In the business of being green: is there really a business case for sustainability?

The ‘millennial’s moment’, a long anticipated generational shift has seen those aged 21 to 34 become the primary economic group in society. Now the world’s most powerful consumers, their preference for what they feel they can trust and associate themselves with has realigned the focus on corporate sustainability. As a result, businesses are increasingly looking at the idea of sustainability beyond the traditional capacity of cost reduction and instead, as a prime business imperative. However, is there really a business case for sustainability, especially at the SME level, and how can those smaller organisations compete with the ‘green giants’ who have capital to risk on large sustainability-first projects?

Those ‘green giants’ include the likes of Unilever and Target who have been able to leverage the dominance of their brand to drive sustainability in their supply chains. Launching ‘green’ product lines, both companies offer a strong business case for sustainability-led strategies. Targets’ ‘Made to Matter’ portfolio – consisting of 20 brands committed to addressing issues such as reducing waste through decreased packaging and ‘closed loop’ recycling – experienced 30% growth in 2015; 1.5x the normal growth rate for Target products. Likewise, Unilever’s ‘Sustainable Living Brands’ grew 46% faster than the rest of its business in 2017 and accounted for 70% of the company’s turnover growth.

It’s a trend that’s still in its infancy but one that has been propelled by the ‘coming of age’ of the world’s millennials. An investigation into corporate social responsibility by market research company Nielsen shows that millennials are the greatest drivers of sustainability in business. They are prepared to pay more for sustainable products and the most likely to check product labelling for positive social or environmental impact than any other generation before or after them.

The generational ‘power shift’ has provided market conditions ripe for sustainability focused businesses, but are small to medium sized enterprises capitalising on it in the same way as their larger counterparts? Wear2, a technology company come textile innovator has developed a decomposable fibre for clothing seams that can be unpicked when exposed to microwave radiation. Using this technology, clothing manufacturers can easily disassemble garments and repurpose old material for future use so that it doesn’t need to be deposited in landfill. Perhaps then, the supply chain is an effective route into the sustainability-focused market for smaller organisations that enables them to work alongside the larger brands instead of competing against them.

It’s something that natural beauty company Faith in Nature is utilising alongside direct customer sales. Millennial’s gravitate towards local and original – a key ingredient in Faith in Nature’s brand DNA and story. The company was founded in the 1970’s but it’s in the last five years that it has seen the most significant growth, doubling in size and securing listings with Booths, Holland & Barrett and Superdrug – a testament to the shifting buying behaviour of a new generation of consumers.

That’s not to say that cost-cutting by sustainability is an outmoded approach. Wyke Farms is one example amongst many of an organisation that reduces its costs through green practices, saving itself £100,000 a year on energy bills by sourcing energy from solar panels and biogas. What is clear however is that it’s no longer the only approach to viable green business strategies. According to a global study from Unilever, 33% of consumers choose to buy products from brands they believe are doing social or environmental good. What’s more, the study found that one in five consumers would choose brands if they made their sustainability credentials clearer on their packaging and in their marketing. It’s a trend that chimes with perceptions on the business side. A survey from Censuswide of a 100 CEOs across a range of UK SMEs, found that 43% believed the adoption of ethical business practices would boost their customer base.

Sustainability is therefore no longer an ‘optional risk’ solely for larger firms to consider, but a sound business strategy that can boost growth and profitability of organisations large and small. Millennial purchasing behaviours favour organisations who share the same values as them and who can demonstrate sustainability efforts, making the matter of size redundant and levels the playing field for smaller firms to compete with larger ones. Ultimately, being in the business of being green is not about how you can save money but about how you can make more of it.

Comments

Colin Webb at 07/08/2018 14:13 said:

A thoughtful piece by Ali. And certainly a subject which all manufacturing organisations should be actively considering and deliver outcomes against. Many businesses pay a degree of lip service to ensuring a long term strategy of sustainability but fewer truly see it through to the end game. Unilever certainly do as Ali comments. It is only through very senior (generally Board/MD/CEO) sponsorship that such a Strategy will genuinely be planned and delivered upon; all too often it doesn't get onto the Board agenda and is 'managed' through middle management, a little like Quality is often treated.

Thanks Ali, good to read and consider

Jim Flynn at 07/08/2018 15:58 said:

Very topical piece Ali.

I think another good point is that events such as plastic bag charging, bottle recycling schemes, own cup discount schemes in coffee shops, and not least the Blue Planet II focus on ocean impact, are fuelling the appetite for sustainability change. Consider this though. These schemes are all in their infancy and have had a major reaction we are all aware of. We can all see these reactions and the initiatives represent only a fraction of what is possible. So in percentage terms the potential in sustainability is huge. We likely have seen much less than 1% of the market opportunity. So whilst investment is required and involves risk, the momentum is building and there are huge returns available and an increasing appetite for the sustainability market. It will need bravery but often this is where large returns are achieved for the risk taken. This is the future and we must embrace it. Hopefully you can see I am also quite passionate on this topic!!

Michael at 07/08/2018 17:52 said:

Thank you Ali - great article!

The other day at a West London dinner party a guest reliably claimed: “70% of all our recycling goes straight into the landfills.” The other guests agreed.

I’m not sure if this is true but, if that kind of scepticism is widely placed, my hunch is the CEO will "tick the boxes" to look sustainable and, perhaps, leave it at that.

Berenice Garcia Tellez at 07/08/2018 20:04 said:

Great Piece! Working on implementing a sustainable business program....

Simon Ward at 08/08/2018 07:40 said:

A thought provoking article Ali. The challenge for me is in the non-developed countries - not where the Targets and Unilevers are particularly prevalent and millennials are not necessarily the most influential consumer group. You only have to see the coverage of floating islands of waste in so called paradise islands in the West Indies and South East Asia to know we have a serious problem. Yes, a lot of that is being generated in the developed world and often exported for recycling, but in countries like India there is a massive problem that is generated locally. The global challenge of our age is how to prevent plastics and other waste being dumped in our rivers and oceans. Changing mindsets and getting governments to actively support and promote ethical and green businesses in the non-developed world will be a game-changer.

Michael Alexander at 09/08/2018 07:10 said:

Thoughtful piece - thanks - the role and opportunities for SMEs is very interesting. Many existing or aspiring "green giants" will increasingly rely on SMEs for technical solutions to the big sustainability challenges they face - SMEs are often more agile and focussed - responding quickly to market and customer demands. They play a crucial role in supply chains and the giants are recognising the need to increase collaboration with SMEs to drive quicker change and, ultimately, competitive advantage.

Michael Alexander at 09/08/2018 08:32 said:

Thoughtful piece - thanks - the role and opportunities for SMEs is very interesting. Many existing or aspiring "green giants" will increasingly rely on SMEs for technical solutions to the big sustainability challenges they face - SMEs are often more agile and focussed - responding quickly to market and customer demands. They play a crucial role in supply chains and the giants are recognising the need to increase collaboration with SMEs to drive quicker change and, ultimately, competitive advantage.

Rich Lane at 12/08/2018 20:32 said:

Thank you Ali, interesting and thought provoking.
I was fascinated to learn about Wear2, that could be a genuine game changer for the sustainability of the fashion industry who's "Throw away" mass consumption behavior often ends up in landfill.
I'll be interesting to see over time if there is a difference between what millennial’s say they'll buy/not buy and if they'll actually follow through. I'm not sure many are going to give up their iPhone's despite the Chinese sweatshops and heavy metals involved in their production ?
Regardless, doing the right thing for the future of the planet will never go out of fashion

Sean Pitches at 15/08/2018 10:13 said:

Thanks for this thought-provoker Ali. As a father of two millennials, it is interesting to note what impact their greener sensibilities are having on my own purchasing. And as a manager in the Asset Management industry, it is also interesting to see the tangible growth in the number of sustainable funds available to investors now

Berenice Garcia Tellez at 15/08/2018 19:10 said:

Great Piece! Working on implementing a sustainable business program....

Karen at 27/08/2018 17:14 said:

Good piece Ali, thanks. Being green is not enough even if some companies are still avoiding the issue. Good to see tech companies experimenting with new forms of underwater data storage to save our planet but at the very least their workers need to be thriving while they work on broader social responsibility opportunities. The sooner we have more enlightened metrics the sooner companies will be encouraged to do the right thing.

Mike Gee at 04/09/2018 10:47 said:

Well written and thought provoking article, I agree that companies and consumers have started to take account of sustainability but we have only just started the journey. In many cases recycling is expensive and limited, and whilst some manufacturers are redesigning product and packaging this in itself is an expensive and resource consuming process and a quantum shift will be driven by legislation.