© Jakob Utgård. Last updated 19.9.2026

Sustainable innovation

Sustainability oriented innovation has been defined as “innovation that involves intentional change in an organization’s philosophy, values, products, processes or practices, with the aim of creating both environmental/social value and economic returns” (Adams et al. 2016). It can take place at the product level (making more sustainable products), at the process level (making the whole process or life cycle more sustainable) and at the organizational level (making the whole organization more sustainable, often by changing the business model). Two further distinctions are useful. Innovation may be incremental, improving what exists, or radical, replacing it. And it may be technological, a new material, process or machine, or social, a new way of organizing, financing or using things.

Firms often move through, or fail to move through, three phases of innovation towards sustainability (Adams et al. 2016). In operational optimization the firm does the same things better, focusing on reducing harm through eco efficiency and incremental improvements to business as usual. In organizational transformation it does new things, with new products, services or business models, and a fundamental shift in business purpose. In systems building it does new things with others, aiming at a net positive impact and at institutional change beyond the firm. The rest of the chapter follows this progression: technology and process innovation mostly belong to the first phase, business models to the second, and the collaborations at the end to the third.

Sustainable business model innovation

A business model is the way a company creates, delivers and captures value (Osterwalder and Pigneur 2010). It describes how a business operates, collaborates with others, generates revenue and provides value to customers. Osterwalder and Pigneur’s “Business Model Canvas” is a much used framework that presents a business model in nine parts. Figure 1 shows an example of the Business Model Canvas for Nestlé Nespresso, taken from Joyce and Paquin (2016).

A sustainable business model considers the impact on society and the environment and has been defined as a business model that intends to reach long term economic, social and environmental goals, making it resilient and aligned with sustainable development objectives (Bocken et al. 2014). Sustainable business model innovation is the process of designing and moving to such a model (Geissdoerfer et al. 2018). As a tool for this work, the canvas has been extended to “the triple layered business model canvas”, adding layers for environmental and social impacts and benefits. Figure 2 shows an example of the environmental layer for Nestlé Nespresso (Joyce and Paquin 2016). [Keep Figures 1 and 2 from the current page.]

Bocken et al. (2014) identify eight archetypes of more sustainable business models in three groups. The technological archetypes are to maximise material and energy efficiency, using fewer resources to minimize waste and emissions; to create value from waste, turning waste from one process into a valuable input to another; and to substitute with renewables and natural processes, reducing dependence on non renewable resources. The social archetypes are to deliver functionality rather than ownership, offering a service so that customers get access to functionality and the material footprint falls; to adopt a stewardship role, with responsible practices across the value chain from sourcing to customer guidance; and to encourage sufficiency, limiting overconsumption by promoting longevity and responsible use, often through durability and second hand markets. The organizational archetypes are to repurpose the business for society and the environment, making social and environmental value the main purpose, as in social enterprises; and to develop scale up solutions, spreading sustainable solutions more broadly. The archetypes work as a vocabulary for what a business model can change, and most sustainable business models combine several of them.

Product-service-systems

Product-service systems (PSS) are business models that provide a mix of products and services to satisfy the customer’s needs. In PSS, companies change from selling products to providing access to products and services. This often means that customers pay for using the product rather than ownership (Mont 2002). Examples include car-sharing programs, tool rental services, and leasing models for machinery or equipment. In product-oriented PSS, the business offers services related to the product, such as maintenance, repair, or recycling, while the customer still owns the product (Yang and Evans 2019). In use-oriented PSS, the product is owned by the provider and leased, rented, or shared with customers, who pay for access or usage rather than ownership. In result-oriented PSS, the customer pays for the outcome provided by the product, without direct use of the product itself (e.g. laundry services).

Product-service-systems may reduce the need for product manufacturing and all the resources included in this (Yang and Evans 2019). Example: Sharing cars reduces the demand for cars. When the provider is responsible for the product, they may also have stronger incentives to design products for quality, repairability and durability. In general, moving from products to services may “decouple” the economic activity from resource use.

The sharing economy

Sharing economy services make it possible for individuals to share access to products, services, and resources, often through digital platforms. In the sharing economy, resources are temporarily exchanged or shared, typically coordinated through peer-to-peer (P2P) platforms. Examples include ridesharing (e.g., Uber, Lyft), home-sharing (e.g., Airbnb), and collaborative consumption models (e.g., tool or car rentals).

By making it easy to share goods and services, the sharing economy can reduce the demand for new products and encourage more efficient use of resources. This potentially reduces the environmental impact from manufacturing, distribution, and disposal. Uber or similar services, for instance, may reduce the need for owning a car. On the other hand, making services more affordable can also increase consumption and resource use (a person who did not own a car may start using Uber more – this is an example of the rebound effect) (Martin 2016, Meshulam et al. 2023).

Generally, the sharing economy gives new opportunities for owners of resources to benefit from their resource (renting out their car, renting out their flat), and for users of the resource (cars and flats easier and cheaper available). The total effect for the environment depends on the saving of resources vs the extra use. Renting an extra room or flat to tourists on AirBnB may reduce the need for building new flats or hotels but may encourage more tourism.

Another question in the sharing economy is the effects on society more broadly. Workers on platforms like Uber or Wolt are typically classified as independent contractors, leading to concerns over job security and wages (Schor et al. 2017). AirBnb has been criticized for reducing housing availability and increase rents in cities, which seem to generally be the case (Barron et al 2021).

Comprehension questions

1. What are the three phases of sustainability oriented innovation (Adams et al. 2016), and how do they differ?
2. What is the double externality problem, and why does it lead to too little sustainable innovation?
3. What is carbon lock in, and why does it make it hard for an alternative technology to compete with an established one?
4. What are the three types of product service systems, and why can a PSS reduce resource use?
5. Why can the sharing economy both reduce and increase environmental impact?

Exercise

You are an adviser to a Nordic company that sells a physical product and wants to test a product service system. Choose the company and the product yourself, for example outdoor clothing, tools, furniture, bicycles or household appliances, and write a one page proposal to the management addressing the following:

1. Describe the product service system: what the customer pays for, whether it is product oriented, use oriented or result oriented, and what the company takes over from the customer, such as ownership, maintenance, repair or return.
2. Assess whether it can be profitable. Which new activities and costs does it create, such as logistics, cleaning, repair and refurbishment, and why would customers choose it over buying? Use Påfyll as a warning: what would have to be different in your model to avoid the same outcome?
3. Assess the sustainability effect and give a recommendation. How could the model reduce resource use, could rebound effects or social consequences reduce the gain, and what would you test first in a pilot?

References

Adams, R., Jeanrenaud, S., Bessant, J., Denyer, D., & Overy, P. (2016). Sustainability-oriented innovation: A systematic review. International Journal of Management Reviews, 18(2), 180–205. https://doi.org/10.1111/ijmr.12068

Barron, K., Kung, E., & Proserpio, D. (2021). The effect of home-sharing on house prices and rents: Evidence from Airbnb. Marketing Science, 40(1), 23–47. https://doi.org/10.1287/mksc.2020.1227

Bocken, N. M. P., Short, S. W., Rana, P., & Evans, S. (2014). A literature and practice review to develop sustainable business model archetypes. Journal of Cleaner Production, 65, 42–56. https://doi.org/10.1016/j.jclepro.2013.11.039

Garcia-López, M.-À., Jofre-Monseny, J., Martínez-Mazza, R., & Segú, M. (2020). Do short-term rental platforms affect housing markets? Evidence from Airbnb in Barcelona. Journal of Urban Economics, 119, Article 103278. https://doi.org/10.1016/j.jue.2020.103278

Geissdoerfer, M., Vladimirova, D., & Evans, S. (2018). Sustainable business model innovation: A review. Journal of Cleaner Production, 198, 401–416. https://doi.org/10.1016/j.jclepro.2018.06.240

Joyce, A., & Paquin, R. L. (2016). The triple layered business model canvas: A tool to design more sustainable business models. Journal of Cleaner Production, 135, 1474–1486. https://doi.org/10.1016/j.jclepro.2016.06.067

Martin, C. J. (2016). The sharing economy: A pathway to sustainability or a nightmarish form of neoliberal capitalism? Ecological Economics, 121, 149–159. https://doi.org/10.1016/j.ecolecon.2015.11.027

Meshulam, T., Goldberg, S., Ivanova, D., & Makov, T. (2024). The sharing economy is not always greener: A review and consolidation of empirical evidence. Environmental Research Letters, 19(1), Article 013004. https://doi.org/10.1088/1748-9326/ad0f00

Mont, O. K. (2002). Clarifying the concept of product–service system. Journal of Cleaner Production, 10(3), 237–245. https://doi.org/10.1016/S0959-6526(01)00039-7

Osterwalder, A., & Pigneur, Y. (2010). Business model generation: A handbook for visionaries, game changers, and challengers. John Wiley & Sons.

Schor, J. B., & Attwood-Charles, W. (2017). The “sharing” economy: Labor, inequality, and social connection on for-profit platforms. Sociology Compass, 11(8), Article e12493. https://doi.org/10.1111/soc4.12493

Yang, M., & Evans, S. (2019). Product-service system business model archetypes and sustainability. Journal of Cleaner Production, 220, 1156–1166. https://doi.org/10.1016/j.jclepro.2019.02.067