Although the deep-green companies described in the previous chapter have been quite successful, not a single one has captured a significant share of world markets.1 A substantial gulf lies between these deep-green companies and the larger mainstream ones that dominate retailers’ shelves. Dr. Bronner's sources its sustainable palm oil from its sister company, Serendipalm, which produces a mere 350 tons of palm oil per year.2 By comparison, as the largest palm oil buyer in the world, Unilever purchases 1.5 million tons of palm oil and derivatives annually.3 It would take Serendipalm almost 12 years of day-in day-out production to produce just a single day's supply for Unilever.
This massive gap in scale creates a corresponding gap in the effects of their efforts on palm oil sustainability, which is primarily concerned with mitigating the clear-cutting and burning of forests in Southeast Asia. No matter how much the diminutive Dr. Bronner's reduces its own environmental impact, the improvements will have little impact on the global palm oil market. In contrast, even a small, incremental 1 percent improvement in palm oil sustainability by giant Unilever may have more than 40 times the effect of Dr. Bronner's largest efforts. (Although even Unilever only purchases less than 3 percent of the global palm oil production.4)
Unilever's goal of sourcing all its palm oil from sustainable plantations is significantly more difficult to achieve than it is for Dr. Bronner's. In fact, the Rainforest Alliance lists limited supply as the first barrier to increased purchasing of certified sustainable palm oil.5 This is an obstacle to sustainability for large companies and is a barrier to growth for smaller ones.
As part of its efforts to find more sustainable sources of packaging (see chapter 8), Dell approached Unisource Global Solutions, a small company that had been developing bamboo-cushioning technology. For shipments from China, where bamboo can be locally sourced, the material is more sustainable than cardboard because of bamboo's high yield and fast growth rate.6 Dell developed the bamboo supply chain carefully, gaining Forest Stewardship Council certification in China. Oliver Campbell, director of procurement packaging, said, “I did not want to be the guy on 60 Minutes taking bamboo out of the mouths of baby pandas.”7 By 2011, Dell was using bamboo in the packaging of 70 percent of its notebook computers,8 and Unisource had more than tripled its sales.
Dell, however, was not the only company switching to bamboo as a more sustainable packaging material. As global demand for bamboo rose, prices rose to levels that Dell could not justify. “[We were a] victim of our own success I think. By popularizing bamboo, others really started to take a look at it,” said Campbell.9 In theory, surging prices for a material, such as bamboo, would eventually spur growth in supply and a reversion of prices back to the marginal cost of production. However, as the saying goes “in theory, theory and practice are the same. In practice, they are not.”10 In practice, the total global capacity for producing a material may be limited by natural resource constraints or land use regulations, such as anti-deforestation policies.
In 2015, Dell transitioned much of its laptop product packaging from bamboo cushions to cushions made from sustainably sourced paper and wheat straw. According to Dell, wheat straw became a less-expensive solution with comparable sustainability benefits.11
Using only organic milk is one of Stonyfield Farm's environmental commitments12 (see chapter 6). Organic milk requires livestock raised according to organic farming methods in which the cows are allowed to graze on pesticide-free pastures, are fed only organic fodder, and are not treated with growth hormones. As demand for Stonyfield's organic yogurt grew, the company's demand for organic milk outstripped the local supply, and the company started sourcing organic milk from more distant states. When demand increased further, Stonyfield and other organic milk buyers faced mounting constraints. Organic milk production was not keeping pace with demand, owing to costs and delays inherent in the multi-year process of switching from conventional to organic production methods.
To switch to certified organic production, a dairy farm had to stop using pesticides for two to three years on pasture land, feed cows higher-priced organic feed for at least one year, and change its veterinary practices.13 During this long transition time, farmers would likely face higher costs and lower yields but would not get a boost in the price of their milk until the transition was complete. This inability to source enough organic milk forced Stonyfield to convert two of its product lines from organic to conventional milk.14
In 2006, Stonyfield considered using powdered organic milk shipped from New Zealand to supplement its domestic supply. The company already used small amounts of powdered organic milk to offset inconsistencies in its incoming fluid milk, but the suggestion that the company might buy powdered milk from the other side of the globe upset some of Stonyfield's core consumers. In part, this discomfort came from CEO Gary Hirshberg's comment that powdered milk shipped from family farms in New Zealand would have a lower carbon footprint than chilled milk shipped from Wisconsin.15 Some consumers feared that Stonyfield planned to make yogurt entirely from powdered milk, which was never part of the plan. The controversy began shortly after Danone increased its stake in the company to 80 percent, making Stonyfield more vulnerable to perceived sustainability issues. “We became the big bad guys! We knew that would happen once we did the Danone deal,” said Nancy Hirshberg, former vice president of strategic initiatives.16
To protect the brand and “get back to its roots,” Gary Hirshberg abandoned the New Zealand powdered milk idea.17,18 Instead, Stonyfield Farm and Organic Valley (an organic dairy farm cooperative that is Stonyfield's main supplier of organic milk) invested in farmer education, recruitment, and outreach to add hundreds of new organic dairy farmers in the US to its supply chain.19 As more organic milk became available, the company converted its entire line back.
As of 2015, the kinds of capacity problems that Stonyfield faced continued to plague many organic agricultural commodities such as eggs, corn, beans, soy, and chickens. “You can have great brands and great products, but if you don't have supply of [agricultural] products, you're going to be in trouble,” said Irwin Simon, CEO of publicly traded Hain Celestial Group Inc., a $2 billion maker of organic and natural brands. The shortages have forced natural foods companies to hire full-time recruiters, offer technical training, finance farmers’ conversion costs, offer up to five-year purchasing commitments, or start their own organic farming and livestock operations. “Supply growth isn't something that happens overnight,” said Chuck Eggert, founder and CEO of Oregon-based Pacific Foods.20
Other certified ingredient supply chains have had similar growing pains. At one time, there wasn't enough fair trade sugar in the world for Green & Black's to increase production and keep fair trade certification across its entire line, said Dominic Lowe, the managing director for the company. The company also could not add a fair trade cherry chocolate bar because fair trade cherries simply did not exist.21 Lowe said in 2009 that he was in talks with Fairtrade International to find ways to certify more ingredients. In 2010, as the fair trade movement matured, Green & Black's announced that it would convert all of its chocolate sold in Australia to fair trade by the end of 2011,22 despite the sourcing challenges.
Both Stonyfield and Green & Black's faced business growth pressures from their respective parent companies. In the purchase and sales agreement of Stonyfield, Danone committed to keep Gary Hirshberg as CEO only as long as Stonyfield meets double digit growth targets.23 And William Kendall, CEO of Green & Black's, said, “When Cadbury bought the business, it was growing at ‘x’ and Cadbury wanted that to be ‘3x.’ They pushed it into America and went in so hard that the brand pretty much died out there.”24
In April of 2013, members of this book's research team toured Dr. Bronner's world headquarters in Vista, California, which is colocated with one of its two production facilities. The tour lasted less than 30 minutes. In 2011, the same team visited a new Unilever distribution center in Cali, Colombia. Touring just this single cross-docking facility took a full hour, and that facility represented one portion of a single branch of Unilever's operations in only one country out of the more than 190 that it serves.25 Unilever is literally more than a thousand times larger than Dr. Bronner's—169,000 multinational employees spread across the globe in 252 locations26 versus 150 eco-minded Californians.
The enormous contrast between Dr. Bronner's and Unilever's size, geographic spread, and diversity creates a much greater challenge for Unilever when realigning its far-flung workforce to its strategic push for sustainable growth. “By any reckoning, this is one of the most ambitious ‘change management’ programs going on in any big company today,” said Jonathon Porritt, a member of Unilever's external advisory board and founder of Forum for the Future. Commenting on Unilever's second annual sustainability report, he said, “As this report shows, progress is good, and some individual projects are hugely inspiring. But there is still a long way to go before the sustainable living plan is lived and breathed by every single part of the business.”
The challenge is not unique to large mainstream firms; it also happens in small green firms as they grow. The story of Stonyfield Farm's challenge with maintaining its eco-culture as it grew to a mere 500 employees (see chapter 10) illustrates the difficulties of trying stay green during a period of fast growth. The examples of the multiyear paths to sustainability, including goals on 5- and 10-year horizons, which were mentioned at the start of chapter 10, show that change inevitably takes time in large organizations.
This challenge of inertia at scale also extends to consumers. Some 62 percent of Unilever's carbon footprint arises from consumer use of its products.27 Even if Unilever could make itself and its supply chain totally carbon neutral, it would still fail to reach the company's goal of halving its environmental footprint. Convincing Unilever's two billion consumers28 to use, for example, dry shampoos, cold-water cleansers, and more concentrated products is bound to take effort and time.
Green products involve, in many cases, higher ingredient costs than those of mainstream products. Furthermore, the restrictive ingredient lists and design criteria that are the hallmark of such products may make green products inferior to mainstream products on core performance dimensions (e.g., less effective cleansers or underpowered fuel-sipping vehicles). In turn, the higher costs and lower performance of some products attract only a small fraction of the customer base, leading to lower economies of scale in procurement, manufacturing, and distribution. Even if the green product succeeds, it may cannibalize the company's higher-profit mainstream offerings.
Given such downsides, companies serving mainstream consumers with successful mainstream products face what seems like an obvious investment decision. They'd rather put money and time into known, profitable, high-volume products that serve populous customer segments than into risky, less-profitable, low-volume products that may serve current noncustomers. Given that choice, these companies may choose to leave the green segment of the market to small niche competitors.
The existence of green companies that are willing to take these risks and create niche green products implies that mainstream companies may face what Harvard's Clayton Christensen termed The Innovator’s Dilemma.29 Christensen shows that large companies that ignore small, upcoming competitors—who may enter the market with inferior products, serving different market segments—are making a rational business decision in ceding those markets to the upstarts. However, they may be later threatened by those competitors as the upstarts’ products improve and achieve more widespread adoption.
Christensen gives many examples, including the rise of the steel minimills and the success of Japanese carmakers, caused by large incumbent companies’ natural preference for investment in seemingly successful existing products over risky niche products. Sustainable products could potentially follow Christensen's pattern. While the current market for sustainable products may be small, and some such products may be inferior and costly, this can change quickly due to a technological breakthrough (making green products better and cheaper), a change in consumer sentiment, a regulatory edict, or a court decision.
In trying to avoid the innovator's dilemma, several large companies have developed or acquired new products to serve the green segment of the market. To avoid internal rivalries with existing product lines, companies often maintain the green product as an independent business unit, regardless of whether it was internally developed or acquired. Examples of this include Clorox's acquisition of Burt's Bees, Danone's acquisition of Stonyfield, and Unilever's acquisition of Ben & Jerry's.
These strategic moves can be seen as experimentation and learning that helps nurture environmental-centric innovations, even if these products are not initially as profitable as traditional offerings. A year after acquiring Burt's Bees, Clorox launched Green Works (see the section “A Big Gorilla Dips a Toe”). Similarly, Danone launched its “Nature Commitment” in 2008, a program modeled after Stonyfield's business principles, including using Stonyfield's carbon metrics.30 As these innovations develop, they establish connections with networks of like-minded environmentally driven suppliers, customers, and other stakeholders. These stakeholders, in turn, may infuse further ideas into the green product lines and the teams working on them, creating a virtuous innovation cycle that the original company can use.
Over time, research into and experimentation with bio-based materials and manufacturing methods can yield green products that can be sold on their merit, even though they may be more expensive and appeal to a narrow segment of the market. In May 2016, Procter & Gamble launched Tide Purclean laundry detergent and marketed it as the first bio-based liquid laundry detergent with the same cleaning power as regular Tide.31 It was almost twice as expensive as regular Tide: a 50 oz. bottle of Tide, good for 32 loads, cost $7.47 on Jet.com, whereas a 50 oz. bottle of Tide Purclean, also good for 32 loads, cost $13.99. (By March 2017, the online price difference had shrunk to 40 percent—$10.99 vs. $7.92—either as a result of P&G's cost-learning curve or its attempts to “move” a product that was not selling well.) Such investments and experiments provide a real option for the company in case changes in either demand or regulations induce an increase in sales of sustainable products.
The stories of Dell and Stonyfield show that scale is not always easy if the supply chain does not have the necessary capacity. Those stories also hint at the kinds of outreach, supplier education, and long-term contracting that companies can take on in order to grow their green business lines.
Just as Unilever has sought to develop sustainable supplies of key commodities such as palm oil and tea (see chapter 5), it has also sought to acquire sustainable soybean oil in many of its manufacturing regions. Unilever buys 1 percent of all the soy in the world, mostly from the United States, Brazil, and Argentina.32 In South America, the Round Table on Sustainable Soy certifies local farming practices to avoid deforestation, protect the lands of indigenous peoples, and prevent child labor. However, in the United States, these are not salient sustainability issues, and no similar certification existed when Unilever first began its push for sustainable growth.33 The company had to create one.
Because Unilever did not buy soybeans directly, it enlisted the help of Archer Daniels Midland (ADM), the behemoth commodities trader that, with revenues of $62 billion in 2016, is actually larger than Unilever (€53 billion in 2016 revenues). Together, the two companies built a multimember team to ensure both credibility and technical ability. The team included two trade groups (United Soybean Board and the Iowa Soybean Association), two NGO scientific consultants (World Wildlife Fund and Practical Farmers of Iowa), and an alliance of agricultural companies that had developed software to assess farming practices (Field to Market).34
Rather than impose a code of conduct that farmers could simply reject by selling to other buyers, the group offered a simple but attractive deal: Give us data on your farm and we'll give you analytics on your farm's performance plus pay another 10 cents per bushel. Although the incremental payment was a token 1 percent premium,35 hundreds of farmers signed up. “I like it,” said soy grower Craig Pfantz who signed up in 2012. “What got me into it? To be honest? The 10 cent premium.”36
The service also offers valuable feedback. “The ADM people were extremely helpful,” said Iowa soybean farmer Greg Van Dyke. “They came to our farm and helped map out our profile in about a half-hour,” he said.37 Next, the software calculates a wide range of farm productivity and environmental impact metrics like the efficiency of water use, greenhouse gas emissions, and soil carbon levels.38
Unlike Patagonia's Footprint Chronicles (see chapter 11), Unilever was not forcing farmers to share their proprietary data with competing farmers, at least not directly. “One of the things that appealed to us was the confidentiality of the program,” Van Dyke said. “All of our private information was kept private. And no one is looking over your shoulder.”39 The software aggregates and anonymizes the data. “At the end of the first year, we were able to see our individual numbers and got to compare them to averages of farms in our area,” he said. “Unilever and ADM also shared feedback on how we compared to farms in other countries like Brazil and Argentina,” Van Dyke added.
For the farmers, the program answers questions that are both financially and environmentally relevant. “How can they get better yields? How can they use less fertilizer? How can they just better overall improve their practices?” said Stefani Millie-Grant, senior manager, external affairs and sustainability at Unilever.40 In general, more efficient farmers have more sustainable farms because they already are reducing fuel, fertilizers, pesticides, water, and contaminated run-off. Craig Pfantz, who farms more than 2,000 acres of corn and soybeans, said the knowledge gives him a clearer picture of his farm's “problem spots.”41 Millie-Grant continued, “They can look and see that maybe they've got one field that's using more nitrogen. And they can go back and say, ‘Why is this different from my neighbors?’ It's all about continuous improvement.”42
As of late 2015, the program was still focused on voluntary performance improvement, not enforcement, because farmers can sell to whomever they choose. “We aren't telling them they're not sustainable or kicking them out of the program,” said Clint Piper, the general manager for North American soybean processing at ADM.43 “Right now it's about getting people in the program and sharing knowledge,” he concluded.44 As of 2015, the program had 250 participating farmers covering 288,000 acres,45 which was less than 3 percent of Iowa's nine million acres of soybeans.46 “We recognize that with our US sustainable soybean program, it is still early days,” Unilever's Polman said.47
Large companies often have dozens or hundreds of sites for manufacturing, distribution, and support functions. One manager at each of Unilever's 252 sites spends at least 50 percent of his or her time on environmental issues. To make the most of these independent efforts, the company created an in-house social network to help with the company-wide “copying” process.48 Tony Dunnage, group director of manufacturing sustainability at Unilever, said, “It's copying not sharing,” because just sharing knowledge does little good without action.49
The “copying” process is helping the company achieve its zero-waste goals. “So we know of our 20 ice cream plants, this many are at zero waste,” he said. This information raises the question: “Well, why aren't all of them?” Dunnage added, “We had a lot of people say zero waste isn't possible at their plant due to lack of infrastructure or geography.” Some regions lack a developed recycling industry, but some of these sites experimented with various waste-reduction and waste-to-energy systems. “As we started to share, other sites started to hold up the mirror and say, ‘If they're doing it, why can't we?’” Dunnage said.50 These systems for scaling best practices are relatively common in large multifacility corporations. AB InBev's Voyager Plant Optimization (see chapter 10) is an analogous system for encouraging the adoption of good ideas across multiple plant sites.
As mentioned previously, in 2007, Clorox bought Burt's Bees, a company focusing on organic personal care products.51 Clorox, best known for Clorox Bleach, kept Burt's Bees as a separate business unit in order to learn from its environmental friendly processes and experiences. In 2008, Clorox launched Green Works—the first new product line in two decades for the 95-year-old company. Green Works was a family of 17 green cleaning products designed with natural active ingredients that competes with Clorox's main line of cleaning products.52
Following the Green Works launch, the US Better Business Bureau called upon Clorox to stop advertising Green Works to be just as effective as its chemical-based cousins. Although Clorox disagreed with the criticism, it did change its advertisements.53 Buoyed by a $25 million-a-year advertising push in 2008 and 2009, the Green Works product line sales brought in $58 million a year in 2009. However, its price premium during a recession and doubts about its efficacy caused sales to fall to just $32 million in 2012.54 In a move to bring Green Works to the mainstream customer, and to capture more “green” consumers, Clorox lowered Green Works’ price.55 It also launched a rebranding campaign in 2013 aimed at mainstream consumers56 that claimed, “You don't have to be a trust fund baby to be green,” and “You don't have to be perfect to be green.”57 In line with this campaign, Clorox moved the product out of the natural/organic aisle where it sat in competition with other green cleaners made by the likes of Method and Seventh Generation, to the mainstream household-cleaner section.
Green Works may have been a money-losing proposition for Clorox, given the R&D costs, the marketing campaigns, the specialized supply chain involved, and the meager sales. Despite the ups and downs, Don Knauss, CEO of Clorox insisted that “it was all about growth”58 when Clorox launched its foray into sustainable products. For a company the size of Clorox, with $5.6 billion in annual sales, the Green Works product line can be considered “an experiment.” “What's really exciting is that we're building knowledge and confidence within the rest of the company so that we can do the same things with a lot of our other product lines,” said Jessica Buttimer, director of marketing for Green Works.59
The scale and maturity of a large company can mean that a small company learns, too, about both sustainability and business. In talking about the Danone-Stonyfield deal, Nancy Hirshberg said, “I was stunned when we [Stonyfield] started working with them [Danone] because they have done unbelievable work in sustainability.”60 Giving an example, she added, “Our single biggest climate issue is enteric emissions from the cows and they helped us with that more than you can imagine.” Danone also had the IT budget and staff to justify investment in advanced software for quickly computing LCAs, which is now used by both Danone and Stonyfield (see chapter 3). On top of that, the overlapping delivery footprint of the companies gave Stonyfield reduced transportation costs and impacts.61 Gary Hirshberg, CEO of Stonyfield, said, “The real reason I did this deal was because I wanted to take this to the next level. They are out there feeding obviously a lot more people than we are, and what I'm trying to do is show other companies—the acquirer and acquiree—that everybody can win.”62
Small green companies don't need to be acquired to learn something about business and scaling from larger ones. Just becoming a supplier—such as when Dr. Bronner's began selling to Target—can be enough. “Target's like a whole other ballgame,” said CEO David Bronner. The retailer has high expectations of its suppliers and trains them on its business processes. “We had to go to Target U, and our supply chain people had to really figure it out. But in being able to do that, now, we're able to supply pretty much anybody,” he concluded.63
In addition to concerns over environmental emissions, some NGOs and consumers worry about the treatment of animals used to produce food. This includes the hundreds of millions of chickens confined in battery cages where they lay an estimated 75 billion eggs per year in the United States.64 “The animal movement has battled this inhumane practice for decades on end,” explained Wayne Pacelle, president and CEO of The Humane Society of the United States.65
In April 2016, Walmart pledged to “transition to a 100 percent cage-free egg supply chain” by 2025, but qualified that commitment as being “based on available supply, affordability, and customer demand.”66 The caveats and nine-year phase-in period reflect the challenges of scale. As of April 2016, only 10 percent of US production was cage free,67 yet Walmart controlled 25 percent of the US food market.68 Moreover, the retailer was competing with 57 other companies that are in the process of switching to cage-free eggs, including many major retailers (such as Target, Albertsons, and Costco), food producers (such as Unilever, General Mills, and Mondelēz), and restaurant chains (including McDonald's, Quiznos, Denny's, and Dunkin’ Donuts).69
Switching to “cage free” is not as simple as opening the cages and letting the birds loose. Cage-free chickens require larger buildings of a different design than the current cage-based methods. Farmers invest millions of dollars in their chicken houses with the expectation that the buildings will last for 15 to 20 years. Replacing traditional chicken houses early would require large write-offs and costly investments that would increase the cost of egg production. Kathleen McLaughlin, chief sustainability officer at Walmart stated, “Our customers and associates count on Walmart and Sam's Club to deliver on affordability and quality, while at the same time offering transparency into how their food is grown and raised.”70 Unless egg buyers bid up the price of cage-free eggs, the transition will take decades as farmers slowly replace end-of-life battery cage buildings with cage-free designs over time.
A similar issue affects the rate of reduction of emissions from transportation. In the absence of strong external incentives (e.g., see the Port of LA story in chapter 6), the owners of older trucks and cars are unlikely to replace their vehicles with less-polluting models until the old vehicle reaches its natural end of life. Reducing environmental problems linked to long-lived assets takes time and money.
When Walmart installed 105 megawatts of solar panels on the roofs of 327 stores and distribution centers, the company became the single biggest solar power generator in the United States.71 To remain true to its commitment to low costs, the retailer contracted with installers—usually SolarCity Corporation—who put up the capital and then signed long-term power purchase agreements with Walmart. The long-term agreements gave Walmart below-market electricity rates and made it easier for the installer to secure low-cost financing for the project. Thus, Walmart off-loaded both the capital investment and the project's risk onto its suppliers. Naturally, those suppliers minimized their exposure by taking advantage of the federal government's generous subsidies for investments in alternative energy.72
The environmental initiatives of large companies, such as Walmart and Unilever, can have noticeable effects for three main reasons. The first is the scale effect, in which even modest improvements in their practices can have relatively large total impacts. Unilever buys 7 percent of the world's tomatoes and 12 percent of the world's commercial black tea, which implies that the company's efforts to convert these crops to drip irrigation could have a noticeable effect on total water use in the plantations.73 Second, and more important, large companies attract a base of suppliers who are eager to cater to large companies’ changing preferences. Walmart's insistence on concentrated laundry detergent (see chapter 8) broke the impasse by which no single detergent maker could successfully introduce this eco-efficiency initiative on its own. “When Walmart, Unilever, and Procter & Gamble decided to introduce a 2X, they changed the industry,” said Reed Doyle, former director of CSR at Seventh Generation. Third, commercial moves by large companies are likely to prompt corresponding efforts by competing companies.
EcoVadis, which scores supplier sustainability for large corporate procurement organizations such as Nestlé, Heineken, and Verizon, often sees this in action. “Purchasing managers and purchasing directors have huge leverage in terms of driving improvement,” said Pierre-Francois Thaler, cofounder and co-CEO of EcoVadis.74 In that sense, large players can become de facto regulators of the industries they dominate.
As mentioned in chapter 3, part of Tesco's explanation of the failure of its labeling effort was the lack of participation of other retailers, preventing the project from reaching a critical mass of participants. For that reason, Walmart and Target jointly held the Personal Care Sustainability Summit in 2014 and 2015, bringing together some of the largest consumer product, chemical, and fragrance companies in that industry. The collaborative effort has been trying to assess the safety of personal care product ingredients and encourage the development of new, safer classes of chemicals. Laysha Ward, Target's executive vice president and chief corporate social responsibility officer, said, “We realize that we can leverage our scale, influence and resources to improve the way products come to market and drive transformational change for our business and society.”75
Whether it's a behemoth like Walmart or a smaller green-mission company like Patagonia, no single corporation can ensure the sustainability of a product category, such as clothing. Every member of the entire supply chain—including suppliers, manufacturers, and retailers—influences the product's life cycle of environmental impacts. To address this broader challenge, Patagonia and Walmart recruited Nike, Target, Levi's, Li & Fung, and dozens of other apparel industry companies and stakeholders in 2011 to launch the Sustainable Apparel Coalition (SAC).76 The coalition was formed with a vision to create “an apparel and footwear industry that produces no unnecessary environmental harm and has a positive impact on the people and communities associated with its activities.”77 By 2014, SAC included 44 suppliers, 30 apparel manufacturers, 16 retailers, 22 industry affiliates, and 20 nonprofit organizations, governments, and universities.78 In total, SAC members accounted for 40 percent of global clothing and footwear sales.79
As part of its mission, the group created the Higg Index80 by combining the Eco Index of the Outdoor Industry Association with Nike's Environmental Design Tool. “We've produced the Higg Index 1.0, essentially a self-assessment tool that companies can use for products to get baseline social and environmental information,” explained Patagonia's vice president Vincent Stanley.81 Launched in 2012, the index enables apparel companies to evaluate material types, products, processes, and facilities using a standard methodology across the supply chain.82 “I was in China and Vietnam a few months ago and saw factories just starting to implement it,” said Stanley in mid-2013.83
In late 2013, the SAC released the Higg Index 2.0, which is web based and gives the apparel and footwear industry measurement and benchmarking tools to drive supply chain improvement.84 The online platform “allows companies to see where they are relative to their peers as a whole, and what we really hope is that this inspires a race to the top,” said Jason Kibbey, SAC executive director, of the new platform. “It's a pretty strong incentive to improve, because no one wants to be at the bottom or the back of the pack.”
“The next step is to really develop the standards so that a designer can look at it and decide if a certain dye or fabric is less environmentally harmful than another … to consider factors other than simply cost,” Stanley said.85 In the meantime, companies such as Columbia Sportswear, KEEN, Nester Hosiery, Icebreaker, and Korkers are using the index to make improvements in sourcing and manufacturing.86
In the long term, the index's ratings are also meant for public consumption, but, as of 2016, a public version of the index was still under development.87 When finished, Patagonia plans to reintroduce environmental impact data to its Footprint Chronicles (see chapter 11). “We'll wait until the index has the metrics pieces ready before we put that back up,” said Patagonia's Jill Dumain.88 Ultimately, Stanley's vision for the SAC is for standardized tags on clothing to show the details of raw materials, labor standards, dyes, and finishes used to produce each item.89
“In our meetings you'll see the members are unbelievably collaborative and open about sharing their tools with the rest of the industry,” Kibbey said. “Sometimes they're competitors, but I think everybody feels that with sustainability there's much bigger business gain to have from reducing risk overall in the supply chain, improving efficiencies, and developing innovation on a larger scale than from developing tools to be used only within the walls of your company. What you see from our members is a belief that company-based solutions alone are no longer capable of solving the sustainable challenges of our time nor are they cost effective, or efficient or just the right way to go anymore,” Kibbey concluded.90 In other cases, collaborations can even span multiple industries.
What do cars, beverages, shoes, detergents, and ketchup have in common? They all use polyethylene terephthalate (PET or PETE) plastics in the product or its packaging. Global production of PET, a type of polyester, exceeds 48 billion pounds—more than 6.5 pounds (about 3 kilograms) per person on Earth each year—and is used in making bottles, woven fabrics, carpets, buckets, and various kinds of molded plastic parts. Even Patagonia uses PET in its Capilene garments. Any plastic product marked with a recycling code of “1” (see chapter 7) is PET.
To increase the volume of renewable PET supplies, The Coca-Cola Company, Ford Motor Company, H. J. Heinz Company, Nike Inc., and Procter & Gamble Co. joined together in 2012 to form the Plant PET Technology Collaborative. The group carries out research and development on PET made entirely from plant-sourced materials.91 Although Coca-Cola already has its PlantBottle Technology, the Collaborative hopes to increase the percentage of plant-derived feedstocks from PlantBottle's 30 percent to 100 percent.
In 2013, the effort expanded in scope to encompass all bioplastics, and it increased in size with the addition of Danone, Unilever, and the World Wildlife Fund (WWF), leading to the formation of the Bioplastic Feedstock Alliance.92 A key element of the BFA's goals is to ensure that bioplastics production does not displace food production. To this end, Alliance members Heinz and Ford are testing the use of inedible tomato fibers left over from the more than two million tons of tomatoes used in Heinz ketchup. These fibers could be formed into wiring brackets or coin holders in Ford cars.93 “Ensuring that our crops are used responsibly to create bioplastics is a critical conservation goal, especially as the global population is expected to grow rapidly through 2050,” said Erin Simon of WWF.94
The cosmetics industry has long been criticized for its practices, including the use of toxic chemicals and testing products on animals.95 In contrast, Natura Cosméticos S.A. built its core mission around its Portuguese tagline of bem estar bem. The motto is a play on words with “bem estar” meaning well-being or good feelings and “estar bem” meaning to do something well or in the proper way.96 The phrase conveys a sense of “well-being done well,” which could be the Portuguese version of the well-known corporate social responsibility phrase “doing well by doing good.” Bem estar bem signals the company's broader belief that its products should connect with consumers on physical, emotional, intellectual, and spiritual levels, and that the company's corporate strategy, principles, and beliefs should align with that eco-conscious concept.97 Along the way, the company has expanded financial and environmental performance through innovation, aligning both its suppliers and its customers with its vision.
Antônio Luiz da Cunha Seabra founded Natura in 1969 with a very specific role in mind for his company and the products it offered. “It can be a way for people to express their emotions, their feelings, and a growing concern about the Earth's preservation and their quest for a harmonious development of human potential,” said Seabra.98 The company developed its Vôvó line of products, for example, in part to strengthen bonds between grandparents and grandchildren. The line included creams that grandparents and their grandchildren could massage into each other's hands and arms, as well as a memory album to encourage “playful dialogue, storytelling, and family closeness.”99
“From the start, we have been intent on building a fundamentally different kind of company,” said Luciana Hashiba, Natura's manager for partnerships and technological innovation, “one that succeeds in the marketplace … by integrating the interests and consideration of our people, our customers, our communities, and the natural environment.”100 Natura also aligns itself with shareholders and the investment community by reporting its environmental performance quarterly, alongside its financial and social performance. The environmental reports are as detailed, commented, and explained—both achievements and failures—as its financial reports. “We want to reinforce the concept of a green economy as a rainforest economy,” said Alessandro Carlucci, the company's CEO.101
Natura, however, is not a small, private company like those discussed in chapter 11. The company employs 7,000 employees and a direct sales network of 1.6 million independent consultants.102 It is a public company traded on the Brazilian stock exchange with 2016 sales of R$7.9 billion (approximately US$2.5 billion, depending on the exchange rate at the time).103 Natura does sustainability at scale.
When Natura's founders started their direct sales cosmetics company in Brazil in 1969, they knew they would never be able to compete with larger, more established cosmetic brands by trying to “find the right molecule in a lab.”104 Instead, they went out into the Brazilian rainforest to research natural ingredients—what Natura calls “biodiversity assets.” For example, the Ekos line (see the section “One Ingredient at a Time”) employs 14 different plant materials sourced from the rainforest.105 Overall, Natura invests 3 percent of its revenue in R&D, a figure comparable to leading innovators such as Apple (also 3 percent),106 and leading cosmetic companies such as L’Oréal (3.4 percent), and Procter & Gamble (2.5 percent).107
Natura embedded LCA into its product design process. In 2013, for example, it launched SOU (“I am”), a new line of personal soaps, shampoos, and beauty aids, combining low environmental impact, low cost, and strong customer influence—asking consumers to use every last drop of the product.108 In 2005, the company transitioned away from petroleum-based ingredients in favor of natural oil harvested from Brazilian palms grown without the use of artificial chemicals. More than 90 percent of the company's dry raw materials come from natural resources harvested in the Amazon jungle.
The company even halted research into promising new ingredients on sustainability grounds. “We've discovered substances with potential use in the industry, but decided to abort the project because the operation was not sustainable,” said Marcos Vaz, director of sustainability at Natura. “We would need a very large amount of plants to obtain the desired quantity of raw material.”109 For Natura, sustainable sourcing is more than just finding the right supplier. In many cases, the company creates new ingredient supply chains from the forest floor up.
In 2000, Natura launched its Ekos cosmetics line, designed to use natural ingredients from the local Amazon rainforest. The Amazon's indigenous tribes have known of many of these ingredients for generations, but those tribes had little or no supply chain infrastructure for selling to mainstream companies and consumers. That did not deter Natura. “Instead of buying our raw materials from major intermediaries, we decided to purchase them directly from extractive communities throughout Brazil,” said Marcos Vaz, director of sustainability.110 Doing so required significant effort.
When Natura considered creating a product that used priprioca, an Amazonian aromatic sedge (a botanical cousin of grass), the company found only one existing supplier. That supplier could produce only about 4 tons per year; Natura needed 40 tons per year. The most financially efficient way to build that capacity would have been to intensify sourcing from that single supplier, spurring larger-scale cultivation of priprioca and driving costs down through economies of scale. However, that would have jeopardized Natura's vision for sustainable sourcing from the Amazon jungle, which included preserving the natural capacity of the forest.
Instead, Natura searched for other Amazonian sites suited to growing and harvesting priprioca, ultimately settling on the outskirts of Campo Limpo, Boa Vista, and Cotijuba. The company helped 49 families in these communities start cultivating priprioca, both by giving them priprioca shoots to plant and by teaching them how to grow the plants in beds using natural fertilizers.111 Finally, the company also identified a processor to extract the aromatic oil from the priprioca roots and a secondary processor to further refine the oil. Over the years, Natura has built similar supply chains for more than a dozen different natural ingredients, each of which began with sustainable cultivation and harvesting by local communities living in the rainforest.
As the company grew, it developed its own Active Ingredient Certification Program, which begins early in the procurement process. The program includes a survey of local conditions, creating a management plan, assessing environmental impacts, implementing the plan, and then continuously monitoring certified suppliers.112 Many Brazilian farmers and ranchers had traditionally slashed and burned the rainforest to subdue the land; Natura banned that practice among its suppliers. To certify the sustainability of its ingredients, Natura used widely recognized certification protocols from the Biodynamic Institute (IBD), the Forest Stewardship Council (FSC), and the Sustainable Agriculture Network (SAN).113
Natura's insistence on sustainable sourcing from jungle communities did raise input costs for the Ekos line, but Natura has also been able to charge consumers a premium.114 The success of the line proved what former director and shareholder Guilherme Leal said: “Our decisions are based on business strategies, and this adds value to products.”115
Natura's self-appointed role in creating new suppliers and supply chains for its natural ingredients puts it in a potentially awkward position of setting farmers’ and processors’ fair pricing for the cultivation, collection, and processing of these ingredients. To counter this, the company created a farmers association that can negotiate on behalf of individual farmers and deal with Natura on pricing, quantities, and other issues.116 These associations increase the communities’ access to other commercial opportunities. Furthermore, the company aligns all its supply chain partners through an “open value chain concept.”117 During product development and contract negotiations between deep-tier ingredient growers and intermediate-tier ingredient processors, Natura monitors discussions between the parties and ensures that each one knows every other party's costs. Natura aims for supply chain partners to agree upon fair profit margins for each participant along the supply chain—usually between 15 and 30 percent.118 “One of the basic concepts of Ekos is offering economic gains for all the parties involved,” said Ricardo Martello, the company's biodiversity raw materials procurement negotiator.119,120
As part of its social ethos, Natura works to insulate these Amazonian communities from the natural volatility in the market demand for Natura's products. Natura's direct-sales distribution model is a “very dynamic market,” said Rodrigo Brea, procurement director for Natura. Such dynamism forestalls the 18-month projections and stable procurement volumes often needed for agriculture. “You have really small 30-family communities that are heavily dependent on what we buy from them,” said Brea. “Part of our job is to make sure that all this craziness doesn't affect the rainforest communities, because they really can't react to the uncertainty.”
To insulate rainforest communities from the “bullwhip effect” inherent in most supply chains,121 the company commits to minimum purchase quantities independent of its final sales. It also realizes that when sales surge, the Amazonian communities cannot quickly scale up their output without disrupting the environment and their lifestyle. In those instances, the company promotes other products that use other ingredients, relying on its direct sales force to shape demand.122
In December 2014, Natura became both the largest firm and the first public firm to become B Corp certified.123 “Getting a public company to become a B Corporation had been a Holy Grail—and Natura's decision is hugely important. It's the beginning of a new relationship between shareholders and companies that, from my point of view, is both essential and inevitable,” wrote Jeffrey Hollender, the founder and former CEO of Seventh Generation, in an email.124 According to B Corp cofounder Jay Coen Gilbert, “Natura has not received any pushback [from its board]. When leadership engaged important shareholders early in the process, they affirmed that this was simply business as usual for Natura.”125 As of 2015, Brazil itself did not have a specific corporate structure analogous to a Benefit Corporation, although Brazilian law does assert that corporations have a social function that involves balancing between private and public interests. Sistema B, the Latin American counterpart of B Lab, had already certified 40 Brazilian firms by 2015.126
The company's distribution model is well-suited to motivate mainstream consumers to care about the environment and buy Natura's products, despite the price premium. Inspired by the “Avon lady” model, Natura's 1.6 million “consultants” sell directly to consumers.127 These consultants are often Natura's first consumers, driving sales through personal relationships and spreading Natura's social and environmental values.128 They connect the customers to the “story of the product,” something that Patagonia is doing digitally with the Footprint Chronicles. With Natura, however, the connection is personal. “There is a real pride in representing Natura's ethical standards, our high-quality products, and our support of broader social causes,” said Luciana Hashiba of Natura.129 This personal sales connection allows Natura to communicate the complex sustainability elements of its products and supply chain to consumers, avoiding many of the pitfalls of conveying credence attributes (see chapter 9).
Even though the company's brands command a premium, its vision of offering the “right price” extends to consumers. When Argentina suffered a currency devaluation in 2001, many cosmetic companies increased prices to protect profit margins. Natura did not. “We looked for ways to reduce costs and put ads in major magazines stating that we would keep our prices steady for the time being and would change them if and when local salaries were adjusted. The idea was to create a kind of social pact involving suppliers, employees, and customers, showing the Argentinean market that we were there for good and we expected profits in the long run,” said Alessandro Carlucci, who was sales director of Argentina at the time.130 In the following three years, Natura's revenues increased sixfold in the country.131
Natura's vision resonated with consumers. When Natura went public in May 2004, its annual sales were close to $500 million.132 By 2009, Natura had achieved a 62 percent household penetration rate and a nearly 100 percent brand recognition rate in Brazil, with its domestic sales surpassing those of Avon and Unilever.133 As of March 2017, Natura's market value was approximately US$9 billion;134 in 2013, it was ranked by Forbes as one of the top 10 most innovative companies in the world.135