Can consumer and shareholder interests be aligned? E. Freya Williams, a consultant and author of a new book which cites nine examples of businesses that have made $1bn or more in revenue out of their sustainable or ethically-conscious business lines, thinks we may have reached a tipping point. It is often assumed consumers and shareholders’ interests are diametrically opposed – take the practices of banks and energy companies as examples. But profitability and the pursuit of ethical business can be synonymous, while customers benefit from buying improved products borne out of innovation, Williams argues in her book, Green Giants.
Her findings are pertinent at a time when the scandal engulfing Volkswagen (VW) continues to dominate headlines, adding immense reputational damage to the mounting costs of a corporate fraud that affects shareholders and customers alike. The ultimate costs of the VW crisis remain unquantifiable. But even the known numbers are enough for some analysts to ask whether the company will survive. VW has allocated €6.5bn in its third quarter accounts for the anticipated repercussions. Last week, the firm’s share price dropped by 34%. Litigation costs are set to rise: the US Environmental Protection Agency (EPA), which uncovered the falsified emissions released by the company’s diesel cars, has levied a fine of $18bn. At least 25 proposed class actions have been filed in seven US states, expected to increase to most or all 50 US states.
Sustainability at the core
Williams sees this unfolding corporate crisis as proof that businesses need to wake up to the need to integrate sustainability into their core strategy, rather than treating the concept as an add-on, or a corporate social responsibility ‘tick-box exercise’. “It’s interesting to see how swift and unequivocal the response has been,” she says of the scandal, arguing it is proof that while there may be risk attached to embarking on a ‘Green Giant’ strategy, there is significant risk to doing nothing—or worse, the wrong thing. “Compare what the Green Giants have gained to what VW is in the process of losing in terms of revenue, reputation and trust,” she says.
Readers of her book may be surprised to learn these so-called Green Giants span a range of industries: cars; fast food; energy; clothing; homeware; household goods and cosmetics. These companies—not the only Green Giants to have passed the $1bn profitability mark since the time of Williams’s writing—are Tesla, Toyota, Chipotle, Whole Foods, GE, Nike, IKEA, Unilever and Natura. Collectively, the revenues of these nine firms add up to more than $100bn a year, more than the GDP of 70% of the world’s 180 economies, her analysis finds.
The price of inaction
It is no small irony that while VW continues to count its losses for damage to the environment and the health of customers, in 2014, Tesla, which manufactured the world’s first commercially successful all-electric vehicle, made $3.2bn. GE’s ‘Ecomagination’ line, whose products include diesel locomotives and electric vehicle charging stations, certified against a set of criteria and verified by a third party as delivering superior environmental and financial performance, made $28bn in 2013. And Toyota gained an estimated $15.44bn in 2014 from sales of the Prius, the first mass-produced hybrid car. UBS, in analysing the ongoing potential fallout from the VW scandal, which affects the reputation of the German auto industry as a whole due to the brand’s significant weight within it, has said it expects consumers may now opt for US and Japanese car models instead.
Like VW’s customers, shareholders are waiting to see just how much value is wiped off their investments in the company. The Telegraph reported on Saturday that Qatar Holdings has lost £3.3bn in VW so far this year. A day later, the same paper said that Nordea Bank will retain its existing stock and debt holdings in the company, but has banned its fund managers from further investing in VW.
According to Williams, going green authentically requires a visionary at the helm of the company, who not only believes it is the best approach but is capable of driving through that value to ensure it is implemented at all levels. Whether Matthias Muller, the former Porsche CEO now charged with repairing the harm inflicted by VW is the visionary who can turn things around for the company, or will be doing little more than damage control, remains to be seen. His task will be a struggle. What the Green Giants all have in common is first-mover advantage - and in the car market that space is already getting crowded.