If you could choose to buy products from companies supporting fair trade and campaigning to end testing on animals and child trafficking, would you do so? What about companies that reduce their carbon emissions and opt for cleaner, greener technology? Research suggests that most of us would support them in a heartbeat.
Consumers demand ‘good and green’
Consumers are keen to buy products that are “good and green”. According to Simon Clark from consulting firm Environmental Resources Management (ERM), research shows that consumers prefer to buy from companies trying to reduce their impact on the environment, for one thing.
“Nearly 90% plan to buy more ‘green’ goods in the next 12 months,” Clarke said at a recent sustainability business breakfast hosted by the South African Institute of Chartered Accounts (Saica).
Companies that don’t comply with environmentally friendly practices may find they are driven to make changes for social rather than legal reasons. According to Jako Volschenk, environmental finance lecturer at the University of Stellenbosch Business School, when employees and consumers start to expect environmental activism, a strong “push” factor causes companies to re-look policies. He says that when companies go the extra mile, it’s good for them.
“Afrisam, the South African cement producer, was the first cement company in the world to introduce a CO2 rating on its cement products. The company drove its total emissions down by 34% in a time that its production increased by 54%. Not only do low emissions foretell lower energy bills for Afrisam, but the company charges a premium on its product to environmentally conscious consumers. The numerous awards that Afrisam has won are worth more than any marketing campaign it could hope for,” Volschenk said.
While the market for expensive green products is often small, most consumers would opt for greener options if it doesn’t involve paying a price premium or a reduction in comfort or functionality. A company that can get this right will find a strong support base.
Graduates would prefer to work for ethical companies
Research suggests that today’s graduates are willing to work for environmentally responsible companies, even if they have to accept lower salaries. According to Volschenk, Ipsos Mori conducted a survey in 15 countries and found that 80% of respondents would prefer to work for ethical companies.
“Environmental responsibility is a moral requirement that companies should not be allowed to exist without,” he said. “An American hospital recently decided to source its energy from renewable sources. Its logic was that if their mission was to care for the long-term health of people, it could not justify its contribution to climate change by relying on fossil fuels for its energy needs. The irony is that this hospital now enjoys unprecedented success, confirming that people want to see authentic signs from companies that they care for the greater good. South African companies that seem to understand this are Woolworths and Pick ‘n Pay.”
Woolworths, for example, has become the first South African company to become a member of the Roundtable on Sustainable Palm Oil (RSPO), a global organisation that’s developing a set of standards to address what is takes to produce sustainable palm oil. Palm oil is produced more than any other vegetable oil, but its production has resulted in some deforestation, disruption to human settlements and threats to endangered species.
A company like the Body Shop is also marrying environmental awareness with human rights awareness while offering undeniably good products to consumers. In the United Kingdom, 65% of the Body Shop’s stores are on renewable energy contracts and the company is now introducing plastic bottles made from 100% recycled material — its aim is to make all its PET (polyethylene terephthalate) bottles from this plastic (30-million bottles a year). Their products don’t cost the earth either: a 250ml bath and shower gel costs around R75.
Investors weigh up risk and return
According to Julie Hudson, head of Socially Responsible Investment Research at UBS, who was in South Africa last week, said 2011 will be a busy year for activists, including shareholders and investors. Generalising, perceptions of corporate excess and indifference to the environment can potentially hurt brand value. In the aftermath of the credit crunch it is stating the obvious to say that companies need to look to their reputations more than ever.
Environmental, social and governance (ESG) issues are becoming increasingly important to the investor. The flip side of this is that “ESG integration” (which for firms means managing the environmental social and governance issues that are core to the business model) is also becoming critical for companies. Investors are increasingly thinking about how ESG issues can change the competitive landscape for the firms they invest in.
Hudson highlights a scheme (recently featured in the Financial Times) whereby a group of clothing and footwear manufacturers like Adidas, Marks & Spencer, Wal-Mart, Gap, JC Penney, Levi Strauss, Nike, H&M and Li & Fung are working on a “labelling methodology” that is expected to show customers how product production and usage impact on the environment. Transparency with regard to supply chains also happens to be of great interest to investors looking to analyse company business models with respect to potential risk and return.
The bottom line is, if a company is selling quality products that consumers can buy in good conscience, without paying more than they might expect to pay for such products, that company can be fairly certain it’s doing something right. And it’s quite likely investors will concur.
* The UN-backed Principles for Responsible Investment, particularly with regard to private equity, can be viewed here.