Will Sustainability Reach the Mainstream?
A key tenet of being a responsible company is to manage risk and create value for the long-term sustainability of the corporation. At Timberland, we believe the concepts of commerce (sustainable shareholder returns) and justice (operating sustainably, including social and environmental management) go hand in hand. Our challenge is to not only demonstrate the business case for sustainability within our own company, but to ensure that others do too.
Earlier this year, former Timberland CEO Jeff Swartz and PPR Chief Sustainability Officer Jochen Zeitz engaged in spirited dialogue about PPR’s Puma brand initiating a new sustainability accounting measure: their Environmental Profit & Loss statement. I am impressed with Puma’s effort to calculate and assign financial costs to environmental impacts – something that will help move the needle for mainstream analysts to incorporate “that type of sustainability” into financial valuations of companies. We’ve seen few other companies proactively quantify sustainability impacts (Baxter Healthcare and SAP provide interesting examples; see also Timberland’s CSR Stakeholder Call from May 2011 – Reducing Environmental Impact & Improving Bottom Line Benefits), but clearly not a groundswell.
Could the needle be starting to move a little more? Last week Puma announced it would be taking its Environmental P&L to greater scale – the brand’s sustainability accounting work will be extended to other luxury brands owned by PPR, including Gucci, Stella McCartney, and Yves Saint Laurent. Hopefully, this is an indicator of how one brands’ sustainability efforts can influence more than their individual operations and sustainability plans. (And before you ponder too much about the applicability of this point coming from an employee of a recently acquired brand, yes – we at Timberland are thinking about opportunities to scale our experience within a greater family of brands too. See more on that below).
Engaging the financial community
It’s not just corporations that need to push for greater inclusion of social and environmental issues in financial accounting. I believe the time has come for the financial community to explore the value of “non-financial performance” in meaningful ways. There are many players working on such efforts. For example, Bloomberg now puts out ESG (environmental, social, and governance) data on its terminals, accessed by 300,000 customers – including Wall Street and other analysts. Last year, the SEC issued interpretive guidance for climate risk to be disclosed in financial filings. And a new reporting framework is being developed by the International Integrated Reporting Committee to bridge the gap between purely financial vs. purely sustainability reporting efforts. All of these efforts aim to put traditional ESG information in front of mainstream analysts. The argument is that if we can translate such issues into financial models, the “dual meaning” of sustainability may actually help drive investment decisions. I agree with this sentiment – but there’s one player missing: the investors themselves. There’s too much talk of “us” (CSR practitioners) translating/ appropriating CSR data for “them.” To truly drive the relevance of both financial and ESG information, we should be inviting analysts and investors to weigh in on sustainability accounting practices, standards development, and how to review issues like supply chain vulnerability (in the form of climate adaptation or labor unrest, e.g.) as components of a corporation’s short term and long term business viability.
And it’s not just investors and analysts that need a seat at the table. When I think about the opportunity for sustainability to reach mainstream audiences, consumers absolutely have to be a part of the process. In the October 2011 issue of the Harvard Business Review, Patagonia’s Yvon Chouinard and Rick Ridgeway, along with Jib Ellison of Blue Skye, aptly point out that environmental impacts typically remain external to corporations’ accounting practices. While Puma’s environmental P&L provides an opportunity for mainstream investors to incorporate sustainability performance (and hopefully act on such information), it is equally important to inform consumers to make responsible purchasing decisions. Patagonia and Blue Skye argue that product comparability (including work they’ve been leading with the Sustainable Apparel Coalition) will drive consumer choices. We couldn’t agree more – it’s for this reason that Timberland initially created the Green Index® environmental rating– a product specific label that quantifies environmental impacts. However, we very quickly realized that comparability can’t exist without multiple brands at the table – and therefore helped create initiatives like the Outdoor Industry Association’s eco-working group and the Sustainable Apparel Coalition. Like Chouinard, Ellison and Ridgeway, I believe that only when we have consistent standards upon which companies compete and are measured against will we be able to effectively communicate relative impacts to consumers.
Here at Timberland, we’ve long advocated not just for businesses to be responsible, but also to communicate openly and honestly about their responsibility efforts. Whether it’s being transparent about products’ environmental impacts or consistently communicating the larger corporate impacts associated with our overall operations, it’s critical that we make social and environmental information more accessible. In fact, that’s why we launched our new Responsibility site earlier this year. The site is linked from set of improved and globally consistent digital assets (check out the new www.timberland.com from wherever you are reading this around the world!), and aims to better integrate with Timberland’s consumer-facing messaging. It leads with Featured Stories in our four pillar areas – written in a news editorial style rather than wonky CSR-speak – about topics such as Timberland’s sustainable store design, work with tanneries to reduce their environmental impacts, efforts to empower factory workers, and community greening. We’ve worked hard to evaluate the relevance and reach of our past CSR reports – and I have come to the conclusion that it’s critical to “translate” for consumer audiences (much like necessary translations for investor audiences) as we aim to inform, inspire and engage.
Of course, Timberland values and continues to support standardized sustainability reporting – and on our new Responsibility site, issue experts, NGOs, peer companies, and other CSR practitioners can still find detailed data sets about our social and environmental performance. The time has come, however, to stop segmenting communication to these audiences alone, and instead think about how to leverage sustainability performance information for greater understanding. For example, the detailed data sets found on http://responsibility.timberland.com lend credibility for the stories you find when you enter the site, and also provides a platform upon which CSR information can inform future marketing campaigns.
A key example of how traditional sustainability information is percolating into mainstream consumer communication is Good Guide, which provides direct information about brands’ corporate responsibility practices with the scan of a bar code – condensing detailed data sets to consumer-facing information that does not overwhelm, but instead empowers brand and product comparability. What’s great is that Good Guide draws upon credible data sets (using publicly-available data sets from companies’ GRI reports) to inform its ratings, which demonstrates how sustainability information that CSR Practitioners have long valued can be shared in a consumer-appropriate manner (which will hopefully inform investor valuation too, if enough consumers begin to vote with their wallets for socially and environmentally responsible companies).
Other companies are beginning to experiment with ways to make ESG information more relevant to mainstream audiences –a practice that needs to increase substantially. One such is example is the first sustainability report from our own sister company: The North Face. What I like most about The North Face’s recent report is the presentation of information, including videos and athlete features juxtaposed with environmental impact information. This is something that differentiates the company – the messaging is true to the brand, but also consistent with the way The North Face markets its products to consumers – hopefully resulting in consumers gaining increased awareness of the company’s “sustainability expedition.”
I’m encouraged when I see reports like this first effort from The North Face’s because the report focuses on both 1) publishing hard data and forward-looking goals (which is critical for stakeholders to see how a company is being accountable and also track its improvement over time); and 2) ensuring that this information is not created and viewed in a CSR vacuum. The more CSR practitioners can collaborate and integrate with other parts of the business, the more relevant sustainability becomes for corporate-wide risk management, value creation, and consumer relevance. In this case, I’m looking forward to collaborating further with The North Face, as we both work to inform and help shape VFC’s enterprise-level sustainability strategy and communications.
What’s Needed to Drive Change
In order for sustainability to reach mainstream relevance, it needs to reach mainstream audiences. Transparency and disclosure are important for companies’ accountability statements to be credible (in whatever form, and targeted to whatever audience). However, what’s needed to drive change and increased use of such information is both a “push” and “pull” strategy – companies need to be willing to consider translating CSR information for mainstream investors and analysts to appropriately incorporate it into their analyses. And companies practicing sustainability disclosure also need to push standards bodies, legislators, and investors to have an active seat at the table. The pull has to come not only from companies and investors, but also from consumers in order for responsible companies to be rewarded for their investments. Sustainability can absolutely be an important contributor to successful business strategy – we just have to ensure its value is better understood.