If you are a consumer brand or retailer, you probably have a strategy for sustainability, and you are probably also committed to meeting some company defined targets – the reduction of CO2 levels, reusing and recycling products, carefully selecting suppliers and partners, and so on. If you are committed to driving a sustainable business, my guess is that you also find it challenging to turn sustainability into a profitable business strategy.
For many companies, sustainability is seen as something you must comply with to keep customers and the authorities happy. It is not seen as a business accelerator. I’m not referring to the companies in the market who have built their brand around sustainability, e.g. Patagonia who is one of the lighthouse brands or start-ups like Swapfiets in Denmark. I’m referring to the many companies who have established their business model many years before sustainability became the focal point that it is today.
These traditional players have spent years building and scaling an effective operating model – including new product innovation, marketing activities to drive demand, sales teams, production facilities, transportation, logistics and supply chain management. No wonder, they are hesitant towards the concept of sustainability which in many ways requires re-thinking the old ways of doing business. Carrying out fundamental changes in a company’s work processes are not sweet music in the ears of decision-makers who are used to optimizing every single part of the value chain to satisfy owners and shareholders. That’s the tune of money being spent without a clear view to a long-term value creation.
Too many consumer brands see sustainability as a costly agenda that provides too little. And therefore, sustainability becomes something they handle on the side; it’s not something that fundamentally change the way they do business.
Sustainability is de-risking
What I have just summarized – and I know I’m grossly generalising to make a point – is the current market analysis: Sustainability is hard. Nevertheless, I will argue that by becoming more sustainable you are in fact de-risking your market position and future-proofing your operating model.
Right now, it is primarily rules and regulations that are highest on the sustainability agenda. Companies are met with politically defined targets, and they can expect fines, levies, or other imposed costs if they don’t meet these targets.
But as we all know, the public opinion on sustainability matters has changed – and younger generations will only accelerate the transformation process because they have a much more urgent approach to the environment and climate changes. According to our data, Generation Z (people born between 1997-2012) will make up to 30% of the population by 2030. For them, conscious consumption is part of their identity. They want to buy products and services from companies who truly care about the footprint they leave on the planet. To underestimate the power of consumers is a dangerous endeavor for brands that survive on serving needs and expectations of shoppers. That’s also why de-risking is the right term for those who choose to invest in sustainability. There is too much at stake if you run your business with the blueprint of yesterday.
The eco program paradox
Brands and retailers have a broad range of products and services with a vast potential for a more sustainable profile. Let’s take a practical example from everyday life. The dishwasher has an “eco” program and a bunch of other programs. Why is it up to me as a consumer to hit the eco button and save water? Why does the dishwasher by default not operate in the most eco-friendly way? All programs should be eco-friendly. Think about it. Let’s say that one of the well-known brands launched a new dishwasher series tomorrow with that kind of storytelling. I’m guessing that it would do just fine on the market and maybe even outperform a competitor or two.
To adapt a more offensive approach to sustainability, consumer brands should consider launching an ‘Engine II’ version of their existing ‘Engine I’ business. While Engine I operates as it always has done, Engine II should have the mandate to do experiments across the value chain and find out how you can steer your business and make products in a more sustainable way. Does it, for example, necessarily have to be more expensive to produce more sustainable products? What’s the response within the company – does an Engine II division make it easier to recruit talent? How does the market respond – are you spot on, is it still a niche operation or can you scale fast? Can you introduce a circular business model? Take stock back, invest more in repairs and find more ways to re-use old products instead of producing new? There are a lot of ways to be creative and care more for the planet’s resources.
First movers don’t have the luxury of leaning on empirical data and studying case examples. But they do have the competitive edge of defining the new rules of the game.