In an ever increasingly competitive marketplace there is more pressure than ever for companies to be more sustainable. It seems that everyone has a commitment to change and become a better corporate citizen, or at least appear as one. With consumers becoming increasingly sophisticated, companies who intend to simply portray themselves as good corporate citizens without delivering, can suffer tremendously both financially and in regards to their reputation. In other words, companies that talk the talk but don’t walk the walk, will be held accountable in the court of public opinion.
Greenwashing is a term first coined in the 1990’s, describing the practice of making unsubstantiated or misleading claims about the environmental or societal benefits of products. Often, greenwashing is an attempt by marketers to make a company appear to be more environmentally friendly than it is in reality. Most of the time this is caused as a direct result of laziness or failure by leadership to embed CSR and sustainability into the DNA of the company. In contrast, the Triple Bottom Line (TBL) is about creating value, without destroying value or increasing the quality of input, while diminishing the harm of the output. Andrew Savitz, the author who coined the term, argues that businesses that find the overlap between their own interests, societal influence, and environmental interests, can secure a lasting competitive edge.
Savitz elaborated on his theory when he interpreted the value per harm, where the harm component is equal to zero. The Value Per Harm Theory argues that the life cycle of products could be extended to – decrease the amount of waste and products necessary for deconstruction, in order to attain both increased shareholder value, while decreasing the environmental burden. This is now referred to as the circular economy.
For companies that choose to greenwash, the cost of exposure is high, as they can open themselves up to both financial risk and reputation risk. Volkswagen and many other European car manufactures were involved in a carbon emissions scandal in 2015, where they falsified reporting and hacked the carbon emission testing system. Within a week of the scandal breaking, the CEO Martin Winterkorn was forced to resign, and Volkswagen had to pay tens of billions in fines.
Previously Volkswagen had invested significantly in positioning itself as a leader in corporate social responsibility, topping the Dow Jones Sustainability Index as the most sustainable car manufacturer. Just before the scandal broke, Martin Winterkorn was quoted saying: “the Volkswagen Group is well on the way to establishing itself long term as the world’s most sustainable automaker”. Volkswagen faced investigations in both Europe and the United States, with multiple lawsuits including from the European parliament. Bloomberg reported that the scandal could have cost Volkswagen as much as $23.9 billion plus the loss of consumer faith, which resulted in their worst crisis in history.
In contrast, consider Patagonia whose strong support of environmental preservation forms a constituent part of its corporate soul and brand. Because of its founding values, the company has embedded CSR values of environmental sustainability since conception, and throughout its growth phases through the entire supply chain. Companies such as Patagonia, which have established a strong corporate identity including branded CSR initiatives, can create a competitive advantage. Embedding sustainability into the corporate culture, strategy, and branding, creates greater customer engagement and value generation.
If business leaders knew that by adopting a holistic sustainable approach they could not just enhance their reputation, but make their business more competitive, yielding both bottom-line and top-line returns, the decision would be simple. Companies that decide to be more environment-friendly can actually lower costs by reducing inputs. In addition, the process generates additional revenues from better products and enables companies to create new businesses. For companies that need to be fast and dynamic in a constantly evolving landscape, this gives them a competitive advantage and moves sustainability away from the marketing department and into the strategy and innovation space.
Companies that want to become more sustainable need leaders to change the way they think about innovation, and integrate sustainability into product, process, the greater business models and the supply chain. In short, they don’t need to appear more sustainable; they need to become more sustainable. Whereas greenwashing is short-term and focuses on face-value, the triple bottom line encourages businesses to embrace sustainable management, and secure a lasting competitive edge. The risks posed and opportunities created by the greater shift towards greater sustainability present companies with complex, multi-dimensional, and sometimes interconnected issues.
As the marketplace grows more and more competitive, and the pressure grows from consumers to be sustainable, businesses have a choice to either appear more sustainable, or become more sustainable. Consumers are more sophisticated than ever, technology has enabled more transparency, and the societal pressure for both regulators and government is increasing. By developing a comprehensive understanding of how their operations, the environment they operate in and communities affected, companies can better prevent or mitigate these risks and gain access to the opportunities, where those who don’t will suffer tremulously both financially and in regards to their reputation, just look at the evidence.