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Business Response to Sustainability

Posted by Andy Green on Jul 2, 2018 9:00:00 AM
Andy Green
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In my previous blog I remade the case for sustainability (link). But I promised to talk about what businesses should do – to greenwash or not to greenwash. It’s a complex landscape when considering responses to sustainability but hopefully this blog will give you some ideas about how to your business (and you as an individual) can make a positive contribution to our planet. If you haven’t already I’d recommend you read my previous blog (link) which sets the scene and will get you fired up to make the change!

So, what should business do? Well, we could do nothing. We could exploit the opportunity sustainability presents (product innovation, increase demand etc.) or we could adjust our businesses to minimize our impact. Most businesses are at least saying they are doing one or the other of these, some are saying they are doing both. And a few are really doing something about it.

Business Response to Sustainability

It’s always easier and often more profitable to run your business without worrying about these externalities. It costs money to process waste, pay fair wages and design products that are recyclable. So, on a straight balance sheet basis business should not care. Society will care and bring in laws and then most companies will abide by the law. That’s the simple way to look at it, but of course nothing is ever simple in the world of business. There are so many external forces and stakeholders ready to change your path and the way you act as an organisation. But what are these forces that make companies do more than just ignore sustainability and wait until a law is passed? I think there are three reasons:

  1. People Power and the moving moral boundary that consumers apply. As Starbucks and many others have found abiding by the law is no longer enough; what you’re doing has to be seen to be “right” by your customers. A key point is that while rich (by world standards) consumers buy the majority of goods and services they only make up a minority of the voters who will force change through. Business will be compelled to respond as these consumers wield their “people power”, as they get angry at man-made disasters, the shortage of resources and environmental crises. Making money by taking advantage of the world's resources will become as unacceptable as (once respectable!) slavery is today. Now I am sure that none of you believes that your business wantonly pillages the world's resources but as Paul Polman, the CEO of Unilever said, "All Governments and Businesses are built on the mistaken assumption that the world's resources are unlimited". This is a painful thought. The challenge is to redesign supply chains to recognise that resources are limited. Those who get left behind in this could be seen as the wanton pillagers.
  2. Gross impacts that create uninsurable risks or massive potential future liabilities, for example a power company’s oils and miners. This is a huge issue right now with Investment Managers ramping up the pressure on Oil Majors and Miners.
  3. Employee engagement. Can talent shortages be addressed in the long-term? Millennial are environmentally conscious (Forbes – 81% of millennials expect their favourite companies to make public declarations of their corporate citizenship) so by going above and beyond can help attract top talent. As Chairman of NP Group I know this is something many organisations build into their employer value proposition when trying to sell themselves to potential candidates. And once you’ve attracted the candidates many businesses use it as an employee engagement tool to help retain the best talent. It’s a win-win.

 

Next, let’s look at the different approaches companies take. And then let’s peer behind the curtain...

At one extreme we have the Koch brothers. Reportedly they’ve spent $100m on climate change denial campaigning. And hey why not! They made and make their money from oil, they don’t have any shareholders apart from the family that they need to impress. They don’t sell direct to consumers. They don’t care about being liked, their employees are supportive, they are not breaking any laws and think the future will look after itself. It’s been a wildly successful strategy both from a financial and power point of view. It got them Donald Trump as POTUS, the US out of the Paris Climate change deal, and federal environmental agencies gutted. Right now, they are the folk I believe have the strongest ESG position of all. Clear strategy, perfectly aligned with their business and stakeholders, not a hint of Greenwash and winners too! In the long run I’m sure they’re on the losing side but in the meantime they and their heirs are doing very well out of it.

At the other end of the scale are two companies I admire very much in this field. Unilever and Sainsbury’s. Both these companies have recognised People Power - that their customers will not support their business in the long run if they and their supply chain are seen to be wantonly destroying the Planet. They take this very seriously. Paul Polman is probably the best-known advocate of sustainable business. Unilever thoroughly trains its people, it does R&D to understand the impacts of its supply chain on the environment, it has worked with NGOs to create new standards for sustainable palm oil production, it focuses on the idea of People Planet and Profit...the list goes on and on! A little later I’m going to challenge this and explore how true this really is. Not as effectively as the Koch’s of course – but then I don’t quite have their ruthlessness.

Sainsbury’s too is really engaged in the science of trying to ensure the products it says are sustainably sourced can be shown to be so by tracking them throughout the journey from farm to fork. They are working on using satellite imagery and AI so they can ensure the fish they say are sustainably harvested really are. I’m really impressed by their innovation and attention to detail, and what a great example of technology helping to confront the world’s sustainability challenges.

On many levels, the approaches of companies like Unilever and Sainsbury’s are working. 76% of Unilever’s 170,000 staff believe they can directly affect the sustainability agenda and 50% of graduates joining the company quote Unilever’s sustainability credentials as a key reason for joining (a great employer value proposition at its finest). Now all this takes a huge amount of effort. It doesn’t happen overnight and isn’t a quick-fix or one-time push. It takes ongoing engagement and training and awareness interventions with all employees, it takes creating responsible departments, investing in R&D, working with NGOs and other third parties and some really high-profile interventions that make customers and employees really take notice. It is really laudable and at least on the surface looks like the way to go.

But I wonder whether it really is? Two thoughts here. When the Buffet inspired Kraft takeover of Unilever was on the cards a lot of people started questioning the real cost of Unilever’s ESG positioning. Did it distract from the hard-edged reality of producing the best financial results? Despite all the rhetoric would shareholders support lower profit to benefit the planet? 

The second is to compare and contrast with other companies. One of the most popular and successful companies on the planet is Amazon. What do they do in this area? Well pretty much nothing. And they do that by design. For years and years, they refused to publish any sort of sustainability report. They still do virtually nothing on their supply chain. Still don’t take part in the Carbon Disclosure Programme. But if you compare their website today with that of two years ago it is plastered with new initiatives. But commentators are far from convinced. As you peer into each initiative it is paper thin. They are only just recruiting a sustainability team. On the supply chain side, it claims it forces adherence to ‘Supply Chain Standards’. But it doesn’t publish them, there is no external monitoring or auditing and no evidence of a systematic attack on difficult issues. This is a massive contrast to Sainsbury and Unilever who have great track records in all those areas.

The contrast couldn’t be starker. So of course, all those millions of eco savvy high end consumers should be deserting Amazon in droves, surely? Nope. It literally seems to have had zero impact on the financial performance and growth of Amazon. They are an extraordinarily well-run company, but they just don’t care and their customers – including me -don’t care either. My analysis is that as a consumer I have some kind of scorecard going on in my head. Amazon are just so useful to me that I reckon they can get away with it. A bit like car travel for many and air travel for me. I know I do a ridiculous amount of air travel, but in my head I try to I balance taking that liberty with the planet. It seems to be the same with Amazon. They provide me with so much consumer utility that I forgive them. – I will make it up to poor planet earth in some other way. I hope you realise I am mocking myself in this analysis. It’s obviously hypocritical and delusional. But it is I suspect very common.

Before we think about the implications of this lets quickly look again at Sainsbury and Unilever. Do you know which of them just said they would ban Palm Oil in all their products? Neither of them. It was Iceland. Think about that. All that effort and good PR and then Iceland step in and show them up. In Unilever’s case this pulls us up short. Unilever and palm oil have been inextricably linked since the start of the company. It was the reason British soap maker Lever Brothers merged with the Nederlandse Margarine Unie (Dutch Margarine Union), giving birth to Unilever in 1930. Palm oil is an essential ingredient in both soap and margarine and by joining forces the companies could negotiate a better price. Today Unilever is the world’s biggest buyer of palm oil, representing roughly 3% of global sales. The vegetable fat is everywhere, from Dove shampoo to Hellmann’s mayonnaise and from Magnum ice creams to Flora margarine.

Palm oil is cheap, efficient and consequently hugely popular with food and consumer goods producers. Roughly 50% of all products on the UK’s supermarket shelves contain palm oil. In the last 20 years, European consumption of palm oil has quadrupled. It is the economic mainstay of Malaysia and Indonesia: some 85% of the world’s palm oil is produced in these two countries. The trade in palm oil is extremely lucrative (Profit), not only because palm oil is such an efficient crop to grow but because plantation workers (People) are systematically paid substandard wages. Human rights violations are rife, report Amnesty International and the International Labor Rights Forum. Ecological problems (Planet) accumulate as well. Apart from a number of protected nature reserves, Sumatra’s rainforest has been decimated and the Orang Utan is in danger of becoming extinct in the wild. It leaves you really challenging yourself. No company I know does more to try to adapt and change to become a sustainable company than Unilever. No one does it more thoroughly. They are my pin up sustainable company. But their products and business model survive and prosper by one of the worst biodiversity rampages happening today.

So here we have the conundrum. The world faces a biodiversity and sustainability crisis of Armageddon proportions. But Amazon, one of the most popular companies in the world, just thumbs its nose. And none of us care.  And Unilever considered THE Sustainability champion in the business world has a Big Lie at the heart of its world.