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Why IKEA Thinks This Mega-Trend Will Define The Next 30 Years Of Business

Burgess COMMENTARY

Peter Burgess

Rahim Kanani Contributor FOLLOW I cover leadership, social innovation and sustainability. full bio → 5 Mindfulness Steps That Guarantee Increased Success And Vitality Kathy Caprino Kathy Caprino Contributor How to Succeed in College: New Advice and Insights Rahim Kanani Rahim Kanani Contributor LEADERSHIP 2/07/2014 @ 9:52AM 4,833 views Why IKEA Thinks This Mega-Trend Will Define The Next 30 Years Of Business Comment Now Follow Comments “Sustainability will be a decisive factor in terms of which businesses will be here in 20 or 30 years time. It is the future of business,” explained Steve Howard, Chief Sustainability Officer of IKEA Group. In a recent in-depth interview, we dug into the company’s worldwide efforts over the past 20 years to become more and more sustainable while, at the same time, using sustainability to drive innovation and long-term growth. Steve Howard is responsible for IKEA Group’s sustainability strategy, environmental and social performance, and the impact of its products. Prior to IKEA, Steve was the founder and CEO of The Climate Group, an independent non-profit organization working internationally with government and business leaders to cut global emissions and build a low carbon economy. He currently sits on the organization’s International Leadership Council. He is a member of Vantage Point Venture Partners Advisory Board, an Advisor to the Planetary Skin Institute and also, until recently, was Chair of the World Economic Forum’s Global Agenda Council on Climate Change and a judge of the Virgin Earth Challenge. Rahim Kanani: Last year, IKEA announced its People and Planet Positive strategy. Tell me a little bit about how this strategy came about and how it’s impacting IKEA’s global outlook and operations moving forward. Steve Howard: Sustainability is not new to IKEA. The first plans environmental and social plans were developed twenty years ago and avoiding waste and striving to make more from less are in the DNA of the business. Our People & Planet Positive strategy builds on these foundations and sets out how we will take the next big step. The strategy comes in part from our values, and recognition that we have a responsibility to help build a better future and have a positive impact. But also the strategy is our response to a clear recognition that sustainability is shaping the business landscape. The world is already challenged by scarce resources, consuming 1.5 times what the plant can sustainably provide and climate change requires a complete transformation of our energy and industrial systems, whilst 3 billion people will come out of poverty and join the global middle class in the next 15 years or so. These challenges can be met, but only with bold plans and clear leadership. Sustainability is one of four cornerstones of our overall business strategy. And we use sustainability to drive innovation, steer our investments and develop new business opportunities. It is strengthening our competitiveness by securing long-term access to important raw materials, securing a strong supplier base, deepening our relationships with co-workers and customers, and increasing productivity. Kanani: When it comes to reducing your energy footprint, how has IKEA evolved in its energy efficiency? Howard: We are investing heavily in both energy efficiency and renewable energy. We have a goal to produce more renewable energy than all the energy we use by 2020, but the more efficient we become, the less wind turbines and solar panels we will need. Compared with FY10, we are around 8% more efficient in our stores and distribution centres and this has saved us EUR 40million. Energy efficiency is about how we run our business every day, but we are also making significant investments to move us closer to our goal of becoming 20% more energy efficient by 2015 (compared with 2010). For example we’re rolling out energy efficient lighting, including LED lighting, to around 200 of our stores and other facilities, which will save us around EUR15 million in electricity costs every year. We are also making good progress with renewable energy and have installed 550,000 solar panels and own 18 wind farms in 8 countries. credit: flickr/Håkan Dahlström credit: flickr/Håkan Dahlström Kanani: More and more multinational organizations are looking to ‘green’ their supply chains. How does IKEA think about sourcing materials more sustainably and responsibly? Howard: We have a major responsibility for the social and environmental impacts of our supply chains. In addition to the factories we own, we work with around 1,000 direct suppliers who make our home furnishing products. We have 80 supply chain auditors and carry out more than 1000 audits per year to ensure all of these suppliers meet the social and environmental requirements in our supplier code of conduct, IWAY. Many of our suppliers have worked with us for years and see IWAY as just part of running a good business. We are also working with a smaller group of higher impact suppliers to reduce energy and water use. Through joint projects, our suppliers improved energy efficiency by 10%. This is good for the environment, but also brings cost savings for the suppliers and IKEA. We know that we can make a big difference by looking beyond our direct operations, and our strategy includes goals to deliver change across our value chain, from raw materials production, through to people’s homes. Together with our partners we are working to transform the supply chains of key raw materials, like cotton and wood. In the last year, over 70% of the cotton in our products was from more sustainable sources, including cotton grown to the standards of the Better Cotton Initiative. This is making a huge difference, helping over 100,000 small scale farmers, mainly in India and Pakistan, to improve their incomes and slash water and chemical use. Within the next 2 years, all of our cotton will be from more sustainable sources. We are one for the largest buyers of Forest Stewardship Council wood in the retail sector (possibly the largest) and we are working to increase the supply of wood from more sustainable sources. Together with WWF, we’ve contributed more than 30 million hectares of forest worldwide becoming certified as responsibly managed — an area roughly equivalent to the size of Italy. We hope to add a further 15 million hectares by 2017. Besides supporting credible forest certification, our partnership helps to combat illegal logging, promote responsible timber trade and map and protect High Conservation Value forests. Our actions relating to forestry and cotton are not just good for people and the environment, but give us a far greater understanding of our supply chains. And with understanding comes better long term management. We still have much to do but we have to take a clear stand for a good quality of life for people and communities throughout our value chain and for sustainably managed raw materials. Kanani: Looking ahead, what are some of the most ambitious sustainability targets you’re hoping to achieve? Howard: Our strategy includes many ambitious targets up to 2020. After one year we are making good progress. If you look at the external challenges you have to have transformational targets that engage people across the business and drive innovation and investment – 100% renewably powered, becoming forest, water and climate positive. Kanani: In evaluating your bottom line, is doing good good for business? Howard: Absolutely. Sustainability is essential for any successful business. And not least because it delivers significant cost savings. Energy costs are significant for IKEA and our investments in renewable energy help protect us against prices increases. Since 2010 we have saved EUR 40 million in our stores and distribution centres alone through energy efficiency and our best performing stores turn a €50,000 cost for waste management into €40,000 net revenue. Sustainability is also a business opportunity. By 2020 we aim to sell €2.6 billion worth of products that help our customers to save energy, water and waste. Almost 90% of our customers say they want to save energy at home and the 12.3 million LED bulbs we sold in 2013 helped our customers to save more than €80 million off their electricity bills in the first year alone. IKEA has just started selling solar panels to our customers in the UK: the market for residential solar PV is expected to grow to €40 billion by 2015 and we want to be part of it. Sustainability has gone from a nice to do to a must do. It is about building a successful business for the long term. Sustainability will be a decisive factor in terms of which businesses will be here in 20 or 30 years time. It is the future of business. # Follow me @rahimkanani / Contact Me