The Evolution Of Sustainable Business

Sustainable Business

The opportunity 

Sustainable business strategies provide business leaders with the opportunity to use their organizations to act as change agents. These unprecedented times have pressured leaders to explore different business models that companies can use to drive change. This also explains why purpose-driven companies are well-positioned to tackle the world’s biggest problems. Now, more than ever, brands must integrate values into work and messaging so they can transform firms into catalysts for system-level change.

The Traditional Sustainable Business Model

Tea is the world’s most popular beverage. Unilever, the European consumer goods giant, buys about 12% of the world’s tea, controls nearly 30% of the branded tea business, and sells more tea globally than anyone else in the category. Lipton has a global market share of nearly three times that of its nearest rival, Tata Beverages (the owners of Tetley Tea).  But Lipton’s success has not come without costs. Tea plantation workers are often badly paid, have little to no access to education or health benefits, no protection for illness or pregnancy, and are rarely given housing. Additionally, tea harvesting drives deforestation and soil degradation/water retention.

In 2010 Lipton committed to only using sustainably sourced tea by 2015 to counter the shortcomings of tea production. Unilever partnered with the Rainforest Alliance to push towards buying only 100% sustainably-grown tea,. farmers are taught a variety of new practices to meet the standards through the alliance. Additionally, farmers also have to meet legal minimum standards for worker conditions, treatment, and pay—including appropriate compensation for overtime. The standards also require that indigenous customs are respected, and that workers have access to safe drinking water, healthcare, and education. 

Farmers who adopted sustainable practices saw their average income increase between 10%–15%. Unilever did not have an explicit business model when it decided to make the switch to sustainable tea. Once it made the switch, the company had to figure out how to make money on its investment.  As a first step, it worked to create “brand love” for its newly sustainable tea. Ultimately, Lipton decided against raising prices because it did not think customers would be willing to pay more for sustainably-produced tea and, perhaps, because it feared that if it did raise prices, its competitors would take advantage of the move to push aggressively to gain market share. 

Instead, Lipton decided to use its embrace of sustainability to try to increase its market share and did by 2%. However, in a close-to-commodity market, characterized by a constant fight for market share, that 2% means they gained a significant amount of additional sales. Unilever positioned itself to be an industry leader in this space. 

Lipton Tea is a fantastic example to grasp the foundation of how social enterprises function.  

However, fast forward a few years and King Arthur Flour, a famously purpose driven company headquartered in Vermont, shows how these concepts, and consumers, have evolved. 

King Arthur Flour (KAF) was founded in 1790, making it America’s oldest flour and baking company. After former CEO Steve Voigt retired in June 2014, the board selected three executives to take on the responsibilities of the CEO. These three CEOs have created a company culture and product that is both participatory and collaborative 

Researchers have spent many years trying to understand what enables some companies to build healthy and powerful cultures.  One of the leading books in the area, Edgar Schein’s Organizational Culture and Leadership, presents a dynamic definition of how businesses form effective cultures.

Solving problems and discovering solutions that worked well.  A culture is not formed by merely stating a set of beliefs and values; rather, it is developed organically by learning how to solve problems of external adaptation and internal integration as a group.

Accumulated shared learning. Once a group has discovered solutions that worked well, these learnings transform into a pattern or system of beliefs, values, and behavioral norms. This cultural DNA provides a sense of stability and identity.

Perception, thought, feeling and behavior.  As a group continues to grow and experience success, the cultural DNA evolves into a language, a way to think, and a way to feel. This is then taught to new members as the correct way to perceive, think, feel, and behave in relation to those problems, and continues to evolve over time.

King Arthur Flour’s mission is to build communities through baking. KAF leverages its strong culture, because they understand that culture is not formed by merely stating a set of beliefs and values; they have to be lived. KAF is able to embody what they preach and charge a premium because of it. KAF leverages using deeply engaged and motivated employees to create an incredibly loyal customer base. The enthusiasm and cheer that stems from their organizational leadership, creates an authenticity that allows them to build brand loyalty. 

Sustainable business in 2020

In 2020, these commitments to the betterment of the world, instead of the bottom line, seem less noble and more necessary. Weeks ago, some Facebook employees coordinated a protest against CEO Mark Zuckerburg’s position on the company’s role as a fact-checking body. Conversely, Twitter responded to a tweet from President Trump by hiding the tweet and labeling it as “glorifying violence,” but did not take it down from the platform. As protests continue across the country, many prominent business leaders have directly addressed racial inequality and the systemic issues that they have profited from.

For example, Bank of America committed $1 billion over the next four years to addressing racial and economic inequality. The GM CEO, Mary Barra, commissioned an inclusion advisory board of internal and external leaders. Grindr removed ethnicity filters on its dating app. And  Snap CEO, Evan Spiegel, called for a reparations commission and taxes to address racial injustice. 

Silence, neutrality, or inaction will not going unnoticed. Consumers that once celebrated actions like Lipton Tea now expect that behavior and condemns organizations that does not follow suit. 

The Bottom Line

How a company is behaving now, will be its brand for generations to come. Companies investing in the development of D & I seek to disrupt entire markets, and in doing so, create entirely new business models and expectations. Companies are finding the sweet spot where their business strategies allow them to both “do well” and “do good”. The immense problems we  are facing in 2020 are also creating enormous opportunities for new ways of doing things. This means dramatically increasing the risk of disruption across a range of industries. Historically, businesses have been able to assume that natural and social capital were “free”—or at least, not something that they were responsible for. Going forward, natural and social capital will likely be “expensive” in the sense that they cannot be taken for granted.

Lipton Tea’s commitment to sustainability proved to be successful in the long run because consumers across all incomes and age groups do value sustainability. And, in the case of Lipton, the tea they were producing was causing deforestation, ultimately putting their supply chain under stress. Meaning, pivoting away from business as usual and focusing on passionate consumers during a supply chain in crisis gave Lipton the market share and profits it deserves. Additionally, their marketing efforts and the initiative’s connectivity to social consciousness contributed to their success in making this commitment. Maintaining a focus on efficiencies in the supply chain is sure to be a strategic initiative that would play out for years to come and be a source of margin expansion over time. 

Similarly, As consumers care increasingly about brands and their actions, the risks to an organization is inaction.  Now is the time for leaders to understand their business case for change and apply business models that create shared value. Analyze industry disruptions and business uncertainties and create scenario analyses to develop smart strategic options.