What's the business case for sustainability
Over the past eight years that I’ve spent compiling evidence that brands can both maximize profit and be a force for social good, that’s the question I’ve been asked most often. And it’s one that tends to be on the minds of business leaders each year around Earth Day.
This year that question has a new answer: a billion dollars.
For a generation, influenced by the thinking of economist Milton Friedman, business wisdom has held that purpose and profit are fundamentally opposing forces. But there are now at least nine companies globally that generate a billion dollars or more in annual revenue from products, services, or lines of business with sustainability or social good at their core.
They are the Green Giants. Far from the hemp-wrapped products of yore, they include some of the most sexy and dynamic brands out there today, from relatively new start-ups to business lines incubated within major blue chip corporations. They are Tesla, Chipotle, Nike Flyknit, Whole Foods, Unilever, GE Ecomagination, Toyota Prius, Natura and IKEA’s line of Products for a More Sustainable Life at Home.
These companies cut across the global economy. They make products as diverse as burritos and beauty cream, sports shoes and sports cars, organic kale and airplane engines. They cover a spectrum of price points and spend types, from low-cost and discretionary to big-ticket, corporate purchases. They span B2B and B2C companies.
Yet they share six factors in common. These factors enable them to generate over $100 billion in combined annual revenues from their sustainable business strategies. They are:
An Iconoclastic Leader. In each case, the sustainability journey can be traced back to one individual who started it all. He or she is a resident of the C-Suite, and exhibits the 4 Cs of Iconoclastic Leadership – conviction, courage, commitment, and contrarianism. Consider Paul Polman, CEO of Unilever. On his first day on the job, Polman announced that Unilever would no longer provide guidance to Wall Street, and would eliminate quarterly reporting.
tHESE cOMPaniES SHaRE Six factORS in cOMMOn. tHESE factORS EnablE tHEM tO gEnERatE OvER $100 billiOn in cOMbinEd annual REvEnuES fROM tHEiR SuStainablE buSinESS StRatEgiES.
A Disruptive Innovation. Each of the Green Giant revenue streams is not founded on a slightly greener or more socially conscious version of an existing product, but on an innovation that disrupted a category. Sure, the Tesla Model S is a zero emission vehicle, but it is also the highest-scoring car Consumer Reports ever tested, and set a new record for safety in tests conducted by the National Highway Traffic Safety Administration.
A Higher Purpose. Paradoxical though it may seem, businesses with a purpose beyond profit tend to outperform the competition on—you guessed it—profit. Research conducted by Jason Denner of the consulting group POINT380 found that the annual returns of publicly traded Green Giant companies have averaged 11.7% higher than their leading competitors over the past five years.
Built In, Not Bolted On. For Green Giants, sustainability isn’t just a department; they integrate sustainability into six core structures of their business, including organizational structure, cost structure and governance structure, to enable it to become a revenue driver, not a drag. That’s why Chipotle thrives even though its ethical and humane raw ingredients are more expensive; its cost structure is built to accommodate those higher prices, so it still commands profit margins of 12.1 percent, against a fast food industry average estimated at 4.6 percent.
Mainstream Appeal. If your product targets only a Super Green consumer niche, it’s hard to reach $1 billion in revenue because there aren’t enough people who take green values seriously enough to get you there. Green Giants achieve appeal with mainstream customers or consumers. Consider the Prius, which was the world’s 3rd best-selling car during 2013 – not best-selling green car, just best car, period.
A New Behavioral Contract. Transparency, responsibility, collaboration: today’s business buzzwords are alive and well at the Green Giants. But it’s more than talk. Corporate reputation today is built through actions, not advertising. Your behavior is your brand. Green Giants are behaving their way to billions – like Whole Foods, which has invested to create ratings systems to ensure you know as much as possible about every item you put into your shopping cart. Across the economy, new sustainable businesses are springing up that share the Six Factors, and are racing toward the billion-dollar mark. These “Next Billions” include eyewear sensation Warby Parker, hospitality disruptor AirBNB, Chiptole wannabees SweetGreen and Dig Inn, and Hollywood star Jessica Alba’s Honest Company.
Together, the Green Giants and the Next Billions represent a new paradigm for business, and an opportunity the UN estimates at $2.2 trillion by 2020. So maybe this Earth Day is the time to start building your own Green Giant strategy – before your competitor does.