CSR and Sustainability, Strategy

Can Conscious Capitalism work?

In a guest post, Martin Summers discusses why the advertising industry is embracing a different vision of capitalism and sustainability, and why it also needs to embrace ‘unconscious sustainability’

The advertising sector has only recently come together to discuss what models of capitalism, business and sustainability it should be promoting and working on with clients.

A recent event, Advertising and Conscious Capitalism, embraced the Conscious Capitalism model of sustainable capitalism, which celebrates free markets while advancing an agenda for a purpose-driven model of business for a more sustainable world.

Tom Knox, the head of the Institute of Practitioners, which organized the event, said “The idea that there can be a virtuous relationship between social responsibility and profitability, that a company or brand should serve more stakeholders than just its shareholders is attractive and excitingly relevant to those of us who work in advertising. Creative people have always intuitively understood that brands with purpose, brands that stand for something, are the best brands to work on and are the brands that will win consumers’ hearts and minds.”

An advertising sector that is fully engaged with sustainability strategy will help spread sustainable products and services, successfully reaching beyond what Ogilvy Earth calls Super Greens – just 1 in 6 of all consumers.Book_2

This has already been done by the nine Green Giants – E. Freya Williams’ term for companies or business divisions that have annual revenues of over $1bn that can be directly attributed to products or services with sustainability or social good at their core. Whole Foods, the largest organic supermarket chain in the US, is one of those companies and its founder, John Mackey, also created the Conscious Capitalism movement and institute.

The bigger prize lies in helping companies and customers see beyond conventional sustainability criteria and learning to appreciating the sustainability impacts of new business models and products, even when the prime driver of these products is not a conscious desire to create a more sustainable world. ‘Unconscious sustainability’ can trump conscious models when it comes to sustainability impacts.

Take Marks & Spencer and Lidl. The former is rightly feted as an exemplar of sustainability with its Plan A to make its whole business more sustainable; the latter has only recently started to embrace sustainability, largely in sustainable sourcing. But M&S has not changed the model of retailing. Lidl has. Lidl’s model of low frills, high street retailing has reduced costs for consumers and reversed the trend for ‘big box retailing’ in out of town locations.

Tesla has transformed the car industry, demonstrating the possibility of electric cars with mass appeal, but it doesn’t have the potential to transform transportation in the way that Uber and the car-sharing service Lyft do. Both appreciate their impact on sustainable transport but they are not readily identified with sustainability in the way that Tesla is. Massively reducing car ownership could transform our cities, dramatically reducing the amount of space needed to park cars at home and work and drive them there.

The drinks sector offers a slightly different lesson. Diageo, SAB Miller, Starbucks and Coca-Cola have, for example, ambitious sustainability agendas, increasing water efficiency and running programmes to boost livelihoods in their supply chains.

But their impact on sustainability may ultimately be less than craft beer and coffee, where the key differentiator is taste and what’s driving their market is not multinationals’ huge distribution networks and marketing machines but the conscious development of consumers to make them more discerning about product quality and willing to pay for it. Their success has been hard won in environments where price competition has traditionally been intense.

Being 100% organic may be the main selling point for many food and cosmetics brands, but that attribute alone will not help sell a product that doesn’t taste good or work well. Moreover, the potential for a ‘green premium’ in pricing is minimal where fair trade is widespread and middle class consumers are economically squeezed.

johnmackeywholefoods*1200xx1786-1008-0-57It’s much easier to charge a premium for products that taste a lot, lot better than products that don’t use higher quality inputs, typically as a result of more responsible growing and processing processes. In other words, a more sustainable world will be the outcome of product differentiation strategies based on quality rather than on any sustainability attributes. This has been demonstrated by Whole Foods and Chipotle, another Green Giant, founded on a commitment to sustainable sourcing in its restaurants.

The tea producer Finlays is admirably direct on the role of pricing in their market, where premiums are lower. They fear that financial pressures will drive further mechanization and subsequent job losses. “The solution is not to provide more aid or force an uneconomic distribution of paper thin margin; we need to address the root cause of poverty which is the low tea price and the absence of a premium for hand picked versus machine harvested leaf. The focus must be on how to add more value to drive premium pricing.”

Certification has not delivered lasting sectoral transformations. Only increasing consumer appreciation of product quality – and an accordant willingness to pay for better quality – will deliver widespread improvements in sustainability.

The advertising industry will achieve better engagement with its clients and audiences on sustainability when it breaks away from marketing focused on conventional sustainability attributes – such as responsible sourcing and production – to a more imaginative understanding of impacts and their causes. Good unintended consequences can often be better than the intended ones.

Many companies still think of sustainability in terms of their sustainable products in one corner and increasingly sustainable practices in the other. The bigger sustainability impacts can be found in how they are transforming how we shop, eat, travel and communicate.

EasyJet is not recognised as a particularly sustainable company, being an airline, but it has made huge contributions to wealth distribution and economic sustainability by making it far easier and cheaper for workers in depressed areas to work in more prosperous ones and for people to go on holiday to places previously too expensive or difficult to reach. Similarly, Vodafone has revolutionized rural economies in developing markets, not through a primary motivation around sustainability, but by allowing farmers to communicate with markets far away and to make payments outside the conventional banking system.

Identifying this sort of ‘unconscious sustainability’ – and making it part of a companies’ conscious purpose – requires two steps. The first is to work from the core business out, identifying positive impacts on the environment and society, rather than working back in from a sustainability checklist. Asking ‘Is this sustainable’ is less powerful than asking ‘What do we make possible?’

The second step is to think in terms of narrative. Most of the Green Giants have sustainability in their origins but it’s just as valid for a company to appreciate its sustainability impacts much later in its corporate development and repurpose the company accordingly.

Conscious Capitalism should not just be about entrepreneurs consciously setting up businesses to improve the world. It should extend to companies and sectors that rediscover a sense of purpose by recognizing the positive impacts they have on the world. Too many companies identify themselves by reference to what products they make rather than what they make possible. If they did the latter then they would find it easier to improve their impacts, increase their legitimacy and develop their long term business strategy.

Martin Summers is director of Maginot Consulting. martin.summers@ymail.com

More from Martin on this blog:

Local Content – a missed multi-billion dollar opportunity

Sustainable supply chains: Time to treat smallholders as businesses

Why business needs to embrace institutional reform at long last

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