A new breed of companies are increasingly seeing commercial success that fundamentally relies on smarter, more sustainable business models - benefiting customers, communities, and shareholders simultaneously.
Today more than ever, businesses have the means and power to contribute to building a better world. As Feike Sijbesma, co-chair of the World Economic Forum answers when asked whether financial or sustainability performance is more important, "Both, both are equally important." This speaks to the growing shift and awareness of new business models where 'doing good' is not something which is done reluctantly, or as an after-thought, but something which actually improves the underlying value of a business, and what it offers to its customers and the community. Doing well while doing good.
As consumers, and society at large, increasingly demand higher standards of ethical and sustainable behaviour, businesses typically respond in one of two ways:
- Reluctantly make changes and find easy wins that, at the surface, show the business’s investment in sustainable or community impact projects. Very often, these "social investments" have limited to zero link to the core services offered by the business itself. While there are benefits from the social impact, most traditional businesses incur extra costs to make it happen; at the expense of their profit margin or ultimately charging it back to their customers.
- Fundamentally re-design the way they do business, such that sustainable actions do not come at a cost, but actually improve the organisation's ability to deliver on their core service and benefit their customers as well the shareholders.
Businesses that embrace this second, alternative mindset, realise that the (sometimes) short-term sacrifice of profits, could set them up for enhanced long-term value creation for clients, staff, shareholders and external stakeholders.
As a fictitious, illustrative example: If an energy company focusing on sustainable, alternative energy sources makes the decision to abandon a particular oil resource, they don't just serve the planet (by removing the risks of a volatile energy sources, risks to supply chain stability and physical dangers), they are also protecting their core business. By removing the volatility (eg. a drop in revenue when the supply chain is interrupted by an oil spill), the business is actually serving its customers and shareholders better. In the medium- to long-term, doing the "right thing for the environment" doesn’t come at a cost, but improves the business's value.
A company that has always been a leader in this approach to business is clothing manufacturer Patagonia. They're well known for making bold decisions in choosing sustainable supplier practices, and serving communities, their staff and the planet in how they run their business. But one of their most surprising recent "innovations" took this to a new level. Patagonia realised that producing clothes with too many logos, or making the logos too prominent, reduces the chances of a clothing item being passed on between siblings, generations and in the community. Ultimately, high quality clothes that could last 20 years being discarded after one or two users is not ideal, considering their carbon footprint. So Patagonia made a bold decision to start reducing the prominence of their own logo. It's the opposite way of thinking to what a traditional marketing approach would prescribe; but in the long-term, it makes business sense.
In South Africa, this new approach to business is being led by Naked, the AI-driven insurance platform.
Traditional insurance companies are bound by a business model in which every Rand of claims paid to a client directly reduces their profit, ultimately setting them up in a fundamental conflict of interest with their clients. In contrast, Naked only takes a flat fee from premiums to cover running costs and profit, with the rest of the premiums going into a pot to pay claims. In years when claims are lower than expected, all leftover money is paid to causes chosen by Naked clients. It's called the Naked Difference, and while it results in various good causes getting valuable financial support, at the core it is ensuring that Naked's profit isn't linked to how much money is paid in claims. There is no incentive for them to make claiming difficult, ultimately giving their clients a stress free version of insurance. The Naked Difference means that the business’s interests are aligned with those of its clients in a symbiotic relationship, where the business, its clients, and communities all benefit.
As a result, the Naked Difference has been able to support various charities chosen by its clients. In 2020 they declared R250 000 as part of the Naked Difference payment. This amount increased to R815 000 in 2021 with their 2022 payment expected to be announced in the coming weeks.
Apart from Naked's popularity in offering a fully digital insurance experience it recognises the Naked Difference as a core reason for its enormous growth in recent years. As consumers have an insurance experience unlike anything a traditional insurer could offer them, the word of mouth from satisfied customers, especially in an industry like insurance, has been core to their record growth.
So what does this mean for you as a consumer?
In recent years most consumers have increasingly been demanding to see organisations' evidence of sustainability transformation and social impact. According to research from OpenText nine in ten global consumers globally want to buy products sourced responsibly and sustainably. Similarly, South African consumers have proven to be no different in their desire to support local businesses where smart practices are built into the business model. The McKinsey 2022 Consumer Sentiment Survey found that consumers seek products and services from a purpose-driven company, and their buying habits are increasingly informed by this.
However, businesses like Patagonia and Naked are demonstrating that as consumers we can demand more than a photo opportunity or an emotional newsletter. At the core, it's about finding sustainable (and ethical) practices that improve the products or services that the consumer experiences, while simultaneously serving customers, communities or the planet, and the profit agenda.
As businesses, we have moved past traditional CSI initiatives. Doing good and contributing to society needs to be integrated into business models and embedded in the core of any business. "Contributing to a better world and making money are not in conflict with each other," says Sijbesma. Businesses still need to make a profit, but when implemented successfully, sustainable business practices will benefit investors, make employees proud and motivate consumers to support the business even more. Ultimately, smart businesses are shifting the way consumers interact with brands, and should in turn inform what type of businesses we as consumers support – ones that benefit the customer, the planet and the business itself.
More details on the Naked Difference can be found HERE.
This story was sponsored by Naked Financial Technology, an authorised FSP, and produced by Naked and Adspace Studio.