Sustainability as a strategic differentiator

Can sustainability be a clear and distinct positioning platform? Can sustainability act as a strategic differentiator in a crowded and fragmented category? There is some strong evidence emerging that it can be both, i.e. a positioning platform that can provide competitive advantage in hyper-competitive categories. Brands under Unilever’s “Sustainable Living Plan” strategy accounted for more than 50% of the organisation’s growth in 2014, with brands like Dove, Lifebuoy, Ben & Jerry’s and Comfort leading the charge.

There is the other side of the coin that needs to be considered to. A differentiated and strategically competitive positioning can only be adopted if there is a clear need for the benefits of such a positioning among consumers. Increasingly, consumer awareness and conscious elicitation of the need for “sustainable brands” that have been manufactured responsibly is increasing. This also has had a positive rub-off effect on investors in organisations. There is a genuine interest among investors and shareholders to monitor an organisation’s ranking on global sustainability rankings and indexes (there are quite a few). In the 2015 Sustainability Leaders Report, the findings of a respected and credible study conducted by the think tank SustainAbility and research consultancy GlobeScan, Unilever again topped the rankings. This is a more significant achievement for Unilever because the rankings are arrived at on the basis of multiple interviews conducted with sustainability experts around the world.

The increased interest in sustainability among the critical triumvirate of consumers, investors and the organisation is all fine. But to really make sustainability a credible, effective and impactful positioning platform, organisations need to act more strongly on their sustainability thinking and values. Unilever is one example in the FMCG world, while Kering is another in the world of luxury, who seem to have taken serious steps towards incorporating sustainability into their organisation’s values. There are some other great examples across multiple industries / segments, but there is more need for “call to action” across the corporate world.

Some of the most recent adoptions of sustainability agendas as part of corporate mission statements and values have been quite global in scale in terms of their promised goals and milestones. For example, in October 2015, The Hershey Company announced the launch of “Nourishing Minds”, a new global social purpose whose objective is to nourish one million children in the United States and abroad with the essential nutrition they need to survive and grow.

Investors are increasingly driving the “call to action” towards adopting more sustainable business practices among global organisations. In August 2015, more than 60 American and European institutional investors, collectively managing $2.6 trillion in assets, sent joint letters to 15 food and beverage companies asking for more disclosure and better management of water risk. Some of the organisations who received these letters include Dr Pepper Snapple Group and the Kraft Heinz Co. Consequently, in the domain of sustainability branding, we now have both “proactive” and “reactive” adoption levels of sustainable business practices.

Going back to the original question posed at the beginning of this post, which is how do organisations use sustainability as a strategic differentiator? Below are some important rules and guidance points to make sustainability work for the organisation and for the brands it owns:

Articulation, Communication and Sharing

If sustainability is part of an organisation’s corporate values and missions, then it needs to be properly articulated and communicated at key touch points for investors and consumers. If it is not communicated clearly, then the organisation won’t be able to reap the benefits of the sustainability platform. Unilever’s “Sustainable Living Plan” has been a highly visible initiative and has successfully allowed the organisation to take a quantum leap forward from its earlier “Port Sunlight” initiative.

Communication of the sustainability agenda should ensure that all key customer and investor touch points are covered. If an organisation has been monitored as part of an industry level or independent study on sustainability, then it is important for the organisation to report its performance on such studies. You don’t need to top sustainability rankings all the time. Just the sheer fact that an organisation is mentioned in the Top 50 or Top 100 of such lists, is a credible achievement that needs to be communicated.

Sustainability agendas should be actively shared on all forms of media the organisation wishes to be active in. These could range from traditional TV advertising to Twitter hashtags to streaming on Periscope to any form of personalised / custom marketing. Investor outreach programmes, seminars and conferences, education series and roundtable / panel discussions are all effective ways of making an organisation’s sustainability agenda more visible (and debatable) in front of those who matter.

Communication and sharing should be clearly balanced between the articulation of the agenda and reporting progress. If meeting your sustainability goals is a BHAG (Big Hairy Audacious Goal), then reporting progress against the objectives should be a critical element of the communications strategy. Comparing and contrasting to Unilever’s very visible strategy of sustainability, there are hundreds of examples where it is exactly the opposite.

Understanding of ‘sustainability’ as a corporate positioning platform (and not as individual brand specific positioning)

Adopting sustainability platforms is a corporate level endeavour, from which all brands or a portfolio of brands will benefit. It is not a wise strategy to make a few brands highly sustainable in their production, packaging and marketing processes, while leaving the majority untouched. This in turn, works against corporate sustainability as a strategic element. For example, Unilever’s Sustainable Living initiative is a corporate level strategy, but focuses on a global portfolio of brands, which have a very wide geographic footprint. Some of these brands are Domestos, Dove, Knorr, Lifebuoy, Lipton, Lux, Sunsilk and Surf. For a holding company like Kering, it is about infusing sustainability into the primary sourcing strategies for each of its portfolio brands. Some of the pivotal sustainability goals for Kering are as follows:

• Evaluating Kering’s suppliers a minimum of every 2 years and helping guide them to meet best practices and adhere to Kering’s code of conduct
• Reducing carbon emissions, waste and water usage resulting from the production of products and services by 25%, while accounting for the growth of our business
• All Kering’s collections to be PVC-free latest by 2016
• Ensuring all hazardous chemicals are phased out and completely eliminated from all production processes by 2020
• 100% of gold and diamonds in Kering’s products will be sourced from verified operations that do not have a harmful impact on local communities, wildlife or the ecosystems which support them
• 100% of leather from domestic livestock within Kering’s products will be from responsible and verified sources that do not result in converting sensitive ecosystems into grazing lands or agricultural lands for food production
• 100% of precious skins and furs in Kering’s products will come from verified captive breeding operations or from wild, sustainable managed populations. Additionally, suppliers will employ accepted animal welfare practices and humane treatment in sourcing
• 100% of paper and packaging for Kering have to be sourced from certified sustainably managed forests with a minimum of 50% recycled content

The above list was not meant to be a drum roll of Kering’s sustainability initiatives, but examples that highlight that the strategy is at a level of organisational level sourcing, with the consequent positive impacts concentrated at a brand level. It is important to keep in mind the fact that for organisation’s like Unilever and Kering, corporate equity is driven by individual brand level equities. For an organisation like Samsung and Nike, where the corporate is the overarching brand in the architecture (whether as an umbrella brand or as an endorser), sustainability initiatives need to take a different form.

Understanding of short-term and long-term impacts of corporate sustainability initiatives: There is an equity and profitability impact of sustainability initiatives and one necessarily doesn’t lead into the other. Adopting sustainable sourcing strategies into organisational level production processes may actually increase costs of manufacturing in the short term, as previous processes are slowly transitioned into the newer ones. In the short term, an organisation which has committed to sustainable goals, may need to absorb these higher production costs. Gradually, as sustainable processes are better integrated into the whole manufacturing process and the supply chain, the real cost benefits of sustainable strategies can be realised. Recycling plays a main role here and so does the treatment of production waste. Packaging innovation also has a major role to play here in terms of minimising product waste. Unilever’s initiatives around Hellmann’s (flagship mayonnaise brand) is an interesting example.

The packaging innovation has been introduced as a Hellmann functional sub-brand, called “Easy Out”, which has seen healthy sales in the markets it has been introduced.

The above example highlights how a specific sustainability solution can be used to enhance a brand’s equity. But an extension of a sustainable solution into a sub-brand is not always possible. In majority of instances, corporate level sustainability initiatives need to be transitioned at a brand level, so that the required level of positive influence on brand equity can be realised. It is important to understand the differences between ‘brand equity’ earned through a sustainable corporate strategy and those via marketing / communication efforts focused on a brand. In the first stance, it is the organisation’s attempt to visibly communicate the implementation and impact of sustainability initiatives at a brand level, while in the case of marketing efforts, it is an attempt to strengthen equity by reinforcing or building on brand values.

Successful transitioning of sustainability initiatives at a brand level, can take one of the following forms:

• New, visible and enhanced sustainability messages on packaging
• Launch of a completely new product range under a brand that has strong sustainable credentials (source of raw materials, manufacturing processes, supply chain etc.)
• Coming on board on industry level sustainability initiatives either as a corporate sponsor or one of the early movers in terms of conducting “pilots”
• Form collaborations / joint ventures / working arrangements with other organisations on initiatives where multiple organisations working together will lead to greater impact

Organisations working towards making their sourcing, manufacturing, supply chain and distribution processes “greener” should have a clear strategy on how the gains on sustainability need to be transferred to portfolio brands. Patagonia, another sustainability leader like Unilever, uses the following messages to integrate the benefits into its brand (which is the corporate brand):

Patagonia: Worn wear – better than new

This article from HBR, published end 2014, highlights the top sustainability business stories for the year and is an interesting read on the impact of sustainability initiatives across the global corporate ecosystem.

It has now been proved repeatedly across different industries and market segments that sustainability initiatives can act as strong differentiating platforms for organisations. This is also driven by the increase in consumer consciousness towards aspects like ethical & sustainable sourcing, environment friendly manufacturing processes, ethical supply chains and involvement in recycling / waste reduction processes. But the “call to action” that I have mentioned earlier in my article, needs to be from a medium or long-term perspective. Another important perspective on making sustainability initiatives more impactful is to elicit “outside help”. An example of this outreach is the Unilever Foundry Program, where it is asking startups to work with them to solve some of the most vexing sustainability challenges around the world.

Essentially, to spearhead the next wave of global sustainability initiatives, we need more collaboration between organisations, deeper knowledge of manufacturing processes and its consequent impact on the environment, higher adoption of technology and higher levels of idea and knowledge sharing among the global business community. For brands to reap the benefits of sustainable agendas of their organisational owners, it is increasingly important that brand communications highlight and showcase sustainability initiatives as a core positioning platform.