Will the costs of environmental work have a negative impact on profitability? There are undoubtedly some investments that have to be made in order to make progress. For instance, Ikea invested in renewable energy in stores and invested in human resources such as supplier auditors and forestry experts. Whether these expenses make sense from a profitability perspective depends on your time perspective regarding the business. In the short term, these items may show up on your balance sheet as negative ones, but in the longer-term perspective, there will be a positive return on these investments. Investing in renewable energy, for instance, may, given today’s energy prices, have a slightly longer payback time than would your normal investments. But if you believe that energy prices will rise over time, this calculation will look better, and you can increase your independence from these high energy prices going forward.
When Ikea considered the money it spent on supplier auditors and forestry experts, we motivated these expenditures by citing productivity improvements in the factories and productivity gains in the use of the raw material (timber). Forestry experts not only helped Ikea trace the source of the timber used in the products, as part of living up to the code of conduct (since Ikea wants to make sure the timber is not taken from virgin forests), but they also helped Ikea improve its timber usage, getting more material out of the logs. In other words, it made us a better, more efficient producer. Auditors helped suppliers improve health and safety standards, improve production procedures and working conditions, and thus increase productivity and motivation among employees in the factories.
Apart from these basic profitability calculations, the company with a long-term perspective must add in the benefits of building trust and loyalty among customers, employees, governments, NGOs, and other stakeholders as a result of responsible environmental policies.
The purpose in providing this very detailed description of the Ikea case is to illustrate that it is only through actions that you can prove your credibility. Many companies talk in very general terms about their commitment to the environment. Credibility comes with facts. I have also discovered that credibility comes from strong values. When stakeholders see the people who represent the company act in accordance with the values they profess, the observers feel more confident that the company means what it says.
A question often debated in board rooms and management meetings is what communication strategy to follow regarding social and environmental actions. More and more companies are coming to the correct conclusion that it is better to focus communication on what has been achieved rather than on plans for the future. The next question then becomes, how aggressive should you be in communicating what you have achieved? This is less obvious. On the one hand, you don’t want your employees, customers, and other stakeholders to think that you are doing less than you are. On the other hand, you don’t want to be seen as blowing your own horn, motivated in your environmental work primarily by marketing gains. The most effective communication focuses on employees and other stakeholders with special interest in these issues–that is, NGOs and governmental institutions.
It is fine to communicate not only results but also to present future objectives as long as you feel confident that you are making progress toward them. You will find that the biggest challenge is the communication with your customers, at least if you are in the consumer business. Getting their attention is difficult enough under normal circumstances, and, as previously discussed, you must come across as serious and committed toward the environment. Issuing a few press releases will not do the trick.
I suggest this:
- Don’t try to say everything; focus on a few, but important, messages.
- Never talk about how well you are doing; just inform about the facts.
- Let the receiver judge if you have done enough or not.
- Be specific in your information–facts and figures.
- If possible, let others talk about your achievements; your own credibility will always be questioned.
During my time at Ikea, I always focused on the real activities rather than the communication. Possibly as a result, we were often criticized both internally and externally for not communicating enough about what we had achieved. Despite this, I still believe one should be cautious with external communication. Social and environmental responsibility should be as evident a contribution to society as paying taxes–and most companies don’t communicate to their customers how much in taxes they pay. The most important thing is that you are sincere and are seen to be so.
This is an excerpt from The Ikea Edge, reprinted with permission of McGraw Hill and available on Amazon.