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Can Procter & Gamble really improve people’s lives?

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The largest consumer packaged goods company in the world has aggressive goals to reduce climate change.

Procter & Gamble’s has been producing and commercializing iconic brands since 1837 (See Exhibit 1 for P&G business details). But the environmental changes caused by emissions of greenhouse gases (GHG) has threatened its mission of touching and improving people’s lives. Procter has responded to this enormous challenge with significant efforts. The teams behind leading brands such as Pampers, Pantene, Tide and Gillette have begun important initiatives to raise awareness and implement sustainable business practices. Will the centenary company be able to live up to its mission?

There are good reasons to think this will be the case. Procter officially recognizes the scientific consensus connecting greenhouse gas (GHG) emissions and climate change and has been working hard to reduce the emissions in its supply chain in 150 sites around the world. Procter understands that climate change poses an existential threat to its business. Sustained changes in temperatures, precipitations patterns and the frequency and intensity of droughts and snow storms2 would result in damages to property plant and equipment and in alterations in the price of raw materials like virgin wood fiber and palm oil. Even more importantly, consumer behavior changes are pushing demand of sustainable brands and government regulations penalize companies with no reduction in GHG footprint. To address these challenges, the company has adopted aggressive sustainability strategies.

First, P&G has the goal of reducing absolute GHG emissions 30% by 20201. In order to achieve this, they will source 100% of their energy from renewable sources, throw zero manufacturing waste to landfills and optimize distribution by moving 20% of its North America truck transportation to cleaner-burning natural gas within two years1. Second, Procter is launching product and packaging innovations that will help consumers reduce their own GHG emissions. For instance, the recently launched Cascade Platinum Action Packs help a household save up to 2,600 gallons of water per year1. Another example is the change of packaging in Pampers diapers in Europe, which translated into 80% less packaging waste per diaper1. Third, Procter has committed to achieve zero deforestation in their palm and virgin wood fiber supply chain by working with their suppliers to ensure that they meet their no deforestation requirements and working with government and organizations to set standards and methodologies to prevent any kind of deforestation.

In addition to this important interventions, I believe Procter could pursue the following policies to further reduce its contribution to global warming:

  1. Invest in recycling education in the communities where it operates. With the amount of solid waste that is generated in the world per day, recycling should be a priority. It is known from research that social norms and education play a role in the participation levels of recycling3. P&G could play a critical role here bringing recycle education to communities.
  2. Use 100% of recyclable materials in primary and secondary packages.
  3. Increase the investment in R&D to develop new formulas that have less environmental impact. For instance, Downy no rinse reduced the amount of water needed to complete a rinse cycle by half.

With more than 70 leading brands, presence in more than 160 countries, more than 150 sites and more than 120,000 employees, P&G has given us a lesson of how a $75-billion-dollar business it’s not only a profit source but also an agent of change committed to continue touching and improving people’s lives. This doesn’t mean that all the work is done. But it does show that sustainability is not necessarily divorced with business growth and that when companies make a clear commitment to improve it is possible to achieve significant results. Will efforts like these and those of other companies be enough to create a sustainable future for the generations to come? (624 words)

Exhibit 11

 

pg-business

 

 

 

 

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1 Procter & Gamble, “2015 Sustainability Report” (PDF file), downloaded from P&G website, [http://us.pg.com/sustainability/at-a-glance/sustainability-reports], accessed November 2, 2009.

2 Robert Mendelsohn: The Impact of Climate Change on the United States Economy (Cambridge University Press,1999), p. 15.

3 Ryan J. Six, “Analysis of policy and educational approaches within the Seattle recycling program” (Ph.D. diss., Iowa State University, 2008), pp. 18.

5 thoughts on “Can Procter & Gamble really improve people’s lives?

  1. Sebastian, I completely agree with you that sustainability is not necessarily contrary to business growth and that is possible to achieve significant results while be committed to sustainable practices. In the case of reducing absolute GHG emissions, I think that Procter could have included a lot more efforts that could be of great help.

    I believe that companies must take a global supply chain perspective in order to identify the most profitable means to reduce overall emissions. For that purpose, they must find ways not only to reduce emissions under their direct control but also to influence emissions caused by their suppliers and customers. You mentioned in your post two policies in that regard, namely (i) investing in recycle education for communities and (ii) increasing the investment in R&D to develop new formulas that have less environmental impact. Although those policies are good options, it is important to also consider some alternative approaches.

    Procter did a great job in the area of cost reduction. However, I think they could also have approached revenue increase. For example, improved public relations can help Procter built its brand while associating it to a sustainable business. Also, the company could consider starting selling organic products as consumers are more inclined to pay a premium for “green” products when “green” is associated with a clear benefit for the environment. If Procter does that, it will be able to gain visibility in the market and reinforce its brand. The reason for that is that nonprofit organizations monitor and certify each stage in the supply chain for an organic product. That gives Procter (and other buyers) unprecedented visibility of the entire supply chain, which enables rationalization of the supply chain to reduce emissions and production costs.

  2. Sebastian, I think this article makes a really compelling point about how large companies such as P&G have both a responsibility and an intent to increase sustainable business practices throughout their markets. Its great to see that P&G have committed to these goals and, across some products such as Pampers, made real progress.

    I guess my question would be: how is this plan progressing, and is it realistic? For example, on their plan towards starting to source 100% renewable energy, and throw zero waste to landfill: how far have they progressed vs. that goal? Is there not significant variability in how far that is being achieved depending on geography and product line? What are the profitability implications? I would mount the same challenge to your excellent additional suggestions. For instance: it’s one thing to recommend recycling in a market where the underlying infrastructure for recycling already exists; then I would think it is fairly simple to advertise the benefits of recycling on TV, in schools and on packaging. But in geographies where recycling is not commonplace, and thus the municipal support for recycling practices is nascent or not available, is it really realistic (or fair) to suggest P&G alone moves the needle?

    To me this seems like a situation where P&G would get further if they partnered with other companies to commit to these practices. That’s partly because the potential environmental impact would increase, but it’s also partly to share the load of responsibility with competitors, so that P&G isn’t disproportionately hit by the cost and resource implications of these impressive efforts. The question is: is it feasible for competitors to form an alliance on this basis?

  3. Great post and definitely like all the different strategies that Procter is following in order to reduce their effects on global warming. In the comment you also mention that Procter has 160 manufacturing sites all around the world. I am not familiar with the current supply chain of P&G, but I was wondering if they had any plants in the future to reduce their footprint and begin the consolidation of production lines. I do think that there is a great opportunity regarding this matter. We could find a way in which we could create clusters of suppliers around this plants and reduce their transportation costs from them as well. I think that when it comes to carbon emissions it is important not only to look at the emissions you are generation in the four walls of your operation, but also from the emissions generated both upstream and downstream the supply chain.

  4. I agree with the argument that companies as large and influential as P&G can effectively become a leader of the sustainability movement. I particularly like the idea of P&G focusing on customer education, especially in areas where recycling is not as commonplace as it may be in the Western world. As Proctor & Gamble is selling products that are used in households all over the globe, the firm has a unique opportunity to reach people at the family and individual level. Perhaps P&G could explore an educational campaign that adds information about recycling and the environment to the packaging of their products? In developing regions, the firm could work with vendors to implement a recycling program specific to P&G’s household products – i.e. offering a discount off a new bottle of laundry detergent in exchange for bringing the empty container to the store. Such an initiative would most likely be difficult to implement in more developed countries (where opportunity cost of carrying the container around would outweigh benefit of the discounted new product), but the program could work a bit like bottle recycling at a grocery store, with a slightly better financial incentive. P&G would also be able to leverage existing infrastructure in place with vendors, and could leverage distributors to help retrieve recycled containers/reimburse stores for discounts extended to end users.

  5. Sebastian, this made for a fascinating read and I completely agree that given the geographic and product scope of the larger FMCG companies, these have a real responsibility to be first movers with regard to moving their supply chains and processes towards greater environmental sustainability. Where there is significant opportunity to do this is in their supply chains, as has already been mentioned, either by integrating these or by decentralising production. In addition to this, it would be brilliant to see them commit to leveraging their market position with their suppliers by adding an environmental mission statement around the supply chain, cross product, as a whole. Concomitantly, it would be great to see them commit to R&D and innovation across all product lines that speaks to this also over and above the product specific statements they have made.

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