Capturing the Green Advantage

Successful Green Transformation: The Four Ps

Green strategies offer product makers and retailers a competitive advantage in product differentiation and cost savings. Green initiatives have emerged across nearly all consumer sectors, including automobiles, electronics, durables, energy, health care, packaged goods, and retail. Some players harnessed their “greenness” as a competitive weapon — a path to leaner operations, greater market share, and more attractive brands. Others have encountered bumps in the road that have resulted in higher costs, allegations of greenwashing, and disaffected customers. What separates the winners from the losers is a clear green agenda. It calls for a top-down vision and coordination across the value chain — in other words, a holistic approach to going green that enlists every part of the organization: the four Ps of planning, processes, products, and promotion.

We’ve looked across the consumer industry and identified ten best practices for gaining a green advantage. Below we explore each practice, singling out a few companies as exemplars. Needless to say, most of the companies we mention are working on several fronts, not just one or two.

Planning

• Factor sustainability into strategy, future resources, and budgets. A leading hotel chain in Europe has been tackling environmental issues since 1994 and highlights proactive sustainability as a core value in its mission statement. In 2007, the company announced that it planned to halve its carbon-dioxide emissions by 2011 and eliminate emissions entirely by 2025.
• Make the rules, don’t just follow them. Joining in industry partnerships with respected certification programs is a smart long-term investment. Many companies are beginning to adopt the standards of a few of these programs. One is the Energy Star label, created by the U.S. Environmental Protection Agency in 1992 to reduce energy consumption and greenhouse-gas emissions from power plants. Some 2,000 manufacturers use the label, which appears on more than 40,000 energy-efficient products at more than 1,000 retailers.
• Make a clear business case for sustainability initiatives. A consumer-packaged-goods company was able to improve its balance sheet and help protect the environment through changes made to one of its household-cleaning products. By shrinking the product’s midsize container by two-thirds and greatly increasing its concentration, the company was able to lower production costs for water, cardboard, and resin; reduce logistics costs through more efficient warehousing; decrease the number of trucks needed to carry the product; and increase sales through reduced out-of-stocks and improved shelf efficiency. These moves increased profits by about 16 percent.

Processes

• Go green across the full value chain. Consumers have wide-ranging expectations for green businesses, and they — and their national governments — are likely to grow even more demanding over time. These facts should spur companies to go beyond discrete, one-off responses — a switch to recycled packaging, say, or the offer of a low-fat alternative. Wal-Mart, which received high ratings among our survey participants, is turning itself into the reference company for green by its determination to put a green stamp on the entire life cycle of the products it sells: the raw materials they contain, how they are supplied and transported, how they are displayed in the store, how they are used by the customer, and how they are disposed of.
• Target early wins to build momentum, credibility, and motivation. When developing a change agenda, it is essential to have the whole team onboard. An easy way to rally the troops is to leverage quick wins. By replacing or retrofitting equipment such as lighting, toilets, electronics, heating and air conditioning systems, and water heaters, companies can demonstrate immediate results — with a return on investment as high as 150 percent in some cases. A national supermarket chain with more than 400 stores saved $12.2 million in one year by retrofitting lighting and installing energy management systems. An office building with leasing revenues of $6 million a year recouped 25 percent of its investment by taking similar measures.
• Embed green goals into incentives and reporting structures. What gets measured gets done. Companies need to transform their goals into specific initiatives and integrate them into their overall reporting structure. Tesco has designed metrics that track such granular data as CO2 emissions by source. It has also introduced a set of key performance indicators that measure these emissions against specific targets, such as “reduce CO2-equivalent emissions from our existing stores and distribution centers worldwide by at least 50 percent by 2020” and “restrict air transport to less than 1 percent of our products.”

Products

• Make sure consumers understand why your green product is superior to all the others. As far back as 1997, Toyota knew that automobile owners would become increasingly concerned about the effect of their driving on the environment. Since then, advertising campaigns for the Prius clearly spell out the hybrid’s environmental benefits as well as the excellence of its engineering. That has made the Prius the world’s most well-known gas-and-electric hybrid vehicle.
• Get the pricing right. “Just because it’s a sustainable product doesn’t mean it has to cost more,” says Matt Kistler, senior vice president for sustainability at Wal-Mart. “When buyers come to me expecting an environmentally friendly product to be more expensive than the current one, I tell them they need to ask the right questions. A green product should use less packaging and cost less for transportation. Sustainable products should be the same price or less than the products we are replacing.” Companies should aim for products that are affordable as well as environmentally friendly.

Promotion

• Direct green efforts from the top and get buy-in from key stakeholders. “What I thought was going to be a defensive strategy is turning out to be precisely the opposite,” says Wal-Mart’s CEO, Lee Scott, on the greening of the company. Scott has become the public face of Wal-Mart’s 2005 commitment to cut greenhouse-gas emissions at its stores by 20 percent by 2012, double the fuel efficiency of its truck fleet by 2015, reduce solid waste in its U.S. stores by 25 percent in the next three years, and sell organic food at prices its customers can afford. By staking their own names and reputations on these promises, Wal-Mart’s leaders have overcome a good deal of skepticism about how serious the world’s largest retailer is about protecting the environment.
• Be consistent in order to be credible. Goals, actions, and messages must have a common underlying vision. General Electric never misses an opportunity to send out messages about its “ecomagination” efforts through TV and print ads, conferences and trade shows, press releases and magazine articles, sustainability reports, podcasts, educational online games, and a dedicated Web site. It also measures the effectiveness of each medium and knows which channels have the greatest impact.
• Winning the hearts (and wallets) of green consumers is a wise move for producers and retailers. But going green is not merely a tactic for a single product or a discrete process. Rather, companies should strategically employ green planning, which incorporates green targets and resources into corporate strategy; green processes, which allow companies to practice what they preach; green product offerings; and green promotion and messages.

On the Web

We can’t do it all ourselves, but we are trying to read all of it. As we develop this special report, we will share the most useful, interesting, and provocative resources we find on the web. If you have any good links to share, please add a link to the comments at the botton of this page.

Innovation as a Green Strategy (GreenBiz)

At its own in-person roundtable earlier this month, executives from IBM, IDEO, and elsewhere riffed on how innovation and sustainability are inextricable.

Becoming a Green Business (State of California)

Companies just starting the journey can start with this list of first-step compliance practices.

Cultivating the Green Consumer (Stanford Social Innovation Review)

How can businesses help consumers be as green as they say they want to be?

What’s Behind the Green Consumer Research?

Joel Makower, author of Strategies for the Green Economy, surveys some earlier reports. You can also read Makower’s State of Green Business report.

Seafood Watch (Monterey Bay Aquarium)

The best way to gain deserving trust is to provide authoritative, easy-to-act-on information. The Seafood Watch guide, available on a variety of computer and device platforms, helps individuals decide whether the fish they’re ordering is sustainable. If not, the guide offers alternatives.

WattzOn

There are dozens of personal carbon calculators. We’ve tested many of them, and we’ve found WattzOn to be not only the most comprehensive, but the one with the most practical and wide-ranging underpinnings. Google is developing one, too.

Don’t Bother With the Green Consumer (Harvard Business Review)

Steve Bishop says going green means focusing on practices, not customers.

Today's Oxymoron: the Green Consumer (Washington Post)

It always pays to be skeptical. To this author, going green means “having less, not tossing stuff and buying eco-friendly replacements.”

Companies going green balance the imperatives to do well and do good. Two worthy resources on that are Can Businesses Do Well and Do Good?, from The New York Times’s “Economix” blog, and Does It Pay to Be Good?, from the Spring 2009 issue of MIT Sloan Management Review. Economix and The Wall Street Journal’s Environmental Capital blogs cover green business on a daily basis, as does our own Beyond Green.

Green, Despite the Downturn

Catherine Roche, a partner and managing director in The Boston Consulting Group’s Düsseldorf office, is an author of “Capturing the Green Advantage.” She spoke with MIT Sloan Management Review editor in chief Michael S. Hopkins about what has changed since she conducted the study — and what hasn’t.

Your survey was done in July. Between now and then much has happened. What is different now compared to when you collected the data?

Companies have been shocked by what they’ve seen out in the marketplace. There’s been a major drop off in consumer demand. Now the initial shock and fear is probably starting to settle down a bit and people are coming back to asking: What was our agenda before? What’s still valid? What needs to change?

We think green was on everyone’s radar screen back in September, before the economic crisis took center stage. And the good news is that it won’t disappear in the fallout from the crisis.

For many companies, the focus now is on getting leaner as fast as possible. Let’s make the most out of the resources that we have — which fits in perfectly with the goals of “green.” If nothing else, green is about trying to use our resources more efficiently, stretch them as far as we possibly can and avoid waste. I think companies, at least the way they act internally, are still going to be very much looking for this as a lever for cost savings.

Now in terms of their dialogue with consumers, I think green remains an important message that companies need to keep delivering. Beyond our July survey, BCG also conducted pulse-checks on green sentiment in October 08 for Europe and January 09 for the United States and it’s clear from those findings that green is still something that’s on consumers’ mindsÖand that they’re regularly factoring it into their shopping behavior.

The one thing companies might emphasize more is the message that green doesn’t have to cost more - for either consumers or companies. You can be green in an affordable way and in a way that’s going to fit into your tightened budgets. Companies that can make that point credibly, and show that they can offer green in a way that’s convenient, won’t cramp a consumer’s style, and won’t hurt a consumer’s budget, are going to do very well from this.

Wal-Mart is a great example. They have fared well compared to the general retail sector over the last three or four months because their value message is so established and so credible — and its value message on green is also well established and credible. Wal-Mart spoke that way even before the economic crisis began. Now, it’s a message that’s finding strong resonance with consumers.

The leading players on green are saying: “Before the crisis, green was about health and safety, green was about savings, green was about things that are directly beneficial to you — it’s still about that.” Let’s not lose sight of that.

What are the big differences between what you might have been saying to companies six months ago and what you are saying now?

We’re saying essentially the same things, but we nuance it differently. We try to prove to them quite clearly and strongly the business case for green. It’s not only about consumer differentiation; it can also save you a lot of money now — not two or three years from now, but now. Also, it’s more of a motivational spin for your own internal organization to say “we need to save cost, not only for the good of the company but also for the good of future generations.”

A green message motivates a lot more internal energy and brings a lot more enthusiasm, bottom up, than you’d get with ordinary cost-saving messages. When I talk to companies now, I really emphasize the fact that green need not cost the company more and need not cost the consumer more.

I would’ve made that point a year ago, but a lot of companies might not have heard it. They would’ve noted that they can charge price premiums for green. But that is a tougher sell in many categories in this economic environment.

I’d also encourage companies to make sure that they’re clear on the benefit they’re delivering to the consumer and have identified the right price that consumers are willing to pay.

A year ago companies were very interested in starting internal initiatives to move on green. They felt compelled to because their consumers expected them to and they wanted to drive action. And a lot of them implemented new positions in their organizations, such as a “Head of Sustainability.” There was some groundswell of activity. Now there’s a little bit of backing off, with companies saying, “Let’s wait and see, let’s do the urgent things now, fight the fires that we really have to, and we’ll come back to it.” There are still things being done, but it’s harder to get a CEO’s immediate attention.

You said companies see green as a lever for cost savings, but do consumers see it that way?

Yes they do. When we ask people to identify their most regular green behaviors, the ones at the top of the list have a clear “saves-me-money” benefit. We get answers like “I’m going to use energy efficient light bulbs” and “I’m going to turn off the lights in my house when I go out.” and “I’m going to bring my own bags to the grocery store.” and “I’m going to try to cut down on driving and watch my gas consumption.”

Consumers say they can do these things fairly conveniently, that it doesn’t really cramp their lifestyles, and it has a clear bottom-line benefit for them. Consumers have definitely caught on.

With all that’s happened in the economy, are there any ideas in the study that you wish you could have pursued more?

CEOs are wrestling with the question of how much to communicate. “Do I risk being accused of “greenwashing”? “How bold should I be?” “How do I back up my message to make it feel meaty enough and real enough?” They want to get more credit for what we’re doing, but on the flip side they’re afraid to make too many promises.

Afraid of what?

Afraid of backlash. Afraid of somebody saying, “You’re saying you’re doing all this great stuff on green, but we just researched what you’re doing elsewhere. Your factory in Malaysia still has some questionable labor practices and the two things don’t hang together. You’re inconsistent, less than sincere.”

That risk leads a lot of senior executives to say, “I’m interested in green and I’m pursuing it, but I’m doing it in a very under-the-radar way. I don’t want to talk about it in the media because I’m too worried about backlash.”

Speaking as a media member I’m happy to hear that. We have seen, it’s safe to say, over the last year an explosion of sort of green PR for companies. It’s become very difficult to parse it enough to know what is substantive and what of it is not.

Exactly. Consumers can be skeptical, wary of trusting a company. Our research shows a high instance of consumers saying “it’s important for me to get information and I need guidance,”. But trust of retailers and manufacturers to provide that information is very low.

Georges Kern of IWC Schaffhausen says the most important thing about green is the internal benefit he gets at his company. What sort of HR advantages emerge from adopting a greener product and service strategy?

We’ve seen that motivational benefit cited elsewhere, too. Several companies cite statistics that their employees are prouder to work with them because of major environmental initiatives and commitments.

Many have introduced employee suggestion programs around green to pull in many new ideas for cost savings that the company wouldn’t have thought about otherwise.

Some even go much further — for example letting their employees take short leaves from work for personal green initiatives, and they even provide some funding for that. Such efforts can produce satisfaction levels among employees that are outstandingly high.

You make much in the report about the need to educate consumers. How do you imagine that education process will unfold?

We were looking at it from the standpoint of retail, asking why so many consumers who would be interested in green products don’t buy them. We found there were two main obstacles — and surprisingly price was not one of them. First, it’s awareness. Consumers don’t know that there are green alternatives in many categories. They don’t know the benefit. Second, it’s perceived lack of choice. There’s a perception that if I buy green I’m going to be limited to a product from a separate section in the store that might not be as effective as the conventional alternative.

Retailers and manufacturers both have some burden to bear on that front. Retailers need to communicate choice and give consumers a sense of why green matters in this category. They must also figure out what to communicate to consumers both when they are in the store and before they get there.

There’s also a lot that manufacturers need to do about communicating on the product itself. What’s it about? What’s in it for the purchaser? And manufacturers need to work with retailers on independent standards that consumers can trust and rely on to really tell them if something is in fact green and can live up to its product claims.

Standard-setting is a big issue. There are many standards around “green” out there now, and for the most part they don’t mean much. They aren’t closely regulated unless there’s a lawsuit and some specific complaints, like there has been in the beauty industry as well as other areas.

So who is going to set the standard? Industry? In many cases they should be the ones that are lobbying for standards and proactively shaping them, but will consumers trust them? Consumers have told us they’re looking for independent third-party standards to overcome the trust issues.

Although there is much uncertainty about standards, it’s a huge opportunity for companies that can get out ahead of it and nail it. Early movers will have more of an opportunity to affect the way those standards are formed. Companies that wait might find themselves left behind.

Imagine you’re talking to a CEO who can’t hire you, for the sake of argument, and you’re going to give some advice about just a first move. What’s the first thing you ask executives to do, when you go in and actually begin an engagement or for that matter if you’re just going to throw some advice over the wall so they make some moves on their own?

It depends on where they are starting from. For companies at the average level of competence around green — they’ve got some stuff going on but it’s not tightly organized — the first thing they need to get a grip on is where they are vis-à-vis their competition and customers. What’s going on? How do they stack up?

When it comes to green, many companies don’t know what’s happening in their own companies. We’ve often found that things happen in bottom-up ways, driven by employees’ good intentions. They start happening over in operations and procurement and logistics, on the marketing side in product development, but there’s nobody standing over it all and figuring out how it adds up to a consistent strategy that will make sense to the consumer. Companies really need to see how all of these things come together, which issues are worth prioritizing and putting money against, and which ones are going to be most important.

Related to that, companies need to be clear on their aspirations for green. What kind of green do you want to be? Do you want to be a leader in this topic space, a company that’s very active and aggressive and vocal about its green initiatives, or rather more subtle and “under the radar”? Do you want to be with the pack? Ahead of it? Behind it? What kind of compromises are you willing to make in your business model to make it happen?

Companies need to know where they are, what they’re doing and how that stacks up against the competition. They need to know where their weaknesses are. And then, after the senior leadership is engaged and talking about where they want to go on green, companies can put together a credible pathway to get there.

In the report, you note that the planning is critical. Many companies are grappling with green and don’t yet have a coherent strategy.

To get the ship sailing, you really need to know in which direction you’re going. Then you can organize for it, put some targets down, and build a clear view on how you might actually meet them. That’s much more effective than making a bold statement like “we’re going to be carbon neutral by year X,” when no one in your organization knows the plan to get there.

When we start conversations with our clients on what pushing “green” to the next level could be worth to their organizations, CEOs pay attention. They’re saying, “What? They’ve been managing to get that kind of logistics or store operations savings? We should be getting that and more.” But it requires getting the numbers and facts on the table in order to size the prize.

Sustaining an Emotional Business

Georges Kern was born in 1965 to a renowned jeweler family. He has worked in the watch industry since 1992 (starting at TAG Heuer), and has served as chief executive of the venerable watchmaker IWC Schaffhausen since 2002.

In an interview with MIT Sloan Management Review editor-in-chief Michael S. Hopkins, Kern discusses how he runs his business with a long-term view, how the current financial crisis is different from the last one, and how to make sustainability a source of competitive advantage. He also considers which partnerships are right for a company bent on sustainability — and which aren’t.

How would you define sustainability?

I’d say it means taking the long-term view, building value for all your stakeholders over the long term.

Do you think that’s a definition generally shared by people when they talk about sustainability?

To be honest, I don’t know. But I do know that the issue of sustainability will be an extremely important one in the years ahead. We saw the starting point of sustainability, of taking the long-term view, ethically and morally, after September 11. I think recent events, such as the financial crisis and the bad repute the banking sector has got itself into, will encourage consumers to think about what companies actually stand for. I’m convinced of that.

Watches are an emotional business. People who buy our products are driven by their emotions. Nobody buys a watch simply to know what time it is. We are selling emotion. In the case of products like these, I believe consumers are going to do a lot more thinking during the purchasing process. I’m convinced this will be a key element in the years ahead.

Some people might think that a business predicated on an emotional response is tougher to run in difficult times. Are people going to be making different kinds of emotional decisions?

I really don’t know if emotional products will be more difficult to sell than non-emotional products in the near future. But I would say that for both types of companies or products, your behavior, your long-term view, your ethics, your sense of social responsibility: all these aspects are key elements of the consumer’s choice.

These days, when people buy things — and here I’m talking business to consumer — they tend to think about it a lot more than before. You no longer have the guy who’s just made a good deal on the stock exchange walking into a shop and buying something for $10,000 or $20,000. That’s all over. So people are thinking about what they buy. They think about the product. They think about the brand. They think about many elements.

Any company has to bear these issues in mind because everything today is wide open. There’s public pressure on us. Thanks to the Internet, everything is in real time. All the journalists are out there, on the alert. If you make a mistake - it is all over the world in two minutes.

Do you think this period of financial crisis represents a moment of opportunity for people who want to think more in the long term? Or is it going to make it harder?

It’s an opportunity. There’s going to be a mind shift, because society is going through a mind shift. It’s funny. I’m a member of the Young Global Leaders, which is part of the World Economic Forum. And Klaus Schwab [founder and executive chairman of the World Economic Forum] asked all of us to send memos giving our ideas. We had to write essays. I wrote exactly what I’ve just said. He told me that 90 percent of the group — there are 600 of us in all - wrote about ethics and morals. And I’m talking about business guys. They’re all in top positions. Perhaps it’s also a question of generation. Maybe our generation, people who were born in the 1960s and 70s, have a different attitude towards many things from previous generations, because we have much bigger problems with climate change, AIDS, epidemic diseases etc.

A very good friend of mine is in the board of directors at a Swiss Bank. We often talk about how the biggest philanthropists in the world are new money, not old money. Who’s providing the money for foundations? It’s new money, not old money. There is also the generation issue. But in this respect there will be a natural process of change.

Things like that also happened right after September 11. If people had been asked to write essays the way you described, you might have found the same result: 90 percent of them writing about ethics and morals. But we’re where we are now. How long-lasting is the effect you’re talking about?

The difference is that we are now in a huge economic crisis. September 11 was a devastating act by fanatics that rocked our concept of what is morally acceptable to its foundations, but what we face now is an existential economic destabilization, which directly effects everybody.

People are fed up. What are the successful brands today, in the crisis we’re going through? Number one, brands with values, with content, with history: brands that offer reassurance. And second, brands that are not showy. People are cocooning. When you look at the figures for home decoration, you see that investments here are on the increase. Why? Because people are staying at home. Society is changing. Education is changing. I see what my kids are learning at school: Who turned the light off? Who turned the water off?

In the midst of these changes, do you think it’s important to establish a common definition of corporate sustainability?

It could be interesting. To come back to Davos for a second, Klaus Schwab suggested that businessmen swear some sort of Hippocratic oath for sustainable management. I thought it was a very interesting idea, even though many people wouldn’t follow it. But having a kind of agenda of this kind could be interesting. It’s very difficult to establish, I guess, because businesses are so different. But there are nevertheless a few principles that could be established.

When you consider all the sustainability issues that affect us, which ones do you think will most affect management’s strategic decision-making?

We can divide this issue into three areas. First, there’s how you behave within the company, how you treat your people, how you build your corporate culture, how you involve your employees. We all want to retain our best people. We want them to stay and prosper with us. I think the spirit in the company is very important.

The way you do business is also very important. What kind of products, what kind of daily decisions do you take? Are these short-term decisions, designed to make short-term profits? Or will they help build up the company?

Finally, you have to watch your behavior towards external stakeholders, your shareholders or the town or the country you’re based in, or the issues that might interest the general public, like climate change.

You mentioned climate change as one of the areas of concern you have to address responsibly because of pressure from stakeholders. Do stakeholders have other concerns that you think are going to push you as a leader in new directions?

I’m convinced that climate change will dominate the debate for the next 10, 20, 30 years, especially in Europe, the United States and a few emerging markets. Of course you can talk about education, health, war, all these matters. But what is the issue that really concerns us, the one where we really do have an influence? I believe climate change and preserving the natural world will be the dominant debate. The next one will probably be water, which is linked to climate change. I think the change to the climate will be dramatic and it’s already happening. Look at the changes in the automobile industry, for example: within 18 months its strategy has undergone a complete about-face.

How do you account for that?

Public pressure, the price of oil, changes in consumer behavior. This is what’s happened to the American car industry. At any rate — and this is the approach that’s also been adopted by the Young Global Leaders — I believe that if there’s no economic incentive for companies to change their behavior, they won’t do it. You have to show companies that they can make money and be good corporate citizens at the same time. And this — the idea that you can be successful as well as being a good corporate citizen - is the point we’re trying to get across.

I’ve talked to the CEO of Timberland, which is a very green company. Timberland launched a boot made of recycled material, which has been a huge success. But Jeffrey Swartz told me it’s a huge success because it’s a cool product, not because it’s a green product. It’s cool and it’s green. And this is the added value, which is great. But if it had been a bad product, it wouldn’t have sold.

You talk about how you build your corporate culture and deal with people inside the business. Have you seen or felt different kinds of demands from them to change your culture, to behave differently?

No pressure. But we have a climate program. IWC is the first watch company in the world to hold certified carbon-neutral status. I’ve been here for seven-and-a-half years. When we launched the program two years ago, I had more positive response than when we were paying unusually high bonuses to all the staff. People were queuing up in front of my office. It was unbelievable.

You got better results from that program than you did from paying bonuses?

Yes, in terms of emotional response. People still like to get their bonuses. But the emotional response was much higher.

But if you’ve got limited resources and you’re trying to figure out how to allocate them, do you think you’re better off taking “X” dollars and applying them to bonuses or the kinds of measures that you just described to help advance on the sustainability front?

I’m 100 percent convinced that having these programs, having this reputation, is helping us attract and retain talent, even if we might pay less. We’re paying the same amount as the others. But what we have is a huge competitive advantage and it helps us retain talent.

It was a purely top-down initiative. You can’t implement these kinds of programs from the bottom up if you have the CEO blocking it. I’ve talked to many of them in our search for sponsors. All the cases I know from companies being involved in climate change or on these kinds of projects, it’s always top-down, because it’s such a cultural change. You cannot do it organically. Somebody has to take the lead, and I don’t know one single example where it came from the bottom up.

Amid all the strategic agenda items that CEOs face today, how do you prioritize sustainability?

That’s a very difficult question because at the end of the day you need to make your profit, your cash flow, etc. So let’s be pragmatic. People always have to do their duty. But when you talk to CEOs in Davos or in other organizations, sustainability is definitely on the agenda. But, again, let’s not be naive. It is on the agenda, at least partly, as a result of public pressure.

You had the IPCC report two or three years ago and then the Stern report. Those reports on climate change were all over the press. Then the consumers reacted. You would be a very bad businessman if you didn’t consider the sustainability issue. We get reactions from the public and consumers on this all the time. People are waking up in a dramatic way. It’s a new element of management — but you still have to deliver your profit.

You said two things that are really very interesting if we take them together. One, you’d have to be a naive businessman not to respond to the emerging pressure and awareness out there. And two, you describe how you get an enormous competitive advantage attracting and retaining talent by making the investments you do. Given both those things, how do you explain why other companies don’t follow suit?

Some people simply don’t believe it. You can’t expect everybody to see things the same way at the same time. Some people say it’s all nonsense, unnecessary panic. But I’m convinced that companies that incorporate all these aspects into their operations will ultimately be more successful than others. But it’s like everything in life: some people believe in it and others don’t.

So you view acting on sustainability challenges as a source of competitive advantage?

A hundred percent, yes. There are two ways of doing it: in your behavior as a corporate citizen and how you spend your marketing dollar. We have clear strategies. Companies spend a total of $750 billion a year on marketing. What we try to do is to spend our part of it in a meaningful way. You won’t find our logo on a Formula 1 helmet. Never. We support projects that are sexy but also meaningful.

For example, there is an unbelievable expedition called the Plastiki Adventure from David de Rothschild. He will set sail in May in a one-of-a-kind 60-foot catamaran built of post-consumer plastic bottles and recycled material. The crew will navigate more than 100 days and over 10,000 nautical miles from San Francisco to Sydney via a number of ecologically threatened regions, which will include the Great Pacific Garbage Patch, a huge ocean waste dump in the North Pacific Ocean as big as Texas. Using the Plastiki as a platform for rethinking waste as a resource the expedition will not only raise awareness on the issues but will showcase smart solutions to beat waste. David de Rothschild is a remarkable personality and extremely smart; his adventures and messages are very captivating and will no doubt inspire individuals to act more responsibly. This is the kind of smart project we support. It’s a different way of approaching marketing, and this is where we want to spend our money.

So it’s not just about how to manage the company but also how we spend our marketing dollar in a meaningful way. I think this will also be much more of an issue for corporations in future. They’ll have to ask themselves questions like: Do we want to invest in Formula 1? Does it make sense to put our logo on a soccer team shirt? Or shouldn’t I invest a little bit in this project, which makes sense, or in this project, which also makes sense? How can you guide the $750 billion spent annually on marketing in the right direction?

What are the obstacles or difficulties that face your organization when you’re attempting to meet sustainability challenges or adopting the kinds of initiatives that you’ve described?

In the company I’m in charge of, there are no difficulties, because I’m the boss and I just do it. Thank goodness I have the strong support of our employees and of Richemont, the shareholder.

Let me stop you for a second…

Oh, people are skeptical, sure. If you want to build credibility when you’re doing the kind of things I’ve mentioned, there has to be a thread running through it all. As I’ve already pointed out, we have a clear way of spending our money. We’ve been doing it for many years. So we are not greenwashing ourselves with one little project. It is part of our culture, and we have established this over the years.

What capabilities do you believe your business needs to have in place or develop in order to meet sustainability challenges or make more effective use of the opportunities that arise?

We are really talking about soft factors here. It’s all about having the right take on what is going on around you and adapting to it. Of course we have people who are specialists in the environment, but acting and thinking in a sustainable way is something you can learn by yourself. It’s very much a question of attitude and the willingness to accept responsibility. You need to stay alert and interested to keep your horizons wide open. I would say it’s much more soft factors than hard factors, which you might need to develop in your business.

Let me go back all the way to the start of our discussion and your notion of the long-term view. Is it hard for some companies to embrace this ideal?

Of course.

So how would you advise them? What would you suggest a company does to get from where it is now to thinking in the longer term?

There’s the huge problem of corporate governance. We need proper control mechanisms. The management needs to be effectively controlled by the board. One way or another, there must be new rules for corporate governance.

Secondly, while I am convinced that we need to work towards further economic prosperity, we must avoid the kind of excesses we have seen in the past if we are not to jeopardize systemic balance, whether be it natural, economic or social. Ultimately it’s all about equilibrium of systems in life.