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Into an economy of integrity

At the start of his story about the "The Resurrection of Nau," Head of Marketing Ian Yolles quoted Milton Friedman: "There is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits." Yolles then went on to proclaim, "we are now seeing the end of that idea."

His observation was simple but powerful. This guiding "wisdom" of capitalism, which was pronounced by Friedman in a seminal 1970 NYTimes article and came to power in the Reagan 80s era, is too myopic to sustain itself. Today, more companies are being built, engineered and designed around integrity and ethics at their core, thus for the first time aptly defining what it means to be socially responsible.

It was a theme that played heavily in the morning of day two at SBi. Jonathan Greenblatt, CEO of Good Magazine and co-founder of Ethos Water, brought up several examples in his presentation "The Economy of Integrity"--Zipcar, Method, Starbury, Shorebank, Lush, Honest Tea, and Living Homes. These companies are entering highly competitive industries with ethics as part of the founding mission and are differentiating as a result. Add to this list Greenblatt's own ventures. Ethos entered a saturated and highly unsustainable bottled water market in 2002. The differentiator: for every bottle sold, Ethos donated 50% of its profits to clean water initiatives in developing parts of the world. Counter to Milton Friedman's economic principles, Ethos succeeded on both a financial and ethical level. They were purchased by Starbucks in 2005 and to date have raised more than $6.2 million in grant commitments towards humanitarian water programs, helping more than 420,000 people around the world.

Nau had an even more difficult challenge. "The world doesn't need another outdoor clothing company," Yolles acknowledged--especially with sustainable players like Patagonia and ARC'TERYX out there. Nau had to differentiate from heavily ethical competitors among environmentally-conscious consumers.

At the core of their mission are three tenets: beauty, performance and sustainability--and it's the order of these that is the most significant. To be competitive, Nau clothes have to be more stylish than any other outdoor clothes. A Nau jacket should look as appropriate for trail riding as it does for evening dining. Performance is, of course, tablestakes for the outdoor set, and every detail of Nau clothes are designed for it. Sustainability is third. "You don't need to know about the sustainability story," claims Yolles. It's woven into the fabric of the company and a part of every consumer experience, every company touchpoint. Even the core competitive focus on style is inherently sustainable--it creates more multi-functional clothes.

"This is the reason Detroit is going out of business," said Yolles. "They understood function, performance and design, but they were in denial about sustainability." It's a focus on integrity that will be the future of business, indeed the basis for our future economy. Companies are engaging their customers in a new way, based on principles that more naturally align with their values.

What's promising is that the Milton Friedman businesses out there are learning and adapting from this new economic mindset. On the last night in the conference I attended a speaker dinner where Greenblatt and Yolles were present. Sitting in between them was Beth Keck, Senior Director, International Sustainability for Wal-Mart. All three were locked in conversation for most of the evening. Whether or not juggernauts like Wal-Mart can weather the sea-change on the horizon is yet to be seen, but that they are engaged in the dialogue is certainly a massive step forward for true corporate social responsibility.

Consumers are overwhelmed and under-informed with green

There's no shortage of data about green consumers. While LOHAS studies and trend surveys show that more people are getting smarter about their purchasing choices and are demanding more on Corporate Social Responsibility, they aren't finding the information they need and are overwhelmed and confused by green advertising.

At SBi, there were a few very telling pieces of data showing that brands are having difficulty telling their green story.

Overwhelmed
In their 2007 annual report, the Advertising Standards Authority (ASA) reported an over 350% increase in the number of complaints about environmental claims in advertising from the year before. Additionally, consumers are confused about carbon emission claims and don't understand terms like "sustainable" and "food miles." The ASA also reported that people aren't reading the fine print or explanatory text that hopes to educate them.

In his talk "Steering Clear of Greenwashing," Brooks Beard, a lawyer and partner at Morrison & Foerster, said there are a few simple things that companies can do.

• Be specific with word choices

• Be specific about what part of your product or packaging is green
• Be careful about what images you choose: they can give misleading impressions
• Substantiate, substantiate, substantiate

Under-informed
Based on a survey they conducted in 2007, The National Consumers League reported that 79% of consumers were actively seeking to understand corporate environmental and social impact.

The same survey also found that only 5% of people go to a company's Web site to find this information, while the rest rely on simple Google searches, third party sources or activist organizations.

In a panel session at SBi, Chris Coulter from GlobeScan Inc. passed along this piece of data: only 10% of people have heard a great deal about CSR.

Ryan Mickle, Founder of Companiesandme.com and Nick Aster, Co-Publisher of TriplePundit.com said it succinctly in their SBi presentation, "We're not telling our sustainability stories using their language." To compound this, the CSR report delivery method just isn't working. Their example: Gap Inc's recent CSR report is 93 pages, presents 2 years of data, and nobody is reading it.

Their suggestion is to cut CSR reports into two parts: data and stories, and use Web 2.0 communication media (blogs and social networking sites) to deliver them, caveated with a few simple tips to engage people:

• Start inside, our greatest evangelists are employees

• Simply being there changes everything
• Interact person to person, not as the company
• The best people to participate are the customer advocates
• Really listen
• Enable a community to moderate itself

Can a David-Goliath partnership sustain?

On a panel discussion yesterday, "Emerging Models for Collaboration," panelists talked about new green partnerships struck between small and large businesses. The idea is simple: The little guys (David) have the entrepreneurship and agility to create sustainable brands from the ground up and keep them pure and honest. The big guys (Goliath) have the market power and reach to get a mass wave of consumers exposed to these sustainable brands while gaining instant green credibility.

The partnership of Jeff Mendelsohn, CEO of New Leaf Paper and Yalmaz Siddiqui, Director of Environmental Strategy at Office Depot, is a great example of this. New Leaf Paper recently launched their Reincarnation product--a new 100% post consumer inkjet laser paper. Jeff said they couldn't have done it without a partnership like the one with Office Depot.

While green brand building and access to markets and capital is certainly a strong collaboration model, there's a question of how long that can last. There has been tons of M&A activity in the green space. It's a hyper competitive, very busy space these days. Goliaths increasingly need the credibility of the small brands and are swallowing them up to get it.

P&G bought Tom's of Maine.
Danon bought Stonyfield Farms.
Unilever bought Ben & Jerry's.
Clorox bought Burt's Bees.
Loreal bought The Body Shop.
General Mills bought Cascadian Farms.

All the big players promise to not touch these brands. At SB'08 in Monterey, Clorox was adamant they would not monkey with Burt's Bees, but there are rumors around the halls here at SBi that they are starting to--altering packaging, looking at re-tooling the formula. The same has been said about Loreal and The Body Shop.

In a highly transparent environment, where one bad PR story can ruin green branding efforts, this has the potential to backfire. Big brands need to leave the little guys alone when they swallow them up. Partnerships like the one between Jeff and Yalmaz is a great way to drive sustainability mainstream. Let's hope it lasts and we see a lot more of it.

SBi case studies (other than the Prius)

You know all about the Prius story. No doubt, in whatever sustainable work that you do, you've told that story in a number of contexts; marketing, financial, consumer behavior, design, interactivity. The Prius is rich with stories and that makes it a good case study for talking about sustainability with your co-workers, clients, or customers.

Here on day 2 of the SBi conference, we've heard a number of other good stories and case studies. Some are new, some are known. But they are all important to internalize and pass around to help people understand the process, results and value of sustainable efforts.

Here's three that stuck out:

Marketing: primary benefits first, green message second
Jacquelyn Ottman launches her talk on Green Marketing with her case study about Philips Marathon CFL light bulb and their lessons in bringing it to market. No need for me to repeat it, she explains it succinctly here.

Financial: Packaging win-win-win
Chris Laszlo, Managing Partner at Sustainable Value Network, told the story of Wal-Mart's efforts with Radio Flyer to reduce their tricycle packaging by half as a result of their "Packaging Scorecard" efforts. This resulted in Radio Flyer redesigning their tricycle to reduce the amount of parts for assembly. A smaller box with less parts meant a lighter product, more boxes on freight and shelves, easier loading in passenger cars, and most importantly, less cost as a result of all of that. The added benefit for consumers: the tricycle was partially assembled alleviating parent time and frustration building the product.

Innovation: Sustainable living can be beautifully transformational
Martin Charter of the Centre for Sustainable Design brought up DIY Kyoto's Wattson product as an innovative way to make sustainability not only informative and transformational to energy consumption but also well-designed and premium.

Of course there are countless more. What's your favorite case study?

Yalmaz Siddiqui Discusses Office Depot's Green-Products Push

Office Depot rang up $1.6 billion in green product sales last year, thanks in large part to the company's popular Green Book catalog, now in its fifth edition. Yalmaz Siddiqui, director of environmental affairs for Office Depot, yesterday shared some of the secrets of his success with SBi attendees.

Siddiqui went out of his way not to get too “preachy” during his presentation. In fact, the very first thing he did was jump off the dais and mingle among the tables, man-of-the-people style.

Expressing his frustration with “old-green” design ethics (“crunchy granola, Birkenstocks, rainbows!”), Siddiqui instead outlined his company’s more modern approach, recognizing the many shades of green. Call it environmental relativism.

"Don't believe in eco-purity as the path to sustainability," Siddiqui told attendees.

Siddiqui began grappling with the question “What is green?” soon after he landed at Office Depot in 2005. Given the wide range of green benefits, attributes, and specifications – not to mention the glut of eco-certifications now available for such a wide range of products and materials – he faced a real challenge in marketing the company’s green offerings to preferred customers.

Let’s back up: Turns out Office Depot, though best known for its retail presence, sells the bulk of its inventory to big buyers including the U.S. federal government, global procurement bodies, and large private-sector firms. In fact, 80% of its recycled-content papers are snapped up by B2B players, not "Joe Consumer," according to Siddiqui.

“We recognized that these institutional buyers were most important targets for our green branding efforts,” Siddiqui says. “We had to develop a language to differentiate between benefits, attributes, et cetera.”

Enter Office Depot Green, a labeling program that aims to educate B2B customers on environmental performance of Office Depot products. Any item that offers some kind of green benefit gets assigned to one of three categories: light green, green, and dark green. For example, 90% post-consumer recycled paper sold in North America earns the dark-green designation, which is reflected in the color of the product packaging. Thirty percent post-consumer recycled material makes a paper light green. (For the most recent edition of its Green Book catalog, Office Depot upped the threshold for inclusion to 30% recycled content.)

Office Depot considers a product green if, in some way, it:

• reduces waste and pressure on resources,
• reduces energy use and greenhouse gases, or
• reduces exposure to harsh chemicals.

The idea, according to Siddiqui, is “positive reinforcement over negative activism.” An all-or-nothing approach can turn customers off. Worse, it fails to take their need into account – a cardinal mistake for any successful business.

“People don't need to care about every environmental issue to be green,” Siddiqui explained. "That's not how people behave; people care about different things."
So Office Depot goes one step further: It uses icons to denote the specific environmental attributes of its products (think “energy efficiency,” “carbon balance,” etc.).

Environmental certifications such as Energy Star are noted as well, but Office Depot tends to underplay them because, as Siddiqui explains, the certification process can be burdensome and expensive, and often contributes to higher prices that, again, can turn customers off.

“Certifications are great, but only if the customer is willing to pay a premium,” Siddiqui maintains. “Lifecycle assessments (LCAs) cost money, and ‘mostly right’ is better than pricing the customer out of a particular product.”

The sentiment is particularly surprising coming from Siddiqui, who holds a Masters degree in industrial ecology and lifecycle assessment. But such flexibility comes hard-earned. Siddiqui practically wrote the book on environmentally preferable purchasing - actually, he authored first major global study on green purchasing for wood and paper products – and his stellar green credentials have won support from folks you might consider, uh, “dark green.”

Introducing Siddiqui’s presentation was Jeff Mendelsohn, CEO of green-paper provider New Leaf. "It's hard for a large company to incorporate sustainability into virtually every aspect of the business. Fuel-efficient delivery vehicles, LEED certification for a template store - it goes far beyond selling recycled-content paper,” he said. “But Yalmaz has been able to do it.”

For SLM's recent in-depth interview with Siddiqui, click here.

• SBi Miami Beach's blog

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