#09 Prejudice
Lutz Preuss / Lydia Illge

Are the Big Guys Always the Bad Guys?

It is often believed that doing good is something big corporations do not invest much effort in. While some smaller businesses may be committed to sustainability, bigger ones are thought to be firmly focussed on the bottom line. But are the big firms always bad? Let's test to see: who is more sustainable?

It is a common perception about corporate sustainability that small companies driven by committed entrepreneurs are at the forefront of addressing sustainability challenges. Larger corporations, it is commonly felt, need prodding by NGOs, customers and regulators to engage with sustainability issues. But is this prejudice or reality?

To shed some light on this question, we will take a look at the global textile industry, a sector that is facing tremendous challenges in becoming more sustainable. Cotton, for example, has been called the world's dirtiest crop as it is grown on 2.5% of all agricultural land worldwide but accounts for 16% of all the pesticides used in agriculture.

We will portray two companies that represent quite different approaches to making textile production more sustainable: one is a multinational enterprise, a 'Goliath', and the other is a small niche player, a 'David'. Our 'Goliath' is H&M, a large mainstream retailer headquartered in Sweden; our 'David' is hessnatur, an organic cotton pioneer in Germany.

"Our Goliath is H&M, a large mainstream retailer headquartered in Sweden; our David is hessnatur, an organic cotton pioneer in Germany."

H&M: Mainstream retailer with environmental commitment

H&M has established itself as a mid-price clothing retailer. It has achieved annual growth rates of 10 to 15% by offering an ever-changing clothing range in addition to selling some classic garments. At the same time, the firm tries to be seen as an enterprise that is socially and ecologically aware.

Fig. 1: H&M Data

The company operates 16 local production offices in Asia and Europe, which coordinate some 3,000 suppliers. The production offices also monitor working conditions in the manufacturing companies. Additionally H&M authorises external auditors to check whether suppliers meet environmental requirements and labour standards.

H&M has adopted a sustainable cotton strategy that consists of three components: improving conventional cotton production, engaging in organic cotton production and recycling cotton.

Improving conventional production

H&M participates in the Better Cotton Initiative (BCI). Since nearly all cotton worldwide is still produced conventionally, the company argues, a large-scale transition to organic production is unlikely to happen quickly. BCI is a voluntary programme founded in 2005 with the aim of enabling millions of farmers around the world to grow cotton in a way that is healthier for their communities and the environment, while keeping prices low. For example, BCI promotes the adoption of better management practices in cotton cultivation.

Organic cotton

H&M began using organic cotton in 2004, mixing organic into the conventional cotton used for children's clothing. Since 2007, the company has sold clothing made of 100% organic cotton. In 2009, it used about 8,500 tonnes of organic cotton, compared to only 50 tonnes in 2006. H&M claims that it is now one of the world's largest users of organic cotton. Its goal is to increase the amount of organic cotton by at least 50% per year until 2013. However, even then organic cotton will comprise only a small fraction of all the cotton used by the company.

"H&M claims that it is now one of the world's largest users of organic cotton."

Recycling cotton textiles

As a third approach to sustainable textile production, H&M has introduced a few garments made from recycled cotton. However, its cotton recycling activities are only marginal relative to the amount of organic cotton and especially to the all the cotton used in its products. In addition, H&M engages in initiatives to recycle other fibres, like polyester, polyamide or wool, as well as using new materials, such as tencel, a renewable fibre made from cellulose.

Downside: problems with controlling all production stages

Using organic cotton has proven a particular challenge for the retailer. Not only is the market for organic cotton textiles still very new. The long international textile production chain with its numerous production stages is also difficult to monitor. In 2010, the German edition of the daily Financial Times claimed that the clothing industry had been shaken by large-scale fraud. Cotton from India that had been sold to numerous large clothing retailers in Germany – including H&M – as organic, so the article claimed, in fact contained genetically modified fibres. As it turned out, the newspaper article had exaggerated the extent of the contamination. However, when questioned by journalists, H&M could not guarantee that GMO-contaminated organic cotton had not already gone into its clothing, although later tests showed no evidence of such contamination.

"Well-known companies like H&M are under close surveillance by the media."

Another major challenge for H&M is ensuring the quality of its organic cotton garments. What makes a garment "organic" depends on its product characteristics and the production processes involved, and both aspects are only a selling point if consumers are reliably reassured that organic standards are being upheld. Hence large, well-known companies like H&M are under close surveillance by the media, consumer organisations and environmental NGOs.

Hessnatur: Niche player and organic cotton pioneer

Founded by environmentalist Heinz Hess, hessnatur claims to be the market leader in the natural textiles market in German-speaking countries. It sells a full range of natural and ecological clothing, and its garments are meant to last for many years and are made exclusively of natural materials.

Fig. 2: Hessnatur Data

Hessnatur's customers are ecologically and socially aware and willing to pay higher prices for the extra value of clothing made exclusively from natural fibres.

Despite being much smaller than mainstream retailers, hessnatur is amongst the world's largest retailers of organic cotton. Teaming up with a handful of dedicated suppliers, Heinz Hess initiated organic-cotton-farming projects, including the world's first at the Sekem farm in Egypt. Since the mid-1990s, the annual amount of organic cotton purchased by hessnatur has remained constant; yet in percentage terms its market share has dropped since the organic cotton market has grown considerably.

"Heinz Hess initiated organic-cotton-farming projects, including the world's first at the Sekem farm in Egypt."

The all-organic-cotton strategy

In the early years, a major challenge for the company was to convince its textile producers not to use chemicals, for instance, to protect the fibres from pests or make them machine washable. As the company grew, garment producers cooperated more readily and developed alternative ways of treating their textiles. As a result, by the mid-1980s, the company had achieved its aim to persuade all of its suppliers to abandon treatment methods based on chemicals.

Through long-term cooperation with its suppliers, hessnatur has gained considerable influence over the various production stages, including fibre production, processing, and garment manufacture. It has developed strict guidelines for the fibres and additives that are allowed in its products and production processes and operates its own auditing system. Following a desire to strengthen local economies in Europe, the vast majority of its clothing is produced in Germany, Switzerland, and Denmark. Hessnatur is also a co-founder of the International Association of Natural Textile Industry (IVN), which has developed widely adopted standards for organic textile production. In 2002, the company set the standard for humane labour conditions in the clothing industry when it joined forces with the Clean Clothes Campaign to develop an innovative system for monitoring and inspecting working conditions.

In 2005, it became the first German company to be certified according to the international labour standards by the NGO FairWear. Hessnatur also launched a number of projects to promote the use of wool from Alpacas and Rhoen sheep, organic linen and organic silk. These projects aim to not only promote environmentally sound production techniques, but also to support local people in maintaining their livelihoods and improving their working and living conditions.

Downside: missing out on growth

One implication of opting for an ecological niche strategy has been that the company has missed out on growth opportunities. After growing for the first 15 years, several years of low sales followed and rendered the company unable to cover its outgoings. This crisis was largely caused by an overall downturn in the organic textiles market and a diminishing appreciation of organic products in general. In 2001, Heinz Hess sold his company to Neckermann, a large conventional retailer of various consumer products also based in Germany. Although hessnatur continues to operate as an independent business unit, some of its customers have questioned the brand's trustworthiness after the takeover.

David and Goliath: the comparison

Returning to our starting point, the widespread opinion that small companies are often the ones to drive corporate sustainability, hessnatur certainly fits this picture well. A committed environmentalist set up the firm, which by now can look back at over three decades of engagement with organic cotton production. It has also shaped some of the industry's standards for environmentally friendly production and labour conditions.

H&M, on the other hand, opted to produce only some of its clothes using organic cotton and still struggles to make its suppliers implement all its guidelines correctly. However, if we look at the company's product range, its market share, and overall technological and market developments, the picture changes: when H&M takes just a small step towards becoming more sustainable, due to its size alone, it has a much bigger impact than hessnatur could ever achieve.

Hessnatur's direct sustainability impact may, in fact, be rather limited, because it has a relatively small share of the overall textile market. The very existence of the company was even in danger. However, if we look at the company's contributions from its first days to the present, we see that hessnatur – and other small organic cotton companies – actually paved the way for the bigger, mainstream companies to engage in organic cotton production. If there had been no David who successfully began producing organic cotton textiles, Goliath would probably have never tried to do so.

"If there had been no David who successfully began producing organic cotton textiles, Goliath would probably have never tried to do so."

So there is no simple answer to the question of who is more sustainable. Small companies may be more likely to live up to their high ecological standards. However, unless mainstream companies follow their example, overall change will not take place. Some of the bigger corporations are now eagerly trying to improve in response to the close surveillance of the media and civil society. Each of their little steps can make a huge difference.

Footnotes:

[1] Illge, L. and Preuss, L. (2012). Strategies for sustainable cotton: Comparing niche with mainstream markets. Corporate Social Responsibility and Environmental Management 19: 102-113.

[2] Hockerts K. and Wüstenhagen R. (2010). Greening Goliaths versus emerging Davids: Theorizing about the role of incumbents and new entrants in sustainable entrepreneurship. Journal of Business Venturing 25: 481-492.

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