Eco-sensitivity can be just plain good business

The big idea: Tracking cost savings, top-line growth, brand enhancement and systems innovations inspired by a sustainable business orientation underscores the importance of collaborative solutions. Don’t be put off by the language of “sustainability” or “corporate social responsibility.” In today’s world, it’s just good business.

The scenario: Hired to lead a “corporate social responsibility” effort at Seattle-based Recreational Equipment Inc. (REI), Kevin Hagen understood his role more broadly: “We pursue the work with a strategic and innovation mind-set, with sustainability as a strategic driver of the business.” REI had been supporting the community in Seattle, and as a co-op the members were the owners. The company had grown successful supporting “human-powered” recreation and took seriously its stewardship role toward beautiful outdoor spaces.

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The resolution: Under Hagen’s leadership, a climate-neutral goal by 2020 was set. Leadership in Energy and Environmental Design (LEED) certification for retail stores and distribution centers, purchases of green power, on-site clean power generation at 11 stores, offset purchases for travel emission generated by REI’s travel/adventure arm, and employee incentives for biking to work or taking public transportation brought down costs. An eco-sensitive label for branded apparel with significant recycled, renewable or organic content launched in 2007 and expanded from 40 styles to more than 240 by 2009. The photovoltaic solar installations moved from Phase 1 to Phase 2 in 2010, with positive financial results.

Understanding the larger possibilities in supply chain management allowed REI to be more active in the Eco Working Group, part of the Outdoor Industry Association. This voluntary network brought together 180 brands to develop a means for measuring the effects of products.

For Hagen, the focus was on innovation through collaboration with co-op members, employees, suppliers, non-governmental organizations and competitors to develop and share best practices. His insight was that REI’s true competitive power was developing employee capabilities to see “clean” opportunities and innovate around those goals. This required new metrics. For example, ratios of packaging waste to landfill per bike and carbon footprint data for all transportation. New metrics drove the rethinking of entire activities at the firm, including the bicycle packaging supply chain stretching back to China.

Cooperation using system and life-cycle thinking refashioned the entire process. Toxin removal improved, and assembly and disassembly times were dramatically reduced. New packaging used 68 percent less in materials and weighed less to ship. Revenue was generated through cardboard recycling and labor transferred to higher use — all of this produced significant financial gains. Once the boundaries of the problem had been enlarged, the players stepped up to devise better solutions.

The lesson: As Hagen states: “When financial outcomes are viewed independently from ecological and social impacts, the conversation devolves to compromise.” In contrast, holding organizations equally accountable for financial and non-financial performance — using a sustainability lens — can be the key to financially, ecologically and socially innovative solutions otherwise impossible to see.

— Andrea Larson

Larson is an associate professor at the University of Virginia Darden School of Business. The original case was prepared by research associate Mark Meier.

 
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