Sustainability Conferences at UCLA — Always Fascinating
There were some very thought-provoking presentations at the quarterly “Sustainability Partners Conference” at UCLA yesterday. At issue is a central question: does sustainability pay for itself? I.e., do companies that have vigorously and sincerely woven sustainability in their corporate DNA experience enhanced profit as a result? The answer one takes away from these presentations is that the answer is generally Yes.
But I’m not convinced. Obviously, if you’re Patagonia, you’ve tapped into a market segment that cares about this stuff and will pay more for a product, clothing in this case, that gets great marks in terms of carbon footprint, free trade, etc. The program yesterday included a talk by a spokesperson of Dr. Bronner’s Magical Soap, a product that came of age in the 1960s, and has done very well to maintain a customer base that embraces all the good things that came along in that era: a sense of caring, community, eco-friendliness, getting back to nature, etc. Will this (small) segment pay more for soap that comes from organic farms where all workers are paid a living wage, where the product itself contains no terrible chemicals? Of course it will. Dr. Bonner’s revenues are $60 million, and it’s not really surprising that the company can maintain or even expand that base.
But what if you’re Mattel? A spokesperson from this toy behemoth ($7.5 billion in revenues) spoke next; she did a great talk, and was quite candid with her stories, for example, how Green Peace was all over them in a PR nightmare lasting several months when it was discovered that some of their packaging came from clear-cutting the rainforests in Indonesia. Granted, it’s of some value (probably considerable value) to avoid these public relations disasters. But here’s a product that is specified by boys and girls ages 3 – 12; they (generally) don’t grok LCAs (lifecycle analyses) and all that good stuff.
Of course, when any company gets serious about sustainability, it finds areas where it can save cold hard cash that has simply been being wasted. But it also encounters significant costs. I find it very hard to believe that Mattel can point to increased net profits associated with sustainability. The spokesperson was cheerful and bright, obviously very happy to be a driving force in her company’s quest to do the right thing, but she sidestepped this issue.
Last week, the world received a wake-up call from Bangladesh re: the apparel industry. We learned what we should have known all along: the fashion brands are on a ravenous nonstop, planet-wide hunt for the least cost places to manufacture product that meets whatever quality standard it feels it must maintain. Up until now, it has had (and we can only hope this is changing) sparse concern for child labor, worker safety, living wage, decent hours, humane conditions, etc.
For what it’s worth, I deeply sympathize with the woman from Mattel and how difficult all this is. The company sells 8000 different toys, and 80% of them are new every year. It has 1500 quality control people who test these, largely looking for safety issues, but they can’t test every toy, and they certainly can’t get 100% transparency on 100% of these suppliers, as some of these chains are three and four layers deep. (This, btw, is why it took the Europeans so long to learn that they were eating horsemeat: the supply chain for meat products on the Continent is incredibly convoluted; product passes through dozens of different hands before it’s sold to the consumer.)
I see a day coming where CEOs will need to sign off on sustainability statements the same way they sign off on financial reporting today. CEOs weren’t thrilled when they realized they could go to jail if their financial reporting was incorrect; I doubt they’re going to fall in love with another zone of worry, and I’m sure we’ll have attorneys fighting this concept for a very long time to come. But I don’t see a way around this if we really want to put an end to collapsing factories and clear-cutting rainforests.
If sustainability actually generates more profit, that’s fine. But if it doesn’t, and it turns out to be a cost of doing business, that’s fine too.
There is another – wider -angle to sustainability that involves risk management. It isn’t so much about what you might gain but what you may lose.
Excellent point, Piero Lavo – one toward which (after a fashion) some enlightened bankers are taking an increasing interest. Following on a recent and rather grim World Bank climate impact report, Reuters revealed not long ago that, “A coalition of the world’s largest investors called on governments to ramp up action on climate change and boost clean-energy investment, or risk trillions of dollars in investments and disruption to economies.” These investors, who together manage $22.5 trillion in assets, said, “The investments and retirement savings of millions of people are being jeopardized because governments were delaying tougher emissions cuts or more generous support for greener energy.” It seems that unsustainable losses are on the minds of some of the keenest financial minds. Let’s see if the have the political muscle and the stomach for the fight against fossil-mania.
There are at least three commercial reasons for corporate sustainability
1. Reduction of uncertainty, particularly if inputs in markets where commodity pricing is driven by scarce or constrained supply – uncertainty is the flip-side of financial risk.
2. Reduction of liability, as Cameron points; non sustainable supply by it’s nature means that something is depleted in the process (as they say in china shops, you break it, you own it) and the cost of replacing something that is unreplaceable is high and difficult to estimate.
3. Conservation is the most sustainable practice and using less of any commodity lowers cost and raises margin.
Asking whether sustainability pays for itself in terms of corporate profits is waste of time, in that it misses the point. If one truly believes in the concept of sustainability, and not just the buzzword it has become, then profit is a lesser priority.
Manufacturing and selling 8,000 different toys a year, 80% of them new is not sustainable. It’s wasteful.
Having supply chains 3 and 4 layers deep is not sustainable.
It’s wasteful.
Any business model that relies on mass production involving global supply chains is not sustainable.
It’s wasteful.
This is reality. No amount of clever marketing or PR spin-doctoring will change it.
You make some excellent points here. It’s certainly a poster child for The Story of Stuff.
If you would like a few guest blog posts on the subject, I’m sure we’d all appreciate your viewpoints.
True sustainability will require a massive alteration of every aspect of modern society, but along the way, big and small efforts toward greater efficiency are certainly superior to the status quo. They should not be viewed as solutions, but merely interim measures.
The only truly “sustainable” societies we can point to in human history were all largely decimated by unsustainable societies with superior killing technology and a greater willingness to deceive and slaughter their way to primacy. That ancient traditional knowledge of how to live in harmony with nature has faded beyond retrieval. We must make a new way, or suffer cruel decline until finally our few remaining descendants rediscover the old ways.