The UK is well placed to lead the transition to a more sustainable
                                                                                                                               core goal.”
                                                  future and has key competitive advantages including a track                Steven Holliday, Chief Executive,
                                                  record of innovation and academic excellence; high-tech                    National Grid
                                                  engineering and information technology capability; depth of
                                                  professional services and financial-sector expertise and engaged
                                                  consumers who are demanding a better way of doing business.

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Executive Summary                                 11 / 71

Capturing the prize

The Business in the Community                               “Sustainability has
Sustainable Business Toolkit,
launched alongside this report,
                                                              moved from something
provides essential resources for                              that’s feel good, to
companies and business leaders,                               something that’s far
to start the journey of change –                              more integrated with
to ‘Think, Test and Deliver’
a better approach to business.
                                                              what is required for
                                                              our future success.”
For many companies the
                                                            Paul Walsh, Chief Executive,
journey will start with small                               Diageo
steps. However, with a clear
vision and through testing
new ideas, companies can
create options to scale-up
and deliver the transformational                            “Business can use
change required. The challenges                               action on sustainability
may be significant but the                                    to restore its
commercial opportunity is
clear. Bold leadership is required.
                                                              reputation and trust.”
                                                            Andy Wood, Chief Executive,
                                                            Adnams plc

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Executive Summary                                                                                                  12 / 71

About us and our approaches to sustainability

Marks & Spencer                                   deliver quality products for our     of setting bold targets, driving
Marks & Spencer is one of the                     customers without quality raw        innovative solutions and sending
UK’s leading retailers selling                    materials. We’ve switched to         a signal about the potential for
stylish, high quality, great value                more sustainable sources for         closed-loop textiles.
clothing and home products, as                    many raw materials. However,
well as outstanding quality food,                 we also realised it wasn’t just      The launch of Plan A in 2007
responsibly sourced from around                   about sourcing raw materials         and its expansion in 2010 was
2,000 suppliers globally. Over the                responsibly but also how we          our response to changing social
last 129 years M&S has grown                      could prevent waste and recover      and environmental issues. Plan
from a single market stall to                     materials too, ensuring that         A has made our business more
become an international multi-                    precious resources are used          efficient, more rewarding and
channel retailer. We now operate                  again and again. It’s a year since   more engaged. Find out more at:
in over 50 territories worldwide                  M&S launched ‘shwopping’ –           www.corporate.
and employ almost 82,000                          an initiative that encourages        marksandspencer.com/
people. Remaining true to our                     customers to bring old items of      howwedobusiness
founding values of Quality, Value,                clothing into the store. The goal
Service, Innovation and Trust,                    is to reduce the one billion items
we work hard to ensure our                        of clothing sent to UK landfill
offer continues to be relevant                    each year by creating a closed
to our customers.                                 loop where all garments are re-
                                                  used and recycled – currently
We launched Plan A in 2007                        through a partnership with the
because we recognised that the                    global poverty campaign Oxfam.
way business worked had to                        Within six months of launch,
change. One area in particular                    the first M&S coat made from
is how we source raw materials                    recycled wool brought back
and products. Our business is                     from Oxfam was on sale in the
all about quality and we cannot                   shops. This illustrates the power

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Executive Summary                                                                                                    13 / 71

About us and our approaches to sustainability

Accenture Sustainability                          investments in research,            Our Skills to Succeed programme
Services                                          including recent studies on         draws on one of Accenture’s
Accenture Sustainability Services                 consumer expectations and           core competencies – training
helps clients achieve substantial                 global executive opinion on         talent – to help address the
improvement in performance                        corporate sustainability and        need for skills that open doors
and value for their stakeholders.                 climate change.                     to employment around the
We help clients leverage their                                                        world. It is a key aspect of how
assets and capabilities to drive                  At Accenture we know that a         we embed sustainability into
innovation and profitable growth                  successful company strategy is      our business. By 2015, we plan
while striving for a positive                     one that is informed by the world   to equip 500,000 people globally
economic, environmental                           around it and which considers       with the skills to get a job or build
and social impact. We work                        the social and natural resources    a business. Find out more at:
with clients across industries                    on which business depends.          www.accenture.com/
and geographies to integrate                      We see significant growth           sustainability
sustainability approaches                         opportunities for organisations
into their business strategies,                   that are able to better meet
operating models and critical                     market demand for high quality
processes.                                        products and services that are
                                                  good for society and the planet.
Our holistic approach                             We also know that companies
encompasses strategy, design                      can secure future growth
and execution to increase                         through building shared value
revenue, reduce cost, manage                      with communities.
risk and enhance brand,
reputation and intangible assets.
We also help clients develop
deep insights on sustainability
issues based on our ongoing

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Executive Summary                                                      14 / 71

About us and our approaches to sustainability

Business in the Community                                                        “There’s a business case
Business in the Community stands for responsible business.
We are a unique business movement – the largest business-led
                                                                                   for sustainability and
charity of its kind – committed to building resilient communities,                 an ethical case, what
diverse workplaces and a more sustainable future. We work locally,                 people don’t always
nationally and internationally with members to transform businesses                realise is that the two
and transform communities. We believe that responsible leadership
is the ability to balance doing both.
                                                                                   are mutually inclusive.”
                                                                                 John Hayes, Chief Executive,
We ask our members to work with us on specific campaigns that                    Axis
impact in the workplace, marketplace and community. We offer a
range of services that challenge, support and inspire members and
help transform their businesses.
                                                                                 “Sustainability is no
In today’s rapidly changing and increasingly resource constrained                  longer an option. It
world – which will need to provide for 9 billion people by 2050                    needs to be business as
– it has never been more important for companies of all sizes to                   usual. Sustainability has
understand how and why sustainability is central to their long-
term success and prosperity. There is an unprecedented need for
                                                                                   become part of what
companies to work together to identify how business services will                  customers expect from
evolve over the next two decades and beyond.                                       business as standard.”
We are enormously grateful to M&S and to the support Accenture                   Nicolas Petrovic, Chief Executive
                                                                                 Officer, Eurostar
has provided, to help us articulate an imperative for action and for
the practical tools that have been developed that demonstrate some
of the opportunities for those who help create a sustainable future.
Find out more at:
http://www.bitc.org.uk

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1.0
Introduction
               Current attempts by business to address
               sustainability challenges have delivered tangible
               progress at the national scale.
               Greenhouse gas emissions from UK businesses have dropped by 30%
               since 19909. However despite the success to date, a step change is
               required, to deliver progress at a larger scale and higher speed than
               current initiatives, policies or strategies will achieve (See Appendix 1
               for a summary of major challenges).

               For example, long-term and youth unemployment in the UK are
               now at their highest level in over 10 years10 with nearly a quarter of
               16-24 year olds inactive and without a job11. Obesity is at a record
               high12 and has knock on implications for health in an aging society.
               Furthermore, increasing and volatile prices of natural resources and
               raw materials are cutting into profit margins of some companies, and
               adding to supply chain risk, whilst 90% of products are still disposed
               of within 6 months of purchase13. If we continue on our ‘business-as-
               usual’ path, by 2050 we would need 2.5 times the planet’s natural
               resources to support a population of 9 billion people14.
1.0 Introduction                                                                                                      16 / 71

                                                  We are already living off our future capital, and current trends              “Over time
                                                  are unlikely to be sustainable in the long-term.
                                                                                                                                  sustainability
                                                  Many companies have responded to sustainability concerns                        challenges pose a real
                                                  through CSR programmes characterised by: a strong focus on public               threat to company
                                                  reporting; incremental improvements in operational efficiency; and              profits – especially
                                                  a philanthropic approach to social challenges. For many businesses
                                                  this approach has provided a good starting point and it remains an
                                                                                                                                  from energy price
                                                  essential foundation for responsible business. However, CSR-driven              increases, and the
                                                  programmes can have key limitations, as they may:                               growing occurrences
                                                                                                                                  of 1-in-100 year severe
                                                  –– Add costs, as programmes are frequently bolted-on to the
                                                      core business.                                                              weather events.”
                                                  –– Ignore whether a company’s core purpose, products and                     Andy Wood, Chief Executive,
                                                      services are compatible with long term trends and social                  Adnams plc
                                                      and environmental needs.
                                                  –– Create tension between shareholder value creation and the
                                                      needs of society.
                                                  –– Fail to address the needs and changing demands of the
                                                      mass market.
                                                  –– Under-utilise the creative and competitive energy of business
                                                      to innovate, unlock new value, and build a better future.

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1.0 Introduction                                                                                                    17 / 71

                                                  Seizing the opportunity of more sustainable business asks that              “As responsible
                                                  companies re-think their business operations and strategy
                                                  beyond the boundaries of CSR. Leaders will want to consider the
                                                                                                                                businesses we need
                                                  balance between short term gains and long term value through                  to make sustainability
                                                  understanding global trends, assessing core strengths and                     simple for all
                                                  identifying their potential contribution to improving societal                stakeholders. Most
                                                  and environmental outcomes.
                                                                                                                                customers today
                                                  Above all companies must dare to innovate and to test and scale               find it difficult to
                                                  new approaches which can drive growth and future prosperity.                  articulate what ‘good’
                                                                                                                                sustainability looks like.
                                                                                                                                A consistent approach
                                                                                                                                to the adoption of
                                                                                                                                industry standards and
                                                                                                                                a considered approach
                                                                                                                                to education and
                                                                                                                                training can really make
                                                                                                                                the difference here.”
                                                                                                                              Tony Lenehan, Chief Executive Officer,
                                                                                                                              Styles&Wood

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2.0
New
             In responding to the world’s major challenges,
             innovators are emerging, offering new and
             alternative models for success and disrupting
             established industries.

             These models have the potential to transform business towards
             truly sustainable growth and pave the way for a more dynamic
Areas for    UK economy, where profits are maintained whilst minimising the
             environmental impact, maximising the benefit for society and
Innovation   enabling sustainable lifestyles.

             Five high priority areas of innovation have been identified through
             discussion with UK CEOs, and by examining leading research,
             reports and case studies. These innovations can change how
             businesses engage with their customers, and how companies
             make and deliver products and services through their supply chain,
             potentially yielding significant commercial and sustainability gains.
2.0 New Areas for Innovation                                                                                             19 / 71

                                                  Building efficient and resilient supply chains can enable businesses             “Infinite resource
                                                  to become more competitive, to remain within environmental
                                                  constraints and to enhance their license to operate through
                                                                                                                                     intensive growth is
                                                  stronger community links.                                                          simply not possible,
                                                                                                                                     and we are already
                                                  Key areas for innovation include:                                                  living off our future
                                                  –– Shared value: focusing on the convergence of interests between
                                                      business and society to build community prosperity, improve
                                                                                                                                     capital. We need to
                                                      skills and health and create the conditions for commercial success.            think now about how
                                                  –– More with less: reducing input resource use, improving the                     business services will
                                                      efficiency of industrial processes, using cleaner technologies                 evolve in the next two
                                                      and minimising waste.
                                                  –– Circular economy: closing the loop on supply chains through                    decades and beyond.”
                                                      product design, extending asset life, re-use and recycling.                  Ian Cheshire, Group Chief Executive,
                                                                                                                                   Kingfisher plc
                                                  Engaging the customer on sustainability brings a suite of new
                                                  opportunities to build loyalty, grow new revenue streams and
                                                  disrupt established business models.

                                                  Key areas for innovation include:
                                                  –– New consumption models: delivering enhanced customer
                                                      propositions including ‘products as a service’ and enabling the
                                                      sharing of goods via ‘collaborative consumption’.
                                                  –– Transparency & customer engagement: embedding ethical
                                                      and sustainable practices across the supply chain and sharing
                                                      information on product origins with customers.

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2.0 New Areas for Innovation                                                                                      20 / 71

                                                  Today, significant opportunity exists to continue to scale up these
                                                  solutions. UK businesses have the potential to achieve around £100
                                                  billion a year from productivity improvements, if these innovations
                                                  are implemented across the board15, whilst at the same time
                                                  generating positive societal and environmental benefits such as
                                                  employment opportunities and emissions reduction. Over 40,000
                                                  jobs could be created annually in the environmental and clean
                                                  technology sector alone16.

                                                  The estimated current UK market size of these areas is nearing £200
                                                  billion (6% of private sector turnover) with high growth rates that
                                                  have consistently beaten the UK average17. Clean technology has
                                                  seen 24% growth and circular economy services such as recycling
                                                  and recovery have seen 18% growth over the past 5 years alone18.

                                                  This Chapter explains the five innovation areas in more detail,
                                                  highlighting the various opportunities, the size of the prize for
                                                  UK businesses and the broader environmental and social benefits.

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2.1
Shared value:
                Many companies are recognising that their future
                success depends on supporting vibrant, healthy and
                economically resilient communities which provide
                both their workforce and their customer base.

                Businesses contribute to their own success by creating jobs
                                                                                             “We aim to use our
                                                                                               scale and know-how
                                                                                               to support the wider
                                                                                               business community
                                                                                               and to help unlock the
Building a      and educating people in the communities in which they operate,                 economic potential of
                and by improving standards of health and quality of life.                      women as business
prosperous
workforce       This ‘shared value’ concept provides a cornerstone for social
                                                                                               owners.”
and community   innovation, and is helping companies recognise that there is a large         Chris Sullivan, Chief Executive,
                degree of convergence between their commercial goals and the                 Corporate Banking Division, RBS Group
#sharedvalue    wider needs of civil society.
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2.1 Shared value: Building a prosperous workforce and community

Size of the prize

Shared value is an untapped source                                        Business value levers

of opportunity for business.                                                                                                     Maximising the upside

                                                                                                     Revenues                                  Intangible benefit
Firstly, securing value for shareholders necessitates that companies                                 –– Increased revenues from sales         –– Stronger and healthier workforce,
                                                                                                         of products and services that             supply chain and employees
reduce risk by demonstrating long-term sustainable growth and                                            improve health and well-being         –– Enhanced trust, brand and loyalty

                                                                          More certain, short-term
returns. One way this can be achieved is through skilling the wider

                                                                                                                                                                                       Less certain, long-term
                                                                                                                                                   by customers
workforce beyond the usual company boundaries, and improving the
health and living standards of local communities: employers need a
healthy, educated talent pool to ensure the future long-term viability                               Costs                                     Risks
and competitiveness of the company.                                                                  –– Savings from enhanced                 –– Long-term, secured value
                                                                                                         productivity and improved                 for shareholders and other
                                                                                                         employee retention                        stakeholders
In East London, outsourcing company MITIE has advocated this                                         –– Switching to more cost-effective      –– Protection of license to operate
approach by developing the ‘Real Apprentice’ programme. This is                                          local suppliers
a mentoring scheme in partnership with JobCentrePlus that gives                                      –– Savings from outsourcing

unemployed citizens of all ages the crucial experience and skills                                                               Minimising the downside
they need to get into long-term employment19. The Real Apprentice
                                                                         Source: Accenture 2013
programme fulfilled both MITIE’s business needs for local, sustainable
supplies of talent and needs of the local area for economic
regeneration20. The scheme currently has a 75% success rate of
getting the graduate apprentices into further employment21.

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2.1 Shared value: Building a prosperous workforce and community

Size of the prize

Businesses are also working with the public sector to improve                    “You can’t create jobs
social outcomes. For example, in Norwich, Chapelfield shopping
centre has developed a work experience programme that employs
                                                                                   that don’t exist, but
serving prisoners. Prisoners considered to be safe working within                  you can level the
the community have the opportunity to spend eight weeks at the                     playing field for those
shopping centre, gaining skills ranging from building maintenance,                 who don’t have the
customer service, recycling and painting and decorating22. Only 5%
of the work experience prisoners who have been released have
                                                                                   best chance in life.
reoffended, whilst nationally, just under 50% of those released                    There’s a business
are reconvicted within one year23.                                                 benefit in broadening
                                                                                   access as you may
Secondly, significant cost savings and productivity improvements can
be achieved from engaging employees to take an active role in the                  discover people with
community and by encouraging social entrepreneurship. Employees                    better talent.”
currently in a job where they feel they are contributing to positive
                                                                                 Paul Sheffield, Chief Executive,
environmental or social outcomes are more satisfied compared to                  Kier Group plc
those who don’t feel they’re making an impact, by a 2:1 ratio24. An
estimated £3-£29 billion in potential cost savings for UK businesses
are possible from reducing hiring costs and developing a more active
and engaged workforce25, corresponding to a potential increase in
productivity by 16% and a reduction in employee turnover by 2%26.

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New Areas for Innovation                                                               24 / 71
2.1 Shared value: Building a prosperous workforce and community

Size of the prize

And finally, by better understanding the needs of society, businesses
can focus their products and services to help solve environmental
and social challenges, which can lead to revenue enhancement

                                                                        £3bn-
and a greater market share. For example, in developing countries
where health challenges are widespread there is real opportunity

                                                                        £29bn
to improve community health and generate commercial returns by
growing the healthcare market. Novo Nordisk’s Changing Diabetes
programme has trained over 220,000 physicians in China, who
each treat about 230 patients annually27. Through better diagnosis,      Potential
                                                                        productivity
more patients are screened for diabetes and those diagnosed put            gains29
on life-saving medication. As a result, people are getting access to
the medical help required while Novo Nordisk’s insulin market share
has jumped from 40% to 63% in China, largely through greater
awareness of patient needs28.

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2.1 Shared value: Building a prosperous workforce and community

Sustainability benefits

The benefits from convergent thinking and shared value creation                    “Industry isn’t doing
can be long-lasting and can fundamentally improve socio-economic
outcomes for civil society:
                                                                                     enough to employ
                                                                                     talented young
–– The health of the workforce and the community can be improved,                   individuals. Only
    through better alignment of the commercial goals of the company                  12 of the top 32
    and the needs of wider society.
–– Jobs can be created in the UK or abroad, contributing to local
                                                                                     building contractors
    economic development (for example through smarter use of                         in the UK employ
    local suppliers which could help mitigate against potential future               apprentices, and 80%
    supply chain failure).                                                           of apprenticeships
–– Standards of education and skills can be enhanced through
    programmes such as apprenticeships, academies and training                       are with companies
    programmes, developing transferrable skills and bringing people                  with less than
    out of unemployment (see Case study 1 for an example).                           10 employees.”
                                                                                   John Hayes, Chief Executive,
                                                                                   Axis

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New Areas for Innovation                                                                   26 / 71
2.1 Shared value: Building a prosperous workforce and community

Case study 1
Accenture’s Skills to Succeed programme                                               30

Skills to Succeed is Accenture’s corporate citizenship
initiative which focuses on shared value creation
through advancing employment and entrepreneurship
opportunities in both mature and emerging markets.
Skills to Succeed draws on one of                 Initiatives under the programme
Accenture’s core competencies –                   include working with Plan
training talent – to help address                 International to provide training
the need for skills that open                     and career opportunities to
doors to employment around                        young people in Thailand and
the world. At the same time,                      Indonesia in industries such as
Skills to Succeed harnesses the                   information technology and
combination of financial support                  business process outsourcing,
and the pro bono contributions                    and with Youth Business
of time and Accenture employee                    International to provide young
skills to make a difference in                    people in Brazil with improved
communities. Launched in 2009,                    tools and mentoring to assist
the programme aims to equip                       them in becoming entrepreneurs.
500,000 people around the
world with the skills to get a job                Accenture’s goal through the
or build a business.                              programme is to respond to
                                                  the major societal challenge
                                                  of youth unemployment and
                                                  inequality, creating shared value
                                                  that improves both Accenture’s
                                                  brand and builds a future source
                                                  of talent for the industry.

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2.2
More with less:
                       Successful companies are decoupling growth
                       from resource extraction and environmental
                       externalities, securing resilient and competitive
                       supply chains and operations.

                       Rising and volatile costs of raw materials and resources, combined
Driving productivity   with an uncertain economic environment, have squeezed UK
                       manufacturers: profitability of UK-based manufacturing companies
through resource       was under 5% at the end of 2012, compared to 11% in 200731.
efficiency             Companies face increasing pressure to optimize their operations and
                       supply chains and to use fewer inputs per unit of economic output.
#resourceefficiency
                       Resource efficiency programmes designed to cut energy
                       consumption, minimise raw material inputs and reduce waste drive
                       significant cost savings and environmental benefits. Many companies
                       are now turning to innovative clean technologies to cut their impact
                       further and build resource independence, for example using reverse
                       osmosis to secure long-term potable water supplies or innovative
                       forms of off-grid renewable energy.

                       Clean technology suppliers are central to driving growth. In the UK
                       a healthy clean technology sector is currently growing at an average
                       4.5% per annum, with higher rates of growth in wind, solar and
                       alternative fuel technologies32. Almost 1 million people are employed
                       in the UK in this sector, and over 25,000 new jobs were created
                       between 2010 and 201133. The sector is estimated to contribute
                       4% towards UK private sector turnover in 2012 with £119 billion
                       in sales34.
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2.2 More with less: Driving productivity through resource efficiency

Size of the prize

From an operational perspective, cost reduction is
one of the major business drivers for implementation
of resource efficiency programmes and clean
technologies such as renewable energy.

Production costs have the potential to be reduced significantly        £119bn
over the long term, increasing margins and competitiveness.               Current
For technology manufacturers, development and marketing of              market size39
innovative renewable and clean technology solutions (see Case study
2a for the example of Siemens) can also provide attractive revenue
and market growth opportunities.

Resource efficiency in the supply chain can also generate a
substantial prize, as evidenced by the Better Cotton Initiative
(Case study 2b). Efficiency in transport can also realise savings:
Marks & Spencer was able to reduce their clothing delivery

                                                                       £61bn
vehicle fleet by 25% and achieve a 30% fuel efficiency improvement
through optimizing the loading of goods and improving logistics
fleet management35.
                                                                         Potential
                                                                        productivity
                                                                          gains40

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New Areas for Innovation                                                                                                                 30 / 71
2.2 More with less: Driving productivity through resource efficiency

Size of the prize

Beyond direct energy and resource cost savings, resource efficiency       Business value levers
improvements can also create a substantial regulatory saving                                                                        Maximising the upside
through reducing disposal costs (such as landfill taxes), and carbon                                  Revenues                                  Intangible benefit
tax liabilities.                                                                                      –– New low-impact products and           –– Reduced environmental impacts
                                                                                                          services                                  (carbon, water, waste, etc.)
                                                                                                      –– Sales from new and alternative        –– Job creation
UK businesses could save £25 billion each year through no or low

                                                                           More certain, short-term

                                                                                                                                                                                       Less certain, long-term
                                                                                                          technologies                          –– Enhanced trust, brand and
cost resource efficiency measures alone, particularly from smarter                                    –– Entering new markets                       reputation
usage of raw materials and minimising waste (£20 billion a year)36.
£4 billion a year in savings is possible from energy efficiency and £1
                                                                                                      Costs                                     Risks
billion from water efficiency37. Extending payback thresholds to over
                                                                                                      –– Operational efficiency savings        –– Mitigation of resource price
a year could realise a further £36 billion in savings a year 38.                                      –– Resource use savings (energy,             volatility
                                                                                                          water, etc.)                          –– Reduced reliance on finite
                                                                                                      –– Reduction in taxes and liabilities        resources
                                                                                                          (e.g. carbon, landfill)               –– Readiness for future regulations

                                                                                                                                   Minimising the downside

                                                                         Source: Accenture 2013

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New Areas for Innovation                                                 31 / 71
2.2 More with less: Driving productivity through resource efficiency

Sustainability benefits

If resource efficiency measures are realised in the UK                             “We have invested in a
they could amount to a reduction in carbon emissions                                 project with Solena to
by 13% for the UK economy as a whole (90 MtCO2)41,                                   turn household waste
supporting Government and wider EU targets to
                                                                                     into jet fuel. We will
reduce emissions in-line with climate change goals.
Research suggests that water use could also be                                       have a plant in East
reduced by approximately 25% in the commercial                                       London that relies
sector, 28% in the agricultural sector and 10% in the                                on large quantities
industrial sector 42.                                                                of waste and can
                                                                                     currently produce a
Further indirect benefits from clean technology and resource
efficiency include reduced airborne pollution (e.g. from fossil-fuel
                                                                                     small amount of fuel –
based power and transport), which is partially responsible for over                  2% of our needs, but
1 million lost working days in the UK every year from breathing                      with a possible goal of
and lung problems43. Reduced environmental pollution in the form                     getting to 10%.”
of water-borne and land-based toxicity may be another potential
indirect benefit.                                                                  Keith Williams, Chief Executive Officer,
                                                                                   British Airways

The UK currently holds 6th place, behind the USA, China, Japan,
India and Germany in terms of market share in the clean technology
sector. Based on forecasted growth trends in UK sales, over 40,000
jobs could be created in the UK each year to 201544. This could create
demand for skills, secure international competitiveness and much-
needed, resilient growth in the next few years.

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New Areas for Innovation                                                                                      32 / 71
2.2 More with less: Driving productivity through resource efficiency

Case study 2a
Delivering financial performance
and sustainable development at Siemens                                                        45

Siemens has anchored sustainability into its
organisation, and takes a proactive role in contributing
to sustainable development through innovation.
Last year, Siemens generated                      Renewable energy technologies,
€33.2 billion in revenues from the                smart grid applications and
products and solutions in their                   other green technologies
Environmental Portfolio – 42%                     contributed the remainder of
of their Group revenue, enabling                  the environmental revenues.
their customers to cut their CO2                  Investment in R&D is core to
emissions by an estimated 332                     this strategy – 5.4% of their
million tonnes. The demand for                    revenues are spent on R&D,
green technologies is driving the                 and this percentage has been
company’s growth. 70% of the                      steadily increasing over the last
revenue from their Environmental                  few years. Through this effort the
portfolio is from energy-efficient                company has demonstrated an          Source: Cliff Flickr
products and solutions, including                 improvement in efficiency of its
smart building technologies and                   products by 8% since 2010.
advanced infrastructure such as
combined-cycle power plants.

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New Areas for Innovation                                                                    33 / 71
2.2 More with less: Driving productivity through resource efficiency

Case study 2b
The Better Cotton Initiative: reducing supply
chain risk through enhanced resource efficiency                                        46

The Better Cotton Initiative (BCI) helps producers
adopt better management practices in growing cotton.
Using less water, less pesticides                 For Marks & Spencer, BCI means
and fewer fertilisers is clearly                  farmers are more likely to
good for the environment as                       grow cotton rather than other
well as a way to improve the                      crops; and because they’re
efficiency of the farming system.                 disconnected from major
Marks & Spencer have learnt                       increases in input costs and
that farmers who follow the BCI                   shortages, Marks & Spencer can
model are more efficient and can                  secure cotton sources for the
reduce their input costs47. The                   future. This helps ensure that
latest results from a joint project               their market for buying cotton is
with WWF that BCI farmers are                     more stable, and greater stability
over 30% more profitable than                     means fewer price fluctuations
comparable non-BCI farmers48.                     for supply chains.

                                                  What’s more, BCI has
                                                  empowered cotton farmers to
                                                  trade independently, removing
                                                  local middlemen who take a cut
                                                  of the business49. Empowerment
                                                  connects the farmers more
                                                  intimately to their final customer
                                                  and reduces costs along the
                                                  whole supply chain50.

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2.3
Circular
                   In the period since the industrial revolution, business
                   has been dominated by a linear model of production
                   and consumption, in which goods are manufactured
                   from raw materials, used, and then discarded.

                   In contrast, a circular economy is one that is both restorative and
economy:           regenerative by intention and design. Circular forms of production
                   and consumption are an age-old model but are currently often
Closing the loop   limited to high value categories of goods. Companies are now finding
                   that ‘closing the loop’ on the supply chain through improved product
#circulareconomy   design, extending asset life, re-use and recycling can deliver tangible
                   commercial and sustainability gains across a wider range of goods
                   and materials. Closed-loop systems reduce the need for extraction
                   and processing of new resources, and lessen the associated impacts
                   on the natural environment.

                   In the same way that new and alternative consumption models can
                   create societal benefits, in the form of reducing household costs for
                   durable goods, closed-loop thinking and design can improve quality
                   and value by extending the useful life of goods, enabling their re-use
                   and re-sale, thereby saving money for businesses and cutting costs
                   for consumers.
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2.3 Circular economy: Closing the loop

Size of the prize

Moving to a circular model of production                                                          “Closed loop recycling
has significant business benefits in the UK,                                                        is ambitious, but
across different sectors.                                                                           achievable. The
                                                                                                    aluminium used in
                                                                        £13bn
Value can be realised from various changes in behaviour, for example:
–– Circling goods within the system for longer by enhancing their                                  our vehicles contains
    durability and reusability.
–– Cascading the use of materials more effectively through different     Current                   up to 50% recycled
    sectors and products (for example, using fibres in textiles,        market size54               content, and includes
    upholstery, and finally insulation materials).                                                  scrap aluminium from
–– Ensuring that material streams remain uncontaminated and of                                     our manufacturing
    high quality, enabling their longevity.
–– Tightening the circle by minimising initial material use.
                                                                                                    operations.”
                                                                                                  Dr Ralf Speth, Chief Executive Officer,
                                                                                                  Jaguar Land Rover

                                                                        £15bn-
                                                                        £18bn
                                                                          Potential
                                                                         productivity
                                                                           gains55

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New Areas for Innovation                                                                                                               37 / 71
2.3 Circular economy: Closing the loop

Size of the prize

Adoption of a circular model could yield net material cost savings        Business value levers
of an estimated £15-£18 billion a year in the UK consumer goods                                                                   Maximising the upside
industry, representing approximately 20% of all the material input                                   Revenues                                 Intangible benefit
costs, spanning different sectors including packaged and fresh food,                                 –– New, re-designed product lines        –– Job creation in new sectors
beverages, apparel and personal consumer products51.                                                 –– Collection and reverse logistics      –– Reduced environmental
                                                                                                                                                  externalities

                                                                          More certain, short-term

                                                                                                                                                                                  Less certain, long-term
                                                                                                                                              –– Improved customer interaction
Food waste as an example could create profits of £113 per tonne                                                                                   and loyalty
of waste in the UK (£1 billion a year), based on savings from roll-out                                                                        –– Enhanced brand

of anaerobic digestion, avoided landfill costs and revenues in the
                                                                                                     Costs                                    Risks
form of feed-in-tariffs from electricity generation52. In the clothing
                                                                                                     –– Raw material and resource            –– Reduced exposure to price
sector, approximately £850 per tonne of clothing in net profit                                           cost savings                             volatility and supply risks
could be generated in the UK from enabling re-use and recycling –                                    –– Reduced costs of production           –– Improved regulatory compliance
                                                                                                                                              –– More resilient economy
contributing a further £1 billion in savings UK wide53.

                                                                                                                                Minimising the downside

                                                                         Source: Accenture 2013

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New Areas for Innovation                                                                                          38 / 71
2.3 Circular economy: Closing the loop

Sustainability benefits

Circular models of consumption require new kinds of skills and services,                                                    “We are integrating
for example in logistics, processing, recovery and re-sale, and have                                                          sustainability into our
the potential to bring the UK into a leading position globally whilst                                                         design process and
promoting social development and education in regions of lower income.                                                        closing the loop on
Counties in the East of England,                  The environmental benefits,         Programmes that have focused            packaging.”
the Midlands, the Northwest,                      particularly from retention         on encouraging both recycling
                                                                                                                            Ian Livingston, Chief Executive,
and Yorks and Humber currently                    and regeneration of natural         and re-use have been successful
                                                                                                                            BT Group
act as the ‘powerhouse’ for                       resources, from a circular          in achieving environmental
waste management, recovery                        economy are significant and the     savings, for example Marks &
and recycling, but significant                    market is still under-developed.    Spencer reduced the number
opportunity exists to expand                      Circular economic approaches        of carrier bags customers use         “We need to encourage
this market further. The circular                 can achieve a possible 50-          by 78% over 5 years since the           UK businesses to use
economy has created over                          90% reduction in a product’s        introduction of carrier bag
100,000 jobs in the UK (83%                       environmental footprint58. By       charging. Using closed-loop
                                                                                                                              more recyclate. The
of which are outside London),                     ‘cascading’ used textiles from      thinking, they were also able to        UK does need more
in over 5,000 companies,                          one phase to another, re-using      ensure every carrier bag is made        reprocessing facilities,
servicing a market size of £13                    them in different applications      from 100% recycled material             but businesses are still
billion56. Employment in the                      (e.g. upholstery to insulation),    that is sourced from their own
waste management, recovery                        could generate 1 million tonnes     waste streams (thereby cutting          not making the most
and recycling sectors is growing                  CO2 savings and reduce water        costs)60.                               of avoiding landfill by
at 3% a year nationally, and is                   use by 16 million cubic metres in                                           using other available
expected to create at least 3,500                 the UK alone59.
jobs annually in the next
                                                                                                                              options.”
few years57.                                                                                                                Estelle Brachlianoff, Chief Executive
                                                                                                                            Officer, Veolia Environmental
                                                                                                                            Services (UK)

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New Areas for Innovation                                                                                         39 / 71
2.3 Circular economy: Closing the loop

Case study 3
Patagonia’s Common Threads Initiative:
encouraging re-use, repair and recycling                                                 61

Outdoor clothing retailer Patagonia’s business
model is designed for a circular economy.
By selling high quality, premium-                 and sends all recyclable            Patagonia has backed up this
priced products, customers are                    product to Tejin, a Japanese        supply chain innovation with
incentivised to retain their goods                manufacturer of synthetic fibres,   direct consumer messaging.
for longer, rather than purchase                  for remanufacturing. Polyester      Their 2012 ‘Don’t Buy This
frequent replacements from rival                  is one of the main materials        Jacket’ campaign made a
companies that offer cheaper                      used in their products, for which   bold statement to customers
alternatives. Customers are also                  Patagonia believe they have now     by asking them only to buy
offered repair services for the                   ‘closed the loop’ completely – no   the products that they need,
duration that they own                            new polyester-based compounds       thereby encouraging sustainable
the product.                                      are procured for the manufacture    consumption. Over 56,000
                                                  of Patagonia’s products.            customers have now signed
Patagonia also encourages                         Patagonia’s R&D department are      Patagonia’s pledge to reduce,
their customers to recycle                        primarily focused on ‘designing-    repair and recycle products
their clothes at the end of their                 out waste’, ensuring that every     they own.
useful life by sending them                       new product is highly recyclable.
back to the company who                           As of 2011, all of Patagonia’s
then strip all useful material                    clothing is now 100% recyclable.
from the product and re-use                       Patagonia claims this has created
them in the manufacture of                        large savings and has enabled
new garments. To achieve                          them to hedge against rising
this, Patagonia has invested                      oil prices and reduce other raw
in research and technology,                       material costs significantly.

                                                                                                                           Source: Lisa Picard Flickr

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2.4
New
                Consumers are changing the way they purchase
                and use products and services and are altering
                the way they interact with companies.
                In the same way that YouTube changed the way we watched TV,
                and the development of mobile phones fundamentally altered our
                communication methods, the ‘share economy’ disrupts the industrial
consumption     model of companies producing and people consuming. In the future
models:         ownership of goods will be less important and everyone can be
                both consumer and producer, creating efficiencies and new
Changing        business models.
the customer
proposition     From large marketplaces such as eBay and Gumtree, to peer-to-
                peer accommodation like Airbnb, new consumption models, enabled
                almost entirely through on-line channels and social media, are acting
#newbizmodels   as a new disruptive force. Technology is driving the reinvention of the
                ‘leasing’ approach at greater scale across a wider range of markets.
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