Philips Makes the Business Case for Sustainability

When you think about the Dutch company Philips, you probably think about LED lighting or healthcare solutions. You probably wouldn’t guess that one of its sustainability product highlights in 2011 was a coffee machine. And not just a regular coffee machine - its SENSEO Viva Café Eco is the world’s first ever recycled designer coffee machine, using old electronic appliances to create a first-class coffee system. I learned about it while reading the company’s latest sustainability report, which was released last week.

There are three elements that make this report especially impressive even before you read (almost) one word of it. First, it’s integrated in the company’s annual report, which makes it more credible and beneficial to the stakeholders.  Speaking of stakeholders, the CEO letter starts with ‘Dear Stakeholder’ – how many reports you know that start this way? Even the CEO letter of Novo Nordisk a company that also utilizes integrated reporting, doesn’t include such opening. Last but not least, there’s no printed version of the report and it’s only available online.

An introduction to the report would not be complete without mentioning Philips’ EcoVision5, the company’s latest sustainability program. In 2009 Philips reviewed its sustainability strategy and decided to make sustainability an integral part of the company's overall vision and driver for growth. The company has identified three sustainability leadership key performance indicators where it could bring its competencies to bear - ‘care,’ ‘energy efficiency’ and ‘materials.’ Philips then set up its targets for 2015, including bringing care to more than 500 million people, improving energy efficiency of its products in 50 percent by 2015 (compared to 2009) and doubling global collection, recycling amounts and recycled materials in products by 2015.

And now to the highlights of the report:

Increasing sales of Green Products to $11.85 billion
Green products make up 39 percent of Philips’ total sales, up from 36 percent in 2010, and the company is well on track to reach its EcoVision5 green product target – 50 percent of total sales by 2015.

Philips describes a green product as new product that is a significant improvement (10 percent or more) over its Philips predecessor or the nearest competitor. Six specific areas are considered in the green product classification process: energy efficiency, packaging, hazardous substances, weight, recycling & disposal, and lifetime reliability. Examples of new green products include LED lighting and home healthcare solutions, and let’s not forget the new coffee machine. The company is also creating innovative sustainable business models, such as the ‘Pay per Lux’ lighting concept, which is similar to solar panel leasing, only with lighting systems.

The growth rate in green products sales (8.3 percent) fell almost by half in 2011 compared to 2010, but it is still more than double than the total sales growth of Philips. In all, it is certainly continuing to be an important growth engine for the company.

Reducing its carbon footprint and increasing overall operational energy efficiency, both by 4 percent.

Philips certainly continues to improve in reducing its carbon footprint, yet I have a feeling that their green products results are better than their footprint reduction results. Two indicators for it can be found on the criteria list of the Global 100 list of Corporate Knights, which is the list of the 100 most sustainable companies – Philips is no. 12 on this list. There you see for example that their carbon productivity, which is US$ revenue/ tons of CO2 emitted is $55,334, less than many companies in their industry group, even those that are in a lower place on the list. Their energy productivity (revenues/energy used) is also not too high.

Investing more than $645m in green innovation, dedicated to addressing global challenges related to care, materials and energy efficiency.

This figure reflects Philips’ commitment to “strive to make the world healthier and more sustainable through innovation.” As much as this figure looks impressive, it would be helpful to have green innovation figures from the last couple of years to understand if green innovation at the company is getting stronger or weaker.

Including 10,000 tons of recycled content in its products by focusing on material streams plastics, aluminum and refurbished products.

This figure appears in the company’s press release, but I couldn’t find it in the report.  Nevertheless, I wanted to mention it because although it sounds impressive, it’s actually meaningless as we have no idea if it’s 1 percent or 90 percent of all the materials used by Philips. Also, it’s not clear why the company does not mention in addition what it means in terms of its EcoVision5 goal to double the recycling materials in its products.

Through its products and solutions for bringing care to people Philips touched 465 million lives in 2011, an increase of 45 million compared to 2010.

This figure reflects the company’s commitment “to making a difference wherever care is provided.” Their oral healthcare, light therapy, water purification and air purification products, as well as our solar-powered indoor lamps replacing kerosene lamps in Africa are just some of the examples of how Philips does it. I have to say that in terms of metrics this indicator is a little bit vague, yet it certainly shows the social dimension is taken seriously by Philips no less than the environmental dimension of its operations.

Philips’ sustainability report includes many more interesting achievements and developments, which together portray not just the picture of a company that is very serious about sustainability, but also of a company that is a good example of the business case of sustainability, with its innovative healthcare and lighting products, multi-stakeholder engagement approach and of course beautiful recycled coffee machines.

[Image credit: Philips Communications, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.