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By Elizabeth Scharpf
The term "sustainability" crept into the business lexicon slowly, by way of the environmental movement. It no longer means covering operating costs with profits, the definition I learned at Harvard Business School six years ago. Instead, it's morphed into a blurry term that fits into whatever suitcase you want it to — a catchall for everything "socially good," whatever that means.
The term has been used by various groups — with various meanings — for three decades. The Sierra Club first introduced it in the 1970s, during the dawn of the environmental movement. At the time, activists were speaking out against mining, water pollution, and other environmental threats. They defined "sustainability" as an approach to preserving natural resources by creating national parks and enacting legislation that would penalize polluters. In the 1980s, companies like The Body Shop used sustainability to describe their commitment to environmental and human rights, and a corporate focus that expanded beyond profits. For the next 20 years, the term was used by a small group of companies, like Ben and Jerry's and Eileen Fisher, whose founders tried to incorporate their social values into their business models.
Over the past five years, sustainability has become even more popular, as multinational corporations open new sustainability divisions and chief executive officers at the World Economic Forum wax poetic about its importance. The term has been co-opted, perhaps because Americans, especially Millennials, not only want to buy products that do the job, but also align with their values (like soap that can clean a car without harming the environment). Today 2,500 multinational corporations from 58 sectors participate in the Dow Jones Sustainability Index, which assesses each corporation's sustainability using variables such as labor and environmental practices. This index is one of over 25 sustainability indices worldwide, each one with a unique set of criteria — measuring governments', multilateral organizations' and non-governmental organizations' level of sustainability, or their so-called social good.
This phenomenon is bad for a number of reasons. First of all, it misdirects resources. According to a 2012 Bloomberg LP-sponsored study, institutional investors are now using "sustainable" investing strategies in more than $3.7 trillion of investments — a 22 percent increase in two years. In theory, this should be a good development. But if there is no consensus on what sustainability means, then how can the institutional investors and their clients — who are not necessarily operations experts — be sure that the funds are being directed to truly sustainable businesses? Investors are relying on vastly different definitions of "sustainable" — everything from a coal company whose drivers turn off their truck engines while refueling, to an urban quinoa farm depending on rain-collected water and composted fertilizer.
Secondly, "sustainability" applied blindly can dupe consumers. Consumers may have one perception of what sustainability means and therefore buy a product that has sustainable in their messaging. But when was the last time a Unilever marketing manager spent time on the Lipton tea farm to understand a farmer's needs? How much does the farmer need to get paid in order to support her family? Does Lipton use pesticide that pollutes her community's groundwater?
Lastly, multinational corporations miss the opportunity to scale truly sustainable practices. Companies in poor countries, which start off with sustainable business models, often look to multinationals as a blueprint for how to scale. When those multinationals aren't sustainable, the companies in poor countries still follow their lead, out of necessity. In doing so, they abandon their sustainable practices. If multinationals were, in fact, truly sustainable, through their success they'd inspire thousands of companies in poor countries to remain sustainable as they grow, and provide them the model to do so.
I run a company in Rwanda that uses banana trees to make maxi pads. Specifically, we use the fiber from the tree bark that farmers typically discard after they harvest the fruit. It's organic, renewable and can be composted. Compared to your average consumer packaged goods company, we use a fraction of the electricity and water. We don't use chemicals to make the pads super absorbent or neon white. But that's not why we're sustainable. We're sustainable because we make decisions based on ground-level pragmatism, not lofty moral principles.
We do this because we have no other choice. We work in a 2,500-person community, so if our neighbors don't like how we're treating the nearby river, or our employees, they won't work for us or buy our products. We research every aspect of our supply chain and listen to every person who works on it — the banana farmer, the pad assemblers, the neighboring community and our customers. And we make decisions that allow each employee to earn a living wage — while our business continues to grow. In my mind, that's the definition of "sustainability": a set of operational principles that allow a company to sustain itself financially while being a good social and environmental steward.
Ironically, it is businesses in poor countries that have become a model of sustainability — largely by necessity. Rwanda is a country with historically little manufacturing, unlike neighboring Kenya, Uganda and even South Africa. If we were a larger company, we might have been able to recruit experienced — and expensive — manufacturing staff from outside the country. But we didn't have that option. Even if we did, that would be a short-term solution. So we partnered with American and Rwandan universities to train new graduates from the technical schools in Eastern Rwanda. As a result, we can afford to hire employees from the local community. Ultimately, our staff will provide expertise to others, keeping skills in-country.
When we first started out three years ago, we spoke with 600 banana farmers to determine a unit price for extracted fiber that makes harvesting that fiber profitable for them and cost-effective for us. Once we got the fiber from these local farmers, we used household blenders and water to fluff it into the core component of the maxi pad. This simple, inexpensive method has no negative effect on the environment.
Critics would argue that it may be impossible for multinationals to operate like we do. Our ten-person company is a lot different from Unilever. But that doesn't mean big multinational companies can't follow our lead.