Doing Well by Doing Good: Why Patagonia Makes a Profit, Naturally

patagonia fortune magazine cover photo

Corporate sustainability -- no longer just the latest collection
of business buzzwords -- now is a required feature in the mission
statement, annual report, and work-force makeup of many companies. In fact, corporate sustainability is becoming more and more important in the business community -- now, you can even track the performances of leading sustainable-driven companies via the Dow Jones Sustainability Index, while the Greenhouse Gas Protocol monitors and measures corporate greenhouse gas emissions.

Companies as varied as DuPont, Unilever, and 3M are among those considered to be "leading the way." Still, many consumers view business sustainability with skepticism, frequently questioning whether actual practices amount to more than greenwashing. A common argument goes, if the goal of business is to make the largest profit and deliver those profits to its shareholders, where and how do sustainability values actually fit in?

Perhaps a lot can be gleaned from Patagonia, a privately-owned outdoors clothing and gear company. The California-based business believes it has found an answer. Its 40-year history proves good business can result from strong values. And it has the profits and loyal customer base to match.

Today, its mission statement reads, "Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis." The company didn't begin with this kernel of wisdom, though. The mission statement was crafted from experience.

Shortly after Patagonia's inception, it was discovered the placement and removal of pitons, their top-selling product, was defacing many landmark climbs. Rather than ignore these repercussions, Yvon Chouinard, founder of the company, made a bold decision to back away from the piton business, replacing it with aluminum chocks climbers could wedge by hand instead of by hammer. Additionally, Patagonia decided to promote the ethic behind their new product -- "clean climbing." To their surprise, they were soon selling more chocks than pitons.

In the words of Rick Ridgeway, Patagonia's vice president of Environmental Initiatives and Special Media, the lesson was simple: "Do the right thing and it's good for your business."

Rick Ridgeway, VP Environmental Initiatives, Patagonia.

The next major values-based decision followed the realization that industrially grown cotton severely impacts the environment. In 1994, Yvon ordered all Patagonia's cotton clothing be converted to 100 percent organic cotton. By 1996, this was achieved, but it was not easy. The directive occurred at a time when there wasn't enough organic cotton in the world to support the company's needs. Yvon's employees then began convincing farmers overseas to adopt new practices.

Though Patagonia's clothing profits immediately declined, the next year they broke even. By the following year, profits were above the level they were at prior to Yvon's initiative. The challenge of this conversion consumed the company for years. Yet Patagonia knew its manufacturing still had a large environmental footprint. It then decided to pursue what it saw as the next cusp of sustainability -- fully recyclable clothing. Keeping clothing in closed-loop cycles reduces energy use by 70 percent and CO2 emissions by 75 percent compared to virgin fiber, even considering the energy expended in transport.

On top of these initiatives, one of Patagonia's least intuitive business decisions entails donating 1 percent of its sales to carefully chosen environmental non-profits. Surely, this can't help build revenues. But it does. Patagonia's success indicates customers want to support businesses that not only provide quality goods or services, but that also are doing good. Sound ethics promote loyalty and loyalty pays off.

Says Chouinard, "Profit is not the goal, because, as the Zen master would say, profits happen when you do everything else right."