Nov 16, Paula Oliveira, Managing Director London
With great success comes great responsibility – or so appears to be the case for technology brands.
Technology has been the fastest growing industry for the last decade and paralleling this growth has been a trend towards developing more sustainable and socially responsible businesses. The unprecedented speed of change, breadth and depth of new technologies has not only had a major impact on what companies produce but also on how they do it.
From tech giants to smaller start-ups and social enterprises, companies are paying closer attention to environmental, social and governance (ESG) aspects when running their business. Usage of renewable energy, sophisticated robots that recycle components with high precision, responsible sourcing, exceptional employment conditions, community investments, socially driven innovation and management transparency (including fiscal responsibility) are increasingly becoming common practice.
However, doing the right thing is not always easy.
Some of those investments are high and compete with operational priorities such as R&D and modernisation, while others risk current income such as changing the composition of a leading product so it’s less detrimental to the environment. So… does ‘doing the right thing’ make business sense?
Easier for the young
Although some of the world’s largest and most successful companies embrace sustainable practices into their culture and business models, it’s often easier for smaller, younger business to be good corporate citizens as they are able to consider ESG issues from the onset.
The motivation behind the creation of Fairphone, for example, was to produce smartphones that do not contain conflict minerals (commonly used in the industry), that are made of high quality and replaceable materials, and that enforce fair labour conditions across the whole supply chain. They were well aware of the main issues surrounding the mobile phone industry, and created a model that addressed them from the start. Even though Fairphone sells only 140 units thousand per year, a fraction compared to industry giant Samsung which sold almost 320 million units in 2015, Fairphone created an alternative for ethical consumers and started shifting the industry towards a more ethical direction.
Samsung commits to making a positive and lasting impact in communities where it operates through initiatives such as Hope for Children, as well as reducing its overall environmental impact. However, given its heritage, size, and number of sites with established operations and complex global supply chain, one can only imagine the legacies and number of adjustments required to comply (or go beyond) current expectations of regulators, customers and other audiences. But providing good quality products and services is fundamental, and the incident with its Galaxy Note 7 certainly didn’t help to support positive perceptions about the company’s practices. While Samsung did the right thing by recalling all phones in the market and ensuring the safety of its consumers, the incident raised concerns about quality, safety and the environmental impact of disposing the 4.3 million unused handsets –compromising trust in the brand. Rita Clifton CBE, our chairman, discussed the damage done to the Samsung brand on BBC News in October.
Established companies can demonstrate a shift towards more sustainable practices by creating innovative concepts, products and partnerships founded in ESG principles, representing their intentions and a movement in the right direction. It is also important for the company to be transparent with audiences about targets and where the brand is on its journey to dealing with any legacies, proactively managing potential reputational issues. They’ll rarely be as ‘pure’ as young companies, but they can (and should) demonstrate they are aware and acting on potential issues.
In the past, if a product or service was good enough, customers would be happy to buy it and consumer trust in the brand would grow; and if managers knew how to run their costs properly, investors would be happy to keep their money in the business.
But markets have become more complex, competitive and transparent, and consumers have become increasingly savvy and socially conscious. In 2014, a study from Nielsen showed that 55% of people globally are willing to pay a premium price for products and services from companies committed to positive social and environmental impact. In Asia-Pacific this number climbs to 64%, a 9% increase versus 2011. The same study shows that 89% of Millennials a more likely to purchase from companies that support solutions to specific social issues, while a JWT Intelligence/Sonar study from 2015 found that 75% actively research the behaviour and policies of the brands they buy.
Brands have always served as symbols of trust and credibility to simplify and facilitate customers’ purchase decisions, and this remains true today. With social media and online reviews playing an increasingly influential role in consumers’ buying decisions, businesses are required to be responsible and transparent about their practice. Particularly as many consumers don’t have time to research the companies they purchase products or services from in detail, so they still routinely rely on brands they trust to do the right thing for them. It’s up to corporations to take on this responsibility.
Shareholders are paying attention too. Google Green, for example, is a corporate initiative focused on using resources efficiently and has led to an overall reduction of 50% in power requirements for their data centres; the money saved is then reinvested in new initiatives aligned with Google’s motto of ‘doing the right thing’, ultimately creating value for the business. Apple’s Liam, a 29-armed recycling robot, dismantles iPhones and separates all components for recycling with a 97% success rate so that different materials such as glass, copper, aluminium etc. are not mixed and can be sold to recycling centres rather than dumped in landfills. Although not all materials can be reutilised, Apple’s initiative to tackle e-waste is a first in the sector and, for a change, Apple wants competitors to copy it. While these initiatives may seem simple, they support Google’s and Apple’s leading position, reinforce trust in their brands and contribute financially to the business while also benefiting the environment.
A study published in 2011 by Harvard Business School in partnership with London Business School also provided evidence that ‘high sustainability companies’ significantly outperform their counterparts over the long-term, both in terms of stock markets as well as accounting performance. For example, investing $1 in the beginning of 1993 in a portfolio of ‘sustainable firms’ would give you $22.6 by the end of 2010 based on market prices versus $15.4 in what the authors call ‘traditional firms’.
Value is also created by enabling societies to prosper. Microsoft, for example, has a number of initiatives aimed at empowering communities around the world. One of which involves providing uninterrupted energy in Lagos, Nigeria, in partnership with Schneider Electric and the U.K. Department for International Development (DFID). The energy is produced through solar-powered batteries connected to Microsoft Azure IoT technology, which then converts the battery power into portable electricity. The initiative reaches clinics and schools, enables children to study at their often-darkened homes and creates a number of job opportunities. Microsoft’s dedication to innovation for social purpose pays off for the business as well by driving positive equities to its brand and creating a better future for the community.
A lasting model
ESG is no longer just a trend, it is here to stay and technology companies, big or small, have been making considerable investments in this area. It seems easier for younger companies to create business models founded in modern ESG principles, than for established companies to challenge the status quo and invest in initiatives that might not be as financially attractive in the first place. But it is possible, and big technology companies are embracing it not only because customers care and those initiatives create value for business, but also because it is the right thing to do.
Could they do more? Certainly. But a sustainable business is one that will last for generations to come and will drive long term profitable growth. Establishing ESG goals, aligning it to the corporate and brand strategy, creating a plan for on-going and future implementation and being transparent with audiences along the way is crucial for success. Those companies doing good, who are able to plan for the future and who continue to better their communities and the environment will often outperform the sector in the long-term. Quite simply, it’s good business.
Photo: © Apple