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Wednesday, February 3, 2016

Strategic CSR - Greenwash

The article in the url below, about eco-friendly detergents, tells a story about corporate behavior that is the opposite of greenwash – green cover-up, green humility (???). In essence, these companies are pursuing sustainability best practices, but not telling anyone about it:
"Industry insiders say that ten to 15 years ago many makers of cleaning products, big and small, used some fairly vicious ingredients, such as chlorinated bleaches, phosphates and ammonia, especially in products to clean drains, ovens and toilets, that polluted the waterways they were eventually sluiced into. More than one-third of the fragrances they used were toxic if ingested. Eco-friendly products were also available at the time, but they were expensive, dowdily packaged and often a lot less effective than the regular stuff. However, things have changed since then, as both chemistry and product design have made significant progress."
What is most encouraging about this is that it appears to have been driven by stakeholder demand:
"In 2010 less than 20% of American consumers surveyed said they had bought a green cleaning product in the past year; now the figure is almost 30%, says Scot Case of the Natural Marketing Institute, a consulting firm. In 2009 only 15% of consumers surveyed said they would be prepared to pay up to 20% extra for a greener cleaning product; last year the figure was 29%.
At the same time, under pressure from environmental groups and regulators, almost all big makers of cleaning products have tweaked their formulas to drop harmful ingredients, and have managed to do so without losing much effectiveness."
Where the story becomes interesting, however, is the companies' position regarding the positive stakeholder response they have received for the product changes they have introduced. This is particularly apparent in terms of the Environmental Protection Agency's (EPA) Safer Choice label:
"The odd thing is that although many of the big manufacturers' products would now qualify for the EPA's seal of approval, and for eco-labels from other certifiers such as Green Seal and EcoLogo, the makers often do not bother to apply for them. Nor do they bother to advertise how their products (and for that matter their manufacturing processes) have been made greener. That's because, although a growing proportion of consumers seek out green products, the majority are still more interested in how much they cost and how well they work. The soap giants have perfected their advertising messages over decades to concentrate on these factors, and are loath to change a successful formula."
My takeaway: while the combined effect of each firm's stakeholders has propelled the changes so far, consumers are lagging behind. That is, while some consumers understand the ecological value in purchasing more eco-friendly detergents, the majority of consumers are still concerned about cost. In terms of strategic CSR this is OK, but far from ideal. It is OK because other stakeholders can drive change (e.g., NGOs, employees, the government, etc.), but the signals to the firm become confused when stakeholders conflict. The clearest message (and most beneficial outcomes) occur when stakeholder interests align. On the flip side, the fact that some firms are making greener products, but not advertising the fact opens up the market for green-seeking consumers to those firms who are proud of the eco-friendly nature of their products:
"As a result, producers of green-badged detergents, like Method, have the market for ostentatious virtue to themselves. They are being truthful in telling consumers that their products are safe and environmentally friendly, but most of their bigger rivals, if they chose to, could say just the same."
The only thing for these firms to remember is that this competitive advantage may not be sustainable over time. If consumers as a whole make a sudden shift in favor of environmentally-friendly products, those firms currently being humble about their green credentials will change. At that point, firms like Method had better be sure they have other advantages to differentiate their products in the marketplace.
Take care
David Chandler & Bill Werther
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Green Wash
September 26, 2015
The Economist
Late Edition – Final