A Small Company Setting the Standard in a Big Way
Patagonia, Inc. has taken a hard look at the way they do business, and ensuring they make the necessary changes to ensure our future.
Since the 19th century, scientists from around the world have recognized that the Earth’s climate is changing [1]. Though the scientific reason behind the “why” continues to be a topic of debate in the scientific, political, and social communities, there is a broad consensus that human activities are negatively impacting the world around us. NASA, along with the Intergovernmental Panel on Climate Change that represents scientific experts throughout the world, concluded that “there is more than a 95 percent probability that human activities over the past 50 years have warmed our planet” [2]. These human activities include (but are not limited to) deforestation, land use changes, landfills, transportation, and the manufacturing of goods [2].
Born in 1973 on the side of a mountain while enjoying nature’s purity, Patagonia Inc fully embraces its roots in the wilderness and has truly become focused on sustainability and the future of Planet Earth. As a global business, founder Yvon Chouinard and CEO Rose Marcario have set Patagonia’s mission to be “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis” [3]. Built into their mission statement is the recognition of the fact that every product that is made in their factory, and sold in their store, contributes to a portion of the very pollution which is causing Climate Change. However, they also embrace the dire thought that their product is of no long-term value if the planet we live on is uninhabitable. As such, Patagonia began a series of activist campaigns focused on the environment such as “Vote Our Planet” [4] and the modernization of their supply chain, including “Supply Chain: The Footprint Chronicles” specifically focused on their company’s processes and ways to reduce their impact on Climate Change [5].
Patagonia has made the essential first step any company must make; they recognize that they are part of the problem [5]. Taking the time to reflect and analyze their business model and the supply chain logistics, coupled with applying their mission, Patagonia has established several key categories to focus including “(1) reducing the environmental impact of our company and supply chain, (2) using our company voice to advocate for systemic change, and (3) envisioning a new approach to business” [5]. To address the first category, Patagonia has established key performance indicators to reduce the impact on the environment caused by not only their supply chain, but also their company. A few of these key performance indicators and their metrics during the 2015 fiscal year include: measuring of the carbon footprint of their global operations (emissions totaling 3,617 metric tons of CO2e), generating renewable energy (203,502 kWh of on-site energy generated and 980,112 kWh of green power purchased), creation of green buildings (LEED Gold certification for their Reno Distribution Center), and the “Supply Chain Initiatives: Chemical and Environmental Impacts Program” (an industry best practices and standards program to manage chemical, environmental, waste, water use, and emission impacts caused by their supply chain) [5]. Additionally, Patagonia is designated as a benefit corporation and has long donated 1% of its annual gross revenues to charities working on sustainability issues, totaling approximately $74 million to date [6]. These are only a few of the initiatives Patagonia has taken to reduce its harmful impact and continued degradation of the global environment.
While taking so many necessary steps to improve the way that Patagonia operates, and to ensure that their business stays true to their mission, they must remain as a profitable business. However, as one can see by researching on the company, their definition of profitable does not come at the expense of our future. Patagonia could easily become the model for other environmentally conscious corporations to emulate, but only if Patagonia demonstrates that reducing their supply chain’s impact to the environment does not greatly diminish the bottom line. As long as Patagonia stays private, the mission of the company can remain and will not be pulled by a necessity to return profits to shareholders. But does this have to be the case? Can only private companies choose to focus on initiatives that ultimately have an impact (marginal or not) to their bottom line because they are not beholden to the shareholder? Will Wall Street and the public markets take a reduction in returns to provide companies the needed capital to implement technologies and processes to ensure that our planet doesn’t become uninhabitable?
One can only hope…
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[1] “Hisotry of climate change science,” Wikipedia, https://en.wikipedia.org/wiki/History_of_climate_change_science, accessed November 2017.
[2] “A blanket around the Earth”, NASA Global Climate Change Vital Signs of the Planet, https://climate.nasa.gov/causes/, accessed November 2017.
[3] “Patagonia’s Mission Statement,” http://www.patagonia.com/company-info.html, accessed November 2017.
[4] “Environmental Campaigns,” http://www.patagonia.com/environmental-campaigns.html, accessed November 2017.
[5] “Our Business and Climate Change,” http://www.patagonia.com/climate-change.html, accessed November 2017.
[6] Andrew Cave, “’Don’t Buy This Racket’: Patagonia To Give Away All Retail Revenues on Black Friday,” November 21, 2016, https://www.forbes.com/sites/andrewcave/2016/11/21/dont-buy-this-racket-patagonia-to-give-away-all-retail-revenues-on-black-friday, accessed November 2017.
As a brand that is trying to sell outdoor clothing/gears to outdoor lovers, it seems quite natural for a company like Patagonia to be active towards an issue like climate change, but I was surprised to learn how much effort they were putting into their campaigns. For example, having just gone through Black Friday, I was surprised how they donated all of their Black Friday sales last year ($10mil) to grassroots environmental organizations.[1] Thinking about the importance of Black Friday to many companies, this is a huge commitment.
The question you raised about if only private companies can do these initiatives, is a very important and very difficult question. Though I do not want to admit it, I believe that it is not possible for public companies, unless the initiatives are profitable. But usually, these initiatives just add more costs. Also, companies can change their suppliers to lower their carbon footprint, or think of ways to better manage waste to reduce resources, but I think that these kind of initiatives will ultimately reach a limit, unless technological innovations occur. And for these technological innovations to occur, you need to invest in organizations that are fighting to create these innovations, which Patagonia exactly did with their Black Friday sales.
But is it really not possible for public companies to do what Patagonia did? I mentioned that these initiatives need to be profitable, and what happened to Patagonia on Black Friday? The sales beat the expectation by 5 times, which shows that there are people who are also choosing their products looking at the core values of the company. So maybe there is hope.
[1] http://money.cnn.com/2016/11/29/technology/patagonia-black-friday-donation-10-million/index.html
Patagonia is a very inspiring story as to how ethics and awareness can permeate everything a company does. While many companies can potentially be accused of “greenwashing”, or at the very least being a follower in the sustainability context, and implementing changes only after being subject to social pressure, this is certainly not the case for Patagonia. I think you raise a great point as to whether all the significant actions that they take detract from maximizing shareholder value. In my opinion, Patagonia is a company which is wholeheartedly pursuing the assertion that stakeholder value is more important than shareholder value. It will be fascinating to see how this plays out in the macro context – hopefully we will see more firms do something similar. What we need in addition to companies like Patagonia opening these opportunities is investors and customers supporting and validating this mission-driven model – only then can we achieve the necessary scale and volume of change to make a difference in global warming.
Thanks for the post MDB. It’s inspiring to see a brand like Patagonia take an intentional and active stance on climate change. Another initiative that Patagonia pursue that is aligned with its commitment to sustainability is its “Ironclad Guarantee” (Source: http://www.patagonia.com/ironclad-guarantee.html). This guarantee ensures that consumers are not just throwing away Patagonia items due to wear and tear accumulated through years of ownerships – instead, they are shipping them back to Patagonia for repairs. This initiative improves consumers’ brand perception as well as customer satisfaction. One could argue that for every jacket that is repaired, materials and carbon pollution due to manufacturing an additional one is spared. From a more cynical perspective, I wonder if this strategy only encourages more consumers to purchase more items, therefore driving a net positive effect on carbon pollution.