Business Not As Usual: Corporate Transformation

There is no more strategic issue for a company, or any organisation, than its ultimate purpose. For those who think business exists to make a profit, I suggest they think again. Business makes a profit to exist. Surely it must exist for some higher, nobler purpose than that.

Ray Anderson^[1]

The neoliberal narrative holds that a company exists solely to make money for its owners. If owners use their profits for philanthropy, that’s noble. But it is not the job of the corporate sector, so the story goes, to solve the woes of the world.

It’s an appealingly simple proposition, but it is better called “Cheater Capitalism.” Business as usual has been built on cheap access to the world’s resources, especially fossil energy. Access to these has historically been, and today remains heavily subsidised. The $10 million a minute the world spends in energy subsidies is only the tip of the iceberg of ways that we make resource depletion look cheaper than it really is.

The neoliberal worldview, in which fraud is celebrated as cleverness, has long believed that companies should “externalise” costs as much as possible. Companies spend a lot of money to lobby (or corrupt) regulators to ensure that only weak controls are ever imposed on them, arguing that if industry is unduly shackled, it won’t deliver the good life its customers want. Activists, in contrast, argue that only by punishing business and imposing draconian regulations can we save nature and our families. And so business and activists have remained in a standoff, the earth roasts, and collapse looms.

It’s time to recognise that neither narrative is a useful one, and, increasingly, neither is true. No one better proved this than industrialist Ray Anderson, who boldly stated, “In the future industrialists like me will be in jail.”

The Radical Industrialist

Ray was a South Georgia high school football star. After taking his engineering degree at Georgia Tech, he went into the local business: carpets. Passed over for a promotion he felt he deserved, Ray, always intensely competitive, founded his own company, Interface, and grew it into one of the largest carpet companies in the world.

In 1994, Ray added a European carpet company to his family of brands. The acquired employees asked what Interface’s environmental policy was. Ray responded, “Do we have one? Quick, someone get me a book on the environment.” Joyce LaValle, Ray’s head of Human Resources, handed him a copy of Paul Hawken’s Ecology of Commerce, which, among many other things, described the environmental harm being done by businesses, and repeated David Brower’s observation that “you can’t do business on a dead planet.” It was, the book argued, the responsibility of business to solve the crises facing humanity.

In the hundreds of speeches he thereafter gave each year, Ray described lying awake the night before he was to give the speech lamenting, “There is nothing about our company that is sustainable” He described the moment as a “spear in his chest.”[2]

And, he pledged, “We are going to be the first company of the Next Industrial Revolution.” Ray was a businessman to his core, a fierce defender of capitalism, but in what he described as his “epiphany” he found himself answerable to a new metric that he named “God’s currency:” non-financial costs and benefits that accrue to the planet and its people.

Ray created what he called his Dream Team, some of the best minds in sustainability, to advise him. Together they remade Interface into the poster-child of corporate sustainability.[3] He named the adventure of becoming a regenerative company, the task to which he set Interface, “climbing Mount Sustainability”:

“…to operate our petro-intensive company (for materials and energy) in a way that takes nothing from Earth that is not naturally and rapidly renewable, and does no harm to Earth’s biosphere, e.g., not another fresh drop of oil, no greenhouse gases or other harmful emissions—factories without smoke stacks….”[4]

Ray’s effort to make Interface the most sustainable company on earth was far from easy.[5] Investors thought he’d lost his mind, especially in the Y2K scare, as companies bought computers, not carpets. Ray’s answer? “It’s my job to go round the bend and see what’s out there, what most people can’t see yet.” Because Ray owned 51 percent of the company, he could stay the course.

David Oakey, Interface’s lead designer,[6] reacted to Ray’s challenge to make a carpet that was recyclable and itself made of recycled materials, by saying, “Boss, it can’t be done.”

“It has to be possible, Ray replied, “Nature does it.”

Interface invested in a then largely unknown biologist, Janine Benyus, and the corporate practice of biomimicry[7] was born. Teaming with Oakey, Janine and the Dream Team innovated to close the company’s industrial loops and create an early example of the circular economy.

When Oakey reported on his success at a Dream Team meeting his eyes were big as saucers. “God must be an environmentalist,” he marvelled. “I said it couldn’t be done, but when we did it, it worked better, cost less, had every attribute we wanted and many we hadn’t thought to ask for.”[8]

When Ray and Mike Bertolucci, Interface’s Director of Research, proudly announced that they had figured out how to make carpet from corn, I, a Dream Team member replied, “You realise that you’re now in the business of sustainable agriculture?” Ray laid his head on his desk and moaned, “Is there never an end?”[9]

But then he picked his head up, turned to Mike and said, “No, that’s what it means to be responsible. Let’s figure it out.” Several years later the industrial giant Cargill announced that it was selling a line of non-GMO corn precisely to satisfy Interface’s demand for sustainable feedstocks.[10]

Interface has not yet summited Mount Sustainability, but the company’s achievements are impressive:

• Net GHG emissions down 82 percent in absolute tonnage, 92 percent per pound of product;[11]
• Renewable energy up 84 percent; six of seven manufacturing sites are 100 percent renewable; energy usage down 45 percent per pound of product;[12]
• Waste from facilities reduced 91 percent.[13]

Interface reckons that it is halfway to its Mission Zero goal of zero impact, zero footprint by 2020. And it remains committed to achieving it.[14] Some at Interface are nervous, acutely aware that 2020 is near. Some say it will take a miracle. Jim Hartzfelt, Ray’s right-hand man for years, dismisses such concerns, “People don’t realise that it took five or six miracles to get this far; Interface has always been in the miracle business.”[15]

The Right Thing is Profitable: The Business Case for Sustainability

As impressive as these numbers are, Ray was always clear that unless his commitment to sustainability gave him the means to crush his competition, it would be a valiant effort in vain. He believed that greater sustainability would earn him goodwill and customer loyalty, and it did, but he expected to have to pay for those attributes, in effect, as part of his marketing budget.

It came as almost as big a surprise to him as it was to David Oakey that their sustainability efforts not only made Interface more effective, but dramatically enhanced the company’s bottom line. Ray’s commitment to behave in more sustainable ways enhanced every aspect of shareholder value.[16] It cut costs, and kept his company alive as several competitors went out of business. It created unprecedented employee engagement and customer loyalty. It also drove innovation.

Savings from sustainability paid for all of the costs of the transformation and became an enduring source of profit. In the first four years of Interface’s work on sustainability, sales increased by two-thirds, while profits doubled. Cutting waste 40 percent created $76 million in cost savings. By 2000, annual savings were $185.4 million.[17]

This is best described as an “Integrated Bottom Line:” the recognition that a corporate commitment to sustainability enhances 13 aspects of shareholder value, including better financial performance, higher stock value, faster growing stock value, lower risks, better ability to attract and retain employees, better brand equity, better relations with stakeholders, lower cost of distrust.[18] By the mid-aughts, reports from the big management consulting houses confirmed each aspect of the ways in which companies that lead in energy efficiency, environmental and social responsibility, good governance and other aspects of corporate sustainability outperformed their less-sustainable peers.”[19] 

Ray was the embodiment of the business case for sustainability that began to emerge in the mid-1990s.[20] It formed the basis for the framework now called Natural Capitalism, used by thousands of businesses across the world to achieve greater sustainability and enhance profitability.[21]

The first principle of Natural Capitalism is to buy time by using all resources dramatically more productively. Eliminating waste is just good business sense. It cuts costs and improves productivity. It also forestalls the worst of the crises facing humanity.

The second principle is to redesign how we make and deliver everything. Natural Capitalist companies use the financial savings delivered by their efficiency programs to pay for such more sustainable approaches as biomimicry,[22] Cradle to Cradle design,[23] and the circular economy[24] to profitably transform their businesses.[25]

The third principle of Natural Capitalism is to manage all institutions to be regenerative of human and natural capital. Companies, communities and countries should ensure that they enhance both of these capitals, as well as manufactured and financial capital. A good capitalist will ensure that all forms of capital are enhanced. Anything else is just bad capitalism: liquidating our most important forms of capital to get more money and stuff is self-defeating.

The September 2014 report by CDP made the business case for this approach stronger. It’s “Climate Action and Profitability” study showed that companies that integrate sustainability into their strategies outperform those without such leadership. Companies that manage their carbon emissions and mitigate climate change enjoy 18 percent higher returns on their investment than companies that aren’t, and 67 percent higher than companies that won’t disclose emissions.[26]

Every three years Accenture surveys 1,000 CEOs from more than 100 countries. The 2013 report[27] found that while a strong majority believed that a corporate commitment to sustainability is a path to growth and innovation (78 percent), conferring competitive advantage in their industry (79 percent), only 38 percent felt that they could quantify the business value of such programs to their company. Only 15 percent felt that they had made sufficient progress in the prior three years in making their sustainability commitment a must-have asset for customers. At least 82 percent saw this as crucial to enabling greater sustainability to transform the economy. Analysts concluded that corporate sustainability had plateaued.[28]

By 2016, however, attitudes had shifted. Almost 60 percent of CEO’s surveyed said that they could accurately quantify the business value of their sustainability program to their company. Ninety-seven percent believed that sustainability is important to the future success of their business, and 53 percent felt that business is making sufficient efforts to address global challenges. Transparency was seen as a critical factor, with 79 percent seeing brand, trust and reputation as driving action on sustainability.[29]

Corporate social responsibility has come a long way from the days when most companies were what sustainability analyst, Bob Willard, calls “pre-compliant,” getting away with as much as they could, and only reluctantly obeying the law. Smart companies discovered that implementing efficiency saved money. Some then moved on to integrating sustainability throughout their operations.[30]

The leaders are now finding, as Ray Anderson did, that when you embed sustainability into your company’s core mission it transforms your business. It moves a company from one focused on serving Wall Street analysts by delivering ever increasing quarterly profits to one in which enhanced shareholder value is recognised as an outcome of behaving responsibly to people and to planet. When well managed, a commitment to sustainability creates savings that compound essentially infinitely.

One problem is that after a few years these savings are forgotten, new accounting baselines reset the bar and normal corporate life goes on. But when calculating whether there is a business case for initiating a sustainability program, remember that the years’ worth of costs not incurred, resources no longer needed and harm not caused is probably worth more than the current book value of the company.

The Next Ray Anderson

Ray Anderson tragically died of cancer in 2011.

All who knew Ray have asked themselves many times who will fill his shoes.

Lindsay James, Interface’s Director of Strategic Sustainability, said[31]:

“She (or he) will be the one that completely re-imagines business, its role in our world and its potential. Like Ray, she will know a deeper level of truth that the rest of us are blind to, and she will articulate that truth in a compelling way until we can see it, too. In other words, like Ray, she will question the most basic assumptions that drive our complex systems. She’ll be the one that sounds a little crazy to the rest of us, the one that’s gone ‘round the bend and understood what the future holds, and can map that back to what is needed today.”

Many answered: Paul Polman, the CEO of Unilever.

Hired to take over a successful, if somewhat stagnant company, Paul lost no time shaking things up. Shortly after arriving, he announced that he wouldn’t report quarterly to Wall St.

Shareholders freaked. Stocks fell 10 percent. Paul reacted that he respected those who had sold as human beings, but if they truly believed that he could best create corporate value in their company by managing on a 90-day rotation, he did not want them as his owners (a statement echoed some years later when a climate denying shareholder attacked Tim Cook, CEO of Apple, for pledging to become 100 percent renewably powered.) When Paul was subsequently asked how he found the courage to take on the financial analysts and his shareholders all at once, he answered, “They’d just hired me I didn’t think they’d fire me.”

Nor did they. Unilever’s Sustainable Living Plan guided the company to lower costs, higher profitability and almost universal acclaim as the next sustainable business poster child.[32] As Polman was fond of saying, he ran the world’s largest NGO. Unilever sponsored urban farms in New York,[33] and celebrations of the best young entrepreneurs from developing countries at high-level festivals in London. ^[34]

The company committed to implement the Unilever Sustainable Living Plan,[35]cutting the company’s environmental impact in half while doubling revenues, sourcing all natural feedstocks from sustainable agriculture and improving the lives of a billion people. Unilever acknowledges that it is doing business at a unique time in human history:[36]

“We are living in a world where temperatures are rising, water shortages are more frequent, food supplies are increasingly scarce and the gap between rich and poor increasing. Populations are growing fast, making basic hygiene and sanitation even more of a challenge. At Unilever we can see how people the world over are already affected by these changes. And the changes will pose new challenges for us too, as commodity costs fluctuate, markets become unstable and raw materials harder to source.”

We believe that business must be part of the solution. But to be so, business will have to change; there is not ‘business as usual anymore’. Sustainable, equitable growth is the only acceptable business model. Our vision is to grow our business, whilst reducing our environmental footprint and increasing our positive social impact.

When Ray was alive, critics said, name another sustainability CEO, I’m tired of hearing about Ray Anderson. More recently, Jo Confino began his discussion of corporate leadership by bemoaning:

I would be a very wealthy man if I were given £1 for every time someone mentioned Unilever chief executive Paul Polman. But I may end up in abject poverty if my living were to rely on people naming more than a handful of other sustainability leaders amongst the many thousands of CEOs around the world.

No doubt there are too few such leaders, but their numbers are growing.

Paul and Ray are not alone. Emmanuel Faber, CEO of Dannon, is every bit their equal. Yvon Chouinard, the legendary founder of Patagonia, is another. Long a leader in more sustainable practices, Patagonia has been growing at 25 to 30 percent a year—even through the recession. One of the first major companies to become certified as a B Corp,[37] Patagonia has pledged to minimise its footprint and to implement radical transparency in the impacts it still has. This became the inspiration for the Apparel Coalition’s Higgs Index,[38] that now helps companies across the industry implement sustainability throughout their supply chain.[39] Yvon Chouinard prides himself on doing the right thing, even—especially—when it seems unreasonable. The first company to commit to 100 percent organic cotton, well before the supply was sufficient or the price right, it famously ran a full-page ad in the NY Times telling shoppers, “Don’t buy this jacket!” but to buy fewer things that lasted longer. Yvon observed, however, “If all these companies are doing all these great sustainability things, why is the world still going to hell? It’s the obsession with growth! Companies that have been in business for 500-1000 years focus on three priorities: quality, innovation, and controlled growth …. There’s no difference between a pessimist who says ‘We’re doomed, why bother?’ and an optimist who says ‘We’re fine, why bother?’ Nothing gets done…. If you want to change government, change business, because business runs government. If you want to change business, change consumers. Make consumption uncool!”[40]

This sort of leadership is being embedded in innovative business schools,[41] and is becoming the management philosophy of a whole new generation of business people.[42]

Conclusion

The global economy is based increasingly on selling and buying more things. This has brought the global ecosystem to the edge of collapse. Implementing more sustainable measures is key to creating profitable businesses in a world facing crisis.[43] To help drive this, Paul Polman recently launched Imagine, to help companies implement the UN’s Sustainable Development Goals. Again, there is a business case: Trucost recently showed how, by embedding the SDGs in their operations 13 of the world’s largest companies collectively generated $233 billion in SDG related revenue in 2017, or 87 percent of each firm’s individual revenue that year.[44]

But ultimately, nature is sustainable because it is regenerative. True sustainability is an outcome of a system that is inherently regenerative of human and natural capital. This approach, called “Regenerative Capitalism”[45] by its creator, impact investor John Fullerton, is the next step in the sustainability journey. It will call on business to “reinvent everything.”[46]

This may seem daunting, but the lessons of sustainability argue that doing it will deliver better business practices. Who knows? It may even turn out to be more profitable. And it will enable us to keep doing business on the planet we call home.

This article is an edited excerpt from L. Hunter Lovins’ book ‘A Finer Future’ (New Society Publishers; 2018).

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[1] Annie Leonard, “The Cleanest Line,” Solutions Series, Part 4: Solutions in Business, Patagonia, 7 May 2014, http://www.patagonia.com/blog/2014/05/solutions-series-part-4-solutions-in-business/

[2] Personal communication: Ray Anderson to Hunter Lovins, Maui 8 April 1997; For the speech Ray gave in 1994 see: http://www.raycandersonfoundation.org/assets/pdfs/rayslife/original083194SpearinChest.pdf;

[3] Interface website, Sustainability, The Interface Story, http://www.interfaceglobal.com/sustainability/interface-story.aspx

[4] Ray Anderson, “A Better Way, Try It: The Business Case for Sustainability,” http://www.raycandersonfoundation.org/assets/pdfs/rayslife/08-13-03-A-Better-Way.pdf

[5] Mikhail Davis, “Radical Industrialists: 20 years later, Interface looks back on Ray Anderson’s legacy,” Green Biz, 3 September  2014, https://www.greenbiz.com/blog/2014/09/03/20-years-later-interface-looks-back-ray-andersons-legacy

[6] Interface website, Company, Speakers Bureau, http://www.interfaceglobal.com/Company/Speakers-Bureau/Speakers/David-Oakey.aspx

[7] http://biomimicry.net/

[8] Personal communication Ray Anderson and David Oakey at a Dream Team meeting of which Hunter Lovins was a member, Henderson, Nevada, 1997

[9] Personal communication Ray Anderson and Mike Bertolucci at a Dream Team meeting, Interface Headquarters, Atlanta, 1998

[10] Personal communication, Cargill representative to Hunter Lovins at NBIS conference 27 Sept. 2004, Seattle, Washington

[11] Interface website, Sustainability, http://www.interfaceglobal.com/Sustainability/Environmental-Footprint/Climate.aspx

[12] Interface website, Sustainability, http://www.interfaceglobal.com/Sustainability/Environmental-Footprint/Energy.aspx

[13] Interface website, Sustainability,  http://www.interfaceglobal.com/Sustainability/Environmental-Footprint/Waste.aspx

[14] Interface website, Sustainability, http://www.interfaceglobal.com/Sustainability/Environmental-Footprint.aspx

[15] Mikhail Davis, “Radical Industrialists: 20 years later, Interface looks back on Ray Anderson’s legacy,” Green Biz, 2 September 2014, https://www.greenbiz.com/blogs/enterprise/radical-industrialists

[16] Personal communication Ray Anderson to Hunter Lovins Natural Step Conference, San Francisco, May 2002, for the paper that resulted from this conversation, see: Ray Anderson, A Better Way, Try It: The Business Case for Sustainability, http://www.raycandersonfoundation.org/assets/pdfs/rayslife/08-13-03-A-Better-Way.pdf

[17] Bruce Posner, One CEO’s Trip From Dismissive To Convinced, MIT Sloan Management Review, fall 2009, http://sloanreview.mit.edu/article/one-ceos-trip-from-dismissive-to-convinced/

[18] The term was coined by impact investor Theo Ferguson.  Hunter Lovins, based on her work with the electric utility industry in the 1980s and with Ray Anderson in the 1990s used it as the basis of the Bottom Line 2001 conference held in April 2001 in San Francisco https://natcapsolutions.org/integrated-bottom-line/. It subsequently formed the basis for the IIRC, http://integratedreporting.org/resource/international-ir-framework/ and SASB, https://www.sasb.org/

[19] “Sustainability Pays,” Natural Capitalism Solutions, 2012, http://www.natcapsolutions.org/businesscasereports.pdf

[20] One of the early advocates that there is a business case for more sustainable behavior was Dr. Michael Russo, University of Oregon, https://business.uoregon.edu/faculty/michael-russo; Natural Capitalism: The Next Industrial Revolution, (Hawken, Lovins and Lovins) built on this work, and used the example of Interface to assert that this business case was robust

[21] Natural Captalism Solutions, www.natcapsolutions.org

[22] Janine Benyus, Biomimicry Institute, http://biomimicryinstitute.org/

[23] This concept was first introduced by Walter Stahel, http://www.product-life.org/, although it was later borrowed later by Michael Braungart and Bill McDonough who wrote a book by that title

[24] Shiller, Ben, “A Blueprint For A Circular Economy: Reusing And Refurbishing For Prosperity,” Fast Company, 7 June 2012, http://www.fastcoexist.com/1679241/a-blueprint-for-a-circular-economy-reusing-and-refurbishing-for-prosperity, http://www.thecirculareconomy.org/exec-summary

[25] Interface Flor, http://www.interfaceglobal.com/

[26] Carbon Disclosure Project, https://www.cdp.net/CDPResults/CDP-SP500-leaders-report-2014.pdf

[27] The UN Global Compact – Accenture CEO Study on Sustainability 2013: Architects of a Better World, 2013, https://www.unglobalcompact.org/docs/news_events/8.1/UNGC_Accenture_CEO_Study_2013.pdf

[28] “UN fears business sustainability has plateaued,” Green Growth,  https://www.green-growth.org.uk/article/un-fears-business-sustainability-has-plateaued

[29] UN Global Compact – Accenture Strategy CEO Study, https://acnprod.accenture.com/us-en/insight-un-global-compact-ceo-study

[30] Willard, Bob, “The 5-Stage Sustainability Journey, 27 July 2010, http://sustainabilityadvantage.com/2010/07/27/the-5-stage-sustainability-journey/

[31] Joel Makower, “Two Steps Forward Why aren’t there more Ray Andersons?” GreenBiz, 6 August 2012, https://www.greenbiz.com/blog/2012/08/06/why-aren%E2%80%99t-there-more-ray-andersons

[32] Unilever has consistently been ranked as the world’s most sustainable company, to the point that Green Biz asked who are the sustainability leaders besides Unilever : https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=unilever%20most%20sustainable%20company

[33] “Growing Roots Program Seeks to Improve Fresh Food Access and Education in City Communities,” 16 February 2016,

https://www.unileverusa.com/news/news-and-features/2016/growing-roots-program-seeks-to-improve-fresh-food-access.html

[34] “The Unilever Sustainable Living Young Entrepreneurs Awards,”  https://www.unilever.com/sustainable-living/join-in/Young-Entrepreneurs-Awards/

[35] https://www.unilever.com/sustainable-living/the-sustainable-living-plan/our-strategy/

[36] “Our Strategy for Sustainable Business,” Unilever,  https://www.unilever.com/sustainable-living/the-sustainable-living-plan/our-strategy/

[37] Certified B Corporations, https://www.bcorporation.net/

[38] Apparel Coalition, http://www.apparelcoalition.org/higgindex/

[39] Patagonia, http://www.patagonia.com/us/patagonia.go?assetid=67372

[40] “Yvon Chouinard: Company as Activist,” GreenBiz, 1 March 2013,  http://www.greenbiz.com/video/2013/03/01/patagonia-responsible-company

[41] Bard MBA is only one of a few MBA programs in which sustainability and regenerative management are baked into every class, www.bgi.edu, http://www.bard.edu/mba/

[42] https://hub.aashe.org/browse/academicprogram/13937/ms-in-regenerative-studies, http://www.unprme.org/index.php

[43] William J. Ripple  and 15,364 scientist signatories from 184 countries, “World Scientists’ Warning to Humanity: A Second Notice” BioScience, Volume 67, Issue 12, 1 December 2017, Pages 1026–1028, 13 November 2017, https://academic.oup.com/bioscience/article/67/12/1026/4605229

[44] “Discovering Business Value in the United Nations Sustainable Development Goals (SDGs),” TruCost, 5 Nov. 2018, https://www.trucost.com/publication/discovering-business-value-in-the-untied-nations-sustainable-development-goals-sdgs/

[45] Fullerton, John, “Regenerative Capitalism,” Capital Institute, 2015, http://capitalinstitute.org/wp-content/uploads/2015/04/2015-Regenerative-Capitalism-4-20-15-final.pdf

[46] A concept created by industrial engineer and sustainability thought leader, Catherine Greener, https://natcapsolutions.org/team/