Fogel & Partners Quarterly – Societal challenges as a business idea – four trends to keep an eye on

Societal challenges in combination with new technology creates business opportunities for those who are able to see and interpret how different industries and companies will be affected – both in the short and the long term.

There is no conflict between good business and sustainable development, quite the opposite. One example is Unilever, a company at the forefront of sustainability initiatives and communication based on social benefit. Unilever has adopted the motto – “Doing well by doing good”.

The costs of environmental issues, social injustice and corruption have become more visible and evident in a company’s daily activities – it has simply become a threat to continued and sustained growth, profits and development, both for individual companies and for the society at large. To show responsibility and a genuine will to pull your own weight is expected and required. The penalty for those who fail to act in an ethical manner and with respect for the environment is severe and results in a loss of confidence.

Meanwhile there is great potential for businesses to benefit from proactive and credible sustainability work. It’s no coincidence that the really big companies like Unilever, H&M, IKEA and others have sustainability high up on the agenda. The larger the company, the greater the responsibility, demand from the public and ability to influence. Responsibility has become part of the overall business strategy, positioning and communication.

The pressure of change in most sectors is high and merciless and creates both winners and losers. Old beliefs are turned upside down and new business models and industries see a revival driven by new needs, new demands and new technological possibilities. For us shareholders – we are all shareholders directly or indirectly – equity research needs to include more considerations than before, not only to avoid investing in companies that do not meet our ethical standards, but above all to find tomorrow’s winners. One example of the increased interest in CSR was that some 50 representatives from the financial market recently participated in a teach-in by the Swedish Society of Financial Analysts on the importance of sustainable investment and CSR in equity research. The large interest is motivated not only by increased demands from shareholders, but primarily to make a better and more complete analysis of the business environment, industries and companies.

Something that has become increasingly popular in the mutual fund and asset management business is to make a so-called positive screening to ensure that investments are made in responsible companies with a business model, strategy and operations that are considered long-term sustainable. These companies tend to be more nimble, dynamic and innovative and are often founded on a clear vision and a well-developed stakeholder dialogue.

Below are some examples of trends to keep an eye on related to increased demands for corporate responsibility, technology development, new business models and new products and services. Although some of the examples may currently seem like a marginal phenomenon with limited impact in the short term, they do reveal some interesting ideas that in turn can affect a number of industries in the future.

1. What is a car and who owns it?

TeslaTesla Motors, with its charismatic founder Elon Musk who also founded PayPal and SpaceX, is creating noise in the automotive industry by redefining what a car is. A Tesla is a complete sports car with impressive performance and driving characteristics. The experience of driving a Tesla for the first time is overwhelming and gives a new perspective on what a car can be. Opinions on how to value the Tesla share differs greatly but the high expectations reflect that Tesla, by building a new electric car from scratch, has something interesting going on, sprung out of society’s need for alternative energy sources and reduced carbon emissions. The network of charging stations is being expanded gradually, both in the U.S. and in Europe.

Another example is the company Getaround, which challenges the traditional car rental industry. Getaround’s business idea is a mobile app that displays cars of ordinary car owners, as well as the cost of renting those cars. The rental period varies from occasional hours to days or weeks. The business concept is based on the fact that our streets are filled with cars that sit unused for long periods of time, and thus are an untapped resource for their owners and for society at large.

GetaroundThe range of cars is wide with everything from standard cars of various age to expensive sports cars or luxury cars. By installing a Getaround CarkitTM in the car that is to be hired, the car can be locked and unlocked using a smartphone app and can be located by a GPS module if necessary. All drivers are evaluated in advance and insurance and payment is done via Getaround’s insurance and payment systems.

2. Circular economy replacing linear

Using various natural resources to manufacture products that are thrown away and buried prematurely because they are out of fashion or unwanted for any other reason, is a business and society model that does not reflect optimal resource management or is sustainable in the long term.

More and more companies are founded with this basic assumption, or are steered towards a more circular business model, where producer and consumer share the responsibility. The company is responsible for manufacturing products of high quality that last for a long time, creating a second hand market for its products, offering to repair the products when necessary and, finally, recycling the products into raw material for new products. The customers are expected to think before they buy, care for and treat their products well, hand them in for repairing when they are broken, and to sell them or hand them in for recycling when they are no longer repairable.

An example of a company that has focused its business on a circular economy is outdoor company Patagonia, which is at the forefront when it comes to taking responsibility for the entire product lifecycle and its impact in the value chain together with its distributors and customers. The company is an interesting source of inspiration and a role model for other companies, although each industry has its own challenges and opportunities. Many of the Swedish listed and non-listed textile companies have similar thoughts and initiatives to meet the challenges in their industry, regarding both environmental and social responsibility.

Patagonia

Courtesy of Patagonia 

3. The stakeholder dialogue is expanded and widened 

Most companies are fully aware of what customers and employees think about the company’s products and services and the company as a workplace. But far from all are aware of which other questions are important when choosing a distributor or employer.

To increase the responsiveness for new needs, demands and expectations, and to include more groups in the analysis is a clear trend. The dialogue lets responsive companies know, not just think, what is expected, required and demanded from them, which in turn can be translated into better business and greater trust. Examples of the opposite are seen in media on a daily basis and in many cases these examples are the result of a too narrow or insufficient dialogue with important stakeholders and opinion formers.

NGOs showing interest for a company’s operations, although at times with a critical tone of voice, should be welcomed. These organizations and their employees often have a solid expertise and great dedication, which gives valuable input about the company’s social and environmental impact in the value chain, how the company can become better, more responsible and more sustainable in the long term.

In today’s media society, with social media where everyone can make their voice heard and easily organize around different issues, differences between word and actions are easily and swiftly revealed. The decisions made and activities implemented by a company become the primary communication channel and speaks for themselves.

As a shareholder and investor you should, when meeting the management of a company, ask the question what the company’s different stakeholder groups think about the business, both the overall trust and satisfaction, but also what the specific issues are and potential criticism. In the end all business is based on trust, something that is measurable but not always included in the analysis and evaluation phase before an investment.

4. The company’s role in the society becomes an important part of positioning 

The greater the company, the greater the responsibility. It’s no coincidence that more and more of the major companies put themselves in a greater context in their communication. It is no longer enough to just talk about a company’s products and services, but also about what good it does in general and in what way the company through its business can contribute to a positive societal development.

If a business model from the outset had obvious sustainability challenges, the business is widened and different problem areas are dealt with by reducing its negative impact. Companies can also take responsibility for guiding and educating its customers to do their part by changing their behaviour. A large share of the environmental impact comes from the usage of different products and services.