Working Group

Businesses must assess the materials they use to reduce the ESG impact of their value chains

Three key learnings:

  1. Adoption of ESG design criteria has historically been low, with most companies in the working group currently lacking sustainability design processes. However, driven by a mixture of regulatory pressure and market opportunity, most companies plan to introduce more eco-friendly products over the next 12 months.
  2. Participants agreed that sustainability must be given equal weighting to other design criteria that engineering and R&D teams work against if it is to be embedded in the design process and not become a secondary consideration.
  3. Introducing sustainable design methods has helped working group participants deliver innovation, including products that both have a lesser environmental impact and are driving new revenue. Importantly, companies are beginning to share the intellectual property of such innovation with their competitors to ensure sustainability improves across their industry, and not in isolation.

 

Both people and planet benefit from products that are more sustainable. Whether by encouraging energy efficiency, durability or reusability, companies that embrace sustainability in product design stand to improve ESG conditions across their end-to-end value chain, from the point-of-origin in their supply base all the way to their end consumer.

Addressing sustainability in product design often starts with including sustainability in research and development (R&D) and design criteria. Traditionally focused on other deliverables, incorporating sustainability considerations into a company’s design process can have an immediate impact on a product’s ESG footprint.

But despite its growing importance, embedding sustainability criteria in the design process remains a challenge for most organisations. Just 38% of participants in Sustainability Leaders’ Sustainable product design working group – a group of 12 companies that came together to explore the issue during March and April 2022 – said they factored environmental impact into their product design processes. The remaining 62% reported that they have been unable to do so (see Figure 1, below).

Working group members said this is due to a historical lack of sustainability structure within the design process. Design departments have prioritised other criteria ahead of sustainability for tens of years, including cost, time-to-market, quality and risk. Installing new criteria to address sustainability in these teams takes time and investment – and many companies are only at the early stages of this journey.

The urgency behind sustainable design

But despite the slow pace at which companies have historically incorporated sustainability into design, several factors are driving organisations to act more urgently:

Meeting targets

More than 1,000 companies have now signed up to science-based targets, each committing to goals that reduce their greenhouse gas (GHG) emissions and ensure global warming is kept to a minimum. Businesses setting such targets must look at the full scope of their GHGs, encompassing not only their emissions from their direct business and purchased energy, but their wider value chain as well – including downstream consumer use.

As such, if companies are to meet these targets they must address the environmental footprint of their products. There are two components to addressing this footprint: educating consumers on how to use products responsibly; and changing how the products are designed to be more sustainable. It is the latter component that is driving R&D and design teams to reassess the design process urgently.

New regulations and standards

Several participants highlighted that there is a “pull factor” that has resulted from new ESG regulations. The European Union’s Carbon Border Tax, for example, will require EU importers and non-EU producers to pay approximately €75/metric tonne of carbon dioxide emissions on high-carbon materials such as steel, cement, aluminum and electricity. This is expected to rise to €100/metric tonne by 2030, and is driving companies to reconsider the materials they use in their product design to avoid the adverse impact of the tax on their revenue potential.

Similarly, participants pointed to contractual requirements entering into force in both the public and private sectors. Retailers such as Amazon and MediaMarkt are implementing eco-design pledges that extend to the companies they host on their platforms, requiring their customers to follow suit. Meanwhile, governmental contracts in countries such as the UK are increasingly requiring that businesses address the carbon intensity of their products. Failure to do so may cause them to lose public sector business.

Driving revenue

The Business and Sustainable Development Commission estimates that achieving the UN’s sustainable development goals could create market opportunities worth up to $12tn each year by 2030. Given the scale of the opportunity, working group participants perceived sustainable design to be a chance to capitalise on consumers’ appetite for sustainable products.

This is reflected in the sales of environmentally friendly products that working group participants have launched. One company in the group reported that as much as 71% of its sales now come from green products and solutions while 16% are from circular ones. “Our eco-conscious domestic appliances have done so well that we’re now expanding them across our portfolio,” said the organisation’s director of sustainability. “It’s clear to see that there’s an uptick in sales for this part of our business.”

Embedding sustainable design

Weighting sustainability

For companies that have started integrating sustainability into the design process, environmental criteria are given equal weighting to cost, quality, risk and time-to-market. Participants emphasised that this is critical if design teams are to sustainability seriously.

During one of the working group’s calls, Leendert Jan de Olde, director of EcoDesign and sustainability at Philips, shared how the company is prioritising sustainability in the design process. De Olde said that because Philips’s products run on electricity and have a user life of several years, the amount of energy consumed over their lifetime results in an environmental impact that makes up 95% of their overall footprint. To improve efficiency, the company now follows an eco-design process that requires all products improve environmental performance in the following four ways:

  • Energy: All products becoming energy efficient in use
  • Packaging: All packaging has minimised environmental impact
  • Substances: All products leave no trace of hazardous materials
  • Circularity: All products have minimal material usage; none go to waste

 

Philips currently has a target that all new product introductions meet these eco-design requirements by 2025. This is being translated into specific goals that its design teams must now meet. “Everyone has a dashboard that is reviewed monthly,” de Olde said. “Regular meetings are scheduled with functional leaders to review how they are tracking against these targets. And it’s also in staff’s performance measurement metrics, which helps weight these sustainability considerations against other criteria.”

This has changed not only how Philips’ design teams work, but also how the organisation works with its supply chain. Because its products now often require different materials, procurement is sourcing from more sustainable suppliers and helping to reduce the environmental footprint at both ends of Philips’ value chain.

Sustainable innovation

Introducing such processes has fostered sustainable innovation at several companies. Last year, for example, Colgate-Palmolive developed the world’s first recyclable plastic tube – paving the way to overcome the issue of toothpaste tubes being one of the most widely used forms of plastic packaging that is unsuitable for recycling.

To create this tube, Colgate shared with the working group that their engineers focused on making effective use of high-density polyethylene (HDPE) plastics. These can be turned into a wide variety of materials when reprocessed, including construction materials and packaging. The design took five years to develop and went through a series of iterations.

 

At Philips, the company’s eco-design process has also generated numerous innovations. Its recently launched IntelliVue MX40 wearable patient monitor uses 92% less power than its predecessor and is 86% lighter. Its packaging now has a lower environmental impact and is more easily recyclable, while many of its consumer products – including hairdryers and electric shavers – use significantly less energy. This is all due to the changes Philips has made to its design process.

Future of design

While adoption of sustainable design has historically been low for most of the working group’s companies, all participants plan to launch new eco-design products over the next 12 months. These include proposals to roll out plant-based, recyclable packaging; less energy-intense electronic products; and products that replace more carbon-intense materials with more sustainable alternatives. These indicate the future direction of product design: organisations recognise they must overhaul their processes and criteria if they are to meet their ESG ambitions.

Furthermore, companies are reassessing how they look at IP, with businesses sharing their sustainable IP with their competitors to improve sustainability on a larger scale. Colgate’s recyclable tube provides an example: the company is sharing its tube design to improve recyclability across the market and reduce the number of tubes going to landfill. The company pursued the patent as a defensive move to ensure another party would not step in and choose to withhold the design from others.

This is an emerging trend in sustainable innovation. Historically, companies have been protective of their IP to help maintain their competitive advantage. Where sustainable innovation is concerned, there is a recognition that sharing innovations is required to ensure industries improve as a whole, rather than individual companies improving in isolation.

About the research

The findings of this working group were informed by a pulse survey and three working group sessions that took place between March and April 2022, with the following companies participating: Arla Foods, Becton Dickinson, Colgate-Palmolive, General Mills, Gilead Sciences, Lamb Weston Holdings, Leonardo, Perfetti Van Melle, Polaris Industries, RWE, Telus and Thermo Fisher Scientific.

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