Green Giants: Finally, The Business Case For Sustainability
In an article for the New York Times, he declared the social responsibility of business is to generate profits for shareholders, and that acting ‘responsibly’ would risk losing profits and revenue in the name of social good.
Basically, you can’t do good and do well, at the same time. You have to choose.
As a sustainability consultant, Freya Williams didn’t agree. She was sick of being asked ‘What’s the business case for sustainability?” and wanted to be able to give her clients an answer they could relate to — with hard numbers to back it up.
So, she started researching…and found enough good answers to fill a book.
In Green Giants: How Smart Companies Turn Sustainability into Billion-Dollar Businesses, Williams profiles nine billion-dollar businesses committed to sustainability and social conscience — and shareholders and profit. These “Green Giants” include Unilever, Whole Foods Market, Natura, Chipotle and Tesla, with billion-dollar product lines or divisions from IKEA, GE, Nike and Toyota rounding out the group.
It turns out that socially responsible businesses can not only be profitable, they often outperform rivals on a range of metrics. Companies with a core focus on social issues have an average 25% higher stock performance than their competitors, and publicly traded Green Giant firms average 11.7% higher public returns than their leading rivals.
Green Giants “prove that addressing sustainability and social good need not be in conflict with delivering shareholder value; in fact, sustainability and social good can drive it.” Williams identified 6 key factors that all Green Giants share.
1. The Iconoclastic Leader
Green Giants are headed by a strong leader who takes ownership of every part of the process. These leaders share 4 characteristics, known as the “4 C’s”:
After visiting one of his factory farm suppliers, Chipotle founder Steve Ellis vowed to only buy meat from sustainable, humane farms. Now, they are the largest U.S. restaurant seller of ethically-raised meats — and their 2014 revenues topped $4 billion.
After General Electric CEO Jeff Immelt read the National Academy of Sciences report on climate change, he began laying the groundwork for the company’s new direction, “Ecomagination”, which included included investing in clean technologies, improving energy efficiency and reducing greenhouse emissions. Top GE execs voted against it, but Immelt went ahead — and 2015 revenues topped $180 billion.
In 2008, Tesla’s Elon Musk was poised to lose $70 million of his personal fortune, and the company looked on the verge of collapse. Though he was forced to push back the delivery date of the highly-anticipated Roadster, the first buyers loved it — and investors responded. Now a public company, Tesla has sales around $35 million and Musk;s net worth rebounded to $8.4 billion.
In 2004, Nike was reeling from a labour scandal. Hannah Jones stepped in as VP of corporate responsibility — and her first move was to make their supply chain completely transparent. She made sustainability the focus of Nike’s innovation efforts, and the resulting 80% less waste Flyknit technology became a billion-dollar product line.
2. Disruptive Innovation
Green Giants change the perceived value of green and sustainable products by focusing on five principles:
Make it better, not just greener
Nike’s Flyknit shoes aren’t just better for the environment — they are 19% lighter than other long-distance models. Several other stylish models are changing the public perception of how eco-friendly shoes can look and perform.
Embrace the counterintuitive
Green Giants engage in “calculated counterintuition” because they understand that previously successful business models can quickly become obsolete. Chipotle committed to ethically farmed meat despite the fact that it costs more.
Bet on yourself
Green Giants back their convictions by investing in R&D. GE committed $1.5 billion to Ecomagination. Elon Musk put his entire personal fortune into Tesla.
Engage the problem solvers
Green Giants do what other people say can’t be done. Toyota developed the Prius in a top-secret project named C21. The 1,000-member team worked around the clock to get the first models ready on time, and built a vehicle that goes 66 miles on a gallon of gas — 2 months ahead of schedule.
Cultivate pervasive innovation
Green Giants weave respect for innovation through their company cultures. Patagonia, a “Next Billion” company, spurs employees to constantly make the business better and more sustainable — resulting in their “Don’t Buy This Jacket” ad, aimed at thwarting disposable consumer culture. Patagonia grows 27% per year and had revenues of around $600 million in 2013.
3. A Higher Purpose
Green Giants are motivated by purpose, not profits — making money matters, but it isn’t the only priority.
Natura’s main pursuit is not profit, but “greater well-being for all”. IKEA founder Ingvar Kamprad believes profits enable his company to pursue its purpose more effectively.
Purpose-based companies consistently outstrip their profit-focused competitors for three reasons:
- Clarity of purpose gives them focus and direction.
- Employees are over three times more likely to stay.
- Customers stay loyal to brands with a social purpose.
4. Built-In, Not Bolted On
Green Giants integrate social purpose into all areas of their business — it’s just the way they do things.
They understand that social purpose must underlie and inform their corporate strategy, organizational structure, governance structure, cost structure, incentive structure and reporting structure.
For example, Chipotle offsets higher ingredient costs with efficient training programs and smaller stores. Natura’s executive compensation and performance metrics include social and environmental considerations.
5. Mainstream Appeal
Unlike early green or ethical brands, which appealed to the 16% of consumers identified as “Super Greens”, Green Giants offer great products, with social purpose as an added benefit.
“Mainstream Greens” are consumers who express interest in environmental issues, but don’t regularly buy sustainable products and services.
To close this “Green Gap,” Green Giants don’t bombard consumers with the words “green” and “sustainable,” which have lost marketing cachet and impact. Instead, they focus on product benefits — Nike’s Flyknit shoe, for instance, is marketed on its style and superior performance.
6. A New Behavioural Contract
Green Giants enter a “behavioral contract” with the public, promising that their corporate leaders embrace “Pre-sponsibility, Truthsparency and Experimental Collaboration.”
Unilever embraced pre-sponsibility after they discovered 95% of its carbon footprint came from people heating water to bathe — they launched a campaign encouraging people to take faster showers. And when they discovered their palm oil supplier was violating environmental regulations, they embraced truthsparency by suspending them, and promising to trace all oil used in production by 2020. Walmart and Patagonia brought Nike into the Sustainable Apparel Coalition, and now over 100 retailers, brands and suppliers collaborate on setting sustainability standards for the clothing industry.
In Green Giants: How Smart Companies Turn Sustainability into Billion-Dollar Businesses, Williams not only demonstrates the business case for sustainability — she proves that Milton Friedman’s advice is not only wrong, but a death-knell for companies who follow it.
Profits matter… but in today’s marketplace, it’s sustainability and social responsibility that nets you the best ROI.
Originally published at impaqt.io on May 1, 2017.