WHY has Tetra Pak, the very private Swedish packaging firm owned by the Rausing family, launched a pounds 4 million national advertising campaign, its first ever? The company concedes that it is an unusual step for a firm that has no direct relationship with consumers.
The short answer is that Tetra Pak wants to persuade us of the environmental and food goodness benefits of buying milk and juice in its paper-based cartons. So far so normal. But a longer answer says something very interesting indeed about responsibility and sustainability - not as an irrelevant business cost, as many claim it is, but as a strategic competitive weapon.
First, some background. Tetra Pak, founded in the 1950s, is one of the world's largest packaging companies for milk, juices and other drinks. It produces 100 billion aseptic cartons a year worldwide, equal to 5 per cent of the overall market for liquid food packaging.
Tetra Pak has always had a strong sustainability streak. Founder Reuben Rausing was prompted to devise the original tetrahedron-shaped carton by observing the massive waste of food through perishing as it moved through the supply chain. 'Packaging should save more than it costs,' he said. The firm's current strap line 'Protects what's good' refers both to the carton's claimed food-protection qualities and to the fact that, being paper-based, it is a renewable resource.
The reason for calling attention to these properties now is, as the company freely admits, competitive. In its core market - dairy - carton is coming under increasing pressure from plastic. Paper needs to fight back. But what makes the campaign of general as well as particular significance is the terrain the company has chosen to fight on.
Shifting the competitive arena from, say, price to environmental performance certainly entails costs - not just pounds 4 mil lion to raise the awareness of the UK public, but the hugely greater costs of making sure the company can actually meet its environmental claims. These are: ensuring and certifying sourcing from sustainable forests, increasing eco-efficiency and becoming carbon-neutral in manufacturing, and improving the UK's lamentable record in carton recycling. Through the UK trade association, it has helped set up this country's first reprocessing plant capable of separating carton substrate from its thin protective layers of aluminium and plastic.
The conservative view of this social and environmental do-gooding, articulated by economist David Henderson and Martin Wolff of the the Financial Times and traceable back to Milton Friedman, is that it is not just a distraction but a dangerous dereliction of the duty to maximise value for shareholders. The business of business is business if shareholders want to clean up the environment, they can choose to do so themselves.
Tetra Pak challenges this head on because in effect it makes a business case for environmental responsibility. As a new study by Forum for the Future for the DTI, Sustainability and Business Competitiveness , points out, the business case has hitherto been as elusive as rugby player Jason Robinson - definitely there, but impossible to pin down and quickly out of sight. Tetra Pak hauls it back into view, while the report suggests how it works in practice.
Briefly, the study supports recent findings by the Work Foundation and others that shareholder value is best served by not putting shareholder value first (which is one kind of answer to the corporate social responsibility conservatives). It also reiterates the importance of intangible assets: in a competitive and increasingly weightless economy, companies need to orchestrate 'unique, or hard-to-replicate, capabilities, competencies and quasi-assets' to innovate their way out of competition and stay ahead of the game.
This pretty much describes Tetra Pak's strategy. It accepts the costs of improving its environmental performance because it plays to and reinforces its distinctive strengths. Both plastic and carton are cheap and technically recyclable, offering little potential for differentiation. But only carton comes from renewable resources. So Tetra Pak has an obvious interest in increasing consumer awareness of the issues around renewability and recycling.
But it also has an interest in meeting its promises. Reputation, as the report points out, is now understood to be an important source of competitive advantage. To support it, the company obliges itself to upgrade its manufacturing performance. It also has powerful incentives to innovate both to lower costs and to make it possible to make even higher environmental claims. That is indeed what it is doing, seeking in the long term to find renewable alternatives to aluminium and plastic.
In this perspective Tetra Pak's environmental spending makes sense as an investment, not a self-imposed expense, since it thereby makes itself more sustainable in the future. This is the other answer to the CSR doubters, and it suggests, provided useful measures can be developed, that 'corporate sustainability management [could shift] out of public affairs into business strategy,' according to the report. This is about internal management, not external reporting. 'Our view is that management of key stakeholders and environmental impacts is central to the successful management of many companies.'
Tetra Pak's experience demonstrates another important proposition: the importance of the interaction between regulation and markets. Part of its business case is indirectly made by the regulatory obligation to recycle, which plastic manufacturers met with PET containers. Carton manufacturers then had to seek competitive advantage on another front: with further environmental improvements.
There is an even larger implication, however. Tetra Pak is one example of the power of market forces to generate environmental innovations when that's what is driving competition. It follows that 'if there is a strong case for corporate sustainability, then business could play a major role in environmental protection and social development' - a point also made in a recent report by AccountAbility. That may seem a long way from an ad for a milk carton, but to adapt the pay-off from one of them: 'No business is environmentally perfect, but at least we're working on it.'
The Observer, 23 November 2003