How To Succeed At Sustainability (And Why Greenwashing Doesn´t Work)

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IESE Business School

September 19, 2016

In today´s business world, green credentials are the key to staying competitive and this pressure has pushed firms to try to be more environmentally friendly. However, becoming a green company takes a sizable amount of resources, time and risks. Many companies are struggling to adequately address the critical issues involved with this (for example, how they can manufacture greener products without sacrificing quality) and, more broadly, often fail to understand what it truly means to be a green business in the first place.

Company leaders are then faced with two options: respond sincerely with resources to the call to be greener, or attempt to reap the benefits of being green by merely giving the appearance of an environmentally friendly company on the outside, without making the necessary investments on the inside (the practice known as greenwashing.) The recent Volkswagen scandal is a prime example of this.

While the Volkswagen case is extreme, it is part of an increasing trend by companies to claim more about their environmental efforts than is legitimate. This can take the form of publicizing irrelevant – and sometimes plainly false – features or information that misleads consumers into thinking they are helping the environment. Alternatively, many companies are guilty of the fuzzy reporting form of greenwashing: making corporate sustainability reports that are essentially meaningless due to their lack of harmonization in CSR frameworks. As a result, stakeholders remain poorly informed about the social and environmental performance their companies.

Yet while green initiatives can reflect positively on an organization, few things can sink a company as fast as bogus green initiatives (aside from Volkswagen, companies which have been successfully sued for greenwashing include Mobil Chemical Company, SC Johnson & Son, BP and General Electric.)

Opportunistic firms tempted to greenwash should also bear in mind that the chances of being exposed are high: nowadays, many NGOs are looking extremely carefully at what companies are doing and, in general,  consumers are much more active and aware of company practices in regards to the environment.

Silence is golden

Given the high price of greenwashing and likelihood of eventual exposure, if companies do not have a strong, honest position on the environment, it is better to say nothing and be quiet than open yourself up for scrutiny and criticism by touting misleading or false environmental benefits. The realization that some firms willingly choose to cheat their way into the green trend has driven stakeholders to adopt an offensive position; when in doubt, punish.

Even firms who are legitimately trying to make their company greener can get into trouble when they try to publicize their green credentials prematurely, or when their efforts at being greener are largely symbolic. Only once you have established and genuine green initiatives in place, should you start drawing attention to your activities.

Managers should realize that an environmental stance is very difficult to fake (especially when your company belongs to an environmentally sensitive industry), and that only genuinely green credentials are effective when building a long lasting and profitable corporate image.

The right way to go green

Several companies have either successfully altered their unsustainable practices, (such as Nestlé’s Nescafé, who found a novel use for their waste coffee grounds, by using the steam generated to power Nestlé factories) or pursued a successful green agenda from the beginning, like Patagonia, whose long-standing commitment to the environment can be traced back to its very origins.

In Patagonia´s case, one of its best-known initiatives was the “buy less” campaign, which actively advised people not to buy what they do not need. The company had already launched the common threads initiative earlier in the year, seeking to embrace the concept of “Reduce, Repair, Reuse, Recycle, Reimagine”, by encouraging a partnership between Patagonia and their customers to buy and use clothes more sustainability.

Although it seems Patagonia wants to accomplish two conflicting goals, having a profitable company while denouncing materialism and consumerism, the firm´s success challenges traditional business models. The idea of “profitable good”, which is embedded into their core business model, has boosted their value proposition.

Companies who wish to emulate Patagonia´s success and boost their green credentials should follow a six-step process:

1. Define what sustainability means for your company. This first step is crucial to developing a realistic and relatable sustainability strategy. Each company is different, so a “one-size-fits-all” approach will not work. Instead, identify how sustainability fits into your company’s supply chain and how it relates to the way you create value. For example, for a food company such as Mondelez, sustainable food sourcing is logical: it not only “greens” their products, but also guarantees future access to resources that are critical to the company´s manufacturing process and overall survival.

2. Ensure company-wide commitment. Real change can only come from the inside out. The board of directors and CEO are essential to providing leadership that helps all stakeholders get onboard.

3. Establish goals and monitor results. It is necessary to accept some trade-offs between economic and sustainability results. It is therefore critically important to ensure the strategy´s goals define the best metrics to measure results. Is your firm looking to take advantage of positive opportunities that may arise or seeking to reduce its negative social and environmental impact, or both? Once the objectives are clear, keep close track of your sustainability efforts. Metrics must be clear, and reporting thorough and transparent throughout.

4. Align your corporate governance structure. The interests of owners and managers must be aligned with good corporate governance structures and compensation policies.

5. Dialogue with customers and stakeholders. Two-way communication is key. Ikea is a positive example of this – it has established a social and environmental coordination group that engages with forestry organizations, transportation and distribution companies, as well as its own suppliers to find ways to minimize the impact of its operations. Moreover, since Ikea enjoys enormous economies of scale and market power, the company is in a position that allows it to influence the behavior of all its various supplier groups.

6. Collaborate with NGOs, policymakers, and industry peers. Partnerships based on mutual interests go the distance. It is a complex world well worth saving.

Being green can be a source of competitive advantage for firms and is a long-term strategy worth pursuing.

However, when pursuing a green agenda, leaders should first-of-all be realistic and assume there are going to be trade-offs involved and that it is going to be a complex and difficult process. Companies that attempt to take shortcuts and indulge in greenwashing practices will soon find the rewards do not out-weigh the very serious risks.

By IESE Professor Pascual Berrone, author of Green Lies: How Greenwashing Can Destroy a Company (and How to Go Green Without the Wash.)

This article was written by IESE Business School from Forbes and was legally licensed through the NewsCred publisher network.

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