We live in volatile times where the ways we organize society and the economy today fall short on dealing with climate disruption, population growth and growing inequality between the rich and the poor (Rockström and Wijkman, 2012; Boons et al., 2013; OECD, 2008). These global trends together with large changes in the nature of technologies and policy continue to create fundamental shifts in how business is done (Sommer, 2011; SustAinability, 2014). In the light of these challenges sustainable development has gathered increasing interest. The motivation lies within the desire of trying to understand how technology and social practices enable societies to become more sustainable (Boons et al., 2013) since technology and social practices potentially lead to self-reinforcing feedback loops, so called virtuous cycles (Hekkert and Negro, 2008). In the report Our common future sustainable development is defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (WCED, 1987:41). Thus, sustainable development is seen as a process of change where “the exploitation of resources, the direction of investments, the orientation of technological development; and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations.” (WCED, 1987:43).
“Business as usual” not enough
According to Hart and Milstein (2003) a firm needs to simultaneously deliver economic, environmental and social benefits in order to be sustainable. Therefore, a sustainable organization “creates profit for its shareholders while protecting the environment and improving the lives of those with whom it interacts.” (Savitz and Weber, 2013:xvii). However, the dominant model of the corporation draws on shareholder value maximization logic where the primary obligation of the corporation is to maximize shareholder profits (Fligstein, 2001). Consequently, goals such as protecting the environment and improving the lives of those whom the corporation interacts with are subordinated to economic profits (Stubbs and Cocklin, 2008). Opposing the view of Stubbs and Cocklin (2008) Desrochers (2010:161) argues that “business as usual” and increased focus on reducing costs and increasing profits has historically led to “more efficient use of materials and the continual creation of higher quality resources”. However, Barbier (2011) highlights that the costs associated with environmental problems are not usually reflected in markets nor have regulations or institutions been adequately developed to handle these costs. Consequently, relying on the idea of “business as usual” is not an option. Sustainable development needs to be economically sustainable (Schaltegger et al., 2011; Bocken, 2013), however it does not force companies to trade-off profitability. Sustainability is a key driver for innovation as it forces organizations to change how they think about products, processes and business models. These changes do not only lower cost and risk but also generate revenue and/or enables companies to create new business (Nidumolu et al., 2009).
Innovations where sustainability considerations are fully integrated, so called sustainability innovations (Boons et al., 2013), are assumed to create and extend opportunities for business and are believed to have a pivotal role in industry transformation towards sustainable development. The assumed ability of sustainability innovation to contribute to transformative effects has to do with their creation of more sustainable patterns of consumption and production, as well as their contribution to new knowledge development. New knowledge together with new patterns of production and consumption can in turn trigger a virtuous cycle of technological diffusion, reinforcing sustainable development (Charter and Clark, 2007; Hekkert and Negro, 2008). Further, the transformative effects potentially mitigate market imperfections (Lüdeke-Freund 2013) which in turn are a reason of why pure profit incentives and market forces alone cannot facilitate sustainable development (Barbier, 2011). It thus appears that the relationship between sustainability and innovation is mutually reinforcing where sustainable development is a driver for innovation and innovation in turn is a potential driver of sustainable development. Although a significant uncertainty remains regarding how innovation will lead to a more sustainable society (Lüdeke-Freund, 2013), Hart and Milstein (2003) argue that sustainability needs to be incorporated within the company strategy.
In summary, sustainable development is a driving force of innovation (Nidumolu et al., 2009) thus affecting how an organization creates and captures value (Chesbrough, 2010) which in turn influences knowledge development and how technological artifacts are used and produced. Thus, potentially reinforcing the process of sustainable development through a virtuous cycle (Boons et al., 2013; Charter and Clark, 2007; Hekkert and Negro, 2008; Lüdeke-Freund 2013).
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