Business leaders increasingly view sustainability as an imperative rather than a choice. By aligning their business to the demands of stakeholders such as consumers, employees, and investors, for higher standards of corporate conduct, they also hope to build brand equity – and by extension, margin.
The announcement by the Business Roundtable representing almost 200 of America’s biggest companies on “the purpose of a corporation” is just the latest manifestation of the trend. Closer to home, the note penned by Woolworths CEO Brad Banducci in his company’s 2019 Sustainability Report is another example.
Increasingly consumers are putting pressure on businesses to be more ethical and more environmentally friendly. In the 2018 Edelman Earned Brand Global Report, 64 per cent of consumers surveyed are belief-driven buyers. This means they buy from companies whose values align with their own.
Gerd Schenkel, chairman of fintech Credit Clear, as well as the founder of uBank and a former head of digital at Telstra says there are sound reasons for businesses to pay homage to this sentiment.
He told Which-50, “There is a powerful saying in marketing that people buy a product because of why you make it. Apple is a good example. But these products are also very undifferentiated. I mean, Apple’s products aren’t the most sophisticated or advanced technology-wise, they combine componentry that’s available to anyone. So where do you get the margin from on top of your input costs? You can get much more margin out of the ‘why’.”
In simple terms, the more sustainable your business’s brand story, the higher the price you can charge for your product.
Joanne Woo, Head of Corporate Affairs at Deliveroo Australia, says “Today’s consumer expects more from the brands they engage with. Beyond the delivery of products and services, they expect companies to contribute to bigger issues that impact society as a whole.
“When it comes to the environment, everyone — business, government, and individuals — must take action and responsibility to address it.”
According to Gary Mortimer, Associate Professor in Marketing and International Business at Queensland University of Technology, organisations understand that consumers are genuinely concerned about environmental issues such as plastic in the waterways, the risk to marine life, and food waste.
“When businesses can alleviate some of those concerns by articulating what they’re doing in that specific space to reduce food waste or energy consumption, consumers are more likely to develop positive attitudes towards the business or the brands. They are more likely to frequent those businesses.”
Xero CEO Steve Vamos says the company is taking sustainability incredibly seriously now. The ten-year-old company, which five years ago was working out its product-market fit, has matured to a point where it has committed to building a capability around sustainability.
Vamos says a focus on sustainability is today a requirement of businesses, demanded by employees and investors.
Asked why sustainability is good for business, Vamos told Which-50, “It’s almost a point where there is no choice, because it’s gone beyond that. And it’s gone beyond that because our people deeply believe that we have a responsibility to do business in a way that respects the planet. It’s as simple as that. The energy from within Xero around this stuff is unbelievable.”
Since becoming CEO of Xero 18 months ago, Vamos has flown 502,724 kilometres — roughly equal to 12 times around the planet. He announced last week that the company has committed to funding carbon offsets for staff air travel.
“It’s something we are quite serious about. Quite frankly, it is something our people expect of us as, as we all become far more conscious and concerned about the future of our environment.”
Ros Harvey, founder and Managing Director of Agtech company The Yield, says the call for sustainability is only getting stronger.
“Consumers will demand it, society will demand it. As the impact of global warming increases it’s just not going to be an option [to ignore sustainability].
“We are seeing that now accelerate, and it will just become a requirement for doing business. You will see even stronger demand from consumers, but also from the investment community. It’s not just about consumers — investors are saying they want to see sustainability in the businesses that they invest in.”
She notes that there are investment funds specifically dedicated to providing the capital for sustainable investment. Within the agriculture sector, she has observed that more sustainable practices secure large capital investments from the market.
The increasing importance of sustainability also brings greater scrutiny of environmental claims, and whether or not a brand is greenwashing.
Greenwashing is when a company portrays itself in a sustainable way, boasting about initiatives or claiming something is more environmentally friendly, when in reality it’s the exact opposite.
A spokesperson for the ACCC says there is no specific legal definition of the word “sustainable” in Australian Consumer Law. The law is clear that companies must not mislead their customers. However, whether the use of the word “sustainable” is misleading or not will depend on the facts and context.
The spokesperson explains that “Environmental claims made by businesses, like any other claims, must not be false or misleading. Under the Australian Consumer Law, businesses are prohibited from making any false representations about the standards, quality, characteristics or history of a products or services, and this includes any environmental claims.
“If a business wishes to make environmental claims about their products, the claims should be honest, accurate and able to be substantiated. Broad or unqualified claims which do not explain any specific environmental benefit can be misleading or deceptive.”
Mortimer gives an example of battery brand Energizer and its “recyclable battery”. He said this battery was marketed in green and silver packaging with the brand calling it the “world’s first eco-battery”.
But Mortimer said in fine print it said less than four per cent of the product is constructed from recycled batteries.
“Was it the world’s first recycled battery? No. But if you read the entire packet that says four per cent comes from recycled batteries then that’s actually the description of the product.”
He said that’s not technically misleading. But there could be claims that it “could potentially be greenwashing.”
Types of greenwashing
Greenwashing comes in all shapes and sizes — from claims of recyclability to waste reduction. Mortimer says with claims of recyclability he always looks to see what proportion of the product is recyclable, or has been made from recycled goods.
There are also claims of carbon neutrality when an airline says pay an extra fee and it will plant a tree based on how much carbon was used for your travel.
Mortimer asks, “Does anybody really measure what proportion of trees are actually planted, or exactly how the carbon has been offset by it?”
When companies say they’ve lessened the amount of waste, saying a certain proportion has been reduced, Mortimer struggles to see the evidence.
He says it is hard to measure greenwashing because it’s hard to verify the claims. “Particularly when you see, for example, retailers or restaurants claim they reduce their waste by 20, 30 or 40 per cent. I struggle to find the starting number and the ending number to be able to do that and to work out that percentage.
“Is it volume being reduced? Or is it the proportion of products not put into waste?”
The dreaded asterisk
To counteract greenwashing, there are numerous ways consumers can make sure that the products they’re buying are actually eco-friendly.
Mortimer says keep an eye out for the “dreaded asterisk” which, he says, tends to suggest a qualification of some sort.
“I do that with cosmetics companies that say ‘we do not test on animals’ [but the statement has] an asterisk. The asterisk may suggest that the product is sourced or the ingredients are sourced from a third-party corporation that may test on animals. That’s certainly one way around it.
He also says to keep a look out for the fine print. “If there is no information in the fine print, I visit the web site and look for the company’s corporate social responsibility. If it’s not there then I would contact the company where you can validate and ask for evidence for the claims.”
How does a company keep itself accountable to its consumers to make sure it isn’t greenwashing? Mortimer says brands are becoming more demonstrative with how they show evidence of their sustainability claims.
“What we are seeing, what consumers are now seeing, is more demonstrative evidence of waste reductions, sustainability practices more towards a circular economy. And that might be in the form of transparency and metrics,” he says.
At Deliveroo, Woo said the company makes sure users on its platform see the sustainable options when ordering from vendors.
It is also working closely with restaurant partners to develop more sustainable packaging to help them achieve their environmental goals.
Some of the sustainable initiatives Deliveroo has developed include opt-in cutlery, removing 600 shark fin dishes after signing the WWF No Shark Fin Pledge, and offering non-plastic eco-friendly packaging.
To keep itself in check, Deliveroo continuously measures the progress and uptake of its initiatives, according to Woo.
“This underpins our partnerships and initiatives in Australia,” she adds.