Pivoting the Economy towards Sustainability

Published by Julia Guth on May 17, 2010

How the retail sector is influencing companies and consumers to go green

The recently released Wal-Mart sustainability scorecard may become the new baseline of information for all companies concerned with their environmental and social performance. The scorecard assesses Wal-Mart's suppliers on their performance in four key areas: energy and greenhouse gas emissions; waste and water use; natural resources; and responsible and ethical production. Although its development is a very significant move from the world's largest retailer, the score card is just an early sign of things to come. Smart companies know they will need to go beyond simply responding to Wal-Mart's latest efforts.

What has become clear is that major retailers are now a pivot point for corporate sustainability. On the one hand, they influence thousands of suppliers; on the other, they interface with millions of consumers. In late 2006, Five Winds postulated that a "tipping point" may be in reach in regard to the development of sustainable technologies and products, and that retailers could play a major role in driving the demand for these products. Since that time, environmental and social issues have grown in importance and retailers have demonstrated a strong desire to capitalize on a critical mass of consumers willing to purchase products that reflect their values. The release of the Wal-Mart score card is one indicator of how retailers are going to do this. Material suppliers, product manufacturers and others along the value chain need to respond to this new reality and they need to do it quickly. This paper examines the current situation and provides advice to companies on how to get out in front of the growing demand for environmentally and socially responsible suppliers and products.

Why the Sustainability Performance of Companies and Products is Important

Consumer and media consciousness of sustainability issues - climate change, toxic substances, ethical sourcing and excessive consumption - is at an all time high. Faced with growing concerns over the state of the planet, consumers want to do their part and are increasingly willing to reward companies that conduct their business and provide products in ways that are more environmentally and socially responsible. While they may not be able to get government to move faster on climate change policy, they can act by buying products with lower carbon footprints from companies they trust.

There is no doubt it is early days, and debate continues on the emphasis the average consumer will put on environmental and social factors versus traditional factors such as brand, convenience, price and performance. However, the rise in the purchasing of products that are perceived to be more sustainable is undisputable. The LOHAS (lifestyles of health and sustainability) market segment is one of, if not, the fastest growing market segment in many countries. The current estimate for the U.S. LOHAS market alone is $209 billion US dollars, covering a wide range of product categories from personal care to building and transportation.

Governments - having maintained a passing interest over the years in reducing the impacts of companies, products and packaging - sense the shift in the public consciousness and are intensifying their focus on policies that promote more sustainable patterns of production and consumption. Key jurisdictions such as the European Union and (under the new Obama administration) the U.S., are trying to determine how to support a market transformation in the supply and demand for more sustainable products. Apart from environmental and social policy objectives, a primary driver behind these efforts is a growing understanding that stimulating the demand for sustainable products is linked to a competitive industrial strategy and jobs.

Not Just a Fad

A quick dip into the research and literature makes it clear that the major drivers behind the growing consumer consciousness will not subside in the near future.

By way of example, consider the findings of the Millennium Ecosystem Assessment (MEA). Initiated by the United Nations in 2001, and completed in 2005, the MEA evaluated the consequences of ecosystem change (brought on by human activity) for human well-being and looked at the scientific basis for action to protect, conserve and enhance major ecosystems (e.g. forests, fisheries and watersheds). It involved over 1,300 scientists who looked at the state, trends and future scenarios for ecosystems based on current and predicted patterns of consumption and production. A key focus of the assessment was on the ability of ecosystems to provide the "services" that underpin our economy. These services include: the provision of goods (e.g. food, water, fibre and fuel); the regulation of systems (e.g. climate, water and disease); cultural benefits (e.g. aesthetics, spiritual, recreation and education); and supporting benefits (e.g. primary production and soil formation).

The MEA scientists' efforts were reviewed by governments and independent scientists and a major finding of the assessment was as follows: "At the heart of this assessment is a stark warning. Human activity is putting such strain on the natural functions of Earth that the ability of the planet's ecosystems to sustain future generations can no longer be taken for granted".

Tough stuff indeed, and given the seriousness of the assessment it is more than likely that: 1) governments will accelerate their efforts to promote sustainable consumption and production; 2) consumers will continue to respond accordingly and adjust their purchasing; and 3) companies who are in front of this trend will prosper.

The preceding text is an excerpt from Five Winds' white paper, "Retail: A Pivot Point for Sustainability". Download the full report, published through GreenBiz.com, here.

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