Going green isn’t philanthropy, it is profitability

Is it really worth applauding brands making business decisions around sustainability or is there more to this picture?

“The social responsibility of business is to increase its profits” – Milton Friedman, 1970

Could you even imagine saying something like this, right now? Let me rephrase this question better. Could you imagine walking out unscathed if you said something like this in the company of educated people?

Activists now believe businesses need to be held accountable for their actions.  And although a few years ago, this conversation was nothing short of a futile and lasting game of tug of war, now it has somewhat become reality.

Green brands have emerged to cater to a growing section of the population: the green consumers. While some brands were born on the principles of sustainability, others had to incorporate sustainability in their brand policies. A full green revamp, if I may.

But the most striking feature of these green ‘converts’ would be this small chunk of companies – sin stocks like tobacco companies and pollution-kings like oil companies. Because this strange amalgamation of quite literally poor-street cred companies is slowly adopting ESG (Environmental, Social and Corporate Governance) initiatives. And, surprisingly succeeding at it.

Some might even commend this and say it is absolutely refreshing to have philanthropic organizations that are willing to cut back on profits for a greater good.

But is it really? Like really really that unprofitable?

It is actually (hate to break it to you) incredibly profitable for some sectors and way too easy (that you will find yourself banging your head against the table) for others.

The basis of the ‘green makeover’ in corporates: competition

It isn’t social consciousness that has every sector incorporating sustainable business strategies. It is simply market competition. In times when going green is the new black, brands need to remain relevant. It doesn’t matter anymore if you simply provide the solution to your consumer’s individual needs. You have got to make sure you are enabling society to live with dignity in the pursuit of selling. If you don’t align yourself with particularly ESG, there are thousands of alternative brands available. And the consumer now won’t bat an eye before doing so.

Brands need to keep on positioning themselves as the ‘good guys’, the ‘person in the white hat’, the ‘lesser evil’ (for particular stocks). And there is no way better to do that than agree wholeheartedly to the little seventeen-year-old student-turned-climate-activist from Sweden. Or if not directly agree to her, position yourself as a good, law-abiding, socially responsible brand in society standing just behind her as she shines in the limelight.

Sustainability in Oil Companies: Easy money

Contrary to popular belief, companies are well-aware of the rising need to adopt sustainable business practices. Oil companies, which contribute about 55% of earth’s carbon emissions, have actually known all along that their business practices are harmful to the environment. They only turned a new leaf when they realized that the world is on the brink of extinction and they, the most influential players, need to wake up.

Eh, not really. More like the probability of carbon taxes has every sector darting towards the nearest handbook for ‘sustainable (yet profitable) businesses’. And the oil companies are no stranger to this feeling. When the global society unanimously decided that change in lifestyles and production is pivotal for the human race to succeed, investors woke up to the threat. With pressure from them, the executives from these companies pledged to alter their strategies. For example, seeing resolutions like the Green New Deal and ideas like the Republican-backed carbon taxes being introduced and commended in American and international society was bound to scare them. More taxes would imply a greater cost in producing oil, which of course would translate to lighter pockets for the top guys.

Companies like ShellRepsol and Total lead this budding group of oil companies pledging to do something they deemed impossible a few years ago. There are a lot of challenges to these big promises that big companies are making. But the most prominent one is that 90% of greenhouse gas emissions produced by oil companies are actually out of their control. Although the aforementioned companies are making efforts to try to contain this, there is still a large chunk of emissions coming from these industries that will further pollute the planet.

It is not completely profitable but it is still better than what they would face if they wouldn’t have done anything about it. Also, I think it is fair to state that the branding strategy of these companies is also spot-on. They detect chatter on the streets and pull off doing something so simple as “philanthropy” just because they are the first ones to do so.

Sustainability in tobacco companies: Not so easy but still money

In 2019, Philip Morris International had decided to have Robert Eccles, an esteemed personality in the community of corporate governance, on board to give their cigarettes a green makeover (yes, I know how that sounds). Ever heard of Marlboros? Because that’s PMI’s most popular product in addition to Parliaments and Virginia Slims.

The company has, of course, received endless flak from anti-tobacco activists and environmentalists alike for refusing to stop the supply of cigarettes but that criticism is irrelevant to our conversation. What Philip Morris does might seem incredibly idealistic and ridiculous at the same time but take a look at the graph below before jumping to conclusions.

Source: US SIF

This is a visual representation of how many ESG management has been included in US businesses the past few years. And the short answer of how much this helps? Lots!

It seems fair (somewhat) for tobacco companies to venture into ESG sectors. And it helps enormously to paint a picture that while PMI is bad, it is less bad than its counterparts because it is transparent about its contribution to the greenhouse gas emissions and cancer. And they are doing this by introducing smoke-free products with a lesser probability of addiction and reliability. They have managed to convert 9.7 million customers to their smoke-free cigarettes and spent over 7.2 billion dollars doing this.

But not all of this is so pretty. An investigation by the Bureau of Investigative Journalism reveals that this was just a poor attempt at dominating market share once again. Smoking had decreased in the past few years and PMI wanted to remain relevant again. It came out with their smoke-free cigarettes with the narrative that it cares for its consumers.

The point isn’t that they don’t care about the consumers. The point is that yet again, a brand has used the narrative of ‘sustainability’ to impact its profits. Well, that was the intention and it was futile because three years after introducing the product, their stock price is at a low (80$/ share last time I checked). Some might wave this off saying it is a direct result of the gnarly pandemic surrounding us but is it really that simple?

My bet: no.

So, is corporate sustainability bad or good?

It is great. It is exceptional. It is revolutionary. We are all glad that things have started moving. Let’s not take things for granted though. There is more to the picture than a brand swerving to the sustainable lane because it “believes in the cause”.

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