Shifting your portfolio towards products and services with strong sustainability performances makes economic sense. This is mainly because sustainable portfolios often demonstrate substantially higher growth rates and returns on investment. However, objectively evaluating the implications of this trend for individual products or services is far from straightforward because there is no universally accepted definition of what a "good" sustainability performance looks like. This has led to widespread miscommunication, both internally and externally.
Companies have traditionally relied on academic and highly granular tools, such as life-cycle assessments (LCAs), to gain insight into the environmental (and sometimes social) impact of products or services. These powerful tools typically assess the impact of products in applications, yet are not designed to assess how the products’ performances stack up against the expectations of the market or society in general.
However, people new to the domain often feel overwhelmed when facing the immense breadth of information. Or the application or region may be very different from that of the same product in another application or region. For example, when is there really a sustainability risk to a product? How do you measure this objectively? Which weak signals are relevant to capture?
A sustainable portfolio steering approach provides a clear view of a portfolio’s overall sustainability based on an objective review of the portfolio’s constituent products. It provides strategic input for decision-making processes, including strategy development, mergers and acquisitions, capital investments, and innovation management.
The approach considers the product portfolio in terms of its products and the applications, and geographies that those products serve. Product-application-region combinations are assessed individually, using a fact-based model that is both simple and comprehensive. The result is a granular assessment of the sustainability-related risks and opportunities of each product-application-region combination, tailored to the individual company. When aggregated, insight can be obtained for entire portfolios or parts, providing a company’s board and strategists with timely and detailed information about the speed and direction of sustainable development of all its products and services.
By Martijn Eikelenboom, Marijn Vervoorn, Phil Webster, Chandler Hatton and Jonathan Lambert, Arthur D. Little