Sustainability: Transparent, Desirable, Invisible

Sustainability can be an elusive concept. At the recent Capitalism Next Sustainable Design panel, Ted Howes, Sustainability Lead at Ideo, challenged us to bring 30 sustainability leaders into a room, ask them to define sustainability, and find less than 30 different definitions. But, one story that Mr. Howes told really resonated with me. One of the legendary success stories at Ideo, which I have heard several times before, is the design of a bestselling child’s tooth brush in 1991. Noticing that children put their whole fist around their toothbrushes, Ideo designed the first big, fat toothbrush so that children could better grip on their toothbrush than with a smaller version of the adult one. Their design was the top selling toothbrush for 18 months and has since been imitated by many other toothbrush manufacturers. For the designer of this toothbrush, however, the concept of sustainability hit home on a vacation in Mexico when during a walk on the beach, a big, round plastic child’s toothbrush washed ashore. While it can be a challenge to define sustainability with words, like the designer of Ideo’s toothbrush, we all have moments where we realize the impact we have on the world around us.

Though a common definition of sustainability may elude us, I heard three words echoed frequently by the panelists as they discussed sustainable design: transparent, desirable, and invisible. Though working for different organizations on a variety of types of products, Damien Huang, VP of Design for Patagonia, Bryant Bainbridge, Director of Nike Considered, and Ted Howes, Sustainability Lead at Ideo, echoed many similar concepts in their discussion of sustainability.

Transparent
First, sustainable design requires transparency. Companies should communicate information about product lifecycles and document the tradeoffs made in its design and production to customers. For example, one way Patagonia creates transparency is through its Footprint Chronicles, an area of the site that tracks the environmental footprint of selected products. Patagonia acknowledges that difficult tradeoffs frequently occur and even highlights areas of its value chain where it lacks sustainability.

The sustainability of a product also involves its entire lifecycle. Mr. Howes gave the example of companies choosing one less harmful component and wanting to brand their entire product with a “green” sticker. Select companies are really just beginning to look at their entire value chains starting with the upstream chemistry of their products. Nike has created tools and metrics to analyze the complex upstream footprint of each product from its multitude of suppliers. Closer partnerships with vendors can help to create this transparency. A large company like Nike and smaller organizations like Patagonia both play critical roles in creating these partnerships. Patagonia is on the front-line bringing up the conversation about new ways to be sustainable with vendors. Nike is large enough to drive big changes with their suppliers. In addition, organizations should not neglect considerations about the end of the product life. Patagonia, for example, has launched the Common Threads, to make its products recyclable, allowing consumers to return used products to their stores for recycling.

Invisible
Secondly, at the same time sustainability must be transparent so that stakeholders can see and understand the value chain, sustainability must also be invisible. Sustainable products must be well designed, performing as well or better than their non-sustainable counterparts. Companies should be able to sell product even if customer did not know it was “sustainable.” At Patagonia, designers assume that the customer will not pay a premium for sustainability, and that its other attributes will sell the product. After the session, I compared the price of an organic cotton dress at Patagonia to a comparable cotton dress at J.Crew without organic cotton and found the dresses to be very similarly priced. (The Patagonia Netty dress is $85, and J.Crew's Cabana dress is $78. J.Crew also sells non-organic cotton dresses for as much as $118.)

Ted Howes gave an example of a sustainable product with poor design, which has received criticism from consumers. Walmart’s new milk carton saves significant energy and resources. However, despite saving money on each gallon, consumers are struggling to be able to pour milk from the new containers. To achieve maximum success, sustainable products should function as well as non-sustainable alternatives. Because good sustainable design must be “invisible,” Ideo even sometimes makes changes to improve sustainability of new products without telling its clients.


Desirable
Finally, when companies communicate the value proposition of sustainability products to consumers they should emphasize desirability rather than fear. Companies should avoid scare tactics, and instead appeal to customers with a value proposition based on the products many attributes, of which sustainability is only one. Companies should even communicate a better value proposition than financial ROI by creating new business or product models to simplify the lives of their customers. After the session, I tried to learn more about how Nike is making their sustainable products desirable to consumers. It seems that they have continued their tradition of athlete sponsorship of with their sustainable products. For example, Steve Nash, All-Star guard of the Phoenix Suns, is wearing Nike’s “Trash Talk” shoe. What sports fan wouldn’t desire a product worn by world-class athletes?


Challenges
Companies and consumers should remember that the pursuit sustainability for consumer goods is a complex and evolving process. Sometimes the choices designers must face in pursuit of sustainability are not black and white. For example, Mr. Bainbridge told a story of a soccer ball factory in Pakistan. When U.S. management learned that minors were employed by this factory, a large fence was installed and employees were more closely screened for age requirements. Because the impoverished families of these children still needed them to work, they found jobs in the only other local employer, a manufacturer of heavy metal parts. Children soon began to lose their hands in metal presses. So it seems in our pursuit of sustainability and social responsibility, the choices are not always so clear.

Towards the end of the session, Mr. Howes said something that really struck me. “The word sustainability has had its day. Let’s use a word like impact- equally powerful, less squishy.” I believe the words transparency, invisibility, and desirability are also powerful. Thank you to our excellent panelists for providing UC Berkeley students with powerful words to us in our pursuit of sustainability.

--Lauren

Sustainable Solutions to Poverty

In this entry I have two recent experiences to write about. This weekend I attended the Net Impact Conference in Philadelphia, PA. I had the opportunity to attend a variety of panels on topics ranging from microfinance to “greenwashing.” In addition, last week at Haas the Net Impact club hosted the second in our Capitalism Next Speaker series. The topic of the session was how private enterprise can sustainably fight poverty in emerging economies.

During these two events, I started thinking about sustainability in a new way. We hear a lot about how companies can make their products more sustainable by reducing packaging or using recycled materials. We also frequently hear about how homes and business can become more sustainable by using better insulation, adding more natural light, and using environmentally friendly materials. But we don’t often think about how aside from products and buildings, the structure of the organizations we create must be sustainable for them to truly succeed. Obviously with respect to the core operations of for-profit businesses this is intuitive. If a business consistently spends more money than it takes in, has trouble paying its suppliers, and treats its employees miserably, the business is likely on a fast road to failure. However, many organizations whose mission is to address poverty, whether the philanthropy arm of a large company or an independent non-profit, are recently realizing that creating a sustainable organizational model can drive extremely successful results. It’s the mentality of teaching a man to fish rather than giving him the fish to eat, so that he can feed himself after you row your boat off into the sunset. This week I have seen evidence that more and more organizations are developing innovative, creative, and sustainable models to address social problems.

On Saturday at Net Impact, I attended a session about measuring the business value of social impact led by Jason Saul, the founder of Mission Measurement. Mr. Saul consults with large companies that want to drive better results from their corporate philanthropy and social responsibility programs. The old way companies looked at these efforts was to do less bad (i.e. pollute less) and use their foundation to do good deeds that were generally unrelated to their profit making endeavors. The budget for these traditional corporate foundations could find themselves at the chopping block during challenging business environments. Such philanthropic efforts were not sustainable because at the end of the day they did not add business value. The emerging trend in CSR is to solve social problems by generating business value. Mr. Saul gave the example of Kraft Foods, which began issuing microloans to Latin American entrepreneurs to open small stores. These store owners then have the option of stocking Kraft products. The communities in Latin America win because new jobs are created. The entrepreneur and his family win because they achieve a higher standard of living. Finally, Kraft wins because they have created a new distribution channel in a region where they had not previously sold product. Responsibility programs that drive shareholder value will be more sustainable and less likely to face budget cuts. Why would Kraft cut their microloan program when it increases their revenues by opening a new market?

At Capitalism Next, I learned about how for-profit social ventures are creatively addressing poverty for the 72% of the world’s population with a total family income under $3,000 per year, also called the “bottom of the pyramid.” Katie Schmitz of water health international, a profit based organization that provides clean water for communities lacking access, made an interesting comment during the session. She said that the challenge with communities relying on the generosity of donations to meet basic needs is that funding levels are subject to fluctuations caused on philanthropic trends. As Africa has become the “it” region for philanthropists, developing nations in other regions of the world have seen money for their communities dry up. Profit based organizations that address poverty are more sustainable and can continue to meet the needs of the community when the non-profits shift their funds elsewhere. Families at the BOP are willing to buy clean water, and WHI has found a way to provide that water cheaply and profitably. With access to clean water, families then experience less illness. Since physical labor is the primary source of income for these families, good health increases earning capacity. Families win because they experience less illness and earn more money. WHI wins because it earns a small profit off the water it sells.

My last example strays a bit from the two above but was a trend I found very interesting. At Net Impact I attended a panel on the role for for-profit businesses in conflict regions. I learned that multi-national organizations operating in conflict regions are finding ways to make their business operations in those regions more sustainable. Generally companies building operations in conflict regions don’t intend to make the region more unstable. It is common for multi-nationals support programs to reduce poverty in those communities. However, as NI panelist, Melissa Powell from the UN Global Contract mentioned, “the road to hell is paved with good intentions.” To address this, the UN has developed a resources guide to teach multi-nationals how to improve their daily business operations in these countries. For example, the UN encourages the companies to create sustainable relationships with local communities and governments by partnering with them. In the past, some multi-nationals with good intentions built infrastructure for the community. But without government participation these institutions were susceptible to collapse, especially if the multi-national were to leave the region. It is far more sustainable to partner with the government so that the government will build schools, hospitals, and other infrastructure. Obviously most businesses operating in conflict zones are doing so for self-serving, rather than philanthropic reasons. Multinationals would not be operating in these regions if they did not have a powerful reason to do so, such as needing access to valuable natural resources. But bringing business operations to former conflict zones can be an effective way to grow the economies of those areas and promote stability if multinationals operate in a sustainable way.

I think it is wonderful that organizations are finding new, sustainable ways of addressing poverty. The creativity of the social entrepreneurs driving this change by founding their own organizations or by influencing the actions of existing organizations is truly inspirational to me. While I don’t believe that all poverty initiatives should be self-serving or generate a profit, and I definitely believe there is still an enormous role to be played by non-profit organizations helping our world’s poor, I find the growth of innovative approaches to addressing poverty to be an exciting phenomenon.

A New Generation of Capitalism

Last week I wrote an entry on the blog of the Net Impact Club. Net Impact is a club for students interested in promoting social and environmental responsibility in business organizations. I am helping to plan a speaker series called Capitalism Next, which is exploring how capitalism as a system can evolve toward true sustainability. I would like to share that post with you below.

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On Wednesday, I had the opportunity to hear Hunter Lovins speak to a group of students from Haas and other UC Berkeley schools, including the schools of law, natural resources, and public policy. Lovins was the first speaker in a series of speakers, titled Capitalism Next, exploring how for-profit businesses can become truly sustainable. She proposes that because our world’s natural resources are becoming scarce, a new type of environmentally conscience capitalism is emerging, dubbed natural capitalism. During the industrial revolution, Lovins told us, human capital was in limited supply, and successful companies used machines and plentiful natural resources to create more value with less people. Today, in contrast, human capital is plentiful but our world’s natural resources are becoming scare. Consequently, we are experiencing a new capitalist revolution. Recognizing the value of natural resources, companies are now growing their bottom lines by minimizing their environmental impact. This is the capitalism of the future.

Lovins’ examples of companies “doing well by doing good” provides true hope for our planet. For example, Dow Chemical saved $3 Billion dollars over 3 years through their energy saving and waste reduction programs. Tesco, a leading international grocery retailer, has pledged to cut carbon emissions from all existing and new stores by 50%. Tesco has also launched a program to begin labeling foods sold in their stores with their carbon footprints. Companies are even voluntarily trading carbon on the Chicago Carbon Exchange. Participant companies include Dupont, Motorola, and Ford Motor Company. I was impressed that so many leading companies are taking steps toward environmentally responsible business.

I also came to Lovins’ speech with a unique framework. The same morning I had the privilege of touring Arterra, a new condo development which is positioned to become San Francisco’s first LEED certified residential high rise. For those who don’t know, LEED is a green building rating system that provides a set of standards for environmentally sustainable construction. The developers of Arterra are also proving that environmentally friendly business practices can lead to profitability. In this tough real estate market, Arterra has roughly five times the foot traffic of non-sustainable condo developments and is selling well. Arterra’s developers told the tour group that while green development projects do not sell for more money, the extra expense of sustainable building projects has become minimal. On this $90 Million dollar project, the extra cost of sustainability was only $300,000, approximately 1/3 of 1 percent of the total cost!

However, as exciting as I find the idea of natural capitalism to be, Lovins’ speech left me with many un-answered questions, some of which I hope will be addressed during future Capitalism Next sessions. First, I would like to understand more about the role of government in moving industry toward environmentally conscience business. My background is supply chain consulting. While I had the privilege to work with some companies that were cognizant of their environmental impact and actively addressing it, I saw many that were not. In addition, not every change toward corporate sustainability is going to have a positive ROI. Government has played a significant role in shaping and regulating our current capitalist system. For those organizations that are not voluntarily moving toward natural capitalism or taking sufficient steps in that direction, what role will government play?

In addition, I perceive an educational gap in the ability of our nation and the world to rapidly adopt more sustainable business practices. Classmate Ari Frankel pointed this gap out to me on the Arterra tour. While most real estate development companies recognize that green building is the future of development, and while they know green projects are sound business, many companies currently lack architects, developers, and interior designers with the knowledge and skills needed to bring an environmentally friendly project to fruition. What change in education will be needed to support natural capitalism and on what scale? How will existing educational institutions manage this?

I hope to find many opportunities at Haas to continue exploring the role of business in addressing the world’s social and environmental issues. I am definitely looking forward to future sessions of Capitalism Next.