Good for us is good for business.

01 Aug 2011|Added Value

Contrary to popular belief, a sustainable strategy is all about growing the bottom line.

Mavericks have been promoting “sustainability” under a variety of names since the 1960’s.  But the tipping point in sustainability for consumer interest – and business investment – has emerged only over the past 5 years.  In that short time, sustainable “gravity” has moved from focusing on image, to focusing on expense reduction to a more recent emphasis on innovation and revenue generation.

Despite this shift in focus, if you ask any of the most dynamic companies engaged in sustainable practices, they will tell you that their commitment is driven by all of the above: image, expense reduction and innovation. It’s the combination that’s setting the leaders apart from the rest of the pack.A recent survey of 378 senior executives worldwide, conducted by consultancy KPMG and the Economist Intelligence Unit, found that that the growing integration of sustainable protocols in companies was driven primarily by regulatory requirements (42%), but followed closely by “brand enhancement” (41%). 61% of contributors suggested that the benefits of investing in eco-friendly practices outweigh the costs, while 44% perceived sustainability to be a major source of new product development.

We are clearly seeing a convergence of economic, social and environmental phenomena that is driving businesses to act responsibly in order to ensure survival. Our work with a range of multinational companies reveals four areas in which “ethical” considerations and corporate interests are increasingly aligned.

For each of these areas, we have cited several examples of how strategic decisions, that integrate sustainable criteria at the outset, are helping to solidify business results.

Criteria #1: Preservation of primary resources and jobs 

As resources are squeezed, supply chain managers are taking action to protect the land, the waters and the people that produce the primary materials they need to run their businesses. 

In industries ranging from mining to fishing to agriculture, supply chains are being disrupted as workers, often labouring in poor conditions and struggling to make a decent living, turn away from their trade. Businesses are responding with initiatives to address the underlying socio-economic and environmental issues that threaten productivity and continuity of supply.

Chocolate companies like Mars, Nestle and Kraft, are waking up to the risk of penury in cocoa.  They are investing in training, rural development and cocoa certification as well as the development of disease resistant plants that will improve yields and farmer quality of life.

In late 2010, Walmart announced a series of five-year goals to address the food supply chain, from farm to fork. One of those goals was to sell $1 billion in food sourced from 1 million small and medium farms, providing training in crop selection and sustainable farm practices. Walmart pledged to increase the income of the small and medium farmers it sources from by 10 to 15 percent.

In recognition of the global fish crisis, driven by high tech harvesting and wasteful management, Sodexo, the food service giant, has pledged to have all its contracted seafood vendors meet Marine Stewardship Council (MSC) or Best Aquaculture Practices (BAP) requirements by 2015. 

As Professor Alan Knight, senior associate of the Cambridge University Programme for Sustainability Leadership has said, sustainable development teaches us to manage the planet as it if were a store. And in our planet store, the shelves are beginning to empty.

Fortunately, many companies have woken up to this issue and are taking steps to restock the shelves.

Criteria #2: Reduction of harmful ingredients used to make products and services

Consumers are increasingly sensitive to the health issues stemming from the use of toxic ingredients in the production of the things they eat, wear and live in.

Consumers used to trust brands to ensure that their products were safe.  But today, they read labels and actively boycott products with questionable chemical composition. The growing fear of the carcinogenic effects of pesticides is boosting sales of organic foods. Words like phthalates and endocrine disruptor have become part of progressive consumer vocabularies as they prime up on which chemicals to ban from their shopping lists.

Perhaps one of the most successful examples of a brand launched in response to this consumer concern, is that of Method.  Responding to the unmet needs of ethical consumers, this little $200 million cleaning brand took on the big boys and evolved the household cleaner from a toxic object that hid under the sink to an all-natural, biodegradable, and stylish counter-top accessory. Method moved the market, took share, and continues to do so.

Mintel predicts that sales of green household cleaners will grow 19% in 2011. 

In another category, the sales of natural and organic cosmetics are projected to surpass the EUR1 billion mark for the first time this year according to research by Organic Monitor. Widening availability and strengthening consumer demand are the major drivers of this market growth. Initially most of the demand for natural cosmetics was from consumers who suffered from ailments like skin rashes and allergies.  However demand has broadened in recent years as consumers seek to reduce their exposure synthetic substances like parabens and petrochemicals.

From concerns about Bisphenol A in baby bottles, PFOA in Teflon pans to formaldehyde in furniture, we are hearing consumers ask for safer, better products. Companies too have heard the call and are scrambling to get to market with better products to maintain consumer loyalty.

Criteria #3: Reducing brands and businesses environmental footprints

Today any company that hasn’t already taken serious steps to reduce their energy and water consumption, waste and CO2 emissions is very much behind the 8-ball. Unfortunately, global warming, water security and biodiversity issues are already having an impact on the day to day lives of people across the world. More fortunately, the companies that are actively addressing these issues appear to be saving themselves quite a lot of money.

As IBM’s Wayne Balta, VP of Corporate environment states, “if you think it is expensive to do things for the environment, you should try ignoring it.” According to Balta, for every dollar IBM spend, they are getting $1.50 to $2 back.

And so it should be no surprise that the list of footprint reducers is growing longer every year.

2010 has been particularly memorable for the major commitments made by multinationals like P&G.  They have pledged to use renewable energy for 100 percent of its factories, use 100 percent renewable or recycled materials for all products and packages, send zero consumer or manufacturing waste to landfills and to sell $50 billion in “sustainability-driven” products by 2012.

Brands like UK’s Kenco premium coffee are also making a mark.  In the past year, a hugely successful £7,5 million  communication campaign was kicked off to support the launch of their Eco-Refill packs (with 97% less packaging).  The initiative grew their share by almost 15%, an example of how responsive consumers can be to cleverly communicated sustainable messaging.

Coca Cola is also working hard to make their vision – a world where packaging is no longer seen as a waste but as a valuable resource for future use – a reality. As part of this vision, Coca Cola has launched a new company – Coca Cola Recycling (CCR). 

Last year, CCR helped to recycle more than 200 million pounds of waste material. They are building 35 recycling centres over the next 2 years. Their new Spartanberg factory will produce approximately 100 million pounds of recycled plastic for reuse back to bottles per year – the equivalent of producing 2 billion 20 oz coke bottles.  Are they acting out of charity? Not by a long shot. CCR expects to be profitable in no time.

Likewise, companies like Dell, Walmart, General Motors and Kraft have also developed ambitious environmental programs. These are no longer about compliance. They are just good business.

Criteria #4: Developing offers for developing markets

Business and sustainable advocates increasingly share the goal of improving the quality of life at the bottom of the pyramid, where 4 billion low income consumers are slowly coming into the formal economy, representing a staggering market opportunity.

To achieve this objective, they often creating hybrid organizations adapted to pursue new forms of blended value, seeking both financial and social return on investment.

Bob Corcoran, of the GE Foundation, talks about “different thinking on how to adapt technology and products for an increasingly important market,” namely places in the global south that lack clean water and reliable electric power – two opportunities just right for a company like GE.

Unilever recently committed to changing the hygiene habits of 1 billion people in developing countries.  Lifebuoy is Unilever’s biggest brand in India and the country’s most popular soap. In 2002, the Lifebuoy brand team launched an ambitious five-year campaign to educate 200 million Indians – 20 per cent of the population – to wash their hands with soap after defecating.  Hindustan Unilever, a subsidiary of Unilever, has committed €4.5 million (US$ 5.4 million) to fund the campaign for five years.

The company saw rapid return on its investment, with sales of Lifebuoy growing by 20% in 2003-4.

In 2009 the Lifebuoy brand was voted one of India’s most trusted brands in a national consumer poll.  By the end of 2009, the Swasthya Chetna campaign, as it is called, and similar hygiene promotion campaigns in Bangladesh, Sri Lanka, Pakistan, Indonesia, Vietnam and South Africa had reached more than 133 million people to date.

In addition, to help reduce diarrhoea, the world’s second biggest cause of infant mortality, Unilever is helping to make drinking water safer through the sale of its Pureit home water purifier. 

And in Africa, it is probably no coincidence that Wal-Mart Stores Inc., the world’s number one retailer, is poised to buy Massmart Holdings Ltd. for $4.26 billion in what would be its biggest deal in more than 10.  Entry into the rapidly growing African market is a smart strategic move for the chain. 

Finally, the Danone Company stands as a model for best practice in sustainable development. The Danone Communities project, a partnership between Danone and Mohamed Yunus, manufactures 23000 yogurts a day sold for 10 cents a piece in Bogra Bangladesh.  Enriched with micronutrients, Shokti yogurts provide 30% of a child’s daily nutritional requirements.

Danone is not making a profit. Yet they plan to have 10 such social innovation projects up and running over the next 2 years. They see the costs as well worth the investment because the future business potential is so immense. Danone is reinventing a business model at the intersection of a capitalist and a social business. They are offering micro-credits to local farmers, offering products that don’t require a cold chain, and employing Grameen ladies to distribute them.

They are taking the long term view, in recognition of the fact that a market of over 2 billion people exists at the bottom of the pyramid and that this market will be ripe in 10-20 years.  They know that by entering that market now and creating strong social equity, they are building brand engagement now, and creating barriers to entry for competitors down the road.

What’s next?

The examples as serve as food for thought when questioning the validity of a sustainable strategy. There were many more examples like these.  There is no doubt that the tide has changed. The question should no longer be “is sustainable strategy good for business?” but rather, can a company survive without one?

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Originally written for Strategic Marketing Magazine, South Africa by Leslie Pascaud. 

Leslie is the global director of sustainable marketing practice at Added Value. She is a passionate advocate for brands who see the benefit in building better, more responsible and more sustainable businesses.  In the last 4 years she’s helped clients like Shell, Yara, Monoprix, Nestle, Dove, Lipton and Danone use sustainable development as a springboard for innovation and growth. Born in the USA, Leslie now lives in France with her husband and two children.

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