How Sustainability Results In Competitive Advantage

Larry LightMarch 3, 20216 min

Last October, Procter & Gamble shareholders, owner of such megabrands as Tide, Bounty, Crest, Pampers, Olay, Gillette, and Downy, approved a proposal to publish a report on what is being done to address deforestation. The Board of Directors had advised against approving the proposal. P&G uses a lot of forests. There is the Bounty brand (paper towels and napkins), the Puffs brand (facial tissues), the Pampers and Luvs brands (baby diapers), Always and Tampax brands (feminine care), and the Charmin brand (toilet paper and wipes). But, the Board underestimated the power of environmentalism among its shareholders.

P&G’s brand websites address sustainability, but environmentalists believe that P&G must be more open about what they are doing to sustain and protect forests. This is why the shareholder vote is so important: shareholders, including Black Rock and Green Century Equity Fund, want more transparency.

At the same time, Ikea, the Swedish furniture company, has instituted a Buy Back program. In 26 countries, Ikea owners can sell back furniture and receive an Ikea refund card with no expiration date. According to The New York Times, “…the condition of the furniture will determine the value.” Ikea will resell the items as second-hand goods in an “As Is” store area. Patagonia has been accepting used clothing for some time. The clothing brand has previously worn items as well as items created from pieces of old clothing. Commitment to sustainability has always been a virtue of Patagonia.

The Increased Power Of Sustainability

The power of sustainability, which some observers thought was off the table when coronavirus pushed Greta Thunberg to the backburner, appears to be regaining traction as a way to reimagine, reconfigure and rebuild cities, economies, workplaces, and travel. Brands not only have an opportunity but a responsibility to participate. Some brands are already going beyond commitment to performance on sustainability.

The Wall Street Journal just released its list of the “100 Most Sustainably Managed Companies in the World.” This report is designed “To help investors and consumers sort out how companies are performing on environmental and social issues.” The Wall Street Journal compiled its list after reviewing 5,500 global, publicly traded companies. The ranked list of 100 companies reflects the assignment of a “numerical value of 0 to 100 on a company’s overall performance across 26 categories of sustainability, ranging from leadership and governance to community engagement and environmental disclosures.”

The editors of the Journal report state: “the ranking’s methodology takes a broad view of sustainability, one which assesses a company’s leadership and governance practices for their ability to create value for shareholders over the long term.”

Leading the list is Sony. From his first day on the job, Sony’s CEO, Kenichiro Yoshida, announced a sustainability mission. According to Mr. Shiro Kambe, Sony’s sustainability chief, “For us to continue with this kind of business, the planet and society must be sustainable and healthy. Otherwise, Sony cannot exist.”

Kering, the French luxury goods company (Gucci, Yves Saint Laurent, Balenciaga, Brioni, Alexander McQueen, Bottega Veneta, and others) is 26 on the overall list and number two on the list of “leaders for innovation in sustainability.” As reported in the Journal’s special report, Kering produces an environmental profit-and-loss statement, assigning a monetary value to its environmental footprint. The data Kering uses showed problems with its goat herders – these goats are the source of Kering’s cashmere. Based on its dataset, Kering saw that the way the goats were herded was harming the Mongolian steppe. Kering in association with the Wildlife Conservation Society, NASA, and Stanford University, developed better approaches to herding. Kering states that it can trace 90% of materials used in producing its high-end goods.

AB InBev, the world’s largest brewer, will now sell its beer in a lower-carbon aluminum can. Already, 70% of AB InBev’s cans are made from recycled aluminum. According to Bloomberg, in a new partnership with Rio Tinto the aluminum division of the Anglo-Australian mining and resources company, the cans will now be even more sustainable. Michelob Ultra is the first beneficiary of the new cans. Speaking to Bloomberg, the CEO of Rio Tinto Aluminum said, “We’ll be able to guarantee to the customers the provenance of the product as well as provide transparency in terms of sustainability measures. That’s why we will be working with AB InBev on labeling, providing info to the end consumers.”

Shareholders exerted heavy pressure on Shell executives overcoming opposition from Shell’s CEO. Shell oil now must set emissions targets and will link executive pay to these metrics. Once again, shareholders surprised a company by pushing forth proposals for transparency of the enterprise’s role in climate change.

And, then there is the Polestar 1, which The Wall Street Journal calls “The World’s Most Beautiful Hybrid Car,” a premium performance electric vehicle that is a product of the Swedish Volvo-Chinese Geely joint venture. According to the Journal’s reporting, Polestar intends to take on Tesla with a US battery-electric four-door Polestar 2. The current Polestar 1 is a PHEV (plug-in hybrid electric vehicle).

UBS, the giant investment bank and financial services company, is now running print advertisements explaining that the firm can help its customers by making the world and their clients’ portfolios more sustainable.

One interesting observation from The Wall Street Journal’s sustainability rankings is the brands that do not make the list of top 100. Google, Amazon, and McDonald’s are not on the list even though these brands tend to be at the top of most brand valuation rankings surveys. Facebook and Apple are on the list but are at #65 and #68 respectively. Automotive brands are not on the list. Neither are cruise ship brands. And, only one hotel group makes the list, but it is not one of the mega-hospitality chains: it is Melia Hotels International, a Spanish company that is the 17th biggest hotel and resort brand.

Brand Decisions And Sustainable Leadership

Sustainable leadership and business practices influence customers’ brand decisions. In today’s environment, data show that environmental decency “significantly impacts” brand preference and purchase. Green actions and performance go beyond sustainability and community out-reaches to include improved employee treatment. Sustainable business practices provide an effective boost to brands without altering customer brand perceptions. Starbucks has just committed to “advancing a culture of inclusion, diversity, and equality,” articulated in a letter from CEO and president Kevin Johnson.

Other data show that sustainability strategies result in a competitive advantage. Brands focus on the strategic use of social responsibility to build a competitive advantage, which links to long-term financial performance. This is not new. We are catching up with the evidence. Research from The Journal of Services Marketing in 2013 showed that: “Brands with a demonstrated commitment to sustainability grew over 4%, while those without saw less than 1% growth.”

Now is the right time for brands to commit to sustainability. Judging from the numbers of shareholders clamoring for better corporate behavior and global citizenship and faced with the collision of natural disasters plus Covid-19, there is a greater awareness of personal, social, and global fragility. As Deloitte, the global financial services company reports in its Resources Study, 2020, one of “… the three strongest trends likely to support continued energy management growth is the increasing consumer sentiment and stakeholder pressure to address climate change….”

Without green-washing, brands must not only commit to sustainability but also take responsibility for actions. Focusing on sustainability is consequential.

Contributed to Branding Strategy Insider by: Larry Light, CEO of Arcature

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