The Procter & Gamble Company (NYSE: PG ) has announced that it will remove phosphates from all of its laundry detergents sold worldwide within the next two years. Phosphates are used to soften hard water, thus making laundry detergents more effective. While everyone loves fresh clothes, the softening agent can suffocate fish populations, cause deadly algae blooms, and contaminate the drinking and bathing water of millions of people in developing nations when released into the environment. Luckily, the company, which sells one out of every four bottles of laundry detergent on Earth, has created new formulations of its famous product lineup that protect the environment without sacrificing cleaning power.
Distancing itself from phosphate usage marks another major step toward greening up supply chains for the personal-care and consumer-products industries; bolstering the company's own internal sustainability goals and following commitments from Johnson & Johnson (NYSE: JNJ ) , Colgate-Palmolive (NYSE: CL ) , and Unilever (NYSE: UL ) . How and why is Procter & Gamble making the switch now? Does any of this matter to you or your portfolio (or laundry room)?
Late to the party, but he's bringing the chips
Procter & Gamble won't be the first company to remove phosphates from its detergents. In fact, the company is simply copying the precedent set by smaller global companies such as Ecover and Seventh Generation in 1980 and 1988, respectively. Phosphate will be replaced by a mineral called zeolite, which allows detergents to be just as effective while significantly reducing their environmental impact. Rather than question why the world's largest supplier of laundry detergent didn't make the move sooner, consumers and investors should look forward to the large-scale environmental benefits of the switch.
But why make the switch now?
It's not as if management at Procter & Gamble suddenly woke up one day and decided to save fish and drinking water in developing nations. Large multinational companies usually only make all-encompassing decisions when there's an economic benefit involved. Here, it's likely the rising price and shrinking supply of phosphates, as sustainability contributor Erica Gies noted for The Guardian.
The announcement certainly turns up the heat on laundry room competitor Unilever. The company gave no comment when Gies asked if it would be making a similar switch, instead pointing her to an explanation on the company's website. While Unilever may not have plans to go all-in on a more sustainable laundry detergent lineup just yet, it has committed to greening numerous products. For instance, all of the company's Lipton tea bags will come from Rainforest Alliance Certified farms by 2015. Additionally, Unilever was one of the first companies to source renewable oils from industrial biotech company Solazyme, which creates renewable oils from sugar-fed algae.
How are similar companies responding to sustainability concerns?
Loads of hope
Johnson & Johnson takes sustainability very seriously, although it faces a unique challenge for sourcing sustainable raw materials for both its consumer-products portfolio and health-care products and consumables portfolio. Turns out hospitals care about sustainability, too. When customers were asked, "How important are the following attributes in your purchasing decisions for medical products?" companies answered as follows:
It may seem obvious that health-care professionals want to skirt issues related to heavy metal and latex content, but I was a surprised to see energy efficiency and supplier end-of-life solutions rank second and third, respectively. Luckily, Johnson & Johnson also topped a list of one dozen global health-care manufacturers when it came to customer perceptions of green sustainability. Does that intangible aid the company when securing and extending partnerships and sales agreements?
Meanwhile, Colgate-Palmolive has embarked on an ambitious trek to reach its sustainability goals by 2015. The company aims to reduce water usage by 30%, energy use by 15%, and greenhouse gas emissions by 14% compared with 2012 levels. The latest project is new, but Colgate-Palmolive has been collecting energy use data since 1998. A long history of environmental consciousness and stewardship will pay dividends for each new project undertaken by the company.
The importance of a sustainable portfolio
Corporate sustainability is really a winning scenario for the environment, consumers, and investors alike. In fact, a recent MIT Sloan study (link opens a PDF) found that "high-sustainability" companies significantly outperformed "low-sustainability" companies by nearly 5% and demonstrated less volatility overall on a value-weighted basis. That may not seem like much, but it certainly busts myths that investing in efficiency is akin to lighting money on fire. So if you already use household products manufactured by Procter & Gamble, Unilever, Johnson & Johnson, and Colgate-Palmolive, then why not hold them in your portfolio to partake in their sustainable efforts?
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