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David Brodwin's blog

Etsy Goes Public

Sustainable and socially responsible business is about to get a big boost. Earlier this month, online crafts retailer Etsy filed to go public in a deal projected to raise $100 million or more. This initial public offering is poised to legitimize the "triple bottom line" and boost investment in this emerging sector.

Brooklyn-based Etsy is well regarded as an online retailer of handmade and vintage items including clothing, home furnishings, jewelry, art and foods. With strong support from leading venture capitalists including Accel Partners, Etsy has grown into a powerhouse with nearly $2 billion in transaction volume in 2014. It generated about $200 million in revenues last year from the many transactions that were completed on its platform.

But there’s more to Etsy than crafts and vintage goods. Etsy is one of a small but rapidly growing number of companies that publicly committed itself to the triple bottom line of people, planet and profit. To show its commitment to the triple bottom line, Etsy has become a B Corp, which means it has passed an independent assessment of its business practices. To acquire B Corp status, a company has to attain a minimum score on a range of business practices – for example, how it treats its employees, what it does to help disadvantaged populations among its employees and customers, and how its operations affect the environment.

Companies can benefit in several ways from embracing triple bottom line principles. The starting point is usually a commitment by the company’s leaders to the idea that business can be a force for good, not just a force for profit. But there’s more: B Corp status helps attract talent, particularly among millennials, who (more than other age groups) want alignment between their own values and how their employer acts in the world. And B Corp status increasingly offers a marketing advantage: For example, the B Corp brand appeals to customers in the growing Lifestyles of Health and Sustainability segment. Doing well and doing good go hand-in-hand.

Etsy is not the first B Corp to go public but it’s the biggest to date. As the leader, it will influence the investing climate for other sustainable and socially responsible businesses and help build mainstream acceptance for investing in businesses with a social mission. Other such businesses are close behind Etsy in the IPO pipeline. One is Warby Parker, an eyewear retailer that is also a B Corp and also backed by prominent venture capitalists. It has raised more than $100 million in investment capital to date.

Going public is not without risks for a triple bottom line business. Such companies need to prove they can provide satisfactory returns to investors while maintaining their mission and their commitment to other stakeholders. The investing public needs to see that the social mission has real economic value even though the payoff often stretches beyond the next quarter. And there’s always the risk that activist investors might accumulate enough stock to force the company to drop its triple bottom line in pursuit of greater short-term profits. That’s been a challenge in the past for triple bottom line businesses that have needed outside capital to pursue new market opportunities.

But the barriers to investor acceptance are beginning to fall. As companies like Etsy and Warby Parker show they can deliver returns to investors as well as benefits to people and the planet, the funding available for such businesses will increase substantially. That will ultimately encourage innovation and bring solid returns to all the stakeholders involved.

David Brodwin is a Co-founder and board member of American Sustainable Business Council. This article appeared in U.S. News & World Report March 16, 2014.
 

 

The Winners and Losers of Cheap Oil

With the price of oil settling in at around $50 a barrel, down roughly half since last summer, it’s time to ask what the drop means for sustainability. It may seem like an easy question. After all, with oil so cheap, it’s harder to make the business case for renewable energy. But the situation is not as simple as that.

There’s no question that that cheap oil creates winners and losers. Airlines win big, since jet fuel is a big part of their operating cost. Fertilizer manufacturers and other chemical companies win big, since they use oceans of oil to make their products. The oil companies themselves lead the list of losers, along with companies that make drilling equipment and provide services to the oil industry.

At the same time, cheap oil lets some nations win big, while others suffer badly. Most of the oil exporting countries can’t sustain their government spending with oil at $50 per barrel, so we can expect some sharp belt-tightening and even dangerous political instability. For example, Russia needs a price of about $105 per barrel – roughly twice the current level – to keep its economy on track. At the same time, cheap oil helps the economies of countries like Japan, which need a lot of energy and have little or no domestic supply of their own. If oil stays cheap, then some of the countries that the U.S. has battled to contain (like Russia and Iran) become less of a threat. Then we can spend less on defense and more on things that improve the quality of our lives.

The impact of oil on environmental sustainability is not so clear cut. With oil cheap, it’s harder for renewable sources like wind and solar to prove their cost-effectiveness. But on the plus side, cheap oil means a lot of expensive and marginal oil production will get shut down or never developed in the first place. First and foremost, cheap oil makes the Canadian tar sands moot. Tar sands oil is not economically feasible unless the price of oil is above $100 or so per barrel if the oil has to be shipped by rail, and might work out at $75 per barrel if a pipeline were built. But at $50 a barrel, it’s dead on arrival. Similarly, environmentally-risky deepwater exploration and development doesn’t pencil out at $50 per barrel.

Cheap oil will slow the growth of fracking (hydraulic fracturing), one of the more problematic sources of energy. Many environmentalists are sharply critical of fracking; it is poorly regulated, and some fracking sites leak methane, a powerful planet-warming gas. Also, fracking operations inject contaminated water into the ground where it mixes with and pollutes the local drinking water. But today’s low oil prices will likely slow the growth of fracked oil, because many fracking operations are just not economical at oil prices below $75 per barrel.

In addition to taking some of the dirtiest fuels off the market, today’s low crude prices promote sustainability in other ways. Low prices today set the stage for price volatility in the future by putting a tourniquet on investment in oil production. Industry output will fall, slowly at first and then more quickly as older, failing facilities are not replaced. We will reach the point when a small hiccup in the supply, particularly if it happens when the economy is on an upswing, can send the price soaring again. That hiccup will inevitably come when the recession ends in Europe and elsewhere. Then energy demand will rise, and with production capacity diminished, prices will spike. This price shock will spur more companies to pursue options that reduce their exposure to price volatility. And that means turning once again to fuels that are free.

David Brodwin is a Co-founder and board member of American Sustainable Business Council. This article appeared in U.S. News & World Report March 9, 2014.

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