Sustainability as a win-win for customers and the business

The following was transcribed from a recent interview on The Agile Brand with Greg Kihlström podcast. 

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Today we’re going to talk about how sustainability is no longer an option for brands, and why this is a benefit for both customers and the bottom line.

To help me discuss this topic, I’d like to welcome Brennan Spellacy, CEO and Co-Founder at Patch.

[Greg Kihlstrom] Let's talk about our main topic today, which is right in line with what you were just talking about with what your company does, the importance of sustainability beyond its inherent benefits for the planet, which is also kind of a big deal, of course, but, you know, it can also be good for both companies and their customers, and so kind of a win-win-win in that scenario. So let's start by talking about customers and consumers in general. So some recent research by Capgemini shows that nearly eighty percent of consumers now consider a company's environmental responsibility when making purchasing decisions. So the question for you, why isn't this enough to get some companies to meaningfully act? What's standing in the way?

[Brennan Spellacy, Patch] I mean, truthfully, there's a bit of a new secular trend we're beginning to see. And what I mean by that is that 80 percent of consumers is actually being driven by this trend of we’re now entering a period where the first two generations that are going to be materially affected by climate change, Millennials and Gen Z, are now beginning to enter their prime earning years, in the case of Millennials, and are just beginning to vote and spend in the market, in the case of Gen Z. That's actually fundamentally shifted how consumers and the makeup of spend from any individual consumer group actually looks like. And so for us, it's not just about, well, why are not businesses responding to it, or is it enough, but, actually, this is a fairly new thing, right? If you look, all the science that we're looking at today still existed 20 years ago, 25 years ago, with the “Inconvenient Truth,” with Al Gore; it’s just people weren't really ready to kind of take the medicine, if you will. It wasn't imminent enough. Now we're kind of entering this moment where it's becoming far more urgent, which is now driving individuals and then eventually businesses to act a little bit differently.

Beyond the customer component, sustainability itself should also be beneficial to businesses because inherent in that concept is the idea that it's not only sustainability in the world at large but also sustainability for the business itself. So even things like concentrating chemicals that need to be transported to reduce shipping costs helps save money for the company, in addition to helping the environment. How should companies be thinking about sustainability in a way that provides this kind of win-win scenario?

Yeah, it's a great question, and I think you actually articulated one key point. So in the world of decarbonization, which is all about polluting less, a lot of the sustainable alternatives are in some cases less expensive, right? We saw that with COVID, where a lot of business travel went away in place of Zoom. Well, a lot of people were saving a lot of money by not spending money on business travel and as a result also saving the carbon emissions associated with either planes or personal vehicles, very similar with not working at the office. When you take that commuting away, emissions go down. So there are many cases, situations, where cost-cutting, which is becoming even more relevant as of late, as of November 2022, and the economic outlook is looking uncertain, and decarbonization actually in some pieces go hand in hand, right? So in some situations there's actually a way easier pill to swallow, if you will.

But going back to that second piece, the other element I would encourage folks to think about is this idea of, well, what is going to drive you to acquire and retain these new generations that are going to be affected by climate change, right, those millennials and those Gen Z individuals? And that's how a lot of folks are actually beginning to think about this. It's less around altruism, candidly, of the kind of VCS, although there are some groups that do think and make decisions altruistically, but a lot of them are thinking about what is the long-term viability of my business? And what they're seeing is the people who are beginning to take power or take control, whether it's in dollars or at the ballot box, are beginning to spend in a more values-aligned way, which as a result both businesses, investors and policymakers also have to operate in that way. Because, at the end of the day, although the businesses have a huge amount of influence, they still at the end of the day serve the end customers.

So let's talk about some of the challenges with the current way of handling things. So first let's talk about carbon offsets. So they seem like a viable option. They've been around for a while, certainly. But there's some drawbacks to the way they're often handled. Can you describe some of the challenges with them?

Yeah, absolutely. So first things first, as maybe a baseline, the IPCC, which is this international organization that actually studies climate science, makes it very clear that there is no pathway to limiting global heating beneath either one and a half or two degrees without what we call Gigaton-scale carbon removal. So what does that mean? Gigaton-scale carbon removal basically means you’re removing tens of billions of tons of carbon dioxide from the atmosphere per year from between 2040 or so to around 2100, so for a very long time. So that's going to be how the planet both gets to net zero and then eventually actually net negative beyond 2050. The reason we have to do that is because the last 150 years, we've been emitting carbon dioxide into the atmosphere, creating effectively a backlog of carbon dioxide in the atmosphere that's continuing to heat the earth. What carbon credits do is they provide a way for businesses or individuals to buy someone's ability to either abate emissions or remove emissions from the atmosphere. 

So it's effectively a market mechanism to drive finance into carbon removal technologies, whether that's something as familiar as reforestation, where you plant trees and those trees actually draw carbon out of the atmosphere, or something like direct air capture, which are these large human-engineered facilities that actually suck air, run it through a chemical reaction, and the pure oxygen and nitrogen come out and then the CO2 stays behind, and then that CO2 can get stored. There are all these different chemical pathways that can actually produce these carbon credits, which then can be bought and transacted. The difficulty with carbon markets as a whole and what's actually held them back in the last decade or so has actually been the fact that there is so much diversity within carbon markets. And people have tended to want to commodify carbon carbon, where they want to treat every ton as equal and kind of ignore the underlying metadata associated with it. And we now know that it’s fundamentally untrue. And the position we take at Patch is carbon is not like something like a soybean, where there's only so many types and it can be commoditized. What it actually is much closer to is a bespoke product that has a huge amount of underlying metadata, and that underlying metadata is really important because, if you're a head of sustainability or a CMO, you need to be understanding, “Well, what kind of story am I telling to my stakeholders?” And if you don't understand the detail associated with that particular ton of carbon you're buying, there's a potential for you miscommunicating and then setting the wrong expectations. And that's typically what's plagued carbon markets in the past and what we aim to try to resolve.

Now let's talk about the ESG space, which, all good intentions aside, has certainly had some challenges with greenwashing, similar to how CSR, corporate social responsibility initiatives, did before them, you know, there's lots of similarities between the two acronyms there. But can you describe some of the challenges that companies are facing here, and assuming the best intentions, but what are some of the challenges with ESG and sustainability?

I think the greatest challenge of anything related to any sort of climate commitment actually goes back to this idea I was just beginning to allude to earlier with respect to the transparency element and communication. So what we've actually seen is companies who have actually been accused of greenwashing, or found of greenwashing, and for those who don't know, again, greenwashing is essentially this idea where a company creates some sort of sustainability program, puts it in place, makes some sort of claim about that particular sustainability program that turns out to be maybe exaggerated or in some cases even untrue, right? And so, like, fast fashion typically gets hit by this quite often, where they maybe have one sustainable component of a broader piece of clothing and then claim the entire piece of clothing is sustainable, that's not actually accurate. You know, that one button or that one tag or whatever it might be, might be, but the broader object is not. That's typically, when people refer to greenwashing, what folks are referring to. 

And what we found, though, in most cases, there are always going to be those bad actors that are explicitly misleading people, but in the case of, actually, when it comes to carbon markets, what we’ve actually seen is the seller of the carbon credit, the buyer of the carbon credit and then the end consumer, so the person making a decision based on the underlying transaction, they're going with a particular brand because it's sustainable, all think something different is happening. And that's because information tends to get abstracted away, versus actually surfaced. So we'll have organizations who might not understand the difference between what reforestation or aforestation is, right? Reforestation is all about putting trees where there once were trees versus aforestation is about planting a net new forest; or it is the kind of diversity of the underlying forest. What is called a monoculture, where all the trees are the same, these types of forests tend to be actually very vulnerable to things like disease because, if one tree or species of tree gets hit, then it can actually affect the entire forest, than rather a more diverse and robust, more natural forest. And so there are all these kind of different nuances that actually affect the efficacy of the underlying sustainability program. And then if you're not able to explain that to your end consumer, then they might think you're claiming you're doing something else. And then if they find out that there's a misunderstanding there, that actually leads to a lot of these greenwashing claims. 

And so for us, again, the biggest element when it comes to sustainability is really making sure you understand internally why you're making those decisions, and then working really, really closely with your comms teams, because these are typically very high-visibility programs, whether that's to investors or to end buyers, really working closely with them to try to not abstract away the details, in a lot of cases. I think there's a tendency to want to really distill things down and really simplify, which is very important, especially within marketing; you want to make sure you're not taking up too much of people's time, effectively; you want to get your points across quickly. That being said, though, if you are not careful and mindful with your words, there’s an opportunity to mislead, even unintentionally. And so that's where you have to be really, really mindful, when it comes to communicating your sustainability initiatives.

You mentioned a few things to do to improve it, you know, including how you communicate it. But what else is Patch doing in this area to help to make it stronger?

So there's a huge number of organizations and standards and ecosystems you can operate within sustainability. And it all sounds like alphabet soup, right? There's a huge amount of organizations that have a bunch of different abbreviations. And what Patch really aims to do is making sure that, depending on what type of sustainability strategy you have – now, there are some people that might have what's called a net zero strategy. Some people might want to actually be carbon-neutral. Some people might actually want to focus on specific disclosures. Whatever it might be, we take that information in and we make it very, very explicit what types of action, what types of carbon markets can you actually interact with, right? 

So we'll actually dramatically pare down the Patch network, where we actually have over 100 projects and 50, 60 different developers associated with people maintaining those projects, but depending on if you're attempting to be net zero in a particular year, you can actually use maybe half of those, or a third of those. And so what that means is that we shouldn't really be showing you the things that don't make sense for your particular sustainability strategy, right? And so what we'll do is we'll actually pare down the network and then, for each project that you actually can transact within that network, we’ll show a huge amount of both qualitative and quantitative information. Now, that’s the underlying chemical pathway, the geography, the price, what's called the durability of the carbon credit. That refers to this idea of, well, how long does that positive environmental effect last for? There are some natural-based solutions that will last for 100 years; some last until around, you know, 2100, 2120. And there are some solutions that will last for 10,000-plus years, far beyond, you know, any of us are around. And so really servicing all this kind of nuance has actually really helped people understand and get their arms around this carbon credit problem. Because folks in many cases who have even transacted with carbon credits in the past, who are Patch customers, had no idea there was this much stratification. And the more education and standardization and presentation information  you can do, the more likely people are to understand things, and then minimize the likelihood of them making an uneducated decision and then communicating it improperly.

It seems to me like, again, bad actors aside, and I’m sure there’s always an element of that, but that notwithstanding, because of the abstraction of some of this information and the intentions of wanting to communicate that, yes, a company is doing its part and and trying to be sustainable and all of that, because there’s so much lack of standardization, it definitely sounds like it's time to have some more common definitions and just an easier way to do that. But I think, from what I'm hearing from you, the onus on the brand is really to articulate what they're doing and some of the details, just so that they don't come off like they're either doing more than they are, or in some cases they may actually be doing more than they say they are, once you dig into the details. Does that sound right?

Yeah, I think that's accurate. I mean, and truthfully, most folks are actually coming to Patch having done nothing before. So over 70 percent of companies who onboarded onto Patch had never participated in carbon markets before. But what was interesting is a lot of the reason people were holding back was actually a reluctance primarily driven by people not really understanding how this market worked. And so you actually have this really interesting situation where you have this very, I think, reasonable desire to call out bad actors and bad behavior, but what that's actually resulting in, in many cases, is inaction, right? 

And so there's this really interesting paradox where the folks who are taking action, even the ones with the best intentions, are having their wrists slapped, if you will, which is actually preventing other people from starting to take the right direction on climate action, because the downside of doing something wrong is actually perceived as more extreme than the upside of doing something right, which is actually not the desired outcome, right? That's not what we want to happen. And so it's been a very fascinating dynamic to see where, by diving into the Patch platform, people are able to wrap their heads around, “OK, how does this ecosystem work,” and they're able to build up that confidence where, even if they do get challenged in the public sphere, they feel like they have the information and the backing to say, “No, no, no, we do know what we're talking about, and this is why.”

About the Guest

Climate change is accelerating, and Brennan Spellacy has built a platform that could exponentially scale our efforts to reverse its effects. He’s the CEO and co-founder of Patch, the platform that powers climate action. Backed by some of the world’s most visionary investors, they have figured out how to empower businesses to make bold, impactful climate action a reality with every transaction — with just a few simple lines of code.

From his first day as a chemical engineering student at McGill University, Brennan already had a clear vision of his future: he saw himself working on renewable energy, doing his part to solve the growing climate crisis. But when he graduated, his only job offers came from the oil and gas industry. So he set his newly-earned degree and his climate aspirations aside, and instead accepted a programming position at an ambitious young eCommerce company: Shopify. 

With his foot in the door of the tech industry, Brennan soon landed a job at hospitality startup Sonder. Over the next four years, he worked his way from software engineer to senior product manager, helping the company scale from 15 to 1500 employees, while achieving a billion-dollar valuation and eventual IPO. But despite his success in tech, he never lost sight of his original goal: putting a dent in the climate crisis. In 2020, he left Sonder with a 10-page pitch deck in hand and a plan to bring his career arc full circle.

Now with his company Patch, Brennan is enabling businesses to seamlessly neutralize their carbon footprint through a global network of quality vetted carbon credit projects. He’s betting that by taking the friction out of carbon removals, he can kickstart the fragmented carbon credit industry and help humanity avoid the worst outcomes of climate change. If he’s right, the whole planet wins. 

About the Host, Greg Kihlström

Greg Kihlstrom is a best selling author, speaker, and entrepreneur and host of The Agile Brand podcast. He has worked with some of the world’s leading organizations on customer experience, employee experience, and digital transformation initiatives, both before and after selling his award-winning digital experience agency, Carousel30, in 2017.  Currently, he is Principal and Chief Strategist at GK5A. He has worked with some of the world’s top brands, including AOL, Choice Hotels, Coca-Cola, Dell, FedEx, GEICO, Marriott, MTV, Starbucks, Toyota and VMware. He currently serves on the University of Richmond’s Customer Experience Advisory Board, was the founding Chair of the American Advertising Federation’s National Innovation Committee, and served on the Virginia Tech Pamplin College of Business Marketing Mentorship Advisory Board.  Greg is Lean Six Sigma Black Belt certified, and holds a certification in Business Agility from ICP-BAF.