Managements are integrating their corporate milestones with what is good for people and the planet too
P Venkat Rao, 46, a resident of Dantelaboru village in Bhadradri Kothagudem district, Telangana, started cotton farming after Class XII. The work was fraught with challenges. The yield was poor. The crop would get infected every now and then. The income was just enough to pay for basic needs of his family. His life changed when he saw a neighbour, Ramana, turn his cotton farm into a eucalyptus plantation and supply to ITC. In 2005, he did likewise, with ITC supporting him with knowledge of eucalyptus farming, soil testing and fast-growing clonal saplings. When he harvested the crop four years later, he earned Rs 3 lakh. The second harvest, in 2013, got him Rs 18 lakh. There has been no looking back after that. "I own five tractors that I give on rent," he says. His income is now Rs 7,000 a day, from Rs 500 a day in 2005. He works with ITC as part of the company's forestry programme which helps marginal farmers grow eucalyptus that is used to make high-quality pulp for its paper business.
Companies across sectors are re-defining their raison detre or 'reason for being.' While revenue and growth milestones are still an integral part of their existence, more and more of them are linking their corporate strategy with goals driven by higher purpose - be it targets on livelihoods impacted, diversity, inclusion or sustainability, and making leaders accountable for meeting these goals. "Companies can no longer look at brand purpose as an advertising campaign that will be soon forgotten. It has to be a better way of doing things that is integrated in all facets of the business," says Namrata Rana, Director-Strategy and Brand at sustainable experience transformation agency Futurescape.
Taking care of greater good also makes business sense. In 2019, FMCG major Unilever said its purpose-led brands (that have an environmental or social purpose) were growing 69 per cent faster than the rest of its businesses and accounting for 75 per cent of the company's growth.
There are indirect benefits too. Purpose-led firms are also able to better attract and retain talent. A 2016 global study by PwC, Putting Purpose to Work, found that millennials are more than 5.3 times likely to stay with a company if they have a strong connection with its purpose. "Early to mid-level managers, not just in India but worldwide, are asking questions about what the company stands for and how its activities impact society," says Rana.
The trend has accelerated after the pandemic, which has increased awareness about healthy living and conscious consumption. A study of 2,000 respondents in India by Futurescape found that 65 per cent consumers want to buy from companies perceived to be more responsible towards environment and social issues.
Income inequality and climate change have triggered widespread criticism of capitalist paradigms across the world. Companies today are expected to safeguard interests of all stakeholders in the value chain and not just equity holders. The other groups include customers, employees, suppliers/vendors and surrounding communities.
ITC runs several programmes to support its key stakeholder, the farmer. It has developed agri value chains that benefit farmers and also provide it competitive advantage by offering 'identity-preserved' traceable raw materials. ITC's Aashirvaad brand anchors the wheat and spices value chain, Bingo! drives the potato value chain, while the fruit and vegetable value chain is anchored by ITC's B-Natural juices, Farmland and ITC Master Chef Frozen Foods. "Our businesses and value chains support six million sustainable livelihoods," says Sanjiv Rangrass, Group Head of Sustainability, R&D and Projects, ITC Ltd.
Preet Dhupar, Chief Financial Officer, IKEA India, talks about the vision of "creating a better everyday life for many people". She says this has been built into the firm's DNA through three core pillars, one of them being healthy and sustainable living. She shares how the firm has been working towards using sustainable raw materials. Since 2015, the cotton used in IKEA products has been coming from sustainable sources, which means it is either recycled or grown with less water and pesticides, while increasing profits for cotton farmers. The wood comes from sustainable sources, including FSC-certified and recycled wood. FSC, or Forest Stewardship Council, is an NGO that sets standards for use of wood that are responsibly managed, socially beneficial, environmentally conscious and economically viable. "By 2030, we want all IKEA products to be produced using 100 per cent renewable or recycled materials. Also, we want all the products to be repurposed, repaired, reused, resold and recycled. This is a fundamental shift that has to begin right when we are making the product," says Dhupar.
Even industries considered highly polluting are making ambitious environmental commitments. Dalmia Cement (Bharat) committed in 2018 to become carbon negative by 2040. "It is estimated that nearly 70 per cent of modern infrastructure in India is yet to be built. We have strengthened our business model by re-purposing our operations in order to minimise the impact on environment and create sustainable development through low carbon footprint and water-positive cement," says Ajit Menon, Group HR Head at Dalmia Bharat Group. He adds, "We were the first company globally from a heavy-industry sector to start such an initiative. It was a tall target. In fact, when we announced it, people laughed at us." The company claims to have one of the lowest carbon footprints in the global cement industry. It has tied up with UK-based Carbon Clean Solutions to develop a large Carbon Capture and Utilisation facility in Tamil Nadu. It has installed 30 MW renewable energy projects and increased the share of fossil fuel-free electricity consumed at its plants by nearly 6 per cent.
Long Term Plans v/s Short Term Gain
Companies are often obsessed with short-term performance and prefer steps that increase earnings per share rather than long-term value. But earning customer trust is far more profitable in the long run. Companies are realising this. "When consumers know that there is a strong purpose and authenticity to a brand, they are ready to pay a premium for it. And importantly, they become evangelists for these brands," says Amit Jain, Managing Director of L'Oreal India. He says they let go of good product ideas that can be remunerative in the short term if they do not meet their environmental parameters. "We have let go of several new variants of existing products or new products if their environmental score (measured using SPOT: Sustainability Production Optimisation Tool) isn't better than before," he says. Jain says they dropped a hair colour as the dye used was non-biodegradable. "There is usually a lot of tension between the marketing team and the R&D team because the former comes up with innovation proposals that are rejected by the latter if the SPOT score is not better than before," says Jain.
Companies are extending these principles to not just their products but partners as well. IKEA has a code of conduct called IWAY that every supplier has to follow. The code covers norms for fair wages, child labour, suitable/safe working conditions, optimum resource management, among others. "Even if a supplier doesnt meet all the criteria but is willing to abide by IWAY, we work with him. This means it takes us much more time and investment to start working with a supplier," says Preet Dhupar. She adds there have been times when a product line has been stopped because the supplier was not meeting the standards. "As a business, we have taken the call to say we would rather take that business impact of letting go the supplier than do something which goes against our principles," she says. In January 2020, IKEA had recalled lakhs of Troligtvis-branded travel mugs made by a vendor in India as chemicals in the plastic exceeded the prescribed limit.
Sustainability and value creation have become board agendas. Take the classic case of IKEA India where Peter Betzel, the CEO, is also the Chief Sustainability Officer. In fact, sustainability KPIs (key performance indicators) are spread across functions. "Managing energy, waste and water consumption will be led by each facility management unit. Then there are certification KPIs for real estate and construction teams; and packaging and electric vehicle KPIs for customer fulfilment teams," says Dhupar of IKEA.
Similarly, last year, L'Oreal shared its sustainability target through its programme, "L'Oreal for the Future". The aim is to have carbon neutrality at all sites by 2025; reduce greenhouse gas emissions by 50 per for each finished product (compared to 2016 levels); source all plastic from recycled or bio-based sources by 2030, among others.
Jain shares how these global targets are broken down regionally, which are then linked to individual objectives of senior leaders, wherever applicable. "Weve got all our senior leaders own a KPI related to the 'LOreal for the Future' programme as their individual objective. Their performance rating, and hence variable compensation, will be partially determined by their delivery against that metric," he says. Jain says this year they have announced country-level objectives of 40 per cent waste reduction. "Starting with the Management Committee, everybody is now busy figuring out ways to reduce waste in their units," he says.
It is clear that responsible business stands for ethics, caring for community and inclusion rather than just profitability. As consumers become more aware, it will be far more important for companies to do the tightrope walk between profits and purpose and make many more like Venkat Rao earn a respectable living.