Faber: "Danones investment story will be more compelling"

Faber: "Danone's investment story will be more compelling"

Danone has been one of the major food corporations looking seriously at B Corp certification, which takes into account all stakeholders, rather than holding as pre-eminent the return to a company's shareholders. The French giant today (12 April) announced its North America arm is now B Corp-certified and just-food's Ben Cooper spoke to group chairman and CEO Emmanuel Faber about his support for that way of codifying a food business.

For some years, large food companies have been discussing both the impacts of their businesses and value creation in the context of their "stakeholders". Announcing today the B Corp certification of its North America business, Danone has arguably gone further than any major publicly-listed food company in locking the idea into its structure and business model.

Danone chairman and chief executive Emmanuel Faber is one of a number of food multinational CEOs to have endorsed the B Corp system, which enshrines the idea a company should create benefit for all stakeholders, not just shareholders - but he is the only one to commit his entire company to becoming a B Corp.

In an interview with just-food, Faber stresses B Corp certification should be integral to a business model, not part of a corporate social responsibility agenda. "We don't look at B Corp certification as being a CSR kind of strategy. It's core to the way we are designing our business models and the way we accelerate the redesign of our business models."

Consumer-driven

And what ultimately is the driving force for this? The answer from the CEO of a EUR25bn FMCG behemoth is not surprising. Faber says he is reshaping Danone's business model because "consumers are asking for more transparency, more fairness".

"They want to understand who the people are behind the brands and how the ingredients have been grown and what the impact is going to be on their health and on the planet and everything," the Frenchman explains. "And then of course they choose and sometimes they choose according to that or according to other parameters."

However, in the food sector, these values-driven motivations are particularly prevalent. In fact, Faber puts this far more forcefully. "For us, we see a certain incredibly powerful, people-driven revolution in the food space. We consider B Corp as a very interesting proof-point of what the ethos of a company is behind its brand."

Danone provided a considerable fillip to the B Corp movement last year when it committed DanoneWave - the entity in North America created when the company acquired US business WhiteWave Foods - to becoming B Corp-certified by 2020.

As a first step, it reconstituted DanoneWave as a public benefit corporation (PBC), a new legal entity being created in many US states that balances shareholders' financial interests with benefits to the environment and society. The Activia and Evian owner announced today (12 April) DanoneWave has been renamed Danone North America and is now the largest B Corp-certified company in the world.

Progress to 100%

With almost a third of Danone now B Corp-certified, there will be speculation Faber will be able to accelerate his timetable for achieving B Corp status for Danone as a whole. So far, he has resolutely resisted setting a target date for and any satisfaction he may be feeling from reaching what he describes as a "milestone" two years ahead of schedule has not swayed him to do so.

However, while paying tribute to the "incredible work" done by Danone's US and Canadian teams, Faber does say: "It's a huge sign of encouragement that if a company that big and that complex in the US can make it, who can't within the Danone universe?"

While Danone now has eight subsidiaries with the accreditation, including sizeable companies such as Danone Spain and Danone Dairy UK, Faber readily dubs Danone North America the group's B Corp "flagship".

Two analogies Faber uses strongly suggest progress towards total B Corp certification is accelerating. "I think you can look at it the same way as we look at consumption patterns, this 'S curve' where you have the early adopters and then at some point in time there is a tipping point and then suddenly the curve is accelerating," he says, further adding with 30% of the company under the accreditation, Danone had reached "a no-return point".

Meeting of minds

Many smaller food companies say they were drawn to B Corp because it already matched their vision and how they wanted to do business. Interestingly, Faber makes a similar claim on behalf of Danone, speaking in terms of a "genuine meeting of minds" between B Lab, the NGO behind the B Corp certification, and Danone's own idea of what the role of a business should be.

"It's a fundamental belief at Danone for many years that the company has to have both an economic and a social agenda, and we found in [the] B Corp ambition a modern way to say it, and more importantly an independent way of measuring how these words are a reality or not."

Meanwhile, Danone Way, an internal audit and scoring system for sustainability criteria the company put in place as far back as 2001, had, Faber claimns, "helped us to provide the data to speed up the certification process". Now, he adds, the Danone North America announcement "will trigger an additional amount of energy and enthusiasm within the company that's already there because of all its connections with the DNA of the company".

Faber also believes Danone's progress with B Corp certification will lend encouragement to other large public companies considering certification. Danone is one of three major food corporations engaged in B Lab's multi-stakeholder Multinationals & Public Markets Advisory Council (MPMAC), which is working on facilitating the path to certification for public companies, the others being Campbell Soup Co. and Hain Celestial.

"We certainly see that [our progress on B Corp certification] as an encouragement for the other large companies that are considering it, and that are collaborating with B Lab in the council," Faber says. 

Once again like some smaller B Corp companies, Faber appears drawn to the accreditation because it is seen as embodying the idea of constant progression. The B Corp philosophy, he says, represents an important component in building trust with stakeholders because it is "characterised by the highest standards in terms of ethos and fairness", but this, he adds emphatically, "doesn't mean perfect".

"There is no perfection and I know how imperfect we are. But yet there is this accreditation and the ability to progress through the accreditation year after a year; it's a matter of making progress as well."

Investor reaction – "integration, not antagonisation"

While looking at impacts on stakeholders has been helpful in assessing a company's performance on sustainability criteria, the idea of creating value for all stakeholders and not just shareholders is a more complex question, particularly for publicly-listed corporations.

Indeed, the reason Danone made DanoneWave a PBC, and why B Lab has been so active in campaigning for PBC legislation, is to allow companies legally to operate in a way which views value generation more broadly than the financial return to shareholders.

How does Faber expect investors will react to the news B Corp-certified subsidiaries now constitute 30% of Danone? He is optimistic, bullish even, about how shareholders will react. "I think the expectation is that we do not see this as being an antagonisation but, on the contrary, as an integration."

As evidence the financial community is increasingly in tune with his vision for Danone, Faber refers to the announcement in February Danone's EUR2bn (US$2.46bn) syndicated credit facility had been amended to allow for environmental and social criteria to impact directly on the margin payable to its banks. Among the criteria is the percentage of Danone's consolidated sales covered by B Corp certifications. The 12 top banks involved, Faber says, "agree that B Corp is de-risking the credit profile of a corporation".

Furthermore, major customers are showing support for Danone's plans, Faber says. "Doug McMillon [Walmart president and CEO] last year sent me a video to explain to our shareholders why he commended Danone for our decision to go for a B Corp accreditation. So, I see direct business benefits and this is what I am going to tell our investors."

The rationalisation put forward by B Corp advocates and others espousing a more sustainable approach to business is creating benefits for all stakeholders makes a company more sustainable – and more profitable – over the long term. This, of course, demands a longer-term view from investors. 

"In the mid/long term, I think that you have to have an alignment between the nature of the expectations of shareholders with any company that they own shares in. And so, I guess that over time this will probably mean that Danone's story will be more compelling for people that see holistic value as being a strong investment proposition, both for the short but also for the mid and long term. And maybe that means that this might be a less compelling proposition for people that are looking to make a quick buck and get out in six months' time."

Faber declines to say Danone is less interested in such investors, saying he welcomes everyone. He also pointedly adds B Corp certification could be a positive investment factor in the shorter term for the food sector where consumer trust and sustainability topics are such burning issues.

Trust in food

Increasing distrust of the global food system and the consumer-driven revolution in food Faber describes are two sides of the same coin - and the Danone chief believes the B Corp philosophy speaks to both.

B Corp certification will also help in building trust with NGOs and campaigners and reduce the reputational risk associated with criticism from the third sector. However, limiting reputational risk should not be about "protecting an undeserved reputation", he stresses. B Corp certification can help reduce reputational risk because it gives food companies a tangible and transparent way to demonstrate what they are doing, which Faber believes is a crucial facet of the B Corp mission.

The loss of consumer trust and confidence in the food system is a topic Faber has spoken about before, and his concerns inform his B Corp plans for Danone.

Because B Corp is "a mark of trust", he says. "It's very relevant for the food industry today, because there is a growing lack of trust and distrust in the large traditional, conventional brands and companies from all kinds of stakeholders, including sometimes their own employees, as [to] exactly whose interests they are actually serving. I think B Corp is here to bring an external element of reassurance to these people, about what the company does and what it doesn't. And this is fundamental I think to regaining trust in the food people are eating."

B Corp may have so far been the preserve of niche food SMEs and start-ups but Faber has recognised it is the world's global food corporations that have the greater need for its capacity to foster trust.