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Are you interested how sustainability can be profitable?
Our debate today works with the book titled Making Sustainability Profitable from 2023, by Jasper Steinhausen.
This is a great preparation to our next interview with Jasper Steinhausen in episode 408 talking about sustainability as a platform for innovation.
Since we are investigating the future of cities, I thought it would be interesting to see sustainability from a different, business perspective. This book serves as a strategic manual for organisations looking to merge environmental responsibility with financial growth.
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Welcome to today’s What is The Future For Cities podcast and its Research episode; my name is Fanni, and today we will introduce a research by summarising it. The episode really is just a short summary of the original investigation, and, in case it is interesting enough, I would encourage everyone to check out the whole documentation. This conversation was produced and generated with Notebook LM as two hosts dissecting the whole research.
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Speaker 1: today, we are putting the future of business strategy right on the operating table. We are wrestling with a question that is, frankly causing sleepless nights for CEOs, supply chain managers, and investors alike. Is the push for sustainability a necessary evolution for profitability? Or is it a luxury tax that most businesses simply cannot afford to pay?
Speaker 2: We are not talking about saving the planet in the abstract or moral sense today, we are looking at the cold hard mechanics of the balance seat. We are analyzing whether the green transition is actually a new engine for growth, or as many suspect, but rarely say, allowed a risky distraction that threatens the core stability of a business.
Speaker 1: Absolutely. We are grounding this entire discussion in the framework presented in Jasper Steinhausen’s work making sustainability profitable. Specifically, we are looking at his concept of the impact blueprint and the transition from a linear to a circular economy. So my position is pretty clear right from the Jump. Steinhausen provides the evidence that sustainability, specifically a circular approach, is what he calls the sweet spot. It is a driver of innovation, a driver of cost reduction, and it is essential for long-term survival.
Speaker 2: I come at it from a very different angle. While that sweet spot is an appealing ideal, the roadmap to actually get there is treacherous. Steinhausen describes a landscape where most companies do not reach that paradise. Instead, they get stuck in what he calls the wilderness. That is a zone of high effort and very low return. I argue that for the average organization, the massive operational overhaul required to leave that wilderness acts as a massive tax on resources, potentially sinking the ship before it ever reaches the new shore.
Speaker 1: Let’s start by defining that landscape because the wilderness and the sweet spot, they aren’t just metaphors. They represent specific economic realities on Steinhausen’s impact curve.
Speaker 2: Exactly. The impact curve maps, return on investment against positive impact.
Speaker 1: Right. So on the far left, you have business as usual, low impact standard. ROI as you move, right? Trying to be more sustainable. You enter the wilderness. This is the flat part of the curve. You are increasing your impact slightly, but your ROI remains stagnant or it even drops. And unfortunately, this is where most companies are today
Speaker 2: and that is the exact crux of my argument in the wilderness. Sustainability is totally detached from strategy. It is compliance based. It is being less bad rather than actually doing good. You are spending money on certifications, environmental product declarations, carbon accounting, Steinhausen admits. This creates an administrative burden without generating a single dollar of new customer value for A CEO facing inflation and tight margins. Right Now, that isn’t a strategy, that is a tax.
Speaker 1: I see why you think that, but let me give you a slightly different perspective on it. The wilderness is not a destination. It is a transitional phase caused by a lack of leadership integration. The impact curve shows that once an organization moves past that compliance mindset, once they cross from the wilderness into the sweet spot, they achieve disproportionately high ROI. The argument isn’t that the wilderness is profitable. The argument is that staying there is a slow death. You have to cross the curve to where sustainability becomes the core business driver.
Speaker 2: That crossing is where the bodies are buried. Steinhausen identifies a chasm between doing a little bit of good and becoming what he calls a green unicorn. Crossing that chasm requires you to stop tweaking the edges and fundamentally change your business model. In an era of supply chain crises and massive energy volatility, asking a legacy company to overhaul its core operations for a theoretical long-term payoff is a massive gamble.
Speaker 1: I would argue the much bigger gamble is staying static. Let’s move to our first core area of debate. To really illustrate this, which is the economics of waste versus resources, we need to dismantle a foundational myth, which Steinhausen calls one of the fatal five mindsets. That is the belief that green products automatically cost more
Speaker 2: outdated, is a very bold claim. We have spent 50 years perfecting the linear industrial model, you know, take, make waste. We did that precisely because it was the cheapest way to deliver goods. You are essentially arguing against half a century of economic gravity. If green was cheaper, we would already be doing it.
Speaker 1: Well, that logic held up when resources were cheap and waste was free. That era is completely over Steinhausen sites. A massive study covering over 13,000 small and medium sized enterprises across the eu. The data was unequivocal. Implementing circular processes, reducing waste, reusing materials, led to a direct reduction in production costs. Another study of 4,000 companies directly correlated circularity with increased productivity.
Speaker 2: I have reviewed those studies, and while the aggregate data is very optimistic, I think it conveniently glosses over the capital expenditure required to actually achieve those savings.
Speaker 1: Let’s look at the mechanics of it. The insight here is that green products are cheaper because circularity is ultimately about efficiency. If you are throwing away material, you are literally throwing away money. Steinhausen champions resource recovery, which is the discipline of viewing waste as assets.
Speaker 2: Which sounds wonderful in a LinkedIn post, but let’s talk about the operational reality on the factory floor.
Speaker 1: The operational reality is actually incredibly compelling. Let’s look at the case of Fire Rich. The food packaging company discussed in the text, they produce plastic trays for food. Historically, this is a completely villainous industry, single use plastic. Fires transition from using a hundred percent virgin material to using an average of 70% post-consumer plastic, specifically recycled PET bottles and trays.
Speaker 2: Sure. But let’s look at the tax they paid to accomplish that.
Speaker 1: They didn’t pay a tax. They built a moat. They created the world’s first closed loop tray to tray system. They take back used trays and make brand new food grade trays out of them. By doing this, they completely insulated themselves from the price volatility of virgin oil and plastic. While all their competitors are at the mercy of global commodity markets. Farge has a totally predictable supply of raw material coming directly from the waste stream that is not just green. That is Supreme supply chain strategy.
Speaker 2: Look, I am not denying fair success at all, but I am absolutely denying that it is a replicable blueprint for the average SME, the source material explicitly notes that FAIR had to develop specific proprietary technology. We are talking about new heat treatment processes and multi-layered plastic folio technology just to make that recycled plastic food grade that implies a massive RD burden. Fairish is a market leader. They could afford that innovation cycle before a standard manufacturing SME. That r and d cost is an impossible barrier to entry. You are effectively asking a packaging company to become a chemical engineering firm.
Speaker 1: It doesn’t always require chemical engineering, though. Sometimes it just requires a fundamental change in procurement logic. Look at Oculus, the Swedish Sign Company. This is a very standard SME. They achieved their best financial year ever record breaking results in 2022. Specifically by reclaiming materials.
Speaker 2: That is the redesign program, correct?
Speaker 1: Exactly. The redesign program, they take back old aluminium signs, they strip them and they reuse the metal. They reused 98% of the materials. Why did this lead to record profits? Because they stopped buying virgin aluminium at market peak prices. They bought used materials stuff often deemed as waste at a fraction of the cost. They defied the fatal five mindset. They proved that if you designed for disassembly, your US go down not up. They use circularity as a literal shield against inflation.
Speaker 2: Acus is a compelling example. I will definitely grant you that it works beautifully because aluminium is highly durable and it is easy to strip. But let’s zoom out to the macro picture, Steinhausen’s principle number three of the five to thrive is that green products are cheaper. I still maintain that if this were universally true across all sectors, the market would’ve naturally corrected decades ago. The reason the linear economy exists is because for a very long time, it was the path of least resistance. Reversing that flow, gathering distributed waste, and bringing it back to the centre of production requires logistics. It requires energy, and it requires labour. Those things cost money.
Speaker 1: They cost money, yes, but the calculation has fundamentally changed. We are entering an age of resource scarcity. The linear path relied entirely on cheap, infinite resources. Simply no longer exist. Steinhausen’s point is psychological as much as it is economic. If a leader believes green is expensive, they will naturally find the expensive solution. If they believe it is cheaper like acas did, their brain will hunt for the efficiency. It is a mindset shift that has to proceed.
Speaker 2: The operational shift mindset is powerful, but mindset doesn’t pay for the machinery. However, let’s pivot to the second dimension of this, which might be even more critical for the modern executive talent attraction and the social license to operate.
Speaker 1: This is exactly where the wilderness becomes truly dangerous. We are facing an, I can’t lead this problem among executives, but simultaneously the workforce is voting with their feet. The source cites a statistic that should terrify any HR director. 88% of employees prioritize working for a company with a strong purpose. 69% say they simply will not work for a company without one.
Speaker 2: I have seen those numbers. They are significant, particularly for Gen Z entering the workforce right now.
Speaker 1: They are existential Steinhausen argues that without a credible sustainability mission. What he calls a North star. Companies literally become invisible to top talent. If you are stuck in the wilderness doing compliance only greenwashing, you lose the war for talent.
You also lose your social license to operate regulators. Local communities and supply chain partners are all tightening the net,
Speaker 2: but that is the standard war for talent argument. But let me play the devil’s advocate regarding the actual economic cycle. We are discussing this in the context of immense recessionary pressures. Does purpose pay the bills when cashflow is incredibly tight? When a company is fighting for its daily survival, the social license can feel like a very secondary concern compared to the financial license to simply keep the lights on,
Speaker 1: but you are treating them as separate things. Purpose is what generates the cash flow because it retains the specific people who solve the complex problems
Speaker 2: or it is a fair weather priority. My concern is that while the talent magnet argument is entirely valid, it is a long-term payoff. Cash strapped organizations in what Steinhausen calls the danger zone. Might not survive long enough to ever see that return. If you pivot to a high purpose circular model, but you hemorrhage cast, trying to figure out the reverse supply chain, you end up laying off those purpose-driven employees anyway.
Speaker 1: I disagree mainly because the data shows otherwise. Sustainability acts as a linchpin. It solves multiple problems at once. Steinhausen notes that when you engage in the circular economy. Like the resource recovery or product life extension disciplines. You aren’t just hugging trees, you are innovating. You are giving your sales team a narrative that differentiates you from the completely commoditized competition. You are giving your engineers hard, interesting problems to solve. Like the Farge Trace system, it revitalizes the workforce energy. It creates momentum in an otherwise stagnant organization.
Speaker 2: Momentum is good, but let’s talk about it. The structure required to actually sustain that momentum. This brings us to the third and perhaps most radical point in the book, and where I think the risk is absolutely highest, the shift to product as a service.
Speaker 1: This is one of the most exciting disciplines in the impact blueprint. It is the shift from selling an object to selling the result. Steinhausen uses the example of op, the Office furniture company and refurb the IT equipment supplier,
Speaker 2: right? Let’s look at op. They sell furniture as a service instead of buying 50 desks and office subscribes to a layout.
Speaker 1: Correct. And it aligns perfectly with the modern flexible workspace. By retaining ownership of the furniture, op maximizes asset utilization. They keep the materials in the loop. The customer gets flexibility, and the provider gets a recurring revenue stream and deep customer loyalty. It creates a frictionless experience,
Speaker 2: but look at the financial plumbing required to make that work. This is the chasm. I am talking about moving from standard sales where I give you a desk and you give me a thousand dollars immediately to a service model where you give me $20 a month for five years, fundamentally breaks a company’s cash flow. You move from an immediate cash injection to a very slow drip.
Speaker 1: It changes it to a more stable, predictable model. It moves you from a transactional relationship to a long-term partnership
Speaker 2: eventually, but in the interim, the provider has to finance the production of those desks without the immediate payback. That requires a balance sheet that can weather the transition from CapEx to opex for the client. For many traditional manufacturing SMEs, which is the target audience of this material, that isn’t just a pivot, it is a bet. The company moment, if you miscalculate the durability of that desk or the interest rates change, you are completely underwater.
Speaker 1: But that exact risk forces better quality. Look at refurb. They deal in IT equipment. They accept the risk of the hardware. Because they retain ownership and handle the end of life, they have become absolute experts in the weak points of every single laptop model. They are a certified data wiper. They repair, upgrade, and resell. They turn the risk of obsolescence into a highly profitable discipline of maintenance.
Speaker 2: It requires immense operational complexity, though to be a green unicorn in this discipline, you need total supply chain transparency. You need reverse logistics. You need fleets of trucks to go get the old stuff, not just deliver new stuff. You need repair facilities. Steinhausen completely acknowledges this difficulty. My argument is that for many, staying in the sweet spot. Doing enough to be efficient, like acsu, reusing signs might be the prudent ceiling. Attempting the full product as a service overhaul is exactly where the luxury tax becomes a bankruptcy risk.
Speaker 1: The alternative, however, is obsolescence. Spau introduces the North Star concept for very specific reason. Look at Tetrapak
Speaker 2: a giant corporation, not an SME,
Speaker 1: but the underlying principle holds perfectly. They move toward plant-based polymers, fully traceable sugar cane to replace fossil fuel plastics. Why did they do that? Because they saw the regulatory and consumer landscape shifting rapidly. They realized that without a mission bigger than themselves, they lose their competitive edge. If they didn’t take that risk, they would be legislated out of existence or just abandoned by consumers. The risk of the transition is far less than the risk of irrelevance.
Speaker 2: I view that strictly through the lens of survival of the fittest. Tetrapak can afford to make mistakes. A small manufacturer in the wilderness might look at product as a service and see a massive cash flow trap. Stein Hausen calls it the chasm for a reason. It is the gap between doing well and being a top tier player. It is simply not a bridge that everyone can cross.
Speaker 1: I see why you think that, but the sweet spot is where the ROI is. You don’t have to become a green unicorn to be highly profitable. You just have to leave the wilderness. You have to stop treating sustainability as a nice to have side project,
Speaker 2: and that requires the entrepreneurial approach mentioned in the text, build, measure, learn, fail fast.
Speaker 1: Precisely. It is all about agility,
Speaker 2: but frankly, many traditional leaders lack that skillset. They are managers, they, they’re not entrepreneurs. They’re trained to minimize risk, not to fail fast with their core product lines. Asking a traditional manager to adopt a startup mindset regarding their primary revenue source is asking for a cultural revolution, not just a strategic one.
Speaker 1: Then they must learn or they will be replaced by those who can. It is harsh, but that is the reality of the market. Steinhausen points out that the fatal five mindsets are just that they are fatal. The companies that cling to the idea that they cannot afford to change are the exact ones that will not be here in 10 years.
Speaker 2: I can agree that adaptation is necessary, but I maintain that the pace of that adaptation is the killer variable. It is not about if you change, but how you finance that change.
Speaker 1: Let’s synthesize this as we bring this debate to a close. I wanna summarize the true imperative here, the five to Thrive mindset, starting with business, creating positive impact, and genuinely believing green is cheaper. The only viable blueprint for the future staying in the wilderness, focusing only on compliance and harm minimization is the true risk. It creates a slow bleed of capital and talent that inevitably leads to irrelevance. The evidence from Fair ADOS and the 13,000 SMEs is incredibly clear. Circularity is a profit driver, not a cost centre.
Speaker 2: I will conclude by saying that while the sweet spot is undeniably desirable, the map to get there is not as clean as the impact blueprint might suggest. For many organizations, the transition costs the r and d, the massive cash flow shifts and the operational complexity all act as a barrier that is incredibly difficult to surmount without significant capital. The journey through the wilderness is treacherous. It requires a leadership capability that is currently scarce. We must acknowledge that for every acumen that succeeds, there are companies that stumble right into the chasm.
Speaker 1: I think we can definitely agree that the impact curve is very real. The core question is simply one of navigation.
Speaker 2: Agreed. Sustainability is no longer just about being green. It is a fundamental test of business strategy and leadership comp. It is certainly not for the faint of heart.
Speaker 1: Indeed, it is about whether you view the future as a threat to be managed or an opportunity to be seized.
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