Asking the Wrong Questions, Why Sustainability Is the Answer
Publishing my essay for ADMAP's 2013 Prize that answers the question:
"Can brands maximize profits and be a force for social good?"
Before the invention of traditional advertising, companies lived and died by their reputation. A good reputation depended on having both quality products and customer service. There was an emotional connection between ones neighbor, the shopkeeper, the products and even the manufacturing process itself. But with Henry Ford’s invention of the assembly line, we have lost that connection with the manufacturing process, the earth and even each other. Fortunately technology has brought that connection back. Companies have discovered that considering the environment and labor force in the supply chain has delivered measurable cost savings. Research has shown that consumers seek brands that give back to society. And business case studies have been made that show how businesses can enter new markets from sustainability efforts. The question we should be asking brands as marketing and business professionals is not, can brands maximize profits and be a force for social good, but why are they ignoring this proven path towards sustainability and continued profitability.
The foundation for life, water has also been recognized as a critical component to manufacturing and the supply chain. A recent report by The Carbon Disclosure Project, a group that monitors corporations’ greenhouse gas emissions, stated that “analysis indicates that current “business as usual” water management practices and levels of water productivity will put at risk approximately US$63 trillion, or 45 percent of the projected 2050 global GDP (at 2000 prices), equivalent to 1.5 times the size of today’s entire global economy.” The effects of climate change are clearly evident in challenges companies have had to face from water risk. More than half of Global 500 respondents, from a 2012 CDP study, experienced detrimental water-related business impacts from flood and associated financial costs as high as US$200 million, up 38% from last year. While the science around climate change is still being debated, the predicted effects of frequent extreme weather such as floods and droughts can affect many aspects of the manufacturing process from cotton crops to equipment damage from flooding. It is not a huge leap to assume that this number may increase after the final costs of Hurricane Sandy are all accounted for.
Fortunately, for every alarming statistic, there are companies that are leading the practice in water conservation. Both General Motors and H&M have significantly reduced the amount of water used in their manufacturing process. Companies are even reporting that water-based initiatives have offered new opportunities from increased brand value (40%) to entirely new business opportunities. Levi Strauss has been a pioneer in water reduction during their manufacturing process, introducing Water<Less jeans in 2011. While sales figures on the jeans have not been released, they have increased their manufacturing of the product from 1.5 million in 2011 to 29 million in 2012. Levi’s has recognized that the initiative is in line with both their business goals and consumer values. They continue to evolve their sustainable product offerings. Like Levi’s, Unilever has pioneered water-related sustainability efforts to appeal to their current consumers and enter entirely new markets. A few years ago, they developed a fabric conditioner that only requires one bucket of water for rinsing instead of three, gaining a 60% increase in usage from 2010.
Half the cost of business is in the supply chain. The supply chain is also responsible for 70 percent of greenhouse-gas emissions from manufacturing companies. While most members of the United Nations Global Compact of Sustainability surveyed by Accenture agreed that sustainability should be integrated into all aspects of operations, just over half, actually achieved sustainability. The path to reducing emissions has already been paved; 40 percent of CDP members have reported financial savings from their emissions reduction activities. Companies have even benefited from developing smarter transportation routes or partnering with other companies to reduce fuel costs from deliveries.
No sellable good can be harvested, created or transported without the touch of a human hand or at least one to guide the machinery. And yet, many companies treat their workers like machines, with no feelings, human needs or compassion. But for a moment, let us put our humanity aside and pretend that labor is just a line item in the manufacturing process. Most machines would have a short lifespan if they were kept running without proper maintenance. The cost of replacing them would far out weigh the cost of fixing them. But workers are not machines. While they require more “maintenance” and time off than the average machine, they also have the capacity to do so much more. BSR, a corporate responsibilities consultancy, published the results of several case studies where they helped improve the working conditions in factory and agricultural settings in Central American and the Dominican Republic. By helping to improve the lives of the workers, they also helped improve the business. Productivity increased while operating costs and turnover decreased.
Look no further than your local Whole Foods, Starbucks or trendy café to understand how consumers feel about fair labor practices. The sale of Fair Trade products has grown globally about 30% every year, even during a recession. Apple came famously under fire after The New York Times created a shocking expose of Foxconn’s working conditions. Faced with consumer pressure, investigations by NGOs and continued NYT articles about the factory, Apple eventually worked with Foxconn to improve labor conditions. If Foxconn does not serve as enough of a lesson, economics will. Over the next decade, it will be absolutely imperative for companies to learn how to develop more sustainable labor practices, especially in the China. The IMF predicts in a 2013 paper that between 2020 and 2025, China will experience a labor shortage economy. This shift could even signal the end of cheap goods.
What is supply without demand? A critical component to profitability is revenue. The Guardian conducted a study in 2010 on consumer attitudes and perceptions on sustainability. “…79% indicated that a company offering products and services with low environmental impacts would be more likely to win their loyalty” and felt the same factors would help them develop loyalty. Over 70% thought that energy, manufacturing and transport companies are not environmentally friendly or have little concern for the environment. No follow up papers have been published but one can guess that sentiments would be similar given the man-made and climate change-related disasters that have occurred since it was published in June 2010.
“People’s willingness to buy, recommend, work for and invest in a company is driven 60% by their perceptions of the company, and only 40% by their perceptions of their products.” Kasper Ulf Nielsen, an executive partner at the Reputation Institute
Businesses have lost valuable consumer trust over the last decade. Trust in business fell from 53% in 2011 to 47% in 2012 and customers cited that businesses did not meet their expectations due to their practices. Trust for business is slowly rising to 58% according to the 2013 Edelman Trust Barometer. In fact, business is trusted more than government in more than half the 26 markets surveyed. The Edelman Trust Barometer also found that societal factors like treating employees well, has “ethical business practices” and “addresses society’s needs” are attributes associated with future trust. The most telling finding as it relates to the general public’s interest in social good is that Non-Governmental Organizations (NGOs) remain the most trusted institution.
The increase of concern for the environment and societal ills is due to the historically high levels of information that the average person has access to. In 2011, Google published a pivotal free eBook called ZMOT, Winning the Zero Moment of Truth. The book describes a shift in how consumers make purchasing decisions. Once influenced by branding, advertising and public relations, consumers can now have access to detailed product information, company policies and even customer reviews before purchasing an item. While the book is mainly focused on a behavioral shift in purchasing, it also signals a cultural shift. We can no longer cite ignorance as an excuse for our behavior. We have an increasing proliferation of tools like the GoodGuide to tell us at the point of purchase how sustainable a company’s policies are. If we cannot find it on Google, our social network can act as a resource for influencing our purchasing decisions.
Consumers have a growing appetite for finding more meaning in their purchases. Inn the United States, we find a growing interest in hand crafted goods, fueled by Etsy, eBay and other peer to peer ecommerce sites. Customers are also experiencing a greater connection to their farmer with the proliferation of local farmer’s markets across the country.
Global viral campaigns like KONY reveal that there is a cultural pressure to align oneself with social initiatives. Non-profits like Charity Water allows us to see the benefits of our philanthropy, showing us that we do not have to be wealthy to make a positive societal impact. The one-to-one model of Tom’s and Warby Parker has made it cool to identify with a label, as long as that label gives back to society. And indulging in Ben & Jerry’s makes eating ice cream a little less gluttonous when one considers all their CSR initiatives. Finally, countless personal care brands have worked to match their manufacturing process to their newly created “natural” image.
While the debate over being a force for good and making a profit is still being debated, a few companies have taken off in developing their sustainability practices, paving the way for others. Patagonia has become a thought leader in creating sustainability practices, especially for clothing brands, publishing The Responsible Company in 2012 as a guide for businesses. They have strived to greatly increase the quality of their products and promote thoughtful consumption over disposable goods. In 2011, on the most famous American shopping day of the year, Patagonia urged their customers not to buy their products. Their program, Common Threads, urges consumers to reduce, repair, reuse and recycle their clothing. Their initiatives are working, both for creating sustainability and a profitable business model. Despite the extreme economic woes over the last five years, their revenue is set to nearly double.
Another pioneer of sustainability is Unilever. During the keynote speech given at The Marketing Society Conference in November 2011, CMO Keith Weed cites population growth as a strong driver for Unilever’s sustainability efforts. In addition to their commitment to reduce their carbon footprint by modifying their supply process, they have also spearheaded non-profit initiatives. For example, their disinfectant soap, Lifebuoy founded the first ever Global Handwashing Day in 2008 with the United Nations and other partners. In addition to improving hygiene and preventing disease, the initiative promoted usage of the product, gaining sales and growing market share.
Starbucks is another global example of companies promoting sustainability. While their impact on the environment is debatable given the proliferation of used Starbucks coffee cups, their commitment to labor is not. They have worked to make their supply chain sustainable, including a commitment to farmer labor practices. Starbucks rallied their customers through Create Jobs for U.S.A., offering customers a braided wristband in exchange for their $5 donation towards the Community Development Financial Institutions. Howard Schultz is a businessman and while it is clear that he may care more about sustainability than other CEOs, he is still interested in long-term profitability. A study done by UCLA in 2012 found that "adopting green practices isn't just good for the environment, it's good for your employees and it's good for your bottom line. Employees in such green firms are more motivated, receive more training, and benefit from better interpersonal relationships. The employees at green companies are therefore more productive than employees in more conventional firms."
When one looks at the overwhelming evidence, it is clear that maximizing profits and being a source for social good are synergistic goals for companies. Creating a more sustainable supply chain reduces costs. The knowledge that the company is being a source for good both motivates employees and consumers, increasing productivity and revenue. Companies have adjusted their business models to succeed in dramatic market shifts from introducing ecommerce to developing a social media presence and offering their customers utilities through mobile. Why should adjusting to sustainable business practices be any different? The health of society and business depend on it.