Can Ikea’s Business Model Translate to Global Sustainability?

IKEA’s $1.13 billion commitment to renewable energy and climate change relief makes it an unexpected environmental leader. The company hopes it can leverage its size and efficiency to become a global driver of sustainability, offsetting its huge consumption of resources. 

I love Ikea. You love Ikea. We all love Ikea. The funny names, the Billy bookshelf, the lingonberry soda. But any environmentalist will admit that nagging feeling when you walk into one of its 300,000 square-foot stores. Or after you’ve cobbled together one of their pressboard masterpieces, with the suspicion that it might not survive the move to the next apartment.  

If you ever wonder just how much of this stuff Ikea is cranking out, it’s about 1 percent of the world’s commercially logged wood

During most of its rapid growth, Ikea developed a reputation for making stylish, affordable furniture that is practically disposable. But now, as it expands globally, it’s hoping to change that reputation and become a worldwide juggernaut in pushing forward clean energy and fighting climate change.  

The retailer’s recently announced environmental commitment has a few components. First, it’s going to invest 600 million euros on wind and solar power. That’s on top of the 1.5 billion it has invested since 2009. Then the company’s foundation will invest 400 million euros to combat the impact of climate change in vulnerable nations. It’s also planning to plant as many trees as it chops down by 2020. This all follows sustainability efforts to phase out non-LED bulbs, use more recyled materials, etc. 

There are a couple of aspects that are particularly interesting about this plan, aside from the incredible size of the investment (greater than some countries).

For one, the global relief component is pretty unique for a corporate environment program. Most big companies tend to connect their sustainability programs with a very local, or a CYA sort of approach (my words, not theirs). Basically saying, "We have X impact on the environment, we’re working to reduce that." It’s also not that common to see monster companies taking climate change head on quite this way (aside from Apple). Ikea is explicitly saying that climate change is here, we need to stop it and help poor countries cope. 

This is interesting, as it runs parallel with Ikea’s massive global expansion efforts, outlined in detail recently in Fortune. The company has been building stores around the world, carefully and deliberately working to become the affordable retailer for the world’s growing middle class. This is especially relevant is it expands into India and China, whose populations are increasingly able to buy a Malm or a Gullholmen

Ikea wants to provide the modernizing world with nice, cheap stuff, and it really doesn’t want to be seen as the planet’s Walmart, plunking down big box stores everywhere and perpetuating mass consumerism. (That sentiment of environmental responsibility is actually increasingly common among Europe's corporate giants for a number of reasons, as more of them seem to be outpacing their nations on the environment front.) 

Of course, there's a big public relations element of to this, although Ikea swears that's secondary. Walmart and Target have tried to bring their big-box approach abroad and results have been hit and miss. Ikea is very conscious of how it's perceived by the countries it expands into (it learned a lesson from a notoriously clumsy first effort at moving to the U.S.). The company famously ran marketing in the '90s that celebrated throwing things away, with its “Chuck Out Your Chintz” ad campaign, and now it desperately wants to chuck out that branding. The company has an internal goal to be perceived by 70 percent of its customers as "taking social and environmental responsibility," whereas last year, that number was just 41 percent. 

As the company grows and simultaneously becomes an environmental player, it will be interesting to watch whether its business model can be leveraged to move the needle on sustainability and clean energy. 

Ikea thrives entirely on economies of scale. Huge stores cranking out the same modular products over and over, cheaply. The bigger it gets (sales are up 31 percent in the past five years), the more costs drop. That size might seem incompatible with environmental responsibility, but in some ways it's an advantage. 

For example, if Ikea invests so much in renewable energy, maybe it can bump up the critical mass it takes to drive down wind and solar prices for everyone else. Or, as they are demonstrating with the $1.13 billion, as it grows and lowers overhead, it can return that growing savings/profits into investments to offset its massive footprint. 

But is it really enough to keep up with all that pressboard? Ikea, of all companies, finds itself at the center of this huge question of how a global middle class can grow, and consumption along with it, in a way that doesn't devour the planet.