Major brands are now judged on sustainability
Changing consumer priorities, environmental regulations, climate change and transparency of information all mean that the pressure is on for brand manufacturers and retailers to demonstrate their ethical and sustainable credentials. If a firm’s environmental credentials are poor or the ingredients in a product are perceived to be from unethical sources, the backlash on social media can be seismic, resulting in a shift in consumer loyalty, market share and a tarnished brand reputation.
For instance, sportswear manufacturer Nike was forced to operate with greater transparency due to many years of campaigning against its malpractice in sub-contractor factories. It also produced a plan to go toxics-free by 2020, along with Adidas and Puma following suit after Greenpeace launched the ‘Dirty Laundry’ report, which highlighted the problem of toxic water pollution associated with the textile industry in China.
Sustainability isn’t just about brand reputation
So in the same way that organisations previously adapted to the demands of Corporate Social Responsibility and ‘going green’, now the expectation is that companies will alter their business strategy and operating models to support claims of sustainability.
The benefits of adopting the sustainability agenda are well documented, ranging from an increase in consumer trust which can be linked to higher sales figures, to decreases in production and operation costs associated with inefficiency and waste. With this in mind, in 2013 Tesco announced its ambition to reduce food waste globally. A few ways it strives to minimise waste are by: reducing to clear products close to expiry, sending bakery waste to be converted to animal feed, and recovering energy from food waste through anaerobic incineration.
Nielsen, a global information and measurement company, revealed that 66% of customers are willing to pay extra for products and services that come from companies with a commitment to having a positive social and environmental impact. Furthermore, Unilever’s sustainable living products are more profitable than standard products by two gross margin points, for instance. Unilever also has evidence that its brand reputation has been boosted by sustainability and helps them attract some of their best talent.
How to create a business model to support sustainability
So what’s the investment needed in the business model to reap these benefits? Many of us wouldn’t think beyond sustainability covering the sourcing of raw materials such as fair trade coffee beans or timber from the appropriate source. However, the decision to go down this path has far reaching implications for the business model.
Sustainable raw materials should be complemented by manufacturing facilities which employ technologies to minimise the carbon footprint. Innocent Smoothies has been able to tackle issues on a macro level. In recent years, Innocent has executed numerous projects in partnership with farmers and local universities to discover new efficient agricultural processes, which are then to be shared across the supply chain. For example, a range of irrigation and water management techniques were piloted through a partnership in Spain with the University of Cordoba, where they were able to find a method of growing the same number of strawberries using between 10% and 40% less water.
The location of such facilities will also need to be closely considered from a footprint perspective as well as from a purely economic angle. However, it is often necessary to source goods from particular locations, so another option is to improve the efficiency of the journey itself. Unilever’s logistics project has cut the distance Unilever’s trucks drive on European roads by over 100 million kilometres since 2012. It did this by using a new Transport Management System which allows for the optimisation of transport flows between suppliers, factories, warehouses and retailers. It also aims to increasingly use non-road forms of transport, and when that is not possible, it is investing in alternative fuels such as Compressed Natural Gas.
Ethics and compliance had been an area of organisational investment in most industries in the past decade. But with an overt sustainability agenda to manage as well, compliance has become a key function to set, monitor and manage compliance with national and international regulations. For instance, at Coca-Cola, the Ethics and Compliance Office organises a range of ethics and compliance training courses for all the associates worldwide. To ensure compliance with the law in the business, it is frequently monitored.
Equally, sustainability needs to be supported by appropriate governance bodies and ethical based KPIs such as employee wages and conditions. A good example of this is Waitrose, where all permanent employees are partners who democratically own the business as members of the John Lewis Partnership. Another good example is H&M, who measures its supplier factories’ sustainability performance with the help of an index combined of defined KPIs such as energy reduction and community impacts.
In creating a sustainable business model, consumer goods and retail organisations need to ensure their capabilities and resources are aligned to deliver against this important agenda. The Sustainability Manager at Innocent Smoothies stated that “we are moving from a point in time where companies do sustainability because it's the 'right thing to do', to a point where it is essential to the bottom line.” In summary, companies need to ensure that business strategies and operating models are aligned to sustainability strategies, understanding how these can contribute to the business’ KPIs. Given the impact of social media, strong sustainability and ethical standards should be aligned to the firms’ marketing and advertising campaigns to ensure both consumers and potential applicants are aware of the importance sustainability has for the business.