New business models for the SDGs

Growing constraints and opportunities from sustainability are pushing companies to develop new business models that can deliver both impact and profit. These can come from underlying efficiencies of products and technology, the development of a new consumer base, changing consumer preferences, and public-private partnerships.

Sustainable Business Models

New business models such as the circular economy, the sharing economy, and the inclusive economy are scalable solutions to make business less resource intensive and more inclusive. Consistent with many of the SDGs, they maximize the resource efficiency of production and consumption and extend the usability of products and assets. These new business models include sustainable practices such as:

  • renewable energy and energy resilience and efficiency
  • closed-loop manufacturing
  • product-as-a-service and leasing
  • sharing products and assets with a low-use rate

Underserved Markets and Consumers

Ending poverty, reducing inequality, and ensuring universal access to necessities—all pillars of the SDGs—can lead to the creation of new markets and the growth of existing markets to fill previously underserved needs. These new markets and consumers include:

  • bottom-of-the-pyramid (BOP) models for affordable products and services
  • rising income from reduced inequality
  • an emerging middle class resulting from poverty eradication
  • new paying consumers for essential needs, including health care and energy

Consumer Preferences and Incentives

While sustainable products and services succeed based on their inherent efficiency, they also benefit from changes in consumer preferences and government incentives. This is evident, for example, in renewable energy and electric vehicles, where the value proposition for the consumer is often based on perceived sustainability benefits and government incentives. Another example is how governments’ commitments to climate-change mitigation factor prominently in projections for the growth of renewable energy. Here, the business model benefits from the social value created through consumer preferences or incentives, leading to more stable demand and lowering the cost or risk of doing business.

Pay-for-Performance Models

These models involve conditional payments by governments, development banks, and foundations, based upon the successful implementation of sustainability solutions by the private sector. They are mostly used in the social- and economic-development sectors and can be financed through innovative financial products, including social-impact bonds and development-impact bonds. Examples include:

  • loans to low-cost private schools, repaid by governments or donors upon demonstration of improved educational outcomes
  • costs of HIV-prevention programs, repaid from a government’s savings on health-care costs
  • energy-efficiency investments, repaid from energy savings