Water conservation is a face with
two sides: one is the obvious side of saving a resource crucial for sustaining
life; the second - which is often neglected but emerging as a national priority
- is the link to energy consumption and conservation.
In other words, there is an energy intensity related to water consumption
just as there is a water intensity
related to energy consumption.
The focus here is on the energy intensity related to water consumption
- i.e., water collection, treatment, distribution and end-use.
Understanding the integrated relationship between energy and water - from an energy conservation view - is vital to
reducing energy consumption, energy costs and
greenhouse gas (GHG) emissions.
The water we use for residential
and commercial consumption requires the use of enormous quantities of energy.
Again, this is different from the more limited notion of thinking about water
consumption solely from the perspective of depleting a vital resource.
On average, energy used solely
for pumping raw water collected from
lakes, rivers, streams and aquifers through treatment facilities represents 15%
of all the energy used in the treatment and distribution process; the remaining
85% of the energy used in the process is for distribution to homes, business and industry.
This doesn't even take into
account the additional energy that's required for circulation, filtering and
pumping after water is delivered to homes and businesses. When water leaves
homes and businesses, it goes through an extensive wastewater treatment
process.
The reason it may be difficult
for many home and business owners to understand the energy-water link is that
it's not a cost that is specifically listed on your electric bill, but is
embedded in daily water use.
Consider that the energy it takes
to run a faucet for five minutes is equivalent to the energy used to run a
60-watt light bulb for 14 hours. Additional energy is consumed when we heat and
cool the water we use. According to the U.S. Environmental Protection Agency,
we use more energy to heat the water just in our homes than to light them.
Initial and wastewater treatment
is 3-4% of our national total electricity use, and this is expected to increase
20% over the next 15 years.
As the state population continues
to grow, the energy-water link is emerging as a priority issue.
Colorado is expected to receive
1.7 million new residents within the next decade. And though Colorado is
considered a water-rich state, the spotlight here is on energy conservation:
reduce water use and energy consumption is also reduced.
In June 2009, just one year ago,
the Colorado Water Conservation Board released a report titled Water Conservation = Energy Conservation.
Highlights of the report include the following:
oDenver
water used just over 20,000,000 kWh in 2007 to treat raw water and over
31,000,000 kWh for distribution
oThe
City of Parker (south metro Denver area) used 24,749,000 kWh of electricity in
2008 in connection with its water treatment process
oSome
proposed water supply projects will create new significant energy demands
Although it is acknowledged that
many Colorado cities have gravity-fed systems and high-quality water supplies
that don't require extra energy associated with extensive treatment, population
growth, new projects and the energy intensity connected with pumping water from
deep aquifers - along with the other uses listed above - are driving
policymakers, analysts and customers to consider the energy used in connection
with daily water usage, and how reducing water use will serve energy
conservation, reduce energy costs, and lower GHG emissions.
Perhaps the first question you might ask is: Why
should we even be bothered with this? The answer: Because it will help
you retain customers, attract new ones, lead to your competitive
advantage by differentiating you from your competition, promote your
standing in the organization, and add to your company's bottom-line
benefits.
Perhaps the next question you might ask
is: Why should anyone care? Not surprisingly, the answer is remarkably
the same: Because it will help your company retain and attract top
talent; provide positive brand benefits by promoting your reputation
for being responsible; create a competitive advantage that allows you
to differentiate yourself from the competition in an economy with
shrinking market shares and eroding profit margins; and enhance the
bottom line through proven return on investment (ROI).
What Is CSR?
The concept of corporate social responsibility
(CSR) has been around for decades, embracing notions of corporate
philanthropy, protecting human rights, and observing labor standards
among some of the more salient ones. The term itself, however, has been
around for only about the last two decades, and has grown to include
environmental, ethical, and governance components, as well as others.
The
expanded definition of CSR is largely attributable to the convergence
of several critical events and a progression of negative corporate
behaviors. They include environmental disasters, such as Chernobyl and
Bhopal, having devastating effects on large populations and reaching
across international borders; accounting and governance debacles such
as Enron and WorldCom a decade ago; the more recent economic debacle
blamed in part on the absence of ethical or governance standards that
Sarbanes-Oxley did not cover; and human rights violations implicating
U.S.-based global corporations for everything from child-labor
violations and sweatshop conditions to shooting protesters. These
negative impacts fall basically into three categories: environmental,
social, and governance, or what's commonly referred to as ESG or the
triple bottom line (TBL). Putting aside the debate over the inadequacy
of those terms, practitioners should consider that the CSR experience
is different depending on where one is located geographically.
Concepts
of CSR can vary from one geographic area to another. To those residing
outside the United States, CSR is often synonymous with human rights
and fair labor standards. For those in the United States, the principal
driver of CSR has been environmental initiatives. By the same token,
ethical and governance concerns are also an increasing priority, given
the financial scandals and market crises during the last two decades.
For many in the public sector, CSR is often
identified with the concept of sustainable development. This
identification began to emerge at about the same time that sustainable
development was defined by the Brundtland Commission. (The Brundtland
Commission was convened by the United Nations in 1983; it was created
to address concerns about the deterioration of the human environment
and natural resources, and the resulting deterioration of economic and
social development. It published a report of its activities and
conclusions in 1987.)
According
to this commission, sustainable development involves meeting the needs
of the present without compromising the ability of future generations
to meet their own needs. Sustainability as a concept has often been
used as a stand-in for CSR, and the recent ascendency of the green
movement has not helped in the effort to clarify any of these terms
because the dominant perception of green is environmentally focused.
However, like the Brundtland definition, the definition of green (at
least for many purposes) has grown to include concern not only for the
accelerating deterioration of natural resources and the environment,
but for economic and social development as well.
Everyone agrees that CSR applies to
businesses of all types and sizes, not just corporations and
responsibilities extend beyond the social sphere--whether it's human
rights, human resources, labor standards, indigenous rights, or
preserving culture. It also includes ethical standards and
environmental practices and policies--though many would consider the
latter to fall under the definition of sustainability.
The best view is that sustainability is
inherently comprehensive, integrated, and holistic. It takes into
consideration not just environmental impact, but social, cultural, and
ethical concerns as well. Accordingly, it might then be better to think
of CSR as BR, or business responsibility, meaning a set of best
practices and policies, which, if followed, will lead to
sustainability. This makes more sense because business sustainability
is about incorporating strategies for a business that will promote its
longevity. In the 21st century, that means taking into consideration
all of your impacts--no matter what business you're in.
Principal Drivers Though it may be counterintuitive to some
business leaders, moving beyond compliance is profitable and
increasingly required by the supply chain and other stakeholders. It is
an increasingly hard reality that many businesses must operate within
the virtual restrictions of a "social license" to do business, which
empowers the average individual through social media mechanisms. A
powerful illustration of this point is the case of the musician whose
guitar was damaged by a major airline company. When, after a year, the
company failed to compensate the customer-musician for a loss its
employees caused, the musician used the power of YouTube to spotlight
the company's neglect through a satirical ditty, bringing worldwide
adverse attention to the company. As a result, the company not only
then promptly compensated its customer, but also began revising some of
its internal policies and procedures--for the better.
Other realities driving this movement include:
(1) regulatory uncertainty; (2) reputational risk; (3) the increasing
difficulty of retaining and attracting top talent; (4) the
intensification of competition, thus eroding market share and
increasing the need for differentiation; (5) shrinking profit margins;
(6) supply chain pressures; (7) the availability of more and improved
metrics to measure ROI; and (8) heightened respect for and prestige of
diversity.
The Riskiness of Being Risk-Averse Some managers tend to
tell you only what you can't do. We would call these "gate-keepers."
Others have a more multi-directional view; they tend to wear two hats:
the compliance hat and the business hat. Wearing the business hat
allows them to understand what customers (internal and external) want
to do and figure out a way to "get there legally" while managing risk
exposure. Gate-keepers can often take the view that CSR/sustainability
is laden with excessive risk. They can try to restrict the operation of
CSR in a misguided attempt to hermetically seal off the risks of
innovation. This is a tendency that threatens the strategic objectives
of CSR. A more receptive and less "closed" perspective of CSR can have
business effects that are themselves positive, potentially lucrative,
and quality-of-life enhancing.
Managers
with broader vision know there is no such thing as an airtight
"elimination of risk": no airtight contract, airtight lawsuit, airtight
defense, or airtight policy. In-house counsel tend to understand these
principles better than outside counsel, given that much of what is done
in-house involves interacting with multiple business units that do not
follow zero-risk tolerance policies and practices. Exceedingly low- or
no-tolerance risk policies inhibit business and ultimately profits;
business is inherently about taking some calculated risk.
Think in Terms of Guiding Rather than Concrete Answers Examining your
expected skill-base in the 21st century will invariably entail thinking
about how your role fits into the wider picture. This means two
principal things to you.
The first
is that management models are moving away from a function-oriented
view. This is the silo approach where each person's functions are all
they should know and focus on, remaining fairly ignorant of the
organization as whole and how it functions. The new model of management
that companies are increasingly moving towards is the system-based
paradigm. This requires managers (and employees to a large extent) to
understand how they and other components of the company work within the
organizational boundaries. It is an integrated view and demands, to
some extent, a multidisciplinary understanding and functioning. The
second is more simple: there is no one-size-fits-all solution. Your
management solutions and approaches will depend not just on the size
and type of your company, but also on knowing and integrating your
culture. If, as in many companies, CSR/sustainability is embedded in
the marketing department, your company may be neglecting litigation
risk exposure should marketing representations be proved false--or even
if they prove true.
We probably all
understand how making false representations would expose us to
litigation, but how could a company be liable for a true
representation? This is being played out currently in the
climate-change context, in which many corporations make public
declarations--whether in CSR/sustainability reports, websites, or
elsewhere--that climate change is a risk to which they are responding
with new products or services. What is evolving is a theory of
liability that asserts that if you mention climate change as a risk in
your public documents, but then fail to disclose it as a material risk
in your U.S. Securities and Exchange Commission (SEC) filings, you
could be liable for fraud, among other things.
The
lesson in that is that managers have the opportunity to better help
their organization by identifying new areas not just of risk exposure,
but also for business opportunity.
How to Guide Your Clients The three basic
approaches to helping your clients'--whether internal or external--get
down to the business of sustainability are: (1) identifying the
appropriate framework; (2) determining the baseline; and (3) initiating
incremental implementation.
Identifying the appropriate framework
means simply that you better organize goals and objectives by enhancing
your ability to reduce risk and increase rewards according to a plan.
Such a plan expands the scope of business-as-usual (BAU) activities and
provides metrics to measure progress, and can be thought of as a type
of enterprise risk management (ERM).
The difference between
traditional risk analysis and ERM is that the traditional mode of
analysis looks essentially at conventional risk versus benefit and cost
versus benefit. The refined ERM framework also considers the following:
risk versus reward; the implications of an expanded network of
stakeholders; systems-thinking versus functional thinking; integrated
strategies; and brand sensitivity. These are especially important in an
era in which social media allow one individual to have a detrimental
impact on your reputation, and thus your profits.
The ERM framework
offers a broader variety of metrics by which to measure your progress,
enhance your success, and improve your vulnerabilities; a broader
conceptual plan that unifies the many disparate, fragmented, and
isolated parts of the organization; a logical structure that links
together all the pieces of the enterprise (values, goals, missions,
strategies, operations, etc.) into an integrated whole; and a better
result with an improved bottom line than traditional risk management.
The ERM framework
helps clients identify both risks and opportunities. A simple case
study illustrates how the BAU model exposes companies to higher risk
and resulting loss. Several years ago, the Federal Trade Commission
(FTC) hit ChoicePoint (CP) with a $10 million fine, the largest civil
penalty in the agency's history. The FTC charged that CP illegally gave
credit histories to people who were not authorized to obtain them, and
failed to have reasonable procedures to verify the identities of those
who requested the information and how the data was to be used.
The CP BAU model
neglected to consider the possibility that con artists could enter
unnoticed through the front door. The CP assumptions were based on
older thinking patterns that only perceived the vulnerability of
fraudulent actors entering through the back door--hackers and the like.
The CP operations process for approving business partners was
vulnerable as criminals were officially becoming business partners by
exploiting CP's business process and practices that relied on
historical data and traditional BAU models.
What this teaches
is that information and commitment should never be mistaken for
investigative knowledge. What ERM would have done for CP is to uncover
more relevant vulnerabilities by using risk assessments that are
conducted with a keener view of operational reality. It also would have
added increased protection and more to the bottom line. Because the ERM
framework is more rigorous and thorough than traditional risk
management, it yields more effective and valuable results. ERM would
have also provided enhanced rewards through process-driven software
with embedded frameworks that help create a repeatable and sustainable
process.
Determining the baseline
means conducting a sustainability information audit (SIA™), and
follow up with a gap analysis and an expanded SWOT analysis. (A SWOT
strategy refers to "strengths, weaknesses, opportunities, and threats,"
but should also include the factors we are discussing here.) For
example, if a company is choosing to focus on the environmental
component of CSR/sustainability, it might consider choosing its "carbon
footprint" as the starting point for gauging its activities. This could
provide the company with the baseline on which you assess strengths,
weaknesses, opportunities, and threats. This assessment also helps the
organization decide which emissions sources they want to target for
reduction: Will it stay with stage I sources, or move beyond that?
Initiating incremental implementation
means developing your overall strategy, setting modest but substantial
targets, and choosing which metrics you will use to measure your
progress. It means identifying your stakeholders (both internal and
external), and engaging key parties of interest. This stage involves
establishing goals and targets including timetables, objectives,
baseline year, and possibly types of emissions. It also means
developing a short-term (often, five year) plan that might include
developing and implementing financial mechanisms for carbon management
(e.g., carbon credits, offsets, etc.), or more community involvement
with indigenous cultures. It also entails long-range plans (five to ten
years out), and invariably includes incorporating standards beyond
compliance to meet supply-chain pressures.
The Green You Take Is Equal to the Green You Make Green
also means business responsibility. It embraces all the elements of CSR
and sustainability, no matter how anyone defines those terms. Green
fatigue may be a fact in some corners, but it should not be an
inhibiting factor for those organizations following the three
approaches described. Like it or not, the green moniker remains the
most accurate common shorthand way of expressing CSR and
sustainability.
Green
is also a stand-in for money. Therefore, managers (at every level in
all types of companies - large and small, retail, industrial, or
otherwise) have the opportunity to use the liability risks of doing CSR
as a baseline. This means also considering the risk of not doing CSR,
potentially an even larger risk.
Roxane
Peyser (rpeyser@maurgood.com) is president and CEO of maurgood, LLC, a
sustainability consulting firm that helps companies achieve corporate
responsibility and sustainability goals. She is also a vice-chair of
the ABA Section of International Law CSR Committee.
Organizations large and small are looking to their values, branding themselves as "green" and "good." Unfortunately, green marketing allows more than a few of them to make claims that are widely regarded as greenwash. This results in an eco-saturated marketplace cluttered with greenwashed products and services that at best create confusion and at worst taint truly green goods, services and accomplishments.
We believe that sustainability is ultimately about transparency. Those organizations that have a clear Corporate Social Responsibility (CSR) policy partnered with authentic and transparent communications set their brand's reputation apart from the competition. Saying you do well is not enough: You have to actually take the measures you publicize and communicate them clearly and honestly. A company that does it right quickly realizes that effective and transparent communication is key to maximizing investments, as well as transforming the company and its brand. Company executives understand that the organizational and technological innovations they put in place yield both bottom-line and top-line returns.
Nike, Coca-Cola and Seventh Generation are excellent examples. Each of these corporations not only communicates the right things, they "walk their talk" right down through their supply chains -- that is, they do what they say they will and make positive, measurable changes in their operations and their communities. And when they fall short of targets, they are fast to acknowledge the lag and begin an open discussion about how to achieve a better result next time. The result of this transparency: They get tremendous media attention -- and customer loyalty.
Despite these examples, too many firms are paying the price for failing to acknowledge and avoid the six dangers in communicating green:
1. Danger of Inflating Sustainability Claims
Never exaggerate your company's sustainability efforts.
Exaggerated claims in today's sustainability world have tangible consequences to the bottom line. CSR depends on real, demonstrable results. So, tell your story -- but be transparent and clear. It helps build trust and credibility with your stakeholders.
According to TerraChoice, which measured the uptick in green advertising claims in five of the largest US publications over the past two years, in 2009, 10% of all ads have included sustainability claims -- a rise of 42% in just two years. This trend has made the greening of products and services big business. Although investors are eager to pump money into new green technologies, and businesses are looking for green advantages, it doesn't take much digging to uncover inflated claims and outright lies.
For instance, earlier this year, the Federal Trade Commission (FTC) filed complaints against K-Mart, Tender Corp. and Dyna-E for false claims those companies made about their products' "greenness." In a statement about the three cases, the FTC said that "with the recent growth in 'green' advertising and product lines, the agency will continue its efforts to ensure that environmental marketing is truthful, substantiated, and not confusing to consumers."
2. Danger of Hiding the Facts
Forget about hiding the truth from your stockholders and the public. Today, companies only succeed when they acknowledge the complexity of the issues they're addressing and their own imperfections. In order to be credible, focus on communicating your firm's results and performance and lay out what more your company needs to do to reach its goals. If necessary, go outside to reputable sustainability consultants to assist you.
Your audiences expect transparency In fact, it's almost as important as the results themselves. Being transparent about both your successes and your setbacks enables your company to continuously improve.
Corporations that don't heed this advice risk a loss of trust, according to the July 2009 release by Edelman, world's largest independent PR firm, of its mid-year global Trust Barometer findings. Edelman reported that in 2009, in the U.S., trust in business collapsed, dropping 20% over the course of one year; levels are at the lowest in the barometer's 20-year history. The study found that for companies needing to rebuild their audiences' trust, high on the firms' priority lists should be making progress on environmental initiatives and partnering with third parties.
Simply put, the danger of opacity is that it is often seen as deception and thanks to the information age and instant global communication provided by social media, we'll always know and never forget that a company has been less than truthful.
3. Danger of Touting Unverified Claims
Don't just claim your company is working toward environmental sustainability -- prove it!
Third-party certification is a required tool for communicating the values of each product, service and organization. It impacts your brand reputation, and your ability to do business and make a bigger profit. Any organization will have employees working to make the company more sustainable and responsible, but outside, neutral third-party monitoring/verification of a company's claims is crucial to public acceptance.
External verification of your claims and progress isn't limited to audits. It may show up as familiar trustmarks like EnergyStar(TM) on packaging, sustainability scorecards, life cycle analysis and in advertising and social media. According to Mitch Baranowski, founding partner of BBMG, an advertising agency focused on connecting consumers with forward-thinking brands, "trustmarks help companies"... provide an objective, third-party seal of approval that demonstrates their follow-through on social and environmental claims."
4. Danger of Ignoring Employees
Don't forget one of your most important groups of advocates: Your employees.
Research over the last decade has made a convincing case that companies whose employees feel highly engaged outperform companies with less engaged workers in just about every important metric: growth, profitability, productivity, innovation and so on.
Take Costco, for example: The culture of the company flows downward from CEO Jim Sinegal and his focus on employees and, by extension, customers. As a result, Costco chalks up considerable improvements in its product mix and sales due to alert employees, whose per person sales are considerably higher than those found at key rival companies.
Another company that recognizes the power of employees as advocates is Xerox. "We've been amazed by the volume of positive, thoughtful comments from Xerox people worldwide after we released our first comprehensive global citizenship report last year," said Hector Motroni, Chief Ethics Officer of Xerox. "There is tremendous power in ensuring that your people know you're a company with a heart and soul that stands for 'something more.'"
5. Danger of Failing to Back Up Claims with Metrics
That which gets measured gets done. In a world of growing accountability and increasing scrutiny, this notion emphasizes that if an activity is important to your business, it should be results-oriented, with data measuring those results.
Too many companies continue to resist measuring their waste and their water, their energy and their impact, in a misguided attempt to appear no so bad. In this era of increased public scrutiny, in order to claim any form of improvement, a corporation needs to have a methodology -- such as sustainability scorecard requirements -- for measuring the items it wants to change. Businesses are used to protecting their methodology as a corporate secret but when it comes to reporting, a firm must avoid saying "because we said so" and instead show how it arrived at its conclusions. With metrics systems for CSR progress increasingly discussed and debated, take the time to explain to stakeholders exactly how you took the measurements.
David Douglas, Vice President of Eco Responsibility at Sun Microsystems sums this up well when he advises: "Make sure you talk about how you measured your results... We are careful to build metrics into our social and eco-responsibility programs so that we can track our progress...and so that our stakeholders can hold us accountable. Without metrics, and transparency around our choice of metrics, we would not be able to continue to engage our stakeholders to work with us."
6. Danger of Isolation
At no other time in history has it been as vital to business success to proactively build broad relationships. The business environment is competitive and sometimes ruthless but you are not in this alone. In the new paradigm, businesses must partner to some extent for success. From consumers to employees, supply chain to NGO's, investors to government agencies, sustainable brands are proactive in building relationships with their stakeholder base.
Idell stresses that "companies must connect the bottom line of their businesses with their social conscience. Their philanthropic aims must match their core business and the values of their employees. Companies must be connected across four channels: the communities they serve, governments and non-governmental agencies of social change, philanthropies and values of employees," he said. Global companies must become local partners or risk alienation.
The Takeaway
If you saw yourself and your business in one or more of these six dangers, it's time to get proactive and embed the proper practices and transparencies into your short-, medium- and long-term strategies. Being proactive is a company's first line of defense: It enables businesses like yours to address issues of concern and be in better control of your messages and destiny. When you communicate, do so clearly, with transparency and without inflating your accomplishments or hiding your mistakes. Put neutral, reputable third-party certification systems in place, and use them to verify your claims. Engage your employees in your efforts and let them help build the key relationships that will raise brand awareness. Offer valuable insights and perspectives to key stakeholders and give your business additional avenues of influence and opportunity to get the facts out.
Even if you are not inclined to adopt such proactive steps at this time, you will likely be required to pursue environmental sustainability by your supply chain in the future. For instance, WalMart has increased pressure on its suppliers to account for their environmental sustainability if they wish to continue selling to the world's largest retailer. And even if you are not in WalMart's supply chain, you are in somebody else's, and they will likely be in the WalMart supply chain, which means you -- in turn -- will need to take action.
On September 7th, 2009, Kraft Foods Inc. proposed a merger with Cadbury plc. on the premise that they would build a "global powerhouse in snacks, confectionary and quick meals." While Cadbury rejected Kraft's offer, there is potential for a hostile takeover within the coming year. The deal would create cost savings in marketing spending, procurement, and research and development. The merger would give Kraft a 14.8 percent share of the global confectionary market, matching current global leader Mars, Inc.
Kraft claims that Cadbury's brands would benefit from Kraft Foods global scope, scale and array of proprietary technologies and processes. But would Cadbury benefit from Kraft's sustainability and corporate social responsibility position (CSR)? At first glance, Cadbury and Kraft seem like a CSR match made in heaven. Both companies have pledged sustainability targets to reduce energy consumption, packaging, waste, and water consumption (Kraft Foods Better World, and Cadbury Purple Goes Green). Both have partnered with international NGOs towards ethically sourcing coffee and cocoa and are collaborating on international cocoa initiatives to further sustainable development in West Africa. They have even partnered with some of the same organizations like CARE, Rainforest Alliance, the Carbon Disclosure Project, and PROGRESS. They have both received numerous accolades for their social and environmental initiatives, including being awarded a place on the Dow Jones Sustainability Index.
Sounds perfect, right? Upon closer inspection, however, there are three key areas of differentiation that set the companies apart: certifications, communications and integration. In each of these areas, Cadbury's sustainability and CSR positions are much stronger than Kraft's. This raises questions about the future of both brands' public image if a union was to happen, and whether the companies will keep their initiatives separate or one system will prevail over the other.
Certifications: Rainforest Alliance vs. Fairtrade
Legitimate independent certifications have become a major aspect of CSR since they are viewed as verification that a product or practice was produced or pursued in accordance with social and environmental responsibility standards. The aim is to make it easier for consumers to make responsible and ethical product choices. However, the immense variety of certifications in the market can have the opposite effect.
Confusion in green certification - or labeling - is created by the estimated 410 green labels and certification systems worldwide, and by the nearly 400,000 companies and 500,000 products that have obtained a green label or certification. The sheer number of certifications makes it very difficult to differentiate between quality ones and those that are less valuable. Kraft and Cadbury are a good example of the confusion that can be caused by the myriad of similar labels available.
Both Kraft and Cadbury have committed to protect human rights and to trade ethically through sustainable agricultural initiatives. These commitments are particularly relevant to both Cadbury and Kraft because a variety of their brands use cocoa, coffee and cashews, which is where both companies are concentrating their efforts and can influence substantial change. However, each company has chosen to partner with different organizations to advance their efforts along their ethical sourcing path. Kraft has partnered mainly with Rainforest Alliance, and Cadbury's products bear the Fairtrade seal.
Both certifications are legitimate, but there are differences. Do the differences between the two certifying groups matter, and if so, how? More central to this discussion, does the choice of certifications enhance one company's brand over that of another company? While Fairtrade and Rainforest Alliance work towards similar ends, there are some differences that set the two apart outlined in the chart below. Consider the following:
Assuming consumers become more aware of the differences between certifications, a merger between Kraft and Cadbury would possibly impact their respective brands in different, unintended ways. One possible outcome: the brands complement and reinforce one another's efforts to implement meaningful CSR and sustainability. Another result - one that has been seen in other mergers and acquisitions - could see Kraft hampering Cadbury's existing efforts to make CSR increasingly robust. Fairtrade's certification stresses democratically run cooperatives of peasant growers. It rewards and makes available to the specialty market interesting coffees that were previously lost in the faceless flow of anonymous commerce. Rainforest Alliance balances the more targeted focus of Fairtrade by recognizing and rewarding farmers regardless of scale or ownership, who nevertheless pursue progressive, often impeccable environmental and social practices with their farms and workers.
Fairtrade's reputation among knowledgeable consumers is that it is a more stringent ethical sourcing certification than Rainforest Alliance, despite the fact that Rainforest Alliance does have exacting standards regarding ethics, the environment and economics. Additionally, these consumers have been known to zero-in on the fact that Rainforest Alliance sets no minimum acceptable price for agricultural commodities, provoking speculation about Kraft's motives in choosing them.
Reporting and Communications
Whether a company uses the Fairtrade or the Rainforest Alliance certification is perhaps only as important as how it is communicated. Consumers are becoming increasingly savvy about forcing transparency in the sourcing and production of goods, so it isn't enough to just say you are doing something: you have to be able to prove it with metrics and data.
Companies are being held accountable for not just things they do, but also the things they cause to happen. Traceability is critical to the supply chain, to operations and to brand reputation. Consequently, astute companies are getting better at communicating to their customers the backstories of the things they make.
Backstories are background information on the production and components of a product or service. Simply, what happened to a product before we bought it. How companies tell their backstories is rapidly emerging as the single most important business communication challenge.
Here, again, the companies differ in how they report their CSR and sustainability initiatives and progress. These differences could further impact brand value, especially since they don't report to the same degree. The main differences are outlined in the chart below:
As the chart above shows, Kraft's reporting is less thorough than Cadbury's. Again, the net result of a merger could negatively impact the Cadbury brand unless Kraft were to allow Cadbury to continue functioning as autonomously as possible, especially with respect to its CSR decisions and policies.
Cadbury's sustainability report website has received critical acclaim in general, but particularly for its stakeholder engagement. The site makes the report available in two formats, making it accessible to a wider audience. The first format is an interactive journey for the curious "browser" that explains how the company is addressing complex issues such as ethical sourcing and climate change. It highlights these efforts with Cadbury's engaging global CSR stories. The second format is geared towards a more sophisticated audience that is people looking for more robust, substantive reporting. In contrast, Kraft's public sustainability website, www.kraftfoodsbetterworld.com, which is also interactive, is much more limited in details and geared more towards the "browsing" visitor. The result is less information and consequently, less transparency.
Nothing here is intended to suggest that Cadbury has reached perfection. The issue is that Cadbury's efforts to provide more detailed information about its products, processes and policies to the public provides more transparency that allows Cadbury to enjoy a higher brand value. In contrast, Kraft's CSR and sustainability efforts are more opaque as there is a lack of similar detailed information and what does exist is not easily accessible. This results in an impaired brand value as Kraft has the opportunity to greatly expand its efforts in this regard.
Integration
Finally, when talking about CSR strategies, it is important to look at how integrated they are into a company's corporate culture and governance. Many businesses are now taking the next step in the evolution of CSR by realizing that CSR is a crucial component of their overall business strategy. As such, companies are increasing weaving CSR and sustainability policies, programs and standards into traditional functions including marketing, branding, research and development, innovation, manufacturing, talent management and operations.
The chart below outlines the main differences between the two.
Cadbury has a consistency in their products that facilitates their overall integration of CSR and sustainability into all aspects of their business. Kraft, on the other hand, is at a disadvantage by being such a large conglomerate. This makes integration and consistency more of a challenge, but not one that is insurmountable. There are a number of large conglomerates that have achieved impressive CSR and sustainability results, and it would be helpful for Kraft to look more seriously at some of these organizations and how they were able to accomplish better product and financial results because of their progressive movement into the CSR and sustainability space.
Final Thoughts
A quick analysis of Kraft and Cadbury's CSR strategies and cultures reveals that were a merger to occur, there is potential for brand impact - negative or positive. If Kraft takes substantial steps to elevate their sustainability and CSR efforts - similar to Wal-Mart - and attempt to align more closely with those of Cadbury, then Kraft's brand value could increase, boosting profits. On the other hand, Kraft's customers may not be as sophisticated as Cadbury's, yielding a neutral result where there is not brand impact to Kraft. However, Cadbury customers could be seen as more sensitive to CSR and sustainability issues, viewing an acquisition by Kraft as brand diminution. This could negatively impact the Cadbury brand causing an erosion of its customer base.
It is commendable that Kraft is taking steps towards increasing its CSR efforts with respect to sourcing and production, but the question is will they expand beyond coffee, cocoa and cashews to include all of their products. And will they augment the standards that are already in place for coffee, cocoa and cashews? Many of Kraft's products rely heavily on sugar, as do Cadbury's, so a good next step might be to adopt Cadbury's current Sugarcane Initiative, or replicate it with their own suppliers.
In the end, would a Kraft /Cadbury merger, with their different commitments to CSR and sustainability, produce a positive, negative or neutral brand impact? Do the differences between the companies in terms of transparency create a value difference that could cause a negative impact to their bottom line? It's too soon to tell. Certification programs are in their infancy and as they evolve, clear leaders will emerge. In the battle over Cadbury, should Kraft win, the size and scale of such a merger will mean that the new company will be challenged to develop a sustainability strategy that makes this brand a true leader in the hearts and minds of consumers.
