The 5 Growth Areas for Sustainability Spending in 2012

The 5 Growth Areas for Sustainability Spending in 2012

Now is budget-planning time for many a business, when execs must pinpoint next year's strategic priorities and ask themselves how to maximize business revenues for 2012. It's a tricky game, attempting to match annual sales targets with real market opportunities, one that annually produces winners and losers.

Add sustainability into the equation and you've an even more complex market challenge ahead. It already takes up a considerable chunk of marketing budgets -- although savvy shareholders and consumers are becoming adept at spotting greenwash and smokescreens created around technologies that might not have even surpassed the pilot stage yet. And the process of identifying sustainable spending priorities that match wider business objectives is no easy task.

At Verdantix, our research into sustainable business spending across Australia, Canada, the U.K. and the U.S. helps reveal which direction investment is heading. Having investigated 29 energy, environment and sustainability initiatives across 20 industries, we've traced the changing path of sustainable spending, and our research reveals that stakeholder requirements and legislation will drive innovation as firms seek to differentiate with new products and services.

We've identified the five key sustainability priorities that are set to define spending in 2012:

1) Strategic energy management. Rising and volatile energy prices are sending shockwaves of uncertainty into budgets. This, and stricter legislation -- the EU's ETS Phase 3 or suggestions of an Australian carbon tax are just two examples -- mean businesses will switch from tactical, facility-level energy management to enterprise-wide programmes.

Verdantix forecasts that $1 billion-plus firms will invest $10.5 billion in carbon and energy efficiency in the U.S. in 2012; $2 billion in the U.K. and $0.6 billion in Australia. Energy management software providers, such as SAP with its Carbon Impact or JouleX with Energy Manager, will pick up contracts.

2) Product sustainability differentiation. As requirements for legislation such as REACH and RoHS Recast become more stringent, and stakeholders pay greater attention to the sustainability side of products, firms are going to spend more ensuring their products and services are that much greener.

In France, a pilot scheme for new environmental labelling requirements -- to be implemented by end-2012 -- is one driver of product sustainability differentiation. Our calculations show that in 2012, corporate spending on innovation to push product sustainability differentiation will climb to $12 billion in the U.S.; $1.6 billion in the U.K.; $500 million in Canada and $400 million in Australia.

3) Sustainability business consulting. Market opportunities for sustainability consulting expertise will boom in 2012, focusing on projects for fuel and emissions reductions, energy efficiency, brand and innovation.

Verdantix finds that spending on sustainable business consulting will total $7.1 billion in the U.S.; $1.3 billion in the U.K.; $500 million in Canada and $400 million in Australia by the end of the year. U.S. building energy efficiency advisors and engineering services firms with in-house energy consulting expertise will reap business opportunities if they position themselves effectively in the coming year.

4) Smart and sustainable city projects. International and regional agencies offering funding for sustainable cities will boost green urban development projects in 2012.

2011's initiatives, such as $60 billion investment by major multi-lateral developments banks or the E.U.'s European Energy Efficiency Fund -- which aims to raise $800 million to fund urban energy efficiency and small-scale renewable energy projects, are just the starting point. The availability of new funds marks the creation of new opportunities -- ones that firms in the real estate value chain cannot ignore.

5) Pyramid market innovation. In 2012, firms will move beyond ad hoc CSR initiatives to making social sustainability programs a strategic part of business spending.

Who will lead the field in this area? Firms that focus on the base of pyramid innovation, providing for lower-income groups whilst simultaneously creating a new market. Pioneers will be businesses that recognise they can improve the livelihood of local communities.

Our research shows that sustainability will represent an increasingly important but still complex issue in 2012, leading to a tipping point in the global sustainable business market in 2013.

All that remains now is for execs to determine exactly where sustainability fits in among their firms' spending priorities for 2012. What appears a challenge for some marks an excellent market opportunity for others.