Is "Doing Good" Good for Business?

Is “Doing Good” Good for Business?

By Myles Landers

There is a quote I like from Patagonia’s founder, Yvon Chouinard, where he states that “...doing the right thing makes for a good and profitable business.” While this has been true for the outdoor clothing and gear company, my research colleagues and I have been on a quest for the past 11 years to understand a basic question. Is “doing good” good for business?

Now, more than ever, businesses are balancing the demands of different stakeholders. Businesses have to not only bring value to customers, but they must also bring value to shareholders, employees, society at large and the environment. One key question when thinking about bringing value to multiple stakeholders is how to manage the different needs of each group. Firms have worked on balancing this by developing strategies around corporate social responsibility, or CSR; environmental, social and governance, or ESG, investment standards and building strategies that balance social issues, environmental issues and profits – referred to as the Triple Bottom Line.

You would think that creating value across stakeholders would not only be good for society but also good for profits. However, if you look across the business landscape you will find that a number of companies are reducing, or removing, their social and environmental programs and goals. There are a lot of reasons for the backslide of social and environmental programs, but they can be basically broken down into the lack of a clear link to how these initiatives influence the bottom line.

I believe the work that my research colleagues and I have conducted can shed some light into answering the question about whether “doing good” is good for business. Our work takes a holistic approach. We not only look at this question from the strategic firm level, but we also look at how environmental and social strategies influence employees and customers.

Building a Sustainable Firm Strategy

With the reduction in environmental programs by firms, companies ought to be asking if, and when, they should implement sustainability initiatives. My colleagues and I believe that all firms should participate in sustainability strategies; however, their level of commitment depends on their overall strategic priorities. We outline these strategic priorities as a pyramid where the most basic priorities are the base of the pyramid, and as firms move up the pyramid of priorities, they become more invested in sustainability initiatives. At the most basic level we argue that firms should comply with the environmental and social regulatory policies. By not complying with these regulations, firms risk sanctions. The threat of sanctions is used as a stick for compliance. Therefore, firms are not motivated to do more than is necessary.

The next level includes firms that create sustainability strategies to cut overall costs. This is a long-term investment strategy where firms do see the potential of sustainability initiatives to have a positive impact on the firm’s overall bottom line. For example, Walmart recently announced a commitment to expand clean energy by enabling the construction of almost one gigawatt of clean energy across the country¹. This long-term investment by Walmart will not only cut costs for the company but it will also curb the total emissions by one of the largest retailers in the world.

The third tier of our pyramid includes firms that realize there is a shift in customer demand for sustainable products. There is now a large segment of customers who seek out products and services from firms that offer environmental and social benefits. These customers are attracted to firms that offer sustainable value propositions. Firms that implement a sustainable value proposition strategy focus on providing stakeholders clear sustainable initiatives. An example company is Levi’s. Levi’s provides an easily accessible sustainability section on their website that outlines their environmental and social initiatives. It notes, “We’ve long been advocates for sustainability…. Our plans and partnerships are focused on three main pillars: climate, consumption and community.²” The Levi’s statement builds sustainability into the overall value proposition of the company.

The top of the pyramid requires firms’ identities to be driven by environmental and social initiatives. When a firm uses a sustainable identity strategy, environmental and social responsibility is embedded within every aspect of the organization. Shoe retailer TOMS is a good example of a sustainable identity company. TOMS’ motto is that they are in the business to improve lives. They live up to this by giving away a third of their profits each year. TOMS also publishes an annual impact report that outlines their contributions³.

The top of the pyramid requires firms’ identities to be driven by environmental and social initiatives. When a firm uses a sustainable identity strategy, environmental and social responsibility is embedded within every aspect of the organization. Shoe retailer TOMS is a good example of a sustainable identity company. TOMS’ motto is that they are in the business to improve lives. They live up to this by giving away a third of their profits each year. TOMS also publishes an annual impact report that outlines their contributions³.

Employee Response to Sustainable Strategies

When developing a firm’s sustainability strategy, a company needs to consider how each stakeholder will react to the strategic initiatives. This is especially true when it comes to execution of the sustainable strategy. Frontline employees are the boots on the ground when it comes to executing the firm’s strategic initiatives. Sustainable strategies are passed down from management to these frontline employees, and the employees oversee execution. Therefore, it is imperative to understand how sustainable strategies influence employees.

In a series of papers, my colleagues and I sought to examine frontline employee responses to environmental and social initiatives of their firms. In our work, we find that both environmental and social initiatives have a positive impact on the frontline employees and their firms. However, these results are dependent on the levels of perceived commitment the firms have to each of their initiatives. Specifically, we find that when frontline employees view their companies as engaging in higher levels of positive social initiatives toward the employees and engaging in lower levels of environmental initiatives, then they are less likely to quit and more likely to spread positive word-of-mouth. When firms engage in higher levels of environmental initiatives, then the frontline employees have better job performance, and the environmental performance of companies is higher. These results highlight the fact that frontline employees have different motivations and reactions to firm initiatives.

Customer Response to Sustainable Strategies

In a retail world it is said that the retail store is where the rubber meets the road with firm strategies. This is where firms find out if their strategies are effective value propositions to their customers. In recent years, there has been a big push to understand how sustainability strategies influence customers’ perceptions of products and customer purchase behavior. Specifically, firms have been exploring what information to provide customers on their packaging that might help influence purchases.

Recently, my research colleagues and I have been exploring how providing a QR code to traceability information on the package may influence customers’ perceptions. Over several experiments, using olive oil as our base product, we have been finding that access to the traceability information increases the perceived expertise of the brand, increases the likelihood that the customer will buy the product and increases the perceptions about product quality. We find that traceability information also influences a customer’s rating of the taste of the product when compared to low traceability information. The results reveal that customers rate the taste of the olive oil as better when they view the high traceability information when compared to the taste of the olive oil when viewing the low traceability information. This was true even though the high and low traceability olive oil were exactly the same. These results show that customers’ perceptions and purchase intentions can be influenced by product label sustainability information.

Doing Some Level of Good

My work with my research colleagues provides optimism to the “doing good” debate. I do not believe every firm should be participating in high levels of CSR and ESG initiatives. The level should match the strategic objectives and outcomes of each firm. However, every firm can do some level of good. So, is “doing good” good for business? I like to think so.

¹ Kapadia, Vishal (2024), “Walmart Accelerates Clean Energy Purchases and Investments with Nearly 1 GW of New Projects Across U.S.,” accessed at corporate.walmart.com/news/2024/03/26/walmart-acceleratesclean-energy-purchases-and-investments-with-nearly-1-gm-of-new-projects-across-the-us

² Levi’s Sustainability Statement, accessed at levi.com/GB/en_GB/features/sustainability

³ TOMS Impact Report, accessed at toms.com/en-us/impact/report

³ TOMS Impact Report, accessed at toms.com/en-us/impact/report

About Dr. Myles Landers

Dr. Myles Landers is an Assistant Professor of Marketing in the MSU College of Business. His research interest includes retail strategy and marketing for a better world.