Eyes on the prize

DIRECTIONS SUPPLEMENT

JUNE 2010

Pathways to creating sustainable brands

Directions Supplement June 10

Here are two recent examples that demonstrate the pressure for smart sustainability thinking in brands is now coming from across the full spectrum of stakeholders. The first is from Goldman Sachs Sustain:

“We are approaching a tipping point at which these issues’ (environmental and social) importance to business performance and investors will escalate. The equity market is only just beginning to reflect the magnitude of change that lies ahead.”1

The second example is from ING2, and one of their Equity Markets research papers focusing on the Food, Beverages and HPC sector, with the telling title of ‘The Third Industrial Revolution’. The writers clearly state that the eight interdependent crises that we face (demography, ethics, social- economic, food, water, climate, energy and political) will be the catalyst for the Third Industrial Revolution, which they define as being real responsible and sustainable growth. And they see companies which redefine their business models to include responsibility in their marketing and sourcing as being in the position to pick up the prize of ‘hard’ business benefits of lower costs from supply chain synergies and higher sales.

“Companies can reap profits from consumers’ social and environmental concerns and the understanding that resource scarcity will result in a permanent change to business models. In our view, the third industrial revolution will on one hand save the planet and on the other accommodate the consumer explosion we expect in the coming decade.”

Whilst the prize might be becoming increasingly clear, the ways of reaching that prize are still being explored and uncovered. In this Directions supplement, we highlight four companies who are already redefining their brand and marketing strategies; we hear from Interface, one of the pioneers in sustainability, on what they have learnt on the dos and don’ts of creating a sustainable brand; and we provide two different perspectives on how consumer power is influencing a change towards more sustainable practices. We finish with a look at the relationship between sustainability and innovation. The response to the challenges we face requires innovation like never before. There are no set rules and no easy formulae – but where would the fun be in that?

Is your brand sustainable?

First, it was the NGOs who were asking. Then it was consumers and employees (some, admittedly not all). And now it is the investment community and their advisers. So, if your company hasn’t begun to integrate sustainability into its brand, perhaps this is the wake-up call that will prompt action. Because the alarm bells are ringing.

Approaches to creating a sustainable brandEach company’s approach to creating a sustainable brand will be unique, depending on the company’s culture and brand, sector, issues and audiences. We have highlighted here four different approaches – stakeholder engagement, company as educator, hands-on involvement and partnership. In reality, a successful strategy is likely to include all these elements in varying proportions, but successful companies will have a clear focus for their strategy. And they tend to share the same fundamental characteristics: leadership vision; internal engagement; high-profile, consistent communications and long-term commitment rooted in the values of the organisation.

Olivia Sprinkel salterbaxter

Nigel Salter salterbaxter

2 ING Equity Markets Research, The third industrial revolution: Multi-committed company (MCC) – the archetype to capture consumer loyalty.

1 Goldman Sachs, Global Investment Research, Change is coming: A framework for climate change – a defining issue of the 21st century.

Four approaches

1) GE – stakeholder engagementGE’s journey towards being a sustainable brand began in 2003, driven by customer pressure to improve efficiencies and reduce emissions. GE’s response was to create a space for engagement and imagination within the business, listening to stakeholders, including customers, government and NGOs, and challenging them to imagine what their world was going to look like in 2015 and beyond. From this the ‘ecomagination’ strategy was born, and engagement has continued to be central to ongoing activity. Lorraine Bolsinger, formerly vice president of ecomagination, said “We can’t put a stand up once a year, run a few commercials, and say ‘This is what we’re doing’. We have to be diligent every month on bringing new stories to our colleagues, our customers, and NGOs. That engagement is a huge ongoing issue”. In the last few years, online engagement has been central to ecomagination’s success, with traffic and length of user visits to ecomagination.com outstripping that of other CSR websites such as Chevron’s ‘willyoujoinus.com’ and Coke’s ‘makeeverydropcount.com’. And GE’s brand has benefited as well – an online video tracking survey showed brand favourability of 45% for non-viewers of the videos on ecomagination.com, rising to 75% for video viewers. Inspired by the success of ecomagination, GE have now launched ‘healthymagination’, focused on creating better health for more people. Engagement leads to stories, which in turn stimulates the imagination – and the innovation for which ecomagination has become known.

2) E.ON – company as educatorThere are no easy answers in the energy debate. Rather than shying away from this, E.ON UK has recognised that they need to take the lead in educating consumers about the need to change energy consumption habits and building awareness about the options for different sources of energy, an important element of their ‘Changing Energy’ strategy. Firstly they have opened up a space for engagement and debate with their ‘Talking Energy’ campaign. Advertisements ask questions such as ‘Why would an energy company want me to use less energy?’ and lead to online discussion areas including YouTube. This is now being followed up with the Energy Fit campaign, developed in conjunction with an online panel of 15,000 consumers. The panel told E.ON that they wanted tools and tailored information to help them reduce energy use. So as part of the campaign, E.ON is making energy monitors available to customers. Educating is not a one-way street, but a dialogue, in which listening plays an important part.

3) Pepsi – hands-on involvement from consumersPepsi’s approach has been based on getting consumers involved hands-on. A high profile example of this is Project Refresh in the US, which invites users to vote for community projects that they would like to see funded. Pepsi have diverted traditional television advertising spend to this project, recognising that increasingly companies are going to be finding other ways of building brand awareness and loyalty, often with sustainability as a central component. In April 2010, PepsiCo also launched the Dream Machines initiative, together with Waste Management and Keep America Beautiful. This project, which provides on-street recycling points, has the aim of increasing recycling rates in the US from 34% to 50% by 2018. Whilst the project has been attracting criticism from some quarters for greenwashing, at the very least it is raising awareness about recycling amongst American consumers and encouraging them to take action.

4) Cadbury’s – the partnership approachCadbury’s, founded on Quaker principles, has carried this partnership approach to ethical business through to the present day.Partnership is evident in both their actions and in their tone of voice. Their current advertising is focused on promoting the partnership that they have with their suppliers. The Cadbury Cocoa Partnership was founded in 2008 in partnership with the United Nations Development Programme, local governments, farmers and communities. It has the ambitious aim of securing the economic, environmental and social sustainability of approximately one million cocoa farmers and their communities in Ghana, India, Indonesia and the Caribbean. Companies are recognising that the issues raised by sustainability demand a new approach to doing business, one which is rooted in collaboration and partnership, as the issues are too big for companies to tackle alone.

Directions Supplement June 10

InterfaceFLOR’s six dos and don’ts for creating a sustainable brand

A sustainable brand cannot be achieved with a marketing agency brief. As consumers have become more aware of sustainability issues such as climate change, marketers are rushing to ‘green’ their brands. Too often this is approached as a ‘sticking plaster’ when what is needed is a completely new ‘healthy life-style’.

Interface’s sustainability strategy, Mission Zero, was conceived in 1994 and we have learned many important lessons in our journey to embed sustainability into our organisation, our products and our people. Mission Zero has been so effective in defining our brand that Interface tops the Globescan survey of over 1,500 opinion formers in 90 countries. We receive more unprompted mentions as a sustainability leader than any other company, including many that dwarf us in size and profile.

Here are our six dos and don’ts for creating a sustainable brand:

1. Do: Set seriously ambitious goalsMission Zero’s strength lies in its boldness. In 1994, this radical long-term vision immediately attracted attention. At the time some people told us it was naïve to think zero environmental impact achievable. But it has inspired fundamental changes in the way people work at InterfaceFLOR precisely because it is so challenging.

Don’t: Set your sights too low with unchallenging short-term targets. Sustainability transformation requires disruptive innovations.

2. Do: Address the elephant in the roomInterfaceFLOR’s sustainability strategy gained credibility because it addresses our material issues, even the biggest challenges that aren’t easy to solve. In our case it was cutting the umbilical cord to oil, with one of our main raw materials – nylon yarn.

Don’t: Focus only on easy wins or non-core business issues like philanthropy.

3. Do: Sign up your CEO High visibility leadership and commitment from the top of the company have been vital in demonstrating that Interface is serious about sustainability. Founder and Chairman, Ray Anderson, has relentlessly engaged employees and external stakeholders for fifteen years on the subject, believing he must convince people ‘one mind at a time’. In this

we have been lucky as many business leaders genuinely try to start the change towards sustainability, but lack the commitment and longevity in office to succeed.

Don’t: Think you can ease sustainability in from the bottom-up.

4. Do: Shout about the business caseWe made sure our people could clearly see how sustainability would benefit Interface’s business. Results came quickly. As we worked towards Mission Zero, costs went down not up, exposing the myth of a choice between environment and profits.

And the business case soon became stronger as our customers increasingly wanted to buy more sustainable products. We became the sole carpet supplier for government buildings in a country where 60% of the points were awarded for sustainability criteria, for example.

Don’t: Rely on doing good as your argument. Profit is essential.

5. Do: Make sustainability personal – one mind at a time An engineer is turned on by machines. Give them a technical challenge. A sales person is turned on by sales. Give them a sound sales argument. Sustainability communications must be segmented.

Don’t: Have top down, celebratory, positive, biased, non-segmented internal comms.

6. Do: Use sustainability as a source of innovation Putting sustainability at the centre of everything we do has helped us come up with ground-breaking innovations such as Tactiles™, our adhesive-free installation system. Sustainability has helped our business expand into new markets and create a competitive edge.

Don’t: View sustainability solely in terms of corporate behaviour. Product performance is where the real new market opportunities are.

Ramon Arratia Sustainability Director EMEAI, InterfaceFLOR

Nigel Salter and Olivia Sprinkel salterbaxter

64%of UK adults have avoided a product because of a company’s behaviour

52%of UK adults have bought a product primarily for ethical reasons

The technology that is making sustainability transparent

Imagine a world in which consumers can scan the barcode of a product in the shops with their phones and access detailed information about the company’s sustainability performance.

That world is already here. The Good Guide iPhone application in the US and the Barcoo iPhone app in Germany does just that. The Good Guide, available online as well as an app (www.goodguide.com), contains ratings for over 65,000 products, from food to toys to personal care and household products. It provides health/nutrition, environmental and social ratings, with the ratings compiled from a series of databases.

Shopping by valuesBut will anybody use it? According to the Co-operative Bank’s Ethical Consumerism Report 2009, 64% of UK adults say that they have avoided a product because of a company’s behaviour, 52% of UK adults claim to have a bought a product primarily because of ethical reasons and 39% of people have actively sought information on a company’s behaviour or policies. These figures suggest that people are increasingly taking into account a company’s behaviour as part of their purchasing decision, and if it as easy as scanning a product in a shop, the number of people who actively seek out information will surely only increase. The advent of such applications means that increasingly there will be no place left to hide for companies – consumers won’t have to dig deep into CR reports to find information, it will be there in the palms of their hands. The trend towards transparency and consumers shopping by their values will push companies into integrating sustainability into their brands, whether they like it or not.

Online information and mobile phone apps are only the beginning. According to Daniel Goleman, author of ‘Ecological Intelligence’, some retailers are talking to Good Guide about putting its product ratings next to price tags on shelves. And a good rating could soon be a pre-requisite to getting your product on the shelf in the first place – some retailers are starting to use Good Guide as a screen in deciding which products to stock.

A choice for companiesSo there is a choice for companies to make. They can let consumers seek out information about their products online, via their mobile or from information provided by the retailer. Or companies can be proactive in starting a conversation with the consumer and encouraging them to find out more about where the products come from and what they are made of, guiding them through the product journey, helping them to make a positive choice to buy the product and to feel good about doing so. In this way, sustainability can be integrated into the brand experience. For example, Coca-Cola in the UK have an application on their website, where you can type in the first two letters of a code on the can or bottle, and this will tell you where the Coke began its journey to you. This provides a neat way in to engaging you with the rest of the product journey and what Coca-Cola is doing to minimise impact, from ingredients to distribution.

Of course, this approach is dependent on having the performance to support such transparency – but if consumers are demanding it and purchasing decisions are increasingly dependent on it, then companies will need to up their performance accordingly.

True, the UK’s overall grocery sales top £120 billion, but against all market predictions that Fairtrade would only be a temporary fad the sector year-on-year posts sales growth that far outstrips the conventional market. Furthermore, Fairtrade has become a gateway – a point of difference – for major brands in a way that sees huge financial and reputational benefits.

Incredibly when asked to spontaneously name any ethical product label, one in three shoppers cited the Fairtrade mark – 20% above other labels.

Within the Fairtrade movement, we see growing evidence that companies and brands that become Fairtrade certified more often than not see sales and reputational uplifts. It may explain why Starbucks, on the receiving end of some unfavourable press in recent years, markedly increased its Fairtrade coffee offer last year.

Marks & Spencer, the UK’s biggest clothing retailer, has committed to sourcing Fairtrade cotton and food goods as part of its Plan A mission aimed at reducing its carbon footprint and becoming a fairer business partner with its suppliers. It is a policy born out of enlightened self-interest. Consumers want competitively priced goods but not at any price. It is clear shoppers are concerned that workers in developing countries receive a fair wage. And Fairtrade is undoubtedly seen as a way of guaranteeing they benefit.

Consumers know what they want. So businesses these days cannot afford to come up short. And when you think about it, that’s fair enough.

Directions Supplement June 10

Ethical business – why it’s not just the suppliers who benefit

Leading businesses ignore human rights, environmental and pay and conditions issues at their peril. Failure to abide by the spirit of protocols and laws can exact a hefty price if new in-depth research* commissioned by the Fairtrade Foundation is anything to go by. This shows that one in five British consumers punish socially irresponsible companies through their shopping choices.

And, within the committed Fairtrade consumer sector, this rockets to more than two-thirds who say they always or often punish companies for not being socially responsible.

That’s the stick.

The carrot comes in the shape of huge brand loyalty for companies who make a point of doing the right thing. In fact nearly a third of consumers, according to a poll of 1,500 consumers undertaken by Globescan, are likely to reward companies for being socially responsible.

It’s proof that placing importance on sustainability – whether it is paying a fair price to farmers in the developing world for commodities or reducing a firm’s environmental footprint – pays huge dividends.

Look at how the Co-op and Sainsbury’s supermarkets have fared since scaling up their work with Fairtrade. The Co-op was the first UK retailer to sell Cafedirect coffee, Fairtrade bananas and wine. Its strategic decision to sell as many Fairtrade products as possible is by no means a direct reason for it becoming a fifth force in British supermarket retailing. But its Fairtrade shift has played a part by tapping into UK shoppers’ sense of justice for producers in the developing world.

Likewise Sainsbury’s, under the leadership of Justin King, has shifted all its own brand bananas, sugar and tea to Fairtrade. Not only did the move transform the fortunes of communities in some of the world’s poorest countries but it coincided with Sainsbury’s sales growth through a recession. And, in bananas, Sainsbury’s shift to Fairtrade saw an overall significant sales rise.

Ethical consumerism is now part of the retail mainstream. And Fairtrade is leading the charge. Retail sales in the last 12 years have risen from £16m in 1998 to £800m in 2010.

Michael Gidney Deputy Executive Director, Fairtrade Foundation

* http://www.fairtrade.org.uk/press_office/press_releases_and_statements/may_2010/millions_of_uk_consumers_punish_businesses_who_dont_treat_workers_fairly.aspx

“ The carrot comes in the shape of huge brand loyalty for companies who make a point of doing the right thing”

In this post-Copenhagen world, the most advanced businesses are developing an innovative approach to innovation itself, in order to solve environmental and social problems that governments too often fail to address. They offer dematerialised services as an alternative to resource-intensive and waste-generating products: Apple has passed Wal-Mart to become the biggest music retailer in the US. They see nature as a teacher, not as a supplier, developing nature-inspired innovations: take the example of a biomimetic air-conditioning free building, inspired by termite mounds. They choose open-source approaches to innovation rather than confidential and secret-driven ones – can one seriously think about patenting a cosmetic ingredient created using a plant that Indians have used for centuries in South America? And they develop a collaborative approach to innovation. This might be by creating new partnerships with NGOs: concrete-giant Cemex has efficiently addressed the market of low-income do-it-yourself homebuilders by partnering with micro-lending organizations.

Business models, product innovation and consumption are now at the heart of the sustainability challenge: the brands that will be prospering in a decade are those that are radically committed to becoming more sustainable. Not for 1% or 10% of their activities. But for 30%, 50% or 100%. Essentially, a strong brand is an exciting journey shared with consumers: at last, this is one journey worth the effort.

Sustainability: the key driver of innovation and brand value In the future, only companies that make sustainability a strategic goal, rethinking their business models as well as their products, technologies and brand promise, will achieve competitive advantage.

“ We need a new CSR revolution… to seize the potential for innovation and brand differentiation”

Elisabeth LavilleFounder and chief entrepreneur of Paris-based consultancy Utopies

The days of the traditional corporate social responsibility (CSR) approach are over. Focused on industrial practices and internal processes, it was put in place mostly out of a defensive approach – aimed at anticipating new regulations, preventing image crisis, reducing costs and preserving the company’s licence to operate. But in most cases the business model remained unchanged and unchallenged. Even if ‘green’ or ‘responsible’ products were launched, they were not seriously promoted, thus accounting for less than 1% of their market (see fairtrade coffee, sustainable tourism, organic food, ethical investments, etc.). And CSR fell short in solving the social and ecological challenges, because corporate practices only affect a tiny share of a business’ global impact: no matter how great a car manufacturer is doing in deploying ISO certification on its industrial sites, and reducing the CO

2 emissions of its

factories, factories only account for 12% of the global CO

2 emissions of the industry, while

cars account for 80% of its climate impact. So if we do not shift technology portfolios used for mobility (whether electric, hybrid, etc.), if we do not think of alternative mobility solutions more sustainable than individual cars, for example public transportation or car sharing, and, above all, if we do not succeed in mainstreaming these throughout the world, then we will fail in addressing the climate challenge.

This is our challenge for the years to come: we need a new CSR revolution, one that will go beyond risk management so as to seize the potential for innovation and brand differentiation brought by sustainability when it is placed at the heart of the business model. Because this is what is needed if we are serious about leaving a better world to our children and making this a real business opportunity. The English retailer Marks & Spencer launched its 5-year Plan A in 2007 and is now committed to having 50% of its products with a green credential in 2015 and 100% in 2020. In a like-minded approach, Philips committed in 2007 to have 30% of its turnover related to green products by 2012, thus shifting the whole company’s approach to innovation and the brand’s reputation.

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The Directions Supplements support our main Directions report. The main report is published each year and is now regarded as the UK’s most comprehensive analysis of the trends and issues in CR communications. If you want a copy, call us on the number below or emaildirections@salterbaxter.com

About usSalterbaxter advise companies on strategy, branding, corporate communications and design – providing creative communications for big business issues.We work on a wide variety of corporate communications assignments for our clients including brand strategy and implementation, annual reports, digital communications and employee engagement. But we are increasingly being seen as one of Europe’s leading sustainability communications consultancies, with an unrivalled breadth and depth of experience across multiple sectors and multiple countries. We offer a full range of corporate responsibility and sustainability communications services – from board level strategy consulting to the design, writing and delivery of printed and online communications. And everything in between. Our team of sustainability consultants is basically designed to be able to help major corporations tackle every aspect of the sustainability agenda:

– Development of corporate and brand sustainability strategies

– Stakeholder engagement

– Reporting

– Single issue campaigns

– Internal communications/employee engagement

– Social media strategy and programmes

– Writing

– Workshops and training

– Gap analysis

– Research

– Events

ClientsOur sustainability clients are the leading corporations in multiple sectors across the whole of Europe. Latest ones include:

UKArcelorMittalAXA UKBacardiBAE SystemsCamelotCoca-Cola GB & CCEE.ON UKMorrisons02 UKRolls-RoyceTullow OilVodafone

EUROPEadidas GroupCarlsberg GroupE.ON GroupFortumH&MING GroupLEGOMarine HarvestMillicom InternationalNokiaOrklaTelefónica 02 Europe