«A business needs to be profitable: thinking for the longer term appears today as the strongest approach to the market» – Pei Yun Teng, Global Director of Social Impact at Kearney
Patagonia was one of the three companies in the fashion industry who had achieved an acceptable score in the Circular Fashion Index compiled by Kearney by extending the life cycle of their garments, a key metric for reducing the number of clothes sent to landfill. While the media focuses on the brands themselves as the drivers of change, the importance lies in the background with the consultancy companies recognizing the advantage of helping businesses run efficiently and with a cleaner future through sustainability measures and more ideation towards purpose-led economies.
Pei Yun Teng has been the Global Director of Social Impact at Kearney for almost five years and previously worked in emerging markets for over ten. Her work has shifted more towards sustainability as companies learnt of adding it to their brand values. «When I went to school, sustainability was not a part of the narrative of how to do well while doing good. The focus was on CSR, risk mitigation and greenwashing. In the past decade or two, businesses have come around to the fact that you need to think about sustainability more holistically and about how you can integrate this in strategy and decision making and that all of this is good for business. It’s not right to force yourself into this artificial dichotomy that’s a zero-sum game. You don’t have to only look at sustainability as a cost, but rather look at it as an investment or as a source of value creation». Although Kearney may not be as large as consultancy firms like BCG and Bain, their unique angle of social impact initiatives makes them a key player for future developments in businesses led by innovators geared towards respecting the planet and its people.
Multibillion businesses have come under fire for protecting their bottom line over accountable social impact measures and consumers have come to doubt companies who are not transparent about their initiatives, results and company practices. «In this field, you’ll have different segments. You have people who already get it – they’re passionate, they want to do it and already are doing it. All is to get it done. On the other end of the spectrum, you have people who think – of course, this needs to be done, but does this really need to be done by businesses? Does this need to be done by our team?». This kind of thinking has made it difficult for businesses to adapt to younger consumers who are using their spending power to decide what companies to endorse based on how proactive they are in developing innovation, prioritizing the ecosystems it depends on and supporting social movements. According to analysis by Kearney from 2020, two thirds (66%) of consumers in the EU and US are willing to pay extra for sustainable products and half (49%) say that a company’s environmental record is an important factor in making their purchase. Half (49%) say that they would prioritize sustainable products over convenience, even travelling further to avoid products that are less environmentally friendly.
According to Teng, the very idea of ‘social responsibility’ is a tenuous term, loaded with the obligation, rather than the choice to develop new practices and change the way that companies are run. «Internally, and even externally, what I’ve seen over the past 10 years is that there’s been an industry shift away from the term ‘social responsibility’. Responsibility has that negative connotation, that it is something that you have to do. But who is making you do it really? Is it regulation? Is it your investors? Is it your customers? What people have to think about is why don’t they think about the fact that there is also a joy to do it. It brings purpose and inspiration to people; it’s a chance to explore new business models and to create value. There’s all kinds of terms like this one – you have ‘corporate citizenship’, ‘sustainability’, the ‘triple bottom line’. I’m not fussed about what we call it as long as we respect the central principles, which is about how in the long term, what are we creating together? How does this impact all of the stakeholders for the greater good?» This is a growing difference to the way that sustainability was approached previously – for many it had been seen as an out of touch response to an accelerating world.
As the world stopped during the COVID-19 pandemic, most businesses took the time to re-think their missions going forward, working with the sentiment of the consumers rather than against it. It can be difficult to implement, which is why many companies have not tried it until now. «Where they are struggling so far, is that they are not necessarily able to operationalize those commitments. Anyone can make a sustainability commitment, but how do you actually achieve on those commitments while still running a profitable business? How do you buy the investments with sustainability versus the other 100 things that are going on in the core business agenda? The types of projects that we have been working on with clients are really around ‘how do you operationalize this?’ For example, what kind of network footprint do you need? Let’s say, you want to implement sustainable packaging. You have a few materials or a shortlist, but how do you transition from one supplier to the other? How do you reconfigure your machinery, so that you’re able to take on this new type of packaging? What does this mean in terms of how you transport them in the last mile? How do you collect them back? There are steps upstream and downstream that need to be considered». For businesses looking to scale their environmental efforts, audits and certifications like the B Corp in the fashion industry present a tangible way of giving their consumers certainty that their clothing was produced through a rigorous vetting process. A new investigation into bribes and ‘show factories’ in China by the South China Morning Post shows that even with stringent measures, areas of production for fashion are still passed off to subcontractors who are desperate to complete orders for Western brands. With more calls for streamlining audits, sustainability measures and certification need to stand firm on practices that pay off in the long run.
A key part of that social change in the way that businesses are run comes from the compromise on the bottom line for stakeholders. While long-term investment and planning may initially seem counter-intuitive to the quarter by quarter growth model, the pay-off comes in developing solutions for a future-proof company. Teng says that collaboration between stakeholders is key to the success of strong companies that work their initiatives with their future sustainability efforts in mind. «We need to see in terms of multi stakeholder collaboration. The business world has been thinking about building competitive advantage, and if you have this cool innovation to save water in the manufacturing process, you keep this all to yourself. That’s fine, right? Because you’re running a business, you need it to be profitable. But if we really want to think about how we can – in terms of ecosystem –change for the longer term, there’s a lot of untapped value in how businesses can actually work with their peers, as well as other stakeholders in this space. That way, they can do quite a few powerful things that they couldn’t do alone. They can align standards around the design of the product, driving policy change for the better, aligning standards for receiving investments and building up supply chains. If you are just one player, then maybe you have a first mover advantage, but your pilot is just a pilot and it’s just going to be a PR story, because the ecosystem is not ready to scale it up at the rate that would be financially viable for you». A number of top business leaders have formed a coalition across different industries and announced their commitment to the Stakeholder Capitalism Metrics, a set of environmental, social and governance (ESG) metrics and disclosures released by the World Economic Forum and its International Business Council (IBC) in September 2020. The focus is specifically on creating and measuring long-term enterprise value creation for all stakeholders and Kearney are one of the 61 companies involved.
The Stakeholder Capitalism Metrics, drawn from existing voluntary standards, offer a core set of twenty-one points focused on people, planet, prosperity and principles of governance that are considered most critical for their businesses, the wider society and the environment. The companies can report regardless of industry or region. They strengthen the ability of companies and investors to set a standard and progress on sustainability developments, improving decision-making and enhancing transparency and accountability for long-term value. The role of the number of consultancy companies involved in the venture is not lost here. As companies shift their production, operations and need even more data to develop new models, consultancy becomes the essential component for a smooth transition. «We have been working with this multibillion food company who have a challenge with sustainable packaging and waste management, like other consumer goods companies. They have an innovation team, where they are trying to figure out what are the next innovations that can come through for them. We have been involved in helping them identify what are some of these social innovators, based in different geographies and at different scales. We are helping them figure out what are some of these innovations that you could potentially pilot within a business and scale up. The social innovators themselves are obviously very excited to partner with the right businesses in order to scale up this model. But at the same time, they’re not in it just to make money – they also want to lobby for improving standards and norms around the space to reduce waste». This level of collaboration is what business and innovation will have in the future – the speed of progress for the wider industry will outweigh the advantage created by keeping the innovation at one company.
Last year has shown that if a company can’t swim when the tide changes, they die. Major high street groups and brands like Debenhams, the Arcadia Group that owns Topshop and the oldest department store in the US, Lord & Taylor have filed for administration across the world. For many, this has meant a re-think of future priorities that reflect social movements and creating a better society, a key part of long-term thinking that goes beyond standard business goals. «A combination of market forces – from your clients and consumers, regulatory frameworks, and ultimately, companies rising up to ask – why do we even exist? What is our legacy? How do we make this a great place for people to work so all of those things come together? With 2020 being quite a tumultuous year with COVID and the protests in America that brought forth conversations around social and racial justice, these questions became pivotal. What does it mean to create an inclusive, fair, just society? You realize that with these things, you’re not able to say – it’s a climate thing, or it’s a poverty thing. These problems are structural, they are interrelated and that’s why these are complex problems to solve. It means that with the power of different stakeholders coming together with a long-term commitment can make a significant impact that way».IMAGE GALLERY
Kearney is an American management consulting firm founded in 1926 as a branch of McKinsey & Company. The company became independent in 1939, and currently has offices in more than 40 countries worldwide- Kearney has consistently earned top places among global management consulting firm rankings, such as Vault’s Consulting 50and Consulting magazine’s ‘Best Firms to Work For’. In January 2020, the firm underwent a major rebranding and changed its name from A.T. Kearney to Kearney.