Will Johnson & Johnson continue to be a climate change champion as it becomes more global?
Johnson & Johnson has been a leader in climate change advocacy, but will it play champion role as it expands into Africa?
Climate change as a health risk
In a report published in 2016, the World Health Organization declared that climate change is one of the greatest health risks of the 21st century.1 Increased air pollution, rising temperatures and more extreme weather events will likely affect human and animal lives directly and undermine the quality of air, food, and water.1 As a result, healthcare companies have to adapt to the changing times to ensure sustainability of our planet. As the world’s most broadly-based healthcare company2, Johnson & Johnson (J&J) has so far taken a leadership role in driving the frontiers of climate change impact on healthcare. They understand the magnitude of the effect of climate change on health and that the health of our planet is inexplicably tied to the health and wellness of their customers. “Climate change is a big challenge that requires big solutions. No one person, no one company, no one government can do it alone. Instead, we must continue to create a global movement of people, companies and organizations all working together to care for our climate like our health depends on it. Because it does.”2
Sustainable design solutions
Earlier this year, J&J announced plans to redesign their cotton buds by removing plastic handles.3 This was done in order to prevent toxic wastes reaching waterways and seas.3 Such product redesign is not exclusive to cotton buds. In fact, back in 2009 J&J launched the Earthwards program, a platform for more sustainable product innovation.4 To be deemed “Earthwards”, a product needs to show at least three sustainability improvements across seven “impact areas”, including materials, waste reduction, packaging, energy and water use, innovation and social impact.4 The selection process of Earthwards products is very rigorous. Johnson & Johnson holds “innovation sessions” where people from marketing, research & development and product design brainstorm how to boost a product’s sustainability. After changes are made, a board of internal and third-party sustainability experts evaluate the product to ensure it meets the programs criteria for sustainability.4 As of June 2017, about 100 products have been recognized as sustainable by the program.4 J&J has even gone ahead to set ambitious goals for its Earthwards program, hoping that about 20% of its 2020 revenue will come from its Earthwards products.5 As of November 2017, some of the products recognized through the program include Listerine mouthwash, baby shampoo, acne cleanser, prostate cancer drug, etc.
Reduction in carbon emission
J&J recently joined 10 other multinationals, including ExxonMobil and BP, to back a revenue neutral carbon tax in the US as a way of tackling the threat of climate change.6 The group of companies advocates a plan for carbon dividends to be paid to the US public. The dividends would be paid for by a tax on emissions. J&J efforts to reduce climate change impact also includes a commitment to reduce absolute carbon emission 20% by 2020, and 80% by 2050. This mandate for a more conscious sustainability operation includes producing 35% of electricity from renewable sources by 2020, with an aspiration to power all facilities with renewable energy by 2050.
Will J&J remain a champion of climate change as it expands into Africa?
As annual sales growth starts to plateau8, J&J has been making a push into the developing markets, most notably Sub-Saharan Africa.9 During spring of 2016, J&J opened a new South African office and has since expanded into Kenya and Ghana.9 While it’s laudable that J&J is joining forces to tackle the HIV & AIDs epidemic in Africa by developing new medications, I hope they maintain their sustainable activities in a continent where there is little government pressure to be environmentally sustainable. Owing largely to institutional factors, the governance and regulation of transnational companies (TNCs) are at their weakest in the “resource-rich, but economically poor” African continent.10 TNCs such as British Petroleum (BP), Exxon-Mobil, and Shell Africa proceeded without much scrutiny in the past due to a number of factors, which include the incidence of colonialism, poverty, political corruption, and weak institutional infrastructures.10
Conclusion
Only time will tell if J&J will continue to be a champion of climate change and sustainability in an environment where there is little regulatory oversight. A potential solution for J&J to maintain their commitment to global sustainability is to incentivize their employees and the manufacturing processes in the developing markets to pursue more sustainable practices. This could be accomplished by making sustainable practices a significant portion of employee bonus and budget allocation consideration for the developing markets. But can a company that has tepid growth be willing to sacrifice short term gains in the developing markets for long term objective of being a model for sustainability regardless of location and market forces? (Word count: 783)
References:
- World Health Organization, “WHO Global Programme on Climate Change & Health”, accessed November 14, 2017, http://www.who.int/globalchange/mediacentre/news/global-programme/en/
- Johnson & Johnson, “2016 Health for Humanity Report”, accessed November 14, 2017, http://healthforhumanityreport.jnj.com/climate-and-energy
- Victoria Allen. “Cotton buds get the green treatment”. Scottish Daily Mail, February 14, 2017. https://global-factiva-com.prd1.ezproxy-prod.hbs.edu/ha/default.aspx#./!?&_suid=1510777233522037438232384234893
- Johnson & Johnson. “Earthwards®: The Unique Johnson & Johnson Program That’s Helping to Create a More Sustainable World”. Accessed November 14, 2017, https://www.jnj.com/innovation/earthwards-a-johnson-and-johnson-program-helping-create-a-more-sustainable-world
- Johnson & Johnson. “Product Stewardship/Earthwards® | Johnson & Johnson”. Accessed November 14, 2017. https://www.jnj.com/global-environmental-health/product-stewardship-earthwards
- “Leading corporations support US carbon tax campaign”. Financial Times. Accessed November 14, 2017. https://www.ft.com/content/405161c6-557b-11e7-9fed-c19e2700005f
- Johnson & Johnson. “Health for Humanity 2020 Goals Progress Scorecard”. Accessed November 14, 2017. http://healthforhumanityreport.jnj.com/_document?id=0000015c-cdab-de5a-a15e-efbf0d950000
- Johnson & Johnson 2016 Annual Report
- Sy Mukherjee “Why Johnson & Johnson Is Ramping Up Its Business In Africa”. Fortune. April 6, 2016. http://www.fortune.com/2016/04/06/jnj-business-africa/
- Hakeem O. Yusuf et al. “Combating environmental irresponsibility of transnational corporations in Africa: an empirical analysis
This post reminded me a lot about Michael Porter’s research suggesting that when companies try to do good (societally), they oftentimes end up doing well (economically). And in fact, it served as a counterpoint to his research in my opinion. A lot of the aforementioned tactics and strategies employed by J&J do not seem accretive to their business model or capable of driving long-term shareholder value. So, I wonder how long management will continue to invest in these tactics in the event their financial performance begins to struggle. While I understand there is diversification within the J&J portfolio that allows for some of these tactics, I believe there may be investor or management pressure if the business starts to struggle and these activities are viewed as economically unsound. Additionally, I wonder if there is a diminishing return curve to Michael Porter’s research where the more good companies do, the curve of economic wellness flattens.
It is interesting to make a parallel with my analysis on Walmart. I think Peter found the key of the discussion when he talks about sacrificing short-term gains to implement long-term complex plans. It is a tough decision to do, and sometimes you just can’t afford it, especially if you have a low margin business.
Moreover, differences in regulation are not the only cause of companies’ different behavior on climate change in the western world and in emerging countries. I think that these are the companies that don’t completely believe in the the potential of sustainability, or they just seek short-term gains in these areas where they are not under the lens of the public opinion of their countries.
In my article I mentioned a research that states that “Managing greenhouse gas emissions has also been shown to enhance brand and market value in some circumstances”. This might explain the different behavior when they are not watched by anyone.
It is important that companies understand that there is an economic advantage from embracing sustainability and reducing emissions. There are physical and regulatory risks that companies underestimate, and that will become more and more likely to turn into money losses over time. If nothing gets done, ultimately disruptive events will convince players that risks are real, but the goal is to anticipate that time.
Certainly thought provoking. I think it benefits Johnson & Johnson in the long run to hold business units in the developing world to similar standards as their US counterparts. Although setting a high environmental standard in a new market can open you up to competition from less stringent players, it also creates a barrier to entry for other international competitors. It would be a pretty big PR risk if a new player decided to optimize for lower costs via much higher emissions.
In addition, developing countries are becoming much more sensitive to environmental issues, particularly because of their high youth population which is especially susceptible to air pollution. There are a variety of social enterprise initiatives that are attempting to combat this directly. It may be in Johnson & Johnson’s favor to partner with some of those organizations seeking to reduce emissions in booming cities that must fuel their growth with cheaper, less environmentally friendly resources.
Great article! I must quickly say that I do not believe that J&J can avoid the short-term losses; however, I do believe that the opportunity is there to create long-term impacts and gains. There are companies, within Unilever brands, that are actively investing in growing out sustainable infrastructure for manufacturing on the African continent. I think that J&J can take a similar approach in providing the necessary infrastructure and support for sustainable manufacturing process. The require training can be daunting in these areas; however, I think across the supply chain their must be required sacrifices and even more education to make this work. I do hope that J&J can keep this up!