Patagonia, known for its jackets made entirely from pop bottles and their “Don’t Buy This Jacket” Cyber Monday advertising campaign, has been a leader in corporate social responsibility initiatives. We had previously profiled Patagonia’s supply chain transparency, but let’s take a look now to see how these CSR initiatives are working out.
For those unfamiliar with the company, Patagonia was created after climber Yvon Chouinard wore a rugby shirt from a recent trip to Scotland and was met with a queue of people looking to buy. Patagonia’s mission is self-described as “unusual” in the company’s 2014 B-Corp Annual Report and focuses on the long-term effect of their products:
“’Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.’ The ultimate definition of “best product” for us is one that is as simple, versatile and durable as possible. We want our customers to buy only what they need, keep what they buy from us for a very long time, have repaired what breaks, recirculate what’s no longer needed, and send back to us whatever’s used up. We will recycle or repurpose anything we’ve ever made.” [emphasis added with bolding]
To complete this mission, Patagonia has implemented several CSR efforts, including The Footprint Chronicles and the Environmental Initiatives Booklet.
• The Footprint Chronicles: “The Footprint Chronicles allows customers shopping on Patagonia.com to view factory information, by product, including details about factory audit results and efforts to improve factory conditions.”
• Environmental Initiatives Booklet: “Our Environmental Initiatives Booklet reviews annually our environmental activities and the grants made through our 1% for the Planet® fund.”
The Stock Market’s Perception of CSR
While CSR has been an age-old practice for some companies, a Harvard Business Review report has found that sell-side analysts in the financial market are now looking more favourably on corporations that practice it. A Forbes article said it best: the shift is attributed to the change in the CSR initiatives. CSR, previously consisting of doling out money to a charity or cause, has shifted to a value-added process that relates to the company’s mission. What this means is that Starbuck’s pursuit to secure a sustainable and ethical coffee supply is viewed more favourably by analysts than Tim Horton’s Camp Day, where coffee proceeds from one day in June are donated to a foundation to send kids to camp.
Who’s Following the Lead?
Several corporations have noticed the shift in the perceived value of CSR initiatives and are following suit. The Wall Street Journal reported that Wal-Mart has been consulting with Patagonia founder to “reduc[e] packaging and water use in its supply chain.” Both companies are also collaborating with Levi Strauss, Nike, Gap and Adidas to form the Sustainable Apparel Coalition that seeks to create “quantifiable standards for environmentally responsible clothing production.”
To CSR or Not to CSR
Another article in the Wall Street Journal considers that companies should engage in CSR only if the consumers demand it or if the initiative reduces costs. If consumers are willing to pay the premium for a CSR initiative, then the profit-seeking role of a firm is to implement the initiative and financially benefit from the consumer demand. If a CSR initiative happens to save the company money and thus increase profits, then a company should implement the initiative. These cost savings can also come in the form of attracting top talent or increased productivity from employee engagement. If, however, the CSR initiative is at the expense of profit, the article states that public corporations should not implement the solution, should reap the profits and then the investors can decide which cause they believe has the highest value to invest in.
The article also cites that the solution to social problems that reduce profitability rests in government regulation. The role of the government is to protect the public good, so it should be the one to implement social standards which the corporation can meet at the profit-maximizing level of production. While the article acknowledges the setbacks of government regulation, it still considers this the best solution to social problems where there is a tradeoff between profit and public good.
With that being said, the changing consumer climate and challenge of quantifying a company’s exposure to social risk (such as the reputational risk that BP experienced from the oil spill) make it difficult to determine CSR’s effect on profits. However in the context of Patagonia, its consulting solicitations from large corporations may imply that Patagonia is in tune with what the market wants and that at least some of its CSR initiatives are not only socially just but also economically efficient.
Picture credit: Maria Ly from Flickr https://www.flickr.com/photos/mariachily/9237534348/in/album-72157634542731750/ – Edited