The subject of impact is becoming more and more commonplace in company boardrooms across the globe. What inspires CEOs to change their priorities and focus on the impact their businesses have on employees, customers, and the environment, rather than simply on profit? In short, they can see that the values of consumers and employees are changing, and investors are aware of this as well. CEOs have now come to realize that they must deliver positive impact if they want their businesses to thrive.
Consumer Behavior Influencing Businesses
As I discussed in a previous blog, investors are directing $31 trillion to companies that seek to create a positive impact. And when investors talk, businesses listen. The massive shift in consumer behavior is clear for all to see. A recent study by Unilever found that a third of consumers buy products from brands they believe are doing social or environmental good. Many other surveys have identified the same trend: consumers increasingly want to support companies that treat their workers well and which positively impact society and the planet.
Today, it’s easier for consumers to align their purchases with their values than ever before—there are even apps to help you. For example, Buycott, an app that lets you vote with your wallet, was launched in 2013 by a 27-year-old programmer named Ivan Pardo. It allows you to scan any barcode and access information about the company that produces the product. Does the company treat its workers properly? Does it test its products on animals? Does it support human rights causes? Buycott allows users to shop with their conscience across 192 countries, crowdsourcing product information from consumers.
The Era of Radical Visibility
A recent Accenture report on the rise of purpose-led brands has coined the term: “era of radical visibility,” which refers to how companies are under the spotlight like never before as they struggle for competitive advantage in today’s world. This radical visibility has created a wave of change across a wide variety of consumer products. For example, Coca-Cola is reducing the sugar content of its drinks. Nestlé is reducing the salt and sugar levels in its products. Mars is launching healthier snacks while acquiring a minority stake in the healthy snack-bar company Kind. Nike uses recycled materials in its apparel, and Lego is developing sustainable bricks made from plant-based plastic. Under the enlightened leadership of CEO Paul Polman, Unilever has overhauled whole product lines to reduce their negative impact on the environment. In 2013, the company launched compressed deodorants for their Sure, Dove and Vaseline brands that use 50 percent less gas and 25 percent less packaging, cutting each can’s carbon footprint by approximately 25 percent.
Unilever is also helping its consumers conserve water with new water-saving products. In developing and emerging countries, where water is scarce, around 40 percent of domestic water is used to wash clothes by hand and around 70 percent of that water use is for rinsing to remove soap suds. To solve this problem, Unilever created SmartFoam, a new anti-foam molecule that breaks down soap suds more quickly, enabling families to use less water every day.
Other multinational businesses are developing new sustainable packaging materials. In 2017, Nestlé Waters started working with Danone and a start-up called Origin Materials in a research consortium called the NaturALL Bottle Alliance, which was formed to develop a bio-based plastic bottle made from 100 percent renewable materials. With the technology already proven at a pilot level, they are well on their way to commercial-scale production. Simultaneously, other multinationals, including Coca-Cola, are working to produce 100 percent plant-based plastics at a commercial scale. Coca-Cola has been producing a partially bio-based bottle since 2009: the PlantBottle is a fully recyclable bottle composed of 30 percent plant materials. Between 2009 and 2015, more than 35 billion of them were distributed in nearly 40 countries, avoiding more than 315,000 metric tons of carbon dioxide emissions. The market for bio-based plastic is projected to reach $13 billion by 2023.
Given the growing consumer interest in such positive impact products, it is no surprise that integrating impact is good for business. Unilever’s Sustainable Living brands, including Knorr, Dove and Lipton, are growing 50 percent faster than their other brands and are now accounting for more than 60 percent of the company’s growth. Far from limiting their options, these efforts to view and create their product lines with an impact lens opens the door to new opportunities that boost their growth and profitability.
Long-Term Impact Benefits
The benefits of impact thinking go beyond the bottom line; embedding impact into a business can reduce the long-term risk from new regulation and taxation that might, for example, penalize the use of plastics. It can also lead to increased productivity, cost savings from waste reduction, greater efficiency in the supply chain, and improved talent acquisition and retention.
It should come as no surprise then that companies with B Corp certification are often better able to attract talented employees. Millennials now make up half of the American workforce. According to the 2016 Cone Communications Millennial Employee Engagement Study, 75 percent of millennials say they would take a pay cut to work for a responsible company, versus only 55 percent of non-millennials. But what does becoming a “responsible business” actually mean? What distinguishes a company that is “responsible” to multiple stakeholders from a shareholder-focused company that donates money to a few charitable causes? And how does an impact-oriented business differ from a traditional one that engages in philanthropy through its corporate social responsibility (CSR) budget?
Michael Porter, professor of strategy at Harvard Business School and a leading thinker on the role of impact in business, lays out a clear vision of what he calls shared value. “While philanthropy and Corporate Social Responsibility (CSR) focus efforts on giving back or minimizing the harm business has on society, shared value focuses company leaders on maximizing the competitive value of solving social problems, whether that be through new customers and markets, cost savings, talent retention, and more."
Businesses that take CSR seriously generally do so to demonstrate corporate citizenship – they are giving away a portion of their profits rather than fundamentally changing the way they do business. Businesses seeking to integrate impact more holistically generally start by examining their products and services as well as the environmental effects of their operations. The most advanced are moving to embed impact throughout their whole business, setting measurable impact targets against defined benchmarks to move their businesses away from generating negative impact to focusing on increasing their positive impact. Many of these companies are finding new opportunities to solve social problems by developing business models that have impact at their core. In Michael Porter’s words, “The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy.”
Increasing Profit and Impact
The most innovative business leaders are proving that their companies can increase their impact and their profit at the same time. However, since the shift from risk–return to risk–return–impact affects every aspect of a business, including its products and operations, businesses that are beginning to move in the direction of impact are doing so in many different ways.
Next time we will take a closer look at some of these businesses, which include Danone and IKEA, who endeavor to integrate impact across their entire company, while Chobani and Adidas strive to deliver impact through a specific aspect of their business. Until next time, keep asking questions and keep making an impact.