Tom Konrad, CFA
Ray Anderson, the pioneering founder and Chairman of Interface, Inc. (IFSIA) was an early pioneer of sustainable enterprise. We recently had the opportunity to interview him on the benefits he sees for investors from corporate sustainability (full transcript follows.)
I’ve recently been thinking about corporate sustainability (in the green sense) and how it relates to corporate sustainability (in the business survival sense.) Since I expect business conditions to be more difficult in the coming years than they have been in the past, any edge in resilience a company might gain from pursuing sustainability may be useful, both on the long and short side.
As you can see from the stock chart, Interface had a wild ride through the financial crisis, losing as much as 85% of its pre-crisis value in early March 2009, but has since rebounded strongly.
Is the depth of the fall an indicator that the company’s sustainable culture was not enough to ensure its corporate survival, or does the recent rebound show that most investors do not yet recognize the value of corporate sustainability in a crisis, and such crises present buying opportunities in uniquely resilient sustainable companies?
Read what Ray Anderson has to say about sustainability at Interface, and decide for yourself.
AES: Can you please define for our readers what your vision of a sustainable enterprise is?
Anderson: At Interface, we’ve defined our vision as follows: To be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits by 2020 and in doing so we will become restorative through the power of influence. For us, as a manufacturer, it means primarily focusing on processes and products that move us away from petrochemicals and towards renewables, to create a closed loop via which our products are born and re-born, again and again, and reinventing commerce so that we move away from “stuff” and towards a service economy.
AES: What drives you to want to be sustainable? Do you do it because it’s the “right” thing to do? Is it primarily about controlling your costs and finding new sources of revenue? Is it all of the above?
Anderson: We’ve learned that it is indeed all of the above – so right, so smart. Over 15 years we’ve demonstrated that sustainability is a better way to a bigger and more legitimate profit. I’m driven by a personal sense of legacy, to be sure, but also to the entrepreneurial opportunity that preserving our world for future generations represents.
AES: In your experience, how does the financial community view corporate sustainability? Does anyone outside of the Socially Responsible Investment community care? Have you encountered much skepticism?
Anderson: In the early days of our journey, we definitely experienced skepticism from the financial community. In fact, our former CFO Dan Hendrix (who is now the Interface CEO) was asked on more than one occasion if I had “gone ‘round the bend.” I explained that as a leader, that was my job, because ‘round the bend is where our future lies. I went around the bend once before and found carpet tile technology, and that worked out pretty well for us.
Today, skepticism has given way to a high regard for Interface’s leadership in sustainability. Rather than bury it in a product brochure, we lead with it, on Wall Street, in our annual reports, and with our customers.
AES: The financial crisis we’re going through has led many investors to focus more heavily on risk management than they might have in the past. In this brave new world we live in, do you believe that sustainability can help decrease risk?
Anderson: Absolutely! What company can run without air, without water, without the capital that nature provides? Managing risk in the future means managing – and limiting – our dependence on dwindling natural resources and increasing our capabilities in terms of true, closed loop recycling. Managing risk also means moving away from the dwindling availability and volatile pricing of oil and other natural resources, and increasing our capability to reuse and recycle.
AES: What other investor benefits do you see in corporate sustainability?
Anderson: At Interface, the business case for sustainability has manifested itself in four key ways:
- Costs are down, not up, dispelling the myth that sustainability is expensive. Our first initiative, a zero-tolerance waste initiative, has netted us over $400 million in saved or avoided costs, more than paying for any capital intensive or R&D costs associated with sustainability.
- Products are the best they’ve ever been. Sustainability is a well-spring of innovation, and our product designers have been particularly successful using biomimicry (the study of nature’s design principles) as a guide.
- Our people are galvanized around our mission, owing to a sense of higher purpose and self-actualization that comes when you focus on something bigger than yourself. Academics and experts who have studied the cultural transformation at Interface say they’ve never seen the type of top-to-bottom and bottom-to-top alignment that sustainability has helped foster at Interface.
- The goodwill of the marketplace is tremendous, winning business for Interface because customers want to be aligned with a company that is trying to do the right thing by our environment. No amount of marketing, no clever ad campaign could create the kind of customer loyalty that we have experienced. It makes sense, given that the whole journey began for us when our customers started asking, “What is Interface doing the for the environment?”
AES: How does sustainability help returns for investors and over what time horizon?
Anderson: As with any new thinking there’s a time lag between early adoption and mainstream acceptance, and that naturally influences the return horizon for investment in new products, processes and technologies. I believe there are new fortunes to be made as we define this, the next industrial revolution. I also believe that part of what needs to change is our focus on short time horizons, i.e., the focus on the next quarter, for both companies and for their investors. Sustainability by its very nature requires a long view on the future as we consider the impact of our decisions today on future generations.
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