When Steve Howard and the team added veggie balls to the IKEA restaurant menu five years ago, it wasn't just to please the plant-based crowd. The global retailer's then chief sustainability officer wanted to make a meaningful change in the operation.
Howard's team did its homework: The veggie balls had three to five percent of the carbon footprint of the traditional Swedish meatballs. IKEA could serve 30 customers veggie balls for the same environmental footprint as feeding one person its meatballs, Howard says.
This was one of a number of big and small steps IKEA has taken over the years to become one of the world's leading sustainable businesses.
The move is also an example of what companies, in all industries, can do to improve their own operations, Howard explains.
“We all need to be purpose-driven business leaders and investors, activists and campaigners,” Howard says. “How can we create win-wins for business leaders and investors? That's the job of every business leader and investor today.”
Howard has led by example in his career to date: As IKEA's chief sustainability officer from 2011 to 2017, he oversaw the development and implementation of the company's People and Planet Positive strategy, which led to more than three billion euros of investments from wind power to recycling and sustainable forestry, according to his biography on the World Economic Forum website.
He also led the creation of a sustainable products category that more than tripled in revenue to a two billion euro business including launching retail solar PV sales. Howard also championed the company's approach to diversity, inclusion and fair pay.
Howard has continued his sustainability leadership in various roles, including co-founder of We Mean Business, a climate change coalition of organisations that have made more than 1,000 commitments on climate action.
Speaking to RBC Wealth Management in a recent interview, Howard discusses his work as a lifelong sustainability leader and activist, and the role impact investing can play to help drive global sustainability goals, ranging from climate action to reducing economic and gender inequalities.
RBC Wealth Management: Let's begin by defining impact investing and how if differs from ESG investing.
Steve Howard: ESG (environmental, social and governance) investing is different than impact or purpose-driven investing. All companies should measure, monitor and try to reduce their environmental impact, manage their social impact and have good governance in place. With ESG, you can be doing a better job of a bad thing. You can still be having negative total impacts; you're just measuring your environmental and social impact as you go. ESG doesn't necessarily mean you're creating the future we want.
Impact investing is where you're looking at not just a financial return but also the true impact of your money on society and the environment. If you think about it, everything should be impact investing. It's about people looking at their portfolio and saying, 'how can we create value for society, how can we help tackle global challenges like climate change and how can we use our investment capital to drive those outcomes as well as good, long-term financial returns?'
In a time when we're hugely challenged by global inequality, by climate change, by a third or halving of nature if we don't act, then investing with purpose, investing for impact, should also create true, lasting economic value.
How has impact investing evolved over the years in your experience?
When I started working on environmental and social issues a quarter of a century ago or more, it was really, for many, a niche. It was literally about pandas and polar bears for many people and it was seen as a distraction for a lot of the business community—not all; there were early movers. There were almost no investors looking into this at the time.
It was very much of the world that the business of business is business and it's purely about short-term, medium-term shareholder return. Now ... I think the business community and investors have woken up and realised there is no long term unless we tackle these deep environmental and social crises that are shaping the world. It's gone from being a nice-to-do, semi-philanthropic activity to a must-do that's shaping business and investment strategy.
But not all impact investments are equal and it is important to look for those strategies and investments that are really part of creating true long-term value for people, the planet and investors.
How has IKEA adapted and evolved to these shifting attitudes?
Good companies that last a long time tend to have values and visions and deep cultures. IKEA has a vision statement to help create a better everyday life for many people. When I started there, we looked at that vision statement and said, 'where are we meeting that today and where do we fall short?'
We developed a strategy called People and Planet Positive and wove it through every part of the business. We worked with all of our co-workers to say, 'how is this part of our job?' For example, if you work in a store, you can be helping recycle plastic to meet a zero-waste goal. If you're in the food hall, you're helping sell veggie balls and getting people into a plant-based diet.
We also invested in projects that delivered value for the business and value for the world. For instance, we bought wind farms, did about 130 solar installations, invested in sustainable forestry and in recycling facilities. We were delivering really good value for the business: Those wind farms derive good economic terms but they were also great for creating the sustainable world we want for the future.
IKEA went a long way and we've seen many more companies embrace transformational agendas such as science-based targets for climate change.
How can companies embark on a journey to a more sustainable operation?
If you're a business, whether you're large or small, it's looking at your material impacts. What are the big impacts you have and how do you manage change? How do you take control of that? It can be something in your supply chain, like if you're using significant types of raw materials. There's a phrase I like that 'every product (or service) has a story and it's really about where the materials are from.' Are they sourced ethically with strong environmental standards? Is it creating quality jobs, or is it exploitative? As a business, you want your story to be legitimate, authentic and creating value for people and the environment. It's about taking control of your business and saying, 'We're going to be responsible into the future.'
No one person or organisation can save the world. It needs collective action and every business needs to play their part.
What can an investor do to put their money in places that will make a difference?
If you're an investor looking at this space, as you should, educate yourself around the issues. If you think of the big issues today, it's about quality jobs where people are treated with dignity and respect. We've seen a loss of value in publicly listed businesses that aren't taking care of people in their supply chains. It's not just reputational damage now; it hits the share price.
Climate change is an absolutely critical issue: It will affect your portfolio next week, next year and over the coming decades. There will be incredible pressure on society—there already is—for companies to radically decarbonise.
Invest in forward-thinking companies that are setting transformational targets and look for the winners. For example, these are the companies at the forefront of renewable energy, electric mobility, the plant-based food revolution and transforming sustainable agriculture and aquaculture.
Any final thoughts for business leaders and investors?
We're in a new era where sustainability is a must-do. We have to decarbonise with intent, at pace and at scale. It's on our watch that it's already having catastrophic consequences around the world. If we care about the future, it requires each and every one of us to play our part. It's no longer enough to do this with a small portion of your portfolio. You have to take this mainstream.
This interview has been edited and condensed.