In 1969, a Brazilian beauty company named Natura embarked on a journey that would eventually lead it to become the world’s largest B-Corporation by 2021, with a net revenue of $7.2 billion. Beyond its financial prowess, Natura’s story is one of environmental commitment and stakeholder alignment, with key lessons for private companies that want to conserve the planet.
Natura sources ingredients from the lush Amazon rainforest, weaving them into a diverse array of cosmetics, shampoos, and soaps within the Natura Ekos product line. The company has created a system where environmentally conscious consumers are willing to pay premium prices for products that bear the mark of ethical sourcing. These products, produced with ingredients supplied by Indigenous communities in the Amazon region, create a synergy between commerce and conservation.
Natura’s experience underscores how other companies can tackle the broader issue of environmental preservation, especially in the face of climate change and the ongoing depletion of our natural resources. It’s detailed in a new paper by Wharton management professor Leandro Pongeluppe and Anita McGahan from the University of Toronto. The authors demonstrate how firms can unlock a virtuous cycle of prosperity and sustainability by aligning stakeholders’ interests with their own.
And such partnerships are increasingly necessary. Climate change, a colossal challenge, has often led to the excessive exploitation and depletion of our natural environment, epitomizing what is known as the “tragedy of the commons.”
“The positive impact on the environment becomes closely linked to their core business and income generation.”— Leandro Pongeluppe
Aligning Diverse Stakeholder Interests to Save the Planet
“When there are shared resources like forests, lakes or oceans, the individual motivation may lead groups to exploit the resource to the maximum, but when everyone pursues this self-interest without restraint, it results in the rapid depletion of the resource,” explained Pongeluppe.
Yet, Natura’s story offers a roadmap to a better alternative. Some experts suggest that corporations, by aligning diverse stakeholder interests and ensuring that everyone benefits from their actions, can contribute effectively to solving major societal problems — sometimes even outperforming governmental efforts. However, understanding precisely how firms manage their relationships with different groups of people to address environmental issues, such as climate change, remains a complex and underexplored area of research.
The study makes an important contribution to the field, unraveling how Natura’s approach could serve as a model for addressing common-good problems, particularly those related to the environment. The research showed the vital role of what are called “Coasean arrangements,” often established between firms and close stakeholders.
“In Natura’s case, these partnerships involve sharing value with local Amazonian stakeholders, making it economically advantageous for them to engage in sustainable resource extraction,” Pongeluppe said. “In essence, it’s a way to internalize the externalities — the positive impact on the environment becomes closely linked to their core business and income generation.”
Witnessing the Impact on Amazon Rainforest Deforestation
To reach these conclusions, the researchers used advanced satellite data to monitor changes in the Brazilian Amazon rainforest between 2000 and 2018. By comparing regions where Natura operated with those where it didn’t, the authors assessed the company’s environmental impact, backed up by interviews with people on the ground.
The findings showed that Natura’s involvement led to a significant shift in farming practices, favoring those that were kinder to the rainforest. These practices included harvesting diverse products and targeting areas with old trees and rich carbon reserves, which help protect against fires. “Natura’s efforts helped preserve a staggering 730,000 hectares of the Amazon over two decades — an area equivalent to 676,000 soccer fields,” said Pongeluppe.
“This is how businesses can forge innovative partnerships and create sustainable models that benefit the bottom line, the local communities, and the planet.”— Leandro Pongeluppe
This achievement wasn’t solely attributable to Natura’s actions; it was a collaborative effort involving environmentally conscious customers, community leaders, and local Indigenous farmers. Farmers in areas where rainforest clearing was a big problem decided to change their approach. Instead of resorting to activities like soybean and cattle farming, which harm the rainforest through deforestation, they chose a more sustainable path. They decided to harvest products like fruits, nuts, seeds, and berries, activities that could be carried out without destroying the forest.
Natura played a role in facilitating this shift by encouraging these farmers to focus on forest-friendly products like açai, Brazil nut, and cocoa as well, along with other Amazonian goods. The broad range of products sourced by Natura from these local farmers not only helped protect but also contributed to the regrowth of the rainforest. And Natura’s positive impact was not a fleeting phenomenon; it continued over time, making a lasting difference.
For-profit Companies Can Prevent Amazon Rainforest Deforestation – and More
In response to the pressing challenges of climate change, Natura’s journey exemplifies how private companies can become powerful agents of change through novel stakeholder partnerships, transcending their core missions to address broader public goals.
Pongeluppe said: “The big message is that for-profit organizations can think about clever ways to internalize positive externalities, such as saving the forest or contributing to the environment by making it closely related to their core business. This is how businesses can forge innovative partnerships and create sustainable models that benefit the bottom line, the local communities, and the planet.”