Big Brands, Big Moves in Sustainability
Sustainability is good business. Here’s how three companies are making it easier for consumers to both do the right thing – and bolster the bottom line.
April 8, 2020
The United Nations set global goals for sustainable development in 2015, “a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.” Among those goals is responsible consumption and production – but achieving it requires deep changes in how we produce and consume goods and resources.
Companies working towards sustainability must rethink their operations across the board. Beyond supply chain or packaging innovation, they must also create products and services that make it easy for a consumer to practice sustainability, as well as marketing the concrete benefits of adopting responsible consumption. These tasks can be particularly challenging for large organizations where business processes are slow to change – but it can be done.
Here are three cases of companies succeeding in sustainability from very different sectors of the economy.
BlackRock (financial services)
Financial incentives are wondrous things when applied to corporate behavior.
A case in point is investment giant BlackRock, which is treating climate change as a structural, long-term phenomenon that constitutes a serious investment risk and will cause a significant reallocation of capital. Its premise is that companies that ignore environmental, social, and governance (ESG) factors in its operations will eventually destroy shareholder value.
In January 2020, BlackRock announced a fundamental shift in its investment strategy, recognizing that “companies solving the world’s biggest challenges can be best positioned to grow.” Hereafter, BlackRock will integrate ESG into all advisory strategies, advocate carbon pricing regimes, and exit investments with high ESG risk. Sustainability and ESG funds have become the foundation of BlackRock portfolios. The firm may vote against management that does not make enough progress in disclosing operations data or climate-related risks, as measured by the Sustainability Accounting Standards Board (SASB) and Task Force on Climate-Related Financial Disclosures (TCFD) guidelines.
BlackRock’s announcement suggested a tipping point in attitudes towards climate change. For example, it caused concerns that it may trigger a divestment of Australian bonds and put at risk Australia’s AAA rating. But several analyses confirm the soundness of BlackRock’s strategy, such as a Bloomberg article pointing out that more than 1,000 funds that focus on ESG investment principles have opened since 2015. “ESG investment funds with longer track records are outperforming their newer rivals in the most tumultuous markets since the 2008 global financial crisis,” the authors conclude. In addition, financial services firm Morningstar reports that in a bear market, sustainable equity funds continue to outperform.
Delta (air travel)
In February 2020, Delta committed $1 billion to become the first carbon neutral airline. That announcement is an extension of Delta’s existing environmental outlook and policies, such as following SASB and TCFD guidelines.
The easiest place for Delta to lighten the load is reducing fuel consumption, starting with replacing aircraft with planes that are 25% more fuel efficient. In 2020, says the company, Delta will turn to more sustainable fuels such as those derived from forest debris, inedible corn products, and waste plastic. Delta pilots use an app to help them find smoother air, which reduces carbon emissions of up to 88,000 metric tons a year. On-board, the airline recycles consumables, got rid of single-use plastic items, and chose wireless in-flight entertainment (wired equipment weighs a pound more per seat).
On the ground, Delta invests in carbon capture and sequestration projects, as well as landscape restoration and community support. Among them is LEAF in Georgia, which engages urban youth in conservation activities.
The airline’s sustainability efforts involve travelers, too, and Delta is not shy about marketing its advances. The Delta Sustainability Program emphasizes Delta’s efforts to minimize the environmental impact of every plane ticket. The “Fly Delta” app’s carbon calculator helps customers offset their trips’ carbon emissions and to invest in sustainability projects.
All this turns out to be good for business. Delta’s sustainability programs exemplify the ESG practices to which BlackRock refers, and may be among the reasons why Warren Buffett recently increased his stake in the company. According to analysts, Delta’s policies preserve its stock value in the long term, because they just anticipate new regulatory standards. And Delta’s already existing plan to replace an additional 25% of its fleet for sustainability reasons may have an unexpected benefit; grounding older aircraft because of the COVID19 outbreak could be less painful for Delta than for its competitors.
Danone (food products)
Food and beverage company Danone’s sustainability vision is to choose opportunities that create long-term value ahead of tactical short-term gains. Danone sells its products in over 120 markets, with brands that include Activia, evian, Horizon Organic, Mizone, Oikos, and Silk. The firm committed to becoming a “B Corp” by 2022. B Corp certifications ensure that a business meets rigorous standards of social and environmental performance, transparency, and accountability.
Danone does not just manage milk, water, and plastic according to circular economy principles; it also shares the value it creates with the ecosystems and communities where it operates. For example, Danone’s water brands are adopting a program, “We Act For Water,” with efforts to halve the amount of first use plastic in evian, Volvic, AQUA, and Bonafont products. Danone is also committed to making these products carbon neutral in Europe by 2025. Beyond ecology, Danone commits to matching every liter of water sold with a liter for people in need, and to enhance watershed and wetlands preservation.
Since 2017, Danone’s vision has been funded largely from an internal corporate program called Protein. As of February 2020, the company says, Protein had saved Danone approximately €400 million by implementing more efficient and sustainable purchasing processes. The company views this as a profit-driver – Danone is predicting mid-single-digit recurring EPS growth in 2020, “reflecting +2 to +4% like-for-like sales growth and recurring operating margin above 15%, as we accelerate investment and factoring in assessment to date of the impact of coronavirus outbreak.”
The common thread
While these companies are in quite different industries, they have a few features in common:
- They look for concrete, measurable, verifiable results.
- Many of the sustainability programs save the company money. Reducing fuel usage minimizes the airline’s fuel costs, for instance.
- They communicate the benefits to consumers in terms beyond sustainability, such as lower utility bills, and get the positive public relations advantage from doing the right thing.
Companies that encourage responsible consumption are “best positioned to grow,” as BlackRock puts it, which is a unique attraction for investors – especially those who think in the long term.