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- Interview: Sander Peels - February 20, 2017
The amazing buzzword ‘sustainability’ has become engrained in our economy since the focus shifted from ‘shareholder value’ to ‘stakeholder value’. Regardless of the company’s nature – whether it’s a coffee bean producer or Shell – every firm has found some way in which it can position itself as a promotor of welfare. But how do we distinguish between sustainability as a marketing tool and sustainability as a radical business transformer? There is a role for every consumer.
In 1994, consultant John Elkington distinguished between People, Planet and Profit – an indication that there is more to business than mere profit maximization. This Triple Bottom Line accounting method has been applied frequently and rather haphazardly: if a company is not able to be truly green – e.g. because its core business is the sales of fossil fuels – then the ‘Planet-p’ is exchanged for a ‘People-p’. This is the multinational claiming they improve local employment in the overseas areas, helping their employers develop themselves, doing something back to society – you name it.
The Triple Bottom Line. Source: http://ecobrooklyn.com/triple-bottom-line-business-model/
Not only are those claims hard to check, they are also difficult to combat. Arguably, a firm always improves total welfare to some extent – especially because of the fact that the ‘Planet-p’ as externality is difficult to internalize, thus factors negative in terms of planet impact remain nobody’s cost with no price tag. That’s great for the firm and its statements: they can always cherry-pick the positive facts supporting their sustainability case. But it’s not the sustainability as Elkington envisioned it.
More optimistically, there is an immense variety of firms promoting an adequate sense of sustainability inspired by this discourse. Those are consumer-centric firms, often selling a concrete product. After all – the more concrete the product, the more concrete the story behind it. Think of the Fairtrade movement including such products as cotton, tea and bananas, with Tony Chocolonely’s as pioneer in the field of sustainable chocolate production. These firms succeed in embodying stakeholder management from the very first start of the process – ‘fair chocolate production’ – up to an involved consumer who is so convinced that he becomes a brand ambassador. That is an example of sustainability done right, with all three Ps fully catered for – including a neat Profit for the firm.
Sustainability at Tony’s Chocolonely. Source: www.pinterest.co.uk/pin/363243526178272919/
The bank as a sustainable firm
Then there’s the world of banks – the traditional profit maximizers pur sang. How do they sell their sustainability case?
Let’s zoom in on ING. They are awarded on a structural basis for their sustainability ambitions with a #5 Sustainable Firm out of 4,000 firms globally in 2017. However, they counter much greater difficulty charming their consumer to become brand ambassadors. They are primarily engaged in the sales of financial services, being abstract and intransparent phenomenons for a majority of the world’s population, rather than a clearly discernible product which you can taste and feel, such as chocolate.
Nevertheless, they are also turning lemons into lemonade. With a substantial dose of PR efforts, marketing mechanisms and transparent explanations towards their consumers, they managed to turn the Dakota Pipeline Access scandal in their advantage. In short, they had partaken in a multi-billion dollar pipeline investment in the US which caused major societal turmoil – they were portrayed as ‘investors in evil’, which is difficult for a bank proclaiming its sustainable ambitions.
Wisely, ING listened to the protesters and informed them extensively on the case and on their motives for participation. Their management anticipated on more negative publicity as a result of the ‘oil stain’ (no pun intended) and fully divested their 120 mln dollars shortly after the protests had gone viral. In the meantime, they had been involved in dialogues with all relevant stakeholders – from protesters to the Indians affected by the pipeline – and made a serious attempt to steer the course of developments by seeking interaction with the US government and other investors involved.
From a banking villain, ING transformed into a pioneer truly seeking a societal solution. The key? A proactive method of gathering input from stakeholders and acting accordingly. The consumers were listened to, they were understood, and their input was acted upon. A golden trinity for customer engagement.
ING’s role in the Dakota Pipeline Access. Source: www.ing.com
Company strategy is social media strategy
The army of social marketeers and digital spokespersons employed by firms these days show one thing: that stakeholder awareness has been embraced by firms – also in the digital realms. Firms learn from their mistakes, and are using social media not only to avert publicity disasters but to co-create value with their brand ambassadors.
In 2010, Nestlé was under fire because their main palm oil supplier, Sinar Mas, took part in rapid deforestation in Malaysia and Indonesia to produce their palm oil for products such as the Kit Kat. Initiated by Greenpeace, a Facebook page was made in which Nestlé was demanded to stop its production. Nestlé made a dangerous underestimation of its impact by choosing to combat. They threatened Facebook protestors they would be banned if they kept on harming the name of Nestlé, and forced the withdrawal of protestors’ videos from YouTube. An expected storm of dismay and boycotts followed – after which Nestlé finally realized they had to do penance and fully admit their wrongdoing. Competitor Unilever, trading in the same area as Nestlé, closely examined the developments. They moved swiftly, disassociating themselves from Sinar Mas and presented themselves as Holy Mary – mea culpa, mea culpa. Unilever was forgiven and forgotten; Nestlé took the bullet.
Voting by feet, then and now
In short, consumers have learned they are able to galvanize an entire community to either promote a firm or have it called to action. Consumer power has become omnipresent and is ever growing, and ignorant or blatantly unsustainable business strategies are being punished severely. In political terms, consumers can call for a referendum anytime they want. And unlike the government-organized referenda, firms will actually listen. Firms depend on stakeholder value and a crack in this value means an immediate crack in the firm.
Firms depend on stakeholder value and a crack in this value means an immediate crack in the firm.
So, what about consumer power prior to our era of interconnectedness and digital empowerment?
Classical economic theory describes the notion of rent-seeking activity which is inherent to a lack of information transparency: if not all information is readily available, party A is able to trade in a more optimal way than party B. A lack of information thus leads to suboptimal outcomes and so-called ‘welfare loss’. This, in turn, relates to company power and the dependency of a consumer on a certain company. The more monopolistic an industry – think of the Dutch Railways – the more market power kept by the firm, and the smaller the options of a consumer to influence the firm’s behaviour.
In this case, there seems to be only option, which is radical of nature: to boycott the specific firm in the hopes of better prices, more market power, etc. The historical example comes from the Irish Land War in the 1880s where a large farmland owner – sr. Boycott – felt the power of democratic capitalism. In times of failing harvests, Boycott didn’t commit to a rent cut demanded by the farmers. They responded strategically, with no violence but large impact, in shifting their full production away from Boycott’s land and reallocating it, leaving Boycott’s lands unharvested in his charge.
Protests by the Irish Land League. Source: www.thoughtco.com/definition-of-boycott-1773364
Although this type of action is exceptional, similar actions are possible and occurring in our 21st century. Think of the great turmoil surrounding H&M when they were accused of exploiting child labour in Myanmar for their cheap clothing, or the international arrows pointed at Apple for structural cases of suicide at their Foxconn production plant in China. Thanks to superfast digital communication, information is almost fully and immediately available to all those in the possession of a smartphone. This prevents for information asymmetries, and reduces a firm’s power. Especially in competitive markets such as FMCG, where firms have to make an effort to distinguish their products from those of their competitors, the results are visible. H&M saw a 33% revenue drop from 2016 following heaps of societal protest, and Apple’s stocks fell by 2.4% one day after freezing their hiring process at the Foxconn plants as a response to the scandal.
Digitizing the Ancient Greek agora
These cases show growing consumer power in our age where people not only have more information access, but are also increasingly willing to pay for sustainable products. Consumer power will be an obstacle for firms in difficult industries (the likes of Shell and Philip Morris) yet are also an opportunity to engage with a consumer segment which was previously unreachable. It is either a sword of Damocles or a chance to be rewarded for true CSR – whether it derives from intrinsic motivation or from clever stakeholder management. In the words of a chief Unilever manager: “Sustainability becomes a marketing tool once your consumers cease to believe your true story. Make sure your story is right – then people will see you as a sustainable firm.”
Make sure your story is right – then people will see you as a sustainable firm.
So how do we act? Should we be making Facebook pages for all business crimes? Read every news article on deforestation and fossil fuel territory to check what companies may be involved? Of course not – this is being done for us.
Where the boycott was effective 150 years ago, we can now participate via our smartphones. The app initiative Buycott selects the relevant sustainability challenges on a daily basis and shapes them into campaigns in which you can participate. With their motto of ‘Voting with your Wallet’, Buycott is engaging millions of people on a global scale. To end child labour, emphasize the preservation of bee colonies, put a brake on Trump-financed products… Buycott has loaded the barcodes of over 20 million products, thus tracing the products back to their producers. They ring an alarm if it matches with unsustainable business actions. As a by-catch, it shows the immense power of the global top 10 FMCG producers and creates awareness: the oligopoly may not be visible, but it is there and it influences consumers directly. Where consumer power increases, the monopolist is losing ground.
The Ilusion of Choice. Source: www.buycott.com
Plan de campagne? Just select your own campaign and have it aligned with what makes you tick, alike the way you pick your political party. It doesn’t even ask for government regulation or civil violence. Our smartphone is the marketplace which we’ve known since the agoras in ancient Greece – only difference is that everybody can participate, and that we have no information asymmetries.
To be able to vote with your wallet and make the world a more sustainable place – this is 21st century capitalism done right.