The new consumers

They are forcing companies to walk their green talk. And they have money to spend. Even Wal-Mart is listening. Yet one company is doing much more than following the trend — it’s leading the pack.

Perhaps it's best that the outdoor clothing and equipment group Patagonia is a private company. Its founder, Yvon Chouinard, doesn't exactly live to work: he has just returned from a trip to Russia to spend a single day in the office before heading to Wyoming for more of the derring-do adventures for which he is famous. Indeed, the spry 66-year-old has a simple response when asked about business: "I don't read Fortune or Forbes or Inc. I'm kind of out of it."

Nearly everything Patagonia does should make Wall Street shudder. In the early 1970s, it abandoned its core product - rock-climbing pitons - to reduce environmental damage. After demand for its clothes pushed growth rates to 50 per cent a year in the early 1990s, Chouinard deliberately capped further expansion. In 1996, Patagonia switched all of its cotton products to more expensive organic cotton while barely lifting retail prices, even co-signing loans for farmers as it sought to develop a supply chain that barely existed. And Chouinard isn't driven to make money or even make clothes: he actually wants to change the world. "That's why my company exists," he says.

But guess what? Patagonia is growing steadily at 4 to 8 per cent a year and will this year record sales approaching $US250 million, while customer and employee satisfaction levels are through the roof. And suddenly, its traditions of funding grassroots environmental groups, adopting sustainable manufacturing processes and urging customer activism don't seem so strange. Patagonia is no longer the somewhat lonely flag-bearer for corporate involvement in environmental issues: it now has unlikely bedfellows such as the retail behemoth Wal-Mart and the energy company BP.

Chouinard, however, is underwhelmed. "There's not much going on," he says from Patagonia's California headquarters. "There's an interest, I think, in green marketing - making your company appear to be green. I think most of that came about just through fear because of what happened to Nike and their problems with production. I think a lot of companies have cleaned up their act in that respect. But as far as anybody doing it because it's the right thing to do, I don't think it has happened. There are companies making small attempts, but until it really comes from the heart, from the inside, I don't think they're serious." Or are they?

An interest in environmental and ethical responsibility on the part of corporations is not new. Patagonia has been around for more than 30 years, while Anita Roddick founded the environmentally conscious cosmetics group The Body Shop in the UK in 1976. Yet the episode that brought corporate responsibility to the doorstep of major global companies was that referred to by Chouinard - Nike's battle against accusations that it exploited workers in Asian "sweatshops" to produce its expensive sports footwear.

That controversy erupted in 1996 and quickly prompted Nike's chief executive, Phil Knight, to issue a set of labor initiatives. While the response was praised by crisis management experts, the genie was out of the bottle: the episode revived a much broader debate about just how companies conduct business.

In 2000, Canadian journalist Naomi Klein's book No Logo: Taking aim at the brand bullies (HarperCollins) skewered the effort of companies such as Starbucks, Microsoft and The Gap to disassociate brands from the practices that produce them, and popular culture has continued to drive the point.

The trend has proven fickle in the past: in contrast to a few years ago, no one wearing a fur coat in a New York winter now expects to be jeered. Yet experts believe this latest broad push towards environmental responsibility is likely to last, largely because companies are not independently adopting environmentally friendly practices but are being forced to do so by their customers.

Wal-Mart spokeswoman Tara Stewart insists the company doesn't just want to look responsible. However, it has recognized the public relations potential by heavily advertising its Acres for America initiative, in which an acre of priority wildlife habitat is conserved for every acre that Wal-Mart develops.

"The impetus is, it's the right thing to do," Stewart says. "We looked at how we could offset the footprint [of Wal-Mart stores], be a leader, show other retailers that we could get out in front of this, even more so as our company is turning towards environmental sustainability in building stores. We understand that folks have issues with big box companies."

Chouinard remains skeptical and his response is unusually business-like: examine the numbers. In 2004, Wal-Mart recorded sales of $US285.2 billion and a net profit of $US10.3 billion, owned land worth $US14.5 billion, and spent $US1.4 billion on marketing. Its commitment to Acres for America is $US35 million over 10 years: at an average $US3.5 million a year, that's a minuscule fraction of annual sales.

"They [Wal-Mart] have taken the first step; a tiny little step,'' he says. "Hopefully, they'll see positive results from it and they'll take another step. You might look at a company ... and see how many millions of dollars they give out, but as a percentage of their sales it's nothing."

Of course, public companies such as Wal-Mart have a very different responsibility from privately-held groups such as Patagonia - maximizing returns to shareholders. Yet, like Nike in the wake of the sweatshop controversy, many listed companies are beginning to realize that earnings and environmentalism are not mutually exclusive. Despite all of its very public problems, Nike just reported record fourth quarter net income of $US349.5 million ($452.7 million).

"There's a growing realization that there's a new economy emerging," says Menno van Wyk, the president of shoe company Montrail and head of Conservation Alliance, a group of outdoor companies providing environmental funding. "I think every business has to look at their own economic, long-term self-interest."

One of America's fastest-growing clothing chains is American Apparel, whose entire marketing push surrounds the fact that its products are "sweatshop free": made in the US by staff paid reasonable wages. America's booming food retailer is Whole Foods, an organic food chain, and multinational manufacturers are today well aware of the growing demand - and higher prices - of organic foods. Almost 10 years after Patagonia, Wal-Mart is beginning to sell organic cotton garments (the cotton is produced without pesticides and finished without chemicals) as are many fashion designers and even companies such as Nike.

"Walking the walk, not just talking the talk, is important," says Wal-Mart's Stewart. "Our suppliers are working with us, they're excited about it. We say, 'Here's what we want to do: we want to be able to source organic cotton or provide packaging made out of corn syrup. How do we go about doing that?' "

So who is driving the shift? Marketing experts point to a new group of consumers dubbed LOHAS - lifestyles of health and sustainability. This group comprises people driving organic food's popularity; those on waiting lists for Toyota's hybrid Prius car; buyers of natural health products; and those who listen when celebrities tout the benefits of yoga and meditation. Three in 10 Americans are estimated to be members of this $US225 billion-plus economy.

Some examples: With the American government and manufacturers inactive in terms of lifting car fuel efficiency standards, consumers began lining up for the handful of hybrid cars on the market. Now several car companies are catering to that demand. When the so-called obesity epidemic prompted lawsuits against fast food companies such as McDonald's, suddenly salads and other more nutritionally sound options began appearing on menus. And who would have thought, just a year ago, that Starbucks would today be selling antioxidant-rich green tea Frappuccinos? Corporations respond to changes in consumer demand.

"This market segment has been identified in the States as about 50 million Americans who are predisposed to make purchasing decisions based on their values," the executive director of 1% For The Planet, Terry Kellogg, says of LOHAS consumers. "My question is: are there enough companies speaking to these Americans in ways that are meaningful to them? And my answer is no."

1% FTP grew out of Patagonia's decision in 1985 to donate one per cent of its net sales or 10 per cent of net income - whichever was larger - to environmental organisations. Now an independent non-profit group, it has more than 130 members worldwide who are required to annually donate one per cent of net sales for distribution to conservation causes.

The task of signing members has been made easier by last year's addition of musician Jack Johnson as a supporter. His latest album, In Between Dreams, boasts a 1% FTP logo on the back. Interest resulting from Johnson's involvement has prompted the appointment of a local outreach director - Byron Bay-based Kirra Pendergast - to sign members across the South Pacific. Pendergast began work in June and says Johnson's contribution has been invaluable.

Getting publicity for good deeds is always a priority for corporations. Flip through almost any annual report and the list of causes that companies assist is mind-boggling. Groups such as BP, of course, can afford to expensively advertise their efforts: the company has a series of American television commercials touting its work in developing sustainable energy. One famously features a woman declaring that the ultimate environmentally friendly solution - choosing not to drive a car at all -would be "like asking someone to give up chocolate".

Kellogg says the benefit of a group such as 1% FTP is the ability for corporations without big marketing budgets to publicize their environmental work by displaying the logo on their products. However, while 1% FTP's membership has rocketed by almost 50 per cent in the past three months, he concedes there is a glaring hole in the membership list. The challenge, he says, is to crack the bigger companies.

But big corporations don't always drive change.

Wal-Mart and BP are high profile when it comes to pushing their environmental credentials, but it's arguable that it has been prompted by the actions of smaller players.

"I believe if you want to change government, as a Zen master would say, you don't focus on changing the government," Chouinard says. "If you really want to change government you really have to change corporations, because government is just a pawn to corporations. And if you want to change corporations, consumers really have to change. What we're doing here is giving people the choice to change."

Organic cotton's growth path is an example. When Patagonia decided in 1994 to switch to organic cotton garments, it literally had to create a supply chain because none existed. Even with other manufacturers on board, organic cotton retail sales totaled just $US85 million in 2003, according to the Organic Trade Association - or about 0.05 per cent of the total American apparel market.

Chouinard remains confident: "When the benefits are obvious to consumers, they'll buy. Before we came along there was no way to get clothing made from organic cotton. We're giving people a choice and consumers are reacting.

"People are very selfish. It takes a real leap of faith to buy organically grown cotton clothing because it's not any healthier for you. But it's a lot healthier for the people who are growing it for you, whether it's in Egypt or Indonesia or Texas."

Kellogg joined 1% FTP earlier this year after five years at the apparel group Timberland, where he was the company's director of environmental stewardship. He admits that working at the intersection between business and the environment can be frustrating, but says it has never felt hopeless.

"Sometimes I feel like we're not effecting change as quickly as we could, but I've always felt like we've been making progress," he says. "The way I look at it is we're in the midst of what has been a very slow and gradual trend of more and more companies doing more and more things along a bigger spectrum of environmental initiatives."

In that sense, while the level of commitment from companies such as Wal-Mart and BP may be criticized, no one dismisses the importance of their efforts. Production of hybrid cars - which run on both petrol and electricity - has taken off since Toyota's Prius became popular, and if Wal-Mart customers begin buying organic cotton products, you can be sure fellow retailers will not take long to follow the retailing giant's lead.

"It would be great if we had folks following our lead. We'd love to see it," Wal-Mart's Stewart says.

Montrail's van Wyk adds: "I don't know what their motives are and I don't care. What really matters is, are they going to start doing the right thing? I just think the fact they're doing it says something about how mainstream these values have become."

Of course, driving a hybrid car, buying organic food or wearing clothes made from organic cotton are very much first-world dilemmas. Just back from Russia, Chouinard, who was named by Time magazine in 1999 as one of its Heroes for the Planet, is downbeat about the world rapidly altering its unsustainable path.

"I certainly don't come back [from Russia] optimistic," he says. "They're a long way from buying organic food and clothing - they're in survival mode, unfortunately. I think the majority of the world is in survival mode."

Published by AFR BOSS, October 14, 2005.