Is the business of business simply, business? Or can a profit-seeking entity create shareholder value by engaging in activities that promise no immediate monetary return for investors, but might contribute to a better world in the future? Poles haves suggested that there is a positive relationship between a company’s CSR (Corporate Social Responsibility) actions and consumers’ reactions to that company’s products.[i] A growing body of academic research also concludes that consumers generally react positively to CSR initiatives in all stages of the decision-making process.[ii] Thus, many companies have institutionalized CSR programs and are—if not directly seeking to achieve a sustainable competitive advantage—then at least complimenting their corporate strategies through these initiatives. Moreover, companies that carelessly contribute to the climate change these days are increasingly encountering negative publicity, hurting their overall businesses.[iii]
Hence, the case for consumer-oriented companies to invest resources in reducing their global Co2 footprint is straightforward: reduce it and consumers might buy more of or pay more for your products.
This year, The LEGO Group (hereafter referred to as “LEGO”), a Danish plastic-toy manufacturer, achieved its ambition to balance 100% of its energy use with energy from renewable sources—3 years ahead of time.[iv] Only one month after achieving this remarkable milestone, LEGO extended a partnership with WWF to reduce the global Co2 footprint of its suppliers by 10,000 tonnes per year towards 2020.[v]
This move indicates a remarkable shift in the way some firms think about CSR initiatives from focusing on the impact of the firm to the impact of its supply chain. In the case of LEGO, the potential is huge: over 90% of the 1.1 million tonnes of Co2 produced annually from sourcing, producing, and distributing LEGO bricks is produced by LEGO’s extended supply chain and not by LEGO itself (see illustration on the left). LEGO plans to include 80% of its suppliers in its Engage-To-Reduce (E2R) program to help them reduce their Co2 footprint through dialogue and cooperation.[vi]
LEGO has also made mid-term and long-term commitments to address the climate change: In June 2015, LEGO announced its decision to invest USD 150 million[vii] to identify and implement even more sustainable raw materials and packaging solutions by 2030. As part of this initiative, the company is setting up a Sustainable Materials Centre, which will employ more than 100 FTE’s who will work full time on researching, developing and implementing sustainable raw materials to manufacture LEGO elements as well as packaging materials.[viii]
To further address the climate change and stay true to its Danish roots (Denmark emits the least Co2 per capita of all countries in the world[ix]), my recommendations for LEGO and its management team would be to:
- Extend the E2R program so that it becomes a non-profit arm, providing consulting services on how to reduce Co2 emission for manufacturing firms. In accordance with LEGO’s mission of creating a better world for the builders of tomorrow, a consulting service that leverages the know-how within LEGO will achieve an overall greater impact in terms of total Co2 emission reduction than if the focus is only on LEGO’s supply chain.
- Educate the consumers on the science of climate change in a way that is playful and engaging. LEGO characterizes its consumers as the builders of tomorrow. These builders of tomorrow are also the leaders of tomorrow and LEGO can help institute a set of values that emphasize the importance of Co2 reduction. Moreover, this effort can serve as a communication tool to inform consumers about why LEGO is engaging in CSR activities and how it provides value to the consumers.
LEGO’s latest actions on the CRS front is a testimony to the fact that some companies are moving towards an ecosystem CSR approach to maximize their Co2 reduction efforts. In this approach, rather than just assessing the company’s Co2 emission, they are assessing the whole supply chain’s Co2 emission. From my perspective, two key questions remain unanswered:
- Will LEGO be able to capitalize on its efforts to reduce its supply chain’s Co2 footprint? That is, will it be able to create value for the consumers, communicate that value, and capture some of it?
- What is next? If LEGO is successful in capitalizing on its efforts, will other companies follow this ecosystem CSR approach and try to reduce the Co2 emission of their supply chains?
Looking forward to reading your thought on this.
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[i] Creyer, Elizabeth H., Ross Jr., William T., The influence of firm behavior on purchase intention: do consumers really care about business ethics? (1997)
[ii] Bhattacharya, C.B., Sen, Sankar, Doing Better at Doing Good: When, Why, and How Consumers Respond to Corporate Social Initiatives (2004)
[vii] 1 DKK billion roughly 150 USD million according to http://www.xe.com/currencycharts/?from=USD&to=DKK&view=2Y
[viii] LEGO 2016 Annual Report