6 Sustainable Business Models Every ESG Consultant Should Know

As an ESG consultant, it is thrilling to help companies get creative and revolutionize their business models to create real, lasting change inside and outside of the organization.

Heather Burns

It can take time to make the business case for these new sustainable business models, but when implemented, they have the added benefit of giving companies a significant competitive advantage. The good news is that we can point to many successful case examples.

There are six main types of sustainable business models and while they all address environmental impacts, each has a slightly different focus.

#1 Circular business models

Prioritize keeping resources in circulation for as long as possible, which reduces waste and pollution by reusing and repairing products. The Ellen MacArthur Foundation defines circularity as “designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.”

Thousand Fell, in partnership with TerraCycle and UPS, launched a special recycling incentive in which customers can return old pairs of Thousand Fell shoes to the company at the end of their useful life. Thousand Fell will then recycle them and send customers $20 toward purchasing a new pair of shoes.

To reach its 2030 climate targets, IKEA is making a profound shift to its business model to help customers prolong the life of their products. The transformation includes piloting its first-ever second-hand store, selling gently used furniture. The company has also recently started a buy-back scheme for customers – it gives vouchers to return unwanted furniture and other items.

One of the most surprising examples of a circular business model is Burger King’s new program launching in New York, Tokyo, and Portland, Oregon, allowing customers to buy burgers and drinks in reusable packaging. A small deposit is charged at the point of purchase, which is refunded when the customer returns the packaging to be cleaned and returned by Loop.

There are at least five distinct circular business models ESG consultants can leverage – circular inputs, product as a service, product use extension, resource recovery, and the sharing economy – all of which appear to be on the rise now that some recognizable brands have demonstrated a business case.

#2 Green supply chain management

Includes minimizing the negative environmental impact of a company’s supply chain, including its sourcing of raw materials, transportation, and disposal of products. It also involves integrating eco-friendly methods to reduce carbon footprints and increase efficiency.

This business model is vital for ESG consultants because large companies with carbon reduction goals and public commitments, such as Net Zero, can only reach those goals by reducing their scope 3 emissions (those embedded in the supply chain).

This model requires ESG consultants to work closely with suppliers — many of which are mid-cap and small companies — and for global brands, supply chains can be large and complex with its suppliers worldwide. This can make implementing this business model particularly challenging and resource-intensive. However, companies that can do so effectively will significantly reduce their carbon footprint.

Henkel is committed to attaining company-wide climate-positive results by 2040, which means going beyond carbon neutrality to remove carbon dioxide from the atmosphere. Henkel collaborates with its producers, suppliers, and customers outside of its production and distribution sites to achieve this goal. A major focus of the company’s business model is collaborating with suppliers to invest in circularity and become CO2-neutral in their production processes.

Honeywell, a global manufacturer, is on track to transition from a product-oriented corporation to one that provides software and industrial technologies by 2035 – all while achieving net-zero carbon emissions. In order to achieve this goal, supply chain digitalization is critical. Honeywell is a leader in green supply chain management and its ongoing supply chain transformation has reduced 90% of its greenhouse gas emissions since 2004.

#3 Renewable energy business models

Prioritize the use of clean, renewable energy that is produced onsite. ESG consultants with a background in energy efficiency, clean energy technologies, and green building align with this business model.

While the usual suspects using this sustainable business model include Tesla and renewable energy companies, mainstream businesses are also reaping the benefits of onsite clean energy production investments. For example, Staples implemented a renewable energy business model to power their operations, as well as Kohls and Walmart.

An obvious benefit of this model is the reduction of risk due to volatile energy prices; however, it’s not the only reason companies invest in onsite renewable energy.

A significant revenue stream can be generated by onsite renewable energy and selling that electricity to the grid, either at a fixed price (guaranteed feed-in tariff) or a market price. If the installation is not grid-connected, the savings from not purchasing electricity from other sources improve net income.

The company may also be able to generate and sell renewable energy certificates or carbon emission reduction certificates, depending on the country. A second income stream comes from tax benefits.

#4 Internal pricing on carbon

Involves setting a price on carbon emissions within a company to incentivize carbon reduction and promote long-term planning.

The CDP reported last year that nearly half of the world’s biggest companies are factoring the cost of carbon into business plans. This is an 80% increase in five years, signaling an important trend for ESG consultants.

Microsoft, Goldman Sachs, Johnson & Johnson, and the World Bank have all implemented internal prices on carbon as part of their sustainability efforts.

Most companies that are implementing this type of sustainable business model use’ evolutionary prices’, which adjust over time. Some experts believe this signals that companies worldwide may be preparing for greater risks in the years to come. With the recent announcement that the UK plans to issue a carbon tax on imports, the reality of an economy-wide price on carbon is closer than ever.

#5 Sharing economy business models

Involve the sharing of resources or services between individuals or companies. This is technically a part of the circular economy, but there are entire companies based on this specific component, which reduces the need for each party to own their resources.

Examples of companies with the sharing economy business models at their core include Airbnb, Zipcar, and WeWork.

#6 Regenerative business models

Are still fairly new compared to the other sustainable business models. A regenerative business model takes a step beyond sustainability by restoring, renewing, and/or healing the systems that we depend on while also improving the inherent ability of said systems to restore, renew and/or heal themselves more effectively.

Regenerative models are designed to build resilience at the scale necessary to future-proof business.

An example of a company utilizing regenerative business models is Dr. Bronner’s, which uses regenerative agriculture practices and donates a portion of its profits to environmental and social causes. Dr. Bonner’s is also a certified B-Corp, a certification for companies wanting to integrate social and environmental impact across its business.

As a sustainability consultant, it is exciting to work with companies to implement business models that drive real and lasting change.

Conclusion

Innovative business models such as circular business models, green supply chain management, renewable energy business models, internal pricing on carbon, sharing economy business models, and regenerative business models provide companies with an opportunity to not only reduce their environmental impact but also gain a competitive advantage, enhance their reputation, protect against greenwashing and increase overall positive impact.

While it can take time to make the business case for these types of models, the payoff is worth it in the long run. By looking at successful case examples, companies can see the benefits that these models can bring and be inspired to make the shift toward sustainability.