How sustainability helps produce better products: PwC

As customers, investors and employees increasingly prefer companies that develop sustainable and socially responsible products, companies are examining their products’ carbon footprint, the amount of water they use, and the labor practices involved in making products. Business leaders should evaluate the potential impact of sustainability factors across the product life cycle – from concept to end-of-life disposal – but many consider those factors only in the later stages of the product development life cycle (e.g., production and distribution).

This inaction can have a significant financial impact. In “The Business Impact of ESG Performance,” Moody’s Analytics found that over the four years they studied, moderate or severe sustainability events could cause as much as a 7.5% stock market loss in a given 12-month period.

Given these implications, companies need to thoroughly review product ideas and product development life cycles more aggressively by thinking about their products’ impact on sustainability. Incorporating environmental and social factors into product design can potentially mitigate the risk of future negative events and provide opportunities for sustainable growth.

69%

of organizations have just scratched the surface on sustainability by performing life cycle assessments on less than 25% of their product lineups.

$100B

estimated annual spending in sustainability-related innovation and product development in the next three to five years.

Source: PwC analysis, 2023

Current sustainability efforts (or lack thereof)

Companies typically implement sustainability enhancements to products that are already commercialized. For example, bottled water companies have reduced the size of the plastic caps as a nod towards being more environmentally friendly. But that move does very little to reduce the impacts of climate change and single-use plastics. Companies should be thinking about the packaging more holistically.

While these efforts are well-intentioned, we see them lead to environmental and social costs and wasted resources. The reality is that without embedding the ethos of sustainability into product ideation, design and production, incremental product enhancements rarely lead to a fully sustainable offering. Without proactive innovation, these organizations will continue to chase their tails in trying to meet sustainability objectives.

Fortunately, many organizations are now establishing or enhancing their responsibility practices. However, these efforts can be superficial and do not always adequately extend into R&D. We’ve observed that many companies lack three foundational capabilities necessary for integrating sustainability into product development.

1. Leadership lacks awareness and a clear strategy for product sustainability.

PwC’s 2023 annual corporate directors survey found that around half of corporate directors have discussed sustainability issues such as climate change. Additional PwC research shows that only 33% of companies have a sustainability vision that employees understand.

2. Sustainability policies and design and development guidelines are insufficient to keep pace.

Companies have not adopted underlying business processes to adequately react to the rise of sustainability. This includes determining the roles and responsibilities that can deliver this impact. Without a clear definition of who is accountable in driving responsible products and practices, the organization cannot evolve.

3. Companies are inadequately measuring their sustainability impact.

In PwC’s Insights from Sustainability Leaders survey, we found that only 6% have a portfolio of measures covering all aspects of sustainability. In addition, PwC research found that 69% of organizations surveyed had conducted life cycle assessments on less than 25% of their product lineups. (The life cycle assessment process measures a product’s emissions across its lifetime.) Without effective performance indicators, these organizations are likely to continue struggling to incorporate sustainability.

Recommendations for sustainability in the product development life cycle

Embedding sustainability in product development starts with key decision-making across three distinct tiers: strategy, portfolio and product. By meticulously approaching each of these tiers, sustainability can be an integral part of each step of the product development life cycle.

Businesses should consider how product innovation specifically contributes to achieving enterprise-level sustainability objectives. The organization must determine the mechanisms by which it will drive these objectives — an incubator, venture fund or partnerships. Talent is also crucial for enabling the strategy. R&D and talent acquisition will need to rethink their skills matrices and job descriptions to develop sustainability into a core competency.

Sustainability innovation in action: A medical device company made sustainable product innovation one of its top priorities. From a product life cycle standpoint, to move away from single-use medical devices the company has embedded sustainable design into its sourcing and packaging, as well as its manufacturing and waste solutions. It has also collaborated with a non-profit environmental organization to expand its environmental research for product innovation.

Companies striving for a product development model focused on sustainability should ask themselves “What is the right portfolio mix for sustainability investments?” They should then identify the leaders responsible for making these decisions. This is where product leadership should change its thinking to consider sustainability in conjunction with other value drivers. Existing prioritization criteria should incorporate additional metrics associated with environmental and social good. For example, some companies have started incorporating metrics like “Incremental Scope 2 emission impact” and “% ethically sourced materials” into product investment decisions.

However, changing prioritization criteria and decision support tools (e.g., dashboards and visualizations) is easy. Changing leadership behavior, approach and biases is not. Companies should critically assess their existing portfolio governance structure and determine if leadership has the skills required to make the investment trade-offs with sustainability as a decision driver.

Sustainability innovation in action: A packaged foods and beverage manufacturer was looking to improve its product portfolio by adding sustainability and social factors to the systems and tools used to prioritize its front-end innovation funnel. By adding these factors to its existing desirability, viability and feasibility criteria, the company has balanced traditional business value with the desire to develop socially conscious products that are sustainable from the start. Furthermore, the company utilizes refined product development evaluation methodologies to promote clean sourcing, socially equitable partner relations and an environmentally positive value chain.

Businesses should assess how product development methodology will evolve for sustainability parameters. At the start of the product development process, management should evaluate ideas not just on traditional criteria but also on sustainability impact. When designing and developing products, R&D organizations will have to demonstrate environmental and social leadership in addition to product-market fit. Not only should they continue to prove product functionality and market feasibility, but also include sustainability performance. For instance, PwC has observed companies incorporating additional thresholds and requirements into their product development stage-gate exit criteria. In some industries, this manifests itself in additional compliance and environmental checklists during product feasibility analysis. However, in other sectors it may include confirming market feedback from a diverse and equitable group of stakeholders during prototype consumer testing.

Sustainability innovation in action: An industrial product manufacturer collaborates with ocean and beach clean-up campaigns to make seat covers by converting collected plastic waste into recycled polymer fibers. Additionally, the company is trialing a different compound to manufacture components such as roof liners and double-loaded floors. These innovative design changes have helped the company significantly reduce the amount of plastic it uses in its vehicles thereby resulting in lighter vehicle components, improving mileage and decreasing carbon dioxide emissions.

How your company can ingrain sustainability into its operations

Companies can develop effective plans for their sustainability strategies and also take tangible actions immediately. For instance, you can act on the Tier 3: product development life cycle stage as shown below.

Tangible actions companies can take in the product development life cycle

Ideation

Add environmental research to existing sources of market intelligence to identify innovation opportunities.
Create a priority list of socially conscious materials (or sourcing locations) for design engineers.

Design and development

Upskill engineers on Design for Circularity methodologies to promote the use of recycled material in new product designs.
Incorporate life cycle thinking and insights into product design and material choices.
Confirm sustainable materials can be procured at scale.
Use digital threads and simulation to reduce testing waste.

Launch and operations

Enhance existing marketing plans with environmental and social considerations.
Establish reverse logistic channels for product take-back programs and material recycling.

Lift and scale

Conduct life cycle assessments (LCAs) to identify optimization areas.
Establish processes to capture manufacturing byproducts and waste for reuse during production.

Companies can embed core sustainability principles into each stage of the product development life cycle. There's no shortage of sustainability-oriented actions that you can take, but not all actions produce the same impact. It is important for a company to consider the industry and market factors before trying to advance its agenda through purposeful products.

The future is bright

As the global corporate climate becomes increasingly environmentally and socially conscious, companies are embracing sustainability. One of the most effective ways to be sustainable is to change the product landscape and underlying development practices. Although this transformation process can be difficult, the benefits outweigh the costs. By integrating sustainability considerations into the core business processes that create and bring new products to market, you can improve the value that your company delivers to customers and society.