Balancing sustainability with the need to placate shareholders

When Danone’s chief exec­u­tive and chair­man Emmanuel Faber announced his plan to make the com­pa­ny more sus­tain­able, the deci­sion was wel­comed by many. Faber want­ed to bal­ance pur­pose and prof­it, and to build a more sus­tain­able organ­i­sa­tion that would be suit­able for the 21st cen­tu­ry. 

But his oust­ing in March by activist investors, includ­ing Blue­bell Cap­i­tal Part­ners, was damn­ing in his pur­suit of a green­er future for the busi­ness. 

Faber, they say, “did not man­age to strike the right bal­ance between share­hold­er val­ue cre­ation and sus­tain­abil­i­ty”. They want­ed him removed from post because of the down­turn in busi­ness and he was deposed. Danone declined to be inter­viewed for this arti­cle. 

The plight of Faber brought cold, hard real­ism to the high­brow talk of envi­ron­men­tal, social and cor­po­rate gov­er­nance (ESG), which has become a major trend in sus­tain­able busi­ness in recent years. But is it a damn­ing indict­ment of the chal­lenges of bal­anc­ing prof­it and pur­pose? Or is it pos­si­ble to be sus­tain­able while keep­ing share­hold­ers sweet?

There’s lit­tle doubt: intro­duc­ing a sus­tain­able con­science to a busi­ness isn’t an easy ask for chief exec­u­tives. “This is one of the biggest chal­lenges the indus­try has faced in liv­ing mem­o­ry,” says Dr Ioan­nis Ioan­nou, one of the world’s lead­ing ESG experts and strat­e­gy schol­ar at Lon­don Busi­ness School. “If you want to do this right, and trans­form an organ­i­sa­tion towards this sus­tain­able, stake­hold­er per­spec­tive, it’s a change in the very iden­ti­ty, cul­ture and norms of the organ­i­sa­tion.”

Navigating the path to sustainability through profitability

Yet it is pos­si­ble to do. “Not only does it build trust and equi­ty with con­sumers and the broad­er set of stake­hold­ers we serve, when done with the right inten­tions and with mean­ing­ful actions, it dri­ves growth and val­ue cre­ation, which allows us to be a force for good and a force for growth,” says Vir­ginie Helias, chief sus­tain­abil­i­ty offi­cer at Proc­ter & Gam­ble. 

Get­ting the path to sus­tain­abil­i­ty right, by lead­ing it through prof­itabil­i­ty, requires clear com­mu­ni­ca­tion to staff and stake­hold­ers about what to do and why you’re doing it.

“I don’t think there was ever a choice between sus­tain­abil­i­ty and prof­itabil­i­ty,” says Dr Dar­i­an McBain, glob­al direc­tor of cor­po­rate affairs and sus­tain­abil­i­ty at seafood com­pa­ny Thai Union. 

“Thai Union has nev­er moved away from being a for-prof­it com­pa­ny,” she says. “That’s what I tell my staff: ‘This isn’t a not for prof­it. It’s a for prof­it.’ We need to sell seafood to make a prof­it. But we need to make sure we do it as sus­tain­ably as pos­si­ble.” 

And it is pos­si­ble to jug­gle both prof­it and pur­pose, but it requires proac­tive com­mu­ni­ca­tion to dis­avow those who believe it’s an either-or choice.

Sus­tain­abil­i­ty needs to be baked into a busi­ness, says McBain. “If you’re look­ing at sus­tain­abil­i­ty as an add-on or an after­thought, it def­i­nite­ly costs more,” she says. But root­ing it in the heart of the busi­ness is impor­tant. McBain is also hon­est, con­ced­ing that those who are lead­ing the pack in sus­tain­abil­i­ty may find it more dif­fi­cult: “If you’re too far in front, that’s prob­a­bly no bet­ter from a mar­ket per­spec­tive than being a long way behind.” After all, it still requires bring­ing all stake­hold­ers along with you for the jour­ney.

Appealing to people’s sustainable spirits

Japan­ese print­er and cam­era man­u­fac­tur­er Canon has the con­cept of kyo­sei as the focus of its busi­ness. It’s not explic­it­ly tied to sus­tain­able busi­ness, but does put liv­ing and work­ing togeth­er for the com­mon good at the cen­tre of its pur­pose, which maps well onto sus­tain­abil­i­ty, says Stu­art Poore, the company’s direc­tor of sus­tain­abil­i­ty and gov­ern­ment affairs in Europe, Mid­dle East and Africa.

But kyo­sei isn’t just an appeal to the heart, it’s also an appeal to people’s busi­ness brains. “The busi­ness case for sus­tain­abil­i­ty is pret­ty well made now,” says Poore. “It’s not just seen as a right thing to do or a phil­an­thropic endeav­our. It just makes good busi­ness sense.” For Canon, reg­u­la­to­ry agen­das are putting pres­sure on it and com­peti­tors to increase their social and envi­ron­men­tal cause. Clients demand more sus­tain­able prod­ucts from the firm.

For this rea­son, Canon is able to make the argu­ment that those changes will aid the busi­ness. “If you look at the cli­mate agen­da and the ener­gy effi­cien­cy that leads us towards, you’re look­ing at win-wins in terms of sav­ing on car­bon, sav­ing on waste and reduc­ing costs,” he says.

Sus­tain­able busi­ness approach­es also ben­e­fit com­pa­nies in the long run by giv­ing them more options to attract and employ tal­ent, par­tic­u­lar­ly younger gen­er­a­tions seek­ing busi­ness­es with pur­pose as employ­ers. “If your employ­ees see you’re gen­uine in your com­mit­ment, they’re more like­ly to trust you as a leader and more like­ly to fol­low you in the trans­for­ma­tion process,” says Lon­don Busi­ness School’s Ioan­nou.

So if that’s all cor­rect, what went wrong at Danone? “A dis­cus­sion of pur­pose and sus­tain­abil­i­ty should nev­er be used to cov­er up or com­pen­sate for less than great man­age­ment,” says Ioan­nou. “The eas­i­est thing in the world is to go towards envi­ron­men­tal goals and do away with prof­its.”

Poore agrees: “Danone has empha­sised a pro-pur­pose approach to busi­ness, but unfor­tu­nate­ly the finan­cials haven’t stood up.” 

If Danone is a mod­el to avoid, Unilever is an exam­ple to fol­low. Paul Pol­man and his suc­ces­sor as chief exec­u­tive Alan Jope have man­aged to main­tain busi­ness strength and rela­tion­ships with investors, while bring­ing real change to the organ­i­sa­tion. They’ve done this by embed­ding ESG deep with­in the com­pa­ny. 

“Sus­tain­abil­i­ty is a cul­ture change,” says Thai Union’s McBain. “It won’t be a suc­cess if it just sits with the sus­tain­abil­i­ty team. It has to be embraced by every team along with all the dif­fer­ent aspects of what they’re doing.”