The box office success of Al Gore’s Academy Award winning An Inconvenient Truth highlighted the fact that environmental sustainability is no longer just the concern of the tree hugging hippie brigade of the 1970s.
Now a mainstream issue, consumers are demanding that businesses adopt more sustainable practices. Faced with challenges such as choice of packaging, use of energy and raw materials, waste management, how goods are manufactured and corporate social responsibility, business owners and executives are going back to the drawing board as they realise consumers are more socially aware than ever and are voting with their wallets. This is not easy and for many, making these changes can involve a significant cost. The question is – is creating a sustainable business an inconvenience or could it be an opportunity?
Visit enough retailers and you will see signs of change – “Our products are made from recycled materials”, “We only use renewable energy”, “We support the development of Bangladeshi agriculture through our fair trade scheme”. If the business is alive and kicking, then the curious mind starts to wonder whether these retailers are actually making financial gains from adopting sustainable policies.
Proponents of sustainable business say “yes”. The International Institute for – an inconvenient truth or a convenient opportunity? Sustainable Development says that in recent years there has been a shift in business thinking that has gone from seeing sustainable business practices as a cost to viewing them as a real opportunity to add value.
It argues that adopting sustainable business policies will enhance a business’s reputation which ultimately leads to greater customer loyalty and increased sales. In its view, discerning consumers are demanding products and services that are good for people as well as the environment.
A survey conducted by Canadian research firm, Globescan, supports the institute’s claims. According to the survey, more than one in five consumers reported having either rewarded or punished a company for its environmental or social performance and there is evidence indicating this trend could be on the rise.
Understanding this pattern in the market, some businesses have not only adopted sustainable business practices, but they have seen a niche and used their social and environmental principles as the foundation for building their brand. Arguably, a number of them, such as The Body Shop, have successfully differentiated themselves from the competition by trumpeting their corporate philosophies.
The Body Shop built its reputation around its socially-conscious policies such as boycotting products tested on animals, its community trade program – where it supports a number of disadvantaged communities around the world by purchasing raw materials from them at a reasonable price, and its stringent environmental policies.
The company prides itself on its principles and has attracted a large following of loyal clientele, many who are drawn to the company because of its social and environmental principles.
The Body Shop’s Social Affairs Manager, Eloise Bishop says that many of the business’s policies developed organically because of founder and CEO Anita Roddick’s passion for social issues, however some of The Body Shop’s environmentally friendly practices were initially intended to save the business money.
“When Anita Roddick opened her first store in Brighton (UK), she had very little start up capital, so she sold products in refillable bottles to keep her overheads low. Little did she know she was ahead of her time with her recycling practices.”
This anecdotal example of how The Body Shop started its recycling policy highlights what might be possible with even the simplest recycling strategy. If it’s done the right way, there is real opportunity to reduce costs by using resources more efficiently and recycling anything that can be reused.
In 2006 Wal-Mart partnered with suppliers to improve packaging labels on its private Kid Connection toy line. By reducing its packaging on less than 300 toys, it saved 3425 tons of corrugated materials, 1358 barrels of oil, 5190 trees, 727 shipping containers and saved itself $3.5 million on transport costs. Now it plans to measure its 60,000 suppliers worldwide on their ability to develop packaging and conserve natural resources. Wal-Mart expects to cut its packaging by five percent and save 667,000 tons of carbon dioxide from entering the atmosphere. It is predicted the initiative will cut overall costs by $10.98 billion and save Wal-Mart alone $3.4 billion.
Swedish furniture retailer, IKEA has a stringent resource efficiency policy which ensures little is wasted and as little energy as possible is used in producing furniture and running its stores. The purpose of IKEA’s policy is by no means just to minimise its impact on the environment.
The company explicitly says that it works economically with raw materials, energy and other resources to reduce costs so it can produce relatively cheap furniture. The result – IKEA has successfully positioned itself as a market leader of affordable furniture, but it has also developed a brand that presents the company as socially responsible and environmentally conscious.
IKEA insists on a code of conduct that outlines its expectations to suppliers in areas such as labour conditions, environmental impacts and human rights. If a supplier does not take steps to comply with its code, then it ends the relationship and finds a new supplier. The Swedish retailer is also actively involved in projects with UNICEF, WWF, and The United Nations World Health Organisation (WHO) in areas such as the prevention of child labour, human rights, health and sustainable forestry.
The Australian National Centre for Sustainability says that businesses which have a reputation for benefiting the community as well as good employment conditions attract quality employees seeking meaning in their work and job satisfaction. Its reasoning is employees genuinely feel they are doing something positive and because they are working in a healthy environment, they tend to work harder and employers can usually retain staff for longer and this, in the long run, reduces the costly exercise of employing new staff.
A business perceived as “green” and socially responsible may not only be a drawcard for good employees. It might be more likely to attract new investors. The International Institute of Sustainable Development says that if you’re on the search for more capital, consider this – results from a survey conducted by Environics International found that one in four American share owners took into account ethical considerations when buying and selling stock.
The benefits of having a sustainable business model are dawning upon an increasing number of both small and large businesses and the idea appears to be gaining traction in the marketplace. As more businesses jump on the sustainability bandwagon, there is also increasing pressure on the competition to up the ante.
The challenge some businesses face in the short term are financial hurdles such as dedicating resources to implement change, purchasing new equipment or paying more for goods coming from new suppliers. Some sceptics argue that businesses cannot afford a temporary shortfall in profits in an increasingly cutthroat marketplace, but others say that there are long term benefits to implementing change.
Melbourne Dry-cleaning Business, Bancrofts, moved away from using strong chemicals such as percoethylene and has introduced Green Earth Cleaning, an environmentally friendly silicon-based cleaning agent that contains no harmful fumes. The business is also using biodegradable plastics to wrap garments which produce no greenhouse gases when decomposing. Director Roger Bancroft says there was an initial outlay for new machinery and although the cost of solvent is slightly higher, there are no costs associated with hazardous wastage and the cleaning process is more efficient, enabling staff to focus on other areas.
“Overall there is a cost benefit and what we are also finding is we are attracting new customers who previously chose not to dry-clean for either health or environmental reasons.”
Some areas of retailing are riding the sustainability wave and are reaping the benefits. The organics industry, which promotes itself as an environmentally friendly and socially responsible industry is growing at an unprecedented rate. Between 1995 and 2004, the organics industry went from generating $28 million a year to $300 million a year.
Organic supermarket Macro Wholefoods says that it has developed a large and loyal following since its beginning and is rapidly expanding. Since 2004, Macro Wholefoods has grown from one business to four across Victoria and New South Wales and the company plans to expand to Queensland, South and Western Australia in the longer term. The Australian organic market is expected to follow the US market, which had a compound annual growth of 21.4% between 2002 and 2007 and is projected to reach a value of $30.7 billion by the end of 2007.
The growth of the organics industry, the rapid uptake of sustainable practices in both small and large businesses and the box office success of films such as Al Gore’s An Inconvenient Truth in recent years highlights a new era in consumerism. The era of the conscious consumer is here and though a number of early adopters have found their niche, there is still a mountain of opportunity.
Sustainability, its advocates argue, not only poses the possibility of winning the hearts of the public, but there is also the very real prospect of reducing overheads by making even the simplest changes.
Al Gore summarized this opinion recently when Wal-Mart announced its commitment to go green: “The message from Wal-Mart today to the rest of the business community is, there need not be any conflict between the environment and the economy. We will find the way not only to reconcile (those), but to find new profits and new opportunities as we do the right thing”.
