Firms adopt sustainability as lofty goal
Studies find links between protection of environment and business returns
Mention sustainability and one immediately thinks of lofty goals set forth by the United Nations: biodiversity, recycling, gender equality and other objectives.
But apart from these noble causes, how about the challenge of nurturing sustainable businesses?
Today, a growing body of research is being carried out that suggests a relationship between reduction of private sector environmental impact and business returns.
For instance, in a recent survey, International Finance Corp found evidence that if companies look after the environment better, their workers and community relations normally do well financially.
The organization — under the auspices of the World Bank — looked at the performance of 656 companies in its portfolio and found that companies with good environmental, social and corporate governance practices tended to outperform their peers having worse practices by 210 basis points on return on equity and by 110 basis points on return on assets.
There are of course other elements to consider including corporate operations and stakeholder engagement, which can also help improve profitability.
Tensie Whelan, founding director of the New York University Stern Center for Sustainable Business, said sustainable businesses are redefining the corporate ecosystem by designing models that create value for all stakeholders, including employees, shareholders, supply chains, civil society and the planet.
“So through regular dialogue with stakeholders and continual iteration, a company with a sustainability agenda is better positioned to anticipate and react to economic, social, environmental and regulatory changes as they arise,” Whelan said.
Apart from the supply end, other studies show that customers are avidly embracing the trend and willing to pay for the idea of sustainability.
Kantar Worldpanel last year polled some 65,000 people in 24 countries and regions asking how they felt about the use of plastics by fastmoving consumer goods companies. The study found that nearly half (48 percent) of all consumers expect manufacturers to take the lead, saying they have the most responsibility to act on these issues.
“And making changes to account for this is clearly a matter of ‘when’, rather than ‘if’, for all businesses,” said Natalie Babbage, a director at Kantar.
French skin care brand L’Occitane en Provence has found its main consumer groups — typically whitecollar workers and family decisionmakers such as many mothers — avidly embrace the sustainability trend.
“Every other year we conduct a brand image survey, asking why people choose our products. The top two reasons cited by our consumers are the use of natural ingredients and a number of environmentalprotection initiatives,” said Queenie Lin, L’Occitane China managing director.
“And the percentage keeps rising as time goes by.”
One prominent project rolled out across the company’s outlets in China is the L’Occitane Recycling Program. It is part of the global initiative to transform all its bottles to 100 percent polyethylene terephthalate plastics by 2025.
The company said the purchase of reusablepackaged products can help trim 90 percent of plastics use, and it is on course to unveil 25 ecorefill packages by 2022.
So when customers bring empty L’Occitane bottles and packaging to offline stores, the company rewards them with sample products and membership scores that can be used to redeem goods.
“This is truly about making big impacts on the environment with the little things we do,” Lin said.
She added that the initiative is well received in part because it is in accordance with the broader government agenda to promote sustainability.
China has upheld environmental protection as a core pillar guiding its next stage of development as two decades of strong GDP growth has inevitably led to environmental burdens. In July 2019, the Shanghai municipal government launched the country’s most ambitious recycling program to date, making trash sorting mandatory. Individuals and businesses violating such rules face harsh consequences.
But sustainability doesn’t just include renewable containers. L’Occitane announced earlier this year the creation of a fund to support ecosystems severely affected by natural disasters.
Lin also said they have always tended to farmers’ needs by tailoring products using local inputs, or applying local plants to existing product formulas.
Don’t wait for others. Just start and make sure that you drive this entire topic toward the right direction, toward a circular economy.” Markus Steilemann, CEO of German chemical company Covestro AG, which plans to convert its facilities worldwide to using alternative raw materials and renewable energy
Our consumers, including those in China, are starting to reflect more on their own behavior — they’re looking for ways to live more sustainably and are demanding the same from the labels they buy.” Erick Haskell, president of international business at US company Allbirds, which produces a wool fabric made specifically for footwear
“By teaming up with farmers, we aim to protect certain precious plants from extinction,” she said. “Protecting the plants and safeguarding and respecting biodiversity remain longterm sustainable approaches.”
Not only consumerfacing companies are jumping on the sustainability bandwagon. A number of industry players are rewriting their business playbooks, placing sustainability in the forefront especially as the global economy struggles.
German chemical giant Covestro AG, with 30 production sites globally, has announced a string of detailed approaches to realize the company’s circular economy strategy, aiming to convert its facilities worldwide to using alternative raw materials and renewable energy.
To this end, it will start using alternative raw materials such as carbon dioxide as a source of production, adopt energyefficient recycling technologies, use renewable energies and pursue crosssector cooperation, said Markus Steilemann, CEO of Covestro, who added that there are “clear signs and also clear studies” suggesting positive relations between sustainability and profitability over the long run.
“We receive from our partners very positive feedback that we will start to address, and we are also a front runner in this context. Don’t wait for others. Just start and make sure that you drive this entire topic toward the right direction, toward a circular economy,” Steilemann said.
Among them are trials of paint solutions formulated from biomass. At Covestro, up to 70 percent of its products’ carbon content is derived from renewable raw materials — without compromising protection or appearance.
Covestro has also joined hands with partners to develop elastic textile fibers produced using carbon dioxide as a raw material. They have already been tested by the first companies from the textile industry and medical technology and processed into yarns, socks, compression tubes and tapes.
On the same page is Dutch lighting giant Signify, which vows to become plasticfree on all consumerrelated packaging in 2021. This goal is built on top of the existing 80 percent recycled paper for its products.
The company already began replacing its plastic blister packaging for its LED lamps with paperbased materials in the Pacific region, where the switch was received very positively and resulted in an increase in sales.
“When we replaced our packaging in the Pacific region, customers said that it was more appealing and environmentally friendly,” said Eric Rondolat, Signify CEO. “I call upon other companies to join us in making the switch and we will gladly share our lessons learned.”
The company does see more energyefficient, sustainable products being favored by consumers, said Nicola Kimm, vicepresident of sustainability, environment, health and safety at Signify.
“And on the converse, if there are elements that consumers do not agree with, like the plastic packaging, we will hear about it. And consumers will become of course much more vocal,” Kimm said. “And it goes both ways, meaning we will lose consumers if we don’t act.”
There are even brands like Allbirds whose business philosophy is basically anchored on the concept of sustainability.
Founded in 2016, the US company produces a wool fabric made specifically for footwear, generating an entirely new category of shoes inspired by natural materials.
Erick Haskell, president of Allbirds’ international business, said sustainability has shifted from a “nicetohave” for many consumers, with design and comfort driving purchasing decisions, to a “must have” in the urgent pursuit of leaving a low carbon footprint.
“Our consumers, including those in China, are starting to reflect more on their own behavior — they’re looking for ways to live more sustainably and are demanding the same from the labels they buy,” Haskell said.
Haskell believes the company has treated the environment as a key stakeholder, meaning each decision is made by weighing both financial and environmental impacts. He said a decision to transform shoelaces from virgin to recycled polyester would probably triple the cost, but they insisted doing so and absorbed the cost in the margins.
“That kind of decision is unheard of in businesses built solely for driving shareholder profits,” he said. “And we consistently hear feedback from our customers that validate these choices and echo broader industry trends.”
Haskell noticed a change in attitudes among Chinese customers from 2019 when sustainability wasn’t on the radar for footwear shoppers. Now the concept of environmental protection has become more appealing. He attributed this in large part to products that pretty much speak for themselves.
“When consumers see the carbon number labels on their shoes, it places sustainability front and center — similar to nutrition labels on food,” he said. “In just one year, we’ve seen the environmental movement gain significant traction in the fashion industry, as Chinese consumers are starting to demand more sustainable options.”