Recently my daughter participated in her first demonstration, one organized by Fridays for Future. She’s passionate about climate change and biodiversity. I was 12 years old when the Chernobyl disaster occurred, but I was (and still am) passionate about politics. The fall of the Berlin Wall was the true trigger of my political consciousness; I was 17 when I participated in my first demonstration, against the war in Yugoslavia in 1991. Fast-forward 30 years, and I think environmental sustainability will spur the next wave of business transformation:
Greener consumers will demand sustainable brands.
Gen Z will put a lot of pressure on brands, forcing them to go beyond touting their environmental sustainability efforts and take real action. Younger generations are more likely to demand full transparency on how brands impact the planet’s resources, more prone to use apps like Yuka or Buycott to scan food or cosmetic ingredients, and more willing to boycott products and brands. It would be a mistake to think this phenomenon is restricted to the young.
In fact, half of the US population is already green according to Forrester’s green segmentation. European consumers are greener and more willing to buy from sustainable brands. French and Italian online adults see a firm’s position on climate change as the number one corporate social responsibility issue (it ranks only number seven in the US). They are also more likely than their US peers to buy sustainable and organic products or go out of their way to buy from companies that are committed to reducing their impact on the environment. As I explain in our report, “Greener Consumers Demand Sustainable Brands,” this phenomenon is not new, but the crisis is accelerating it.
By forcing people to focus on health and hygiene, the pandemic strengthened the perception that environmental sustainability affects our personal lives. We care more and more about the food and medicine we put in our bodies, the cosmetics we apply, the clothes we wear, and the cleaning products we use in our homes. Brands in the food, health, consumer packaged goods (CPG), and fashion industries are taking notice and establishing a more emotional relationship with consumers for everyday products.
Sustainability will spur a new business transformation imperative.
While most firms are still in the midst of their digital and customer experience transformations, the green revolution will spur a new business transformation imperative. Leaders are launching bold, enterprisewide transformation initiatives backed by the C-suite. I strongly believe that CMOs should embrace sustainability as their next companywide business transformation. Those who fail to do so can expect creative disruptors, investors, and activists of green technology to sabotage their brand equity. More broadly, sustainability will be the next source of competitive advantage.
Appointing a dedicated C-level executive to lead sustainability efforts is not enough. “Bolt-on” chief sustainability officers will last no longer than chief digital officers. To truly transform their firms and gain competitive advantage, CEOs must embed sustainability everywhere in their organization and initiate deep cultural change. As Chris Leong, CMO of Schneider Electric (recently recognized as the world’s most sustainable corporation) told me: “Our core strategy is to focus on clean energy transition. However, environmental sustainability is just one side of the coin. Broader sustainability efforts improve performance, innovation, and our attractiveness as a brand. It creates value.” CMOs must focus on value creation, conducting broader sustainable ecosystems of internal and external partners.
The recent governance crisis at Danone illustrates the need to marry sustainability and profitability.
Sustainable global brands will also have to pivot to a trusted multilocal operating model. Among other geopolitical disruptive forces, climate change will play a key role in the emergence of multilocal firms. For example, Danone is definitely on the right path when embracing a new “local-first” strategic plan to reorganize the firm. “We have to [keep our distance from] the pyramidal heritage of most large organizations of the 20th century; we will reorganize the company to listen to each market and make sure decisions are taken at the country level,” said CEO Emmanuel Faber recently.
Over the past few years, Danone made some bold decisions, such as its $11 billion acquisition of WhiteWave, a leader in organic foods. Danone’s mission is to “bring health through food to as many people as possible” with an ambitious tagline: “One Planet, One Health.”
However, Danone’s board ousted Emmanuel Faber after pressure from an activist investor group. Isn’t Danone’s governance crisis the best counterargument that you can’t marry sustainability and profits? As the Financial Times recently noted: “If France’s most prominent advocate of purpose-driven capitalism cannot make it work, critics are bound to ask what is the purpose of ‘purpose’?”
The Danone case study highlights the tensions between shareholder and stakeholder capitalisms. Emmanuel Faber certainly made some mistakes, but let’s be fair: He was a visionary leader and for many years embodied Danone’s values and DNA. His farewell letter to Danone’s employees made a great point with an almost prophetic tone: “Danone trailed the path of social and climate justice. This is the only road possible for the market economy. It will impose itself on capitalism and its governance of the past.”
While it is true that Danone’s returns lag those of rivals such as Nestlé and Unilever, the story is much more complex than it looks. Many firms (including Danone) have proven that it’s possible to marry sustainability and profitability. I think it depends on how much profit you have to deliver if 15% ROCE is the norm and if politicians will impose other societal and ecological norms moving forward.
I think consumers’ and employees’ social activism will define which flavor of capitalism will gain the most traction between Nordics’ flexicurity, Germany’s soziale Marktwirtschaft, and the more free-market approach of the US and the UK.
This debate is not new — but the crisis is reactivating it.