CSR - Case Study #02

IKEA's Aggressive Approach To Sustainability Creates Enormous

Business Opportunities
IKEA continues to follow through on its commitment to develop and own renewable electricity
supplies, with a 2020 goal of producing more energy than it uses. IKEA has numerous other
sustainability-related goals, and is expanding its offerings to customers as well.
I spoke on the phone with Chief Sustainability Officer Steve Howard to discuss IKEAs aims, its
overall approach to the issue of sustainability, and what the future may hold.
One thing that was clear from the outset: IKEA is committed to future proofing its company, and is
proactively anticipating many of the challenges to be faced in the coming years.
Howard commented that values are critical to the entire endeavor.
If you start with a values-driven point of view, you can make a business case. Climate change and
energy security mean you have to have a radical approach. We need a six, seven, or eight-fold
decrease in carbon intensity. Thats not business as usual. Energy efficiency only gets you so far.
You have to decouple your business from carbon. Then you have to look at whats commercially
scalable.
He notes that there is a solid financial argument to be made for their renewable energy investments.
There has to be a rational business decision with a decent payback. Any business with access to
capital has a choice of where to invest.
Of course, you can invest in growth of business, and we do that, but we also look at what delivers
long-term energy security, a macro hedge on energy price rises and addresses carbon. IKEA also
has a long-term business philosophy, where we own most of our stores, our factories, and the land
they are built on. We have the capital, so why would we rent? Its the same with energy if we can
own our own energy production why would we not want to do it?
As a consequence, IKEA owns as many renewable energy resources as some energy companies, with
157 wind turbines (96 of which are already operational), with a capacity rating of 345 megawatts. The
company has also installed 550,000 solar panels, totaling 90 MW.
In the U.S., IKEAs numbers are also pretty formidable, with an investment of $150 million in PV
systems, making IKEA the second largest private commercial solar owner. Currently, 39 of their 44
locations are served by solar arrays, with four more installations planned in 2014 (including one on a
new store). When completed, the combined capacity of IKEAs solar portfolio will total 38
megawatts. The company is also working on a geothermal system to heat and cool a soon-to-beconstructed store near Kansas City.
I asked Howard about how IKEA thinks about risk in making this type of investment. After all, IKEA
makes furniture and consumer goods. Its not an energy company.
We think its a good long-term investment. If you take wind or solar, of course there is a degree of
risk, as there is in anything, but you can manage the risks. Where else can you invest capital with
huge co-benefits and a good return with managable risks? We just need good long-term
investments.

CSR Case Study on Ikea - Ida Bayuni

All of this makes for good press. It also makes good business sense, as the company is largely
isolating itself from the volatilities of electric power markets the most unpredictable markets on the
planet.
Essentially, IKEA is building out a long-term green hedge, which among other benefits will allow
them to much more accurately forecast future energy operating costs.
The company also realizes that the cheapest energy is that which is saved through low-cost efficiency
measures. IKEA reports having saved $54 million in warehouse energy efficiency programs since
2010. These savings have resulted from a combination of lighting, HVAC, new energy management
systems, upgraded boilers, and geothermal.
Howards approach to this area is noteworthy. In his view, there are always new opportunities.
I think that the advantage of new technology is that the low-hanging fruit grows back. Efficiency
investments that werent commercially viable then become feasibleIts the same with renewables.
Weve been on a learning curve with renewable energy investments. Solar PV is also progressing
nicely on the cost curve, so we can go back to existing locations and find applications that werent
cost effective before. Rooftops are easy, but when panels and associated kit drop in price, then you
can go to car-park solar opportunities that now become cost-effective.
How did this laser focus on sustainability come about? It started with a commitment to culture and
planning.
We have a nine person management team for IKEA group. If you could see the passion,
engagement and energy in the room, you would say wow. We have a totally engaged management
team. We have a strategic landscape with sustainability as a visible cornerstone. Then we have 11
guiding group strategies, of which one is sustainability, which runs like a green thread through the
others. Weve been working with all competencies in the organization so that everybody
understands what that means.
Howard is pretty clear that there is both a threat and an opportunity here.
Look, we have 3 billion people over the poverty line, coming in less than 20 years, who will have
middle class living standards. Weve got emissions that have to peak by 2020, and then we need a
rapid decline in order to stabilize the climate. And we are building cities like never before.
We have resource scarcity and climate change. So you have to say this has to be a transformative
agenda. Sustainability used to be a nice to do, like planting trees, or doing incrementally less
bad. Its about a mindset.
If youre trying to reduce impacts here and there, that wont do its when you go all in that matters.
Going all in means committing to change, and looking at incrementalism as a mediocre approach.
Saying we are going to reduce CO2 emission by 10% over 5 years is one thing, but saying we are
going to 100% LEDs creates real change. At one point, we were ready to make slightly better CFLs
and halogen lights but instead invested all our money in fantastic LEDs.
By transformation targets you make change. When you go for aggressive transformation, it creates
all kinds of fantastic new opportunities from a business point of view. We have to make the
commitments and then invest behind them.

CSR Case Study on Ikea - Ida Bayuni

He notes that the same philosophy that drives IKEA to invest in optimizing its own energy use applies
to its customers as well, and cites lighting as an example.
On the customer side, IKEA moved 22.4 million LED products, including 12.3 million LED bulbs.
Earlier this year, IKEA was selling the 40 watt equivalent in the U.S. for under $4.
We now have fantastic LEDs, yet the world still sells 6 billion incandescent bulbs, which is a
disservice to everyone who buys them. We already have 300 products today that help customers
save resources, from LEDs to water efficient taps. We need to systematically help customers see and
buy these products. If we dont do that, whos likely to do it? Sustainability has to be made
affordable for everybody. Theres no space for green premiums.
So IKEA is radically transforming how it thinks about and uses resources, and then applying those
lessons to make products for its consumers. Howard ended our conversation with both optimism and
a sense of visceral urgency, and a challenge.
Im convinced we are in the middle of this clean revolution right now, but Im also not convinced we
are doing it fast enough. All the challenges are solvable with the solutions we have today, but we dont
have the right leadership, policies and priorities in place.
Most political and business leaders are in a state of denial. Sustainability will be a decisive factor in
terms of which business will be here in 30 years time. Its also the future of business.

Questions:
Your group is to answer the questions below. Ensure you discuss among your group members the assigned
case study. Prepare a presentation in power point format (two slides max. to answer one question;
therefore a total of 10 slides). Present your case to the class next week.
1. What is the purpose of investing in renewable energy? Why is renewable energy investment
relevant to Ikea in any country?
2. Who are Ikea stakeholders? Describe their characteristics.
3. Which government agencies or organizations are engaged in the investment of renewable
energy projects?
4. What are the benefits of investing in renewable energy investments for: 1. the company; and
for the stakeholders (break it down for each stakeholder)?
5. What are the financial costs associated with renewable energy investments?

CSR Case Study on Ikea - Ida Bayuni