IKEA sustainability chief on 'radical change' and the bottom line

This article first appeared at BusinessGreen.

Steve Howard, chief sustainability officer at IKEA, is in reflective mood following the publication of the retail giant’s latest sustainability update. “I was thinking about what the common theme was across our results,” he mused. “And I think it comes down to setting an agenda for transformational change in the business and then really driving that change through innovation. Incrementalism doesn’t light people up. It is radical change that excites people.”

It might sound as if Howard is simply deploying the latest corporate buzzwords, but in fairness, his assessment is rooted in reality. Over the past five years IKEA really has embraced transformational change, and the latest figures bear this out.

The company boasts 700,000 solar panels on its stores, 224 wind turbines in a renewables portfolio that will see $2.3 billion invested by the end of this year, over $1.5 billion of sales from products that cut customers’ environmental impacts, a lighting range where three in every four products are LEDs and energy savings worth $99.5 million since 2010.

And then there are the supply chain improvements, including the sourcing of 41 percent of wood from FSC-certified sources (and 100 percent from suppliers who meet IKEA’s own forestry standards) and the purchasing of 76 percent of cotton from farmers who meet ambitious Better Cotton standards. What’s more, the company should meet its 100 percent target by the end of August.

Shining a bright (LED) light

The retail powerhouse has been transformed and is continuing to transform, but Howard is adamant that little would have been achieved without the original bold commitment to completely change how the organization operates.

To illustrate the point he offers the example of IKEA’s LED strategy. “We went to our lighting team and we said, ‘How quickly can we get a 100 percent LED range?'” he recalled. “They came back and said the end of financial year 2015 and we said, ‘Let’s do it.’ We then worked with all our suppliers to design products that were as efficient as possible and then we made a big volume play to bring the cost right down.”

The net result is a lighting range that will be 100 percent LED by the end of the year and an accompanying surge in customer interest. “We’ve seen a big response from customers in the last 12 to 18 months as they recognized this is a better product,” Howard revealed. “I think people are starting to get familiar with LED technology. Then you get the peer-to-peer recommendations. At a certain point the value proposition became clear.”

It was only by making a big commitment to the technology that IKEA was able to bring the cost down to a point that customers would accept. “People were using bulbs that cost 50 pence or a pound,” Howard recalled. “They may have got the value proposition of LEDs but the price differential was too high. But now we’ve got the price point right down. You can get payback in four to five months and then it’s payback for 20 years.”

Howard admitted customer acceptance actually has come “even faster than we expected,” and argued IKEA can take a large chunk of credit for “flipping the market in three years.”

The result of this innovation is a 58 percent year-on-year increase in IKEA’s sales of products that help customers save energy, reduce water use, curb waste levels or generate their own power. And a massive, if as yet unquantified, environmental saving. “We are a big player in this market — this will result in hundreds of millions of hours of light coming from LEDs,” predicted Howard. “You are talking about savings that are capable of powering a city.”

Renewables for the company, solar panels to sell?

Similar calculations apply to IKEA’s renewables generation strategy, which has seen the company commit to sourcing 100 percent of its power from renewables. Nearly 90 wind turbines and 150,000 solar panels were added to the company’s portfolio last year. “You may need to check the maths, but I think it works out as a solar panel every four minutes,” Howard said.

IKEA is keen to extend renewables into its customer base having inked a partnership with solar specialist Hanergy to sell solar panels in IKEA stores. The service is on offer in every U.K. store and following a successful pilot is being expanded to stores in the Netherlands and Switzerland.

Howard said the company does not have a “bang up to date” sales figure for its solar panels, but he argues that it represents a great offer for customers that already has proven transformative for those who have taken the plunge. “You find that people take real pride in their solar panels,” he said. “They take much more interest in how energy is generated and used once they have panels.”

He admitted the company has taken a “cautious approach” to breaking into the market, focusing on getting the service offer and price point right for customers. But he hinted that while the company has not set itself “aggressive sales targets” it has sizeable long-term ambitions. “The solar market is still immature and we are new to it,” he said. “But I think that by 2030 it will be as unusual to have a house that does not have solar on the roof, as it is now unusual not to have a decent heating system. That is in only 15 years’ time.”

This long-term thinking underpins IKEA’s approach to sustainability, which prioritizes transformation of infrastructure and product lines over the incremental improvements that define so many other corporate sustainability initiatives.

“If you can take a long-term view it is possible,” Howard argues. “We own our stores, we own the land, we own our factories, our tier one suppliers have worked with us for an average of nine years. We build business slow and steady. It is long-term thinking that lends itself to sustainable business.”

But what if a green business model does not offer an attractive short- to medium-term business case? What if the investment you need to make to tackle climate change can’t get approval from the board? “If you look to things that speak to your values and deliver long-term returns, you can always create a business case,” countered Howard. “You can almost always do it, and if you can’t you keep trying until you succeed.”

Transformative change is no longer optional

The key breakthrough that IKEA appears to have made, and which countless other companies are struggling with, is that business-as-usual no longer provides a viable alternative to transformational change.

“Resource security, climate change and the need for decent jobs — these are fundamental challenges we need to respond to as a business,” said Howard. “After the everyday things like getting the kids to school and putting food on the table, people are really concerned about the impact on the environment and good working conditions. People are really interested in these issues, from Beijing to Birmingham.”

Once a corporation realizes that environmental imperatives demand sustainable business models and that customers welcome such changes, the decision to embrace transformation becomes relatively easy.

“We could have a niche range of Better Cotton products or a niche range of LEDs,” reflected Howard, “but if it’s better for the customer and better for the company, why offer alternatives? Why not go all-in?”