25 June 2020
WRITER: Dan Lander
As more businesses adopt green practices to meet the expectations of customers and investors, what will this mean for the bottom line?
THE PROOF
n September this year, the world’s second-largest fashion retailer, H&M, and the VF Corporation, which owns Vans, Timberland, and The North Face, both announced they were cutting all ties with Brazilian leather suppliers. Why? The fires tearing through the Amazon.
It’s alleged the Amazon fires were deliberately started to clear land for commercial use, particularly cattle grazing, with widespread concerns that Brazil’s $1.44 billion-dollar leather industry was knowingly and willingly involved in the destruction.
A spokesperson for the H&M Group told ABC News, “Due to the severe fires in the Brazilian part of the Amazon rainforest, and the connections to cattle production, we have decided to place a temporary ban on leather from Brazil.” Meanwhile, VF Corp. said in a statement it would stop buying Brazilian leather “until we have the confidence and assurance that the materials used in our products do not contribute to environmental harm in the country.”
VF grosses over $13.5 billion annually, and H&M almost twice that, so in addition to the widely praised ethical dimension to the boycott, losing such cashed-up clients also sends an obvious economic message to Brazil’s government and leather industry – in the modern era, trashing the environment is just plain bad for business.
Perhaps a less obvious implication of the situation is the view from the other side – while there is undoubtedly a very genuine moral motivation for H&M and VF to sever ties with Brazilian leather, they’re also both clearly hoping the positive PR will boost their bottom line. And there’s now very strong evidence to suggest they’re right.
A recent UniSA study, published in International Review of Financial Analysis, analysed 24,393 diverse firms from 41 countries with varying economies, and found businesses adopting environmentally sustainable practices (ESPs) face significantly fewer financial restraints, enjoy better customer loyalty and in turn, become more profitable.
This is the first study to map this emerging global trend across such a wide range of nations and industries, and lead author, Dr Rajabrata Banerjee, says the overall pattern is quite clear – doing the right thing by the planet is good for business.
“Different industries are more environmentally intensive, and different countries have different regulations and markets, so the impact of ESPs varies somewhat from situation to situation, but when we look at the pattern as a whole, it is very consistent,” Dr Banerjee says.
If a business tries to be more environmentally friendly, it will benefit financially.
This represents quite a shift in many sectors, where traditionally the extra costs involved with establishing and sustaining ethical practices had a negative impact on profits. Now, however, shifting expectations from both customers and financers have buoyed the market of value ESPs – a blow to Brazil’s leather industry, and a boon to ethical fashion suppliers.
From seed to harvest
Co-researcher, UniSA’s Associate Professor Kartick Gupta, says the shift is driven by consumers demanding environmentally aware products.
“Look at The Body Shop – it's carved a niche for itself based on being environmentally ethical,” Assoc Prof Gupta says. “And, that aspect of their business appeals to people who are willing to pay to support it. In a way, it also makes for more loyal customers, as their buyers are not basing their shopping on price, but on values that are important to them.”
Awareness of this type of ‘ethics-as-advertising’ business model is not exactly new and most people are familiar with its cynical flipside, greenwashing. Nonetheless, Dr Banerjee says the evidence strongly suggests tangible bottom line benefits
only come when ESPs are genuine.
“We've explored a range of sophisticated indicators which clearly show that it's real commitment to ESPs, not just lip service that makes a difference to a company’s performance,” Dr Banerjee says.
While this reflects the increasingly savvy nature of many shoppers, it also stems from the notion that consumer impressions only tell half the story; investors account for an important second dimension in the ESP scenario.
“Consider the recent Adani coal mine situation,” Assoc Prof Gupta says. “They simply couldn’t get finance because of environmental considerations. Because there is so much focus on environmental regulations, a company that appears to go against that is seen as risky investment.”
This sort of financial restraint can have a huge impact on a firm’s profitability, delaying operations or forcing them to seek less favourable terms on financing, but it’s not just fear of regulatory repercussions that influences investor enthusiasm. Increasingly, backers want to support companies who are committed to finding better ways to operate.
Companies that reduce their resource consumption and invest in innovation to improve ESPs, become more efficient and more profitable.
“We found that companies investing in innovation to improve ESPs became more efficient and more profitable,” Dr Banerjee says. “This in turn helped them stand out and find more favourable operating terms.”
While the evidence suggests a good environmental policy will benefit most companies across the board, there appear to be some situations in which ESPs are a particularly effective way to drive an operation to the next level.
The greatest benefits of adopting ESPs occur for companies operating in intensively polluting industries or based in economies with strict regulatory standards, suggesting when environmental scrutiny is intense, doing the right thing reaps reciprocally high rewards. Similarly, the more competitive the industry, the more advantage there is in adopting ESPs, especially where such measures go above and beyond mandated minimums and make a bold statement about an operation’s moral compass.
“This research is a clear indication that by having an ethical approach to the environment, a company is more appealing for investors and customers,” Assoc Prof Gupta says. “Hopefully, this can be a real driver for positive change, leading to a cleaner environment because it is better for business.”
Healthy HIVE, more HONEY
An ethical approach to the environment is not the only area in which doing right can boost an operation’s bottom line.
Assoc Prof Kartick Gupta has researched the relationship between the treatment of staff and business performance, finding in many situations, those firms that treat their employees well do better as a result.
“Creating good conditions for employees will help attract good staff,” Assoc Prof Gupta says. “In turn, they deliver better performance and ultimately make for a higher performing company.”
However, while this seems straight forward enough, Assoc Prof Gupta notes there are many factors complicating the situation, and the ‘happy worker’ equation is not always as simple as it seems.
“It can depend a lot on the labour market and worker protection,” he says. “So, when there is strong protection of employees and their rights, simply improving employee welfare alone may not create incentives to increase productivity.
“Furthermore, even when labour increases productivity due to better treatment, there are situations where employees can capture all the benefits, which is necessarily a bad outcome, but it does mean there may be no direct boost to company performance.”
BOYCOTTS IN ACTION
While we’ve come a long way from boycotting English tea in the 1770s, boycotts remain a powerful mechanism to enact change.
Kimberly Clark®
UNITED STATES
Greenpeace campaigned against Kimberly Clark – makers of global brands Kleenex and Huggies – for destroying old-growth forests in the pursuit of profit. After five years, Kimberly-Clark agreed to increase its use of recycled materials and environmentally responsible sources. Both organisations heralded the agreement with a clever video to mark the reconciliation.
LEGO®
DENMARK
Under the headline Save the Arctic!, Greenpeace mounted a campaign to get toymaker Lego to stop distributing its toys at Shell gas stations, claiming that Shell was polluting children’s imaginations. Using a clever video that attracted over 7 million views, Greenpeace won – a small victory, but a satisfying one given that other pressures eventually halted Shell’s Artic drilling just a year later.
Nestlé®
SWITZERLAND
In 2010, Greenpeace launched viral campaign against chocolate giant, Nestlé, imploring it to stop buying palm oil from companies that destroy rainforests. The ad featured the severed finger of an orangutan in lieu of a chocolate biscuit. Nestlé conceded, promising to use only 'Certified Sustainable Palm Oil' by 2015, but by 2018, was back in hot water for going back on their pledge.
BURBERRY®
UNITED KINGDOM
Iconic British luxury fashion house, Burberry, finally announced that it that it would join Armani, Versace, Gucci, Vivienne Westwood, Stella McCartney, and others in banning fur from all its collections after a decade-long boycott campaign from animal rights group PETA. Recognising that fur isn’t fashionable, sustainable, or ethical, its new fur-free direction began in September 2018.
MATTEL® / APP
USA / INDONESIA
Mattel was targeted for using products from Asia Pulp and Paper (APP) – a company notorious for destroying Indonesian rainforests. The break-up ultimately caused Barbie's official Facebook page to be closed to comments. After the campaign, Mattel promised to remove rainforest-sourced paper from their supply chain, with Greenpeace claiming the move as a victory.
