Dollars and Sense

31 Jul 2013|Leslie Pascaud

Conscious capitalism is the new buzzword. A kind of a corollary to the sustainability movement, the concept places emphasis on purpose beyond profits. In the words of Jeff Klein of Conscious Capitalism Inc: “Rather than seeing business as a tube- [money in – money out]- we look at it as an ecosystem of interdependent… stakeholders….Business has to produce profits over time, but that doesn’t mean that’s its sole purpose.” (1)

In truth, the expression “Conscious Capitalism” isn’t new at all. It was coined decades ago by Muhammad Yunus, the Nobel Peace prize recipient who set up the Grameen bank to help the rural poor. But the principles behind the term seem to be reaching a tipping point of saliency.

Bob Willard, Founder of Sustainability Advantage, explains why. Referring to a recent KPMG report, “Expect the Unexpected”, which outlines how10 Global Sustainability Megaforces are impacting businesses, Willard spells out the many ways in which companies are having their social licenses to operate threatened, from food security risks to climate change to water and mineral shortages. Yet most of these factors, says Willard, are not showing up on company financial statements and so, in many cases, are not being integrated into their strategic plans

The KPMG report leverages 2012 data from TruCost, an independent environmental research agency, to demonstrate why companies will be expected to pay a rising proportion of external environmental costs. The numbers are sobering: across 11 key industry sectors, costs totaled $US 854 Billion in 2010, a 50% increase since 2002… this figure is projected to double every 14 years. And here’s a fun fact: of all the industry sectors covered, the Food Production industry is the one with the largest external environmental cost footprint : $200 Billion, a sum that, according to KPMG could outweigh the sector’s entire earnings. The Food and Beverage industries are, according to KPMG, the least prepared and thus the highest risk sectors, whilst surprisingly the Automobile, Telecommunications and Internet sectors are the most ready. (2)

So what’s going on? How is it possible that major corporations are not taking the necessary steps to protect their long term viability? According to Willard, the externalities will come home to roost when the capital markets start taking a closer look. He talks about an impending sea-change when investors ask the hard questions and request more specific metrics along with operational + supply chain accountability. Will it be the finance guys who finally help us see the light?

PUMA, a subsidiary of Kering, formerly PPR, provides an encouraging example of how to take a long hard look at the numbers. In 2011, Puma published a first-of-a-kind Environmental P&L, measuring and reporting environmental externalities, such as water use and greenhouse gas emissions. The resulting 145 million Euros of environmental costs, highly publicized in the media, turned more than a few heads and also boosted PUMA to the top ten rankings of sustainable companies.(3) But PUMA has done more than measure their impacts. In parallel, they launched ‘The clever little bag’ which uses significantly less cardboard than the standard shoe box, takes up less space and weight when shipping and replaces the plastic retail bag. In 2011, they launched the PUMA Re-Suede, a version of their popular sneaker comprised of 100% recycled polyester fibers, produced by a chemical recycling process that reduces both the energy consumption and the CO2 emission by 80%. In 2013, the company introduced In-Cycle, the first cradle-to-cradle certified collection of clothes, shoes and accessories, that are either biodegradable or recyclable.

PUMA is not alone on this journey: companies like Interface, Patagonia, Unilever and many others are finding ways to marry their values-based convictions with hard numbers to get to the best long term solutions for their businesses. But too many of today’s corporations are still stuck in the old model. And, according to former PUMA Chairman Jochen Zeitz, antiquated government incentives that place import duties on sustainable materials are not helping.

Warren Buffet says, “the problem with incentives is that they work”. If we want to incentivize businesses to make the right decisions for their own long term viability and for the good of us all, we need to get the numbers right, which means  looking at the right numbers. As environmental management systems are increasingly put into place, the task will be to go beyond the present to put hard numbers on a company’s future exposure and to make smart strategic decisions that will not only manage the inherent risks but seize the opportunities that come to light.

(1) Conscious Capitalism : Can empathy Change the world?

(2) 2012 KPMG International – Expect the Unexpected : Building business value in a changing world

(3) The 2013 Sustainability Leaders A GlobeScan/SustainAbility Survey

Written by Leslie Pascaud, Executive Vice President Branding and Sustainable Innovation Added Value.

Picture credits: Dott Infographics

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