Chapter 20
Customers and Markets

The third element of the Scorecard in the Strategy and Execution section addresses the relationships with customers. Specifically, this element examines the extent to which a company engages deeply with customers to jointly develop more sustainable solutions.

Ecolab, the global provider of water, hygiene and energy technologies and services to the food, energy, healthcare, industrial and hospitality markets, was honored by the World Environment Center in May 2018, winner of the 34th WEC Gold Medal for International Corporate Achievement in Sustainable Development. The company was recognized for its efforts in global water conservation, sustainability commitments and partnerships, integration of sustainability into the company’s core growth strategy, its innovation processes, product development, and customer focus.

Ecolab’s approach to customers and markets is a true Stage 4 approach—driving strategic partnerships. Ecolab partnered with Trucost and Microsoft to create the Water Risk Monetizer. This tool provides actionable information to help businesses understand water-related risks and quantify risks in financial terms to inform responsible decisions that enable growth. The tool is available to customers and the public at no cost.i

The overarching strategic question that senior executives and board members should be asking is:

Key Question: How are we working with key customers to reduce their full life-cycle impacts and create sustainable solutions?

To help answer this key question, the Scorecard analyzes how companies manage and perform in three areas:

The sustainability linkages to customers

Core approach to interacting with customers and to addressing customer needs regarding sustainability

The role sustainability plays in shaping future market opportunities that deliver value to shareholders and value to society

Within each of these areas, executives evaluate their company performance on several key sustainability indicators (KSIs).

Sustainability Linkage to Customers

The Scorecard addresses the overall linkage with customers related to environmental, social, and governance (ESG) with two KSIs.

KSI 10.1: Posture and Interaction with Customers Regarding Sustainability. A key challenge for many corporate sustainability directors in recent years has been the need to fill out often lengthy questionnaires (from customers and other supply chain partners) about various ESG issues. It is not just Walmart asking the questions and pressuring its suppliers. Most of the early pressure—dating back to the 1990s—came from European companies, especially in the consumer products sector.

Several examples of leading practices are:

BT: Formerly known as British Telecom, BT set a 2020 goal to help customers reduce carbon emissions by at least three times the end-to-end carbon impact of BT’s business.

Google: The company launched Project Sunroof in 2015, using imagery from Google Maps and Google Earth, 3D modeling, and machine learning to help consumers evaluate solar feasibility for their homes.ii

In each of these examples, the companies view customers as a strategic partner when it comes to ESG. They have moved far beyond compliance questionnaires (though those still may exist).

KSI 10.2: Identifying Customers’ Sustainability Issues. How can we help our customers meet their sustainability goals and reduce their negative environmental and social impacts? That is the crux of this KSI. The rage of approaches is depicted below.

Some innovative ways of partnering with customers on sustainability include:

Infosys: The Indian company partnered with the World Business Council for Sustainable Development (WBCSD) to launch the India Water Tool to help companies better assess their water risks and manage their water usage more efficiently.iii

Nike: The Nike+ suite of personal fitness products combines deep understanding of what makes athletes tick with extensive market research data. Nike+ incorporates sensor technologies embedded in running shoes and wearable devices that connect to the web, apps, and social networks.iv

Ricoh: The global producer of electronic products is focused on helping its customers reduce energy use, carbon footprint, and use of virgin materials—while also expanding its own business opportunities for product refurbishing, recycling, and new designs.v

In most companies, the people who talk to customers daily are not the same people who manage sustainability. When these two groups (and ways of thinking) come together to inquire about customers’ ESG challenges, good things can happen.

Core Approach

The Scorecard addresses how companies interact with customers on ESG issues with two KSIs: one dealing with customer partnerships and a second that looks at the nature of customer communications.

KSI 10.3: Customer Partnerships Regarding Sustainability. A company does not need to partner with its customers in order to comply with environmental requirements or manage safe operations. But those are Stage 1 attributes. At the other end of the Scorecard spectrum, companies absolutely need to partner with customers to tackle the larger challenges that extend beyond one company’s fence line. The range of practices is depicted below:

Several examples of companies partnering with existing and especially new customers in creative ways embodying ESG principles follow:

Natura Cosmeticos: The number one cosmetics manufacturer in Brazil uses ingredients from the Amazon (though it does not bill itself as a “natural” brand per se), partners with families throughout the region to help them farm sustainably, and packages its products in 100 percent post-consumer recycled containers and so-called green sugar cane ethanol plastic. The company is committed to eco issues and has been given awards for its work.vi

Coca-Cola: The company launched EKOCENTER as both a great idea and a magnet for many sustainable solutions. As a cross between a community center and a general store, EKOCENTER units are run mostly by local women entrepreneurs in developing counties—where people at the bottom of the economic pyramid live. Based on community needs, EKOCENTER sells a wide range of products and enables connectivity from solar power. It also facilitates other services from phone charging to financial transactions, provision of safe water and vocational training.vii

VF Corporation: The company’s North Face subsidiary launched an innovative “Clothes the Loop” program, which allows customers to drop off their unwanted clothing and footwear (any condition, any brand) at retail and outlet stores for proper recycling.viii

Xerox: Launched a reforestation program to help its customers offset their paper use by planting new trees in geographic areas of need. The company partnered with technology platform PrintReleaf.ix

In these examples, the company started by taking a fresh look at the real needs of current and new customers and partnered with them to create products, services and solutions aligned with ESG.

KSI 10.4: Nature of Customer Communications. As we look across the spectrum of how companies communicate with customers regarding ESG, the range of practices is as follows:

A Harvard Business Review article highlighted this powerful intersection between world class customer outreach and sustainability, sharing these examples:x

Akzo Nobel: The Dutch company launched a marketing campaign “Let’s Color” enlisting volunteers and donating paint to revitalize run-down urban neighborhoods like the favelas in Rio de Janeiro.

Unilever: The company holds a series of globally coordinated and locally delivered internal and external communications events called “Big Moments” to understand customer needs and align around the company’s Sustainable Living Plan.

In these examples, the company created a powerful customer outreach program that drives home its sustainability commitment while garnering visibility and brand recognition.

Shaping Future Market Opportunities

The Scorecard addresses the work companies do to shape future market opportunities embedding ESG principles with four KSIs: looking at both existing markets and developing markets—and then looking at both existing product lines and new product families.

KSI 10.5: Selling Sustainability Features into Existing Markets. For companies that transition from seeing sustainability as a risk management play to those seeing it as that plus a revenue growth play, the place to start is often selling sustainability features into existing markets. That was the idea behind GE’s launch of Ecomagination in 2005. Yet, most companies have not yet crossed that major hurdle between Stage 2 and Stage 3, as defined below.

A few examples of Stage 3 companies are:

Campbell Soup: The food company has, over the past decade, systematically responded to the broad customer trend toward healthier foods. As one example, the company entered the “packaged fresh” foods category.

DTE, NextEra Energy and other utilities have been deploying smart grid and smart metering capability to its customers.

Avis: As noted earlier, Avis acquired Zipcar, which epitomizes the trend toward collaborative consumption.

Duke Energy: The U.S. power company launched a new $62 million solar rebate program in early 2018, which aims to help customers with the upfront cost of installing solar panels on their property.xi

Patagonia: The company, through its Common Threads Initiative, encourages customers to purchase used Patagonia products on eBay before buying them new.

KSI 10.6: Selling Sustainability Features into Developing Markets. Most companies do not think of selling to poor people in Africa or various developing economies around the world as representing a key business opportunity. Yet, as the chart in Figure 1.1 in Chapter 1 shows, the doubling of the global middle class does indeed represent a growth opportunity. The range of practices today is as follows:

Some examples of companies that are successfully working to reap the benefits of these developing markets follow:

Akzo Nobel: The Dutch company set a 2020 goal of achieving 20 percent of its revenue from eco-premium solutions that have a downstream sustainability benefit.

Allianz: The insurance company offers a range of product solutions that are specifically tailored to the needs of low-income families. Key markets are developing countries in Asia, Africa and Latin America where over 50 million low-income people are already reached by financial services from Allianz.xii

Cisco and IBM see smart grid as representing a $100 billion market opportunity, working with customers including utilities and federal governments.xiii

Nokia: In May 2018, the company announced the Smartpur project that aims to develop 500 digitally integrated and sustainable villages across India.xiv

Schneider Electric: The French company, a global specialist in energy management and infrastructure operations, is upgrading “smart cities” initiatives, partnering with current and new customers to drive growth.xv

Yerdle: This sharing economy startup sees itself as a new kind of retailer, which allows people to trade items for community credit. Yerdle’s warehouses are your friends’ closets, attics and garages.xvi

Unilever: The company’s subsidiary Hindustan Lever Ltd. (HLL) developed a washing product for the world’s poor people at the “bottom of the economic pyramid” back in 2000–2002, one of the early success stories sometimes captured as “the fortune at the bottom of the pyramid.”xvii

In each of these examples, the company successfully penetrated developing markets to produce both revenue growth while unlocking a new customer base.

KSI 10.7: Sustainability Attributes in Product Line Extension. It is interesting to look at the clothing industry, especially companies in the outdoor and athletic spaces and the quest to reduce and ultimately eliminate hazardous materials and petroleum-based materials.

Bombardier: The Canadian aerospace company launched a new family of fuel-efficient airlines. At the time of the product launch, these game-changing aircraft emitted up to 20 percent less CO2 and up to 50 percent less NOx, flew four times quieter, and delivered dramatic energy savings—up to 20 percent fuel burn advantage as well as up to 15 percent improved cash operating costs versus current in-production aircraft of similar size.xviii

Levi Strauss: The company created Water<LessTM Jeans, which use up to 96 percent less water than conventional methods. Levi systematically rethought water consumption at every step of its production process.xix

In each of these examples, the companies created an extension of an existing product line—that had significantly less environmental impact across the full life cycle than the traditional product line.

KSI 10.8: New Sustainable Product Families. Sustainability spurs innovation— which in turn offers the opportunity to launch new product lines or product families. Most companies are in Stage 1 (rarely invest) or Stage 2 (pilot investments in green or healthy product lines) as depicted below.

Several examples of Stage 3 practices follow:

Alcoa: In 2011, the company created what some called a self-cleaning, smog-eating building material. The company’s Reynobond with EcoClean building panels actually cleans the surrounding air.xx

H&M: The UK-based clothing retailer developed a “Conscious Exclusive” collection driving toward a more sustainable fashion future. The collection uses recycled “shoreline waste” in new clothing.xxi

Toyota: As the world knows, Toyota developed the first mass-produced hybrid vehicle (the Prius), launched in 1997.xxii

In each of these examples, the company launched a new line—with significantly lighter (negative) environmental or social impacts compared with similar traditional products.

How Do Companies Stack Up?

Starting in 2018, we are capturing data from a group of founding participants—invited to use the Scorecard for a company self-assessment and to provide feedback. As we assess the data from the first 60 companies (all Fortune 500 or equivalent), three key messages stand out:

Companies are fairly far down the path of identifying their customer’s sustainability issues; nearly four of five companies (78 percent) rated their company Stage 2 or higher (meaning they understand their customer’s ESG goals); and over half (55 percent) rated their company Stage 3 or higher.

When it comes to partnering with customers to jointly cut full life-cycle footprint, companies are not as far along. Two of five companies (42 percent) rated their company Stage 2 or lower. Only one in six (17 percent) rated their company Stage 3.5 or Stage 4.

Companies are not yet reaping the revenue benefits of selling sustainability features into existing markets. Fewer than one in four (23 percent) rated their company higher than Stage 3; though another 30 percent rated their company Stage 2.5 or Stage 3 (see Figure 20.1).

Figure 20.1: Scorecard Data from Sixty Companies on KSI 10.5: Selling Sustainability Features into Existing Markets

Selling ESG features into both existing and new markets—with both existing and new product lines—is likely to represent a massive business opportunity in the coming years.


i https://www.ecolab.com/sustainability/water-risk-monetizer

ii https://blog.google/products/maps/shedding-light-solar-potential-all-50-us-states/

iii https://www.infosys.com/newsroom/features/Pages/india-water-tool.aspx

iv https://hbr.org/2014/07/the-ultimate-marketing-machine

v https://www.conference-board.org/blog/postdetail.cfm?post=6454

vi https://www.racked.com/2017/5/8/15543720/natura-brasil-brazil-beauty

vii ttps://www.coca-colacompany.com/stories/2016-points-of-intersection

viii http://www.uefa.com/insideuefa/social-responsibility/news/newsid=2555915.html

ix https://www.news.xerox.com/news/Xerox-and-PrintReleaf-partnership-replants-global-forests

x https://hbr.org/2014/07/the-ultimate-marketing-machine

xi https://news.duke-energy.com/releases/duke-energy-s-62-million-solar-rebate-program-approved-for-north-carolina-residential-business-and-nonprofit-customers

xii https://www.allianz.com/en/products_solutions/sustainable_solutions/emerging-consumers/

xiii https://www.cnet.com/news/cisco-smart-grid-will-eclipse-size-of-internet/

xiv https://www.nokia.com/en_int/news/releases/2018/05/16/nokia-to-develop-500-digitally-integrated-smart-villages

xv https://www.greenbiz.com/blog/2013/06/18/schneider-electrics-bottoms-approach-smart-cities

xvi https://www.greenbiz.com/blog/2013/11/25/yerdle-cofounders-share-insights-sharing

xvii https://www.strategy-business.com/article/11518?pg=all

xviii https://www.greenbiz.com/news/2008/07/16/canadian-firm-bombardier-launches-green-planes-program

xix https://www.theguardian.com/sustainable-business/levi-rethinking-traditional-process-water

xx https://www.forbes.com/sites/toddwoody/2011/05/09/alcoas-self-cleaning-smog-eating-buildings/#49cee5076f18

xxi http://about.hm.com/en/media/news/general-2017/recycled-shoreline-waste-in-h-ms-new-conscious-exclusive-collect.html

xxii http://www.toyota-global.com/company/toyota_traditions/innovation/nov2008_feb2009_1.html

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