The first decade of the 21st century was a boom time for corporate sustainability. Iconic US companies, including GE, IBM, Walmart and Google, embraced the movement. Fortune 500 firms published their first corporate social responsibility (CSR) reports. Conferences, consultants and awards proliferated.
Timberland – where I worked for 15 years through 2007 – won more than its share of plaudits. One personal highlight was attending the 2002 ceremony at the White House, where Timberland received the Ron Brown Award for Corporate Leadership, joining the ranks of other US exemplars of corporate citizenship such as UPS, General Mills, HP, Alcoa, Johnson & Johnson, SC Johnson, Procter & Gamble and many more.
And yet, while these companies surely did good work, awards like this are based largely on subjective judgments. They reflect commitments – from these and almost every company addressing sustainability – made with good intentions, but that have, by and large, failed to create real change when it comes to global climate.
Notwithstanding the stream of reported improvements in corporate practices – improvements that run the risk of giving us false comfort – global greenhouse gas emissions grew by almost 30% between 2000 and 2012, according to the World Resources Institute. An absence of useful metrics, shared standards and comparability slows progress and calls into question the efficacy of corporate sustainability at a time when environmental challenges have never been more acute.
As chief operating officer of Timberland, I worked to demonstrate the ultimate compatibility of profitability and sustainability. During my tenure, Timberland was a publicly traded company on the New York Stock Exchange. It was controlled by the third generation of the founding Swartz family and led by Jeff Swartz, a passionate and progressive CEO. The company succeeded by focusing on what it called “Boot” (a proxy for product excellence), “Brand” (shorthand for customer experience) and “Belief” (in a values-led enterprise).
Timberland’s “Belief” agenda was extensive. The company was the first in the US to extend 40 hours of paid leave per year to employees for community service. It was a founding sponsor of the urban service corps City Year, an early purchaser of renewable energy, and one of the first companies to issue a CSR report.
The salad dressing approach
Much of this agenda was driven by Jeff Swartz. In mid-2005, Swartz invited his senior staff to a meeting of show-and-tell where he displayed a bottle of Russian salad dressing. Jeff called our attention to the nutrition label, and gave the team six months to provide equal transparency to consumers of Timberland’s 20m pairs of footwear. That meant sharing the footprint – in energy, other natural resources and human capital – of the product line.
Some 18 months later, Timberland debuted its Green Index nutrition label. The work took three times longer than expected and required a series of compromises. For example, we found that greenhouse gas emissions data for many items on Timberland’s bills of materials did not exist. Nor did the emissions measures for related transportation.
The fact that we bought leather from multiple suppliers, finished goods from factories that were shared with other brands, and did business all over the world (using electricity made from a variety of sources) only magnified the measurement challenges. Notwithstanding these complexities, Timberland published Green Index labels for all of its footwear, providing estimates of energy use, community impact and recycled content.
This work served as an impetus for the Eco Index, created by the Outdoor Industry Association (OIA), which was absorbed by the HIGG Index, engineered by the Sustainable Apparel Coalition. From that single bottle of Russian salad dressing emerged a set of industry standards that are used by many of the world’s biggest footwear and apparel companies, including Nike, Walmart, H&M and Inditex.
Accomplishments such as these are touted as evidence of progress toward a more sustainable future. Headlines proclaim corporate carbon reduction targets heading into COP21 United Nations Conference on Climate Change. The sustainability movement points to increases in CSR reporting and socially responsible investments as proof of progress.
Overwhelming barriers in the way of good intentions
But for all the good work of companies like Timberland, as well as many NGOs, it now seems evident to me that systemic barriers are overwhelming all the good intentions. Consider, for example, that 10 years after the wave of new CSR reports and the introduction of Timberland’s Green Index, there is still not a single, audited, comparable, accepted standard for reporting of corporate carbon emissions. Companies set their own emissions targets, using whatever baseline they choose.
On its website, Timberland, now part of VF Corporation, reports that it has reduced emissions by 50% from 2006 to 2014. Unfortunately, the measured emissions take into account only the footprint of Timberland’s owned facilities, and its employee travel representing only 4% of Timberland’s overall greenhouse gas footprint. Emissions resulting from the raw materials used to produce Timberland’s product and from Timberland’s sourced factories, where most of its apparel and footwear are made, are not reported.
This measurement gap is by no means unique to Timberland. Most companies’ greenhouse gas emissions reporting is similarly incomplete. Patagonia, for instance – largely regarded as an environmental leader – does not report its full CO2 footprint. Neither does Gap.
Reporting on “non-financial” environmental impacts like greenhouse gas emissions, water usage and waste is enormously complicated. Despite the proliferation of sensors, mobile phones, GPS and traceability software, most companies don’t track their products through multiple tiers of suppliers all the way back to the source – from a T-shirt back to a cotton farmer, for example. The rise of fast fashion has further complicated matters because of its rapid cycles.
Unlike financial reporting, sustainability reporting is unregulated and entirely voluntary. Non-financial measures in the form of megajoules, kilowatt-hours, liters and metric tons are typically disconnected from key performance indicators for businesses. Collecting the data adds cost, but it does not necessarily lead to more insight or improved practices.
Finally, incentives are misaligned. Unpriced externalities (of carbon emissions, for example) socialize costs while price subsidies for inputs such as water inflate profits. While consumers tell researchers that they care about sustainability, there’s little evidence in the footwear and apparel space that they are willing to pay extra or seek out greener alternatives.
Limited success for voluntary commitments
Absent consumer demand for more information about sustainability, much of what companies know remains hidden. The HIGG Index has yet to appear on consumer-facing labels, and Timberland quietly removed its “nutrition label” from its shoes and boots earlier this year.
All of this points to the limits of voluntary corporate commitments, particularly in the absence of science-based, comparable and transparent metrics that would allow stakeholders to evaluate one company against another. The nonprofit Sustainability Accounting Standards Board is a step in the right direction. So too are the efforts to promote integrated reporting.
Solving the environmental challenges of our time will require much more than translating data into insight. We’ll need technological breakthroughs, particularly focused on energy; new business models, like those in the sharing economy; and, ultimately, proper pricing of natural capital, driven by government regulation. But in the meantime, companies should make it a priority to bring the seriousness and rigor of financial reporting to the measurement of environmental impact.
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