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Sustainability
and its impact on
brand value
Interbrand | Pg. 2
Sustainability and its impact on
brand value
by Paula Oliveira and Andrea Sullivan
One of the latest buzz words found in companies’ brand value, but guarantee a long Generating demand for products
management journals, websites, and corporate life for the business. and services
documents is “sustainability.” Some people even A study from Carbon Trust, a UK‑based
want to recognize it in a company’s balance Relationship between sustainability consultancy that helps businesses to reduce
sheet as an asset. Okay, let’s not go that far. and brand value their carbon emissions, shows that social and
Although it’s hard to find consistency among environmental concerns can result in changes
It is undeniable that sustainability is a new definitions of sustainability it is common in consumer behavior. Among several factors
way of doing business, in the same way sense that it incorporates companies’ that provoke this shift are “issues of immediate
“re‑engineering” or “just in time” were in the relationships with the natural environment, personal impact” and “realistic available choices.”
late 1980s. Sustainability is not an asset that social causes, and corporate governance. That’s where brands can make a difference.
can be bought or sold, rather it’s becoming an In boardrooms, this translates to the “triple
integral part of many a company’s philosophy. bottom line,” i.e., a company’s initiatives Let’s take a sector for which sustainability is a big
Just as company management practices must consider environmental, social, and issue: automotive. Companies such as Honda
influence business value, so do sustainability financial impacts. Yes, financial impacts. That recognized that mineral fuels are limited and
initiatives. Therefore, the question is: How does means companies must make investment prices of petroleum are rising. This motivated
it create value? decisions that will benefit the environment it to adapt its product range to fuel‑efficient
and society, and guarantee the sustainability cars. Honda was one of the first movers in this
Moral motivations to invest in sustainability of the project itself. We are not talking about direction and this is paying dividends today. It
are not in dispute: climate change, poverty, you charitable causes – but ethical products and was the only car manufacturer to report better
name it. But what companies don’t know yet services that will change consumers’ behavior US sales in June 2008 than in June 2007, credited
is what level of investment they should make and help them to live a more “sustainable” life. to fuel‑efficient Civics and Fits. While reducing
and what is the measurable benefit of investing. dependence of gas‑guzzling cars and increasing
When the benefit is not clear enough to justify Brands enter the debate right about here. the number of fuel efficient models became a
investments on economical grounds, managers A leading brand translates to customers “must do” in the automotive sector, Honda was
easily turn to initiatives that guarantee short‑ what is relevant in today’s world, influencing first to differentiate and is ahead of the debate.
term results and everyone’s jobs, especially with buying behavior. It also develops a strong This leading behavior contributed to an increase of
recession knocking on the door. relationship with customers because of 28 percent in Honda’s brand value since 2004.
its distinct offerings, leading to repeated
The same can be said about GE, which saw an
There are some direct benefits, such as: purchasing. In other words, a brand creates
increase in its brand value by more than
compliance with an increasingly rigorous value in two ways: generating demand, and
US$ six billion since 2005, when Ecomagination
legislation; cost savings derived from reducing risk and securing future earnings for
was launched by then‑CEO, Jeffrey Immelt.
optimization of production lines and supply the business. A sustainability program that
Among other goals, the program intended to
chains to reduce energy consumption; is consistent with a brand’s positioning will
increase spending on clean technologies, reduce
reduction in CO2 emissions; desire for more create value for companies by creating more
greenhouse gas emissions, and generate US$ 20
ethical products; and simply satisfying an value for its brands.
billion in revenue from green products, including
emerging and cynical green consumer. But
jet engines, locomotives, and wind turbines.
most importantly, incorporating sustainability
This created a halo effect around other offers,
as a business practice will not only increase
Sustainability and its impact on brand value Interbrand | Pg. 3
improving perceptions about the company water heating. They are also beneficial for P&G, from traditional fuels. It also requires a clear,
and making it top of mind in sustainability through revenues and positive opinion about hard, baseline of where your firm is today; and
surveys. It moved ahead of competitors, such both brands. P&G made sustainability relevant in commitment from the top in the CEO’s agenda,
as Siemens and Phillips, which also have strong an unexploited category and is now influencing backed with investment dollars that won’t get
commitments to such initiatives. But GE led consumer behavior – not only toward its brands, cut off in six or twelve months if earnings slip.”
the debate and it is collecting the laurels – in but toward a new and more “sustainable” way of
the form of dividends – today. washing clothes. P&G has similar initiatives in For sectors such as energy and mining
other product lines to save energy and replace (Figure 2A), there is a massive impact on the
P&G is another example, but in a different chemicals with more suitable alternatives. environment and communities. As such,
investments in sustainable initiatives are a
Honda and GE play in sectors “must do.” But there is also an opportunity for
in which sustainability is differentiation. The same applies for automotive
The first step in developing already a concern. Through and diversified sectors. If the brand is perceived
portfolio management and as differentiated, but sustainability is not
a “sustainable” strategy is innovation, they are now relevant to the sector yet (Figure 2C and 2D),
ahead of the sustainability there is an opportunity to develop innovative
to identify the relevance of debate and are influencing products and services that will raise awareness
demand for their products and relevance of sustainability for the category
the issue for the sector. and services. P&G went even (like P&G). The prize is not only leading the
further, raising awareness category, but positively influencing
of sustainability issues consumer behavior.
in a category apparently
way. A few years ago, sustainability was not unrelated. See Figure 1. For brands that are not differentiated, and do
a relevant issue in the washing powder or not play in sectors in which sustainability is
detergent category. Through investments in These examples suggest that the first step in relevant (Figure 2C), there is an enormous risk
R&D, P&G developed Tide Coldwater, which developing a “sustainable” strategy is to identify of greenwashing, i.e., trying to differentiate
does not require hot water for usage and, the relevance of the issue for the sector and through communication but not investing in
as it is more concentrated, allows reduced how differentiated the brand is regarding sustainable development. A study published by
packaging materials. Another example, also sustainability issues. See Figure 2. TerraChoice, an environmental marketing firm,
from P&G, is Ariel’s “Turn to 30O “ campaign. Ann Hand, former SVP, Global Brand & showed that 99 percent of 1,018 consumer
The campaign suggests consumers turn water Innovation at BP adds, “Brands need to have a products surveyed were guilty of greenwashing.
temperature in washing machines from 40O point of view on the elements of sustainability These companies risk not only their reputation,
to 30O when using Ariel with the same results that are relevant to their brand… they can’t solve but also future earnings for the business.
guaranteed. These developments are beneficial it all. For BP it’s about a lower carbon world:
for the customer, who can save energy from alternative energy sources and lower emissions
Sustainability and its impact on brand value Interbrand | Pg. 4
Reducing risk and securing future the country. After all, how would Coca‑Cola Brands have the power to
earnings for the business produce soft drinks without water? This and change the world
Brands create value by generating demand other initiatives positively influenced the Sustainability is not a fad – it’s a new way
and securing future earnings for the company’s share value at the end of 2007 and of doing business. We can determine the
business. So how can investments in its brand value increased by two percent in influence this business practice has on the
sustainability influence those future 2008. overall business and brands, but there is no
earnings and brand value? standard solution. Companies need to assess
The same applies to oil and mining groups, the relevance of sustainable issues to their
A company’s value is today’s value of the
both heavy users of natural resources. BP business, as well as current perceptions about
earnings it will potentially generate in the
had been increasing its brand value since their brands on this matter, the potential
future. It’s a function of the magnitude of those
1999 mainly due to its large investments upsides of investing in sustainability projects,
earnings and the risk associated with them.
in safety and renewable energy. However, and the reputational risk of not doing so.
Therefore, sustainability is strongly related
its reputation suffered after an accident at Brand value is a way to summarize all of this.
to value: the more a company proves to the
a Texas City refinery in 2005, with shares
financial markets and other audiences that it is
dropping almost 10 percent in a month. The Most leading companies already understand
a sustainable business, the lower
company’s reputation has recovered, but of how sustainability issues can affect their
the risk associated with that company
the incident demonstrated the strong businesses. The challenge is to embed a
(and the lower the rate used to discount future
correlation between sustainable actions real sustainable behavior in everything a
earnings).
and value creation. company does; not only to attract new
customers, but to help define future behavior
Similarly, brand value is today’s value of the
This correlation is also seen in the Best Global and shape the market. In other words, to be
earnings a particular brand will generate in the
Brands 2008 ranking. Financial services a leader. “The transformational challenge
future. Brand risk is a function of company’s risk,
institutions included in the 2007 and 2008 is to make “green” a part of the DNA of the
adjusted by the strength of particular brands.
studies lost a total of US $10 billion in brand enterprise, just the way companies had to
This depends on many factors including the
value. This reflects not only the financial make globalization and digital technology a
investments it receives (quantity and quality),
impact from the US credit crunch but also part of nearly every business consideration,”
brand image (brand’s perceived personality
the reputational damage caused by breach says Andrew L. Shapiro, founder and CEO
and reputation) and customer franchise
of trust between these companies and the of GreenOrder, a business strategy and
(relationship with customers).
investment community. management consulting firm that specializes
in the field.
Coca‑Cola is the most valuable brand in
“The changing landscape of liability,” a report
the world. It consistently invests in its
published by the consultancy SustainAbility, Brands can be the engine towards a more
main brand and develops an emotional
suggests a rapid convergence between sustainable world. They should be ahead of
connection with consumers. So why did its
companies’ risk management and sustainable the market and create products and services
brand value decline US$ 5.1 billion between
development programs, as technical that will be relevant to consumers while,
2003 and 2007?
compliance “may no longer be an adequate at the same time, helping them to live in a
defense against social and environment more sustainable manner. This will create a
Coca‑Cola’s decline is due to the fact that
activists in the court of public opinion and positive influence on the environment and
it is seen as one of the bad guys by many
even in the courts of law.” This leads to a much communities, as well as generate dividends
organizations. Increasing health concerns have
more rigorous approach to risk assessment to shareholders through growing demand.
been affecting brand earnings in developed
or, at best, an opportunity to develop winning A sustainable brand will also enhance a
markets, despite its light, diet and zero
strategies from multiple stakeholders’ points company’s reputation and secure future
versions. Also, its image and reputation have
of view – an opportunity that can help secure earnings through stakeholder loyalty and
been inconsistent around the world. On the
future earnings and the sustainability of the advocacy, thus increasing brand value.
upside, Coca‑Cola has been investing in many
business in the long term.
initiatives, such as campaigns to improve
As the saying goes, “today’s best practice is the
community access to safe drinking water and
best practice of tomorrow.” Hopefully, today’s
adequate sanitation in India.
successful sustainability strategies will soon
Is this only a form of CSR to boost the
become standard, promoting
company’s reputation after protests were held
long‑term benefits for businesses and
in the area? No. Investment in water supply
generations to come. ■
in India is not only relevant to the population,
but also to the sustainability of the business in
Paula Oliveira Andrea Sullivan
Paula Oliveira has managed brands and Andrea Sullivan is Interbrand’s Executive
worked with clients across a wide range Director of Client Services in New York.
of geographies. As Interbrand’s Senior Among her many contributions to
Consultant in London, Paula is a key the business, Andrea looks after client
component of the Brand Valuation team, relationships and ensures that programs are
and has helped many clients understand managed efficiently and deliver
the value potential of their brands. long‑term value.
Creating and managing
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